CONTENTS
PART 1 - CENTRAL ISSUES
PART 2 - IPR INTELLECTUAL PROPERTY RIGHTS CONTROVERSY
PART 3 - PROPOSED TAX ON IPRS
APPENDIX 1 - THE ORESUND SOUND DUES
APPENDIX 2 - WHY ETHERNET BEAT TOKEN RING
SOURCES
PART 1 - CENTRAL ISSUES
The King of Denmark’s Rule
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| Image: Oresund map, Public Domain, https://commons.wikimedia.org/w/index.php?curid=25944 |
If we disregard the possible collusions between the master and the agent to cheat the King, the master has incentive to assess the value fairly. If the master assesses a low value, then the agent may refuse the tax and buy the cargo. If the master assesses a high value, then he pays more tax than the law requires. (See Appendix)
Incomes Disparity, or Income Inequality
To the extent that politically knowledgeable people vote their pocketbooks, one can imagine without difficulty that a wealthy person in the United States would have different opinion from a poor person on nearly every significant political issue.
Senator Bernie Sanders was one of the two most significant contenders for the 2016 nomination for President of the United States by the Democratic Party. He focused on income and wealth inequality as the most important political problem in the United States. Seeking to persuade some of Bernie’s enthusiastic following, other candidates echoed Bernie in advocating for their own policies.
IPRs Intellectual Property Rights
Economist Joseph Stiglitz wrote in “Rewriting the Rules” that some persons seek IPR monopolies to secure market power. (Some have criticized use of the word “monopoly” as pejorative in discussing the privilege granted by an IPR. But we note that IPR does grant the owner the exclusive right to sell or license or use the products embedding the IP patent or copyright. The condition in which only one seller can sell a product in a market is a monopoly, by definition. We regard IPRs as grants of monopoly by governments.) Stiglitz calls for revising IP laws for better balance of the rewards of innovation with the societal usefulness of innovation.
Economists Michele Boldrin and David Levine wrote of IPRs that “this cancer is attacking the most vital centers of our economy: metastasis is near and so it is time to face the intellectual monopoly threat squarely, and to take action.”
The first laws governing IPRs in the United States were copyright and patent acts of Congress that became law in 1790. Each act granted 14 years of IPR protection to writers and authors. In our age, IP consists of four categories: patent, copyright, trademark, and trade secrets.
PART 2 - IPR INTELLECTUAL PROPERTY RIGHTS CONTROVERSY
With large amounts of money at stake in some IPRs, the governing laws have spirited advocates and opponents.
WIPO World IP Organization, part of the United Nations organization, generally advocates for the positive value of IPRs. Advocates often claim that increasing counts of numbers of patents granted and growth of GDP show that IPRs stimulate imagination and GDP growth, much as does Kamil Idris in his “Intellectual Property: A Power Tool”, and that IPRs attract investment.
Alan Greenspan, former chairman of the Federal Reserve Board advocated for IPRs. In 2003, he attributed only a small part of US GDP growth in the last decades of the twentieth century to physical materials, with the accelerating large part of the growth coming from IP.
James Madison argued for IPRs. Discussing the powers accorded to Congress by the US Constitution, and the right to grant IPRs, specifically, he wrote “The utility of this power will scarcely be questioned.“
Idris also argues that IPRs attract capital investment. Clearly, they do so in a world in which IPRs exist. Idris doesn’t show that capital investment in ideas wouldn’t occur in a world without IPRs. Nor does he answer whether IPRs distort capital allocation from superior ideas and projects.
International payments for the use of IPRs were $350b worldwide in 2015, per the World Bank, using data from the International Monetary Fund.
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| International payments for use of IPRs. Source: World Bank. |
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| Source: Emmanuel Saez (2014) |
While coincident graphs don’t imply causation, we can’t but notice a resemblance in the growth of IPR payments with the growth of the highest 1% of US incomes, per Emmanuel Saez.
I’ve not found criticisms of IPRs in his writings, but Stiglitz does identify IPRs as a rule that contributes to deep US disparities of incomes.
Opponents of IPRs often claim that IPRs stifle invention, discovery and manifestation of creativity. For example, Michael W. Carroll, in his “Intellectual Property and Related Rights in Climate Data”, describes how IPRs can interfere with climate change research, which requires fairly open access to diverse data sources.
Thomas Jefferson, often quoted by IPR opponents, wrote “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” Jefferson did note the rush of inventors and writers to apply for copyrights and patents. And ultimately, he was persuaded (allegedly by Madison) that IPRs strictly limited in duration would have some value.
In the development of computer networks, two comparable and competitive ideas, token ring and ethernet, competed in the 1970s and 1980s. Ethernet was not protected, but Olof Soderblom required a royalty of 2 percent for each node of his patented token ring. Ethernet flourished with rapid innovations increasing speeds and reducing costs. People also invented enhancements for token ring, but the patent impaired development and distribution. Eventually, ethernet deployments dominated. It became the ubiquitous protocol underlying the Internet. Token ring survives in isolated specialized applications. (See Appendix)
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| Aristotle. After Lysippos, Public Domain, https://commons.wikimedia.org/w/index.php?curid=1359807 |
Benjamin Franklin, Jonas Salk, Aristotle, Luther Burbank, Rene Descartes, Charles Dickens and Alexander Fleming, among many others, either had no access to IPRs, or they declined to use them. Further, each of us has creative thoughts and ideas, for which we never have IPRs. Arguably, people have good ideas because it’s fun to discover and create things. Clearly, IPRs aren’t required for people to have good ideas.
PART 3 - PROPOSED TAX ON IPRS
IPRs, by their existence, attract capital to finance development of ideas and production of useful products and works of art. At the same time, they create monopolies that encourage rent seeking and diminish innovation and the availability of useful ideas. Further, the existing legal structure of IPRs facilitates intense concentration of immense wealth and disparities of incomes. We propose a new US tax on IPRs, modeled after the King of Denmark’s Rule, and some minor modifications of existing law. Further, we propose uses of the tax revenue to encourage inventions, authorship, fine and useful arts and science.
The IPR tax
First, the IPR tax law will overlay, not replace, existing law, except in cases of direct conflict. No existing or new IPR will continue in effect beyond 100 years under any circumstances. New IPRs, coming into existence after enactment of the enabling IPR tax, will have a maximum term of 14 years.
The tax will apply to both new and existing IPRs. Upon enactment, the tax will apply to existing IPRs 3 years after enactment of the law. The tax will apply to each new IPR 3 years after the IPR comes into existence. The tax will apply to any IPR having a value of more than $500,000, adjusted for future inflation. The tax will not apply to any IPR of lesser value.
Annually, within 60 days of the anniversary date, the holder of each IPR will file a statement of value with the IPR Tax Office. If the holder doesn’t file the statement on the 3rd anniversary of the IPR and thereafter, then the IPR passes permanently into the public domain. The statement will explicitly state the value in dollars of the IPR, with appropriate documentation, and a payment of the tax due. The Tax Officer may ask for clarification of the statement, and the holder will answer within 30 days. The Tax Officer may accept the payment rendered, allowing the holder continued ownership of the IPR. If the Tax Officer acts within 60 days of receiving the statement, then the Tax Officer may return the payment rendered, and pay the holder’s stated value (but not less than $400,000) to the holder as compensation, and take possession of the IPR, and the IPR will pass permanently and immediately into the public domain. If the Tax Officer doesn’t act within 60 days, then the holder continues to own the IPR.
The tax won’t be due before the end of the 3rd year of the term of the IPR. The following table provides the tax rates applying.
Anniversary of creation of the IPR
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Tax as a percent of holder’s stated value
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0
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0
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1
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0
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2
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0
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3
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1
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4
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2
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5
|
4
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6
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8
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7
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16
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8
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32
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9
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64
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Thereafter
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64
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We suggest the revenues from the tax will be distributed by the Department of Commerce as grants to qualifying scientists, inventors, artists, writers and similar persons who apply for project funding and to arts and research organizations such as the National Institutes of Health, the National Gallery, the Smithsonian Institution, the National Aeronautics and Space Agency, and others.
APPENDIX 1 - THE ORESUND SOUND DUES
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| Coat of Arms of Erik de Pomeranie. Image by A.T. [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons |
The tax and its predecessors had existed for centuries, with some evidentiary documents dating from the 14th century. The Sound Dues were regularized and made permanent by Eric of Pomerania, King of Denmark, Norway and Sweden, in 1429.
The Sound Dues had applied to merchant cargoes (and sometimes to hulls) passing through the straits. Masters of the vessels were required to stop at Helsingor (a.k.a. Elsinore) or suffer cannon fire from shore. The master would provide a manifest and valuation, and pay a tax of about one percent of the value, varying somewhat from year to year, and depending somewhat on the type of cargo, ownership, the flag of the ship, origin, destination, and the particular royal agent collecting. Or the agent would pay the master’s valuation to the master, and take possession for the crown.
APPENDIX 2 - WHY ETHERNET BEAT TOKEN RING
According to Iljitsch van Beijnum http://arstechnica.com/gadgets/2011/07/ethernet-how-does-it-work/, ethernet was conceived and standardized as a body of standards with a clever, minimalist design that required only cheap, relatively simple components. Token ring remains in use in a very few special cases. Ethernet users sought ever faster networks, which led to the ubiquity of ethernet.
Reasons for ethernet's dominance:
1, Ethernet had a messiah, Bob Metcalf. - Geoff Thompson
2. ArcNet (early network resembling token ring) didn’t make it into specification IEEE 802 - Geoff Thompson
3. Ethernet tolerated failure. - Dan Pitt
4. Token ring patent, owned by Olof Soderblom, required the user to pay a royalty of 2 percent of the cost of the machine which was the node connected to the network. Competition was managed and never allowed to flourish. - Joe Skorupa
Oral history video discussions by networking pioneers of ethernet and token ring:
https://www.youtube.com/watch?v=3J-pK7oiRP0
https://www.youtube.com/watch?v=g2RlRRXZprY
SOURCES
BBC, “When Charles Dickens fell out with America” (Feb 14 2012 http://www.bbc.com/news/magazine-17017791 )
Luther Burbank Home & Gardens, Santa Rosa, California (http://www.lutherburbank.org/, retrieved Oct 7 2016)
Michele Boldrin & David Levine, “2003 Lawrence R Klein Lecture: The Case Against Intellectual Monopoly”, International Economic Review, Vol 45, No 2 (May 2004) https://www.researchgate.net/profile/Michele_Boldrin/publication/5110522_2003_Lawrence_R_Klein_Lecture_The_Case_Against_Intellectual_Monopoly/links/0fcfd50db5dff388c4000000.pdf
Michele Boldrin & David Levine, “Against Intellectual Property” (2007) http://levine.sscnet.ucla.edu/papers/ip.ch.10.m1004.pdf
Detailed review of “Against Intellectual Property”, Syracuse Science & Technology Law Reporter (Fall 2009), p.130 http://jost.syr.edu/wp-content/uploads/6_Azzarelli-SSTLR-Vol.-21-Fall-2009-FINAL.pdf
Michael W. Carroll, “Intellectual Property and Related Rights in Climate Data”, American University Washington College of Law Research Paper No. 2016-17 (2016 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763709) .
We are grateful for additional ideas and information provided openly in some prepublication research by Dr. Carroll.
Cisco DocWiki, “Token Ring/IEEE 802.5”, http://docwiki.cisco.com/wiki/Token_Ring/IEEE_802.5 (Cisco, retrieved Oct 6 2016)
Cornell University Law School, “Intellectual property” (https://www.law.cornell.edu/wex/intellectual_property, retrieved Oct 6 2016)
Jonathan Follows, “Token Ring Solutions” (IBM http://www.redbooks.ibm.com/redpapers/pdfs/redp0031.pdf 2000 )
Benjamin Franklin, “Autobiography of Benjamin Franklin”, Project Gutenberg edition (2006, https://www.gutenberg.org/files/20203/20203-h/20203-h.htm)
Alan Greenspan, “Remarks by Chairman Alan Greenspan a Sea Island, Georgia” (Federal Reserve Board, April 2003 https://www.federalreserve.gov/boarddocs/speeches/2003/20030404/default.htm)
Lucinda Hawksley, “Charles Dickens, Copyright Pioneer”, ACLS News (Jun 24 2015 http://www.alcs.co.uk/ALCS-News/2015/June-2015/Lucinda-Hawksley-feature)
F. Hessenland, “The Sound Dues of Denmark, and their Relations with the Commerce of the World” (Translated in Hunt’s Merchant’s Magazine, October 1855, http://www.jstor.org/stable/25104806)
Lewis Hyde, “Ben Franklin and Intellectual Property”, Jul 10 2006 (https://cyber.harvard.edu/node/93339, retrieved Sep 28 2016).
Lewis Hyde, “Frames from the Framers: How America's Revolutionaries Imagined Intellectual Property” (December 13, 2005), Berkman Center Research Publication No. 2005-08, (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=870073 retrieved Sep 28 2016).
Kamil Idris, “Intellectual Property: A Power Tool for Economic Growth (Overview)”, WIPO (June 2003 http://www.wipo.int/edocs/pubdocs/en/intproperty/888/wipo_pub_888_1.pdf)
Jules Janick, “Luther Burbank”, Department of Horticulture & Landscape Architecture, Purdue University (Feb 2015, https://hort.purdue.edu/newcrop/pdfs/burbank-ashs-2015.pdf)
Thomas Jefferson, “Thomas Jefferson to Isaac McPherson”, (Aug 13 1813, http://press-pubs.uchicago.edu/founders/documents/a1_8_8s12.html )
Knowledge Systems Institute Graduate School, “CIS370” (http://pluto.ksi.edu/~cyh/cis370/ebook/ch03e.htm retrieved Oct 6 2016)
James Madison, “The Same Subject Continued: The Powers Conferred by the Constitution Further Considered”, Federalist No. 43, published in the Independent Journal (https://www.congress.gov/resources/display/content/The+Federalist+Papers#TheFederalistPapers-43)
Bob Metcalfe, “The History of Ethernet” ( https://www.youtube.com/watch?v=g5MezxMcRmk)
Samantha Payne, “Inventing in Congress: Patent Law since 1790”, (Mar 11 2015,
https://prologue.blogs.archives.gov/2015/03/11/inventing-in-congress-patent-law-since-1790/)
“The Public Statutes at Large”, Little & Brown, Boston (1845,
https://www.loc.gov/law/help/statutes-at-large/1st-congress/c1.pdf )
Emmanuel Saez, “Income and Wealth Inequality” (Oct 2014 http://eml.berkeley.edu/~saez/lecture_saez_chicago14.pdf)
Jonas Salk, “Could you patent the sun?” https://youtu.be/erHXKP386Nk
Salk Institute, “History of Jonas Salk: About Jonas Salk” (http://www.salk.edu/about/history-of-salk/jonas-salk/)
Joseph Stiglitz, “Rewriting the Rules of the American Economy” (2015 http://amzn.to/2dhdo3i)
Geoff Thompson, et al, “Ethernet vs ArcNet and Token Ring” (YouTube https://www.youtube.com/watch?v=3J-pK7oiRP0 )
Geoff Thompson, et al, “FDDI & Token Ring Patents” (YouTube
https://www.youtube.com/watch?v=g2RlRRXZprY )
U.S. Department of Justice and the Federal Trade Commission, “Antitrust Guidelines for the Licensing of Intellectual Property” (Apr 6 1995, https://www.justice.gov/atr/antitrust-guidelines-licensing-intellectual-property )
U.S. Patent and Trademark Office, “Luther Burbank” (https://www.uspto.gov/custom-page/burbank, retrieved Oct 7 2016)
Iljitsch van Beijnum, “Speed matters: how Ethernet went from 3Mbps to 100Gbps… and beyond”, Ars Technica ( http://arstechnica.com/gadgets/2011/07/ethernet-how-does-it-work/, Jul 14 2011)
Wikipedia, “Sound Dues” (https://en.wikipedia.org/wiki/Sound_Dues retrieved Oct 11 2016)
Wikipedia, “Eric of Pomerania” (https://en.wikipedia.org/wiki/Eric_of_Pomerania retrieved Oct 11 2016)
World Bank, “Charges for the use of intellectual property, payments” ( http://data.worldbank.org/indicator/BM.GSR.ROYL.CD, retrieved Oct 11 2016)
