NSG-D/ idea for free-market alt. to patent law (long, sorry)

Fri, 1 Oct 1999 17:17:49 -0400 (EDT)

From: Will Ware <wware@world.std.com>

And then Will Ware <wware@world.std.com> says: I was thinking a little about a free-market replacement for the government enforcement of intellectual property law. Apologies for the length. I'd be curious to hear if people think this is a viable or worthwhile idea.


Once upon a time, there was no intellectual property law. An inventor seeking to prevent others from using his invention had one option: keep the invention secret. The U.S. government invented patent law to meet two conditions: first, that inventions should be disclosed to the public, and second, that inventors should enjoy a temporary monopoly on their inventions, providing an incentive for disclosure.

Patent protection is not without its weaknesses. Lately, the U.S. Patent Office has been issuing frivolous patents for ideas that have been in common use for many decades. Patent examiners are becoming less and less competent to evaluate the novelty of claimed inventions. Because the examiners are incompetent, would-be inventors can re-patent past inventions, unreasonably extending their monopoly.

Furthermore, patents are now being questionably applied to software and genetic sequences. Both of these are purely informational in nature, and might more properly be protected by copyright law. The sweeping nature of patent protection, combined with the practice of perpetually re-patenting old inventions, means that large areas in which innovation can occur are closed off to inventors without large budgets for legal services.

The GNU General Public License (GPL) attempts to address some of these frailties. It is a worthy effort, but suffers weaknesses of its own. Because of the demanding complexities of current copyright law, and the ambiguity of the term "derived works" as it applies to software, the GPL is itself a complicated document.

The weaknesses of intellectual property law follow from the false assumption that information (a group of bits) can be owned as if it were a physical object (a group of atoms). Physical objects can be transferred or transported, but they cannot be copied as information can be copied.

Property law makes sense because the use of an object can be controlled by only one person or legal entity. If several people wish to jointly control some object, they must agree on some form of voting or proxy, thus molding themselves into a single legal entity.

In order to design protocols that work well for information, one must take into account its inherent nature. Information can be concealed or disclosed. Disclosed information can be copied. Concealed information can sometimes be inferred from clues. Concealment or secrecy is the only meaningful sense in which an individual can be said to own a piece of information.


There are examples today of information protected by secrecy. The legal term for this is a trade secret. A famous example is the recipe for Coca Cola, which is not patented or copyrighted, since either would require disclosure. The Coca Cola Company prefers simply to keep the recipe a secret. It has remained a secret for many decades, so they must have developed successful protocols for maintaining its secrecy.

Public domain represents yet another weakness of intellectual property law. An otherwise protectable piece of information can be placed in the public domain, meaning that it is publicly disclosed for anybody's use. But anyone may then copyright or patent that information, removing it from the public domain, and charging license fees for use by others.

If this weakness of public domain status did not exist, there would have been no need to invent the GPL. Works of free software could simply be placed in the public domain, and they would remain there in perpetuity, available for anyone's use. The impermanence of public domain status is partly responsible for the complexity of the GPL.


Suppose that one day, all government protection for intellectual property were to disappear. Trade secrets would still exist. License fees previously collected under patent and copyright law would end, and information disclosed under patents and copyrights would become public domain. It would no longer be possible to remove something from the public domain. Invention-based monopolies would be enforceable only by maintaining trade secrets.

In the absence of government protection, it would seem that inventors would keep inventions secret forever, hoping to maintain perpetual monopolies. Obviously, innovation would grind virtually to a halt. The government's solution has been to implement a body of law, patent law, which uses government force to enforce monopolies provided the inventor willingly discloses his invention.

The inventor's interest is served by concealing his invention because there is a differential advantage in maintaining a monopoly, compared to competing against many other vendors, all familiar with the invention. This differential advantage, summed over the entire future, is a finite amount of money, and the inventor will usually be willing to disclose the invention in exchange for that amount of money. Since money in the present is more valuable than money in the future, the inventor will likely disclose the invention for a smaller amount.


Suppose an inventor wants to borrow against the future value of his monopoly. He prints shares, or contracts, saying that either he will disclose his invention on a particular date, or he will pay a predetermined penalty to the share's bearer. He sells these shares to anybody willing to buy them.

To his customers, the shares represent a promise that he will disclose the invention, reducing its cost. Disclosure benefits the customers, so they will start buying the shares. They are willing to pay some money now, so they can save some money in the future.

The cost of shares fluctuates as the market's estimate of the secret's value goes up and down. Many purchasers will buy shares just to try to make money on price fluctuations. The price will tend to track the market's estimate of the future value of the monopoly.

If the inventor ever succeeds in buying back all the shares, then he is relieved of the need to disclose the invention, since he would only be paying penalties to himself. If he sells only a few shares, he may decide that paying a few penalties is worthwhile in order to maintain the monopoly.

I've assumed here that government intervention isn't necessary to enforce contracts. There is some good evidence to support this assumption. Most business contracts these days (the sort under discussion here) are privately arbitrated and privately enforced.


In reality, there is an essentially-zero probability that government protection of intellectual property will cease. In a world with patent and copyright protection, can disclosure shares do anything useful?

Some ideas that originated as oddities of libertarian thought have gradually trickled into the mainstream. Among these are privatized mail delivery, education vouchers, and private arbitration and enforcement of contracts. One might hope that if enough functions of government are obsoleted by free-market replacements, the government might eventually dry up and blow away. Not likely, but we can always hope.

One place to experiment with disclosure shares is the world of proprietary software. Software companies are tinkering with the idea of open-sourcing their efforts (or at least some of their efforts), with varying degrees of success. Netscape's Mozilla project is probably the most famous example, the one everybody hoped would succeed, and which has run into grave difficulties.

If Netscape had chosen instead to sell disclosure shares, things might have gone easier for them. Share sales would represent income, at a time when they were having trouble finding income. By tracking the price of shares, they could have measured the market demand for an open-source browser. This might have provided better information for committing resources to the Mozilla project.