The "Pepper ... and Salt" cartoon on the editorial page in today's issue of the Wall Street Journal depicts a man on the street, who looks like he's seen better times, holding a jerry built contraption that might contain coins donated by passers by. It looks vaguely like a Swiss Army knife. Beside him is a sign that says, "Invented the Swiss Army knife but Forgot to Patent It."

I assume the Swiss Army knife, invented in 1891 or so, was patented. But as Tim Lee says in this post at The Technology Liberation Front, "If there's prior art for the individual blades, then the knife is obvious, even if no one has happened to sell a knife with that particular combination of blades."

And why should we believe that the inventor's first mover advantage and entrepreneurial moxie couldn't have enabled him to earn competitive rents from the sale of Swiss Army knives? Another unexamined prejudice, this time in cartoon form.

Compulsory arbitration is incorporated into many service contracts such as those that cover credit cards, wireless phones, internet access, and stock brokerages. Unless you agree, you don't get the service. When all the providers have the same provision, the consumer has no alternative.

For many, arbitration seems quite fair until they look at actual experience which shows just how corrupt it is. A recent study of cases in California used an "8-month analysis of 34,000 cases decided by the National Arbitration Forum over a four year period and found link here:

* 188 of the cases were brought before NAF by consumers, 99.6% by corporations

* On one arbitrator's busiest day, assuming an eight-hour workday, he decided a case once every seven minutes. 100% of those were in favor of the business, awarding 100% of the request money.

* 28 NAF arbitrators handled about 9 out of 10 of the cases, ruling for business 95% of the time.

* 120 other arbitrators handled 10% of the cases, ruling for businesses 86% of the time."

Since third-party arbitrators are usually part of the deal and avoid the courts, most people think that money can be saved and that they are fair because they are third-party professionals. Not so according to ex-arbitrator West Virginia judge Richard Neely who has written a short graphic description of the wrongs involved link here. "For example, arbitration has been an imaginative way for monopoly business to circumvent statutory and common law protections. Relying on the Federal Arbitration Act, [federal] courts have allowed consumer arbitration clauses to undermine the deterrent effect of class action remedies." Interestingly, he has a cure, but not on the federal level--he wants the state courts to apply new rules, requiring full disclosure of arbitrators possible conflicts of interest and voiding arbitration clauses in any consumer contract that are illegal or unconscionable.

It seems to me that the real issue here is the support the arbitration system gives to established monopoly. Business has found another way to avoid competition and it has all the appearance of fairness but not the reality. Is the remedy a requirement to go to court rather than to arbitration?

Common sense suggests that file sharing should have a fairly substantial negative impact on music sales. A paper by Felix Oberholzer-Gee and Koleman Strumpf published in The Journal of Political Economy argues that any such effect is negligible. On the grounds that wishing for ponies does not make actual ponies appear, I have been personally skeptical of this result. Stan Liebowitz - with whom I disagree on many things copyright, but who is a meticulous and honest researcher - has gone through the paper carefully. You can find the fruit of his labor here. He examines the data that is available and finds little merit in the Oberholzer-Gee and Strumpf conclusions. "File sharing has no impact on sales" is not a terribly good argument against copyright because the evidence suggests it isn't true.

John had several posts here and here about the high price of textbooks. He had urged me to write a response to an op-ed by Michael Granof arguing that textbooks are so expensive because of the secondhand market, and that the solution is to kill that market. I was to slow off the mark and never got around to it, but the entire thing came back to mind today when I got a copy of something called "ACUMEN" A Faculty Newsletter from something called the "Follett Higher Education Group" about current legislative proposals concerning textbook prices. It contains such gems as "When fully integrated into a course by the instructor, the value a student receives from a textbook shold always outweigh costs," (i.e. who cares about price?) and some stuff about jawboning with publishers to set lower prices.

To take these one at a time: no doubt the high cost of new textbooks reflects the active second hand market - but of course the overall prices paid by students is lower on account of cheaper used versions. It is pretty well established in economics that producers of durable goods hate competing with themselves - it is equally well established that from a welfare perspective there is nothing inefficient that results from the presence of second hand markets. That leaves the conclusion that either Granof is ignorant of basic economics, or a stooge of publishers who would surely love to get rid of the secondhand market. The "Follet" whatever urges inaction - which despite the vacuity of their arguments is probably the right action; it is hard to see how local governments regulating the textbook market is going to improve things.

That is not to say that the textbook market is perfect by any stretch of the imagination. There is an enormous agency problem since the faculty who assign the books don't pay for them, so don't care much about whether they assign cheap or expensive books. On top of this is the lucrative copyright monopoly for individual books (you knew that was coming, right?). This encourages the proliferation of nearly identical books to grab a share of the lucrative monopoly. Michele and I have written about that problem here. On top of which we have the proliferation of new editions in an effort to keep the second hand market down. The solution is as simple as it is unlikely to occur: abolish the copyright monopoly, force the producers of textbooks to compete like everyone else, and ... well the agency problem won't matter so much as students can just buy one book and copy it among themselves; we may actually get good textbooks, as authors of new textbooks won't have to start from scratch, and who knows, maybe - like the fashion industry - we will see real innovation.

Every once in a while or perhaps more often, the web comes up with something that is really kind of wonderful. Today we have the story of the Garfield Randomizer which takes panels from old Garfield comics and randomly plays them (h/t to Andrew Sullivan link here). Originally, the author posted the results but was told to take them down as they violated somebody's copyright link here. So he now lets you do it yourself by creating a program that randomizes the public collection of panels link here.

Fair use initially may in fact have been violated, depending on what a presiding judge thinks is copyrighted--the art, the characters, or the storyline. But doing it yourself seems to avoid the charge. In any case, what is not in question is that it has drawn a lot of favorable attention to Garfield comics. Google got more than 4,000 hits so far. As one blogger wrote, "We mock because we love. (At least, I do.)" You can't buy publicity like that. And copyright takes another hit, as it should.

Considered in this paper , mentioned by Tyler Cowen at marginal revolution .

The author evidently accepts the idea of a natural right in ideas. Does he consider that the market can provide an appropriation mechanism which is sufficient to stimulate the innovations that would be elicited by prizes?

Of course, prizes are part of the market insofar as they are privately funded.

Here is Tyler Cowen's recent talk at Google, in which he discussed prizes vs. grants.

Josh Marshall at Talking Points Memo (link here) has a post indicating that Secretary of Defense Robert Gates is contemplating requiring American soldiers to sign no compete agreements when they enlist to keep them from serving a single tour of duty (and the training that entails) and then taking jobs with private contractors like Blackwater where they do essentially the same work but get paid a lot more money. I suppose that since national defense is a public good, the organization that provides this good is something of a natural monopoly, in which case, Secretary Gates seems to be suggesting that outsourcing these functions hasn't been a good idea.

In the 1960s Donald G. Stein wondered why female but not male rats recovered from brain injuries. His key finding, that the female hormone progesterone could heal brain injuries, challenged the scientific establishment and its group think mentality. Pharmaceutical companies couldn't be bothered to conduct R&D without the prospect of a patent, so they weren't interested. He got no government grant until 1999, which didn't kick in until 2001. Even the NIH ignored him at least until recently, although this might have been a good thing. A 1,000-patient study is in the works.

The Wall Street Journal reports the story today.

In a frighteningly bizarre Orwellian case, a guy who criticized the fact that an organization was trying to trademark the word 'freecycle' got sued for trademark infringement because he used the word in his criticism. The organization even got a lower court to issue a preliminary injunction preventing the guy from 'disparaging' the trademark.

Fortunately, the 9th Circuit Appeals Court freecycled the case back to reality - ruling that not only was there no trademark infringement here, but also declaring that federal law doesn't recognize an action for trademark 'disparagement'.

PDF link to the case here.

PatentlyO reports that the Supreme Court has agreed to hear a case involving the "first sale doctrine of exhaustion", i.e. can a patent holder charge purchasers of a component that has already been licensed to an upstream producer link here. The case involves Korea's LG company which has patents that it licensed to Intel and is now trying to collect as well from purchasers of Intel products embodying the patent. This is an important case that has already drawn the attention of the Associated Press link here and Techdirt link here.