I Thought Monopoly Was the Whole Point of “Intellectual Property”

In one of the weirdest permutations of “intellectual property” ever (Mike Masnick, “Apple Facing Trial Over Whether Its Use Of DRM Violated Antitrust Laws,” Techdirt, October 6), Apple may end up in court for anti-trust violations because its iTunes Digital Rights Management code gave it monopoly power back in the day. The US District Court for Northern California recently allowed Real Networks to sue Apple over its alleged monopolistic practices a decade ago.

Bear in mind that DRM itself — Digital Rights Management — was adopted at the behest of music companies, who saw anti-copying protections on proprietary content as central to their business model. The problem is that Apple designed its iPod to be compatible only with songs using its own DRM system, FairPlay. Real Networks, an iTunes rival, reverse-engineered Apple’s DRM to produce one of its own, Harmony, that would play on the iPod — in response to which Apple repeatedly modified the iPod to accept only songs from iTunes. The effect was to create a lock-in for iTunes, increasing its market share, giving Apple increased leverage over the record companies and hence raising the price of Apple products.

But remember the whole reason iTunes DRM’ed music in the first place was that the record companies wanted to prevent people from sharing copyrighted songs. That’s also why Congress, pursuant to the WIPO Copyright Treaty, passed the Digital Millennium Copyright Act, which made cracking DRM a criminal offense. Copyright itself is nothing but a monopoly, and a perfectly legal one. So Apple is actually facing an anti-trust action because it abused, in a monopolistic manner, a technology for enforcing a monopoly which itself is entirely legal.

Apple’s abuse of DRM increased the price of its products? Yeah, just like copyright and DRM itself increases the price of the record companies’ music. The only purpose of copyright and other forms of “intellectual property,” like any other monopoly, is to enable the monopolist to charge a higher price for the product. A patent or copyright is a monopoly on the right to sell a particular good within a particular market — it’s protectionism, in exactly the same way a tariff is protectionist.

As a result, just about every stinking thing we buy is more expensive, in one way or the other, because of “intellectual property.” Tom Peters once celebrated the fact that most of the price of his new Minolta camera came not from labor or material costs, but from “intellect” — that is, embedded rents on “intellectual property” monopolies. It’s “intellectual property” that enables companies like Nike and Apple to contract out all actual production to nominally independent shops in China or Vietnam, but still charge an enormous markup over what the actual producers got paid because its IP makes it a monopoly buyer of the independent contractor’s output. It’s “intellectual property” that makes some drugs twenty times more expensive under patent than after the patents expire, and creates a similar price differential between a CD of Windows vs. Ubuntu. Patent pooling and exchange played a huge role in the creation of oligopoly cartels, which by a one-time Nader Group estimate make possible something like a 20% markup from tacit price collusion for manufactured goods.

This is reminiscent of the anti-trust lawsuit against Microsoft for bundling its own Web browser, Internet Explorer, with its proprietary Windows operating system. And more recently, Paul Krugman condemned Amazon for using its bargaining power to negotiate down the monopoly prices book publishers charge thanks to their copyrights. It’s stupid. The state grants monopoly power with a front-end loader via “intellectual property,” then takes it back with a teaspoon through “anti-trust” law.

We don’t need anti-trust lawsuits against Microsoft or Apple for secondary monopolistic behaviors piggybacked on “intellectual property,” the biggest monopoly of all. Abolish “intellectual property,” and the other monopolies will take care of themselves. It’s time to strike at the root of monopoly, not hack at its branches.

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