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Mises on IP [Intellectual Property]

By: David Bergman

Amongst the recent contention between libertarians, including all of its forms, regarding intellectual property, its legitimacy and its function, there have in some instances been confusion as to whom of the movements significant contributors were fans or detractors of IP [intellectual property]. Among those individuals, is often Ludwig von Mises. In the following, I will include Mises' own words to bring clarity to this question.

The following words are from an article, which Mises wrote in 1944. This was prior to "Human Action," where he echoed this sentiment.

"Patents: The laws of all civilized nations grant patents to new inventions. It is the intention of these laws to encourage the inventive spirit by creating temporary monopolies.

The question whether the patent system really contributes to progress in technological methods is controversial. It is true that most of the attacks directed against patent protection have come from people biased by fanatical anti-capitalism. But there are also other critics of the system whose arguements cannot be easily disregarded.

However, the experience of the last hundred years proves that the patent system has at least not obstructed the utilization of new inventions. It has encouraged the inventive spirit by providing ingenius men with the incentive to spend the best years of their lives in the task of inventing, and has given business the incentive to spend huge sums for research. Public opinion does not find any fault with an institution which makes it possible for an inventor to get a reward for the benefits which his fellow-citizens derive from his contribution to mankind's progress. It would consider the abolition of the patent laws as a grave injustice.

Copyright: Hardly anyone attacks the copyright laws. Thanks to the monopolistic position that these laws secure to authours, it is possible for successful writers of fiction, and likewise of non-fiction, books and articles destined for the general reader to make a living from their writing. The author no longer depends on the munificence of some Maecenas as in older days. He depends on the buying public.

Trademarks: The way in which many authors have discussed the question whether trademarks are monopolistic clearly exposes the shallowness of substituting the alternative monopoly or competition for the alternative monopoly price or competitive price.

There cannot be any doubt about the monopolistic nature of a trademark. Under the law, the use of a certain name, sign, or mark to distinguish one's own products is a monopoly right. But this fact does not mean anything at all for the formation of the prices of the article marked with this name. A name in itself is an arbitrary combination of letters. An indefinite number of such combinations can be made and registered as trademarks. Each person is free to choose as many trademarks as he wants.

The commercial meaning of trademarks is they enable a businessman to build up goodwill. By virtue of a trademark or brand name, the producer can enter into direct business relations with the buying public. The buyer knows whose product he is buying, and is in a position to distinguish in his purchase between products he likes more and those he likes less. He can profit from the experience which he had in the past in trying various products. He becomes a permanent patron of those manufacturers whose products did satisfy him. He can recommend the product he likes to friends who have not yet found out what brand suits them best. Thus a manufacturer--by serving the public well--is in a position to acquire a prestige in the same way in which every shopkeeper, hotel owner, or doctor acquires it. Trademarks thus play an important role in the conduct of present-day business. If no legal protection were accorded to the use of trademarks, the buying public would lack any orientation.

It is one of the functions of trademarks to enable the customer to distinguish the various brands with regard to their chemical and technological qualities and to choose that which best complies with his wants and tastes. But this is not the only function of trademarks.

What the use of a trademark gives to the manufacturer is the oppurtunity to deserve goodwill. Goodwill is the renown a man or a firm acquires on account of past achievments. It implies the expectation that the bearer of the goodwill, in the future, will live up to his past standards. Goodwill is not a phenomenon only in business relations. It is a feature present in all human and social relations. It determines a person's choice of his wife and his friends and his voting for a candidate in elections.

It can sometimes happen that the goodwill of a trademark gives to a manufacturer the oppurtunity to substitute monopoly prices for competitive prices. However, as a rule, the advantge derived from the use of a well-known trademark is not so great as to make a purposeful restriction of the quantity offered for sale profitable.

But even if a branded article is sold at monopoly prices, nobody suffers any detriment. If a dental cream marked as Cleopatra can be obtained only at monopoly prices, no manufacturer is prevented from selling the same cream under another name. Nobody can say that his interests are harmed by the monopolist's restriction of output.

The mere fact that two products, which are the same with regard to their chemical and physical properties, can be sold at different prices on account of the difference in the appraisal of the brand name on the part of the public is not in itself proof of a monopolistic restriction of output. It is only the effect of the goodwill.

The marketing of a commodity requires a certain degree of publicity. The potential buyers must know that such a commodity exists and who the potential sellers are. To be publicly known to some extent is thus an indispensable requirement of every commodity to be sold.

In the wholesale trade of staple commodities, the exchanges and similar institutuions provide buyers buyers and sellers with the oppurtunity to meet one another for the transaction of business. In the producers' goods industries, agents, commission-merchants, middle-men, and go-betweens bring both parties together. In the consumer-goods industries, publicity must be acquired through advertising, and as the average man has a weak memory, advertising must be continued. An article which the buying public does not know or has forgotten will not be bought. Its manufacturer will either not get the oppurtunity to deserve goodwill or will lose it very soon.

The degree of publicity is an important element in the determination of the quantity that can be sold. The better known a brand is, the more easily it can be marketed, provided that it suits the tastes and wants of the consumers. But this not tantamount to a monopolistic position of the seller enabling him to fare better by restricting the sales instead of increasing them."

Mises used the term "monopoly" frequently throughout his assessment. Below are two quotes from Mises which I think accurately represent the way in which he regarded monopolies, and their significance.

All of this should not be interpreted to signify ignorance on Mises' behalf to the controversial nature of IP, in general. There are undeniably aspects of IP of which he was also critical. That being said, the quote below is the last quote, or conclusion, if you will, from "Human Action," in the section dedicated to this topic:

One of the fundamental ideas of Mises' works, are that individuals act for their own advancement. An external economy, for those of you not familiar with the term, is essentially unrealized economic expansion on behalf of the person responsible for it. In other words, a gain which is not beneficial directly to the creator. Thus, he is saying that individuals would have no incentive to innovate and incur the costs in the process, because they would not be able to recover those costs, let alone turn a profit.

This lays rest to speculation as to Mises' opinions, in regards to IP. He, as a self-described utilitarian, couldn't reconcile what he saw would be a disservice to the strata of society, if IP were no longer protected.