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Patents and Copyright

2011-04-28

The original problem is that corporations and individuals lack incentive to develop new products and services when a competitor can copy it cheaply.  The competitor will then be able to sell it for much less than the original developer and unfairly put him out of business.

Patents and copyright prevents competitors from copying others products and services, giving corporations and individuals incentive to spend money on research and development.  But while new things being developed improves our standard of living, a free market without competition degrades it.  Scientific and technological advancements as well as all forms of art and entertainment always builds on previous work done by others, thus patents and copyright impede the progress of all society.

One of the more specific problems with exclusive ownership of knowledge is that the value and duration are set arbitrarily.  While having your creation copyrighted is completely free and the default state of all creations, a patent must be granted after a fee has been paid.  If you want to patent something globally, and you probably do, it's actually very expensive.

Although free, a copyright lasts for more than 50 years while a patent must be renewed every year at additional expense and can not be renewed anymore after 20 years.  Patents and copyright do reference slightly different things but they are themselves both simply exclusive rights to use and copy some knowledge, information or other expression.

Granting Exclusive Intellectual Rights Through an Auction 

I've been thinking about system for granting Exclusive Intellectual Rights (EIR; patents and copyright) in a way that fairly compensates everyone and what I came up with was an auction.

Company A spends 1 million dollars developing an invention (could also be a movie for instance). First of all, if the invention is worthless then Company A only has itself to blame – it does not have the right to compensation for wasting money. But if Company A wants EIR granted it will do so through an auction. Letting other companies bid for the EIR will ensure a fair value will be found.

So now Company A estimates that it can make 5 million dollars off of this invention in one year, and bids 1.5 million. If no one else bids higher, then Company A gets its EIR, which lasts one year, and pays The Government 1.5 million for protecting its exclusive right to the invention. All in all, Company A spends 1 million in research and development, an other 1.5 million for the EIR and then makes 5 million from the invention which results in a 2.5 million profit.

But if Company B doesn't mind a lower profit margin (or estimates the invention is worth more than Company A does) then it may bid 2 million, and win the patent, paying The Government and Company A 2 million each. Company A gets 2 million and profits 1 million from the forced sale of the EIR while The Government gets 2 million for protecting exclusivity and Company B makes a profit of 1 million dollars (or more if it really was worth more).

The Government can also bid in the auction, if it for instance estimates large economical growth for the entire nation if the invention is freely available for everyone. If The Government wins the auction with a bid of 2.5 million, it pays that to Company A, which profits 1.5 million, the EIR is now terminated and the nation makes a profit of 2.5 million.

If the owner does not terminate the EIR, it's forcibly renewed after each year, whoever owning it taking the position of Company A (the inventor). Everyone who wants the EIR bids in the auction according to what they estimate having exclusive rights for one year is worth.

The EIR may then expire after a certain number of years (like 20), when the highest bid is too low compared to the highest of any of the previous winning bids (like 10%) and/or no one wants it, whichever comes first. Any other method for expiration may also be used.

Additional Thoughts 

Thinking internationally, the participating governments would vote individually if they should bid or not, the bidding governments would then act as one and share the cost according to the size of their economies. A nation with a large automotive economy would have a large vote in the decision of how much to bid, and pay a large share, for an automotive EIR since they would benefit the most. The income from EIRs would also be shared in a similar way.

To prevent someone from winning the auction with only a tiny fraction more than the runner up some rules on the bids must exist, such as a bid has to be more than 10% larger than the highest bid, or only two significant digits are allowed.

The auctioning leverages the principles of the free market to ensure that everyone is compensated fairly, no matter who wins the EIR. It works just as well for EIRs worth a hundred dollars as for those worth a million times as much.

With this system corporations (and individuals) can pay an economically viable price for the EIR, or be compensated for the development if someone else wins it. At the same time the citizens (The Government) is also compensated fairly for granting and protecting the exclusive rights to the invention.

What can be EIRed, as well as how trivial an EIR can be, still needs to be discussed. Society only benefits from EIRs when it can be shown that things would not have been developed without them. EIRs should only be used as protection, profiting from them directly (like patent trolls do) should be illegal.