Re: ECON: Intellectual Property Again

Michael Lorrey (
Sun, 24 May 1998 15:54:44 -0400

Daniel Fabulich wrote:

> On Sat, 23 May 1998, Michael Lorrey wrote:
> > No, however, when they purchase a copy of my product, they are agreeing to not copy that product
> > beyond what I allow them. I don't have to sell my product to anyone who does not agree to those
> > conditions, and anyone who does is in breach of contract and can be sued. In order to buy my product
> > you must agree that it belongs to me and that you are only purchasing a right to use it, a lease, per
> > se, rather than purchasing all rights to the product. I am quite comfortable with this distinction,
> > and it has nothing to do with IP as a concept of 'natural law'. IP as a concept of contract law is
> > quite sufficient. I think that where we are talking past each other is that you look at IP as a
> > consequence of natural law, and I look at it as a consequence of contract law.
> Ah. You are correct; we have been talking past each other. This poses
> new and very different problems. For example, suppose you have licensed
> your information out to a hundred people. Then, to your surprise, I,
> someone with whom you haven't contracted, begin to market this information
> publicly. You can't sue me, because there is no contract binding ME from
> distributing your information. Indeed, the only people whom you CAN sue
> are those to whom you have licensed information, and they all deny it. If
> I have managed to remove the fingerprints you have added to your
> information, then you have no way to recover your lost business.

If I can demonstrate in court that the information is X percent congruent with the information I was
licensing (as the information content in and of itself is its own fingerprint), then I can still sue you as
an accessory to breach of contract, even if I cannot determine the original breaching agent. Keep in mind
that under a libertarian system, there is no right to refuse self incrimination. Since I would be backed by
my PPL which has a standard practice of using veradication technology on individuals testifying in court, I
doubt that you could escape prosecution.

> (For the purposes of this example, suppose this information had been
> distributed over something like TC May's BlackNet: I bought the
> information from one of your licensees anonymously; I don't know whom I
> was dealing with, and neither do they, nor can anyone prove that I knew
> that I was buying the information from one of your licensees.)
> Right now, we create IP laws in order to get around this problem: we pass
> a law such that everyone is required not to use or distribute protected
> information without paying royalties to the author. Without such laws, I
> could make an exchange like the one listed above, leaving you SOL.
> However, as you note, such laws are in no way grounded in "natural law":
> they would only be created because the contract was *too difficult to
> enforce otherwise.*

IP law is merely a societal contract under which the government is delegated authority to enforce the
individual contract rights of all of its citizens. It does not matter if the government is a monopoly state
or a competetive PPL. The principle is the same.

> >From the perspective of a PPA, I doubt I could find a PPA who would
> enforce a contract like that above at ANY price: cryptography over the
> Internet makes it such that there would be no way to identify the
> perpetrator. Whom do you prosecute?

The individual who is in receipt of stolen goods. As the original license breaker is likely to have
distributed the information to others, then you can then offer immunity if the accessory in receipt will
give up sufficient relevant data to prosecute the original breacher. If the originator cannot be found, the
receiver gets the hook.

> > Sorry, I just don't understand how someone who claims to be intelligent could come to such a nutty
> > conclusion. I hear your arguments all too often from many people, and they invariably turn out to be
> > cheapskates who want to get something for nothing. As you can tell by my sigline, I don't have much
> > respect for such people, and if I have transferred that disrespect toward you by association when it
> > may be unwarranted, accept my apologies. However if it does turn out to be warranted, please don't
> > take it personally....I'm an equal opportunity hater.
> Well, suffice it to say that I endorse contract law, and NOT enforcement
> of copyright beyond that. However, I don't think that will protect
> inventors in any meaningful way; it would be as if IP did not exist at
> all.

Licensed properly, it is as good as IP, possibly even better in a libertarian world, because the inventor
is not restricted by national borders from pursuing pirates.

> > If there is no incentive to produce new technology, then economic growth will come to a screeching
> > halt. If everyone can copy whenever they want, then the product will no longer be bought, but
> > shared. it would be interesting to see the welfare lines in Silicon Valley after that happens.....
> But despite the fact that contract law IP would be ineffective, there
> would STILL be an incentive to invent new technology; it would be smaller
> than that available today, but not zero. I demonstrated this earlier this
> month; see

I read that, which was what got me started on this whole thread. You still treat patents as monopolies,
while I treat them as competetive advantages in a competetive market. If you stop treating patents as
monopolies, then your argument goes away.

> > However, when prices fall beyond a certain point, it is no longer profitable for a producer to
> > produce a product and will go out of business. When a product can be freely copied, there is no
> > longer a market for the product.
> On the contrary; copies are cheap, but not free. However much they cost
> to make, that's how much people will sell them for.

With electronic duplication and transmission, the costs are almost nil.

> As noted, technology would advance, only SLOWER. For evidence of this,
> take a look at the Linux operating system. It's covered by the GNU Public
> License: it is explicitly and forever available to be copied freely. It
> advances slower than Windows, isn't as popular, but it's also available
> for much less. Indeed, many people think that Red Hat 5 is BETTER than
> Windows NT, thanks to the open source policy. It's also a hell of a lot
> cheaper, but NOT FREE: you'll see the Red Hat CD selling for ~$50 most
> places.

But I can go buy the Red Hat CD and reproduce it if I want. I have a CDR deck on my PC here, and I can get
CD blanks for less than $2.00. Where is Red Hat gonna be when I can sell copies of their CD for 10% of what
they sell it for, or even 20%? I could offer it on my web site for free transmission. Obviously Red Hat
has put some added value into their Linux offering, so how do they expect to recoup their investment if
everyone can freely reproduce their product?

> Technology can and does advance without IP laws, only not quite so fast.
> It is also much cheaper. This is just what my argument earlier would have
> qualitatively predicted, strong evidence that it is actually true.

Even if it slowly advances, since there is no longer sufficient incentive for most people to invent, since
they have to worry about feeding their families first, invention will again become merely the province of
rich bachelors who can't get laid.

> > Yes. We can compare nations that respect IP and those that don't. Excepting the IP which those
> > nations steal from other IP protecting nations, we can measure the economic growth which results from
> > domestically developed IP. China is an excellent example. During its cultural Revolution, there were
> > virtually no inventions developed in China, there was also zero economic growth. Once they opened
> > their economy, they started stealing IP from western nations. We can extimate as a result that most
> > of China's economic growth in the past 30 years is not due to domestic IP that is not protected, but
> > by foreign IP which is stolen and are therefore externalized costs that boost the Chinese economy.
> As always, there are a hundred reasons why China's economy would go the
> way it did. I'd say the biggest one is probably that they switched to a
> planned economy, which is more than sufficient to kill growth in ALL
> industries; invention would cease because there were no rewards for
> increased efficiency AT ALL. The economy's planned, so what's the
> point?
> If I'm right, IP was not the reason China had no inventions, but rather a
> planned economy was the death blow to innovation. Can you separate these
> effects into "real numbers?" If so, there's a Nobel prize in Economics in
> it for you if you'll just tell us how.

Its actually rather simple, though tedious. Its merely a measure of growth of sales of products bearing
chinese patent numbers. Just as today's economic growth here in the US is almost entirely in the high tech
sector. Kill IP in the US and you will have economic stagnation here.

> > Don't give me percentages, give me numbers. I'll bet that Sasha Chislenko's economic simulator will
> > easily disprove your arguments.
> <sigh> If you want, I can go seek out how large the software industry, the
> movie industry and the book binding industries are, and tell you that they
> would practically double in quantity as their prices dropped. But that's
> really not enough information: we'd need to COMPARE this with the cost of
> enforcing IP laws; except that copyright ISN'T enforced on individuals the
> majority of the time; people copy video tapes, books and software all the
> time; we'd REALLY need to compare it against how much it WOULD cost to
> actually stop piracy.
> I haven't heard of Chislenko's economic simulator, (nor could I find it in
> a quick glance over Chislenko's web site,) but I somehow doubt that it can
> predict the shape of the demand curve for microeconomic markets. In
> general, we can only determine this based on approximations based on
> marginal costs, quantity sold and prices over time; again presuming that
> demand isn't CHANGING during those periods (which it obviously is).
> Indeed, I'd guess that the simulator is a MACROecnomic simulator, which
> uses numbers which are much easier to measure: inflation, total GDP, the
> money supply, interest rates... Yale's got one, too; it's quite good.
> Come take a look:
> Unfortunately, you won't find the quantity of inventions, books or
> software as any of the variables.

Yes, this is rather indicative, isn't it??? A lack of ability to forecast productivity increases due to
technological innovation seems to be a rather huge gaping hole in a model which claims to be so accurate,
doesnt' it? Of course, they only give average accuracy numbers. I'd like to see how the accuracy numbers
have changed over time. Even Greenspan has noted how current economic models have totally failed to predict
the present economy, which is almost entirely due to increased industrial productivity derived from the
high rate of technological advancement. I'll bet that the accuracy of the model is far less now than it was
20 years ago. I note that it is also restricted to a forecasting ability of only 4 years.

> To conclude, I can show that the area inside one shape is bigger than the
> area inside another shape without knowing how large either shape is.
> Based on their RELATIVE sizes, I can show that one microeconomic strategy
> would be superior to another; but even then I don't know how MUCH
> superior.

How do you expect to demonstrate their relative sizes without knowing how large either shape is??? If you
can do that its you that should get the nobel.

> > A reasonable competent fingerprint will make software not work at all if it is tampered with.
> Really? Care to name a program that uses one such fingerprint? ANY
> program? I can basically guarantee you that if the program has sold more
> than a thousand copies, someone out on the net has bothered to break its
> copy protection. There are archives of cracks available specifically for
> this purpose, with lots of reasonably competent programmers on BOTH sides
> of the battle lines.

SUch schemes are not currently used as the cost is currently greater than the cost of IP enforcement at
this time, due to the sufficiently widespread respect for IP protection. If this were to change, then such
schemes would then become cost effective. One such scheme takes advantage of passive boot sector virus/worm
technology to monitor tampering. If write attempts are made to specific hidden read only files, the virus
or worm built into the software will corrupt enough data to foil the tampering attempt, making the software

> > You only make a microeconomic argument. You do not show anything about the macroeconomic systemic
> > impact.
> That's because I can't. Neither could you if our situations were
> reversed, and you were arguing for the establishment of general (beyond
> contract) laws. It's one microeconomic market; there is no equation which
> will determine GDP based on the behavior of one market. It's like asking
> me to predict how tall a growing child will be depending on whether they
> drink milk today or not. They'll get some calcium, and as a trend the
> child will get taller as a result. But how much taller, and how tall in
> the final outcome? I can't say.

However, you can predict the change in incentive to invent, and determine the utility value of invention
for inventors. This gives you the invention supply curve. Then correlating rates of patents being issued
with productivity growth in an economy, all other factors being equal, you can predict how change in the
supply of inventions will change the productivity growth.

> > If people merely acted in compliance with the contracts they sign, then there would be no IP
> > enforcement costs. This goes back to my previous statements about subjectivity eroding respect for
> > contract law. You are proposing that people who produce intellectual property should not be able to
> > protect their interests with contracts, or that people should not be bound by such contracts. Once
> > again you have exposed your subjectivist, post modern underbelly.
> Not at all; rather I assert that if this were the only protection
> inventors had against copyright infringement, they would have no
> protection at all, and that this would be economically superior to a
> system under which these contracts were supplemented by intrusive IP laws.

While I assert that current IP is merely a matter of monopoly government acting as a PPL in protecting the
IP licenses of its contracted (i.e. patents granted) citizens. If I were in a libertarian society, I would
have a free choice of PPL agencies to contract the protection of my IP with, and would only engage in IP
trade with indviduals that were customers of the same PPL or with competetive PPL's with which my PPL had
IP agreements with.

> > If the curve is not a line, but truly curved, then it will not be 0.5Q, but some other number. It may
> > be higher, it may be lower. In a commodity market, the curve makes this number very high, while in a
> > monopoly market, the curve can be rather low. You are only using a standard 1 for 1 slope on the
> > curve, which is inaccurate, disingenuous, and false.
> Actually, I can be quite certain that it WOULD be 0.5Q. See, the way I
> came across this was by the economic principle that in order for a
> monopoly to increase the quantity sold, it must lower the price twice as
> fast as a competitive business. As a result of this effect, the marginal
> revenue curve WILL strike the P=0 line at 0.5Q. Obviously, then, it would
> be false of me to claim that the market would fall by 50% unless the price
> was actually 0; I left myself a 10% margin for error.

I find it difficult to follow your charts due to the problems with lining up the characters. If you can
produce either graphics or excel compatible charts I would appreciate it. Feel free to send these via
personal email at In any event, I see something which you may not. If a competetive
business only has to lower its price half as much to increase its market share as a monopoly does to
increase the entire market, then obviously it is more efficient to have a monopoly provide a product. If it
wants to increase its market size it must lower its price twice as much than if it were a competetive
business. That tells me that the comsumers benefit twice as much from a monopoly than from a competetive
business. I for one don't beleive that.

> > A patent is worth more if it is as broad as possible. The most broad patents are concept patents,
> > while the most narrow are design patents. Even in design patents, an engineer will try to include as
> > many designs as possible, to shut out competition from routing around his property very easily. Even
> > then it is usually only a matter of time before someone does. The main advantage that a patent gives
> > an inventor or the company he licenses is product to is time enough to establish market presence and
> > fine tune production systems. Once you have established brand name presence in a market and have
> > refined your production system, usually, there is competition on the market using alternative
> > technology.
> >
> > The purpose of the patent is to give the inventor (individual or corporation) the time to recoup the
> > capital costs of research and development, as well as the capital costs to establish a production
> > capacity. Failure to allow an inventor to recoup these costs is externalizing the costs from the
> > consumer to the inventor and producer and therefore stagnating technological development.
> >
> > In an expanding population, with stagnant economic growth and zero technological development, the
> > resource base shrinks steadily (since technology is no longer increasing resource utilization
> > efficiency or reducing resource acquisition costs).
> The inventor gets no EXTRA time to recoup losses. And I agree, by
> externalizing, the pace of technological growth will slow, but it will not
> "stagnate." The inventor will gain a percentage of the new market; if
> that percentage is larger than the cost of invention, then the inventor
> will invent. If not, then they won't.

If the inventor has to recoup his research, development, and production refinement costs and his
competetors do not, then he is at a competetive disadvantage to invent. Better to let some other schmuck
take those costs and steal his inventions from him. In such a situation, the incentive to invent will be
negative, and invention will stagnate.

> > Unfortunately, static microeconomic models are no good at all at predicting the impact of changes in
> > technological advancement.
> Would you care to qualify this statement? Could you give an example where
> microeconmics predicted something that empirically did not happen?

If it were so, then why are all of the economists totally flabbergasted at today's economy? None of their
models have predicted the huge increases in productivity which are what is driving our economic growth.

> > > Too true! So I had best BUY a copy of your manuscript, and then, using my
> > > property, organize my property just like the copies that belong to you.
> > > You own the manuscripts and all of the words written on them; but if you
> > > sell a copy to me, then I own a copy, with all the words written on it. I
> > > can do with my property whatever I please, including organizing my
> > > property just like your property.
> >
> > If I sell you the right to use my copy. You can use my copy to organize your own property any way you
> > want, however you cannot sell copies of the copy I sold you to anyone else. If you sell the copy I
> > sold you to someone else, and delete all copies of that copy that may reside anywhere in your own
> > property, then it is not theft....since if you sell the copy to someone else, you are selling them
> > your right to use that copy.
> >
> > You cannot say that this sort of arrangement is not used in any other market, as real estate deed
> > covenants are widely used.
> Yes, but you never try to make a covenant with multiple people for the
> same piece of real estate; when the lease is broken, you know precisely
> who broke it. Nor can real estate be copied. That makes this an
> excellent arrangement for real estate, but an inferior one for
> information.

If the person who bought my land from me signs my covenant, one clause in my covenant is that the buyer
must agree that anyone he sells the land to is bound by the same covenant. Thus while you cannot reproduce
the land (except as seen below), you also cannot change the minimum terms of sale to your customers, and
their customers, etc. I can add additional terms, but the origianl terms cannot be recinded.

Now, there is a way I can reproduce the land. I can build multi-storied buildings on the land, and multiply
the square footage available within the boundaries of that land. So if I bought 10,000 square feet of land,
and I agreed in my covenant that I will build no larger than one story buildings on the land, I therefore
cannot multiply the square footage. If such a clause were not in the covenant, I could simply build a
building that had 10,000 square feet on each floor, build as many floors as I could, and sell those. When I
sold each floor to others, I could add to the base covenant that each floor owner could not subdivide,
lease, or sublease the floor in any manner, and the buyers would be bound by my copyright of that floor.

> Indeed, what could you do to me if you DID lease land to me, and then I
> copied it and returned the land to you? Even if this were forbidden by
> the lease, how would you know who had broken the contract if someone else
> started selling copies of your real estate who had purchased it from an
> anonymous seller? After all, it could be me, or any of the other hundreds
> of customers you've serviced.

It doesn't matter. Receipt of stolen goods and accessory to violation of copyright are prosecutable even in
the original perpetrator is not found.

> > I dunno, the state owns plenty of property. As a sovereign government, in theory it holds original
> > right to all real property in its domain. People only own real property (i.e. real estate) as granted
> > by the sovereign in granted deeds. The sovereign holds right to reclaim those deeds under emminent
> > domain, provided the deed holder is refunded the original license fee, plus interest and compensation
> > for any improvements to the property.
> Agreed; this is how governments view property today; I think we're agreed
> that this understanding is inferior to the libertarian system described
> below.
> > In a theoretical libertarian society, where every man is sovereign, and is vassal to no state,
> > emminent domain would not exist per se, however IP will still exist in contract law. If you wish to
> > benefit from my product, you must agree to not reproduce my product. If you break that contract, you
> > are in breach and can be prosecuted in civil court by my PPL. Others who benefit from your breach can
> > also be sued, ad nauseum. It may take some precendent cases in a libertarian society, but IP will
> > probably be better respected in such a society then it even is currently here.
> As noted, I'm all in favor of this; except that I think you will find
> these contracts useless in the face of anonymous commerce.

While anonymous money may make a significant impact on electronic commerce, I don't think that anonymous
production of IP will make any significant headway.

> > > Individuals do. The sum of the
> > > wealth owned by individuals is not the property owned by society, but the
> > > simple sum of the property owned by those individuals. I think we're
> > > agreed on that.
> >
> > Yes, however you forget the origination of those properties. In the example of real estate, the
> > sovereign holds all original rights to all real estate in his or her or its domain. all other land
> > holders posess their land by granted deed.
> >
> > In an information economy, I invented widget A, or software B. I hold original sovereign rights to
> > that widget or that software. I will only grant others the right to use copies of that widget or
> > software if they agree to the terms in my granted deed to use that property. If they do not, I hold
> > the right, by deeded contract, to prosecute their breach as I see fit. I could simply sue them in
> > civil court, have it 'corrected' by a contract 'fixer', or simply go and nuke the bastids.
> Remind me never to contract with you unless the terms of enforcement are
> made explicit. ;)

Caveat Emptor is the standard of business law in New Hampshire.

> And again, I must agree with you here; only whom will you nuke when third
> parties start offering copies of your goods? You don't have any contract
> over THEM.

No, but they have contracts with their PPLs, and I have contracts with my PPL. Any reasonable PPL will
recognise the validity of a claim upon an individual who has received stolen goods, even if the original
perpetrator cannot be found. As long as the stolen goods can be proven to posess a significant congruence
with the goods of the claimant which are documented prior to the receipt date of the stolen goods, then a
case and claim can be made.

> > > In light of that, your statement above is not correct: otherwise we are
> > > forced to say that the sum of the property owned by individuals IS proprty
> > > owned by society. However, we both agreed that society HAS no rights,
> > > especially not the right to own property, only the individuals have these
> > > rights. Therefore, the sum of the property owned by individuals is NOT
> > > the property owned by society.
> >
> > That society may hold property as a sovereign government, if individuals in that soceity are not
> > sovereign individuals, with some or all rights delegated to the state, then the state can own
> > property in trust for the benefit of all society. THis is how things are presently. In a libertarian
> > society, individuals would only delegate those rights which they choose to delegate on an individual
> > basis.
> >
> > > Similarly, I assert that we should maximize the sum of the utility for
> > > each individual; NOT the utility of the society, which is not a brain and
> > > therefore has no utility. If I were arguing that society DID have
> > > utility, THAT would be collectivist. THAT would be Borg-like.
> > > Fortunately for the both of us, I'm not saying that at all.
> >
> > Yes you are. You are measuring the utility of IP protection as a sum set, i.e. for all soceity. You
> > are not measuring it on an individual basis.
> The purpose of my parallel was to demonstrate that even if we accept a
> libertarian understanding of property rights, ANY economic analysis must
> make policy decisions based on net wealth; this is not wealth owned by
> society, but wealth owned by individuals. I don't consider it in any way
> opposed to libertarianism to do so. If arguments from net wealth are not
> collectivist, then arguments from net utility ought to be no more so.
> > I agree with the CONCEPT of your economci argument. I think that your numbers are completely wrong.
> > Failure to protect IP will lead to the downfall of technological society.
> I say that it will not, and I therefore cede to you that we ought to
> enforce IP in contracts, but not as a law stating that no one may use
> protected information.

Then you cede to the existing law. As IP law is prosecuted as civil offenses, rather than criminal offenses
(except when it involves transportation across state or national borders), you agree to most of current IP
law as practiced.

   Michael Lorrey
------------------------------------------------------------ Inventor of the Lorrey Drive
MikeySoft: Graphic Design/Animation/Publishing/Engineering
How many fnords did you see before breakfast today?