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Section III: Entrepreneurial Ventures and the Marketplace Part 7 Section III: Entrepreneurial Ventures and The Marketplace Part 7: Intellectual Property: Patents, Trademarks, and Copyrights by Russell S. Sobel Introduction: This part of the course discusses intellectual property rights. Rights, Private Property Rights, and Intellectual Property Rights The phrase intellectual property (IP) refers to the bundle of legal rights that arise from the creative genius of the human mind. But before we can understand those rights we must work our way down from a higher level concept. Intellectual property rights are a subset of private property rights, which in turn are a subset of rights in general. Thus, we start our exploration with the general concept of ‘rights’. Understanding ‘Rights’: Government Granted Rights vs. Natural Rights For the majority of human history, the rights individuals had were those granted to them by their governments, through kings or other rulers. These rights were distributed quite inequitably, and often arbitrarily. During the Age of Enlightenment (17th and 18th centuries), scholars such as English philosopher John Locke, helped to challenge the idea that rights were granted by governments, and instead argued that humans were simply born with rights instilled from nature (or God) and simply had these rights as the result of being alive. This is known as the idea of ‘natural rights’. Also, notably, John Locke even helped to write South Carolina’s first constitution. Nowhere is this concept more familiar to most than in America’s founding documents, such as the U.S. Declaration of Independence, which reads: “We hold these truths to be self evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…” The idea expressed is one in which humans have rights that endowed to them by their Creator. One interesting difference in these contrasting views of rights is the question of: “is it possible for a government to violate a person’s rights?” For example, suppose in Cuba or North Korea someone is jailed or killed for speaking badly about the current dictatorial ruler of the country. Did the government violate that person’s rights? Under the government-grants-rights view, government can’t violate a person’s rights because that person never had those rights (in this case the right to free speech) to begin with. Under the natural-rights view, one can conclude that the government has violated a right the person innately had. Perhaps most importantly, the ideas that follow from this concept of natural rights are that: (1) government’s main job is to protect and enforce the natural rights of individuals, and (2) that government powers should be constrained, for example by a constitution, to prevent government from violating the natural rights of its own citizens. Again, these are concepts embodied in the U.S. Declaration of Independence, that from above continues: “…That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.” So if each of us is born with rights to our life and our labor, then we also own the fruits of our labor, including the things we create. This natural-rights view is at the heart of most Western-style legal systems in countries such as the United States and England, and lays the foundation for the constrained- government perspective present as well. Negative and Positive Rights It is also important to understand that in the way legal rights are enforced, only those that can be considered ‘negative rights’ are real rights that can be enforced. The contrasting idea is one of ‘positive rights’, which are not real legal rights. The difference is the obligations the rights impose on others. Negative rights only impose ‘refrain from’ obligations. For example, my right to life doesn’t mean you have to do anything… you don’t have to feed me, clothe me, care for me, give me money… rather it simply means you have to refrain from killing me. My right to my car is similar, you just have to refrain from stealing it. In contrast a ‘positive right’ would be a right that imposed positive obligations requiring another individual devote effort or resources. Suppose, for example, we passed a law tomorrow saying everyone has a right to ‘health care’, a right to ‘a nice house’, and a right to ‘a fun vacation’. Now suppose we see someone who is homeless, didn’t have fun on vacation, or who is in need of health car but didn’t get it. Who should have provided it? Who do we sue in court on their behalf? And doesn’t the concept of someone having, by force, to provide something for another person against their will violate that person’s right to their own labor? In the case of a negative right, like the property right to my car, or my right to life, if someone violates that right we can (ideally) identify that person and hold them accountable. While an interested reader can delve deeper into these concepts by reading philosophy, this cursory introduction should be sufficient for us to understand that intellectual property rights, like other legal rights in the Western tradition are of a negative ‘refrain from’ type only. As one quick example that should help to clarify, let us consider the ‘right to free speech’. If a John owns a radio station and he lets only the Democrat Party candidate Bill on the air, and refuses to let the Republican Party candidate Bob on his station, has he violated Bob’s right to free speech? The answer is no. Bob’s right to free speech does not mean someone has to provide anything for him. It only means people need to refrain from taking his ability to speak away if he is speaking somewhere he has a right to speak. For example, if Bob was on his own radio station, or a station that invited him (or in is front yard) speaking, nobody can forcefully shut him down, we have to refrain from doing that. You can see this more clearly by considering the wording of the actual U.S. Constitution, Bill of Rights, Amendment I: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” It simply states that Congress shall pass no law infringing upon these rights, not that one citizen needs to do anything for another. Private Property Rights are a ‘Bundle’ of Legal Rights Now let us turn to one specific type of right, the right to property. As we discussed in an earlier lesson, well defined and enforced private property rights are the cornerstone of a market economy—they are the defining characteristic of ‘capitalism’ versus ‘socialism’. Recall socialism in its pure form does not allow for private ownership, at least for productive resources, instead everything is owned collectively. Like all rights, private property rights really represent a ‘bundle of legal rights’—meaning there are many different dimensions to or aspects of the right. Among these are the right to buy and sell (i.e., property is tradable), the right to the income flows produced, the right to lease it, and the right to exclusive use. The exclusive use right means that if you own something it is yours to use exclusively as you see fit. Nobody else can use it without your permission, even if they need it. Importantly, property rights must be well-defined and protected to work. A system where property rights are unclear, or not protected simply won’t work well. It will have an outcome similar to when there are no property rights. What does it mean for something to not be privately owned? There are two alternatives, it may be unowned or owned in common. Consider the oceans, the moon, or even the air. Who owns these? Well, either everyone or no one. Either is a fine answer, and the same would be true for highways or national parks. What we know is that when things are privately owned, it creates four strong incentives. The first is to give proper care. Items that are privately owned tend to be better cared for than those that are used or owned collectively. Second, privately owned items are also better conserved for the future because when current consumption is delayed, the owner receives the future reward. On commonly owned (or unowned) property these two incentives are not as strong, leading to what is know as ‘The Common Pool Problem’ or ‘The Tragedy of the Commons’. Overfishing of the oceans, polluted rivers, and trash piled up on the side of a highway are all examples of this phenomenon. So is a pizza or a bottle of liquor brought to a party for everyone to share. It sure does get consumed quickly. Its like if two people both can drill into a common underground pool of oil, they both have an incentive to pump as quickly as possible as any left behind simply gets taken by the other person.
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