 show. Call in now. 855-4-SHIFT. That's 855-472-4433. Reveille and Leo. The Peter Schiff Show. You're back with Jeffrey Tucker. I'm the head of the Laissez-Faire Club at LFB.org. I'm a substitute for Peter today. I'm pleased to say he's a good friend of mine. We've had a good time hanging out here and there. I consider him something of an intellectual mentor. I write a daily newsletter called Laissez-Faire Today. You can subscribe for free at LFB.org. It's in the sidebar right there. In the last segment, we had Addison Wiggin. I'm not sure if you caught the URL of his new book. It's called The Little Book of the Declining Dollar. You can get that book for free by going to LFB.org, free dollar book. As you can see, it's very articulate and learned on this whole subject of the catastrophe facing the American middle class, thanks to the rise of debt and federal reserve and the growth of government. On this segment, extraordinary thing. I've got another one of my intellectual mentors on. Stefan Kinsella. He's an IP attorney, intellectual property attorney, and I tell you this man has single-handedly shifted the way freedom lovers, liberty lovers, think about the issue of intellectual property. He is the founder and director of the Center for the Study of Innovative Freedom, and the founder executive editor of Libertarian Papers. And a man I used to think had a lot of crazy ideas that I didn't believe. It took me six years to finally come around and finally realize that Stefan Kinsella is right. Maybe we all need little bracelets to say something like that. Stefan Kinsella is right. Stefan, it's wonderful to have you on the show. Thanks, Jeff. I'm so glad to be here. Hey, listen, I've written a ton about the issue of copyright. I consider it to be a form of censorship, a kind of monopoly privilege that the government has conferred upon some people, at the expense of other people, and it seems to me the world would run just fine without it. And we can talk about copyright, but your area of expertise is, in addition to copyright, is patents. And I've always had some sense that in my own writing I've neglected this topic partially because I'm just not as comfortable with it as I am on the subject of copyright. Maybe you can just introduce this topic of patents. You are of the opinion that they are on net harmful to economic development and are particularly pressing problem now in the digital world. Yes, and they're also a threat to human liberty as well. As a practicing patent attorney who doesn't really enjoy it that much anymore, I used to think patents were worse than copyrights. I have come to the conclusion that copyrights are actually a much worse threat to liberty than patents, but patents are still pretty darn bad. I mean, the basic problem with patents is that they're just a monopoly grant by the government, which is meant to slow down competition and to protect people from competition. It originated in the statute of monopolies in England in 1623, at least in a modern form. And back then they were honest about labeling what they were doing. They called it a statute of monopolies, and nowadays you'll have defenders of the patent system deny that it's a monopoly grant, although everyone recognizes that it really is. Yes, and it's kind of a problem because they're always pushed as an example of the enforcement of property rights. I've read countless books. In fact, most historians who are going to talk about the history of economic development will credit the patent for and patent enforcement for spurring economic growth because unless you can have ownership over your innovations, then people don't have any incentive to create new things. You would say this is just a fallacy of cause and effect. Well, it's completely ridiculous, number one. In terms of cause and effect, there is really no empirical evidence that patents do generate some kind of net wealth in society. In fact, all the studies that have come out that are not ambiguous indicate that patents are a net drag on innovation because they prevent people from innovating in certain areas or they make you get permission or there's a lot of cost to hire the patent attorneys and to pay for the lawsuits and the insurance. So you basically have a more oligopolized industry because only a certain number of players can afford to develop these big patent arsenals. Yeah, like Apple and other such. Can you give an example of maybe one that struck you recently of how patents are inhibiting economic development, particularly in new technologies? Well, the smartphone wars is just a raging battle right now. So you have three or four large players like Motorola, Google with their Android operating system, Apple and Microsoft, and maybe Samsung, one of the manufacturers just filing multimillion dollar lawsuits one after the other against each other. And the end result will either be that one of them actually gets an injunction from a court and gets to shut down their competitor's product like maybe an iPad competitor or an iPhone competitor or something like that. Or they'll just make a royalty sort of they'll do a cross license and they'll pay each other lots of money and they'll go back to business. But the little guys on the outside can't hope to compete with this. So you have this small walled garden of a small number of players who benefit from the patent laws. There have been some recent studies which are striking just like trying to estimate the cost of what's called patent trolls. Yeah, what is a patent troll? Can you tell me what a patent troll? Technically a patent troll is what we call a non-practicing entity. That means someone who makes a makes who has a patent but they don't make the product that the patent covers or they don't make any products really. So when they sue you for patent infringement you can't counter sue them with your own patents for their competing products. So basically you have a little you have little defense against a patent troll. And there's an estimate recently that patent trolls cost the economy like hundreds of like almost half a trillion dollars over the last half a decade. If you sum up all these studies the best estimate I've been able to come up with is that the patent system clearly imposes at least 100 billion dollars a year of just complete dead weight cost on the economy every year just in the U.S. alone just from the patent system not even from the copyright system. And that doesn't include all the costs that are unseen obviously which are just incredibly incalculable, right? It's probably an underestimate by an order of magnitude or two. Well I find it I find it in fact heartbreaking because you think about all the brilliant young computer programmers that are out there today trying to get a foothold in the industry and do something new and something exciting they face a terrible thicket right? I mean just I mean they think they're writing fresh code as soon as the thing takes off next thing you know they're slammed with all kind of lawsuits and it's not until they become successful yes what they're doing that they're that they're hit and it's my understanding too that the backlog on approving patents is you know as long as two years and this is despite the patent office having something like nine thousand employees. Oh yeah four more than that actually and they're allegedly profitable like the post office. Actually I think the backlog is a good thing the longer that takes for the monopoly grants to come out as good but there's I mean you know Bill Gates was famous for saying back to the dawn of the of Microsoft when it arose back when software was not clearly recognized as being patentable which it is now he has said that you know if software had been patentable at the inception of Microsoft it may it may have never arisen it may have killed the whole software industry but of course now he's in favor of it um yeah well this is often what happens right I mean the the company develops a war chest and then uh and then actually becomes like a conference because Steve Jobs is a good example right he was famously proclaimed that everything he ever did for Apple was was basically stolen from other people and and he bragged about this because a good entrepreneur knows how to learn from the successes of other people but then they then they get they get religion and decided the patents are a great thing now are you saying that every company that owns any kind of patent is a sort of a bad guy no of course not in fact that companies are compelled to acquire patents now because if you don't you're defenseless against your competitors but you have an incentive built into the system for everyone to waste tons of money on patent attorneys and filing fees and lawsuits just so that they can counter to each other or threaten each other it's like an arms race it's almost like a mad during the Cold War basically you acquire all these nuclear weapons called patents just so that you don't use them um you know but but unlike the uh the Cold War you know we don't need to have this if we just would get rid of the patent law no one would have to have these patents in the first place and we would have tons of more resources available for research and development it sounds like we need a big Reykjavik moment you know like with Reagan sitting down with Gorbachev and deciding to eliminate nuclear arms didn't really work but it was a nice try yeah maybe we need that in the patent world too right where where all the big companies come together and say look this is just stupid let's let's get let's let's uh all go go to the government and say uh look we'd be better off in an atmosphere freedom rather than uh this kind of uh as you described you know IP Cold War going on arms well at least in the in the in the Cold War most normal humans realized that there's a threat from nuclear weapons or something bad out there the problem with patents is a very arcane complicated field and everyone's bamboozled into thinking that these government granted monopolies which are anti-competitive and it's a slowdown competition and to protect people from competition they've been told that they're property rights and so they're confused about it they let the experts handle it i mean look software patents are relatively new about 20 say 20 years old and there's been a recent study that indicates that if the software industry in the u.s alone was to hire enough patent attorneys to study the patents that are coming out in software to make sure they're not infringing it would literally require six million full-time patent attorneys a year and about 2.7 trillion dollars to pay them to just do this just to avoid infringing patents and just by comparison the software industry only generates about eight to four hundred billion dollars a year profit and um there's only about 40 000 patent attorneys in the u.s right now so basically we have to mobilize you know one tenth of the workforce to become patent attorneys and waste you know one about one seventh of gdp just to make sure that companies don't emulate and compete with each other stephen when we get back i'd like to talk to you about the relationship between uh intellectual property and actual property which i understand you actually do believe in so you're not uh speaking to some sort of socialist you're talking about talking as a real free market intellectual we'll be returning here just in a moment the peter ship show and its economics twice the education of a harvard mba for one one hundred sixty eight thousandth the cost this is jeff the current peter shiff you can join 25 000 others and subscribe to my daily newsletter lezay fair today lfb.org it's absolutely free and uh and i send out something provocative and often outrageous every day at least it'll make you think a little bit and talk about provocative and outrageous i think that last segment we had with stefan canceler probably alarmed a lot of listeners who imagined that patents are very much like normal property rights it's just something to be protected in any any kind of system that protects property is going to be issuing all kind of patents but you know stefan i think you made a point that undermines this and it was that you said that in the early days of software there were no patents at all we saw gigantic amounts of creativity and growth i mean it implies i think it proves that that what you call intellectual property is really not something built into the structure of the universe it is something created by politicians well absolutely i mean really until about 200 years ago there was no institutionalized protection of intellectual property you did have and the and the height of mercantilism in in europe in england you had the the crown granting all these monopolies basically is favors to their cronies um so one you know someone would get the monopoly on playing cards they didn't invent playing cards they just basically bribe the court or gave you know they helped there was a monopolies on fur and sheep and and these guys would help the crown collect taxes and then they would call the crown and the government and say listen i think my competitor across the street is selling some playing cards without the official seal they're competing with me so they would send the uh the police in there and arrest these guys are rough and placed up so we have basically a crude version of what we have now with the government arrest arresting kim dot com in new zealand and uh confiscating cd's and dvds and imposing taxes on blank tapes and blank media and things like that now it's really not a real threat hasn't it to freedom i mean free especially in the digital age i mean you've got american foreign policy all kind of uh geared up to enforce intellectual property all around the world yeah i mean even john lock and the american founders like thomas jefferson even though they were mildly in favor of some kind of incentivizing system of patents they didn't they never thought it was a property right or a natural right they just thought you know maybe we can have the government grant these temporary monopolies to incentivize invention or disclosure of you make a very good point here i mean you know our listeners are probably right now thinking well wait a minute patents are kind of written into the constitution but the constitution the way its phrase represented a kind of liberalization of the patent or at least so they believed taking it away from something that would be owned by the government and giving granting it to the patent holder or the copyright holder uh himself and that that seemed to be a kind of individuation of of intellectual property didn't it to that generation absolutely i mean i think that um in the terms of in the field of patent well it was in the field of copyright copyright was used to censor free speech into the freedom of the press and to control what was published and so one of the reasons that the statute of an in 1709 in england which sort of institutionalized copyright one reason it was favored by authors was because until then they had to get permission of the crown or the guild or the church uh so copyright allowed them to make the decision that their work could be published instead of being censored and in the field of patents um the the statute of monopolies of 1623 basically removed the power of the crown to grant arbitrary monopoly grants but it retained one part that had been going on which was the grant of monopolies to inventors yes so that's why it existed because they didn't abolish all of it in 1623 yeah and then this is the problem right you make one little mistake get give government even the the most minute power and and enough time goes by and and next thing you know that one power is wrecking the entire system and that seems to be what's going on uh right now uh now let me ask you something very specific that people have often asked me let's say that i invented piece of software and i put it on for put it out for sale and i come up with a way to exclude people from uh reverse engineering that software and marketing uh so-called power copies am i violating anybody's rights and doing that absolutely not there's nothing wrong with not revealing secrets or things you know unless you want to or people are willing to pay you for it uh in fact that the inception of the software sort of revolution you you would have people compile a program they would design it and some kind of language basic or c or fortran or whatever and then they would compile it into an executable file and they would sell that and you it would almost impossible to reverse engineer that you could just play it but you didn't know um how to do it yourself so you i mean and you don't want to call that uh intellectual property you want to call that just a management strategy of some sort right absolutely it's just basically keeping some information to yourself and not revealing everything just like everyone has a personal life in their their personal life you don't reveal all your personal details in your business life you don't have to reveal all its details either to everyone so it's like a privacy setting on facebook exactly in other words invention should just follow the normal rules of the market which is that you can do anything you want to maximize your profitability provided you're not seeking some kind of special favor from the state that's going to coerce a third party so so it really comes right down to it it's not that complicated is it well yeah the basic insight is that there is nothing special about being an innovator that's just another type of entrepreneur or creator on the market and everyone in the market faces competition and they have to come up with ways to respond to that competition either they offer a better service or they bundle it with something else or they continually innovate but there's always competition that will arise in response to the price signals that you send out the profit signals when people see that you're making a profit that's assigned to everyone in the market hey i'm doing something that's valuable for humanity why don't you come do this too that's when they do that they reduce your profit margin and you have to adjust and in this way you have to innovate you're always benefited by it well Stephanie you're the author of a book called against intellectual property uh the lez it fair club is publishing a special edition of your book with a new introduction and some reflections by me the lez it fair club as you know works as uh it's like there's a cover charge and then once you get in the door all the drinks are for free and i can tell you that your book is a pretty stiff drink uh you know for anybody who believes in pat copyrights so i i thank you for being on the show and for making such a difference you know it's pretty rare thing in in this world and somebody comes along with a brand new idea that has such a powerful effect as as your idea has had you change my mind certainly and i know you've changed the minds of many young libertarians about this crucially important topic and i thank you for being on our show today stefan we look forward to releasing your book very soon and all your great work in the future thanks jeff that was stefan cancella a real intellectual innovator i've enjoyed hosting the show today um of course i'm just thrilled to have had these three mega high-powered intellectuals here to help me and help help me see the world more clearly and help me see the world more clearly have a good colleague