 Government is not the solution to our problem. Government is the problem. Open mic with John McGinnis. You and I have a rendezvous with Destiny. I would remind you that extremism in the defense of liberty is no bite. Class is now in session. And let me remind you also that moderation in the pursuit of justice is no virtue. Call 946-0435 to speak with John McGinnis. Proclaim liberty. Throw out all the land unto all the inhabitants. There are. Welcome to Open Mic. I'm Dr. John McGinnis. Glad you're aboard today, folks. And special guest in-house today. Well, if Houston, Texas counts as in-house. Mr. Stefan Cancella. I'm here, John. Hey, welcome, Stefan. Thanks so much for coming in here, folks. Let me give you a little background on Stefan Cancella, patent lawyer, general counsel of applied optoelectronics, and senior fellow at the Ludwig von Mises Institute, besides being a prolific writer, blogger, author. And he's the guy. I am known here, Stefan, by the way, as the professor of capitalism. But you're the professor that the professor of capitalism goes to. So thanks so much for being in here. At some point, we want to get into the specifics of an act of legislation, a bill signed last week by President Obama about patents and intellectual property. And how about first we go over generally what the patent system is about and put the lie to the Lincoln quotation, the patent system adds the fuel of interest to the fire of genius. What is that about? Most times Lincoln was wrong, but this time for sure. Yeah, and even the founding fathers were wrong on this one. Jefferson, who had a lot of misgivings about the patent clause that they were putting into the Constitution in 1789, basically what they did was they tried to institutionalize into this new democratic type of government they were building, the idea of patents and put it in an institutional sort of way to sort of cement the idea of what had been going on in Europe for a couple of hundred years in an unsystematic and a sort of monarchical way where you had these monarchs granting these monopoly privileges to their cronies and other people, you know, to give Sir Francis Drake the right to pillage and be a privateer or a pirate on the open seas. So actually the first pirates really were authorized by IP law. They were creations of IP law. It's interesting. Yeah, and you know, so you have like a company that had the only right to make playing cards in all of England. And of course they didn't invent playing cards, they just had the only right to do it. And the government gave them this to get favors in return, including helping to collect taxes and things like this and to cement their, you know, the patronage of these classes. And of course it also gave rise to the need for cooperation between private industry and the state to do search and seizures to bust into someone's shop to make sure they weren't selling unauthorized playing cards, et cetera. Well, by the way, you know, that's interesting because it's the idea that the government would grant favors and return get kickbacks. I'm glad that went away with the adoption of our Constitution. Exactly. We made it democratized and so now everyone thinks it's legitimate and so they even get away with even more in a sense now. What were our founders getting at? Because before the Bill of Rights is added to the Constitution, the only right mentioned in the Constitution proper is the right of inventors and authors to patents and copyrights. What is it that they were trying to get at there? So what they did was, the interesting, a little historical and agronomism is if you look at the wording of this patent and copyright clause in the Constitution, it refers to authors and inventors and their science and the useful arts. And nowadays we would think science must mean patents and inventions and useful arts must mean artistic works that are copyrightable, but actually they meant quite the opposite. They meant by useful arts like artisans, gizmos and things like that. And science was a broader term back then that meant just knowledge and writing. So actually it was backwards. But in any case, they basically had a hunch. They thought that if you gave a temporary government-granted monopoly to authors and inventors in terms of copyright and patent, that you would encourage innovation and creativity. It was just a hunch. They didn't know this for sure. It was an empirical idea. It was to encourage something. It was not viewed as a natural right, even by the founders, even by John Locke. Whereas today you hear people defend patent and copyright as sort of natural rights of creators. And that was not actually the view of the people who put it in the Constitution. They basically did it thinking if we do this, maybe it will help us produce more innovation. Yeah, you know, with physical assets, we clearly have something called scarcity and there's a need for giving people security and their property so that they're best used. But with intellectual things, there's actually no scarcity whatsoever. So why create it with this artificial construct called a patent system? In fact, if it was viewed as an actual property, it wouldn't expire after, say, 14 years or whatever, which they originally had. And by the way, what's interesting is now patents are about 17 years. Copyrights are around 100 or 100 plus. Originally they were both around 14. And where that term came from was they kind of thought, well, how long is there an apprentice term? About seven years. So if we're going to give these guys a monopoly over their trade, we need to give them time to train two consecutive apprentices in this before everyone starts competing with them. So that's how 14 years came about, completely arbitrary. So now in the 21st century, we're really operating under rules established in an environment of the 17th century. Yeah, so actually if we were going to go with the original logic, it would go to zero because we don't really have apprentices in the same way anymore. Well, I think we should go that way. And you once pointed out to me, that really a patent, and even a copyright for that matter, is not a grant of a right. It's actually taking away a right from everybody else. In other words, if I put a baseball card in my bicycle spokes and call that the artificial noise maker, and I get a patent in that, it prevents everybody else from doing that. It gives the person with the patent, which is this monopoly right granted by the government, gives him the right to go to the court to tell people to stop doing that unless they pay him what I call a ransom or a royalty fee. Or you can just stop them all together if he doesn't want to compete, like Apple's doing with the Android platform, et cetera. The problem is a lot of this patent law stuff we're so used to calling it a right. And in fact, they were not called rights at first. They weren't called intellectual property rights for decades until after they were passed when there was opposition to them because people recognized them as the anti-competitive state-granted monopolies. So the propaganda in favor of these laws started using the term intellectual property because people weren't favor of property. So if you kind of call it property, people are like, well, I guess I'm in favor of it, even though I don't understand this strange system. And so you have the situation now where most people that are opposed to patent rights, you think of them as being anti-property and maybe an anti-capitalist, maybe kind of a lefty, a socialist. But the truth is, we've just been sold a bill of goods. Basically, these things are ways to stop competition is to protect someone from being competed against, which is antithetical to the free market to stop competition. Indeed. Folks, we're talking with Stefan Kinsella, a patent lawyer, an intellectual property expert, a senior fellow at the Ludwig von Mises Institute, also author of Against Intellectual Property, a nice book which you can view for free, sort of in conjunction with the spirit of your thesis. You can go online, Google Stefan Kinsella and come up and read Against Intellectual Property. Let me go back to this empirical argument, Stefan. I know you're of the Austrian school, which focuses more on the subjective value of things, but the empirical argument is on net. There are more benefits from creating this artificial scarcity and ideas and invention than there are costs, but how do you reckon that? That's not really the case, is it? Well, so, yeah, as an Austrian, I would have a problem with that argument in the first place because you really can't sum up utilities because they're not numbers. They're subjective and personal estimates and values of people. But even if we go with this idea that it gives rise to an overall net benefit for society, the reason that I said it was a hunch of the founders was, you know, they didn't have a lot of empirical testing methods. They just sort of made an assumption that, well, this is probably going to be worth it overall. In other words, they couldn't deny that instituting this system would have some cost. Some people would be harmed. It would cost money to obtain patents and to enforce them. There'd be litigation. So there's some cost. Now, what they're sort of assuming is that the amount of innovation that's stimulated by this promise of a monopoly, the value of this extra innovation is so great and we wouldn't give this innovation without the patent system or we wouldn't get it as early. It's so much greater than the cost of the system that it's worth doing. But the problem is that it's never been demonstrated. They didn't really even try to demonstrate it 200 years ago, but say for the last 100 years there's been continual resurgence of this debate and let's say in the last 75, 80 years there's been one economist after another who studied this and they will either conclude, you know, they just don't know how to figure this out. And I think here they're stumbling onto the Austrian problem you mentioned. They don't really know how to focus the problem and how to measure these things. But when they stumble, when they settle on some method they almost always conclude, you know, this looks like a wash at best or it looks like it's a net drag on innovation. Sure. There's a cost of the patent system itself and then there's a lot, though they say it's to provide incentives for the creative genius, it also provides disincentives so displace is creative genius. As one example in the book by Baldwin Levine Against Intellectual Monopoly they point out that James Watt, the inventor of the steam engine spent two and a half decades just fighting in court, you know, maintaining his patent so nobody else could do anything and basically delayed innovation and the whole industrial age by two and a half decades. And airplanes were delayed for a long time because of patents by the Wright brothers. I just read something just the other day, Alexander Graham Bell and his patents delayed innovation for about 25 years in the telephone industry. And of course, if you just take the smart phone market, for example, right now you have these immense patent battles going on between Google and the Android platform and Apple with their iPhone and a rim with their smart phone and Microsoft with their phones and other companies involved in different parts of this competition competitive market. And they are just suing each other left and right, they are buying. Google has spent $13 billion recently acquiring patents just to use defensively $13 billion it could have spent on innovation and R&D and employment or returning it to the shareholders, et cetera. And basically what this does is it makes it almost impossible for these startups and small companies to enter the field because they'll get sued into oblivion. So it basically creates oligopolies and they are all harmed as well but they have an oligopoly now so they can charge effectively oligopoly or monopolistic prices to consumers. So basically the consumer loses innovation and research and development is harmed. That seems to be the case. To throw one blanket epithet out there, big business will conspire to prevent competition from smaller businesses. And this patent system seems to be, if nothing else, a full employment plan for lawyers present company, you're fine. It's certainly true. Although I view my job as more like a tax attorney or maybe an oncologist and if I was a cancer doctor, I would... Doing the Lord's work fighting off the evil ones. Yeah, I'd be hoping that we could abolish cancer some day but while we have cancer you need oncologists and while we have tax laws you need tax attorneys but as long as we have patent laws you're going to have patent attorneys to be employed but I would be happy to see that part of my career disappear. Folks talking with Stefan Kinsella and when we come back after the break we're going to get into this bill that was signed into law by President Obama reforming the patent system but before we go you have a webinar on this topic coming up this week and first of all explain to... Not everybody in my audience knows what a webinar is so explain what that is and how we can tune in. Well a typical webinar is an online speech or lecture basically but we have this platform at the Mises Institute called the Mises Academy and where we have... I actually teach courses. I'm teaching my first course in my fifth lecture tonight actually about two hours after we hang up on Libertarian Controversy. And full disclosure, I've taken two of your courses and had a wonderful time. They really are a great learning experience folks. Yeah, it's the wave of the future but we're doing a one shot a Friday night hour and a half webinar basically an extended lecture with questions and answers at the end about this topic that we're talking about now. I'm actually preparing the PowerPoint slide and some links and things like that right now. And what would the cost of that be? I think it's $20. Okay, well that's a bargain. Absolutely and you can find more information about it at Mises.org, is that right? Yeah, Academy.Mises.org or just go to Mises.org at M-I-S-E-S.org and look for the Academy link. Alright, well let me put you back on hold Stefan and I want to get into this new bit of legislation when we come back. Folks hang in there talking with Stefan Kinsella. He a patent lawyer, an intellectual property expert general counsel of Applied Opto-Electronics senior fellow at the Ludwig von Miesen and so much more I could go on and on. We'll be right back. We're back, open mic. I'm Dr. John McGinnis. Glad you're bored today folks. We're speaking with Mr. Stefan Kinsella with JD from Louisiana State University. Is that right Stefan? That's correct. I've heard of that in an electrical engineering degree I believe. You've gotten a master's in law from London School of Economics. Where was that master's from? It was King's College London and I also took some classes at London School of Economics while I was there. You've also, you've written the book on international law and investment, political uncertainty. So again, we've got one of the world's foremost experts in this area of intellectual property folks. That I will guarantee you. I do have a quick stomper for you though if I can throw a trivia question at you. Which U.S. president actually applied for and received a patent for an invention? I'm pretty sure Jefferson did. I don't think, I don't know. I was hoping you'd say Lincoln because he got a patent for some sort of canal device. No doubt hoping to profit on the big government involvement in building canals. That's very possible. You're probably right on Jefferson as well. Alright, let's get to this law that the president signed into effect last week and given the sort of unclear history of the patent system and what it does and what it doesn't do and what's this new law going to me? So what happened was you've had sort of a growing recognition in the public and the business industry and the tech sector that you'll hear people say the patent system is broken. Now, I don't really know what they mean by that anymore when people say... Means they're not getting enough money out of it. I guess. When you hear people say Social Security has worked, I mean, well, yeah, it works for the people receiving free money. That's right. You know, it's not overall working. The patent system is not broken in the sense that it can't be fixed. It's basically an unjust type of law but there's a growing call for patent reform over the last, say, 10 years and you keep having one draft proposal after another and the thing is if anything substantial gets proposed and the patent bar goes crazy, they say it's radical, it's going to destroy the country and the economy and technology and innovation so that the only thing that can be proposed is something pretty trivial and watered down and that's what happened with this law that is called the Leahy Smith America and Vents Act which the House and the Senate passed a couple weeks ago and Obama signed into law on Friday, last Friday and it basically reforms or modifies different parts of patent law and, you know, if you want, we can talk about what it did and whether it's good or bad and what parts are significant or not. What's going to be the biggest impact for the economy? Because the President says this is really going to be a jolt. This is really going to stimulate the economy and get our inventors inventing and our creators creating and jobs are going to be plentiful now. What do you think? Well, that whole mentality is a key mentality of stimulating the economy in the first place and this wouldn't do that anyway. I mean, I think you actually had the judgment. Michelle, I think, is the name on the Court of Appeals for the Federal Circuit which is kind of like the Supreme Court for patents in the country who wrote an op-ed about a year ago in the Wall Street Journal calling for basically more patents to come out because it would create jobs. I mean, it's just crazy. But this law, the only thing that would create jobs would be to reduce, do significant reduction in the harm the patent system does to the economy. I mean, basically the patent system is imposing tens of billions of dollars of cost on the economy and innovation every year. It's dragging us down. So the only way it's going to create jobs is to reduce its effect. So that would be to reduce the term from 17 to five years, get rid of patent injunctions, do something radical like that and it would really make it better. It's not doing any of that, right? No, the only thing it did that was actually a not trivial improvement, which I was a little bit surprised about because I've been calling for this for a few years, the only thing it did that was pretty obviously good was it broadened what's called the prior user right. It's not without exceptions, but it is much broader than what you had before. There's a paradox and not a paradox, but patent law most people are not aware of and that is, you know, they usually call people who are infringing other people's patents. They call them thieves or pirates or they say, you stole my invention or you copied it. The truth is that in, let's say, three-fourths of all patent lawsuits, the person being accused didn't even know of the other person's patent. They just independently invented this idea because it was pretty obvious. And so then they get sued and they kept on someone else's patent that was hidden in the millions of patents in the patent office. And by the way, patent number 8 million was issued about a month ago, so it's 8 million now. In any case, up until recently, maybe 10 years ago, there was no defense whatsoever if you independently invented something that you were sued for, patent infringement, infringing a patent on. About 10 years ago, they added this strange, narrow method exception where if you've been practicing a business method for a long time and someone else patents the idea too, then you can be immune from being sued. I think that arose because business methods were just recently held to be patentable about 10 years ago, so it was making a lot of people in the financial industry concerned. Well, this act makes it a general exception. So anyone who is practicing anything, whether it's a method or a machine, whether it's business method related or not, if you've been practicing it for more than a year before someone else files a patent for it, then they can't sue you or they can sue you, but you can. Well, you effectively, is your grandfathered in? Your grandfathered in, and that's one positive improvement. It's not that big of an improvement. It will weaken the ability of some patentees to sue innocent people, but overall, it doesn't do that much more. In fact, it does some bad things. It takes, it gets rid of the so-called best mode defense. Patent law, the deal is this. It's viewed as a bargain between the government and the patentee, and they say the bargain is that if you disclose to the public your idea in this written document, then we will give you a temporary monopoly over it. So you have to disclose the information, and that requires three things. You have to do it in written, a written description. It has to be enabling. That is, it has to be sufficient and detailed to enable someone to do this and to learn from it. And third, you have to disclose the best mode. You can't, like, hold the best mode secret and keep it as a trade secret, and then still get a patent covering it because you're sort of, it's unfair. Well, so if you're sued for patent infringement under, until this law was passed, one defense you might have is you can say, listen, the patentee didn't disclose their best mode, so the patent should be invalidated. Well, the law got rid of that. They totally got rid of the best mode defense. It's still a technical requirement, but there's no penalty for not doing it. If the patent office catches it while you're, while the patent is being prosecuted, then the patent examiner could block it, but he's not going to know what the best mode is. You never really learned that until litigation, so they basically gutted one defense, which is, I think, a bad thing. So the law's got some good things, some bad things, and the rest are pretty much trivial adjustments. And on balance, it keeps in place a system that's overall harmful to our economy. That's the thing to get at. I mean, you'll hear patent lawyers saying this is the most significant reform in 50 years because it changed our, our priority system to match what the rest of the world has, which is a first to file system instead of a first to invent system. It's a little bit inside baseball, but basically, if you have two people who independently invent the same thing around the same time, and they both file for a patent, under the previous law, in America only, the guy that invented it first would win even if he filed later. And you'd have to, you'd have to come up with all sorts of evidence to prove you were first. You have what's called an interference proceeding, but now it's just whoever files first, and everyone's saying this is a big change. But the truth is, there's only about, I don't know, 70 interference proceedings a year. It's not that many. And it doesn't really matter because if I'm being sued for infringing a patent, I don't care whether it's A or B suing me. It really is not going to make a difference to the problem of patents. Well, let me ask you, I just wanted to ask you two more questions. We're running out of time here. This is inside baseball. This is arcane on a level that most of voters cannot, don't have the time to grasp or come to understand too much. So what can average American citizen do about this situation? What do you hope would happen politically to improve this situation? I mean, they need to stop taking government's description of things because the government describes it as the America's Infect. They're giving a positive connotation to it, you know. You know our president's a constitutional scholar. Right. Yeah, I've never seen an article he's written. A scholarly article he's written at all. So, you know, and I think we need to people need to start thinking, look, if we're in favor of the market, we have to be in favor of competition, and there's really no difference between with Android and HTC and all these companies. And a regular competition that people think should be legal. So we should legalize competition, and we should take all these special interests out of the hands of the big companies, the pharmaceutical companies, the chemical companies. Very good. And folks, again, we're talking with Stefan Kinsella today. He has a webinar coming up Friday evening, you said, Stefan? Friday evening, that's correct. And what time is that Eastern? I believe it's six o'clock Eastern time. And you can find out about it at academy.mesis, that's M-I-S-E-S dot org. And that's at the Mises Institute, folks. And again, that's one of the best websites and best sources, probably the best source for economic information. And Stefan Kinsella will be well, lecturing there Friday night. And if it's 20 bucks, that's going to be the best 20 bucks you ever spent. Take my word for it. I've taken two courses with Stefan and looking forward to the next chance I get to. And again, just biographically, Stefan, you and I got to meet up when we both lived in the Philadelphia area some years ago. And it was a great, great day for me when I got to make your acquaintance. So thanks so much for coming in here today. I enjoyed meeting you too. And I think you helped me meet Hans Sinholtz as well. Great too. Another great libertarian thinker and proponent of the freedom philosophy. Thanks so much, Stefan. We'll be in touch. Bye-bye.