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How Does An Idea Turn Into An Asset?
What makes an idea valuable?
What turns it into a product that can be bought, sold, or rented? Ideas turn into capital assets thanks to our system of intellectual property rights. But understanding IP isn’t simply a matter of learning what a trademark or patent is, and then learning how to leverage it to create wealth. To truly understand intellectual property, we need to understand property—what it is and why it exists—first.
I have a distinctly suburban pet peeve.
That pet peeve? No pooping signs. The kind homeowners put on their lawns to discourage people from letting their dogs do their business.
Don’t get me wrong: as a frequent pedestrian, I have absolutely no interest in stepping in errant dog poop. But there’s something about those signs that really rubs me the wrong way. Actually, there are a few things.
First, who are they aimed at? People who don’t clean up after their dogs are probably not people who attribute much authority to yard signs.
Second, most people do pick up after their dogs. So what harm does it do if the dog poops in your yard versus the next yard over?
And finally, dogs don’t understand private property rights. To a dog, a grassy spot is a grassy spot. But to a human, that little plot of land is theirs. They rule it. They decide who can enter and who cannot. Inside the boundary of their property, they are sovereign.
Those “no pooping” signs are just a more socially acceptable way to say: Stay out. Private Property.
Please know I’m not hating on you if have a “no pooping” sign. Fixating on stuff like this is one of my “delightful” idiosyncrasies.
Today, we’re exploring the economics of intellectual property. And to do that, we need to start with the creation of property rights—how things become mine and yours rather than ours. Private ownership of land or other assets is one of those naturalized economic rights that seems to have always been true. But, of course, it wasn’t. The invention of private property has been used to justify genocide, environmental degradation, and exploitation for over 500 years.
Once we’ve looked at a couple of historical precedents of private property generally, we’ll dig into how intellectual property (IP). We’ll look at how IP rights can inspire creative work and how they can hinder it. And, I’ll share a case study that shows how intellectual property is leveraged in the market—courtesy of author and podcaster Jenny Blake.
In This Article:
What is private property?
While it’s tempting to ask when people started to relate to objects or land as theirs, anthropologist David Graeber points out that private property isn’t a really relation between a person and a thing. Instead, private property is a social relation. To say that something is my private property means I can prevent you from using it.
To illustrate this social arrangement, Graeber gives this evocative and potentially grizzly example:
“To say that the fact that I own a chainsaw gives me an “absolute power” to do anything I want with it is obviously absurd. Almost anything I might think of doing with a chainsaw outside my own home or land is likely to be illegal, and there are only a limited number of things I can really do with it inside. The only thing “absolute” about my rights to a chainsaw is my right to prevent anyone else from using it.”
The Western legal concept of private property is largely derived from ancient Roman law.
In Roman law, the male head of a household had dominion over that household—everything and everyone in the household was his property. And in fact, Graeber explains, private property dealt first with people and then, later, was extended to things. In Ancient Rome, the law assumed that all workers “were someone else’s property,” meaning that most people living in the Roman republic-turned-empire were both people and things that were owned. Graeber writes, “much of the creative genius of Roman law was spent in working out the endless ramifications.”
Roman property law informed the Western capitalist conception of individual freedom. Freedom, to Europeans, was the ability to do what they will with their own possessions. “In this view,” writes Graeber and his co-author David Wengrow, “freedom was always defined—at least potentially—as something exercised to the cost of others.” “True freedom meant autonomy in the radical sense, not just autonomy of the will, but being in no way dependent on other human beings (except those under one’s direct control).”
A “no pooping” sign is a way to exercise control over the land we consider “ours.” But it’s less about controlling the land itself and more about indicating that others are not allowed to use it. “My dog can poop on my lawn, but your dog can’t.” It’s a social arrangement that mediates my freedom within my own domain at the expense of your ability to act freely. That sounds dramatic, but I’m drawing out the logical absurdity to illustrate this point, not because I think your “no pooping” sign in any way infringes on my individual freedom.
Speaking of freedom, this Roman and then Anglo-American conception of freedom wasn’t the only way to organize a free society.
In pre-colonial America, the Iroquois operated on an understanding of what Graeber and Wengrow call “baseline communism.” Communism, in this case, doesn’t mean a heavy-handed, illiberal form of economic development directed by a central government. Instead, Graeber and Wengrow mean “a certain presumption of sharing, that people who aren’t actual enemies can be expected to respond to one another’s needs.” This is not to say that there was no conception of property—but that it wasn’t rooted in the radical autonomy that Roman ideas of private property were.
In the very early colonial period, we see the confusion that these two ideas created when exposed to the other.
Is it really more civilized to tie power to property?
A book recounting a series of conversations between a Frenchman of some authority and a Wendat political thinker named Kandiaronk was published in 1703. In it, the Frenchman explains that the Wendat “think it unaccountable that one man should have more than another, and that the rich should have more respect than the poor.” As with many Native American critiques of European society at the time, Kandiaronk and the Wendat expressed skepticism about the superiority of European society when it was clear to them that European laws and customs were based on adversarial relationships and a lack of concern for their fellow community members.
Hard to argue with that. There is so much more than could be written on the subject of public property, collective ownership, and use rights. But that will have to wait for another day.
Let’s look at another historical precedent for our present understanding of property.
The Enclosure Movement
William the Conqueror established himself as the Norman king of England in 1066. He distributed the land of his new territory to 180 barons who became tenants. Those tenants were lords who oversaw large areas on behalf of the king. Under this feudal system, the land was the property of the king, controlled locally by the barons, and available for use by commoners.
“We called them the commoners because they also used the land, the commonly owned land, according to use practices that they just grew into. There were no titles,” explains legal scholar Katharina Pistor in a lecture for the Institute for New Economic Thinking. While this early phase of enclosure did create divisions of land control where there wasn’t before, it maintained the use rights (rather than property rights) of peasants and commoners.
Then, beginning in the 16th century, “the landlords realized that if they didn't share the land with the commoners as they used to, they might actually make more money,” explains Pistor. They started to build fences and plant hedges to separate their land from those accustomed to using it. “What did the commoners do? Well, they broke the fences and they broke the hedges, and they went onto the property and plowed over the crops that had been planted,” continues Pistor.
This led to conflict—both physical and legal.
Enclosure became a formal system of property rights.
By an act of Parliament, land could be enclosed to maximize its productivity and rents. Instead of common use rights, enclosed land was now the subject of private property rights—which, as we’ve already established, means the right to disallow others from using what’s yours.
In the same way a neighborhood with lots of “no pooping” signs reduces the amount land available for a dog to do its business, the enclosure act reduced the amount of land available to most people for farming. This hastened the shift to wage labor and industrialization, as well as the rise of capitalism.
This is, in many ways, an ongoing process. Pistor explains, “Property rights don't just exist in a certain form. They are being created—they're socially contested, economically contested, and politically contested.
There are plenty of other historical influences on our understanding of private property today—not to mention whole other cultures and legal systems that conceived of private property differently from how Europeans and Anglo-Americans did. But Roman law concerning the household and the enclosure movement in England offer us two salient ways to think about intellectual property.
So What Is Intellectual Property?
Intellectual property is the legal mechanism that turns creative or innovative work into things that can be owned. A song or a book is turned into “a thing” via copyright law. An invention is turned into “a thing” via patent law. A reputation and its representation are turned into “things” via trademark law.
To stick with our metaphor, intellectual property law gives you the right to put your “no pooping” sign on an idea. It’s not just that this idea is yours. It’s that you have the right to disallow others from using it to do their business.
In fact, “copyright” is mentioned in the US constitution:
“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”
— Article 1, Section 8, Clause 8
And the reason that copyright is mentioned in the constitution is that intellectual property rights serve a public purpose. Economist Dean Baker explains in a lecture for the Institute of New Economic Thinking, “It gives a holder monopoly for a period of time. In effect, what the government is saying is if someone infringes on a patent or copyright, they'll arrest them.” Okay, not really arrest them, Baker concedes. But the government will step in and provide recourse.
But aren’t monopolies bad? Don’t we have anti-trust laws for a reason? A monopoly does provide market power that allows a company to extract greater profits from the market than they’d be able to under conditions of perfect competition. The reason the government gives a creator a monopoly is so that they can recoup the initial investment they made in creating the work or making the discovery they hold the IP rights for. We’ll come back to this in just a bit.
Intellectual property and physical property have distinctly different properties as economic objects.
“What's the difference between a piece of land or a cow or a car and an idea?” Pistor asks. The first thing is that “we can share an idea and nobody takes away something from the other.” Ideas are infinitely shareable. “We could share all human knowledge that we have accumulated over millennia, and perhaps everybody would be better,” explains Pistor.
Of course, if we’re all sharing each other’s ideas, what we are missing out on is profit. “If we want to capitalize knowledge, ideas, even art, then we have to enclose it first, just as we enclose land with fences and hedges,” says Pistor.
We can further tease this apart by considering our historical precedents of the right to property.
First, remember that Roman law gives us the idea that property rights are social arrangements and stipulate how my property may not be used by others. Remember, too, that property rights were first understood as pertaining to people and then extended to things—such that household members were people and things the head of household owned under the law.
Intellectual property is a category that governs social arrangements as they relate to ideas. Specifically, intellectual property laws dictate how you are not allowed to use my idea or how I can charge you a fee for the use of my idea. This makes my idea both an idea and a thing I own under the law. Without the political economy choices that create the category of intellectual property, ideas are just ideas—not things I can own.
Control & Profit
Second, consider how the enclosure movement turned what was “just” the land of a given area, available for common use, into property that could be controlled by the Crown and its representatives. From there, land could be turned into capital to generate profit.
Intellectual property law turns ideas—once at least theoretically available to all—into property controlled by the IP owner. From there, ideas are made capital assets and used to generate profit.
Economist John Quiggin explains, “More than any other kind of property, intellectual property rights such as patents are obviously creations of the states that define and enforce them.”
That might lead you to wonder: Why do states get into the business of regulating property rights in the first place?
Property Rights are Political
Just as the idea of property is a social arrangement, property rights are political calculations. Owning something is a form of power. And the laws that govern property shape the way that power is accrued and distributed.
In the case of Roman law and the dominion of the family & household, the state had skin in the game when it came to who they deemed citizens. By limiting full Roman citizenship to a small segment of the male population, the state limited those who could fully participate in public life. Modified citizenship was available to women, freed people, and some allies of Rome—but barred from voting or holding civic office. This legal and economic philosophy contributed to the homogeneity of Roman society—even as the population grew more and more diverse.
In the case of English enclosure, the state was the Crown. And the Crown always had the motive to make decisions that kept power consolidated and under its control. Further, the state recognized that property rights incentivized landowners to maximize the productivity of their land. More efficient land use would, theoretically, benefit everyone by providing food and other resources at cheaper rates. The quest for productivity and efficiency would also lead to breakthroughs in agriculture.
And in the case of intellectual property, the state recognizes that giving a person or corporate entity the exclusive rights to an idea incentivizes the generation of new ideas. Those ideas are assets—intellectual capital—that can be leveraged to produce wealth in a market economy.
Intellectual Property as State-Sanctioned Monopoly
How is intellectual property leveraged to produce wealth in a market economy?
Remember how I said we’d come back to intellectual property rights as monopoly creation? Here we are!
Intellectual property rights give individuals and corporations a legal, state-sanctioned monopoly over their ideas. The thinking goes that intellectual property is more costly to create than it is to reproduce. So IP law grants a temporary monopoly over an idea to its creator, who can then charge rates substantially higher than the marginal cost of those reproductions.
For example, Disney owns the right to a legal monopoly over the Marvel Cinematic Universe. They outlay hundreds of millions of dollars in initial film production—obviously, that’s a substantial investment. But eventually, they can rent me a digital copy of one of those films for $5.99. The “copy” of the film is virtually free to produce, the main cost associated with the product is the revenue share they provide to Apple when I rent it. So the $5.99 rental fee represents a significantly higher price than the cost of the rental copy would otherwise dictate.
Another way we can think of the monopoly power of intellectual property is as a system of rents.
You know what rent is when we’re talking about housing. It’s the fee that a tenant pays for the exclusive use of someone else’s property. While you might not own the property, you pay for the right to put out your “no pooping” sign.
Well, intellectual property rights create the opportunity for rent, too. In his book, Rentier Capitalism: Who Owns the Economy, and Who Pays for It?, Brett Christophers describes how IP rents fall into two categories. The first category is akin to the Disney example I offered; IP owners exercise their monopoly power by being the lone producers of whatever product derives from their IP. Without a competitive market, the “rent” is the excess profit the IP owner can accrue through their monopoly power. This is similar to the micro media monopoly system I described in last week’s installment.
The second category of IP rents is more like renting an apartment. In this scenario, the IP owner offers the use of their IP in exchange for a licensing fee.
The first category of IP rents mimics Roman law regarding the household. The paterfamilias, or head of household, has exclusive rights over the members of their household. He is the lone beneficiary of the arrangement—and the only person with the right to put out the “no pooping” sign and entitled to the labor of household members.
The second category of IP rents mimics the results of the early enclosure movement. In this case, the Crown owns the land outright but allows tenant lords the use and control of an area of land. Those tenants can put out “no pooping” signs anywhere they’d like in that area. But those tenant lords could also sublet part of their land to commoners and peasants. That gives those commoners and peasants the right to put out their own “no pooping” signs on their small tract of land in exchange for the rent they pay.
Alright, I think I’ve strung these metaphors and historical references about as far as I can. Let’s look at this in action with a case study.
Intellectual Property Case Study: Jenny Blake
Jenny Blake helps people navigate what’s next in their careers and free up more of their time to do their best work. She’s the author of Pivot and Free Time, as well as the Pivot and Free Time podcasts. Jenny has a savvy and efficient approach to using intellectual property in her business.
Jenny has two channels for intellectual property licensure—one for each of her books. Each channel includes the corresponding book, a newsletter, and a podcast that she uses to build the brands rather than social media.
“I’ve really been driving toward scalable revenue streams that are semi-passive,” Jenny told me. Much like in my own experience, Jenny can experience “ebbs and flows creatively and energetically.” So having revenue streams that allow her to step back without creating a crisis allows her to take better care of herself. She said that, in the past, she was the bottleneck for getting her ideas into the hands of the people who needed them.
What does a IP licensing product look like?
Jenny told me that, for a long time, licensing felt like a black box. How do you price it? What do you include? It took research, mentors (including Pam Slim), and collaboration with her clients to figure out how she’d package her IP.
When a client licenses Jenny’s IP, the organization gets access to a slide deck, speaker notes, and a facilitator guide for workshops. They also get handouts for end participants (i.e., the people on the receiving end of the workshop). There’s also a workbook that’s included and can be licensed or white-labeled on its own.
And, of course, there’s the book. Jenny told me that “sometimes groups will run a pivot session and give a copy of the book to everybody.” This is how you move books, people!
Jenny focuses on simplicity and ease of use with her licensing package. For Pivot, she has one slide deck—not endless complicated options. And it’s the same for every organization and any length of session. If the end participants are leaders or managers, there’s an add-on to the deck—but otherwise, it’s the same.
The facilitator guide is a “really robust, almost 200-page” spiral-bound resource. She uses this in her Train the Trainer sessions, but it’s designed to be a standalone resource so that “if they forget everything single thing I taught them over a day and a half … they can turn to this guide to know exactly what to do and what to say,” Jenny explained.
Honestly, what Jenny described as part of her licensing package isn’t all that different from the amount or kind of work that goes into an online course. It’s just that the client is very different—and that changes how Jenny thinks about what the client wants from “renting” her IP. The value and impact that results on the other side of the transaction is magnitudes of scale larger than most people will ever see with an online course.
When Jenny licenses the Pivot Method to a corporate client, thousands of end participants may now have access to her ideas. Multiple trainers within the organization will be teaching her ideas. And the organization benefits from all of that both in human and financial terms.
However, in my experience, an online course feels like something that’s still within your control. Licensing, on the other hand, feels like you’re sending your little IP babies out into the world to see if they can fend for themselves.
Aren’t you afraid of what might happen to your work?
Jenny told me there were three major psychological obstacles she had to get over to make licensing work for her: perfectionism, brand dilution, and the business model strategy.
Perfectionism, or Don’t be a control freak.
When we’re talking about your ideas, your method, maybe even your life’s work, it’s tempting to see yourself as a crucial ingredient in the recipe. Moreover, it’s easy to expect your clients to only want to work with you. Jenny told me that in the beginning, she was wary of subcontracting out to facilitators she’d trained independently.
She was nervous about how they’d represent the brand, teach the material, and answer questions from participants. But once she took the leap, her fear dissipated. In fact, she even learned to welcome the contribution that others could make to the work. “What if they make it better? What if they infuse [it with] their own stories and ideas?” she countered.
Jenny told me that the other result of perfectionism that she needed to let go of was hedging on the material by trying to throw in everything plus the kitchen sink! “Less is more. Make the material very simple, very straightforward,” she advised.
Jenny has carefully developed the visual and verbal brand around both of her licensing packages. She’s invested considerable money in making them look professional and polished. Everything that’s included in the package is cohesive. And she’s protective of the look and feel of her IP because it’s part of what makes her programs attractive to big companies.
But brand isn’t just about making things look good.
Part of the brand, Jenny told me, is staking your position in the market. With Pivot, Jenny asked herself, “Why should a company license Pivot as a career development framework or career conversation framework rather than five or ten other options they have? What makes it stand out?” In a way, Jenny answers these questions every time she sends a newsletter or releases a podcast episode. By being the steady voice of the brand, she helps to ensure that the brand itself remains steady.
The business model, perhaps counterintuitively, is critical to overcoming psychological fears because it helps you define the business you want to have. I find that much of the anxiety that stems from developing a big new project is the uncertainty: Is this really what I want to do? Will this work? Am I prepared for this? Taking the time to flesh out your business model can help you work through these questions more objectively.
Jenny told me that working through who she wanted to serve, what kind of company she wanted to build, and how she wanted to work helped her design a business model she could feel confident about.
Now, back in the second installment of this series—the economics of information, I took a look at what makes an information product valuable. Intellectual property often takes the form of an information product. Jenny’s Pivot Method is a great example of this. You might remember that I argued that it’s care work embedded within or offered in addition to an information product that determines the product’s value.
Everything Jenny has described here is a beautiful example of what’s possible when valuable care work is built into the structure of a product, rather than added actively on top of it. Because Jenny took the time to think through how her IP would be delivered, who would be delivering it, how it might be delivered, etc. she was able to anticipate her customers’ needs and the needs of the end participants to create a more valuable product.
But seeing that care as built-in isn’t exactly natural. Jenny told me that one of the big mistakes she made in the beginning, was to do a bunch of bespoke work for her first licensing client. Even though the payout was massive, it was too much work for her to want to go out and find the next client. “I was dreading my next licensing client because it was going to be so much work,” she recalled.
And that’s when she doubled-down on her core strategy—streamlined, semi-passive revenue streams. She purposefully took a year without a new client to reinvest in the brand and package materials so that she could feel good about handing over the same package to every client without overcompensating with a bunch of extra time or customization. She explained, “Everything would be off the shelf so that the next licensing client [would] get exactly what the next five after that were going to get.”
How much can you charge for licensing IP this way?
The numbers might surprise you. Jenny said she was initially insecure about the price tag. But today, her annual licensing contract is a minimum of $100k. Keep in mind, that price means her work is distributed to hundreds or (more likely) thousands of end participants. While she’s never gotten more than $200k for an annual license, she has colleagues who charge $500k.
Jenny was quick to note that insecurity about that kind of price makes it easy to—once again—overcompensate. Initially, she would throw in twenty or thirty hours of consulting time. But she realized that not every client needed or even wanted that time from her. Today, her standard is five hours.
Could licensing intellectual property be right for me?
And by “me,” I mean me, Tara McMullin! I left this conversation with Jenny extremely inspired. I mean, who wouldn’t want to write a 200-page facilitator guide? Oh, not you, huh? Well, I am that weirdo. Work is already underway.
What I really love about Jenny’s philosophy when it comes to licensing and the type of business it allows her to run is her openness. Instead of sticking “no pooping” signs all around her yard, Jenny does what a neighbor of mine does: put out some water, treats, and a roll of poop bags for any passersby that need one. Instead of saying “stay off my lawn,” Jenny invites people into her backyard for a barbeque—most people get in for free and a small number of guests buy all the food.
But there are real problems when it comes to the intellectual property system, too.
Many economists agree that the benefits of a strong intellectual property system are outweighed by the costs—both material and immaterial.
Intellectual property rights tend to flow to the most privileged rather than the most creative. The trademark and patent systems—the two more profitable branches of intellectual property—are difficult to navigate. They take an upfront investment of time and money beyond even the upfront costs of developing the IP to begin with. Because large corporations like Google and Amazon can invest time and money into intellectual property, they sit on an extraordinary number of patents that allow them to stake a claim on ideas they don’t have plans to bring to market. Patent trolls actively scour the market for companies infringing unknowingly on their IP and sue to force those companies into licensing agreements.
Pharmaceutical companies use intellectual property rights to extract vast wealth from the healthcare market—including from the US government which is disallowed from bargaining with drug makers when it comes to Medicare and Medicaid plans. Though changing that rule is getting support from both sides of the aisle because of how wasteful it’s become.
Intellectual property, especially with ideas relating to public goods, may even hinder innovation and prevent us from finding creative solutions to intractable problems.
Finally, when it comes to cultural works that are protected by IP law, big players have learned to leverage their IP rights to the detriment of culture-makers. Musicians, artists, and writers—we often have the choice between signing over our IP to gain wider distribution or maintaining our own IP and seeing our work languish in obscurity.
Like with all aspects of capitalist realism, it’s tempting to think that our current IP law is just the way it’s done. This is the best possible system simply because it’s the system that made it into our modern liberal capitalist democracy.
But economists are pretty clear: we have other options. There are a number of proposals that could reshape our IP landscape. We can tear down the “no pooping signs” without turning the whole neighborhood into a doggy minefield.
Suffice it to say, I have pretty mixed feelings about intellectual property. I find Graeber, Quiggin, Baker, and Christophers’s arguments convincing. I believe we need real change to the intellectual property system. And I also know that I’m in an excellent position to leverage intellectual property in the same way that Jenny has.
So at this point, I don’t blame you if you have complicated feelings about IP, too! But hopefully, this little deep dive and case study has given you some things to think about when it comes to the economics of your ideas.