IP and Patents – Regulatory Capture at its Finest

It is presidential campaign season and we are getting a lot of incoming promises, particularly from the Democratic side, about how the government is going to make our lives better.  This makes it an opportune moment to report on some recent examples of how the government fulfills promises.

The first one comes from a Wall Street Journal article entitled “GoPro Faces Suit For Camera Design.”  The article describes a patent infringement lawsuit that has recently been launched by C&A Marketing, which owns the Polaroid brand, against GoPro, the manufacturer of video cameras used to capture everything from extreme sports in New Zealand to extreme insurance fraud in Russia and China.


gopro-hero4-sessionGo Pro’s latest camera-on-a-stick, the cute “Hero4”, has come to the attention of a patent troll

Photo credit: GoPro


Polaroid, as you remember, is the trade name of the once-popular instant cameras that produced low quality still photos of subjects that were best not shared with the pimply adolescents at your local Fotomat.

Polaroid has been in a death spiral ever since the advent of the digital camera, which not only allows higher quality photographs and videos of both a salacious and non-salacious nature, but also allows the sharing of images formerly deemed unsuitable for the prying eyes of film developers with the entire Snapchat universe.  Such are the wonders of technological progress.

GoPro is being sued by C&A for its new Hero4 Session camera, which is housed in a small cube with rounded corners.  Here are some images  –  quite cute.  This, according to C&A, is a violation of the 14-year patent that C&A received in May 2015 for “(t)he ornamental design for a cubic action camera, as shown and described.”  The patent underlies the Polaroid Cube camera, as depicted here – also quite cute.  As best as I can tell, C&A is accusing GoPro of infringing its government-granted monopoly on cuteness.  At least in a camera.


kinsella_stephan-e1328323364310Patent lawyer (i.e., he’s an expert) Stephen Kinsella, who has become an implacable enemy of state-enforced IP regulations. Anyone studying the history of patents and IP closely will be astonished to what extent technological and economic progress have been held back by these government-granted privileges. Kinsella shows convincingly that so-called IP is actually not compatible with property rights (readers may want to check out his monograph “Against Intellectual Property”. Free download in different formats available here).

Photo credit: Iceberg18


I have been plunging into the literature on intellectual property ever since I read this article about intellectual property (IP) in The Economist, which I have described before.  There is a lively legal and philosophical debate about the merits of IP, including whether it should rightly exist at all, of which this article by libertarian Stephen Kinsella is a good example.  But I would rather focus on the practical consequences of the doctrine of IP.  For this, some of the best work has been done by Michele Boldrin and David Levine, including in this research summary for the Federal Reserve Bank of St. Louis.

I won’t go into detail, which I will save for a separate piece that I hope to write on just this subject, but suffice to say that, according to Boldrin and Levine, the absurdity of this lawsuit is a necessary consequence of the political economy of patents.  It is a classic case of the “regulatory capture” that we have discussed so often in this blog, where the (perhaps) well-intentioned actions of the legislators are perverted by the concentrated interests of the few eventually taking precedence over the dispersed benefits of the many.  And, contrary to the persistent fantasies of liberals, this is the result of an economic law every bit as immutable as the law of gravity.

Boldrin and Levine, who are mainstream economists and not right-wing ideologues, summarize this phenomenon very well in these words:


“Consider who the clients of the patent office are: inventors, patent trolls and patent lawyers.  Each and every of these clients shares the same goal: they would like more patents issued….It should be clear, then, that given this set of players and their incentives, the patent game can have only one equilibrium over time, which is the one we have observed.  Starting from a regime of intellectual property protection that, about two centuries back, was restricted in its areas of applicability and limited in both depth and duration over time – that is to say: it was somewhat “reasonable” to the extent it balanced social gains and social costs – we have witnessed a monotone process of progressive enlargement and strengthening of patent laws.”


Selling the World Trade Center Bit by Bit

There is another recent article from the WSJ entitled “Wanted: Immigrant Funds for Tower.”  This article describes how Silverstein Properties, a big New York City developer that famously tried to double the insurance payout for the 9/11 attack because there were two airplanes involved, is using funds raised under the EB-5 visa program to rebuild one of the towers at the World Trade Center.


Larry-Silverstein2013Real estate mogul Larry Silverstein. Ever since he received the insurance payout for the World Trade Center, he can’t stop grinning (really, try to find a photo of him in which he doesn’t grin from ear to ear – it’s nigh impossible). Lately his grin is undoubtedly getting even wider, as his company has found fresh ways of milking the tax cows with the active support of the local NY political mafia, which has engaged in a surprising spurt of creative thinking on his behalf (see below).

Photo via therealdeal.com


The EB-5 visa program is a Federal program under which green cards are granted to foreigners who invest at least $500,000 in job-creating businesses in areas of high unemployment.  Because a green card is viewed as valuable by certain naïve foreigners who have never experienced the Internal Revenue Service, they are willing to accept a below-market return for these investments.

Which makes for cheap funding for Silverstein’s proposed development.  The article points out that Silverstein has had to go to the inconvenience of raising funds in $500,000 chunks under the EB-5 program because New York City has apparently used up all of its capacity to allow Silverstein to use low-cost, tax-exempt debt for this purpose.  Some other pig got to that trough first.

Now, you may be wondering how constructing an office tower in one of the world’s financial centers qualifies for a program that was designed to aid struggling local economies, particularly rural ones.  You may also be wondering how an office building can be considered to be much of a “job-creating” business, except for maybe a few security guards and janitors.

You may even be wondering how an office building housing primarily financial workers who have commuted from elsewhere, including some of the tonier suburbs of Connecticut and New Jersey, can be considered to be helping the local unemployed.  But you underestimate the creativity of our political leaders.


Tower renderingA rendering of 2 World Trade Center, the new office tower Silverstein plans to build with the aid of government-procured funds.

Image credit: Silverstein Properties


There is a test in the program that the investment has to be in an area where the local unemployment rate is at least 150% of the national average.  But, helpfully, the federal rules don’t define how the locality is to be determined.  From their experience with gerrymandering voting districts, politicians are experts at defining localities to get the answer they want.  This is how the WSJ describes the district used in this case: “The district extended south, off the southern tip of Manhattan, up the East River and back onshore at a set of public housing projects in the Lower East Side…”

For the job-creation test, they simply count up all the employees who will work in the building, since apparently the only thing holding back these people from gainful employment was the lack of a place to sit.  And don’t ask where they come from.

Other projects financed this way are condos on “Billionaires Row” just south of Central Park and the redevelopment of Hudson Yards in Midtown, both not normally considered economically blighted areas.  Apparently, this has now become sufficiently outrageous that politicians are bestirring themselves to change the program.  Fittingly, this will provide employment for plenty of lawyers who will be hired to figure out how the new rules can be gamed.


Uncle Sam’s Nuclear Wasteland

I was an intern in the office of one of the US Senators from Michigan during the summer of 1979.  The Senator was Donald Riegle.  Before he retired in 1995, his political career was mostly remembered for being very unmemorable.

The summer of 1979 was immediately after the Three Mile Island nuclear accident, which called into question the civilian nuclear power program.  One of my projects was to prepare a briefing note on nuclear power.  At the time I was struck by one thing: Despite all the noise about the private sector failures with nuclear energy, culminating in Jane Fonda’s technically absurd movie The China Syndrome, the biggest source of nuclear pollution, by many orders of magnitude, was the weapons program run by our old friend.  Uncle Sam.

caution2A helpful hint in Arizona

Photo credit: Jessica Boehm


I was reminded of this when recently reading an article entitled “Budget Hobbles U.S. Nuclear Cleanup” in the WSJ.  The article describes the government’s attempts to clean up the nuclear and chemical wastes resulting from the arms program, “the largest environmental remediation ever undertaken by mankind….”   It describes the usual tragicomic panoply when it comes to a government program, including:


  • Incompetence, such as spending $1 billion on design work for a new $6.5 billion uranium-processing plant, such designs featuring ceilings 13 feet too low for the equipment the plant was supposed to house;
  • Fraud, including a “high risk” citation for the program from the Government Accountability Office;
  • Cost overruns, including the ballooning $100 billion cost for the clean-up of a plutonium processing plant in Hanford, Washington, that was closed in the 1980s;
  • Misguided objectives, including excluding high-risk facilities from the program because the funds necessary to tackle them are not available, while continuing to spend on much lower priorities;
  • Pure politics, such as Obama’s recent vetoing of a defence appropriations bill that contained some urgently needed mandates and funding, but which were part of an unacceptable overall package.


Hillary Clinton or Bernie Sanders, or the Republicans in their own way, would have you believe that all of this will go away if they are elected.  But we know better.  The problem isn’t who leads the government.  The problem is the beast itself.


Leviathan_by_Thomas_Hobbes-666x1024Thomas Hobbes came up with the highly appropriate term Leviathan to describe the State

Engraving by Abraham Bosse – click to enlarge.




If you run a Google search on the title of this post, you will get a number of hits.  However, in the spirit of this blog posting, which argues that no one should be allowed to patent, trademark or copyright anything that is obvious – or maybe anything at all – I will use it freely.


Image captions by PT


This article was originally posted at Economic Man.


Roger Barris is an American who has lived in Europe for over 20 years, now based in the UK. Although basically retired now, he previously had senior positions at Goldman Sachs, Deutsche Bank, Merrill Lynch and his own firm, initially in structured finance and latterly in principal and fiduciary investing, focussing on real estate. He has a BA in Economics from Bowdoin College (summa cum laude) and an MBA in Finance from the University of Michigan (highest honors).




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18 Responses to “Patently Absurd”

  • Roger Barris:

    There is a spectrum. On the one side, is replication of the work of someone else (a film, a software program, a video game, music, etc.), or what is normally called “piracy”; I have no sympathy with this. On the other hand, is things like Polaroid’s suit against GoPro (or the notorious “one-click” patent of Amazon, the suits between Apple and Samsung on Apple’s design patent on a rectangular smart phone with rounded corners, etc., etc., etc.); frankly, I have absolutely no sympathy with this either (although you seem to be willing consider this). The question is, where do we draw the line? And, how do we draw a clear, logical and bright enough line to avoid the type of “creep” that we have been seeing and which is cited in the quote from Boldrin and Levine that ends my article?

    Your answer — which is broadly let the courts and “twelve good men and true” figure it out — is, frankly, no answer at all. This is precisely the system that has produced many of our current absurdities. You propose to improve this by allowing triple damages for frivolous patent law suits, but since we in America have not yet even succeeded in getting “loser pays,” it is hard to see how we are going to get this anytime soon — not to mention the difficulty of defining “frivolous.” And, frankly, jury trials in civil lawsuits are a peculiarly American absurdity that should probably be abolished anyway.

    This is not an argument against IP per se, but I think that IP’s proponents need to work a lot harder to define exactly what can be the subject of a valid copyright/patent and how this can be defined to avoid the “regulatory capture” phenomenon identified by Boldrin and Levine. Just saying that the courts will have to figure this out, through common law precedent but without clear legislative guidance, is a recipe for the type of waste that is described in the Economist article cited in my original piece.

    (PS. The comment “Kinsella shows convincingly that so-called IP is actually not compatible with property rights” does not reflect my views. I don’t know this field well enough to have so definitive an opinion. However, I think that Kinsella makes a very good point about the “negative servitude” view of copyright when he points out that, even if you accept this position, it is hard to argue how it would be binding on a third party.)

    • VB:

      I very much agree with the above. While Kinsella’s views strike me as obviously wrong (in fact, I am surprised to see them advocated on libertarian sites like this blog or mises.org – I had the impression that enforcing the property rights is one of the few valid functions of government, according to the libertarians), it is nevertheless also obvious that the current system is prone to abuse by cronists and patent trolls.

      It reminds me of the argument between those who think that big government should run our entire lives (liberals, democrats, socialists or whatever they call themselves in your particular country) and those who think that government should not exists (anarchists). Obviously, both radical views are wrong – but how do you strike a proper balance between them?

      The same with intellectual property. It should, of course, exist – those who create it have the right to enjoy and sell the fruits of their labor. But the current system is non-functional and prone to abuse. Artists should certainly be rewarded for their creations – but with the current system the public is being ripped off and the money ends up mostly in the pockets of the distribution oligopolies. Patents should stimulate innovation and help inventors protect the fruits of their thought – but the current system results in actually stifling innovation and patent trolling.

      Clearly, some kind of balance is needed – but I do not know where to strike it.

      That said, I am opposed to software patents in particular. The actual software is valid intellectual property and should be protected – i.e., it should not be pirated. But patenting an algorithm is as ridiculous as patenting an idea. (Not sure about the USA, but most jurisdictions do not allow the patenting of ideas – you can only patent a technological process or a mechanism.) Patenting of biological organisms also strikes me as idiotic.

  • No6:

    IP is a state sponsored scam that rides rough shod over actual property rights.

    This article stands for every acting man and should not be removed.

  • kycattle:

    Thank you for this link. The author at minimum has confused crony abuses of the state enforced system with the actual universal rights clearly shown in the link or at worst suffers from lack of fundamental understanding of from where those rights derive. In either case not making the distinction leads down a dangerous path. It would be best to either clarify or remove this article and replace with the linked text.

    • Dave Narby:

      I would rather retraction rather than removal (which would be wrong), and encourage Acting-Man to publish Strangerous’ essays. Free speech and all that.

      Please post those links wherever these IP commies pop up, we need to monkey-hammer them back into the putrid slime from whence they slithered.

  • Dave Narby:

    I am very sorry to see Acting Man has fallen down the IP Communist hole!

    I have enjoyed reading your blog for some time, and have for the most part have had no argument with anything you have published, and have even shared links to your articles from time to time.

    However, this article on IP floored me. Kinsella, Hoppe, et. al. have been thoroughly discredited and exposed for what they are: Intellectual Property Communists.

    An exhaustive exposure of the multitude of fallacies they used to push their cockamamie IP commie crap is contained here: https://strangerousthoughts.wordpress.com/2010/11/14/the-economic-principles-of-intellectual-property-and-the-fallacies-of-intellectual-communism/

    Until you can refute the arguments put forth by the pseudonymous Strangerous, you may want to remove this article (or at least issue a retraction!).

    Because far from refuting the arguments contained there, *Kinsella, Hoppe, et. al. have been doing their damnedest to pretend they don’t exist*. As far as I am concerned, on this issue they are cowardly, collectivist cretins.

    Indeed, by promoting their half-baked collectivist, commie IP codswallop, you are encouraging a very dangerous trend, as *anti-IP arguments can easily be used against actual tangible property rights*: https://francoistremblay.wordpress.com/2010/02/12/anti-ip-arguments-can-be-transposed-against-property/ (via http://mindbodypolitic.com/2011/03/25/friends-and-foes-please-cite-if-you-pick-up-leads-from-this-blog/ )

    I sincerely hope you come to your senses, issue a retraction, and step back from the abyss!

    En Libertate,

    Dave Narby

    • jks:

      Dave, I couldn’t agree more. At the heart of Kinsella’s ideas on IP is the notion that your labor does not belong to you. I’ve read Kinsella’s “Against Intellectual Property” carefully and agree that his ideas are more collectivist than libertarian. Rothbard certainly doesn’t agree with Kinsella’s patent arguments. I’m shocked that so many so-called libertarians trot out Kinsella’s non-sequitur nonsense.

      • Dave Narby:

        I find it amazing that so many “Libertarians” are soft headed on this subject. Even Rothbard clearly didn’t think this (completely) through.

        Fortunately “Strangerous” gave us an exhaustive refutation of all their fallacies. All of the the credit goes to him. I hope I get to thank him (her?) in person some day. I did coin the term “IP Communist” though, hah!

    • Roger Barris:

      Let me begin by saying that by no means do I consider myself to be an expert in IP economics, law or philosophy. My starting point in this debate is that when I see something as absurd as the patent infringement lawsuit against GoPro that is highlighted in my article, I automatically look for government intrusion on the economy. I believe that this is the reflex of every good libertarian or every good thinker — period. So, perhaps the first thing that Dave Narby can clarify is whether he agrees that the situation described in my article is, in his estimation, a government-born absurdity or it is the normal functioning of a free market economy?

      I have read the Strangerous article that you have attached. If I can summarize the argument, it is the following: Copyright is a market-based and purely legitimate property right akin to a “negative servitude.” The property right is established by a contractual relationship between the supplier of the copyrighted material and the purchaser, who knowingly purchases subject to this negative servitude. The government’s role in this contractual relationship is to enforce these rights, but this does not make copyright the government’s creation, which arises purely from the contractual relationship between the supplier and the purchaser. The right is enforceable because each piece of copyrighted material is unique — “the uniqueness of such an event is self-evident, and even if another producer of information were to hire the same actors to ride along the same mountain range and film them with the same equipment, the resulting stream of information would still be completely different in physical structure” — and there is no way that it can be independently created or obtained otherwise than through a chain of ownership, each step of which is bound by the negative servitude created at the time of its original supply. In this argument, it is very clear that Strangerous is thinking of the replication of copyrighted software, movies or music. In other words, he is thinking of what is commonly known as “piracy” in one form or another.

      This leads to my second question to Dave Narby: What is the relevance of this argument to the circumstances described in the Polaroid lawsuit against GoPro? Because I have to say that I totally fail to see it, just as I have totally fail to see why my article has so incensed you?

      But there is a third question for Dave Narby, and this time it is more than rhetorical: If we are to distinguish between a legitimate copyright, created by private contract, and an illegitimate patent, then where do we draw the line? If, instead of seeking a patent for “(t)he ornamental design for a cubic action camera, as shown and described,” Polaroid had sold its camera subject to the negative servitude that no purchaser could replicate it, or presumably anything reasonably like it, would this have made this restriction a legitimate copyright instead of an illegitimate patent enforceable against an unrelated party such as GoPro? If so, what determines the degree of similarity to which this restriction would apply? Strangerous says that the uniqueness of copyrighted material is “self-evident” but it strikes me that this is far from true (or only trivially true). Presumably a copyright applicable only to the exact configuration of words, images, tunes or computer code contained in the copyrighted material, and which forbids only the direct replication of these exact words, images, tunes or code, would not make Narby happy. Where do we draw the line?

      Finally, another commentator (kycattle) has said that “clearly the author has confused crony abuses of the state enforced system with the actual universal rights….” This commentator clearly believes that the Polaroid suit against GoPro is a “crony capitalism” abuse of legitimate property rights. However, the usual libertarian response to crony capitalism is to remove the government power that enables it, because we believe that these government powers are subject to “public choice” laws, such as “regulatory capture,” which makes their abuse inevitable. Libertarians, therefore, are unsympathetic to “reforms” of government powers which attempt to avoid these problems by, for example, changing the personnel responsible for exercising them. Given this, how would kycattle propose to avoid these types of abuses while still maintaining wide-ranging government IP powers?

      Roger Barris

      • Dave Narby:

        Hi Roger. You wrote:

        “…the first thing that Dave Narby can clarify is whether he agrees that the situation described in my article is, in his estimation, a government-born absurdity or it is the normal functioning of a free market economy?”

        Neither. It is the proper functioning of the court system. Although for it to function properly there needs to be reforms for frivolous lawsuits, as I think any semi-rational jury would find the Polaroid suit to be without merit. Patents are supposed to protect novelty, and while the Polaroid design is novel, I hardly think the GoPro design infringes on it, as it looks quite different from a visual design standpoint. Frankly, I think the entire concept of design patents need to revisited, as they are the hardest to enforce and therefore arguably not IP (designs seem to me to logically fall under copyright, but I am hardly well informed enough on design patents to offer an expert opinion).

        “This leads to my second question to Dave Narby: What is the relevance of this argument to the circumstances described in the Polaroid lawsuit against GoPro? Because I have to say that I totally fail to see it, just as I have totally fail to see why my article has so incensed you?”

        That’s actually two Questions, but no matter.

        It’s relevant because the author engages in fallacy #1 https://strangerousthoughts.wordpress.com/2010/11/14/the-economic-principles-of-intellectual-property-and-the-fallacies-of-intellectual-communism/#fallacy-1

        What incensed me is that they included this “Kinsella shows convincingly that so-called IP is actually not compatible with property rights”

        …When Strangerous has shown it to be very much not to be the case, and Kinsella et. al. have been ignoring his refutations FOR YEARS instead of addressing them. I suspect this is because he and his fellow travelers cannot refute them. I personally have no patience or tolerance for such blatant dishonesty. I imagine it is emotionally quite difficult for Kinsella and his commie ilk to address those arguments because they are rigorous and logical, and failure to refute them will mean they have spent a good deal of his life and energy tilting at windmills (and lost down the collectivist rabbit hole). But I’m not in the business of protecting delicate special pink snowflakes like Kinsella and Hoppe. IMO they should suck it up, grow some testicles, or go away (and stay there).

        “…a third question for Dave Narby, and this time it is more than rhetorical: If we are to distinguish between a legitimate copyright, created by private contract, and an illegitimate patent, then where do we draw the line?”

        We draw the line in the courts (not necessarily the “legal system”), preferably under the common law: Judged by a jury, where suits without merit are punishable by damages three times the order of the damages sought by those bringing the false suit.

        I think that last bit would also solve the problem you put to Kycattle, but perhaps they have a better answer.

        Hope that helps. Thanks very much for posing honest, logical and well thought out questions (as opposed to the clumsy ad-hom of the previous IP commie, the anonymous coward “No6”, which is what I usually encounter as “argument” in these instances).

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