Making a copycat product based on an Apple (NSDQ: AAPL) concept is always dangerous. Today, Meizu is on the receiving end of an order from the Chinese Intellectual Property Office directing the electronics maker to cease production of its iPhone knock-off. Meizu, a Chinese device manufacturer, was asked to cease production of its M8 smartphone, a dead ringer for Apple's iPhone, according to TG Daily. Jack Wong wrote in a Meizu forum post that the company would be halting sales but not ceasing production. The Chinese Intellectual Property Office has threatened to shut down Meizu's factories if it doesn't comply. – CRN
Dominant Social Theme: It's STILL mine and you can't have it!
Free-Market Analysis: We can see from the above article that when Steve Jobs wanted a Chinese manufacturer to cease and desist from copying Apple's iPhone, he got the Chinese government to apply pressure to the rogue manufacturer. This is an example of the point we were trying to make yesterday in our first article on the subject of intellectual property. It is mostly the state that is charged with enforcing intellectual property laws (copyright and patent law) and this is a most dangerous trend, as we are sure at least some libertarians (certainly not all!) would agree. The dominant social theme: "Without state interference, people would surely lose the value of their hard-earned products and services."
In this follow-up article, we will deal with some formal libertarian perspectives regarding intellectual property – concepts we did not touch on in previously. A quick summary: Yesterday we offered an analysis of how intellectual property was changing in the era of the Internet. We advocated for marketplace enforcements of intellectual property rather than state involvement, which we see as invasive, coercive, arbitrary and increasingly dangerous to the rights of everyone, including the artists that are purportedly served. We argued for a natural law approach to intellectual property rights and that people should try to enforce intellectual property rights via private means and leave the state out of it.
Of course this brings us into the ambit of arguments made by such brilliant libertarian analysts as N. Stephan Kinsella who have pointed out that there is no such thing as intellectual property (and is even, apparently, a little leery of the religiosity inherent in the phrase "natural law.") In his ground-breaking work, Against Intellectual Property, Kinsella argues that scarcity creates property and that since ideas are not scarce, they are not property but patterns and configurations.
"Only scarce resources are ownable things," he points out. When someone "creates" something, (a book, a song, an article) there is no implicit or explicit ownership, as one is merely rearranging what is already available. If one creates a sculpture in a piece of granite the sculpture is only owned by the creator if the granite is owned as well. Otherwise the sculpture is owned by someone else. For this reason, people have no right to insist on copyright (let alone patents). Kinsella published this ground-breaking work perhaps 10 years ago from what we can tell and has elaborated on it persuasively ever since (repeatedly confronting "Randists" and Bell contributor Tibor Machan in the process).
Perhaps we should have been clearer yesterday; however, in this article, we still will not directly tackle the issue of IP ownership. What we want to point out is that if people want to insist on copyright and patents (customized contracts) for their "work" they probably should be able to do so, theoretically, within a private context even if they are "wrong". (Likewise, if they want to offer their intellectual property for free, who is to stop them?)
It is similar to what we have argued about fractional reserve banking. If people want to practice fractional reserve banking in a private marketplace, who is to stop them? Using the same logic, we ask who is to stop people from attempting to insist that others not resell their texts? Where will the consensus come from to restrain the person? Let the market itself decide, we suggest.
In fact, we would argue that perhaps this could be done very simply. The individual attaches a set of conditions (a license) to the work in question. If a person then purchases the work and resells it or copies, he or she is in violation of the explicit purchasing contract. Kinsella, anticipated this in his ground-breaking initial work and rebutted this point by reminding us of the following:
The advocates of the contractual approach to intellectual property … binds only parties to the contract. It is like private law between the parties. It does not bind third parties, i.e., those not in "privity" with the original parties. … Thus, if the book purchaser B relates to third parties T the plot of the purchased novel, these third parties T are not bound, in general, by the original contractual obligation between A and B. If I learn how to adjust my car's carburetor to double its efficiency, or if I learn of a poem or movie plot someone else has written, why should I have to pretend that I am ignorant of these things, and refrain from acting on this knowledge? I have not obligated myself by contract to the creator. I do not deny that contractual obligations can be implicit or tacit, but there is not even an implicit contract in such situations.
This is brilliant stuff and worthy of his considerable intellectual prowess. We can only point out one minor quibble: Kinsella is apparently marshalling his well-reasoned brief using currently accepted Western legal doctrine, including case law. (We apologize in advance if we have misinterpreted his arguments.) In fact the doctrine of privity, from what we can tell, is built on case law. Wikipedia provides the following information:
Prior to 1833 there existed decisions in English Law allowing provisions of a contract to be enforced by persons not party to it, usually relatives of a promisee. The doctrine of privity emerged alongside the doctrine of consideration, the rules of which state that consideration must move from the promisee. That is to say that if nothing is given for the promise of something to be given in return, that promise is not legally binding unless promised as a deed. 1833 saw the case of Price v. Easton, where a contract was made for work to be done in exchange for payment to a third party. When the third party attempted to sue for the payment, he was held to be not privy to the contract, and so his claim failed. This was fully linked to the doctrine of consideration, and established as such, with the more famous case of Tweddle v. Atkinson. In this case the plaintiff was unable to sue the executor of his father-in-law, who had promised to the plaintiff's father to make payment to the plaintiff, because he had not provided any consideration to the contract.
It goes on from there. Privity has a long case history leading to the present. Thus, once again, we are being sucked into the "black hole" of Western "precedent-based" law. It may be one the reasons that the West is in such trouble. Precedent law (and is there really a libertarian alternative?) seems a one-way ticket, ultimately, to totalitarianism. Precedent law, once established, is rarely overturned but only elaborated on.
That's why famous US Supreme Court justices see "penumbras" where others merely see justifications for authoritarianism. That's how US citizens get from "Congress shall make no law abridging the freedom of speech," to hate law, commercial-speech laws, etc. Precedent law is an elite promotion. Justice lies in market-driven, "private" law with a plethora of different outcomes based on the issues at hand and the parties involved.
Kinsella may well be right about IP. But for the sake of argument and this article, let us suggest that in a purely private, market-driven justice system, one would have the right to create a vertical contract that held successive generations of users responsible – if they took possession of the work – for whatever it is that the creator wished to specify. Nonetheless, the point of market-based justice however is that the creator writing the contract would have to ENFORCE it. Without the aid and deep pockets of Leviathan, we would argue that frivolous claims would soon cease to be made as they would never be enforced. (Thus we may arrive at some Kinsella's conclusions through the dynamics of the market itself.)
A vertical contract, for instance, might instruct the user that he or she could never use certain sentences in a certain order. But in a market-driven system of justice how is the contractor going to ENFORCE such ludicrousness. No, it is more likely over time that vertical IP contracts might contain clauses having to do with commercial repurposing of a given product. If someone wished to reprint a best-selling novel and did so with impunity over time within a large distribution footprint, the individual might end up on the other side of a private lawsuit.
Could it be enforced within a system of private justice? Perhaps the aggrieved party might threaten to call various vendors to point out the violation. Perhaps advertisements might be placed identifying the company and placing it in bad light. There might be lots of remedies available within the context of a massive, formal pirating endeavor.
There are other ramifications as well. Prices might come down as the initial vendor found that he or she could not – within a private judicial system – enforce much of the vertical contract that accompanied the product. Eventually, it might be found, for instance, that movies demanding US$300 million to make were not cost-effective and would have to be abandoned. Or salaries would have to be cut back; or other efficiencies would have to be implemented. Yes, market-based justice (see our previous article) is certainly "rough justice." But there is no system of justice invented by humankind that is going to be absolutely fair.
Kinsella makes other compelling assumptions – perfectly logical ones backed up by yet another libertarian genius Hans-Hermann Hoppe. He states, "As libertarians recognize, following Locke, it is only the first occupier or user of such property that can be its natural owner. Only the first-occupier homesteading rule provides an objective, ethical, and non- arbitrary allocation of ownership in scarce resources."
Theoretically, Kinsella is correct, no doubt. But could it also be argued that, whether it be the moon or Antarctica, the person, group or government that makes the first claim does NOT necessarily end up with the entire property? It is perhaps natural (private) law that determines this – resources, available populations, financial and even military resources. Many laws can be stated but perhaps the reality is that natural law will prevail. If the basic law does not recognize market reality, then all the "law" in the world will not change that reality. (We recommend the controversial but fascinating writings of Ragnar Redbeard in this regard.)
An impassioned rebuttal to Kinsella's arguments was made in 2009 by the Molinari Society in a paper entitled Response to Kinsella: A Praxeological Look at Intellectual Property Rights. (We are not endorsing it, but it does provide an alternative perspective.) It can be found on the Internet and is authored (and copyrighted) by Bob Schaefer. The crux of the argument, so far as we can tell, lies here, in this excerpt from the middle of this modest paper:
Kinsella writes: "The very possibility of conflict over a resource renders it scarce, giving rise to the need for ethical rules to govern its use." … He has it exactly backwards. The ethical rules of private property do not mysteriously "rise" out of natural scarcity to prevent human strife. Seeking to eliminate conflict over scarce resources, human actors cooperate. They conceive and implement ethical rules of behavior, rules that make cooperative action possible. The concept of private property is implied by these ethical rules. Thus, property rights – tangible and intangible – are the consequence of human cooperative action, not the consequence of some vague concept of inevitable conflict embedded in naturally scarce, inanimate objects.
As usual, Ludwig von Mises sums it up best. He demolishes Kinsella's concept of scarcity in a single paragraph: "The natural scarcity of the means of sustenance forces every living being to look upon all other living beings as deadly foes in the struggle for survival, and generates pitiless biological competition. But with man these irreconcilable conflicts of interests disappear…. Within the system of society there is no conflict of interests … … harmony of interests is substituted for conflict. People are no longer rivals in the struggle for the allocation of portions out of a strictly limited supply. They become cooperators in striving after ends common to all of them."
From Schaefer's point of view, Kinsella is making the argument that scarcity creates property rights and since there is no scarcity of ideas, there can be no conflict and therefore no property. Schaefer then points out that within a system of society "there is no conflict of interest … harmony of interests is substituted for conflict." Within this paradigm, Schaefer seems to suggest that intellectual property rights are an important contributor to society's larger well-being.
Does Schaefer have a point? Certainly market-based "common law" worked for the human species for tens of thousands of years. Most reasonable people, most of the time, will recognize the need for some sort of property law and cooperate VOLUNTARILY to abide by it. The idea prevalent in Western jurisprudence, for instance, that people need to be intimidated into being law-abiding (by metaphorical public executions) is a lamentable misunderstanding of how people relate and how human action manifests itself.
But putting all this aside, (as we tried to point out, yesterday) it is natural law – market-based justice – that provides us with simple tools to solve intractable problems. The trick lies in enforcing the accompanying written contract. And the Internet itself is making enforcement of intellectual property rights increasingly difficult. If the law were amenable to market pressures, this would easily be seen. Unfortunately, the market has been entirely removed from "justice." Western law, in fact, is completely unresponsive to market forces at this late date.
Market-driven law is not. It would soon prove impractical, probably, for an individual or group to run hither and yon litigating against individuals over individual breaches of conduct. Actions would be taken against the biggest offenders of intellectual property theft and even then the remedies would probably be hard to come by – leading more-than-likely to business relationships in some cases. In other cases, it might be that nothing could be done. But in any event the market itself would decide. There is another point as well. And that is that in a truly free-market society, the current corporatist model would probably not be viable. Even the largest entities would be fairly small compared to today's "corporations." The money might simply not be there to pursue intellectual property violations as they are now pursued.
There are some who would argue that the above is fairly theoretical. Others (who have not followed libertarian justice-arguments closely) will simply be shocked at the suggestion that the market can generate viable contract services (and overall justice) more efficiently than government. Still others will disagree that IP is ever vertically enforceable, or that it can be conceived of as property at all. But put aside these issues and we would still argue that people need to rediscover private, market-based justice – the kind of tribal/communal/informal common-law justice that was prevalent for tens of thousands of years. What's going on now cannot end well.
One of the most brilliant aspects of Murray Rothbard's thought (and Lew Rockwell's) is the insight that a truly free society (especially in a municipal setting) is an exceptionally moral – or at least spiritual – one. It is easy to tell a uniformed critic of market-driven societies for he or she will be sputtering about the licentiousness of such societies, the drug taking and sexual promiscuity, etc. In fact, libertarian societies in the past (colonial America provides such examples) were profoundly religious for the most part. Absent the corrosive hand of the state, people tended to regulated themselves via religious principals.
Such insights hold true for free-market justice as well. The less involvement by the state, the more "just" justice would probably be. People need to research common law and how the modern system has departed from it. They need to rediscover market-driven forms of judicial interactions. The idea that only the state itself can enforce justice and that justice must be "one sized fits all" is as illegitimate as the idea of "serving a debt to society." There are disagreements between people all the time. (As Rockwell himself has pointed out, each individual's morality is unique.) Most of them, throughout history were resolved via negotiation or, in some cases, a blood-debt. The mad dash towards totalitarianism in the West is one trend that does not need any encouragement.
We would urge people to disentangle themselves from Leviathan as much as possible. Avoid statist entanglements regarding patent law and copyright. Intellectual property rights as they are evolving currently are nothing more than a statist promotion aimed at shutting down the free-flow of information on the Internet. Already Napoleonic law is being enshrined throughout Europe. And in the US, the process of arrests, arraignment and trial are often similarly arbitrary. Monopoly state justice (and the judicial-industrial complex) nestles like a malignant tumor at the center of these dangerous trends. It is growing all the time. Private, market-driven law, with all its ambiguities and lack of a one-size-fits-all justice is the solution in our humble view.
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