Patents:

Patents/copyrights have long been seen as the only way to reward innovation in the sciences and the arts. How do patents work?

Patents create an artificial scarcity of a product, and a monopoly over its production, in order to extract enormous profits for the patent holder above and beyond the cost of production. In this way, they are 'paid back' for all the expense and risk they took creating the new invention or artwork in the first place. It's similar to how the British royalty of the 1500's sold companies the right to monopolies in order to raise revenue for the crown. The problem with creating artificial scarcities and monopolies in order to raise money, whether for the government or for a private company, is that this is a horribly inefficient process that has more victims than beneficiaries.

Artificial scarcities and monopolies are market distorting forces. Market distorting forces are forces that cause people to make irrational choices in order to avoid the effects of the market distorting forces. In short, it makes the irrational rational and the rational irrational. Insofar as people act irrationally, everyone suffers, because efficiency goes down. Here are some examples:

An individual would like to play a video game, but he can't afford it, even though a digital copy of said game is practically free to create at any time, because of patent laws. Instead he decides to buy another, cheaper source of entertainment, or just sticks with a free one like playing solitaire with a deck of cards. What just happened here? One product was given artificially higher value than it actually deserves, making more companies increase the supply of a strictly inferior source of entertainment. Another product lost out on a customer by pricing itself too highly, discouraging any further production of video games. Lastly, the individual was less entertained than he otherwise would have been.

Another example: AIDS drugs aren't actually expensive to make, the cost of production is mere pennies. But because companies have a monopoly on the drug, they raise its price to tens of thousands of dollars. No one else can undercut them by selling it for pennies because they have a copyright. Using the copyright, they create an artificial scarcity. There simply aren't enough resources to buy AIDS drugs for everyone with AIDS at that price. The company loses out customers who could have bought at pennies but instead don't buy it at all. The customers lose out on a cure to AIDS and die. Other customers are ridiculously gouged with unbelievable prices that they must pay because the only other option is death.

Another example: A computer could be installed with either Windows or Linux. Windows would be better for what the user of the computer intends to do, but it's expensive whereas Linux is free, even though the cost of producing digital copies of windows and linux is the same, utterly negligible. Therefore, the customer installs Linux. Microsoft loses a customer and the consumer is stuck with a worse operating system.

Another example: At some point someone figures out the most efficient way to code a particular calculation/system in C++. They then patent it, forever claiming the right to be the one and only company that can use this superior code. All other coders, and companies, must find some less efficient roundabout method to code in C++ from then or face a lawsuit -- even if the other coders would have eventually found out the method on their own, for the next 100 years they are not allowed to use this coding method until the patent monopoly on the technique runs out. Since they are unwilling to pay whatever license fee the coding company is offering to use 'their' code, the entire business world takes longer to operate and has higher costs.

Another example: A biotech company figures out how to increase wheat yields while delivering better nutrition. However, it can't sell its genetically modified seeds to anyone because the price is too high -- even though the seeds of course cost no more to make than any other grain seed once the crop is invented. Meanwhile, third world farmers eke out their meager existence, with tens of millions of Indian children going blind for lack of vitamins, with the old crops that they at least don't have to pay an enormous, unpayable licensing fee to plant.

The effects of the patent system are everywhere, distorting everything. Unlike a sales tax that doesn't distort the economy because it is applied to everything equally, patent 'taxes' create severe swings in behavior as people try to crawl between all the various patents to the land of freedom and non-copyrighted material like a worm through an obstacle course. After people have gone through a long and traumatizing jig, they can avoid the additional costs of the patent system, and settle for an inferior product that comes in at a reasonable, non-monopolistic price. Patent holders rarely gain anything from their patents because people simply break the law or find ways around it, rather than reward them the obscene prices they always demand. Lastly, the entire country grinds along like an ungreased gear because everyone is depending on inferior inventions, products, and artwork due to concerns over price instead of constantly updating to the newest and best model whenever it becomes available. Instead of the country adapting to the technological and artistic progress in its midst, it has to wait 100 years before it can do anything with the products, by which time they're too obsolete to matter. In other words, whole inventions and artworks appear and disappear before they're any use to anyone, all because of patent laws.

It doesn't matter that some people are willing to pay the high prices for the patented product because an efficient market would make sure that everyone is acting as efficiently as possible, not just a tiny rich minority that can afford to pay the patent-monopoly prices.

Ordinarily, everyone understands that monopolies are a bad idea, the government has even passed laws against them and tries to regulate them out of existence. How strange it is, then, that this stale habit of granting companies legal monopolies over their products still continues! It's like we've completely thrown out all common sense and all economic reasoning without blinking, and returned the world to a pure-monopoly system where every single product has zero competition, because every single company produces nothing but copyrighted material. When has this ever been good for business or consumers? The monopoly isn't the worst part of it though, the true obnoxiousness of patent laws is the artificial scarcities it creates. Patent laws have to do with information. You don't patent apples, or chairs, you patent information. But the unique feature of information is that it can be infinitely replicated at no price. Truth is one of those inexhaustible goods that doesn't cost anyone to spread, that no man is the worse for because another one gains. However, we've managed to eliminate this absolute Good, this pillar of the universe, via patent laws. We've turned Truth into oil, where there's never enough to go around, and if one person bids on it, another loses out. Everyone clutches and hoards their secret information to themselves, trying to make a profit out of it, rather than immediately sharing it with the world and thus enriching its denizens with everything we've learned.

The benefits of technology and art are enormous, and to make matters better, they are free to replicate and spread to all seven billion people on Earth. After the first copy of said invention or artistic work is created, all subsequent copies are free. Creating an artificial scarcity, saying only 20 Mona Lisas can exist, instead of 7 billion, is artificially impoverishing the world for the sake of a greedy few. Because of this, people are constantly missing the chance at a better life that others could have given them for free, at no cost. The negative utility of patent laws are incalculable.

But, we are told, patent monopolies, patent artificial scarcities, are a necessity, no matter how much harm they do or good they withhold, because it costs money to make that initial copy. We aren't paying ridiculous prices for a free copy of a product, we are paying the company back a small portion of its research and development costs that went into creating said initial copy. All patents try to do is recoup the losses companies incur by researching and designing new products in the first place. If companies can't sell their 'free' copies at high prices to the larger world, how could they afford to make the expensive original in the first place? Getting rid of patent laws would get rid of all innovation and thus all progress worldwide. No one would dare make a new intellectual property that could just be freely copied and distributed to no profit of the originator.

I don't really buy this argument, because I think plenty of people would still engage in science and art as a hobby, and distribute their works for free, or with the help of advertisers, etc. Some system would emerge if patent laws were struck down. The free market, being given its freedom from the awful burdens of known evils like monopolies and artificial scarcities, would come up with some new formula to address the issue on its own. However, leaps of faith are never approved of and companies have no reason to risk their comfortable position today in the patent world for obscure promises like 'the free market will work it out.'

Therefore, here's a unique solution to the patent problem that addresses everyone's concerns. A 'worked example' of the free market finding a new solution to the complaints of pro-patenters and anti-patenters.

Suppose companies didn't internally develop a new medicine or crop or video game, then finally publish it in its completed form and ask people to buy each individual copy at a high price. Obviously, if patent laws were struck down, the moment these companies released their product, they would be distributed at no price, for free, all across the world. What if the system were different?

What if, instead, a company's website advertised various things they would like to work on, if only they had the capital. Those who were interested in the advertised projects could offer a paypal donation to the company, of whatever amount they see fit, to see the project move forward. The company would give the exact dollar amount wherein they'd be willing to devote themselves to said project until completion, and until that dollar amount is pledged to them, they don't do any work on it, nor does anyone's paypal pledges go through. When the magic threshold is reached, the money is automatically taken from all those who promised to support the project and the company proceeds to make it. Once they deliver the product, everyone can freely copy it at the cost of production, the information is simply in the public domain. Everyone naturally includes the very people most interested in the project whose donations made the product possible in the first place.

Instead of individuals paying for products after the cost of research and development has already occurred, companies would be paid their costs upfront -- any profit they made would come from the initial price they set to move forward on their work. This initial price needn't be just the price of production, it can be set at any price they like. If enough people want it enough, that initial price will be met, and the company can make all the profits they wish -- however, none of the profits they make will deter poor people from gaining all the benefits of their product. Both sides win. Furthermore, companies needn't develop stuff in a risky manner, wondering if it will sell or not. They needn't charge double or triple for their successful products to make up for all their failures that cost a lot to make but didn't make any sales. This is because even their failures were paid for ahead of time, as well as their successes.

A company with successes would have a good enough reputation that people would gladly donate to future failures in the hopes that it will be another success. Also, if a person is slightly interested in a project but not very, nothing stops him from donating $1 instead of $60. If another person is very interested instead of slightly, nothing stops him from donating $1,000 instead of $60. This model allows for perfect pricing, every consumer pays exactly as much as it is worth to them, instead of the useless 'average' price that deters so many customers from donating any money to the cause at all.

Take a video game for example. If square-enix announced it wanted to make a new Final Fantasy game, but wouldn't bother unless it were pledged $100 million dollars, what would happen? Final Fantasy 13 sold for at least $50 a game, and it sold 6 million copies. People around the world paid $300 million for the last game, so raising $100 million should be effortless for the next one. All middlemen could be cut out of this system. Only square-enix would receive any profit from making the Final Fantasy game, and the consumers would just be able to download a copy onto their playstations directly from the company website. Given how many people would like to play a new final fantasy game, surely millions would be willing to try it out for $1. Others are fanatics about the game and would want it to be developed at any price, offering $100. Suppose the initial outpouring of customers interested in the product wasn't enough. The paypal donations, which aren't actually paid out until the threshold is reached, (if a product never reaches its capital-raising limit people just keep their money and go on with their lives), stalls at $50 million. Then people see they're going to have to be a little more generous if they want a new Final Fantasy game, and pledge another $5. The new final fantasy creeps closer to production, stalling at $90 million, until some billionaire decides he's tired of waiting and in a fit of petulance pledges the remaining $10 million on his own. Square-Enix 'green lights' the project, saying it will be next on their to-do list, having this entire time been working on the previous 'green-lit' projects that previous online auctions had generated, collects the money that meets the cost of production plus any additional profits they felt like making, and gets to work. Soon enough Final Fantasy 15 comes out, and everyone who owns a PS3 and an Xbox360 downloads it, because, after all, it's free, and tries it out. Some people play it a few minutes and then give up. Others realize for the first time they're huge fans of Final Fantasy, and decide to pledge money for Final Fantasy 16 the next time the company says its ready. The billionaire plays his copy and is so happy he considers the chance to play the game $10 million well spent.

In this patent-less world, more total people benefit, at a lower price, with a more assured profit for the company than ever before. Those companies with high reputations will be able to offer huge prices, for instance they can advertise 'new space rocket for $10 billion' and NASA and the ESA and amateur space enthusiasts all chip in, the project is green-lit, and eventually the product is finished and the whole world has access to a superior rocket design. Those with low reputations would have to advertise at lower prices, or for free, with their main 'income' being higher reputation if their product succeeds. They can then leverage that reputation to ask a higher price on their next project, and all the fans they've made would gladly pay it if they can get another work of the same quality.

So long as a company gets paid, it shouldn't matter who benefits. If a biotech company gets paid ten billion for its new grain formula, it shouldn't matter that Indians who didn't pay a dime for it are its prime beneficiaries. In this way, charitable giving and foreign aid can become a powerful force for good. If the UK wants to help out Africa, all it has to do is donate to a paypal account that promises a new cheap water filter that Africans would be able to use, or donate to a company promising to research a cure for Malaria. The company makes its profit, the Africans receive their aid. It's hopeless so long as poor people are expected to pay for the research that would most dramatically help them. No matter how much they'd like to, they can't pay for it, so the research will never be done and the product will never be offered. But if companies are paid ahead of time, by anonymous donors of any stripe, the company can move forward knowing it has a sound financial basis, and the Africans can finally receive their AIDS drugs or what have you.

All barriers are struck down. Out of stock games and music that are still under endless copyright protections can finally be made available for the connoisseur. Art made by artists long dead can finally reach the public for free, who, due to the price, are finally willing to try it out. Everyone can immediately adopt the best methods to build, code, or do anything, because the information will finally be in the public domain. They won't have to find costly alternatives just to avoid a lawsuit, they can just go with what works. The ever-feared acts of piracy no longer apply because companies already made their profits for their works while it was vaporware. All the court costs of enforcing patent laws disappear overnight.

I can't see any way in which this system isn't preferable to our current copyright laws. But even if it is full of holes, it's just one creative solution to our patenting problem. There are tons of other solutions, that anyone could brainstorm up. There is no reason to stick with patents, a 300 year old system that couldn't possibly have predicted innovations like the internet that make digital copies so cheap and available to the world. We need a new system for a new age, not an old one that stands athwart progress yelling 'Stop!' If a 'pay first, free copies to everybody later' system has some tragic flaw, then just come up with another idea. The status quo is intolerable, and honestly, no one is obeying it anyway. One way or another the patent system has to go.