Against Intellectual Monopoly

submarines - as the submarine
pirate would not be as able to get me to sign a contract agreeing to pay him
for his useless piece of patent paper. And, of course, independent invention
would be protected - the independent inventor would simply avoid signing
any licensing contracts. The risk of soaring litigation costs would remain,
though, especially when it comes to independent inventions: if you are
sitting on a valuable monopoly and someone comes in that has invented
the same thing independently, even a miniscule chance that she may not be
able to prove it convincingly in front of a court provides a very big incentive
to hire some lawyers and go to court to retain monopoly power.
    Lack of public disclosure would not be much of a problem either. The
amount of effective disclosure that current patents allow is miniscule, if
positive at all, as amply documented and easily verifiable by visiting the U.S.
Patent and Trademark Office site and by going through a few patents.
    Increasing secrecy would probably be the worst drawback of privately
contractable patents and/or licenses, especially under the independent
invention provision: how can tell if I just reverse engineered your idea
from a copy you licensed someone else or I discovered by myself? This may
entail a non-negligible waste of resources relative to current conditions,
especially for inventions that are now patented but would be hard to keep
secret once access to the product embodying the invention is allowed.
Abolition
    Beyond deregulation is outright abolition. In other words, in addition
to eliminating patents and copyrights, we would not have the government enforce collusive contracts such as downstream licensing agreements.
Because economists generally argue in favor of the enforcement of private
contracts, it may be a surprise that we argue against some of them in the
name of free markets and competition. However, there are two key elements
of the usual argument in favor of private contracts that are missing in the
case of downstream licensing.
    First, downstream licensing restrictions negatively affect people who are
not party to the agreement. That is, if I purchase a book by signing a private
agreement not to resell copies, this agreement impinges on the right of other
people to buy the book from me. These kinds of agreements, in which a
group of people (the seller and the first buyer) agree to limit their provision
of some good or service, are usually called cartels and are generally illegal
under antitrust law. If you and I, as owners of bakeries, get together and
sign a contract agreeing to limit the number of loaves of bread we will sell, not only will the courts not enforce that contract, but we will be subject to
criminal prosecution as well. The same is true if the same contract is entered
into by a bakery and, say, a client restaurant or even a private citizen.

    Second, economists recognize the important element of transaction costs
in determining which contracts should be enforced. "Possession is ninetenths of the law" is a truth in economics as well as in common parlance.
Take the case of slavery. Why should people not be allowed to sign private contracts binding them to slavery? In fact economists have consistently
argued against slavery - during the nineteenth century David Ricardo and
John Stuart Mill engaged in a heated public debate with literary luminaries
such as Charles Dickens, with the economists opposing slavery and the literary giants arguing in favor.28 The fact is that our labor cannot be separated
from ourselves. For someone else to own our labor requires them to engage
in intrusive and costly supervision of our personal behavior. Selling our
labor is not tantamount to selling our house, which is why even renting
it - that is, becoming an employee - is quite complicated and subject to a
variety of regulations and transaction costs. The transaction costs implied
by slavery are socially damaging, as they imply violation of privacy and of
essential civil liberties. Hence, they are commonly rejected on economic,
not just moral, grounds. Moreover, there is no economic reason to allow
slavery. With well-functioning markets, renting labor is a good substitute
for owning it. And so we allow the rental of labor but not its permanent
sale.
    For intellectual property, the reverse is the socially beneficial arrangement: allow the permanent sale but ban the rental. Again, this is efficient