KOL489 | The Problem with Intellectual Property (Audio)

The problem with intellectual property Mises occasional paper number two May 15th, 2025 Version 1.1 by Stephan Kinsella. One Introduction It is widely recognized that the institutional protection of private property rights was a necessary, though probably not sufficient, condition for the radical prosperity experienced in the West since the advent of the Industrial Revolution. These property or ownership rights include rights in material scarce resources, but also so-called intellectual property IP rights. IP rights include patent and copyright, the most significant types of IP, which emerged in their modern form around the same time as the Industrial Revolution, as well as trademark, trade secret, and other rights related to creations or products of the intellect. The idea that IP rights are a legitimate type of property right and a necessary part of a free market economy has been taken mostly for granted since the dawn of modern patent and copyright just over two centuries ago. Despite this, defenders of IP still seem somewhat uneasy with it. They make strained arguments that IP is just like, or at least structurally similar to, property rights in physical resources. Yet, it is still treated differently than other property rights. For example, patent and copyright have limited terms, about 17 years for the former and usually over 100 years for the latter, unlike the potentially perpetual ownership of traditional forms of property. Despite its prevalence, IP law has also long had its critics, including free market economists and anarchists in the 19th century. With the rise of the internet, digital technology, and artificial intelligence, proponents of IP claim that it is even more important than ever, while critics maintain that IP is even more absurd in the modern age and its abuse is more extreme and common. There is continual dissatisfaction with the state of IP law, with its ambiguities and arbitrary standards, with absurd patents, and with copyright bullies threatening speech and freedom of expression. While industries dependent on IP continually lobby for expanding the scope and strength of IP rights, there are also continual calls by others for IP reform, for curbs on misuse or abuse of patent and copyright, for fixing a broken system. Left anarchists and left libertarians generally oppose IP as type of state granted monopoly, while others blame patents for outrageous pharmaceutical prices. Many have come to oppose IP outright, including Austrian-influenced libertarians and left anarchists. In this chapter I argue that the arguments for IP do not hold up and that all forms of IP should be abolished entirely, not merely reformed, that IP rights are unjust and incompatible with legitimate property rights. As a preliminary matter, it is necessary to describe what a just property rights order would look like. I will then scrutinize several common arguments for IP. I conclude that IP rights are inconsistent with the private property order that would characterize any just society. I will follow with a brief discussion of what practices or laws might prevail in the absence of IP. Two. The private property framework. A. Acting man. Human actors find themselves inhabiting bodies and living in a world of uncertainty and scarcity. There is a continual need for each person to act to survive and to achieve desired ends. All action is future-oriented. The actor is dissatisfied with his current status and with the future he believes is coming unless he intervenes. Mises calls this dissatisfaction, this motive for acting, felt uneasiness. Thus, man acts so as to change the future, or rather, to achieve a different future than the one coming. Successful action results in psychic profit and in many cases monetary profit. All action involves direct control of one's body and possession and employment of other resources to bring about a more desired end than the one that would occur but for his intervention. These resources, sometimes called scarce means of action, are objects that are not part of the actor's body. They are external and previously unowned and unused resources that are causally efficacious at changing the course of events so to as achieve the actor's desired end. B. Possession, action, and property rights. This need to act and to employ scarce resources as means of action is faced by any actor, even by Crusoe alone on his island. In a social setting there are other people in the world also acting and using resources to achieve their own ends. There are many benefits to living in society, social interaction and intercourse, trade, the division and specialization of labor, and so on. But there is also the possibility of conflict over the use of scarce resources, both acquired resources and the actor's own body. For an actor to be able to employ scarce resources successfully, he must be free from conflict or interference by others. I cannot use a field to grow crops if others ask me or take my produce. I cannot use a net to catch fish or use animal skin as clothes if others take it. I am not free to choose my own actions or ends if I am killed or coerced and treated as a slave by others. Successful human action requires liberty, freedom from threats or aggression against one's body and from unconsented use of acquired resources, theft, trespass. One way to reduce the risk of such conflict and to secure one's possession of resources is to use technological or other practical means, such as locks, defense, threats, alliances, or other strategies. Concerns Crusoe would not have but those living in society do. In society, property rights also emerge as a social and legal institution to further reduce the risk of conflict or interference with the actor's use of his own body and acquired resources. Thus, the scarce resources that are employed as means of action are not only possessed by the actor, but also owned. He has a property right in or owns the resource. Property rights thus emerge as a practical institution, provides normative support for the actor's ability to possess and use resources without conflict. It is to recognize that rights are necessarily property rights precisely because acting in the world requires physical manipulation by the actor's body of physical, causally efficacious means, and that conflict with another actor is thus itself always physical. It is a clash or conflict over a scarce resource whose nature is such that it cannot be used by both actors at the same time, and whose use is necessarily a physical, real one. Property rights as respected by law, in order to provide normative support for the actor's physical possession and employment of the resource, are also enforceable, meaning the law provides for physical enforcement of its prohibitions. Essentially, all rights just are property rights, and all property rights are the right to exclude others from using the owner's resource without the owner's consent. A conflicting use is always a physical use, and exclusion by the owner or by the law is always a physical exclusion of others from using the resource without the consent of the owner. For this reason, the object of property rights is always some physical means which can be grasped, possessed, and employed, and which can therefore be the object of conflict and also the object of property rights. In short, only conflictable things can be the object of property rights, that is, ownable, just as only physical force, manipulation, can be used to wield or employ a resource, and just as only the initiation of force can violate bodily property rights. See property rights allocation rules. The purpose of property rights is to support actors in the pursuit of their goals by enabling them to employ resources, including their own bodies, free of physical conflict and interference from other actors. Property rights are inherently practical. For this reason, legal systems and their corresponding property rights from time immemorial have always exhibited certain core features in the private law to one degree or another: self-ownership, original appropriation, contractual transfer, and transfers for rectification. Self-ownership refers to each actor's ownership over his own body, and is reflected in laws and norms that prohibit aggression or the use of another's body without his consent. Libertarians refer to this prohibition as the non-aggression principle, which is the correlative of or just another way of expressing self-ownership, i.e. ownership of one's body. In other words, each person directly controls or possesses his own body, part of his identify, a matter of description, and also owns it, a normative or prescriptive status. Ownership of one's body differs from ownership of acquired resources, as it is based not on homesteading or acquisition, but on one's direct control of one's own body and intimate connection to and identification with one's body. One cannot exist or act without having a body. To be a person is to be embodied. Actors live in the real world and must also use and employ scarce resources to consume as food, to use as intermediate goods to produce consumer goods, and so on. To use resources, there must be a first user. Thus, property rights systems permit original appropriation of a previously unknown resources by the occupant. To protect the first owner and user in his possession, property rights recognize that he has a better claim than latecomers. Thus, possession, a factual matter, is distinguished from ownership, which is a normative matter. Ownership is the normative and legal right to possess, as opposed to the fact of possession. Possession is a matter of description, ownership a matter of prescription. And because self-owning actors and possessors and owners of external scarce resources acquire previously unknown scarce resources, they may also lose ownership of an owned thing by either abandoning it or by consensually transferring it to another, by gift or sale, i.e. by contract. Finally, owned resources may be transferred from the owner to another for purposes of rectification, to compensate the transferee for some tort or injury to the victim by the owner's act of trespass, his use of the body or other owned resource of the victim without his consent. Thus, in cases of a dispute over a thing, ownership is determined by consulting the core property acquisition rules, original appropriation, contract, and rectification, or in the case of ownership of someone's body, the principle of self-ownership. The private law of developed Western legal systems, such as the Roman law or the English common law, embody these core principles more or less consistently. As I noted elsewhere, the developed legal system of an advanced free society is the detailed working out of the implications and applications of these basic principles to various practical and recurring situations in human interactions. Libertarians apply and interpret these principles more consistently than others, but a functioning workable property system must recognize, and historically always has recognized, these principles, even if imperfectly, even if with inconsistencies and exceptions. Three. Flaws with arguments for IP. According to Dale Nance, IP arguments generally fall into two broad categories, deontological and consequentialist. The latter category embraces all theories that purport to justify property rights on the basis of the good consequences of their legal recognition, as distinct from their moral rightness. The consequentialist argument, sometimes referred to as utilitarian or empirical, is essentially a market failure argument that without IP, especially patent and copyright, there would be too little technical innovation and artistic creation, a suboptimal amount. The consequentialist approach is implied by the US Constitution's authorization for IP law, which reads, "The Congress shall have power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." Deontological arguments for IP rights attempt to justify IP rights based on their moral rightness as opposed to the consequences that flow from granting legal recognition to IP rights. As Nance explains, most deontological or moral rights arguments for IP fall into one of two subcategories. First, they can be based upon the creator's deserving to own the fruits of her labors. This labor theory of property is generally associated with John Locke, whose influence on American thought is undeniable. An alternative theory, less familiar to Anglo-American thought, is that such rights are based upon respecting the creator's extension or reification of personality by the occupation of tangible or intangible things. The personality theory of property is most commonly attributed to the German philosopher Hegel and is better established in continental law. I refer to the major form of this argument as Lockean or libertarian creationism, since it is based on the notion that of a thing is a one of the sources of ownership. There are also other theories, sometimes overlapping with each other, such as contract-based arguments and those related to fairness, welfare, and culture. IP proponents often intermingle the deontological, consequentialist, and other arguments such as aspects of Hegel's murky personality theory. Just as advocates for IP often cannot distinguish patent, copyright, trademark, and trade secret from each other, and yet support them anyway, so advocates of IP often do not know exactly which argument they are propounding, whether based on utilitarian considerations, incentives, fairness, deserts, intuition, and so on. I will focus here on the two primary arguments for IP and will briefly discuss contract and fraud arguments for IP. A. Libertarian Creationism One. Creators as owners. It is often said that creation is a source of rights, that the creator of a thing is its owner. A related notion is that someone is entitled to own the fruits of his labor. Yet creation is not among the sources of property rights identified in part 2.c above. Creation is not a source of self-ownership because people do not create their own bodies. Creation has nothing to do with self-ownership or ownership rights in one's body. As noted above, ownership of one's body is based on other factors like one's direct control over and identification with one's body, see part 2.c above. Nor is it seriously argued that mothers own children they produce or create. As for external, previously unowned, non-bodily resources, such a resource comes to be owned not by an actor creating it, but by first occupying it. Creation or production, transformation of existing physical resources, is a source of wealth, but it always involves the transformation of already owned resources or input factors into a more valuable output configuration. The owner of the transformed materials is already the owner of the materials before transformation. His act of transformation does not create new property rights, even if it creates wealth in the world. This is why employees in a factory do not own the products they create. It is why someone who comes to own a previously unowned thing owns it. He owns it because he occupied, homesteaded, or inbordered it, not because he created it. Creation is neither sufficient nor necessary for ownership and property rights. The entire mistaken notion of creation as a source of ownership needs to be discarded. Two. IP rights as negative easements or servitudes. In fact, assigning property rights based on creation and on the mistaken notion that there can be property rights in ideas necessarily violates property rights. Recall that all rights are property rights, and all property rights are rights to exclude others from using the resource without consent of the owner. And recall also that in the case of a dispute over a non-bodily resource, the owner and prevailing party in the dispute is determined in accordance with principles of original appropriation, contract, and rectification. Take the case of patent and copyright, in which some owner of resources, such as money, a factory that produces widgets, or a printing press that produces books, is accused by an IP holder of infringing his patent or copyright. The IP right entitles the IP holder either takes some of the infringer's own resources, for example, money in the form of damages for infringement, or to have the court issue an injunction, backed by physical force and threats of imprisonment for contempt, that blocks the infringer from using his own resources as he sees fit. He might be ordered not to produce a smartphone that has rounded corners too similar to that of Apple's iPhone. He might be ordered not to produce and sell sequels to J.D. Salinger's Catcher in the Rye. But what gives the IP holder the right to take the infringer's money or to prevent him from using his own factory or printing press as he sees fit? Consider the principles of original appropriation, contract, and rectification. The infringer presumably owns his money, factory, and or printing press by original appropriation or, more likely, by a contractual transfer from a previous owner. The IP holder was not the original occupier or appropriator of these resources, nor did he receive them by contract. He has no contract with the infringer/owner. What about rectification? If the infringer had committed trespass or some tort against the IP holder, say, an act of theft or battery, then the infringer would owe restitution or rectification to the IP holder. But by making smartphones similar to an iPhone or books similar to Catcher in the Rye, the infringer has not committed any act of trespass at all. He is only an infringer of artificial, positive IP rights granted by the state by fiat. In effect, the state has granted to IP holder what is called in the law a negative servitude or easement over the resources of the infringer. This allows the IP holder to act, in effect, as a co-owner of the resources and to prevent certain uses of these resources. Now, keep in mind that negative servitudes are perfectly legitimate if granted by the consent of the owner of the so-called servient estate. They are common as restrictive covenants in neighborhoods. But just as sex with a woman is permissible if she consents, but rape if she doesn't, a consensual negative servitude is legitimate, but a non-consensual negative servitude, patent, or copyright is not. Three. Learning, emulation, and knowledge in human action. Another way to understand the error in treating information, ideas, recipes, and patterns as ownable property is to consider IP in the context of human action. Mises explains that "To act means to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought." Knowledge and information, of course, play a key role in action as well. As Mises puts it, "Action is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means." Rothbard further elaborates on the importance of knowledge to guide actions. There is another unique type of factor of production that is indispensable in every stage of every production process. This is the technological idea of how to proceed from one stage to another and finally to arrive at the desired consumer's good. This is but an application of the analysis above, namely, that for any action, there must be some plan or idea of the actor about how to use things as means, as definite pathways to desired ends. Without such plans or ideas, there would be no action. These plans may be called recipes. They are ideas of recipes that the actor uses to arrive at his goal. A recipe must be present at each stage of each production process from which the actor proceeds to a later stage. The actor must have a recipe for transforming iron into steel, wheat into flour, bread and ham into sandwiches, etc. Moreover, means are necessarily always limited, i.e., scarce, with regard to the services for which man wants to use them. This is why property rights emerged. Use of a resource by one person excludes use by another. Property rights are assigned to scarce resources to permit them to be used productively and cooperatively, and to permit conflict to be avoided. In contrast, ownership of information or ideas that guide action is not necessary or even possible. For example, two people who each own the ingredients, scarce goods, can simultaneously make a cake using the same recipe. Material progress is made over time because information is not scarce. It can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, and causal laws that are known, the greater the wealth multiplier as individuals engage in ever more efficient and productive actions. It is good that ideas are infinitely reproducible. There is no need to impose artificial scarcity on ideas to make them more like physical resources, which are scarce. The utilitarianism. Utilitarian advocates of IP argue that the end of encouraging more innovation and creativity justifies the seemingly immoral means of restricting the freedom of individuals to use their physical resources as they see fit. As noted above, they believe free markets fail and provide suboptimal levels of creative goods without a patch provided by the legislature. But there are three fundamental problems with justifying any right or law on utilitarian grounds, ethical, methodological, and empirical. One, ethical problems with utilitarianism. First, let us suppose that wealth or utility could be maximized by adopting certain policies or rules. Even if wealth or utility is increased on net, this still does not show that the law is justified. Why not take half of Henry Ford's fortune, for example, and give it to the poor? Wouldn't the total welfare gains to the thousands of recipients be greater than Ford's reduced utility? After all, he would still be a billionaire after Yet theft is still theft. Just because stealing from Ford helps others more than it hurts him does not mean it is justified. Or suppose it would be possible to remove one eye from a seeing man against his will and transplant it into a blind man. Now both men can see, leading to an overall utility gain. Most people will recognize that there is something wrong with utilitarian reasoning if it could lead to such results. The goal of law is justice, not maximizing utility. This is done by identifying and protecting property rights. This is because justice is just giving someone his due, and what he is due depends on what his rights are. Two. Methodological problems with utilitarianism. In addition to ethical problems, utilitarianism is not coherent. It necessarily involves making illegitimate interpersonal utility comparisons, as when the costs of IP laws are subtracted from the benefits to determine whether such laws are a net benefit. But not all values have a market price. In fact, none of them do. Mises showed that even for goods that have a market price, the price does not serve as a measure of the goods value. This means that it is impossible for the advocate of IP law to ever justify IP in utilitarian terms. Since IP laws clearly violate private property rights as explained in part three, A.2 above, at least as a prima facie matter, no utilitarian argument for IP can ever succeed. Three. The utilitarian's burden of proof. Even if we ignore the ethical and methodological problems with the utilitarian or wealth maximization approach, the argument for IP still fails, for the proponents of IP have simply failed to meet their burden of proof. And what burden would they have to meet? First, they would need to show that IP rights increase the output of creative goods, innovation and invention in the case of patent law, and artistic works in the case of copyright. It is possible that patent law, for example, reduces the amount of innovation in society, and that copyright also reduces the amount of creative works. If A invents and patents a new mousetrap, then perhaps B stops innovating because A's makes it futile. If B improves on A's mousetrap, it might still violate A's patent, so why would he bother? And perhaps A's innovating activity slows down, too, because he faces less competition for the duration of the patent and thus has less incentive to continue innovating. It is also possible that A's initial mousetrap innovation was not stimulated at all by the patent incentive and would have come about anyway. Second, even if IP law stimulates additional creative works, the IP advocate would need to show that the result of the IP system is a net gain in creative works produced. That is, that the value of any additional creative works stimulated by IP rights is greater than the value of innovation that is lost as a result of IP law. As an example, suppose some companies innovate more due to patent law, but others innovate less for reasons noted above. That is, that IP law merely distorts and skews innovation and invention and artistic works. It is possible that this is a net loss, not a net gain. Finally, even if IP rights stimulate more innovation and artistic works than are lost, and even if the net value of this additional innovation is positive, the IP advocate would need to know the cost of the IP system itself to know whether it is worth it. And it cannot be denied that the patent and copyright systems impose immense costs on society. As an example, suppose the IP system in the US gives rise to $500 billion worth of additional innovation and creative works, but causes $300 billion to be lost for a net gain of $200 billion, but the IP system imposes other costs of $350 billion a year, meaning the IP system makes society poorer by $150 billion a year. This is what the utilitarian IP advocate would need to show to meet their burden of proof. Four, the founders hunch. IP advocates have no data showing any of these things. The modern patent and copyright systems originated in statutes, the Statute of Monopolies of 1624 in the case of patents, the Statute of Anne of 1710 in the case of copyright, that were themselves the results of state grants of monopoly privilege and censorship. There was no attempt to do empirical studies to show that these systems resulted in a net gain to society. When the US Constitution of 1789 authorized Congress to enact patent and copyright law, which it did the next year, the founders did not do empirical studies to show that these IP rights were necessary or produced the claimed results. At most, the founders only had a hunch that copyrights and patents might promote the progress of science and useful arts that the cost of this system would be worth it. But they had no evidence. 150 years later there was still none. And of course, this assumes the founders were well-intentioned, which ignores the fact that many of those who stood to benefit from patent and copyright law would be the founders themselves, many of whom were inventors and authors. Five. Empirical data. The free market economists of the mid-19th century rightly began to see IP rights as contrary to the free market, as artificial monopoly privileges, and primarily as interfering with free trade, sparking a huge debate in the 19th century about IP law. There was no evidence or econometric studies showing that IP rights resulted in net wealth. It would surely have been produced if it had existed, since for many years the anti-IP movement was gaining steam until the long depression starting in 1873 turned public opinion against free trade, leading the anti-patent movement to collapse and for modern patent systems to eventually become dominant worldwide. It was not until the 1950s, over a century and a half after the first modern IP statutes in 1790, that an attempt was finally made when the Austrian economist Fritz Machlup was commissioned to do an exhaustive study for the US Senate Subcommittee on Patents, Trademarks, and Copyrights. He concluded, "No economist, on the basis of present knowledge, could possibly state with certainty that the patent system, as it now operates, confers a net benefit or a net loss upon society. The best he can do is to state assumptions and make guesses about the extent to which reality corresponds to these assumptions. If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. And the empirical case for patents has not been shored up at all in the almost seven decades since Machlup's report. As George Priest, professor of law and economics at Yale, wrote in 1986, "I am the current state of knowledge, economists know almost nothing about the effect on social welfare of the patent system or of other systems of intellectual property." Similar comments are echoed by other researchers. Wesley Cohen and Steven Merrill write, "There are theoretical as well as empirical reasons to question whether patent rights advance innovation in a substantial way in most industries. The literature on the impact of patents on innovation must be considered emergent." French researchers François Lévêque and Yann Menière, of the École des Mines de Paris, observed in 2004, "The abolition or preservation of intellectual property protection is not just a purely theoretical question. To decide on it from an economic viewpoint, we must be able to assess all the consequences of protection and determine whether the total favorable effects for society outweigh the total negative effects. Unfortunately, this exercise, an economic analysis of the cost and benefits of intellectual property, is no more within our reach today than it was in Machlup's day, 1950s." More recently, Boston University Law School professors and economists Michael Meurer and Jim Bessen conclude that on average the patent system discourages innovation. As they write, "It seems unlikely that patents today are an effective policy instrument to encourage innovation overall. To the contrary, it seems clear that nowadays patents place a drag on innovation." In short, the patent system fails on its own terms. Law professor Andrew Torrance and informatics professor Bill Tomlinson opine that little empirical evidence exists to support the assertion that the patent system spurs innovation. And in a 2013 paper, economists Michele Boldrin and David Levine, authors of the influential Against Intellectual Monopoly, Boldrin and Levine 2008, conclude, "The case against patents can be summarized briefly. There is no empirical evidence that they serve to increase innovation and productivity. This disconnect is at the root of what is called the patent puzzle. In spite of the enormous increase in the number of patents and in the strength of their legal protection, the US economy has seen neither a dramatic acceleration in the rate of technological progress nor a major increase in the levels of research and development expenditure. Our preferred policy solution is to abolish patents entirely to find other legislative instruments less open to lobbying and rent seeking to foster innovation when there is clear evidence that laissez-faire under supplies it. And from 2017, economist Idyll Williams concluded to summarize, "Evidence from patent law changes has provided little evidence that stronger patent rights encourage research investments." In sum, there is no unambiguous empirical evidence in favor of patent or copyright and much pointing against. The proponents of IP rights have failed to meet their burden of proof. The founders' hunch about IP was wrong. Copyright and patent are not necessary for creative or artistic works, invention, and innovation. IP rights do not even encourage intellectual creation. If anything, the evidence supports the common sense notion that IP rights do nothing but distort and impede innovation and artistic creativity like any state interference with the market and property rights would be expected to do. These monopoly privileges enrich some at the expense of others, distort the market and culture, and impoverish us all. Given the available evidence, anyone who accepts utilitarianism should be opposed to the patent and copyright. See contract and fraud arguments for IP. One. Fraud and plagiarism. In addition to deontological and consequentialist arguments for IP, many defenders of IP argue that some forms of IP, such as trademark, patent, and copyright, can be justified on fraud, plagiarism, or other grounds. Just as many defenders of IP do not carefully distinguish the types of IP rights from each other, which is no surprise many of these rights are arbitrary, confusing, arcane, and legislated, they also conflate the artificial offense of IP infringement with theft and other activities such as piracy, plagiarism, dishonesty, misrepresentation, and even fraud. These arguments are almost always incoherent and based on false assumptions and misdescriptions of IP rights and other matters. For one thing, IP infringement is not theft. It is infringement, which is an artificial term simply meaning a violation of positive legal IP rights. Nor does IP have anything to do with fraud, dishonesty, misattribution, or plagiarism. For example, trademark infringement does not require the victims to be defrauded or even confused. This is why the sale of a fake Chanel purse or fake Rolex watch to a customer who is aware that it is a fake is still considered trademark infringement. If I sell an identical copy of the latest Harry Potter novel, I am not plagiarizing it since I am not purporting to be the author. Likewise, if sell copies of a Harry Potter novel and remove J. K. Rowling's name and replace it with my own, it is still copyright infringement. And if I sell Tom Sawyer, which is now out of copyright, with my name on it instead of that of Mark Twain, it is dishonest and plagiarism, but not copyright infringement, nor is it even fraud since that work is so well known that no one would be deceived, and if they were, it would be covered by fraud law, not by copyright. Copyright infringement has nothing to do with misattribution, fraud, plagiarism, or dishonesty. If I write a paper in college and fail to give appropriate attribution for quotes from others' works, this may or may not be copyright infringement, usually not, but it is plagiarism, which is a private contractual or ethical matter between student and school that has nothing to do with IP law. None of these confused arguments attempting to justify IP make any sense. Two. IP by contract. Others argue that some form of copyright or patent could be created by contractual techniques, for example, by selling a patented medium, book, CD, etc., or useful machine to a buyer on the condition that it not be copied or revealed to others. It is argued that this could somehow bind not only the parties to the contract, but even third parties, thus producing restrictions similar to those of patent and copyright law. But this argument is deeply flawed. Keep in mind property rights are in rem rights good against the world, as opposed to contract rights which are in personam rights only, rights as between the parties to the contract. It is illegal for you to attack my body, invade my home, or steal my car not because we have an agreement, but because my property rights are in rem, good against the whole world. By contrast, as I have pointed out before, obligations that flow from binding agreements or contracts only bind the parties to the contract. The relationship between parties to a contract is like a private law that applies only to them, not to the world at large. A contract is the law between the parties and does not bind third parties who are not in privity with the original seller. For a contractual scheme to emulate IP rights such as patent or copyright, the contract would have to bind not only seller and buyer, but all third parties as well. The contract between buyer and seller cannot do this. It binds only the buyer and seller. Rothbard argues otherwise using the following example. Suppose that Brown allows Green into his home and shows him an invention of Brown's in the two kept secret, but only on the condition that Green keeps this information private. In that case, Brown has granted to Green not absolute ownership of the knowledge of his invention, but conditional ownership with Brown retaining the ownership power to disseminate the knowledge of the invention. If Green discloses the invention anyway, he is violating the residual property right of Brown to disseminate knowledge of the invention and is therefore to that extent a thief. A common objection runs as follows. All right, it would be criminal for Green to produce and sell the Brown mousetrap, but suppose that someone else, Black, who had not made a contract with Brown, happens to see Green's mouse trap and then goes ahead and produces and sells the replica. Why should he be prosecuted? The answer is that, as in the case of our critique of negotiable instruments, no one can acquire a greater property title in something than has already been given away or sold. Green did not own the total property right in his mouse trap, in accordance with his contract with Brown, but only all rights except to sell it or a replica. But, therefore, Black's title in the mouse trap, the ownership of the ideas in Black's head, can be no greater than Green's, and therefore he too would be a violator of Brown's property, even though he himself had not made the actual contract. Rothbard's argument is flawed. First, it presupposes knowledge can be owned, which is question-begging and also simply false. As argued above, see part part 2.b and part 3. A.3, all property rights are rights in scarce, conflictable resources. The means of action are distinct from the knowledge that guides action. Rothbard himself, as quoted in part 3, A.3, clearly recognizes the importance of knowledge in guiding actions. Without technological ideas, plans, or recipes, the actor could not act to transform iron into steel, wheat into flour, bread and ham into sandwiches, etc. He observes that he uses his knowledge and technological ideas to tell him how to use and rearrange scarce means. But, as Mises pointed out, means are necessarily always limited, i.e., scarce, with regard to the services for which man wants to use them. But, this is not true of knowledge that guides action. There can be no property rights in knowledge. Let us grant that Green uses his knowledge of Brown's mouse trap to make replicas, and that this somehow imparts to Black the knowledge of the mouse trap's design. Either he buys a copy from Green, or he observes Green's replica, or perhaps Green just tells Black or posts the information on the internet. Rothbard says that the ownership of the ideas in Black's head can be no greater than Green's. But Black does not need to own ideas to use them. In fact, ideas and knowledge cannot be owned. Knowledge only guides action. In this case, it could guide Black in making his own mousetrap. Not only does Black not have a contract with Brown or even Green, he might not even have ever bought or even touched a copy of Green's replica. He might only have observed it. Or maybe Green told White and White told Black. When Black uses knowledge he possesses but does not own to make a mousetrap, he in no way violates any contract or property rights of Brown. As another example I have given before to show the absurdity of the IP by contract argument, suppose an author sells physical copies of his books on Amazon and Amazon requires any buyer to agree not to use or copy the book that he buys and further to agree to make any subsequent buyer of the book sign a similar agreement. It is hard to imagine such a practice being viable for a couple reasons. First, to ensure compliance, the contract will have to impose some kind of penalty payment on the buyer in the event he breaches the contract. Now, if it is small penalty, such as $1, then many buyers will simply pay the fine and copy the book. So, the penalty needs to be large to deter buyers from making copies. But few buyers would pay $20 or so for a book and also obligate themselves to potentially millions of dollars of liability if they copy or impermissibly use the book. Instead, in a world without copyright, where pirated books are readily available, the buyer would simply avoid Amazon and its onerous contract and just obtain a cheaper or free copy online or from some other publisher. Obviously, this kind of business model is impractical. But let's assume the business model somehow works and there are many buyers of the book who have agreed not to copy it. Still, if one of them copies it and uploads a copy to the internet, third parties could download the file and print and sell copies of it, since A, they have no contract with Amazon or the author or the buyer, and v. They do not need anyone's permission to do this since knowledge and information cannot be owned. In rem intellectual property rights cannot flow from contracts. D. IP legislation and the state. One final flaw with IP, especially patent and copyright, can be mentioned briefly here. Patent and copyright are statutory schemes, schemes that can be constructed only by legislation, and therefore have always been constructed by legislation. A patent or copyright code could no more arise in the decentralized, case-based legal system of a free society than could be Americans with Disabilities Act or Medicare. IP requires both a legislature and a state. For libertarians or others who reject the legitimacy of the state or legislated law, this is yet another argument against patent and copyright. Four. Imagining an IP-free world. As argued above, it is fairly straightforward to explain what is wrong with IP. Once the nature and purpose of property rights and the nature of IP rights us understood, patent and copyright are artificial state-granted monopoly privileges that undercut and invade property rights. But the consequentialist and utilitarian mindset is so entrenched that even people who see the ethical problems with IP law sometimes demand that the IP opponent explain how innovation would exist in an IP-free world. How would authors make money? How would blockbuster movies be funded? Why would anyone invent if they could not get a patent? How could companies afford to develop pharmaceuticals if they had to face competition? When I see such demands and questions, I am reminded of John Hasnas's comments in his classic article The Myth of the Rule of Law. After arguing against the state and for anarchy, Hasnas observes, "What would a free market in legal services be like?" I am always tempted to give the honest and accurate response to this challenge, which is that to ask the question is to miss the point. If human beings had the wisdom and knowledge generating capacity to be able to describe how a free market would work, that would be the strongest possible argument for central planning. One advocates a free market not because of some moral imprimatur written across the heavens, but because it is impossible for human beings to amass the knowledge of local conditions and the predictive capacity necessary to effectively organize economic relationships among millions of individuals. It is possible to describe what a free market in shoes would be like because we have one. But such a description is merely an observation of the current state of a functioning market, not a projection of how human beings would organize themselves to supply a currently non-marketed good. To demand that an advocate of free market law, or Socrates of monosizer, for that matter, describe in advance how markets would supply legal services, or shoes, is to issue an impossible challenge. Further, for an advocate of free market law, or Socrates, to even accept this challenge would be to engage in self-defeating activity since the more successfully he or she could describe how the law, or shoe, market would function, the more he or she would prove that it could be run by state planners. Free markets supply human wants better than state monopolies precisely because they allow an unlimited number of suppliers to attempt to do so. By patronizing those who most effectively meet their particular needs and causing those who do not to fail, consumers determine the optimal method of supply. If it were possible to specify in advance what the outcome of this process of selection would be, there would be no need for the process itself. In other words, the answer such a challenge might be, as Leonard Read said, "I don't know." To return to the current subject, with the advent of state IP legislation, the state has interrupted and preempted whatever other customs, business arrangements, contractual regimes and practices, and so on, that would no doubt have arisen in its absence. So, it is natural for those accustomed to IP to be a bit nervous about replacing the current flawed IP system with nothing. With a vacuum. It is natural people to wonder, "Well, what would occur in its absence? As noted above, the reason we are not sure what an IP-free world would look like is that the state has snuffed out alternative institutions and practices. Consider the analogous situation in which the FCC preempted and monopolized the field of property rights in airwaves just as they were starting to develop in the common law. Nowadays, people are used to the idea of the state regulating and parceling out airwave or spectrum rights and might imagine there would be chaos if the FCC were abolished. Still, we have some idea as to what property rights might emerge in airwaves absent central state involvement. In any case, because people are bound to ask the inevitable, we IP opponents sometimes try to come up with some predictions and solutions and answers. Thus, in the end, we must agree with Hasnas. Although I am tempted to give this response, I never do. This is because, although true, it never persuades. Instead, it is usually interpreted as an appeal for blind faith in the free market, and the failure to provide a specific explanation as to how such a market would provide legal services is interpreted as proof that it cannot. Therefore, despite the self-defeating nature of the attempt, I usually do try to suggest how a free market in law might work. Pages 226 to 227. So, how would content creators be rewarded in an IP-free market? First, we must recognize that what advocates of IP want is a world where competition is tamed. Their view is that governments adopt intellectual property laws in the belief that a privileged monopolistic domain operating on the margins of the free market economy promotes long-term cultural and technological progress better than a regime of unbridled competition. Thus, they favor the grant of monopolies by the state that shelter various market actors from competition. But in a free society with no IP rights, content creators and innovators would face competition just as others do. It must be recognized that the position of the creator of content that is easily copied or imitated is no different in kind from that of any other entrepreneur on the market. Every producer faces competition. If a given entrepreneur makes profit, competitors notice this and start to compete, eroding the initial profits made. Thus market actors continually seek to innovate and find new ways to please consumers in the pursuit of elusive profits. Most producers face a variety of costs, including costs of exclusion. For example, movie theaters, for example, invest in exclusion devices like ticket windows, walls, and ushers, all designed to exclude non-contributors from enjoyment of service. Alternatively, of course, movie owners could set up projectors and screens in public parks and then attempt to prevent passersby from watching, or they could ask government to force all non-contributors to wear special glasses which prevent them from enjoying the movie. Drive-ins, faced with the prospect of free riders peering over the walls, installed, at considerable expense, individual speakers for each car, thus rendering the publicly available visual part of the movie of little interest. The costs of exclusion are involved in the production of virtually every good imaginable. What this means is that it is the responsibility of entrepreneurs whose products are easily imitated to find a way to profit, and that they may not use state force to stop competitors. In a sense, this is already the situation facing content creators. Piracy is real and is not going away unless the big media special interests succeed in having the internet shut down. Even in the face of widespread file sharing and disregard for copyright, creativity is at an all-time high. The only solution to piracy and file sharing is to offer a better service. For example, offering DRM-free movies or music for a reasonable price, as comedian Louis C.K. did, earning $1 million in about 2 weeks. Or use crowd-sourced fundraising mechanisms like Kickstarter. Computer game company Double Fine Productions recently used Kickstarter to raise $400,000 to fund a new adventure game, $300,000 for game development, and $100,000 to make a documentary about the process. In fact, as of this writing, $1,095,783 had been raised from 28,921 backers in 1 day. And there are a variety of tactics people can adopt in different industries. A singer or musician can garner fans from his recordings, even if they are distributed for free, and charge fees for concerts. Movie studios can sell tickets to movies that have advantages over home viewing, such as better sound, 3D, large screens, and the like. Most non-fiction authors, such as bloggers or law professors publishing law review articles for free, do not get paid now, but engage in this activity to enhance their reputation and employability, for ad revenues, or for other reasons. A novelist could become popular with her first few books and then get fans to pre-purchase the sequel before releasing it or get paid to be a consultant on {slash} endorser of a movie version. We cannot forecast all the ways human entrepreneurial creativity will discover to profit and flourish in a free society with no state-granted protections from competition. But there is every reason to think that in a private law society, we would be unimaginably richer and freer, with more diversity and intellectual creativity than ever before. The state is nothing but a hindrance to everything good about human society. Five. Conclusion. The purpose of property rights is to assign ownership rights so as to permit peaceful, cooperative, and productive use of scarce resources. In the case of one's own body, the primary ownership principle is self-ownership of one's own body and its bodily integrity, non-aggression. For external, non-bodily, previously unowned resources, property rights are allocated and determined according to the principles of original appropriation, occupation, homesteading, contractual title transfer, and rectification. So-called IP rights such as patent and copyright are monopoly privileges granted by the state that dilute and undermine property rights in scarce resources and which are contrary to the principles of original appropriation, contractual title transfer, and rectification. In effect, IP rights are non-consensual negative easements that violate property rights. Thus, IP rights are incompatible with genuine private property rights, liberty, and justice, and distorts and impedes artistic creation and innovation. In addition, utilitarian arguments in favor of IPR fallacious in terms of ethics, methodology, and evidence, and IP rights cannot be generated from private contractual arrangements.