It seems today that either Apple, Google or Samsung is suing each other for patent infringements. Some design or how a corners of a phone are patentable is beyond me. I remember when Microsoft got caught with its pants down by not jumping on the Internet bandwagon early enough and allowed Netscape to get head start in the Internet browser market. Microsoft responded with a complete integration of IE into its OS to which Netscape, Sun Microsystems and others cried foul and the government got involved. At the time, I was wide-eyed, young and impressionable and thought Microsoft was being unfair and leveraging their monopoly status to push out competitors.
It turned out integrating IE to the Windows operating system caused more headaches for Microsoft than it was worth. It exposed too many OS vulnerabilities to the unregulated data traffic of the Internet. They paid the price by constantly patching the OS. In the end, they still lost a majority of the browser market share to Firefox and now Chrome. Performance benchmarks consistently put IE well below the competition and it shows up in marketshare.
The thing is, the free market will always find ways to keep seemingly out-of-control companies in check. Natural monopolies are difficult to find and when they exist, they only do so by keeping margins too low to attract competition. What people fear about monopolies is the lack of competition to keep prices and margins in check. They think once a company achieves monopoly status, it can raise prices to whatever they want. In the short-term that may be true. But let's consider what would happen if I suddenly told you I was making a fortune making banana-nut-bread muffins using a secret ingredient. People just loved them and I was charging $10 a slice for something that only cost me 50 cents to manufacture. Now wouldn't you be interested in learning how? People who aren't rich always want to know how rich people got to be rich. And this is my point: High profit margins always attracts competition because people want the same margins - low inputs and high outputs. Certainly it would be worth paying the $10 to obtain a slice and then taking it to some chemist to figure out exactly what the chemical composition of my proprietary 'secret ingredient.' In fact, you'd spend enough money to the point where the returns on future business would yield a positive return.
But let's not stop there, let's say you figure out my specific recipe and now there are two players in the market for the same banana-nut-bread muffin. At this point, there is no reason for you, the second entrant in the market, to lower your price as long as you can reach at least 50% of the market share. This is the other problem people have with the free market. They think collusion will occur and that government must step in. But in reality, collusion is more difficult to maintain in a free market than it is for a monopoly. Collusion, in concept, is no different that a monopoly except that you have not one, but two 'competitors' setting prices the way they want. Colluding companies still face the same problem the monopoly did because the high margins keep attracting more competition into your market except the collusion, or now cartel, must equally share the same market. As each new competitor enters the market and is included into the cartel, it diminishes the profitability of the existing members thus putting pressure on them to lower prices to gain market share. The other alternative is to continually raise prices so that it cancels out the effect of dividing the market into smaller and smaller pieces due to increasing the cartel membership. Either way, it becomes increasingly more difficult to maintain the cartel. Either the members break rank and slash prices or the rising price of the commodity create market demand for an alternative. U.S. Steel was a natural monopoly but had competition because it knew if steel became too expensive, people would simply turn to other metals like aluminum.
What does this have to do with IP, copyrights and patents? Well, these are all tools to maintain a monopoly status artificially. It hurts the free market in that the person looking for such government protection is trying to maintain a high profit margin and to set their own prices. Supporters of IP will make the argument that lots of research and resources go into patentable ideas. That is true. However, what these people are ignoring is the risk factor involved. Most ideas are no good. If you don't believe me, go watch 'Shark Tank' and see how many stupid ideas are presented. Now the argument is usually made that since the inventor is the first to market with an unproven idea, it should be rewarded with the IP. The fact is, they will always be rewarded for being first regardless of IP protection.
Back when musicians like Mozart and Beethoven were around, there were no recording devices. But that didn't stop some knock-off artist to attend a concert performed by the original artist, write up the score and then perform their own concert playing the same music. All that did was allow the original composer to charge more to hear an 'authentic' version of the concert.
It makes no difference whether it's a book, prescription drug or a song. There is no a-forehead knowledge of its profitability in the free-market. The first-to-market is taking the risk. Only after it's wide acceptance and profitability will copiers enter the market and drive the price down at which the whole market benefits. But the copiers will forever be the copiers and only capture the residual profitability as the market saturates. The real entrepreneurs will still be rewarded for their risk-taking.
From a philosophical standpoint, IP, is a non-tangible thing. It is simply an idea. I always say, 'IP really stands for Idea Profiteering.' IP is not the result of any discernable action. It is the result of thinking or imagination. It's until you physically engineer the idea into reality that you actually own anything. So the concept of property rights cannot apply to 'intellectual property' because it fails to fit the definition of: You own the effects of your actions. You are not acting and there are no effects.
It's all about definitions. I've heard the argument a million times that thinking is acting but I believe that's a fail and here's why. If I'm standing in front of you and doing jumping jacks, you can see that I'm doing jumping jacks but more importantly you also know that I'm not doing sit ups. When someone is thinking of an idea, they can just sit there motionless. There is no way one can tell when someone is thinking about a topic and when they are not.
There is also no effect from thinking about an idea. The effect of thinking is having thoughts and while that is obvious, it is also a irrelevant to the matter. Everything, at this point, only exist in the mind and while you may own your brain and the contents in it, both real and abstract, if someone else physically does work to make your idea into a reality, then the effects of their actions belong to them, not you. One cannot simply think things into existence. One must act.
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