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.

The Patent Controversy

Today one of the most controversial issues in economic policy is that of patent law. Is a patent just an extension of property rights to the realm of ideas? Or is it an unwarranted interference by the government into the rights of individuals who have purchased goods and services to use them as they see fit? Should the Western system of patents be extended worldwide? Or should we get rid of patents entirely? Is the patent system responsible for modern miracle drugs? Or is it to blame for the millions dying of HIV in Africa? Do patents lead to greater innovation and economic growth? Or do they kill the goose that lays the golden egg?

The issue of whether patents are genuine property rights or unwarranted government interference cannot of course easily be answered by a natural experiment. We will leave that discussion to philosophers. The impact of patents on innovation does have an objective answer. In this case history instead of nature has been kind enough to provide us with a wonderful natural experiment. This experiment took place in the county of Cornwall, England, between 1772 and 1852. It was there, in the extreme southwest of England, in the wet depths of the Cornish copper and tin mines, far removed from the supply of coal in Wales, that the steam engine was pioneered.

To examine innovation in steam technology, we need a measure of how good a steam engine is. One important measure is the amount of work delivered by a given amount of fuel. This can be measured by the duty of a steam engine: the number of pounds of water that can be lifted one foot for each 94 pounds of coal consumed.

In 1772 steam engines were of the so-called Newcomen design of which the best had a duty of 10 million foot-pounds (10M). In 1777 Matthew Boulton and James Watt began selling the first steam engines with a separate condenser. These initially had a duty of 18M, rising by 1792 to a peak of 26M. There things rested until 1814 when the use of the high-pressure design of Richard Trevithick led to engines with a duty of 55M. The duty then rose relatively continuously until it reached a peak of 110M in 1852.

To summarize: During the 42 years from 1772 to 1813 duty rose 3.8 percent per year; during the 38 years from 1814 to 1852 duty rose more than twice as fast—8.5 percent per year. The evolution of the duty is charted in the figure. The state of innovation is best represented by the best engine currently being produced, but for completeness the average and minimum duty of constructed engines is reported. The decline in duty growth after 1852 reflects both the general decline of the Cornish mining industry and the more difficult conditions in which steam engines were forced to operate due to the deepening of the mines.

As it happens there is one critical difference between the earlier period and the later period. By patenting the separate condenser Boulton and Watt, from 1769 to 1800, had almost absolute control on the development of the steam engine. They were able to use the power of their patent and the legal system to frustrate the efforts of engineers such as Jonathan Hornblower to further improve the fuel efficiency of the steam engine. By way of contrast, and fortunately, Trevithick did not patent his equally innovative high-pressure design.

Ironically, not only did Watt use the patent system as a legal cudgel with which to smash competition, but his own efforts at developing a superior steam engine were hindered by the very same patent system he used to keep competitors at bay. An important limitation of the original Newcomen engine was its inability to deliver a steady rotary motion. The most convenient solution, involving the combined use of the crank and a flywheel, relied on a method patented by James Pickard, which prevented Watt from using it. Watt also made various attempts at efficiently transforming reciprocating into rotary motion, reaching, apparently, the same solution as Pickard. But the existence of a patent forced him to contrive an alternative less-efficient mechanical device, the sun and planet gear. It was only in 1794, after the expiration of Pickard’s patent, that Boulton and Watt adopted the economically and technically superior crank. The impact of the expiration of Watt’s patents on his empire may come as a surprise as well. Far from being driven out of business, Boulton and Watt for many years were able to charge a premium over the price of other steam engine manufacturers.

Here we see clearly the upside and the downside of the patent system in action. The upside is that it may be the case that the prospect of a 31-year monopoly induced Watt to spend three and a half years of his life—between late 1764, when he first was asked to repair a steam engine, and mid-1768, when he applied for patents on his improved design—working to improve steam technology.

The downsides are two. The first is that the reward to success bears no relation to the cost of invention. In what respect is it necessary, reasonable, or fair to grant a 31-year monopoly and make a man fabulously wealthy because he spent a few years working on a project that benefited his fellow man? Certainly this kind of inducement was not needed for Trevithick, whose contribution to steam technology raised the duty 110 percent as against Watt’s contribution, which raised the duty only 80 percent.

The second downside of the patent system is the devastating effect it has on incremental innovation. From 1786 to 1800 there was no increase in the duty of steam engines at all, as Boulton and Watt successfully sought to prevent competition by suppressing innovation. This should be a cautionary note for people who think that the current wave of patent litigation triggered by a system of software patents created by the courts is likely to have a beneficial impact on software innovation.

Collaborative Innovation

For the 11 years following the end of the Boulton and Watt monopoly, Cornish mining activities underwent a period of slackness, as the mine adventurers were content with the financial relief coming from the cessation of the premiums they had paid to Bolton and Watt. As a consequence they neglected the maintenance and the improvement of their engines. This situation lasted until 1811, when a group of mine captains decided to begin the publication of a monthly journal reporting the relevant technical characteristics, the operating procedures, and the performance of each engine. Their explicit intention was twofold. First, the publication of the reports permitted the rapid individuation and diffusion of best-practice techniques. Second, it introduced a climate of competition among the engineers entrusted with the different pumping engines, with favorable effects on the rate of technical progress. Joel Lean, a highly respected mine captain, was appointed as the first engine reporter. The journal would later be called Lean’s Engine Reporter. During the 31 years after 1811 this collaborative competitive effort at innovation raised duty by more than the great “breakthrough” of Watt ever did.

It is worth remarking another important feature of the process of technical change in Cornish engines during the collaborative period. Most engines were single-cylinder, high-pressure, single-acting engines, with a plunger pump of the type originally erected by Trevithick in 1812. Interestingly enough, however, alternative designs were never completely ruled out. For example, in different periods, engineers such as Arthur Woolf and James Sims continued to experiment with compound engines. Throughout this period, the development of the Cornish engine remained a fluid state and this facilitated a more thorough exploration of alternative designs.

The astute reader will no doubt notice that the collaborative innovation occurring after the expiration of the Watt patents resembles nothing so much as modern open-source software development. Like with open-source software, altruism and socialism played no role—just good old-fashioned capitalist incentives. Engineers were recruited by captains of the mine on a one-off basis to build and design an engine. Engineers were in charge of the design and they supervised the erection of the engine that was commissioned to them. They also provided directions for day-to-day working and maintenance of the engines they were entrusted with. Thus the publication of technical information concerning the design and performance of different steam engines permitted the best engineers to consolidate their reputation and improve their career prospects. Over time, this practice gave rise to a professional ethos favoring sharing and publication of previous experiences.

Much of the free/open-source-software industry operates this way today, with software engineers competing for future business through the quality of their current innovations. Sharing of information is a key part of this competition. If Linus Torvalds, creator of the Linux kernel, is not nearly so rich as Bill Gates, he is nevertheless richer than most of us. (See Michele Boldrin and David K. Levine, “Open-Source Software: Who Needs Intellectual Property?” The Freeman, January 2007.)

Even the modern controversy over the current effort of the Free Software Foundation to limit software patents through the General Public License Version 3 finds reflection in the earlier Cornwall experience. Familiar with the negative impact of the Watt patents on innovation, Cornwall mine engineers were reluctant to patent their inventions. From 1781 to 1852 Cornish residents took out a grand total of 15 patents on steam technology—against 994 patents on steam technology in all of England during that period. Will it surprise you to learn that the area with the fewest patents also was the area that contributed the most to the innovation and development of steam technology?

One may wonder why development in an obscure corner of England should draw our attention. As it happens, the design of fuel-efficient high-pressure steam engines did not only serve to improve the efficiency of pumping water out of mines in one small region. It is the fact that efficient high-pressure engines can be made light and compact and do not require much weight of fuel that made possible such modest advances as . . . the steam train, the steam boat, the steam jenny, and the steam just-about-everything-else. In short—the steam engine that we imagine as the centerpiece of the Industrial Revolution, the key link that took us from riding horses to being frequent fliers—was not the product of the inventive genius of James Watt. When the Boulton and Watt monopoly expired in 1800 steam engines were used only to pump water out of mines. The earth-shattering innovation of widely usable steam engines was the product of the efforts of Joel Lean and dozens of other equally anonymous Cornwall mining captains and engineers. It is equally a tribute to their steady innovation without making use of patents.