We may be certain that those who seek this control will not give up easily.

By now most people know that SOPA is (was) the Stop Online Piracy Act and PIPA the Protect Intellectual Property Act, the former introduced in the House, the latter in the Senate.

They may sound innocuous, though we have enough experience with government to know that nothing about it should be assumed to be innocuous. Hidden powers and unintended consequences lurk in everything it does, regardless of intentions. (And, let’s say it, we can’t count on  intentions of the high caliber.) So even if “stopping online piracy” and “protecting intellectual property” sound good to you, a healthy dose of skepticism is in order.

Foreign Websites

The bills are directed at foreign websites that allegedly provide or “facilitate” the provision of copyrighted material without permission. The bills’ reference to foreign sites comforts some people, but it shouldn’t. The Department of Homeland Security already has the power to shut down domestic websites by seizing their domain names — and has done so many times. (Try going to this site.) As this was written news came in that the government has moved against the file-sharing site Megaupload.com, which is based in Hong Kong but uses servers in the United States.

The U.S. government has a more difficult time, or so it is said, with fully foreign sites, so the powerful movie and music industries (among others) want it to have the power to do the next best thing: force, with less than minimum due process, search engines (like Google), payment services (like PayPal), and Internet service providers (ISPs) to stop you from visiting and dealing with those sites. (The U.S. government apparently doesn’t need SOPA to pursue alleged foreign offenders. It is extraditing a British student for “running a website posting links to pirated TV shows and films, despite significant doubts over whether such sites break any UK laws.” The student uses no American servers and has never been to the United States.)

The prospect of these new powers outrages those who value the openness of the Internet and fear the inevitable chilling effects of government authority in the area of free expression. The idea that the government could force American companies to prevent you and me from accessing foreign websites violates the spirit of the Internet. That’s why the protest took place Wednesday, featuring the self-suspension of Wikipedia and other gestures of opposition to the looming interference.

Copyright Legitimacy

There are two issues here, of course: the reasonableness of the proposed remedy and the legitimacy of copyright itself. I’ll largely restrict my remarks to the first, since I have discussed intellectual property (IP) elsewhere (here, here, and most recently here.)

One need not oppose IP to be concerned with SOPA and PIPA. Any authorization of power will contain vague language giving the government wiggle room and therefore discretion in whom it targets and why. A site might be blocked — and search-engines, payment-services, and ISP harassed – because a visitor posted something said to be protected by copyright. And what might happen to one of these domestic companies if it were deemed lax in monitoring sites that facilitate access to the wrong content? We should assume that such a law would be construed in the broadest way, considering the clout of the companies that lobbied for it. Laws, like constitutions, cannot interpret themselves.

New York Times tech columnist David Pogue sounds slightly naïve when he writes, “[T]he solution is to work on the language of the bills to rule out the sorts of abuses that the big Web sites fear.” He clearly mistakes the government for a disinterested dispenser of justice.

Joshua Topolsky illustrates the potential danger:

Say a French company just started a social networking site in which users can upload videos of themselves singing. Now let’s say some kids upload a video of themselves singing their favorite Britney Spears song, not even playing back the original recording but simply singing along innocently to a song they like.

In the eyes of Spears’s record label or any number of parties associated with her continued cash flow, that might very well look like an instance of piracy — and indeed, major labels have had content pulled off YouTube for similar “violations.” All the label has to do is send a letter to someone such as your ISP and request that the service stop routing traffic to the offending site, and, boom, no more French-sharing site for U.S. Internet users. And what’s really scary is that U.S. Internet service providers have immunity when it comes to what they can pull from their networks, so that French site might not even have a clear path to resolving the issue.

Now take that concept and begin to apply it across all the places you could potentially find “infringing” material. Sites about art, sites about movies, sites that let users generate content of all types — some of that content containing pieces of other work that should be considered fair use by any modern standard. Suddenly, a lot of destinations on the Internet will begin to look like island vacation spots — that is, they’re really hard to get to. And the impact won’t just be cultural or legal; the technical workings of the Internet itself will be dramatically affected.

Tampering with the Infrastructure

Topolsky quotes a colleague, Nilay Patel, who compared these bills to a crazy effort to stop the sale of unauthorized DVDs in New York City: It’s “the effective equivalent of blowing up every road, bridge and tunnel in New York to keep people from getting to one bootleg [DVD] stand in Union Square — but leaving the stand itself alone.”

Here’s the rub: As even Pogue admits, “the bills won’t work. For example, they’d make American Internet companies block your access to domain names like ‘piracy.com,’ but you’d still be able to get to them by typing their underlying numerical Internet addresses, like 197.12.34.56. In other words, anybody with any modicum of technical skills would easily sidestep the barriers.” (The sponsors have reportedly dropped the provision that permits messing with domain names, primarily because it would compromise Net security.)

They may not work, but they would allow the government wide scope to hassle lawful companies.

So where does that leave us? I see no remedy consistent with liberty for stopping foreign sites from making copyrighted material available. Perhaps that in itself should prompt us to question the legitimacy of so-called intellectual property. In a real sense, information cannot be owned, and attempts to pretend otherwise move us toward a police state.

President Obama made the overhaul of America’s patent law a personal priority, including it prominently in his January 2011 State of the Union address. The America Invents Act was signed into law on September 16. The key change is a switch from “first to invent” to “first to file.”

Critics and advocates overwhelmingly focus on the practical implications of the Act. Fundamental questions about patents are rarely raised. These questions include: What is a patent? Do patents express a natural right or a governmental grant of monopoly?

What Is a Patent?

Patents and copyrights protect what is called “intellectual property.” A patent is an ownership claim to the expression or implementation of an idea. If the idea is an original expression – for example, music – the ownership claim is called copyright. If it is expression through implementation – for example, an improvement to a machine — the claim is called a patent. The holder of a patent can prevent anyone else from identically implementing the same idea. At its root, controversy over intellectual property is about freedom of expression and when it can be properly restricted.

Patents and copyright quickly part company. The most famous libertarian to make a sharp distinction between the two was the single-tax champion Henry George. He rejected the former and embraced the latter.

Why? In his periodical The Standard (June 23, 1888), George explained his objection to patents, “No man can justly claim ownership in natural laws, nor in any of the potentialities which nature hold for it.” A patent involves identifying and using a law of nature or a fact of reality, neither of which have been created by the discoverer.

Discovery versus Production?

George distinguished between two forms of labor involved in invention. The first was the mental labor of working out operating principles: discovery. The second form was the construction of a specific machine or implementation: production.

Since the principles discovered were preexisting – such as how X amps of electricity react to Y ohms of resistance — they  should be available for anyone to use and not monopolized by one man. To the argument that specific implementations – such as voltmeters — did not exist in nature and so could be patented, George replied that the principles on which machines operated were intrinsic in nature. A windmill expresses how the force of wind pushing against a particular surface can produce power. Thus every patent amounts to an ownership claim over an expression of nature and the logic of its application. A man could own a specific windmill he produced but he could not prevent others from similarly producing their own windmills.

This is a common distinction between patents and copyright. Patents are an ownership claim over preexisting natural laws and their implementation; copyright is a claim to “goods” with no preexistence.

Simultaneous Discovery

Another argument against patents is that they violate the rights of a simultaneous inventor. Two people can plausibly invent the same thing independently and at nearly the same moment; hence it is not proper for only one to have a monopoly.

Fields of endeavor can reach a stage where certain breakthroughs become almost inevitable. Then it is not uncommon for people independently to develop extremely similar applications. The most famous example may be calculus, developed by both Newton and Leibniz.

This objection to patents was expressed by the nineteenth-century libertarian Benjamin Tucker: “The central injustice of . . . patent laws is that it [sic] compels the race to pay an individual through a long term of years a monopoly price for knowledge that he has discovered today although some other man . . . in many cases very probably would have discovered it tomorrow.”

Obama’s patent “reform” trades one injustice for another. Formerly the first to invent won the patent, even if someone else indisputably did the same thing independently. Now the first to file for a patent will win, similarly excluding independent inventors – not to mention anyone else who tries to use the natural principles as embodied in the invention.

Roots of Patent

Historically patents were grants of privilege awarded by a ruler to his favorites or to those willing to pay bribes. America broke precedent. Article I, Section 8 of the Constitution states, “Congress shall have the power . . . to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” The original American patent law thus extended protection in order to encourage innovation. However, one might say that it simply changed the criterion by which monopoly privilege would be granted.

Whether you agree with that original purpose or believe (as I do) that all patents are improper, the America Invents Act is repellent. By granting patents to those who merely file first rather than invent first, Obama further advantages State-privileged corporations with their massive research funds and lawyers, and takes a huge step backward toward the days of patents as royal privileges.

The crises laid at the feet of laissez faire are the crises of markets that are nothing if not fettered. When critics confront us with corporate malfeasance, structural poverty, or socioeconomic marginalization, we should be clear that market principles do not require defending big business at all costs, and that much of what our critics condemn results from government regulation and legal privileges. As a model for analyzing the political edge of corporate power and defending markets from the bottom up, we twenty-first-century libertarians might look to our nineteenth-century roots—to the insights of the American individualists, especially their most talented exponent, Benjamin Ricketson Tucker (1854–1939), editor of the free-market anarchist journal Liberty.

Conventional textbook treatments portray the American Gilded Age as one of relentless exploitation and economic laissez faire. But Tucker argued that the stereotypical features of capitalism in his day were products not of the market form, but of markets deformed by political privileges. Tucker did not use this terminology, but for the sake of analysis we might delineate four patterns of deformation that especially concerned him: captive markets, ratchet effects, concentration of ownership, and insulation of incumbents.

Types of Distortion

Captive Markets. Legal mandates and government monopolies produce captive markets in which customers are artificially locked in to particular services or sellers that they wouldn’t otherwise patronize because political requirements enforce the demand. For example, the car insurance market is shaped by laws requiring insurance and regulating the minimum service that must be purchased. Captive markets legally guarantee privileged companies access to a steady stock of customers, corralled by the threat of fines and arrest.

Ratchet Effects. Legal burdens, price distortions, and captive markets combine to ratchet up fixed costs of living far higher than would prevail in freed markets. To get by, people are constrained by the necessity of covering these persistent, inflexible costs—by selling labor, buying insurance, taking on debt—under artificially rigid circumstances. Ratchets keep many chasing the next paycheck, creating permanent states of financial crisis for the poor.

Concentration. Confiscation, regressive redistribution, and legal monopolies deprive workers of resources while concentrating wealth and economic control within a politically favored business class. Struggling to cover ratcheted fixed costs, workers are dispossessed of the means to make an independent living and enter markets where ownership of land, capital, and key resources are legally concentrated in the hands of a few. Workers therefore depend on relationships with bosses and corporations far more than in freed markets, deforming economic activity into hierarchical relationships and confining rental economies.

Insulation. Captive markets and bailouts protect big players, while legal monopolies, regulatory barriers, and anticompetitive subsidies inhibit substitutes and competition from below. Government support props up big businesses, stifling the market and social pressures that might otherwise be brought to bear. Insulated businesses can treat employees and consumers with far less consideration or restraint; meanwhile, intervention shuts out alternative solutions by blocking smaller, grassroots, or informal competitors.

Tucker’s Big Four

We can, then, turn to Tucker’s central idea: In “State Socialism and Anarchism” (1888), Tucker argued that “Four Monopolies” fundamentally shaped the Gilded Age economy—four central areas of economic activity where government ratchets, concentration, and insulation came together to deform markets into “class monopolies,” regressively reshaping all markets as the effects rippled outward.

The Land Monopoly. Land titles in nineteenth-century America had nothing to do with free markets. All unoccupied land was claimed by government, whose military seized land from Indians, Mexicans, and independent “squatters.” Government ownership and preferential grants monopolized access, excluding free homesteading. (The “Homestead Act,” which supposedly opened Western lands to homesteading, really imposed rigid legal limits on homesteaders that only certain medium-sized commercial farmers could effectively meet. Smaller farms and nonfarmers were excluded.) Tucker identified this concentration of land titles in elite hands as a “land monopoly,” creating a class of privileged landlords by depriving workers of market opportunities to gain freeholds and escape rent.

Since 1888 the land monopoly has dramatically expanded. Governments worldwide have nationalized oil, natural gas, and water resources; in the United States mining rights and fossil fuel exploration are largely accessed through government licenses, due to government’s ownership of 50 percent of the American West. The cost of land is ratcheted and ownership concentrated through zoning codes, eminent domain, municipal “development” rackets, and local policies to keep real estate prices permanently rising. Freed land markets would feature more individual and widely dispersed ownership; land would be less expensive and more often held free and clear; vacant land would be more readily open to homesteading; and titles would be based as easily on sweat equity as on leveraged cash exchanges. Many people would no longer need to rent; those who chose to rent would find that competition had dramatically improved the prices and conditions available on the market.

The Money Monopoly. For Tucker the most damaging of the Big Four was the Money Monopoly, “the privilege given by the government to certain individuals . . . holding certain kinds of property, of issuing the circulating medium,” politically manipulating the money supply, prohibiting alternative currencies, and cartelizing banking, money, and credit. Tucker saw that monetary control not only secured monopoly profits for insulated banks, but also concentrated economic ownership throughout the economy, favoring the large, established businesses that large, established banks preferred to deal with.

Tucker identified the Money Monopoly as an economic force in 1888—before the Fed and fiat currency, the FDIC, Fannie, Freddie, the IMF, or trillion-dollar bailouts to banks “too big to fail.” Today regulatory cartels and political mandates have also captured insurance, alongside credit, savings, and investment, as a Money Monopoly stronghold, forcing workers into rigged markets while shutting out noncorporate, grassroots forms of mutual aid.

Ideas and Extortion

The Patent Monopoly. Tucker condemned monopolies protected by patents and copyrights—“protecting inventors and authors against competition for a period long enough to enable them to extort . . . a reward enormously in excess of . . . their services.” Since copying an idea does not deprive the inventor of the idea, or any tangible property she had before, “intellectual property” meant only a legal monopoly against competitors who could imitate or duplicate the monopolists’ products at lower cost.

“Intellectual property” (IP) has grown vigorously since 1888, as media, technology, and scientific innovation made control over the information economy a linchpin of corporate power. Monopoly profits on IP are the effective business model of Fortune 500 companies like GE, Monsanto, Microsoft, and Disney, which demand virtually unlimited legal power to insulate themselves from competition. Copyright terms quadrupled in length, while massive, synchronized expansions of intellectual protectionism became standard features of neoliberal “free trade” “agreements” like NAFTA and KORUS FTA (United States-Korea Free Trade Agreement). In a freed market such business models would fall—and with them, the ratcheted costs consumers pay for access to culture, medicine, and technology.

The Protectionist Monopoly. Tucker identified the protectionist tariff as a monopoly in the sense that it insulated politically favored domestic producers from foreign competition, and thus ratcheted up daily costs for consumers.

With the rise of multinational corporations and neoliberal trade agreements, tariffs have declined over the years. But the specific legal mechanism was less important to Tucker than the purpose of controlling trade to insulate domestic incumbents. In 1888 that meant the tariff. In 2011, it means a vast network of political controls used to manage the “balance of trade”: export subsidies, manipulation of exchange rates, and multigovernment agencies like the World Bank and IMF.

Metastatic Monopolization

Tucker’s Big Four have only grown more pervasive since the 1880s. But the past century has also seen the metastatic proliferation of government regulatory bodies intended to restructure new transactions and capture new markets. Among today’s Many Monopolies, five are especially pervasive:

The Agribusiness Monopoly encompasses the New Deal system of U.S. Department of Agriculture cartels, surplus buy-ups, subsidized irrigation, export subsidies, and similar measures ratcheting up prices, distorting production toward subsidized crops, and concentrating agricultural activity in large-scale, capital-intensive monoculture. These, inevitably enacted in the name of “small farmers,” invariably benefit large factory farms and agribusiness conglomerates like ADM and Tyson.

The Infrastructure Monopoly includes physical and communications infrastructure. Governments build roads, railways, and airports through eminent domain and tax subsidies, and impose cartelizing regulations on most mass transit. Restricted entry secures monopoly profits for insulated carriers; confiscating money and property to subsidize long-distance transportation and shipping creates tax-supported business opportunities for agribusiness, big-box chain retailers, and other businesses dependent on long-haul trucking. Incumbent telecommunications and media companies like AT&T, Comcast, and Verizon accumulate empires by cartelizing bandwidth; control of broadcast frequencies is concentrated through the FCC’s political allocation; and ownership of telephone, cable, and fiber-optic bandwidth is concentrated through local monopoly concessions for each medium.

The Utility Monopoly grants control over electricity, water, and natural gas to massive, centralized producers through comprehensive planning, subsidies, and regional monopolies. Household generation, polycentric neighborhood systems, or off-the-grid alternatives are crowded out or regulated to death.

Regulatory Protectionism

Regulatory Protectionism may be the most widely dispersed of the Many Monopolies. Like Tucker’s Protectionist Monopoly, it concentrates and insulates incumbent providers by creating hurdles for would-be competitors. Established businesses stifle competition from below by lobbying for regulatory red tape, extortionist fees, and complex licensing for everything from taxi-driving to hairdressing. Industry standards, which would otherwise be set by social convention and market experimentation, are removed from competition and determined by political pull. High compliance costs insulate incumbents who can afford them from competitors who cannot, shutting the poor out of entrepreneurial opportunities and independent livelihoods.

The Health Care Monopoly is a ripple effect of other monopolies but merits special notice because of the all-consuming growth of the medical sector and because health care and insurance so profoundly shape decisions about jobs, money, and financial planning. The central economic fact of health care is a crippling ratchet effect. Patent monopolies ratchet up drug costs and insulate profits for Pfizer and GlaxoSmithKline. The FDA and medical licensing provide a form of regulatory protectionism, constraining the supply of doctors, hospitals, and pharmaceuticals, concentrating profits and further ratcheting costs. A medical need can become a catastrophic cost, effectively requiring comprehensive insurance. Workers once got insurance through fraternal mutual-aid societies, but money monopolies have now thoroughly corporatized the insurance market through subsidies, mandates, and regulatory control. Workers now are tethered to their employers by the cost of insurance “benefits,” while facing the persistent danger of lost coverage, denied claims, and crippling debt.

Tucker’s analysis of the Four Monopolies controlling the Gilded Age economy, supplemented with the new Big Five that our own era has introduced, goes a long way toward showing why existing markets work the way they work and fail for the people they fail for. It may also inspire some objections from today’s libertarians.

The Many Monopolies deform markets toward stereotypically “capitalistic” business, but government intervenes in more than one direction. What about regulations or welfare programs to benefit poor people, or constraints on large, consolidated firms? These exist, but do not necessarily achieve their supposed aims. As shown in Gabriel Kolko’s Triumph of Conservatism, the Progressive regulatory structure and antitrust law, far from curbing big business, form the core of regulatory protectionism, cartelizing and insulating big business. There are also issues of priority and scale. While I object to SBA loans or TANF (Temporary Assistance to Needy Families) as much as any free-marketeer, in this age of trillion-dollar bank bailouts, even when government puts fingers on both sides of the scale, one finger is pushing harder than the other.

What about the explanations market economists offer for corporate firms’ greater efficiency, based on division of labor, economies of scale, or gains from trade? Wouldn’t large corporations outcompete smaller rivals, even without subsidies and monopolies?

But Tucker didn’t reject the division of labor, gains from trade, or large-scale production. Rather he suggested labor, trade, and scale organized along different lines. Independent contracting, co-ops, and worker-managed shops are forms of specialization and trade no less than centralized firms. Scale can be internalized through central management, or externalized through polycentric trade. A corporate economy is only one among many possibilities for dividing labor and exchanging values. The question is whether it predominates because of economic forces that would persist in markets free of structural privilege, or because of predicaments that would dissipate when competitors are free to offer alternatives with less centralization, less management, and more trade and entrepreneurial independence for ordinary workers.

If Tucker’s analysis proves anything, it proves there are many places in economic life where ordinary people are given a hard shove toward spending money they’d rather not spend with trading partners they wouldn’t otherwise keep. The most pervasive, far-reaching government interventions foster economic concentration, commercialization, hyperthyroidal scale, and the consolidated hierarchy needed to manage it—not because they grow naturally in market economies but because they grow out of control in the hothouse of socialized costs and inhibited competition.

The Belt and the Bones

For most of the twentieth century American libertarians were seen as defenders of “capitalism” (though see Clarence Carson’s doubts about that word in the 1985 Freeman article “Capitalism: Yes and No”). Most libertarians, and nearly all their opponents, seemed to agree that libertarianism meant defending business against the attacks of “big government,” and the purpose of laissez faire was to unleash existing forms of commerce from political restraints.

This was almost a complete reversal from the attitude of traditional libertarians like Tucker, which we might call “free-market anti-capitalism.” He was one of the best-known defenders of free markets in nineteenth-century America, happily summarizing his economic principles as “Absolute Free Trade . . . laissez-faire the universal rule.” For Tucker, then, libertarianism meant an attack on economic privilege by removing the political privileges that propped it up, dismantling monopolies by exposing them to competition from below.

The Many Monopolies are pervasive and fundamentally shape the everyday reality of the corporatist economy. So why then have not only the opponents but also the advocates of free markets so often missed Tucker’s analysis, with Progressives constantly laying the blame for inequality, exploitation, and corporate power on “unregulated markets,” while “pro-capitalist” libertarians respond by making excuses for the economic status quo? Paradoxically, it may be that Tucker’s approach is forgotten partly because of the very depth and pervasiveness of the problems it identifies.

The interventions twentieth-century libertarians were most likely to identify and oppose—progressive taxes, welfare, environmental regulations—are surface interventions, economically speaking. While aiming to reform or restrain the corporate state-capitalist economy, they take its basic features—concentration, insulation, ratcheted costs, and corporate power—for granted, attempting only to contain their most unsightly downstream effects. Countervailing “Progressive” regulations are like a belt put on capitalism. A man may need a belt or he may look better without, but his body remains the same with or without the restraint.

The political means that consolidate the Many Monopolies do more than interfere in the outcomes of preexisting market structures. State-capitalist privileges shape basic patterns of ownership, access, and cost for essential goods and factors of production. They fundamentally restructure markets, inventing the class structures of ownership, ratcheted costs, and inhibited competition that produce wage labor, rent, and the corporate economy we face. These primary interventions are no belt for state capitalism to wear or take off; they are its very bones. Without them, what’s left is not a different look for the same body—it’s a totally different organism.

Because you wear a belt on the surface, it’s easy to see and easy to imagine how you might look without it. Twentieth-century libertarians rightly condemned how the belt was hitched by government coercion—but rarely noticed that however much the anti-business belt constrains the state capitalist economy’s natural shape, without the belt it is still a political product shaped by intervention to its pro-business bones. The Monopolies that create capitalists, landlords, and financiers and uphold corporate power are so deeply embedded in the existing economy, so entrenched in consensus politics, it is easy to mistake them for business as usual in a market society.

We might say—with apologies to Shulamith Firestone—that the political economy of state capitalism is so deep as to be invisible. Or it may appear to be a superficial set of interventions, a problem that can be solved by a few legal reforms, perhaps the elimination of the occasional bailout or export subsidy, while preserving intact the basic recognizable patterns of the corporate economy. But there is something deeper, and more pervasive, at stake. A fully freed market means liberating essential command posts in the economy from State control, to be reclaimed for market and social entrepreneurship. The market that would emerge would look profoundly different from anything we have now. That so profound a change cannot easily fit into traditional categories of thought—for example “libertarian” or “left-wing,” “laissez-faire” or “socialist,” “entrepreneurial” or “anti-capitalist”—is not because these categories do not apply but because they are not big enough: Radically free markets burst through them. If there were another word more all-embracing than revolutionary, we would use it.

Jones invents (and patents) the wheelbarrow and uses it on his land. He intends to produce this great new device and sell it to a world that eagerly awaits it. Smith lawfully walks by Jones’s property and watches him using the wheelbarrow, realizing this is something no one has ever seen before. If Smith goes home and, using her own materials and labor, makes a wheelbarrow from the mental image stored in her mind, what has she taken from Jones? Smith’s mental image is hers. One could say it is the result of her own mental labor (observing, understanding, remembering). When she acquired it, in no way did she interfere with Jones’s access either to his physical wheelbarrow or his mental image of it. Jones had what he started with. That’s how it is with ideas. (Bear in mind that under current law Smith is guilty of patent infringement even if she never saw Jones’s wheelbarrow. Do not assume that patents are primarily about prohibiting copying.)

Smaller Profits

But, someone will object, if Smith competes with Jones in selling wheelbarrows, Jones’s profits will likely be smaller than if the government were to stop Smith from competing in that market.  (That’s what patents and copyrights boil down to.) True enough. But now the subject has changed. Instead of talking about property rights in the product of one’s labor, we’re talking about property rights in economic value or potential profits. How can one own economic value? It’s in the eyes of beholders. How can one own yet-to-be-made profits?

But, our critic might say, those profits would have been made had Smith not done what she did. We’re back to square one. What did she do? Again, she used her labor and materials to build a wheelbarrow based on a image in her mind. That image was there as a result of nonaggressive action. Had she broken into Jones’s home, Jones would have a cause of action for burglary. But Smith committed no burglary in our story. Had a contract existed between the two parties with respect to the wheelbarrow, perhaps a breach occurred. That’s also not part of this story. The burden of proof would seem to be on anyone who thinks a rights violation took place.

My example may be rejected because Jones obviously took no precaution against people seeing his wheelbarrow. I think that objection fails. If he owns the very idea wheelbarrow (which is the implication of a patent), why should he have to take such a precaution? Lysander Spooner, who pushed the case for IP as far as it can be pushed, wouldn’t have thought so. If Jones leaves the keys in his car, that certainly would not be a valid defense for a car thief.

Slave Labor

In a recent discussion about copyright, my interlocutor suggested that the unauthorized publishing of a book in effect makes a slave of the author because the publisher profits off the author’s labor without consent. But that begs the question by assuming what is in dispute, namely that the publisher took something that belongs to the author. But what? The intangible book is an arrangement of words, however imaginative or novel. It’s hard to see how that can be owned. (We’ve already dealt with the lost-profits argument.) Of course there is nothing to stop fans of the author from launching a campaign to encourage people to buy the authorized edition. (J. R. R. Tolkien launched such a campaign for himself when The Lord of the Rings was issued in an unauthorized paperback.)

(I do not concede, by the way, that absent copyright, authors would suffer great hardship in the free market. Copyright advocates assert without good grounds that duplicating artistic works and complicated inventions is necessarily a low-cost and automatically lucrative endeavor, which is by no means the case. But that subject is for another time.)

The “slave labor” objection in fact proves too much. If Jones creates a new market by offering a novel product, is he exploited if Smith caters to that same market with a similar yet sufficiently different product? (Apple created a market with the iPod, but soon competitors came along that presumably did not violate Apple’s patents.)

Plagiarism

Finally, it is curious that the first thing that occurs to people on first hearing the anti-IP case is plagiarism: “You mean it would be okay for someone to take an author’s work, put his own name on it, and sell it?”

Two issues are conflated here. One can plagiarize without violating a copyright, and one can violate a copyright without plagiarizing. Under copyright law you may use brief verbatim excerpts of another’s written work without permission as long as you use quotation marks and attribute the text to the author. It’s called “fair use.” (Question for copyright fans: Isn’t even fair use a violation of an author’s rights?) If you were to use an excerpt that otherwise would qualify under the fair-use principle but without attribution, you would be guilty of plagiarism but not copyright violation. The same would be true if you quote Shakespeare without attribution. (Shakespeare wrote without benefit of copyright.)

On the other hand,  if you publish Atlas Shrugged with Ayn Rand’s name on it, you would be guilty of copyright violation but not plagiarism.

For the sake of clear thinking, let’s keep these issues separate.

Well, is plagiarism okay? No, it’s not! Obviously it is dishonest and dishonorable to represent someone else’s work as one’s own. But note, according to LegalZoom, “plagiarism is not a criminal or civil offense.” Nor should it be. It’s a breach of good conduct, and there is a plentitude of nonviolent, non-State ways to deal with it, especially in the Internet age.

But are they? There are good reasons to think that IP is not actually property—that it is actually antithetical to a private-property, free-market order. By intellectual property, I mean primarily patent and copyright.

It’s important to understand the origins of these concepts. As law professor Eric E. Johnson notes, “The monopolies now understood as copyrights and patents were originally created by royal decree, bestowed as a form of favoritism and control. As the power of the monarchy dwindled, these chartered monopolies were reformed, and essentially by default, they wound up in the hands of authors and inventors.”

Patents were exclusive monopolies to sell various goods and services for a limited time. The word patent, historian Patricia Seed explains, comes from the Latin patente, signifying open letters. Patents were “open letters” granted by the monarch authorizing someone to do something—to be, say, the only person to sell a certain good in a certain area, to homestead land in the New World on behalf of the crown, and so on.

It’s interesting that many defenders of IP—such as patent lawyers and even some libertarians—get indignant if you call patents or copyright a monopoly. “It’s not a monopoly; it’s a property right,” they say. “If it’s a monopoly then your use of your car is a monopoly.” But patents are State grants of monopoly privilege. One of the first patent statutes was England’s Statute of Monopolies of 1624, a good example of truth in labeling.

Granting patents was a way for the State to raise money without having to impose a tax. Dispensing them also helped secure the loyalty of favorites. The patentee in return received protection from competition. This was great for the State and the patentee but not for competition or the consumer.

In today’s system we’ve democratized and institutionalized intellectual property. Now anyone can apply. You don’t have to go to the king or be his buddy. You can just go to the patent office. But the same thing happens. Some companies apply for patents just to keep the wolves at bay. After all, if you don’t have patents someone might sue you or reinvent and patent the same ideas you are using. If you have a patent arsenal, others are afraid to sue you. So companies spend millions of dollars to obtain patents for defensive purposes.

Large companies rattle their sabers or sue each other, then make a deal, say, to cross-license their patents to each other. That’s fine for them because they have protection from each other’s competition. But what does it do to smaller companies? They don’t have big patent arsenals or a credible countersuit threat. So patents amount to a barrier to entry, the modern version of mercantilist protectionism.

What about copyright? The roots literally lie in censorship. It was easy for State and church to control thought by controlling the scribes, but then the printing press came along, and the authorities worried that they couldn’t control official thought as easily. So Queen Mary created the Stationer’s Company in 1557, with the exclusive franchise over book publishing, to control the press and what information the people could access. When the charter of the Stationer’s Company expired, the publishers lobbied for an extension, but in the Statute of Anne (1710) Parliament gave copyright to authors instead. Authors liked this because it freed their works from State control. Nowadays they use copyright much as the State originally did: to censor and ban books. (More below.)

IP, American Style

The American system of IP began with the U.S. Constitution. Article 1, Section 8, Clause 8 authorizes (but doesn’t require) Congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

Despite modern IP proponents’ claims to the contrary, the American founders did not view intellectual property as a natural right but only as a policy tool to encourage innovation. Yet they were nervous about monopoly privilege, which is why patents and copyrights were authorized only for a limited time. Even John Locke, whose thought influenced the Founding Fathers, did not view copyright and patent as natural rights. Nor did he maintain that property homesteading applied to ideas. It applied only to scarce physical resources.

Granted, some state constitutions had little versions of copyright before the American Constitution. (See Tom W. Bell, Intellectual Privilege: Copyright, Common Law, and the Common Good, part 1, chapter 3, section B.1.) On occasion, the language of natural rights was used to defend it, but this was just cover for the monopolies they granted to special interests. Natural rights do not expire after 15 years. Natural rights are not extended to Americans only. Natural rights wouldn’t exclude many types of innovation and intellectual creativity and cover only a few arbitrary types.

And what is the result of this system? In the case of patents we have a modern statute administered by a huge federal bureaucracy that grants monopolies on the production and trade of various things, which means holders may ask the federal courts to order the use of force to stop competitors. But the competitors have not done anything that justifies force. They merely have used information to guide their actions with respect to their own property. Is that compatible with private property and the free market?

Examples of Censorship

In the case of copyright the result has been actual censorship, as recent examples will show. According to Engadget, Russian authorities, with Microsoft’s approval, used IP law as a “pretext for seizing computers and other materials from political opponents of the government and news organizations.” In another case Susan Boyle, the English singer from Britain’s Got Talent, was prevented from singing a Lou Reed song on America’s Got Talent because of copyright. Then there was the case in which a 1922 German silent film, Nosferatu, was deemed a derivative work of Bram Stoker’s Dracula and ordered destroyed.

One of the most outrageous cases concerns the novel Sixty Years Later, Coming Through the Rye, Frederik Colting’s sequel to J. D. Salinger’s The Catcher in the Rye. Salinger got the courts to ban publication of the book on copyright grounds. “I am pretty blown away by the judge’s decision,” Colting said. “Call me an ignorant Swede, but the last thing I thought possible in the U.S. was that you banned books.”

These examples will be dismissed as abuses of an otherwise good law, but it’s the law itself that is the abuse.

Although natural rights are often invoked, the most common argument for IP, even among libertarians, is utilitarian, or “wealth-maximization,” which was the approach of the Founding Fathers: IP monopoly encourages innovation and therefore creates net wealth. In other words, the benefits outweigh the costs.

No doubt the patent system imposes costs on American society. I’ve estimated the net cost at $38–48 billion a year, and this is probably conservative. The costs include patent attorney salaries, fees, litigation, increased insurance premiums, and higher-priced products—plus innovation and research lost when companies concentrate on patentable innovations and allocate fewer resources to more basic scientific research, or when an entire field is avoided for fear of patent-infringement lawsuits.

Anyone who argues that patents yield a net gain is obliged to estimate the total cost (including suppressed innovation) as well as the value of any innovation thereby stimulated. But IP proponents never provide these estimates. I’m no empiricist—my opposition to IP is based on principles of justice and property rights—but IP advocates make the empirical claim that we are richer because of the patent system. They say we have more innovation at a low price. Yet virtually every empirical study I’ve seen on this matter is either inconclusive or finds a net cost and/or a suppression of innovation. (I ignore here the valid Austrian objection that costs and benefits are subjective and not measurable.)

Thus a good utilitarian would have to conclude that patent and copyright laws are harmful.

Creation

Some IP advocates do make a serious natural-rights case on the grounds that the innovator has created some new, valuable thing—a song, a painting, a novel, or an invention. Because he created it, the argument goes, he is its natural owner. But this conflates the source of property rights with the source of wealth. As Ayn Rand—a strong proponent of IP—recognized (in “The Metaphysical Versus the Man-Made,” Philosophy: Who Needs It):

The power to rearrange the combinations of natural elements is the only creative power man possesses. It is an enormous and glorious power—and it is the only meaning of the concept “creative.” “Creation” does not (and metaphysically cannot) mean the power to bring something into existence out of nothing. “Creation” means the power to bring into existence an arrangement (or combination or integration) of natural elements that had not existed before.

In other words, individuals create wealth by using their intellect, creativity, and labor to transform already owned scarce resources into more valuable configurations. In a free society a producer owns the resulting products because he owned the factors transformed in the production process. The idea behind production adds nothing to the ownership claim that wasn’t already present.

Control of Physical Property

In fact, assigning property rights in ideas and other immaterial things, such as patterns or recipes, ends up restricting other people’s rights to control their physical property. Copyright and patent holders thus become, in effect, co-owners of others’ property, courtesy of the State. This is illustrated in the copyright censorship examples provided. And it is seen in cases where a patentee uses the courts to shut down competitors.

Another way to understand the error in treating information, ideas, and patterns as property is to consider IP in the context of human action. Ludwig von Mises explained in The Ultimate Foundation of Economic Science that “[t]o act means: to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought.” Knowledge and information of course play key roles in action. As Mises puts it, “Action . . . is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means” (emphasis added).

Moreover, “[m]eans are necessarily always limited, i.e., scarce, with regard to the services for which man wants to use them.” This is why property rights emerged. Use of a resource by one person excludes use by another. In contrast, ownership of the information that guides action is not necessary for performing the action. Two people who each own the ingredients can simultaneously make a cake with the same recipe.

Material progress is made precisely because information is not scarce. It can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, and causal laws that are known, the greater the wealth multiplier as individuals engage in ever-more efficient and productive actions. It is good that ideas are infinitely reproducible. There is no need to impose artificial scarcity on ideas to make them more like physical resources, which—unfortunately—are scarce. As Frédéric Bastiat observed, “All innovation goes through three stages. One possesses unique knowledge and profits from it. Others imitate and share profits. Finally, the knowledge is widely shared and no longer profitable on its own which thereby inspires new knowledge.”

Patents artificially prolong the first stage at the expense of the others. Thus, IP is inimical to progress, prosperity, and freedom.

Now imagine that some lobbyists have staked out part of Antarctica and brought suit in federal court against tourists who trespassed on “their” land. Fine, you say: After all the lobbyists got there first. Replace “Antarctica” with “ideas” and you have the surreal world of “intellectual property.” Unfortunately, while you and I cannot both mine for gold in the same spot, we can certainly make use of the same idea, and therein lies the heart of this story.

A good spot to start the tale is in 1998, when a panel of judges ruled that software was patentable, thereby starting the intellectual property equivalent of the California gold rush (State Street Bank & Trust v. Signature Financial Group). Every child knows how to answer the door: “Knock knock.” “Who is there?” But what if I taught a computer how to say, “Who is there,” and patented the idea? Absurd, you say. Well, we all understand how to run an auction—but do not try doing it with a computer because the holder of U.S. Patent 7,702,540 (also known as e-Bay) will sue you. And that in a nutshell is what software patents are all about.

The entire concept of being able to patent a commonly used idea because it is implemented on a computer is silly, but this article is too short to review all of the millions of software patents issued since 1998. A famous and not-so-famous example may serve to reinforce the point. Raise your hand if you have not heard about the Amazon “one-click” patent (U.S. Patent 5,960,411). No hands? Okay, if you can patent one click, why not two? Sorry, that you cannot do. Why not? Microsoft beat you to it (U.S. Patent 6,727,830).

Software patents, though, are only a modern incarnation of an ancient evil. How about patenting the peanut butter and jelly sandwich? Too late, already done—in 2005, no less (U.S. Patent 6,874,409). That one did not hold up in court. There are so many silly patents that there are two websites, totallyabsurd.com and patentlysilly.com, to publicize them. Many seem to tell a tale of inventors with little sense—and a government patent office with even less. How about a thong diaper (U.S. Patent D539422)?

Here is one that was approved by the eagle eyes at the U.S. Patent Office (U.S. Patent 6,637,349): “A motorized picnic table having a drive mechanism, wheels connected to and driven by the drive mechanism, a table mounted above the drive mechanism, and at least one seat adjacent the table. In the preferred embodiment, the seats are bench-type seats and flank the drive mechanism.”

That was “invented” by Gregory A. Lafferty, “approved” by patent examiners Robert Olszewski and James S. McClellan, and lawyered by Baker & Daniels.

And what was the patent examiner smoking when he approved this one?

A method of swinging on a swing is disclosed, in which a user positioned on a standard swing suspended by two chains from a substantially horizontal tree branch induces side to side motion by pulling alternately on one chain and then the other (U.S. Patent 6,368,227).

But if you think patenting the obvious is silly, then what about patenting the impossible? Do these inventors sit around and watch Star Trek all day, then rush off to the patent office? U.S. Patent 6,025,810 protects the warp drive: “[This] invention takes a transmission of energy, and instead of sending it through normal time and space, it pokes a small hole into another dimension, thus sending the energy through a place which allows transmission of energy to exceed the speed of light.” It comes complete with elaborate wiring diagrams.

Fun is fun. But there is a serious side to all this nonsense. In The Social Network, Facebook creator Mark Zuckerberg asks, “Why should a guy who makes a really good chair owe money to anyone who ever made a chair?” Yet in practice that is what patents are for. Take the matter of faster-than-light travel. The patent is silly because it is science fiction rather than science. But should a real entrepreneur ever come up with a way of communicating faster than the speed of light, the only thing we can be certain of is that she will then have her pants sued off for patent violation by Mr. David L. Strom—owner of the “idea” of the warp drive.

Does that sound crazy? Consider the true story of Jerome Lemelson, who in 1954 and 1956 filed patents (or so he later claimed) on optical scanning. Optical scanning was no more practical in 1956 than the warp drive is today—and needless to say, Lemelson’s “invention” did not include a working device. Still, when optical scanning became widespread in 1998, Lemelson demanded and received millions of dollars in royalties from the companies that produced optical scanners. It is true in the end the courts invalidated his patents. But he did not give back the money.

The Rest of the Story

Patents are not the end of the story. They seem so serious: They’re essential, it’s said, to innovation, growth, economic welfare. Patents involve weighty and important things. By contrast, trademarks and copyright seem lightweight. What does a song really matter to our economic well-being? The logo of a company? If the International House of Pancakes wants to sue the International House of Prayer for a trademark violation, well it’s silly, but so what? If a woman trademarks her name and threatens to sue anyone who uses it in written communication, well the world is filled with silly people. If one restaurant sues another over grazing goats on the roof, it’s an amusing article in the Wall Street Journal. Or suppose a company calls itself “Rosetta Stone,” trademarks the name, then sues Google for selling it as a keyword for searches. At least a big company like Google can afford the lawyers to defend itself. And if the media industry’s anti-piracy lawyers are suing one another for copying cease-and-desist letters, that’s not only silly but ironic, right? It’s true that these silly lawsuits clog up the courts, but that’s the price we have to pay for . . . well I am not sure why we have to pay it, but you get the point.

Some copyright stuff is sleazy. For example, Stephens Media encourages people to share its news articles with their friends, then sues them for copyright violation when they try to do it. It’s true the company intimidates a lot of people into paying up—but “no harm no foul”: Nobody has actually gone bankrupt on its account yet.

The truth is that trademarks—unlike patents and copyright—have a legitimate purpose. Why should someone be allowed to do business pretending to be me? That’s how trademark law is written. Yet no law has been written that lawyers cannot distort. A company, Peabody Energy, recently tried to take down a website making fun of its clean-energy claims because—you’ve got it—the site used its trademarked name.

The Electronic Frontier Foundation has an entire catalog of these kinds of offenses. Are they just silly? Or are they sinister? Suppressing free discussion of the demerits of a person (who trademarked her name) or a company (that trademarked its name) certainly is not the purpose of trademark law. Or how about this: When the book Alice’s Adventures in Wonderland—a book not under copyright and in the public domain—was reformatted for the Adobe e-book reader, readers were told that any effort to copy, print, lend, or give the book away—or indeed to read the book out loud—would be a violation of international copyright law. Leaving aside that these restrictions are as meaningless as they are legally unenforceable, and that this falls into the silly rather than sinister category, the idea that a copyright holder might want to prevent something from being read aloud should give pause.

After you pause, take a deep breath: There is worse to come. There are copyright holders who want to prevent things from being read at all. The Diebold Corporation sued a group of students. Their offense? They made public internal company emails documenting that Diebold voting machines do not work especially well, and in particular are vulnerable to the casting of fraudulent votes. Pretty serious stuff. Why did Diebold sue these students? It sued them for copyright violation. It claimed the internal emails were copyrighted and that the students had reproduced them without permission. In this instance the courts behaved sanely: Judge Jeremy Fogel wrote in his decision that “no reasonable copyright holder could have believed that portions of the e-mail archive discussing possible technical problems with Diebold’s voting machines were protected by copyright.” But while threatening and carrying out meritless lawsuits is not as bad as winning them, it imposes a real tax on free speech. And more to the point, the history of intellectual property is the history of absurd requests being repeatedly rebuffed by the courts (think “software patents before 1998”) until a panel of judges finally caves in.

Let us be realistic: People sue each other for all sorts of silly reasons having nothing to do with intellectual property—and often win in court. People who spill coffee on their laps sue the maker of the coffee; burglars who fall through the roofs of properties they are robbing sue the owners for unsafe roof conditions, and so forth.

Abusive by Nature

So why condemn intellectual property law over, say, tort law more broadly? Why focus on IP and not on the broader problem of excess litigation? The answer is that intellectual property is abusive by its very nature. Despite what the propagandists say, intellectual property is not about protecting land from trespassers. It is about controlling what belongs to other people. It is about the right of Disney Corporation to tell me what to do with things I have on my computer—even things I have created myself.

Is it a coincidence that the main accomplishment of the patent system is to encourage rent-seeking behavior? Well, consider that originally the only purpose of the patent system was to encourage rent-seeking behavior. There was no fiction that it was a reward for invention: The king simply granted favored rent-seeking courtiers monopolies over the production of salt, the land in Virginia, or whatever the favorite with the largest bribe happened to desire.

Is it a coincidence that the main use of copyright is to suppress free speech? Well consider that originally the entire purpose of copyright was to suppress free speech. When the printing press became widespread, a monarchy deathly afraid of popular dissent granted printing companies “copyright” monopolies over the printing of (government-authorized) books, along with the right (and obligation) to burn any books the monarchy disapproved of.

Where is this all headed? Intellectual property is not merely a threat to freedom of trade and speech. It is also a threat to freedom of thought. Sound far-fetched? A ridiculous straw man? A wild exaggeration?

Is it? How about this famous copyright lawsuit that the plaintiff won? It concerned two songs: One consisted of four repetitions of a short musical phrase A followed by four repetitions of B. The other and subsequent song also consisted of four repetitions of A followed by three repetitions of B. And indeed, the tune was sufficiently “obvious” that the judge concluded that George Harrison did not knowingly copy the song “You’re So Fine” when he wrote “My Sweet Lord.” He nevertheless ruled for the plaintiff: “His subconscious knew it already had worked in a song his conscious did not remember. . . . That is, under the law, infringement of copyright, and is no less so even though subconsciously accomplished.”

Subconscious copyright violation! Just wait until we all have video cameras implanted in our retinas! Then you will have to pay a fee to Walt Disney Corporation or some other big company each time you look down the street. Or perhaps you will have to pay me: I’m thinking of patenting the idea.

Omega is a Swiss watch manufacturer. Costco is an American retailer known for selling brand-name goods at deep discount.  Its business model includes the common arbitrage practice of “parallel importation” by which a commodity selling more cheaply abroad than domestically is imported and marked up by an unauthorized seller. A New York-based supplier imported Omega watches and resold them to Costco. Although each step of acquisition was legal, Omega sued because Costco was  not “authorized” to distribute its copyrighted logo.

The suit challenged the legal doctrine of “first-sale,” recognized in 1908 by the Supreme Court in Bobbs-Merrill Co. v. Straus and codified in the Copyright Act of 1976. Under this doctrine the buyer of a copyrighted work can dispose of it without permission of the copyright holder. For example, you can sell used books without permission from authors or publishers. Because there is a low threshold for copyright registration, first-sale applies to a vast array of products, from breakfast cereals to kitchen appliances, from beauty aids to vitamins. It also applies to foreign parts used in assembling otherwise American goods.

In February 2007 a federal district court in California granted Costco’s motion for summary judgment vacating Omega’s preliminary injunction. Omega appealed to the Ninth Circuit Court, where a three-judge panel reversed the lower court and ruled that the first-sale defense applies only to items made and distributed within the United States and not to foreign goods. This is the ruling the Supreme Court affirmed. Costco now returns to the lower courts where the case has been remanded for further proceedings.

The Tie-Breaking Justice

The Supreme Court Justice who recused herself is Elena Kagan. There is reason to think she would have voted against first-sale.  In its ruling the Ninth Circuit argued that applying first-sale to foreign goods would violate a presumption against imposing U.S. law in an extraterritorial manner. Costco countered that preventing a foreign company from controlling distribution within the U.S. did not involve extraterritoriality. However, Kagan, as solicitor general for the Obama administration, submitted a friend-of-the-court filing (pdf) that raised extraterritoriality concerns, stating that the “Copyright Act does not apply outside the United States.”

In short, if another foreign manufacturer takes a similar case to the Supreme Court, a 5-4 vote against first-sale for foreign goods is highly probable. Then, as the Ninth Circuit stated, a foreign manufacturer would be able to “exercise distribution rights after even the tenth sale in the United States….”

Among the likely effects of the ruling:

• a huge array of goods will lose first-sale exemption;
• some American manufacturers will relocate abroad to enjoy lucrative copyright and distribution advantages;
• domestic manufacturers will be vulnerable to “downstream restraints” due to foreign components in their products;
• possible lawsuits and fines will encourage manufacturers to “Buy American,” raising costs to consumers;
• the practice of protecting otherwise unremarkable foreign goods by attaching a copyrighted logo or label will proliferate;
• Parallel importing will cease or be severely restricted, making American retailers less profitable and goods more expensive;

• American consumers will lose the legally clear right to sell or loan personal goods that were produced in other countries or contain foreign parts.

The stakes are not trivial. In 2009, according to the U.S. Department of Commerce, American businesses imported $1.6 trillion in foreign-made goods. But the stakes are more than economic. The denial of first-sale to foreign goods also upsets hundreds of years of common-law tradition determining an individual’s control of his personal property.

Nevertheless, with such a rich plum of possibility hanging over the Supreme Court, it is difficult to believe that another foreign manufacturer will not attempt to secure the benefits signaled by Costco Wholesale Corp. v. Omega S.A.

Specifically, the agreement extends intellectual property protections by ensuring copyright holders have the exclusive right to publish their works online. It also bans the hacking of technology used to protect copyrighted work from unauthorized duplication.

The agreement also addresses online piracy, strengthens copyright enforcement by criminalizing end-user copyright theft, outlaws the use of camcorders in cinemas and provides law enforcement the necessary authority to seize and destroy counterfeit goods and the equipment used to produce them. The entertainment industry believes that authority will dissuade counterfeiters from using South Korea as a conduit for their illegal trade.

Once again “free trade” is being used to obscure a U.S. government effort to pressure other countries to adopt stringent American-style “intellectual property” laws, which attempt to control the dissemination of information. Not only is IP becoming increasingly more difficult to enforce as the price of technology falls, IP is completely at odds with the spirit of freedom and liberalism, and requires that the individual right to physical property be violated by government. That’s right, the U.S. government is exporting bigger government to other countries — at the behest of powerful business interests.

For articles on the case against IP, see:

“How ‘Intellectual Property’ Impedes Competition” by Kevin Carson

“Open-Source Software: Who Needs Intellectual Property” by Michele Boldrin and David K. Levine

“Fashion Design and Copyright” by Edward J. Lopez

“Do Patents Encourage or Hinder Innovation? The Case of the Steam Engine” by Michele Boldrin, David K. Levine, and Alessandro Nuvolari, and

“Intellectual ‘Property’ Versus Real Property” by Sheldon Richman

The issue arises because after a century of relegating fashion designs to the wilderness of intellectual property law, Washington seems poised to begin domesticating the fashion industry. With Sen. Chuck Schumer (D-N.Y.) as lead sponsor, the Innovative Design Protection and Piracy Prevention Act (S.3278) was introduced last August. Design protection bills have been introduced routinely since the 1970s. Yet only in recent years has the cause gained significant legislative momentum. Since 2005 about a dozen precursors to the current bill have been introduced in the House and Senate. A slate of hearings has harvested the views of academics, designers, and celebrity witnesses. The current bill—pruned by numerous drafts and political-legal deals, plus a detailed review by the U.S. Copyright Office—was a honed legislative compromise designed to win majorities in both chambers in a postelection congressional logrolling frenzy.

If enacted the bill would amend the Copyright Act to provide three years of protection to fashion designs that meet defined standards of originality and novelty. As defined in the bill, a fashion design is the “appearance as a whole of an article of apparel including its ornamentation.” An infringement of a protected design occurs if a copy is found to be “substantially identical in overall appearance” to the protected design, so long as it can be “reasonably inferred [that the copyist] saw or otherwise had knowledge of the protected design.” The bill includes a system of penalties and various provisions to limit collateral consequences like excessive litigation as well as unfair burdens on emerging designers and home sewers. Once the law was in place, fashion would join computer software, vessel hulls, and architectural designs as recent exceptions to the “useful article” rule written into the Copyright Act.

The U.S. apparel industry has essentially always operated in a “low intellectual property equilibrium” (as law professors Kal Raustiala and Chris Sprigman have aptly surmised in their influential study of fashion copyright). Trademark protects certain features in fashion design like brand names, logos, and unique attributes that consumers use to identify designs with a particular brand. The stitched polo player on Ralph Lauren’s shirts is protected, but the overall design of the shirt is not. The plaid pattern made famous in the linings of Burberry’s top coats is protected; the silhouettes of their topcoats are not. As for patents, the process is too slow and its standards of novelty too strict for fashion.

Copyright law has traditionally not protected fashion because a garment is considered a “useful article” that combines a utilitarian purpose (covering the body) with the designer’s creative expression. Still, certain articles like a sculpted brooch or an artistic belt buckle are protected if they are considered works of art that are separable, at least conceptually, from the clothing article itself. And while a two-dimensional sketch is generally protected, the physical rendition of the design as an article of clothing is not. “[A] man’s property is limited by the chattels of his invention,” wrote Judge Learned Hand in an important 1929 case involving dress designs, Cheney Bros. v. Doris Silk. “Others,” he concluded, “may imitate these at their pleasure.”

The case before Judge Hand bore remarkable similarity to the fashion-copying issue before us today. The complainant was a company, Cheney Bros., Inc., whose business model employed constant experiments with dozens of dress patterns simultaneously to discover the designs that would become market trends. Meanwhile the respondent, a company named Doris Silk, would copy the successful dress patterns once they were identified by Cheney’s experiments and then proceed to undercut its prices. Even though Judge Hand’s opinion is full of sympathy with Cheney and he had some degree of impatience with the design copyist, he ultimately could find no refuge for design originators in the law. “To exclude others from the enjoyment of a chattel is one thing; to prevent any imitation of it, to set up a monopoly in the plan of its structure, gives the author a power which the Constitution allows only Congress to create.”

Having been spurned by the courts, fashion designers did not initially go to Congress for protection. Instead, the industry organized more effectively and took matters into its own hands. The Fashion Originators Guild of America, a cartel among design originators, lasted from 1932 to 1941. Guild members agreed to boycott retailers who dealt with known copyists. The Guild employed clandestine shoppers trained to spot fakes and a tribunal to determine whether designs were copies. Guild members were fined for conducting business with known copyists. While reportedly successful at achieving its ends, the Guild was dismantled in 1941 by the U.S. Supreme Court, which ruled the boycott in violation of the Sherman Antitrust Act. Since then the fashion world has enjoyed almost no intellectual property protection.

Meanwhile, as one would expect, copying of fashion designs has been rampant and grows faster and more efficient with digital communication and production technologies. Some design copying occurs bilaterally between individual designers. For instance, in 2009 Diane von Furstenberg inadvertently copied protected elements of a men’s jacket designed by two Canadian designers (the dispute was later settled out of court). More commonly, large-scale manufacturers copy the designs of small-scale and artisanal designers, then bring mass quantities of the modified design to market at lower prices. During fashion week or the Oscars, for example, copyists hurriedly beam runway photos to factories around the globe, which translate the images into wearable copies and begin manufacturing tout de suite. Copyists can place finished garments on store racks in a few weeks.

It is this latter, large-scale form of copying that most disturbs design originators. “When things get copied, it’s like somebody coming into my head and robbing, stealing,” designer Maria Cornejo told NPR’s Kaomi Goetz during New York fashion week last September. This reflects the attitude more broadly of the industry’s upper crust of designers, which sometimes vilifies copyists in support of the pending legislation. In 1996 Narciso Rodriguez designed a wedding gown for his friend Carolyn Bessette for her marriage to John F. Kennedy, Jr. The gown was instantly copied and marketed around the world before Rodriguez could commercialize his own design. Fifteen years later the cleanly elegant design is still popular among brides and easy to find online. Testifying before Congress in 2008 Rodriguez pleaded for protection. “They have stolen my DNA,” he said. “We need your help.”

As Judge Hand reminds us, copyright is essentially a form of legal monopoly. As with any restriction of competitive market forces, consumers are made to pay higher prices and enjoy less choice than without monopoly. Copyright also restricts the public domain, diminishing the rate of downstream innovation. So the downside to copyright is higher access costs for two groups.

On the other hand, copyright is intended to encourage creative works since the designers know that their monopoly position will let them capture most of the economic value of their innovation.

In short, copyright is a social tradeoff: Some access is sacrificed for more innovation. This is a deeply ingrained concept in American society, as Article I Section 8 of the U.S. Constitution empowers Congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

Empirically speaking, the tradeoff bears no relevance to the fashion industry. Rather, fashion is well known as a highly competitive and highly innovative market. Design innovation in fashion is vibrant even though design originators enjoy no copyright and copying is widespread. Each fashion cycle unveils a remarkably creative array of novel designs. Entry by new designers is robust, and bold newcomers often move to the cutting edges of innovation. According to the evidence, the creative forces of design originators respond to something deeper than intellectual property protection, perhaps artistic imperative or the quest for fame. As for revenues, design originators have developed indirect mechanisms to lend their reputational capital to perfumes, cosmetics, and accessories, whose high markups afford handsome licensing fees.

To be accurate, the supporters of the legislation do not seek to promote innovation but to achieve what they regard as fairness. Steven Kolb, the executive director of the Council of Fashion Designers of America, summed it up in that NPR report: “Designers invest a lot of time, a lot of resources, a lot of energy into creating their collections. It can take them nine months and billions of dollars. So when they present those collections and somebody can just steal them right off the runway, within seconds, and profit from their work, their energy, their intellectual property—it’s not fair.”

Nonetheless, this competitive and innovative outcome is puzzling because the lack of copyright does not appear to have been significantly costly to the industry. On the contrary, copying helps the fashion industry broaden the scope of its innovations and achieve greater relevance to consumers and society.

As we scratch the surface of the fashion industry and begin to analyze it more closely, we can see why fashion inverts the expected economics of intellectual property. As consumers of fashion (that is, all of us) we show enormous variety in the way each of us views it. We all place different combinations of value on novelty, exclusivity, style, variety, conformity, comfort, and of course money. Some of us are fashion-conscious. Others have mastered that traveling professor look. Probably most of us take fashion more seriously than we would admit. And we all seem to have strong feelings about how much time and money ought to be spent shopping.

Copyists enable the industry to meet the range of consumer preferences by segmenting the market into as many different consumer types as possible. By segmenting choices into different styles and price ranges, copyists let consumers easily identify with fashion, become comfortable with a look, experiment and cross over between segments, or pick and choose from multiple segments at once. Go ahead and splurge on the suit, but bargain hunt for the shirt and tie. Segmenting also lets people with low incomes afford to participate in fashion and have access to tasteful, fashionable looks even on a modest budget. Walmart in fact sells its own apparel lines and began showing at New York’s Fashion Week in 2005. Fast fashion has dramatically expanded the options available to low-income households.

From Catwalk to Sidewalk

At the high end of design the fashion show lets design originators pursue their innovations. Since originators do not need to uphold wearability or marketability as priorities, they have freedom to experiment with materials, silhouettes, color patterns, hem lines, and so forth. This often results in designs that have high degrees of abstraction. This abstraction in turn gives wide berth to originators in exploring and communicating their ideas—their ideological statements on the current state of fashion, its relation to the world, and the designer’s normative claims on how he or she wishes to change the world. Most people don’t take fashion that seriously (myself not included), and many find it difficult to relate to what comes down the catwalk during fashion week.

To go from abstract ideas on the catwalk to fashionable clothing on the sidewalk, however, requires an imitative-adaptive process. As with all fields of creative expression, ideas at a high level of abstraction are initially appreciated by niches of elite expertise and taste. Ordinary consumers may not understand everything on the runway but experts can, and these small circles of virtuosity are the only audience that matters when design originators aim to innovate. To then translate the abstract into the economic trend, downstream innovators analyze, imitate, and reformulate the originals, editing the complexity while retaining the aesthetic. This process of adaptation and imitation transports abstract ideas from elite niches to broad appeal, creating clothes that people can relate to and want to wear.

When design copyists compete to imitate and adapt design originators, they also discover manufacturing and distribution shortcuts that help reduce unit costs. By removing a seam here or there, using less costly fabric, inventing an electronic inventory system, and so forth, fashion copyists reduce their own costs and can offer designs to consumers in even lower-priced market segments. It is only in recent decades that people of even modest purchasing power began to have access to fashionable, tasteful looks. “Queen Elizabeth owned silk stockings,” Joseph Schumpeter famously observed. “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.” Similarly, Frédéric Bastiat expressed wonder at the market’s ability to feed Paris without a central plan. The same holds for the spontaneous order of the fashion world. Paris gets clothed as well, good sir.

The public discussion over fashion copyright is well underway. Design originators have a normative head start in that discussion, just as the complaint by Cheney Bros. drew the sympathies of Judge Hand. It is unfortunate that the public discussion treats design copyists as pirates and parasites. We might instead view them as adaptive-imitative entrepreneurs whose innovations serve beneficial economic functions. Copying in fashion is not a mere exercise in copying apparel designs. Copyists translate the abstract into the real, thus moving innovation along in the industry, reducing costs of production, and making fashion relevant to all segments of consumers and society.

As its proponents will tell you, the proposed legislation is not about spurring innovation. Rather, it is about design originators keeping a bigger share of the economic pie that they help create. In our democratic society, the industry can lawfully attempt to steer the machinery of government in directions that enrich itself. It is up to the rest of us to discuss whether easing the competitive market burdens on design originators is worth the costs to downstream innovators and their consumers.

[Editor's note: Due to an editorial error, the executive director of the Council of Fashion Designers of America was incorrectly identified in the original version of this article.]