Patents, Copyrights, and Intellectual Property Barriers Explained

[00:00:04]okay I'm glad we got people to he to listen to me talk about intellectual property um this has been a pet thing of mine for a number of years uh a backdoor thing because I'd work out in my spare time I wasn't talking about the fed or social security or other such things so it's great to have a chance to talk about it and drag a few other people along to listen um I'll just say that I think this is incredibly important and growing in importance because as you'll see in a moment I mean it comes up in the context prescription drugs that's probably where it is the most important both in absolute dollar amount but it's it's people's lives and it's a huge huge thing but it comes up in all sorts of other context where it might be less important it's not life or death but it comes up in software it comes up in trying to enforce copyright with the internet um it's it's a huge huge issue so I really think we need some fundamental rethinking on it so it's great to have some people try this out on so I really appreciate your patience and we're giving you wine and cheese afterwards to reward you for sitting through it so okay all right uh I want to start just outlining patents and copyrights what they are why we have them how they end up there um then going through the basic economics of patents and copyrights and I'm going to do it using the example software first and foremost just because we have the charts so that's why I'm using softwares and not as opposed to not other items um then I will go through patents and prescription drugs again I do think that is the case where the issue of the the current system of intellectual property um is the most problematic causes the biggest problems um then I'll go through copyrights in the internet age I think copyrights perhaps have always been a problem but they're much much bigger problem when you have the internet and then a little bit about alternatives to patents and Alternatives and copyrights because again what my point is going to be that patents and copyrights do serve a purpose we all know that I'll go through that um but the point is there are alternatives so it's not the end of the story you know what will we do without them well that's a question what would we do without them and I want to try at least dra out some provisional answers to that okay first before I go on to the next chart just what are they why we have them I mean what they are they're monopolies let's be clear what patents and copyrights are they're forms of protection okay uh just to be clear on where they came from you know I sometimes in debate with debates with people and I think they think these Were Somehow part of the Holy Grail you know that God gave them to us or something you know you know patents and copyrights come from the medieval Fe the feudal Guild system um that where they their Origins are is that Masters would have a patent that would prevent their their apprentices from or Journeymen from coming there and stealing their techniques and then going somewhere else that's the origins of them it's a feudal Guild system so the idea that this is somehow part of the free market no this is actually completely antithetical to a free market this is from the feudal Guild system and the idea is that if I have a patent on something the government is giving me a monopoly same thing for copyright they're giving me a monopoly for a period of time and what that means is I get to have someone arrested if they produce whatever I'm talking about whatever I have the patent on or whatever the copyright in without my permission okay it's it's completely antithetical to a free market okay it's it's the government is going to arrest people for engaging in economic activity I have a pan on prescription drug okay someone else is going to produce the generic version of it I haven't given them permission so I call up the cops and say okay bust them arrest them you know I mean of course it goes through sequence before that first they pay fines we go to court this and that but if at the end of the day they keep trying to produce their drug in competition with me they end up in jail for it okay so it's completely antithetical to a free market why do we have it well we have it to give me incentive the government wants me to have incentive to develop new drugs I'm fiser and I am spending billions of dollars that's true they do spend billions of dollars to research prescription drugs so they want me to have incentive to develop a new drug for heart disease a new drug for cancer so what they're telling me is okay go out and develop a new drug for heart disease go out and develop a new drug for cancer and if you do that you're going to get a patent we'll give you a monopoly we'll enforce it for you you'll have that for 20 years in the case of prescription drugs and then you can make lots of money and you'll be richly rewarded for doing this research so what it is it's a way in which the government provides incentives for people they give you a monopoly for a period of time it's the same story with copyrights it's a little different issues there but basically the same story they give some a monopoly for a period of time to make a movie write a book we're going to give you a reward on that the reward is we'll rest anyone who produces it in competition with with you and it gives you a chance to make back you know your time commitment your investment whatever it might be so it's a form of government interference in the market in in fact the government comes in there and says we'll give you a prize that will give you incentive to do do this work that work that we find socially useful okay so the idea that it's the market no it's quite deliberately a government intervention into the market and the way I always frame the discussion is is it the best form of intervention okay so we're not arguing about a market or not Market arguing about what is the best way to provide incentives for people to research prescription drugs for people to develop new software to write books make movies we want to know what's the best way the government provide incentives because the market won't do it anyone who supports this has already told you they don't want the market solution they want the government the question is what do we want the government to do okay next graph is the basic economics I know you can't see this very well but that's to make a point in part call the economics are protectionism I always refer to copyrights or patents as form of protectionism because they are you know I get a lot of people get really upset at that because you know we're supposed to be we aren't the Andals the Andals want to protect steel or textiles they're really dumb stupid people that you know they make textiles for 10 bucks an hour because they aren't smart like us and write editorials for the Washington Post or New York Times Like Thomas fredman so they have to do these stupid menial jobs and the only way they could ever get by is government protection so we're all smart intelligent people so we know that protectionists are stupid neanderthals okay well there's an economics around protectionism that all economists I shouldn't say all economists any was taken intro econ has seen it because all economists beat it into your heads you're supposed to think these people are super neanderthals because protectionism is inefficient you know having a tariff on on shirts I think that's what I have here it's too small to read but dead we loss to a $2 tariff on a $20 shirt yes having protection on shirts is inefficient okay well there's an economics around that which I'll go through in a moment but you could use the exact same economics to analyze protection in the form of copyrights or tariff or or or patent protection okay so what are the economics of that you can't see this very well but the story here is that we have our $20 shirt that's what we sell for we import the shirt from you know uh uh uh from Thailand or Malaysia wherever it is they're producing shirts these days it would sell for $20 if the government would just be smart and leave things alone and that's how much we'd be able to get the shirt for but because you know the powerful textile unions you know beat up the government and our members of Congress can't stand up to those people they allow them to put a $2 tariff barrier on it okay so what happens instead of the shirt selling for $20 it sells for $22 okay so what happens in that case well a lot of people in the US that otherwise would have gotten $20 for the shirt they're getting $22 for the shirt okay what is that well that's a transfer from us we're going out and paying 22 bucks for the shirts it's a transfer the people are selling shirts so some of that is the profits of textile makers some of it is the workers who get 10 bucks an hour might otherwise you know get 8 bucks an hour you know so some of it goes to the workers that's a transfer it's not a dead weight loss it's a transfer the dead weight loss is this tiny little thing that you can't see here but you know if I were trying to tell you how bad protectionism is it would be a much bigger triangle and I would go okay there's all these people that would be willing to buy this shirt at 20 bucks they're not willing to buy it a 22 okay maybe they're willing to buy it a 21 you know okay but they're not going to buy it a 22 so this is what we ref as the dead white loss that all these people have been really happy buying that shirt for 20 bucks they maybe even want pay 21 but now that they have to pay 22 they go no I'm just going to wear the same old shirt I've always been wearing okay so there's all these people are made really unhappy by the fact that they have to pay $22 for the shirt rather than 20 so for some number of people this number here you know that difference there there's some number of people would have bought the shirt for 20 they don't buy it for 22 some of them lost in effect $2 a benefit because they would have been willing to pay $20 for it um you know but or $201 for it but now it's at 22 so they lost $2 of benefit um some of them lost very little because you know they were paid 20 21.99 but it's 22 so they lost one penny of benefit it's not a big deal in that case just saying average they lost $1 benefit you know so whatever number of people this is they lost $1 benefit on average some lost $2 or $199 and some lost you know one cent okay so that's the story of protectionism that's why we think it's really bad on the one hand there's this transfer you know which you know as good it com we' say well is that good or bad it's a transfer it's a redistribution it's not inefficient it's better that you know I have the consumer have it then the Tex worker has it well that's kind of moral question but as Economist we're supposed to get really upset about the inefficiency you know so all these people would have bought it at $20 but they aren't willing to buy 22 okay now let's go to the software Market okay what's the loss to the fact that let's say this is Windows operating system okay I don't know exactly what it sells for but we pick 100 bucks you know probably a ballpark number in terms of what they sell it for what they'll charge the computer company to put on your system somewhere around a 100 bucks as it's exactly right okay what does it sell for if the government doesn't arrest me for making copies of Windows sells for zero it's Costless okay maybe someone wants to put something 00. and put a one at the end there you know there's some minute cost to electricity involved or whatever but it's basically Costless okay so what is the efficiency loss with Windows okay well there's a lot of people that would have been willing to pay you know a dollar for Windows you know five bucks for Windows 10 bucks for Windows 50 bucks for Windows all those people don't get it okay cuz they're not willing to pay $100 for Windows okay so the efficiency loss with Windows well could be as much as $100 there was someone willing to pay $99.99 they're not willing to pay 100 so they don't get it okay so in principle they could have had a gain of $999.99 if we just got the government out of the market and let anyone who wanted to make Windows you know make copies of it do it you know just got the government out don't arrest people for it that could be the gain but the government's in there so you know that's how much we lose by okay and obviously a lot more people are likely to fall in this gap between a zero and 100 these are totally arbitrary numbers by the way any scale doesn't really matter but the point is that obviously going to be a lot more people who might fall in this gap between being willing to pay you know one cent for Windows as opposed to being willing to pay more than $100 there's a lot going to be a lot more people in that Gap than you know going from $20 to $22 with a shirt okay but we can analyze this exactly the same way it's the exact same methodology the losses from copyrights or patents are exactly the same we could think of them exactly the same way except that the numbers are likely to be hugely larger with patents with with um most forms of protection these days at least in the United States it's a little higher if we're talking about developing country but in the United States it's pretty rare that you would talk about a tariff barrier a trade barrier raising the price of a of a good by more than 15 or 20% and there might be some examples but you know but that would be the exception whereas with copyrights and patents you could see well certainly in the case of copyrights with software we have Goods that in principle we get at no cost that end up actually being fairly expensive okay so it's the same analysis but the numbers would be an awful lot bigger I'm moving around too much yes okay I'm sorry I will stop moving around so much okay um okay so okay and so that's the efficiency loss next point is Monopoly rents again if we were giving the intro course in in protectionism we'd say how bad it is it's not only bad because you have the inefficiency but because you have you have these Monopoly rents that you know we're g we have the trade barrier we have the people who are getting 22 bucks for their shirts when really they should get 20 that they start paying money to politicians they pay money to lobbyists okay they have various forms of Monopoly rents that are again a waste to society well you have the same thing in the case of of patents and copyright so I'll go through that and I think in a lot of ways that's probably a bigger issue in many cases the Monopoly rents that the the rent seeking behavior is a bigger issue than the dead weight loss associated with the higher prices okay so I'll come back to that but again the key Point here is that in principle we could think of patents and copyrights we could analyze them in exactly the same way we would trade protection and in fact we should analyze them I mean it's really not a debatable issue if I got an economist who said that patents are great copyrights are great if they are honest they have to say this is exactly how you would analyze them at least the cost okay we'll come back and talk about the benefits okay the next point just how we think about this there there's a tendency to talk about patson copyrights I was referring to a moment ago is as being rights and I don't know how many times I've had this argument with people and they go well they're in the Constitution so of course I had to take the opportunity to look up in the Constitution what does it say about patents and copyrights in the Constitution well if you look in the Constitution you're aren't going to find it in the Bill of Rights it's not like the right to free speech or religion or assembly or you know right to a fair trial where you find it is in Section 8 Clause 8 these this is enumerating the powers of congress so this is saying things like Congress shall have the power to impose taxes okay so what's on the powers of congress to promote the progress of Science and useful Arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries okay that's what it says about patents and copyrights okay it's explicitly a policy that Congress has the option to pursue they aren't obligated to pursue it this is one of the powers that Congress has the option to pursue they're no more obligated to pursue it than they are to have taxes okay you know suppose Congress decided we could run the country we don't need taxes we have enough money you know we saved it up or whatever we don't need any taxes no one would have a case that they could go to court and say oh the Constitution says the Congress has the tax I mean it's absurd okay exact same thing with copyrights and penss what it says is one of the powers of congress is that if they think it's necessary and appropriate to promote science to promote Arts that you have copyrights and pens that's one of the things they could do totally within their option not to do it okay so just emphasizing that point they're the mechanism to advance a public policy goal okay so that's how you have to think about it I mean you're welcome to think about any way you like but that's how at least I would put it forward that you know patents and copyrights are one way we could we could look to promote Innovation creativity artistic work they're not the only way they're one way and the question we have to ask is are they the best best way okay prescription drugs okay some basic numbers here um 220 billion these come from the center for Medicare and Medicaid research so if you want to know where I'm coming up with numbers here I'll try to be clear where I'm getting these numbers um according to Center centers for Medicare and Medicaid research we're going to spend roughly 220 billion on prescription drugs in in in uh calendar year 2005 that's a projection we don't know exactly what was spent um competitive price what what do you mean by competitive price suppose we snapped our fingers no one's got a patent okay so anyone who wants to could produced you know Vio and you know whatever Other Drug we could all buy generics no patents you know we just buy them at generic prices it would cost us roughly 70 billion where am I getting that from we have data on what the average price of a generic drug is and it's about 30% of the price of an average brand drug okay so it's a ballpark number but you know this is a very large sample because we have it for basically all the prescriptions being filled so it's a very large sample it's a whole you know basically everything in the country and you know we could say it's roughly 30% of the price so what does that mean if you know if we snapped our fingers we got rid of drug pants in the United States tomorrow we'd have Savings of roughly 150 billion a year okay good chunk of good chunk of money that's uh you know our GDP is around 12 trillion so you're talking about 1.3% of GDP okay real money real money I think in anyone's book um according to the industry they they say that they spend 40 billion a year on Research domestically I'm saying claims because they put out data you know there's a the industry as an organization of Pharma pharmaceutical um research and manufacturers I'm mangling it but it's you know you've probably seen Pharma so it's it's their data it's the industry trade group I don't know that they're lying but I just don't know that they're telling the truth either so you know so so they claim 40 billion so in other words we're spending 150 billion in additional money to pay for 40 billion in research I'll come back but those are sort of first numbers to start with so we pay 150 billion in higher drug prices to pay according to the industry pay for 100 to pay for 40 billion in research every year okay and this is a big deal today but it's getting to be much much bigger deal because we're spending the amount the rate at which we're increasing spending on prescription drugs is about 10% a year so according to centers for Medicare and Medicaid services were projected to be spending over 500 billion a year on prescription Drugs That's a single year so I'm not adding it up that's a single year 2014 they project will'll be spending over 500 billion that's in $ 2014 I haven't brought them today's dollars and roughly half will be paid by the public sector so roughly 250 billion of that is projected to be paid by mostly the federal government at that point but there also some State local contributions through Medicaid and also paying for their state employees state and local employees okay so what are distortions created by prescription drugs well first off drugs are expensive okay um the you know good example here is a number of the AIDS drugs the anti- retrovirus when they first came out a number of these years prescription was on the order of 10,000 in fact some are even more 12 15,000 you have generic producers in India simpla the most famous that are producing drugs they're world class standards they submit these to to to testing by you know who and other agencies and they pass they're world you know they're same quality that you'll get here so it's not you're getting an inferior drug that's diluted with you know whatever you might think they' put in there this is worldclass standards and they charge you 200 bucks okay so we're talking about price reductions in some cases these are extreme cases but you know on the order of 98% now there's obviously a lot of people in the world that could afford a drug at $200 who cannot afford it at $10,000 okay and also I realize even $200 if we're talking about sub Sahara and Africa these are very very poor people they might not be able to afford $200 but to talk about paying for you know millions of AIDS victims in subian Africa at $200 a pop well that's that's a doable task I mean you know the US Europe we could come up with that money we can't to 10,000 I mean that's we're not going to get that money so you know there's other obstacles for treating people with AIDS I don't mean to say it's the whole story but you know it's a very very different picture so you're talking about life and death AIDS is an extreme case this happens with all sorts of other drugs if you have patent protection people can't afford it if they were sold in competitive market a lot of drugs would suddenly become affordable okay other issues less important but none the less important price discrimination gaming you go to a lot of people who you know recognize the problem that you know people in subsaharan Africa po people in the rich countries can't afford it and they say well what we should do is have it so that you know the people are wealthy you know they have good insurance they're going to pay 10,000 but then we'll have it for the people who you know can't afford it they'll pay 200 well you know you be an economist on this I love how economists don't like to be Economist when they talk about these things you know you go well what's going to happen I they're trying to charge me 10,000 because I'm a rich person but I see they're getting over there for 200 bucks well I'm a smart guy so I figure out a way that I could get the 200 buck one so they go oh no no then we're going to find real clever ways that keep you from doing it so guess what we spend an awful lot of money trying to have this price discrimination so that they can get the 10,000 out of me while the other people the poor people get for 200 and it's nuts it's totally nuts it's totally nuts in this country I mean I can't tell you had some firsthand experience I won't go into but you know the things that people have to go through to you know the insurance companies obviously would rather pay the 200 bucks most of us pay for our drugs to insurance companies if we have the money to have good insurance so the things that the insurance companies go through to try and restrict prices um and then the things that doctors and patients do to get around them or pharmacies it is a waste of everyone's time so if Economist acted like Economist rather than jumping up and down about the Tariff barriers and shirts or whatever might be they would jump up and down about this stuff because it's a huge deal um the third thing that you get from from these high prices counterfeiting um again you know when they teach us in econ 101 you know if you if you have government intervention of market so you raise the price above the competitive market price what are you going to have happen well you have counterfitters you have people try to take advantage of that and that's of course what you have with prescription drugs the most obvious form of counterfeiting or unauthorized sales I should use a more neutral term in the case of prescription drugs people getting drugs from other countries you know and sometimes they're from Canada they're from Europe Australia where they have the same standards of the US so there's no obvious problem with that might be some issues about labeling or whatever but basically that's fine but sometimes people might get from developing countries where you know it's more questionable quality okay so again if you had economists acting like Economist they would be very concerned about this because it's a predictable Market response we're trying to sell these things for 10,000 it cost 200 a year to make them okay it's a predictable response okay well that's the sort of distortions created by you know the excessive price but this is in the Monopoly rent area um what are the sort of perverse incentives that you get from having Monopoly rents well the first one is Copycat drugs okay well what happens if I have the the first breakthrough drug you know in in calcium channel uh calcium channel blockers you know drug for treating heart disease well I have a breakthrough drug and that I can make a lot of money on it well what's the incentive for the other drug companies well they want to get in on my fortune okay they don't care about producing you know a better drug they just see that I'm walking away with you know I'm fiser and I'm making three billion a year on claran so they want to come in there with their new allergy drug then they're going to compete with me now if we have monopolies then it's good you know two drugs are better than one drug because there'll be you know some competition if we have three drugs there'll be a little more competition but from a social standpoint if we were selling at the free market price no one would spend any money or at least they'd spend very little trying to research these copycat drugs now how much is spent on researching copycat drugs well the FDA tells us that roughly 3/4 of the drugs they approve fall in this copycat category they not qualitative breakthroughs they duplicate what existing drugs already do and the industry was good enough to tell us that it cost them about 90% as much to research a copycat drug is to research a breakthrough drug okay they told it to us in different context but they told it to us nonetheless so what does that tell us that tells us that 2/3 of what they spend on their research is going for researching copycat drugs okay now if we go back to the numbers I had before they told us they spent 40 billion a year researching prescription drugs they tell us or we could back that out that 2third of their money is spent researching happy cats well that means 1third about 14 billion a year is spent researching breakthrough drugs well we're spending 150 billion a year in higher drug prices to pay for that 14 billion in research on breakthrough drugs so in other words we're spending more than $10 in higher drug prices for every dollar that they spend researching breakthrough drugs okay in my book at least not a great deal um the next point the secrecy one um well what's the industry there for they're not there to advance the science I'm not saying they're bad people or anything but you know if you're at fiser and you know you go hey I just had this great idea and I called someone over at one of the other manufacturers and they figured out how they could you know have this thing that this new drug that will extend the life of cancer patients by 20 years and I'll get fired real quick because they're going to make the money on it not fiser um fizer wants people to get the information out that they need to get out to get their drugs approved so they need information they need to file information to get a patent they need to file information about their test to get the FDA to prove their drug they don't gratuitously make information available and if you do make it available from fiser you get fired everyone signs confidentiality agreement you don't get any information out that they don't want out well all of us believe at least everyone I know that research works best when it's open and in this case it's clearly not open it's very tightly sealed um I was at a conference this summer there was a woman from the Food and Drug Administration was talking about how they had someone uh major drug company she couldn't tell us more than this but a major drug company was bringing in you know these clinical trials on this drug and she's just sitting there looking at them she knew it was going to fail because someone else had done the same thing but she couldn't say anything about it she was legally prohibited from saying a word about it so you had this incredible waste of effort you know if the information were public they'd just be able to say hey that doesn't work you know why waste our time but it's secret okay and that's by the nature of the system okay well that's you know one aspect of it it gets more serious if you have negative research findings you have a really big incentive viax is one that was in the news if you read the the times has very good coverage on this issue if you read the times you know if you read it regularly I suspect you won't have a month go by where you don't have a case where there's a drug company or some maker of medical devices that is caught concealing information that reflects badly on their product what are the incentives this is one of these things where the hell are economists why aren't they thinking like economists what are the incentives for fiser with bio when they find out that well you know for some heart patients that might be a bad thing okay what's their incentive well if they think they could get away with this and never get caught their incentive is to keep it secret they billion dollar you're giving them billions of dollars a year by keeping that secret if they think they could do it without getting caught now obviously if they think they're going to get caught then they'll make it public because they want to pay big penalties and lawsuits but if they think somehow they can get away with keeping it secret then their incentive for economists we believe people respond to incentives they'll keep it secret and there's a lot of cases where clearly they've done that okay another aspect about the research um uh uh perverse incentives they have no incentive to Reserve to to research non-patentable cures and I'm not a a doctor I'm not a medical biologist but you know just sort of Common Sense would tell you that you know in some cases you're looking for prescription drug that's going to be the best cure best treatment some cases maybe nutrition's more important maybe exercise maybe some combination maybe there's environmental problems well if you're at fer and you're doing the research and guess what it turns out if you just got everyone eat more broccoli you know that would be more effective than well you're not going to make a point of pursuing that you'll tell your boss go that's very good let's work on something else you know know maybe you're public spirited and you'll do the research on your own time and you know but fizer is not going to pay you to do that okay that's not what they're there for so again this gets back to how do you have research Advanced most quickly you know well if all this research were public if you don't discriminate between oh this is something I can get a patent on this is something I can't get a patent on someone NIH might do that and might do it on the public you know public Buck but you know you have this segregation over here there's research that's being done on patent Support over here public support and the contact between them might be very limited okay so that has to slow research progress um lastly again you know economists yelling about Monopoly rents well um you know lobbying for public payments for drugs legal harassment generics this goes on all the time I mean you you all been around for the Medicare prescription drug benefit that passed a few years ago I mean the drug industry designed that I mean it's an absolutely nutty disaster that you know they're realizing now as people are signing up for it no rational person was sat down how can we best Des design a prescription drug benefit the industry wanted to design one that ensured they make lots of money so they had this absolutely nutty thing that their lobbyists got passed because they give a lot of money to members of Congress who voted for it you know and President Bush um they do this state by state again time areem very good coverage about a year ago they had an article about how they go around state by state you know you have different Medicaid budgets this will change now with the prescription drug benefit and this a lot of this comes under the federal budget but used to be a lot of these things were decided state by state so they'd go to Virginia they'd go to Ohio they go to California and they go you really should pay for our expensive drug and they get their lobbyist out there and they make their case they spend a lot and lot of money on that the legal harassment generics as I said patents only supposed to be there for a limited period of time 20 years it's absolutely standard you know I'm a generic producer I see that the patent on claron is about to come off so I'm ready to get into the market and they start coming up with ridiculous patents you know that almost certainly are illegal okay I mean they aren't illegal they have no legal standing but I have to spend a lot of money to fight them okay and their logic it's very simple what their logic is I'm a generic producer what do I get by coming into the market and competing with claron I have the right to be a competing competitive market just you know just like if I selling you know this Podium you know I'll make normal profits with these chairs you know I'll make normal profits fiser on the other hand has Monopoly profits so they have a hugely disproportioned incentive to spend a lot of money on legal fees hiring expensive lawyers to try and keep me out of that market because they're protecting a monopoly I'm just protecting my right to be to come in there and produce a competitive product okay and they do it all the time all the time any big drug when it's about to come off patent you'll see them come up with a thousand one things that will try and extend their patent if they could just extend it a month that might be 100 million bucks for them so it's hugely valuable for them to do it and they do it all the time okay uh that's my drug rant um copyrights um okay logic of copyrights again it's it's the same sort of thing is the logic of patents the the the logic of copyrights is that you know in principle we give you a limited period of Monopoly for a limited period of time to give you incentives for you know doing creative work whether it's music you know recording music writing a book um newspapers are copyrighted obviously um movies of course are copyrighted um so that's that's the basic story now the idea of limited period of time this has gotten to be kind of a joke and when I said the Mickey Mouse lot literally some of you might have heard this we we keep extending the copyrights and the Really perverse thing about it is we extend them retroactively um which the reason why I say that's perverse is you know going forward we could say okay we're going to give you a 100-year copyright you know so you'll have this copyright for 100 years after you do your work actually after you die it's the death of the author so you have it for 100 years okay well that would give you an incentive that you know you'll have a chance to make a lot of money in your ears will have a chance to make a lot of money but if we do it retroactively we apply it to works that were done before you know 1990 well we can't change what any did in the past so you're sort of hard pressed to say you know what's the incentives what's exactly the story as to why we would extend copyrights retroactively you know so copyright I believe the term used to be 50 years I think now we're up to 95 someone else may have the number okay okay so copyrights used to be 28 in renewable and now we're at 95 years 1909 and 1978 that okay okay and and so now we're and now we're at 95 years after the death of the author okay well the reason why this is sometimes called the Mickey Mouse Act is because the big actor in this has been Disney because Disney uh keeps running up to the expiration of the copyright on Mickey Mouse and every time it's about to expire they run down to Congress and go this would be a huge disaster for the nation if you know the copyright of Mickey Mouse expired so they get it extended I'm not kidding you I'm really not kidding you that literally is true um okay well C right may or may not have been a good idea you know 20 30 40 years ago but it's obviously a very very different situation today where you have the internet I mean 20 years ago we had Xerox Machines of course we had printing presses so you could you know duplicate we had uh video machines you know so you could duplicate movies so there was always the ability to make copies but it has never been so easy as to make copies as when you have digital material that can be transferred over the Internet okay so we now have a whole new problem when we have copyright it's trying to enforce copyrights in in the internet age where we have um the possibility of making making duplicates making copies and affects zero cost instantly anywhere in the world and that that just going to get larger as we you know as the internet gets more developed gets quicker um you know again already we could transfer print a material I can transfer book in a second you know with you know broadband connection but you know it's going to get to be the case that'll be just as easy to do that with you know music it's already fairly easy but you know with a movie you know you know so it gets to be a bigger and bigger problem okay so so how do we deal with this well we deal with this by you know going through the sort of you know uh escalation process where we develop more and better techniques to try and make it difficult or impossible for people to to to copy things so we have software locks and you have a lot of smart people who design software locks and you have a lot of smart people who figure out ways around software locks okay so you know but you know we have Innovative methods some of you might heard about how Sony on some of their recorded material they they put in a I don't know if you call it a worm but you know it it's something actually go on your hard drive and make it impossible for you to duplicate their their their their material using using uh your computer um they since have retracted that cuz a lot of people got really pissed and it wasn't clear that that was even a legal thing to do but that's you know that's what you do to try and protect copyrights um that that's why it's considering oh spyware look at people's computer do you have you know material that you don't have you haven't you aren authorized to have uh propaganda classes you know the uh there's a real effort that the government is now trying to promote I think that we're all going to be singing song soon about how copyright is is great you know because they're trying to convince people it's a moral bad to to to to violate copyright I I think of this I mean you know the analogy here is you know in the Soviet Union you had you know rigid controls on markets it was illegal to sell blue jeans you know right you you know you had people sell blue jeans in the street there was a black market in blue jeans well that was against the law and I'm sure that the government had you know they told people you know you're a really bad person if you're selling or buying blue jeans on the black market this is the same sort of thing with copyrights you're a really bad person you know if you're coping music or movies or whatever and you don't have authorization I mean I don't care whether you think people are good or bad but that's what they're trying to do they're trying to convince people that it's this moral bad if you if you do these things so again it points to me that you know we're looking at a situation where copyrights are just getting more and more unenforceable okay last Point here International enforcement problems it it strikes me as unbelievable that you know a main topic in trade negotiations right now is how we could get developing nations to honor our copyrights and software and it's really really pernicious actually I should go beyond copyrights and software patents and prescription drugs I mean what we're we're you know much of our our trade negotiations with the free trade of America's agreement much of that is about getting forcing countries in Latin America which are all obviously much much poorer than the United States make them pay patent protected prices for prescription drugs okay that's you know what we're trying to do which you know to my mind is rather pernicious but in any case just part from whether we think it's pernicious or not it's not an easy thing to do there's a lot of political problems there's a lot of practical problems with it and to date at least we haven't been that successful in many cases uh at least according to the government I think they say China um uh has somewhere in the order of a 100 billion a year worth of what they'll call pirated uh software and um music and video I I don't buy that number but in any case I'll grant that I'm sure it's a high number okay what are alternatives um and I'll start by talking about drugs um because again the whole point here this is one way of doing it and if there is no alternative method and you know if you listen to to the pharmaceutical industry if you listen to the entertainment industry or software industry they just throw up their arms well no one would ever do it if you didn't you know didn't have copyright stand pants well I'll Grant you know people have to be paid they have to be compensated so one alternative is is something we've done some work on with uh Congressman kin's office the free market Drug Act he actually proposed this last year not that he's gotten 260 people signed or anything some number of co-sponsors but this is one alternative okay what does it do well one thing to start from is that we're already spending because I start saying well could the government just fund the research and immediately people jump on you oh you want the government to do it they can't even deliver the mail and go well actually we're already doing it 30 billion a year National Institutes of Health okay most of it for more basic research but sometimes they actually do clinical tests there are some drugs most you have heard of act that was developed through nah they didn't develop as an a drug they develop as a cancer drug but they have actually had some major breakthroughs in actually bringing drugs through the process taxa the most important uh um most important in cancer drug was developed largely through nah so there are cases where they didn't just do basic research that brought the drugs to the market but the industry actually goes to Congress every year and says you know this is great you know very efficient you know ni does great work give them more money okay so the industry can't tell us that they can't think the government they think the government can't possibly do anything because they've been telling us to spend more it's better to spend the money on NIH than spend it on you know feeding kids or education the money is better that they've been telling members of Congress it's better spend ni because they do such great stuff with it now at the moment they're very happy that M spend lots of money because they just go in there and get the patents and make lots of money out it but they can't given what they've been lobbing for for the last two decades they can't turn around and say the government's such a bunch of buffoons they can't possibly fund it so what do they say what they have what they have to say is well they can do basic research but when you actually talk about developing drug then they become buffoons okay and they do say that that's there what they say okay so what is the free market Drug Act proposed to do um it says all right we're spending 30 billion year on basic research let's spend another 30 billion I'm not sure that that's a number in there by the way but you know doesn't matter let's say we spend another 30 billion and we take that 30 billion take create 10 competitive corporate operations and give them 3 billion each and they're charged with actually developing new drugs okay so they're charged with doing what fiser does or MC you know so they're actually told to go out and develop new drugs okay what are the rules okay all their findings are placed in the public domain okay so they go out and they patent something it's placed in public domain okay so it means it could be produced as generic so they come out with a new drug for treating cancer AIDS whatever might be heart disease out there is a generic anyone who wants to produce it just like anyone wants to make chairs can make chairs um all results are published quickly they're made publicly available everything's up on the web so you're working on some new process and you might have a breakthrough you put it on the web you know we don't want anyone to not get credit you know you have it signed it's on the web everyone knows who did it so you get your credit okay but it's available so I'm working across the country around the world and I realize hey that goes along with something I'm doing could build on that okay so all the research is public we don't have the secrecy issue it's part of the part of the conditions okay we have a billion dollar a prize to reward outstanding breakthroughs okay we don't you know believe in giving people incentives you know it's not you're trying to stiff the scientists that do great work you want you want them to be compensated think of the Nobel Prize it's like the Nobel Prize but multiply it by 50 or 100 because you know maybe someone who has a really great breakthrough it's going to extend the life of cancer victims by you know 20 years or whatever give that person 20 million you know great you know and other people they have important Innovations give them 100,000 this and that you have a lot of money to break up there okay so it's the same principle no reason not to reward people who've done impressive work really impressive breakthroughs um people are worried that I want to get rid of the patent system say no no no no this is free market if fizer wants to go out and you know develop new drugs and you know this is great because I've had some debates with people from the industry they go oh it'll be a bunch of buffoons you go fine go out and keep doing you know if you think that this money's all going to be wasted and you know the government's just throwing in the toilet well you just keep doing what you're doing then it won't matter right you know so if you're fiser MC and you just you know you go well this is really stupid you know the government just they don't know how to do anything well then they shouldn't really be bothered I mean they'd be bothered like if we spent 30 billion in wasteful spending in the military or whatever but it really shouldn't matter to them because what the hell do they care they can't do anything so if fizer thinks that it's all wasted well go ahead just develop your new cancer drug and you have nothing to worry about of course the thing you might have to worry about is that it won't be wasted and they're going to produce new drugs that is good or better than your drug and it's going to be available as a generic so you're not going to get any money cuz no one's going to pay $10,000 a year for your drug and they can get the generic for 100 bucks a year okay so this is totally a free market approach okay money up front after that it's free market okay now I know to everyone this sounds kind of far-fetched but I would just point out that the current path is farfetched I don't know anyone you know we're projected to spend 200 billion a year the federal government is the Wii in that sentence the federal government is projected to spend 200 billion a year on prescription drugs in 2014 and even when they do that you know the big reason this is jumping is the Medicare prescription drug benefit seniors will be spending more on average out of their pocket on prescription drugs than they did back in 2000 when this was a big political issue and that's adjusted for inflation so I'm not playing phony numbers here you know so we haven't dealt with the problem of seniors obviously are the people who face the highest drug cost because obviously they have the most health problems we haven't dealt with that with the Medicare prescription drug benefit and we've given the government a huge bill that's it's not clear how we're going to pay for so so whether that means we go the route of the free market Drug Act I have no idea but the one thing I could say is the current path is also ridiculous I don't know anyone with a straight face who could tell me that we're both going to have seniors not getting the drugs that they need and also the government paying this huge tab at the same time for prescription drugs and I'll just keep going like that it doesn't make sense okay but the main point here is that I think we there are alternatives we have to talk about them whether that's the best one or not you know argue that but that's one possible alternative okay alternatives the software pentant um we proposed this threw this out there uh we have a paper opening doors and smashing windows we don't believe in violence um you know the basic story here basically the same thing that you could do with with prescription drugs having publicly funded research you could do the exact same thing with software research and you know we did some very rough numbers these are very crude numbers but suppose you took two billion a year and you divide it up let's say 10 companies there's no magic to the 10 number 10 but it's a convenient number so you have 10 companies each gets 200 million a year to do software research same rules okay so everything's in the public domain all their stuff's done publicly um and our estimate again a very crude estimate could save roughly 30 billion a year in lower computer and software prices let me Al also thrown one other thing that I should have had with the prescription the free market Drug Act in order to prevent the perpetuation of sort of inefficient government bureaucracies we have a clause in there that said that there'll be periodic reviews in the case of the free market Drug Act that be periodic reviews of these 10 you know government corporations where the two least efficient would be dumped so you'd have you know a commission of Public Health experts and at 10-year intervals they would evaluate the whole body of work that each of the 10 corporations have done and they would decide who are the two least efficient and they're out of business okay so there's a strong incentive then for you know them to be run efficiently and if they're not they don't last okay so whether those are the right numbers 10 years 10 to get thrown out maybe it should be three maybe it should be four maybe it should be eight years you know you could argue that one but the point is it's easy to set up a system where you can ensure that you don't have inefficient bureaucracies perpetuating themselves indefinitely okay obviously you can do the same sort of thing with software okay uh copyright support for textbooks um you do the same sort of thing um again uh currently we're spending about 12 billion a year in textbooks textbooks have the nice characteristic that again it could be transferred ciously over the Internet um the ballpark figure we came up with is if you you spent around 300 million a year you could probably finance an awful lot of textbook uh production and one of the things that I I say this is someone who's taught that you know I don't know anyone who could say that you know I got a textbook and it's the perfect textbook that I want for teaching my class I don't any Professor will ever tell you that even for true they would tell you that because they want to you know have more self-respect and they're more egotistical so you're going to say well this chapter's not good so what can you do well if you had if you didn't have copyrights I don't know anyone's going to sign their class 2 textbooks now what you can do and all of us have all of us many of us have done is we put a copy with zerox copies and made it available in a course pack or what you're not supposed to do that but we do that but suppose you could just freely mix and match well I think most professors would say they would do much better in designing textbooks if they could just go through and take five chapters from this one 10 from that one one from this and one from that that would give you a better textbook so not only do you save a lot of money you get better textbooks okay and again no reason you know if someone wants to compete for free to compete if you know the government corporations are buffoons and every textbook they produce is going to be a piece of garbage or you know whatever you think's going to be the problem with it fine you know uh Apprentice Hall whoever they'll just go ahead keep going they'll be completely unaffected right because no one's going to want to buy the garbage textbooks that the government systems producing so you know they just don't you know none of us want to see government waste but shouldn't affect them okay um artistic uh Freedom vouchers I I'll just go through this quickly because I'm throwing a lot of stuff at you um this is again just a different sort of system you know suppose we were to say can we have something uh something other than copyright to support music artistic work the big issue here that anyone would rightly say we don't want the Zar of culture to tell us you know which artist you know do we like rap music do we like rock music do you like U mystery novels none of us want that I don't want it at least maybe you do I don't know but you know I think it's fair to say we don't want that so can you think of an alternative that still leads the choice of the individual so we came up with the idea an artistic Freedom voucher suppose you know we all this this is very similar to charitable tax deduction except this would be a credit in effect so picked the number 75 bucks could make it higher can make it lower where you get to give it to anyone you like or an intermediary and what do they have to do they have to register just like you know seers registered as a 501c3 or if you're a church you register to get tax exam contributions you register the government doesn't decide whether they like SE whether they like the Catholic Church they just say okay it's a church it's a Seer you know Research Institute whatever and the story so as long as they don't find we're running a business um you know making shirts and making a profit off of it we're not lying about that that's fine they don't evaluate you know whether se's doing good work or bad work or it's a good church or bad Church they don't decide whether you know you're making good music or writing good books if people want to contribute the money to you end a story okay condition is that it's in the public domain okay so if I'm getting money through the artistic Freedom voucher system everything I write is in the public domain okay and the logic here is you get a subsidy once you don't get it twice copyright's a subsidy okay government's going to give me Monopoly they're going to arrest people who make copies of my work that's one thing you have the right to get alternatively you have the right to get money through the artistic Freedom voucher system okay so I can ban one or the other I Can't Ban both very simple okay and numbers just very rough numbers if you had $75 per person you could support 300,000 musicians writers actors whatever at 50,000 a year so that that could produce a vast amount of artistic creative work that way okay so again we can think of alter Alternatives it's not terribly complex bureaucratically it could all be done very easily on the tax code and it doesn't involve the government with a heavy hand deciding what's good what's bad no more so than you could say the government decides what churches people should go to because we have a tax exemption same same sort of thing okay to conclude um just how we think about this they are forms of government intervention okay you know when someone goes on about how they really support the free market they really support free trade well if they're honest or at least if they know what they're talking about they must not support patents and copyrights because those are forms of government intervention okay to my mind that doesn't make them bad it's just saying what they are okay so you know their forms of government intervention um there enormous inefficiencies associated with them okay um you know the high price of prescription drugs the um high price of copyright protected software they also include encourage antisocial Behavior rent seeking you know making copycat drugs when Microsoft is trying to you know arrest everyone for making copies of Windows or you know Sony is putting spyware on people's uh hard drives these are all things that wouldn't make sense if you didn't have copyrights and pens okay so they encourage antisocial behavior and again they're Alternatives so it's not that we don't recognize it's important to proide incentives the big question is are these the best way to do it okay and that's what we have to have a debate over okay so I'll stop uh take five minutes for a break and questions for