Intellectual Property: Another Public Myth

Hi all,

This is a tough topic to write about because I am intellectually forced to admit something I really don’t want to admit: intellectual property is public myth. But to be fair, I have to qualify that. It is public myth inasmuch as it is commonly understood today. I will conclude in this piece that there is genuine value in the intellectual contributions individuals make, but how it comes to market is where I part ways with orthodoxy.

Copyright law

The two primary legal tools for protecting “intellectual property” are patents and copyrights. In the case of copyright, an innovator secures for a limited time and under limited constraints legal right of remuneration based on the general use of that “property”. The key word here is general use where I mean to indicate that the rights to remuneration extend beyond the initial point of sale, or beyond a single transaction and encumber the promise (the buyer) with constraints on how the promise may use or share this information from that point forward. This identifies two key forms in play:

1.)   The consideration of the promise is the act of sharing information (regardless of what that information might be)

2.)   The consideration of the promise is information

I will argue that in law and equity the first form can be made internally consistent while the second cannot; and that subsequently the second form fails the test of valid contract law. And this is a classic example of how a subject straddling two very different disciplines can conceal extremely valuable truths; namely, the truth just posited.

From the perspective of an information theorist or mathematician, something is defined if all the information about it can be known and assembled. In this sense, it is objective since any number of observers can observe the thing in question and verify whether or not it matches the canonical definition. If each observer takes their understanding of the definition and forms an experiment based on that definition to identify any thing that matches that definition, we can be certain that any two observers doing so will identify the same thing, and only that one thing.

From the perspective of a legal scholar, something is defined if there is an appropriate statutory or case law description. In this sense, it is subjective since not all observers reading the definition will necessarily reach the same conclusion of what that definition is. If each observer takes their understanding of the definition and forms an experiment based on that definition to identify any thing that matches that definition, we can never be certain that any two observers doing so will identify the same thing, and only that one thing.

Normally, the subjectivity of definition in law and equity presents no difficulty and remains a hidden defect since:

Any actual attempt to identify the thing defined will succeed since the variance of account between one observer and the next is small enough to remove any ambiguity between the thing defined and any other thing. In other words, any two arbitrarily chosen accounts of the definition of the thing we are trying to define, when applied empirically for observation, will guarantee that the identification of the thing defined is unique.

In other words, while the definition is subjective, it is, for all intents and purposes, de facto objective.

This system works well, and has worked well for a few hundred years without anyone noticing an issue, until we encounter a situation where technological change reduces tolerances and increases precision to such a degree that:

The variance between any two observers’ account of the thing we are attempting to define is too large to guarantee our ability to uniquely identify the thing we are attempting to define. In other words, any two arbitrarily chosen accounts of the definition of the thing we are trying to define, when applied empirically for observation, will not guarantee that the identification of the thing defined is unique.

This creates a fundamental problem for any “intellectual property” of a subjective nature. To explain, we need to start with the meaning of “valuable consideration” and explain a thing or two about contract law.

English precedent established the definition of “valuable consideration” some time ago in the 1875 case of Currie v Misa1:

“A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other”

Legal scholars have established parameters around the use of consideration and how it is defined. One of them is that for consideration to be valid the consideration cannot be vague. But vague is just another way of saying what we are discussing; that is, variance in definitions that makes unique identification impossible. Historically, this has never been an issue because of the variance supra. The only reason our consideration is now vague is because the nature of the thing has changed; the precision by which it is defined is considerably greater. This matters because it allows alternatives that could not have existed prior to this technological state.

Augmenting this conclusion is the additional parameter that states that consideration must be “real” and cannot be “uncertain” or “ambiguous”. Again, this is another way of saying what we are discussing now.

To prove this point we need to understand these terms “vague”, “real”, “uncertain”, “illusory” and “ambiguous” on a more fundamental logical level.

The point of these parameters is to provide boundaries around the relative definition of the consideration in play versus any other possible consideration. So, something is “vague” if by being so it renders its own unique identity opaque to observation. That is the point. And that is why the increased precision brought on by technological change is not being pedantic or excessively demanding; it is the same standard that has always been applied to valid consideration, it’s the technology that changed, not the definition of consideration. Internal consistency in law and equity requires this understanding; or the entire system of law surrounding intellectual property would need to be scrapped and redone. I am going to propose the latter directly.

The best way to explain the solution is by an illustration. Suppose we wish to sell a Michael Jackson song that has, hitherto, never been released to the public. From the point of view of contract law:

This song, call it x, is defined to be information in the form of a series of binary digits, typically numbering around 4 million bytes of them, depending on the audio quality desired. For the purposes of contract law, we define x to be that specific sequence. We enter into a contract and valuable consideration is made between buyer and seller and the seller pretends to sell information to the buyer.

Now, let’s bit shift.

Lets change one bit from 0 to 1, call this version y. Any two observers hearing the songs x and y would not be able to tell the difference. They are subjectively identical but objectively unique. If a contract is written for x and y is considered, the contract is nudum pactum (a nude or bare agreement). And we could change any number of bits in this manner, creating hundreds or thousands of versions of this song that are audibly identical. The consideration is now “vague”. The same exercise can be performed with books, paintings or just about any creative work.

Returning back to our two forms, this is why the second form is nudum pactum and invalid: you cannot sell a creative work to a buyer and then encumber that buyer vis-à-vis the information you provided them, because no valid contract exists for information as its object.

The only option you have is form 1, which is to charge a fee for the act of sharing that information, once and only once. It is the act of sharing that is considered, not the information. And it is no surprise that no case law exists for this since the foundation of this argument straddles both law and mathematics; not just law.

Patent law

While appearing to be the same on the surface, copyright and patents are quite different. The U.S. economy has virtually exploded with IP commerce. According to the U.S. chamber of commerce (http://www.uschamber.com/ip):

  • America’s IP-intensive industries employ more than 19 million workers—at all educational and skill levels.
  • From 2000 to 2007, the annual salary of all workers in IP-intensive industries averaged about 60% more than for similar workers in non-IP-intensive industries.
  • IP-intensive industries account for approximately 60% of total U.S. exports—rising from $665 billion in 2000 to $910 billion in 2007.
  • In 2008, U.S. intellectual property companies in the manufacturing and nonmanufacturing sectors generated nearly $7.7 trillion in gross output, accounting for 33.1% of total U.S. GDP.

With about 1/3 of the U.S. economy churning on IP it is no wonder that IP “chop shops” have cropped up all over the land. Today it is in vogue to get your hands on one or a few really hot patents and set out doing everything possible to jack up their market value. There are several ways to do this. People will start multi-million dollar companies for no other reason than to just jack up the value of the patents they hold. Companies all over the United States all buy, sell and trade patents. There is huge profit potential in them.

One of the reasons why so much effort is put behind the patents is not just to jack up their value but to make them legally viable. The U.S. Patent Office has created rules and regulations that put a burden on the patent holder to prove that they are, well, not patent “squatting”, which is in fact what they are all doing (another example of ineffectual government bureaucracy). If one does not hold their patent in good faith and with an intent on using it, others can litigate to take it away from them, or the Patent Office can just revoke it. A massive legal industry has cropped up around this. The biggest hurdle patent holders face in terms of actually having to do something with the patent is what is called “reduction to practice”. And there are different types of reduction to practice. If one merely files an idea with the Patent Office, it is called “constructive” reduction to practice. If one actually proves that the idea works it is called “actual” reduction to practice. Entire software companies have been created to build a software program to achieve actual reduction to practice and thus, in many cases, legally establish their patent as theirs and only theirs. For an investment of a few million dollars one can have a patent worth hundreds of millions.

For our purposes, we are concerned with either form of reduction, since the consideration in the case of patents is speculative (but reasonable). With reduction to practice an idea can be rendered objective and patents therefore escape all the pitfalls of copyright. And once made objective, the value of the idea immediately takes on a speculative market value based on market perceptions of future performance.

Thus, in conclusion, the legal defect in “intellectual property” is restricted to copyright law; though a substitute set of law could exist to allow the sole act of selling purported information. And patent law is not defective in light of these arguments.

– kk

© is the copyright symbol in a copyright notice

© is the copyright symbol in a copyright notice (Photo credit: Wikipedia)

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