27 April 2014

Free Market VS Capitalism (Market Corrupting Capitalism, Part 3: Intellectual "Property")

[Part 8 of 10, Free Market VS Capitalism essay series.  Part 1 here]

I don't know if that video will come through on blogger properly.
Here's a link, in case it doesn't: http://www.colbertnation.com/the-colbert-report-videos/433578/march-06-2014/warner-music-s--happy-birthday--copyright?xrs=share_copy

It seems kind of funny, and fairly trivial, but the implications are really kind of profound.
The tune to the traditional birthday song was created by two school teachers in 1893.
The lyrics were created by their elementary school students (there are only 5 words).
It was published 20 years later in a music book.
Then, in 1935 a company randomly decided to copywrite it - which they could do since no one else had ever tried to.  This company had no connection with the original authors, or even the first people to transcript the notation.  They simply claimed it.  For some bizarre reason, our legal system considers "finders keepers" and "I called it first" as a legitimate grounds for ownership of something which has already been established as being in the public sphere.
Flash forward 50 years (95 years after it's creation, the people who actually created the tune aren't even alive anymore) - and Warner Brother's buys the company that "owns" the song.
Technically speaking, if you sing "Happy Birthday to You" at a birthday party, you own Warner Brothers a royalty.  They don't go to the extent of enforcing that at individual parties, but they really will demand payment if the song is played in any form of media or at any commercial venue.
And the law supports them in this!  Remember, the people who came up with it were not under contract to Warner Brothers.  They were not Warner Brother employees.  Warner did not purchase the song from the people who wrote it.  They purchased it from a company that simply decided to claim it, on the grounds that no one else had.
They took something that was freely available to everyone, and make a profit from it.
The story of Microsoft is not nearly as bad, as Gates and Allen did make significant technical changes to the software they used to monopolize the market - but similar to claiming a freely available song, their first operating system was based on free, open source, existing software (BASIC), adapted to new hardware.  Later DOS was a modification of other existing software (CP/M), which they purchased, they did not create from scratch.

The entire idea of having "intellectual property" is supposed to be to facilitate the compensation of the creative and innovative, to encourage things like art and research which might not be cost effective to invest the time or money into otherwise.

Isn't it?
That would make sense, and its the reasoning most frequently encountered.
The rather bizarre reality is, though, that copyright extends to 70 years AFTER the creator dies!
If its a corporation instead of an individual taking credit, it lasts 120 years after creation (since a corporation may never die).
That kind of undermines the idea that the purpose is to support the creation of creative works and invention.  A dead person can't receive royalties.  This system GUARANTEES that someone is going to get income that they did nothing to earn, whether its the creator's descendants or the corporation that buys the rights to something they didn't create in the first place (because, of course, a corporation isn't actually a person, its just a concept, and it can't create anything).

It's reasonable that a person should be entitled to compensation for the hard work that goes into creating a creative work.  It's less clear how one's heirs are entitled to compensation for their creative work.  Or, to be more direct: they aren't.  Not morally, anyway.
But even aside for the whole "royalties go to some random person for an entire lifetime after death" thing, even extending profits for a single lifetime is a questionable practice.
Labor with tangible products requires just as much effort, and frequently just as much skill and/or creativity.
A fine custom furniture maker, for example, puts in physical labor, needs special skills and tools, and artistic creativity.  When they are done they can sell the product of their labor and creativity.
But they can only sell it once.  They don't get residuals from that one creation for the rest of their life.  Once the piece has been sold, the new owner is free to do what they like with it, including turn around and sell it to someone else.
Intellectual "property" isn't like actual property.  Media industry has popularized the word "piracy" to describe the sharing of media, but in actual piracy or theft the original owner is deprived of something.  At one point they had some physical object in their possession, now they don't have it anymore.  If a person burns a copy of a CD and gives it to a friend, the record company hasn't actually lost anything.

When the concept of government protected intellectual property rights was first developed, your potential consumers consisted of the town you lived in, or however many people you could personally stand in front of and pitch to.  As a writer or composer that was unlikely to be any different.  Without some guarantee of protection, an author would get no compensation at all, as people could copy your work freely.   But even with it, if it was reproduced by someone who brought it to some other country, you would never even know about it. 
Your income from any one creative work was limited by the distribution network - as in, there was no such thing as distribution networks, therefor it was quite limited.

Today distribution networks reach every part of the globe (thanks to mobile computing, one in three people in the developing world has internet access in 2014), and the per unit production cost of (e)"books", video, software, etc is essentially zero. 
Consequently, any of the ways a person can get extremely rich involve creating something which can be infinitely reproduced, and a small to moderate fee charged to each of a virtually unlimited audience.
Examples range from software developers to musicians, movie stars and athletes - any form of media creation; all examples of a zero or negligible additional cost per consumer, and millions of user.
In 1710 it might actually take an entire lifetime to make back the cost of producing a book.  In 2014, with our virtually universal distribution networks, a movie which cost $70 million to produce can make back its entire production budget on opening weekend.  And movies make most of their money not in theaters, but from DVD sales and TV licensing!

Its not that people who produce intangible goods are actually more valuable to society than those who create tangible goods. Its just that the concept of intellectual property was developed before "unlimited consumer audience" was even conceivable, and human (and Americans in particular) have trouble with the concept of "enough".  Especially when the topic is money.
Patents are not nearly as bad as copyright.  Far from lasting an entire lifetime after the creator dies, a patent generally lasts only 20 years.  The rational behind having patents is valid: without them, innovating wouldn't be profitable, and so many innovations, especially those that take significant investment in time or money, are unlikely to be made, and unlikely to result in an actual end product even if they are invented.  Furthermore, without formal protection, even if an invention were made, its creator is likely to keep its function as secret as possible, to prevent copycats.  When applying for a patent all the details must be revealed to the patent office, which means that once the term of patent is up it becomes public knowledge that others can build upon.
Fair enough.

But, like with copyright, times have changed much since the standards were set, and twenty years is a very very long time in the internet age.  Given how soon an invention can break even on production costs, it leaves a lot of time where further innovation building off the first is impossible.

How much further back would human technology be today if the process of deliberately making fire had been patented, and the idea was not allowed to be spread or built upon for an extra 20 years?  What if the wheel had been patented?  How about writing, or the idea of planting certain edible plants? 

When a drug company scientist discovers a cure to a horrible debilitating disease, her employer can charge whatever they want for it for 20 years, even if they already made a profit over and above all of their research and production costs in year 5.  The net result of such a situation is that executives and shareholders of the company can become extremely rich, while humanity as a whole suffers unnecessarily.

How much faster would science, technology, human knowledge grow if patents were only 5 years - or tied to profit, rather than time?  What if, instead of an arbitrary fixed length of time, a patent lasted until the inventor made back no more than 20% above development costs?  There would still be economic incentive to invent and innovate - 20% is a much larger return on investment than you can expect from the stock market or real estate.  Profit just wouldn't be unlimited.

[Next up: Government Intervention]

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