From: Hal Finney (hal@finney.org)
Date: Fri Mar 07 2003 - 19:01:48 MST
Another justification for patents can be expressed in terms of transaction
costs. If there were no patents, people might try to protect their
innovations in other ways that could be quite expensive. They could
wrap their devices in elaborate self-destruct mechanisms, for example.
Or they might reveal the workings to customers, but only in exchange
for a promise by the customer not to use the information or reveal it
to anyone else.
Needless to say, such contracts would be very difficult and expensive to
enforce. The transaction costs would be extremely high. So the patent
system can be seen as a substitute for privately-negotiated contracts
like this, a sort of default contract which inventors can choose to make
use of. Or they can always try to protect their secrets in one of these
other ways.
The justification is then that if we did not have patents, inventors
would waste everyone's time, energy and money coming up with other ways
to protect their ideas. Patents would therefore reduce transaction
costs and make society run more efficiently.
It is interesting to observe how we are starting to see the results
of transaction costs falling for other private methods of protecting
intellectual property. The much-maligned Palladium technology from
Microsoft can be seen as a way of enforcing the kinds of agreements
discussed above, with regard to copyright. You will only be able to
download a movie, say, if you in effect agree to observe certain rules
in terms of handling the data. Palladium technology is designed to
lower transaction costs to the point where these kinds of contracts
can be efficient on a wide scale. It can be seen as an alternative to
copyright that is non-coercive and relies solely on private agreements.
I have supported Palladium on other forums, and been roundly criticized
for it (even by some members of this group). In fact I have been called
an idiot (actually I think it was "intelligent idiot"), a stooge for
Microsoft, and many other names. In part this is because I chose to
present my ideas without attachment to my name or reputation, so that
they would stand or fall on their own. (They failed very thoroughly,
an interesting object lesson in the practical importance of reputation.)
In any case I still hope that Palladium and similar technology experiments
proceed and are allowed to compete in the marketplace with a wide variety
of other approaches to handling intellectual property. It would certainly
be preferable philosophically to find a way to encourage innovation and
creativity without having the heavy hand of government forcing people
to honor contracts to which they had not agreed, as is effectively the
case with current patent and copyright laws.
Hal
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