A pending Supreme Court case could have a major impact on your ability to sell the things you own. In the case of Kirtsaeng v. John Wiley & Sons, an appellate court recently ruled that it is illegal for a person to resell things that originate from a foreign country without the express consent of the copyright or patent holder.
At issue in Kirtsaeng v. John Wiley & Sons is the first-sale doctrine in copyright law. This doctrine allows a person to buy things and then resell them without having to pay royalties to the intellectual property (IP) owner. According to this doctrine, the IP owner is only entitled to royalties from the first sale of the product. This doctrine has been upheld by the Supreme Court since 1908.
Supap Kirtsaeng discovered that Wiley, a producer of textbooks, was selling their texts overseas at greatly reduced prices compared to domestic markets. Kirtsaeng had his relatives in Thailand buy up large quantities of Wiley’s textbooks and ship them to him in the U.S., where he then resold them on E-Bay, undercutting Wiley’s own domestic pricing. The appellate court ruling now forbids consumers for enjoying the low prices on textbooks that Kirtsaeng was offering them.
This rather insane ruling by the appellate court provides me an opportunity to explain a few more rather dubious things that originate out of intellectual property law. Most people are unaware that free market economists unilaterally denounce copyright and patent protections as being destructive to the health of an economy.
Copyrights and patents amount to a grant of monopoly privilege by the state to specific producers, which undermines competitive forces in the economy. IP laws artificially raise prices by limiting production to those specific producers who hold the IP rights.
The fact that IP rights have time limits indicates the artificial, rather than market based, rationale for the implementation of these laws. The time limits for IP expiration are completely arbitrary and may change according to legislative whim. IP laws are not fundamental to a functioning market, unlike physical property ownership. The removal of IP laws would create far more efficient and competitive markets, with far few resources being wasted on individuals preventing each other from engaging in the production of various goods and services.
Consumers end up taking the loss created by IP laws in the chin, while a handful of major corporations, who have the resources to litigate intellectual property suits, make off with the lions share of the market. Patent Attorney Stephan Kinsella explains many of the horrible effects that IP laws create for consumer markets here.
Also, it is not unusual for international corporations to use intellectual property as a means of avoiding domestic corporate taxes. Many corporations hand over ownership of patents to a foreign subsidiary, and then have their domestic manufacturing facilities pay that foreign subsidiary a licensing fee. This process of tax avoidance is called “transfer pricing.”
While I personally don’t have any problems with corporations taking whatever steps they can to avoid tax payments, this particular form of tax avoidance is rather insidious, because it isn’t something that’s readily available to all market participants. This kind of avoidance is only available to international corporations that have the legal resources necessary to create and defend various forms of intellectual property. This creates an additional competitive advantage, on top of the already existing advantage gained through the employment of intellectual property.
In a completely free market, no participant would be able to exclude any other participant from engaging in productive competitive activities through the use of state sanctioned violence or threats of violence. This Khan Academy video explains how intellectual property is used in transfer pricing to avoid the payment of domestic corporate taxes: