Rights in Ideas Infringe Rights in Tangible Property

Prior to the U.S. Court of Appeal’s decision in the Napster case, all indications were that the parties to the litigation were adjusting to a reality in which copyright might become a thing of the past.

TVT Records, one of the largest U.S. independent record labels, had become the first label to drop its copyright infringement lawsuit against Napster. TVT upstaged Bertelsmann AG, which strategically remained party to litigation against the song-swapping outfit while promising to forgo action once Napster transformed itself into a fee-based membership service.

Edel Music, too, had hopped on board. The players seemed to have sensed that they could no longer stem the tide: New technology had blown the lid off the anti–free-market protectionism that is copyright and patent law. In explaining TVT’s change of heart, president and founder Steve Gottlieb said: “I am afraid that copyright owners’ resistance to finding workable solutions with Internet music providers may result in consumers, artists, and the industry itself ultimately being harmed. . . . It is high time that the industry embraces a service that the public has so emphatically said they want.”

Once the dust settles, TVT and Napster will offer Napster’s 45 million-plus users the opportunity to exchange copyrighted music files online under a business model that compensates recording artists and record companies.

In the decision that followed these developments, the U.S. Court of Appeals for the Ninth Circuit found Napster liable for contributory and vicarious copyright infringement. Users were said to be engaging in direct infringement of the plaintiffs’ distribution and reproduction rights. The court conceded that Napster is capable of, and has the potential to, provide other non-infringing uses. While this would have acted as a legal defense against contributory infringement, it was outweighed by the fact that Napster possessed actual, specific knowledge of direct infringement.

The judge found that Napster was able to locate the infringing material and hence capable of properly policing its system. This, combined with a direct financial stake in the infringing activities, caused the court to find Napster liable as a vicarious offender as well.

One hope was that the Audio Home Recording Act of 1992 (AHRA) would grant Napster users protection on the grounds of “fair use,” since it allows audio music swapping for noncommercial use. This too failed. Because they got for free something they would ordinarily have paid for, Napster users were deemed to be engaging in commercial use. The judge further ruled that since a Napster user copies an entire work, he is harming the market by (1) reducing CD sales among college students, and (2) making it harder for the record companies to enter the arena of digital downloading.

This standard underscores that copyright aims at maintaining a market for certain interests through the force of the law, a good point from which to segue into the crux of the Napster saga: Are the legal rights that politicians gave to originators of ideas—as embodied in music, software programs, books, or practical inventions—justified? And what property rights should the law protect?

The answer depends on the definition of property and what makes it ownable.

Tangible goods, we all agree, are properly the objects of property rights. This is because they are economically scarce. But the notion that the mere act of creation confers ownership is problematic. Drawing on Lockean principles of homesteading, property theorists like attorney N. Stephan Kinsella reject it in favor of economic scarcity as “the hallmark of ownable property.”  Scholars like Sir Arnold Plant and Tom G. Palmer, along with virtually all property theorists of the Austrian school, recognize that scarcity precedes property.

Economic scarcity results when my use of an item conflicts with your use of it. While an abundance of computers can be had on the market, my use of this particular PC excludes your use of it. We might come to blows were we both to insist on occupying the thing. If I could conjure computers with a magic wand, they would be abundant, not scarce, and it would be immaterial if this one were removed. In the case of scarce resources, property rights are essential to prevent conflict.

Intangible Goods

Not so for intangible things such as the ideas copyright and patents protect. However valuable, ideas are not economically scarce: My listening to a piece of music doesn’t conflict with or exclude your doing the same. Ditto for a book: A copy made of the thing doesn’t remove from its author the configuration of ideas that is the book.

Granted, copyright law protects only the physical instantiation of an idea. Humming a song won’t secure copyright in it. The idea must be written down to become fixed in a tangible medium. Here is the nub: Copyright is vested in a physical object that can be owned quite legitimately by someone other than the author of the book, the singer on a CD or the code writer of a software program. It is in the rightfully owned property of others that the copyright owner acquires a stake.

Say I write a novel and you decide to film a movie based on my novel’s plot, using your own filming equipment. Were I only to proclaim I owned the ideas in my novel, I would merely be exercising my free speech. But when I want to prohibit you from using your equipment as you please, and can use the force of law to do so, I am violating your property right. Under the law as it now stands, my act of creation is all it takes for me to be able to exercise control over you.

Put another way, imagine you could reproduce at almost no cost copies of a scarce, tangible item like a desk I designed. Would I be justified in prohibiting you from using your copy of my desk simply because I possess the original item? Would it be right to demand that you pay me a stipend for every copy of my desk you made using your own desk copier, so that I might secure for myself a tidy source of revenue? If you dare resist my attempts at extortion, I will galvanize the law. After all, you are cutting into an income I imagine I am owed.

Copyright redistributes wealth, as the workings of the 1992 Audio Home Recording Act makes evident. Here, manufacturers like Yamaha or Philips that market digital audiotape recorders and CD-R burners must pay a statutory royalty as a penalty for making devices that could foreseeably be used to infringe copyright. Such manufacturers must pony up for the potential undermining of the value of copyrighted material. Notwithstanding the incoherence of assigning rights in some imagined value the copyrighted material may have, wealth here is distributed from manufacturer to music industry. Similarly, consumers who purchase blank recording media must pay special excise taxes to the music industry.

No less egregious is the patent monopoly. Consider the Prozac patent, recently—and surprisingly—struck down by an American court. Ordinarily, the patent monopoly held by Eli Lilly & Co. would have prohibited competitors from using their own property to make generic copies of the drug. This is all a patent is; it grants to the holder no more than the right to prohibit someone else from implementing an invention he may have arrived at quite independently.

Some conservative organizations, abandoning free-market principles, defend patent monopolies. The Fraser Institute, for example, has fiddled with econometrics in an attempt to show that denying Eli Lilly & Co. the Prozac patent monopoly causes a net loss to the economy, reducing wealth and the incentive to invent. Such staple utilitarian arguments, as Mr. Kinsella demonstrates, are not only unjust and unprincipled, but also incoherent.

The Fraser Institute compared the $3 billion savings to consumers from the introduction of competition from generic drugs with the $66 billion loss to pharmaceutical company shareholders after the removal of Eli Lilly’s patent protection. It then concluded that patent monopoly benefits the economy.

But as economist Ludwig von Mises wrote, “Just as there is no measurement of sexual love, of friendship and sympathy, and of esthetic enjoyment, so there is no measurement of the value of commodities.” Neither is there a “method available to construct a unit of value.” Values are subjective. While consumers gained from the removal of the Prozac patent monopoly, others—notably investors—lost. By what shift of logic does an expert decide that the loss to one party is more important than the gain to the other? Clearly, to sanction state-granted, exclusive monopoly privileges on the central-planning grounds that this redistribution of wealth promotes prosperity in society is not an enduring basis for principled legislation.

Legally Binding Promises

Rather than resort to discredited central planning and its attendant specious measurements to justify imposing patent monopolies, conservative organizations should rediscover the advantages of the free market. It offers other, much simpler, and much more elegant options—contracts are among them—to ensure that the originator of an idea receives a share of the profit. Under certain conditions and with certain provisos, promises made between parties become legally binding. Employees in high-tech companies, for instance, are bound by contract when they agree to keep quiet about trade secrets. A variety of contracts are available to allow parties to protect their assets and profits. Confidentiality, nondisclosure, royalty, and non-compete agreements can be expected to proliferate in copyright-free commerce. These arrangements differ from the current copyright regime in that they bind only parties to the agreement. Intellectual property (IP) rights bind everyone.

Given that protectionism distorts the market, its removal needn’t be dreaded, except by those who turn to government to capture wealth. Imitation haute couture and knock-off fragrances, paperbacks, and drive-in movies have not decimated the original articles or industries they emulated, although they may have scaled them back somewhat. In the case of music, no protection may indeed mean fewer of the three-chord warbles that currently pervade the industry. Why is that such a bad thing? And who says someone has a right to make others provide him with a market? Certainly no true free-market proponent.

IP rights are invariably enforced in the tangible world of scarce resources. Recognizing property rights in nonscarce intangible resources diminishes rights in tangible scarce resources. Laws that elevate rights in ideas to the extent they override rights in tangible property must give pause—more so given government’s penchant for imbuing things with economic value (such as occupational licenses and cable franchises) so as to grant monopoly to one interest or another.

The copyright system ought to be abolished because there can be no justification for the use of force against legitimate property owners. And force is, very plainly, what flows from the enforcement of the law. Since ideas should not be treated as property, laws that target those who have not violated person or property are wrong.

*See N. Stephan Kinsella, “Against Intellectual Property,” The Journal of Libertarian Studies, Spring 2001.