Against Intellectual Monopoly

extended to inventions
carried out in the area X," where X was a yet-undeveloped area of economic
activity. A few months, years, or even decades after the bill was passed,
inventions surged in area X, which quickly turned into a new, innovative,
and booming industry. In fact, patentability always came after the industry
had already emerged and matured on its own terms. A somewhat stronger
test, which we owe to a doubtful reader of our work, is the following: can
anyone mention even one single case of a new industry emerging as a result
of the protection of existing patent laws? We cannot, and the doubtful reader
could not either. Strange coincidence, is it not?
    During the last twenty-five or thirty years, the "everything should be
patented" trend has set in, especially in the United States, with the European
Union, as always, barking at the heels. Even in the United States, business
practices and financial securities were not subject to patent prior to 1998,
and software code was not patentable until 1981. In most of the rest of world
they still cannot be patented.
    As is transparent from our cursory survey of the countries and sectors
to which patent laws have applied, the list of industries that were born and
grew in the absence of "intellectual property" protection is almost endless.
Services were not covered by patent laws until the late 1990s, and then only
in the United States and in some particular sectors. The mechanical and metallurgical industries are those in which patent laws were most broadly
applied, whereas the chemical industry was originally only partially affected
by intellectual monopoly provisions. In Italy, pharmaceutical products and
processes were not covered by patents until 1978; the same was true in
Switzerland for processes until 1954, and for products until 1977. Agricultural seeds and plant varieties could not be effectively patented in the
United States until 1970, and they still cannot be in most of the world. All
kinds of "basic science," from mathematics to physics (and even economics,
but no longer finance), have never been and cannot be patented, even if a
rapidly growing number of observers alarmingly point out that, at least in
the United States, the "going upstream" tendency in patenting has started to
seriously affect the results of very basic research, especially in the biological
and life sciences.

    We are not alone among economists in noticing these facts; George Stigler,
writing in 1956, cites a number of examples of thriving innovations under
competition:
    When the new industry did not have such barriers [patents and other contrived
restrictions on entry], there were an eager host of new firms - even in the face of the
greatest uncertainties. One may cite automobiles, frozen foods, various electrical
appliances and equipment, petroleum refining, incandescent lamps, radio, and (it
is said) uranium mining.5
    He provides further elaboration in the case of the mail-order business:
    There can be rewards - and great ones - to the successful competitive innovator.
For example, the mail-order business was an innovation that had a vast effect upon
retailing in rural and small urban communities in the United States. The innovators,
I suppose, were Aaron Montgomery Ward, who opened the first general merchandise
establishment in 1872, and Richard Sears, who entered the industry fourteen years
later. Sears soon lifted his company to a dominant position by his magnificent
merchandising talents, and he obtained a modest fortune, and his partner Rosenwald
an immodest one. At no time were there any conventional monopolistic practices,
and at all times there were rivals within the industry and other industries making
near-perfect substitutes (e.g. department stores, local merchants), so the price fixing
power of the large companies was very small.'
    Since 1955, sticking to the merchandising and distribution sector, we can
add to this list such modern innovations as Ray Kroc's fast-food franchise
(better known as McDonald's), the twenty-four-hour convenience store,
home delivery of precooked food, the suburban shopping mall, franchise
everything (from coffee to hairdressing), the various steps that make up
the delivery business of UPS, FedEx, and DHL, and, obviously, online commerce. That is, pretty much each and every innovation that, during the last half century, has had any lasting impact in the retail and distribution sector
was not