Data is at the root of the value of any economic good. Without data, nothing would be valued because there could be no expectation of satisfaction. Without data, it is quite clear that nothing could be produced. In fact, the value of most economic goods lies predominantly in the data—the organization—incorporated in them. The disassociated components of an automobile or a telephone would be almost valueless if it were not for the data which directs the assembly of the parts into a device capable of providing satisfaction for a person who has the data which enables him to operate these mechanisms. In the absence of assembly data, what little value the heap of parts has is almost entirely due to data which guides the conversion of scrap into some other object of direct or indirect satisfaction. The rapid expansion of the stock of data is the predominant factor in the rapid increase (in spite of the statists) of our material well-being; investment at the same rate in old methods—old data—would have yielded far less satisfaction. With data of such primary importance, it is disheartening to see so much confusion, acceptance of old statist procedures and fallacies, and so little concerted thinking among most libertarians on the proprietary status of data.
Let us examine the widely held concept that the first innovator to get to the State Patent & Copyright Office is entitled to the exclusive use of the idea for a period of N years whereupon anyone is entitled to use the idea without contract or royalty in any manner that they can. This position is held by many statists and is expressed in Rand's Objectivist position on patents and copyrights as stated in "The Objectivist Newsletter," Vol. 3, No. 5, May 1964. It will be demonstrated that this position is completely fallacious.
Consider a solar system in which there are two planets, Alpha and Beta, inhabited by intelligent life. Some of the inhabitants of Alpha undertake to commercially exploit space, and in due time send a ship to Beta. When they arrive on Beta they discover the Betans using lasers, devices on which an Alpha holds an active patent. Since this is the first contact between the planets, it is unquestionable that a Betan independently invented the laser. The injustice of the Alphans forcibly demanding unearned royalty payments from Betan laser manufacturers is apparent. The statist may say that all lasers produced on Alpha must be manufactured under the Alphan patent, and similarly all lasers produced on Beta must be manufactured under the Betan patent. What of a laser produced on Beta and exported to Alpha? The Alphan patent holder would clearly be extorting unearned values if he were to forcibly demand royalties from the producers, purveyors, or purchasers of Betan lasers. To prohibit such imports would be to interfere with someone else's disposition of his own property. If the Alphan patent holder were to purchase land on Beta and set up a laser factory of his own design, the Betan patent holder would clearly be extorting unearned values if he were to forcibly demand royalties from the Alphan. If he were to demand that the Alphan factory be closed and imports halted, he would not only be disposing of the data and material resources of another, the Alphan, he would be interfering with the right of other Betans to dispose of their own resources.
Some might state that all lasers used on Beta must be under Betan royalty and all lasers used on Alpha must be under Alphan royalty. By what moral right does a Betan bureaucrat warn an Alphan landowner on Beta that he cannot use his own laser—perhaps purchased before the advent of interplanetary travel—on his own land? The Alphan laser and laser owner are moral in space 1000 kilometers off of Beta. By what magic does the laser and laser owner become coercive, unjust, and immoral when they come close enough to Beta so that the atmospheric density is 1010 molecules/cc? Or is it 1012 molecules/cc? 1015cc?? 1017.69? Or does it become immoral when the soles of the Alphan's boots touch the first particle of Betan soil? For the Betan to forcible demand a royalty from the Alphan is for him to coercively extract an unearned value. Morality cannot rationally be conditional on position except insofar as it is a matter of the ownership of the position.
The statist now says, "All lasers on Betan owned land must be under Betan patent, etc." An Alphan with an Alphan laser leaves his ranch on Beta and goes to his next door Betan neighbor to purchase a truck load of grulix for his phluxers. The Betan neighbor is eager to sell the grulix and has no objection to the Alphan or his Alphan laser. A Betan bureaucrat comes along with a copter load of fuzz and says, "Surrender your laser or pay Betan royalties on it or we'll kill you." Again, this is clearly coercion; the Betan patent holder hasn't done a damn thing for the Alphan, and hence the Alphan doesn't owe him a plugged blick.
The statist tries again, "All Betans must use Betan lasers, etc." This is gross racist idiocy; what difference does it make whether the person's skin in blue or mottled yellow and green, whether the chromosome count is 57 or 25?
The only matter of rational import is that the person whose idea was used is paid. Independent creation is the basis of independent ownership, whether the creation is data or berry-picking sticks.
These moral considerations are not limited to cases of differing species, differing planets and emerging space flight. The conditions of this example simply made clear that the two inventors were indeed independent. The establishment of various innovators' claims to independency is a technological problem. It cannot be solved by coercively precluding all innovators from the market save the one who got to the State Patent under the rug—and it does so at an enormous expense to justice in the most important area of property—data.
Ayn Rand states in the May 1969 "Objectivist Newsletter": "As an objection to the patent laws, some people cite the fact that two inventors may work independently for "years on the same invention, but one will beat the other to the patent office by an hour or a day and will acquire an exclusive monopoly, while the loser's work will then be totally wasted. This type of objection is based on the error of equating the potential with the actual. The fact that a man might have been first, does not alter the fact that he wasn't. Since the issue is one of commercial rights, the loser in a case of that kind has to accept the fact that in seeking the trade with others he must face the possibility of a competitor winning the race, which is true of all types of competition."
This type of reasoning is based on the error of equating market competition with a foot race wherein an individual or organization passes out prizes that are theirs to give to those that they judge worthy by their own standards. The right of an innovator to attempt to sell his creation in a free market is not a prize that a fascists bureaucrat has a right to dispense. A man has a right to market his creations by the fact that he has created them—not because he is granted this permission by some official. Both Bell and Gray independently invented telephone systems. It was for the free market to choose; no bureaucrat had a right to threaten Gray, to coerce him not to exploit the product of his mind, to call in a squad of hired murderers if Gray was not cowed. Bell's publication was minutely earlier—and it was the free market which should have determined whether he was to reap all, some, or none of the rewards because of this. It was fascist intervention in the free market which in fact gave Bell a coercive monopoly and stole from Gray any possible market reward for his property. Independent creation of an economic good of any sort is sufficient condition for original ownership. No bureaucrat may morally use coercion to restructure the free market along the lines of a dog race with himself as the track operator. The production of data follows the laws of human action just as does the production of material goods. Systematic, especially institutionalized, refusal to recognize the producer of a value as its original owner has inevitable deleterious consequences, whatever the nature of that value.
Having disposed of the concept that the first innovator to get to the office gets a monopoly, we now turn to an examination of the period during which data may be owned. Ayn Rand's May 1964 article states a conventional position:
"In the case of copyrights, the most rational solution is Great Britain's Copyright Act of 1911, which established the copyright of books, paintings, movies, etc. for the lifetime of the author and fifty years thereafter.
"In the case of patents, the issue is much more complex. A patented invention often tends to hamper or restrict further research and development in a given area of science. Many patents cover overlapping areas. The difficulty lies in defining the inventor's specific rights without including more than he can properly claim, in the form of indirect consequences or yet-undiscovered implications. A lifetime patent could become an unjustifiable barrier to the development of knowledge beyond the inventor's potential power or actual achievement. The legal problem is to set a time limit which would secure for the inventor the fullest possible benefit of his invention without infringing the right of others to pursue independent research. As in many other legal issues, that time limit has to be determined by the principle of defining and protecting all the individual rights involved."
When such a time limit is statutorily set, it cannot fully protect the rights of all individuals; rather it is trading off rights without the permission of those whose rights are being swapped. "Ah," spake the bureaucrat, "If we set the limit at 1 year the innovator loses too many of his rights, if we set the limit at 50 years, other innovators will lose their rights to compete and the system of production will stagnate under the dead hand of the old monopolies which we have granted. Therefore, we will determine some intermediate period of N years where we have carefully compromised and traded off rights so that the unearned values that the innovator extracts with his coercive monopoly before N years is balanced off by the unearned values that others seize after N years. We will examine the economics of some average innovations and thereby determine N."
Too bad we don't have such forthright, honest bureaucrats. This approach is worse than unbelievably complex—the most revolutionary and valuable innovations usually do not have a time course resembling that of an "average" innovation, and, moreover, frequently will not be immediately recognizable as such—it is simply an elaborate attempt to equalize the injustice, the equalizing principle being based on some "average" case. At one moment a man owns property and has a right to compensation for its use, a fraction of a second later by the preordained edict of a bureaucrat he has no further property rights. Such an N year period is obviously unfair to some of the people some of the time, and reflection on the market distortions that this edict will cause will readily show this intervention to be unfair to all of the people all of the time. The production of all economic goods, including data, follows the laws of human action. A State imposed limitation on the ownership period of any economic good will result in market distortions. Consider the result of an edict stating that a building could be rented for only 17 years after its construction, and that thereafter anyone could use it without payment to the "ex" owner.
What of an unlimited ownership period for data as is accepted for other durable economic goods: diamonds, land, trademarks, etc.? Will this not bring the wheels of progress to a sluggish whimpering halt in a morass of insanely greedy heirs of long dead data producers? Certainly not! This is a competitive dynamic contractual free market system—it should not be confused with the truly dead hand of coercive State monopolies as they now exist! Independent production of an economic good results in independent ownership; if an innovator or his heirs price the use of an idea too high it will be profitable for someone else to independently solve the problem, perhaps in a very similar manner, perhaps in an entirely different way…and competition between data producers unhindered by coercive State monopolies will bring the price down. Data is an economic good. Its production, transfer, utilization, etc., obey the same laws of human action as other economic goods. Its cost of production can vary from negligible to immense; this can also be said of a gem. The cost of reproduction is frequently low, and has no bearing on the price versus demand curve it will bring on the free market; many goods have a low reproduction cost and in no case is the cost of production of a good the determinant of its price versus demand schedule.
"In the case of patents, the issue is much more complex…" This very complexity should have suggested that the reasoning was being done from fallacious premises. Let us use the premises that independent creation of an economic good results in independent ownership, and that ownership is to be indefinitely recognized. What then becomes of the many objections to indefinitely continuing to recognize an innovator's right to dispose of the economic good—the data—that he has produced? How could such a system work? Would it be a free market system or must we have a single State Patent and Copyright Office?
Suppose that I invent a pocket wired program electronic computer which I hope will displace the slide rule. I take the plans to a privately operated organization which I shall call a data bank. I purchase one of the data bank's many services; I register the plans. Insofar as nothing similar existed previously, independent invention of that data is thereby established. Of course, I also register features which are not unique and totally novel. I have learned of some of these features elsewhere, which I so state, giving the source. Some of the features which I claim as my own independent innovation may also have been created elsewhere, independently, without my knowledge. If I wish to have my claims of independency generally accepted, it behooves me to go into considerable detail concerning my innovative processes; sources of input ideas should be meticulously catalogued and the logical and intuitive (roughly algorithmic and heuristic) course of my invention charted as clearly as possible. The definition of boundaries proceeds from this antecedent material.
If I anticipate commercial interest in my product, I may purchase another of the data bank's services; for a fee they will perform an investigation and publicly state (with their reputation behind it) those features that they believe to be independently created by me. (Since this is a philosophical dissertation rather than a blueprint for setting up a data bank, I will not consider here the technology for establishing independency). When I find definite commercial interest, the data bank may be asked—for a fee—to guarantee the independency of certain features, the guarantee transferring the financial responsibility for possible stolen data from the manufacturer to the data bank. The independency and boundary determination technology would soon become far superior to that involved in current patent procedures and suits; the State monopoly in this field has discouraged research and development of such procedures just as other State monopolies have discouraged R&D in their respective areas.
The concept of contractual transfer is at the core of properly protecting the proprietary status of data. This matter has been given less attention than it deserves, perhaps because data can be replicated with much less cost and effort than most objects. Many of the same principles and techniques apply in the contractual handling of data as in material property, and State involvement is no more useful in one case than the other. Let us return to the pocket computer example. Suppose that I sell non-exclusive rights to the data for $10 per computer. Anyone who is to work with this data—such as manufacturing personnel—do so under voluntary contract, this contract not allowing disclosure outside of those under contract, and probably setting forth the framework under which improvements that these personnel develops will be handled. (Before signing such a contract and gaining access to the data, it would be advisable for a contractee to register any similar data of his and thereby inexpensively establish any independency from the data to be received.)
Although the device is sold to distributors and consumers, the data is not. A contractual condition of sale prohibits opening the device by someone who has not signed a contract (as would Servicemen) and requires this contractual condition on resales.
So far, all transfers of data have been on a contractual basis and State intervention has been no more necessary or desirable than in the case of contractual transfers of material goods.
A discussion of justice as an economic good produced most effectively in a free market and applied to breach of contract would be most germane at this point; however, a minimal description of market versus State monopoly justice and restitution as the standard of justice would be several times as lengthy as this paper. No attempt will be made to "improve the State" by trying to integrate these concepts into a political matrix. The reader is advised to carefully consider the fact that it is profitable to act in accord with the nature of the physical universe and the laws of human action and that the edicts of the State cannot isolate one from the consequences of doing otherwise.
The data banks will have profound and extensive effects. The building of banks, stock markets, etc. (even under the yoke of statist market distortion) has been essential to the rational organization of large scale human interaction. The construction of markets and protective mechanisms for data can be expected to have an effect even more pervasive, dramatic, and valuable than the fantastic developments of strictly material capitalism. The wonders of what little capitalism the statists have so far allowed will be very small compared to the production in a free capitalistic market that embraces all economic goods.
Notice: The ideas expressed herein were developed by me from autumn 1964 to summer 1965. Intellectual debts to Einstein, Von Mises, Rand, and Lorentz are clear. For an independently developed highly elaborated course on this subject, contact A.J. Galambos, Free Enterprise Institute. It will be well worth your time and money. (This plug is unsolicited.)
Skye D'Aureous is the publisher of the Libertarian Connection and a physicist.
Andrew J. Galambos, Free Enterprise Institute; Rampart College; Richard Grant, The Incredible Bread Machine; Morris and Linda Tannehill, Liberty via the Market.