CONTRACT THEORY - CONT'D

Transmission process and ownership

Now that we have established that IPs are economically meaningless without a transmission medium we need to take a closer look at how exactly does this transmission takes place. In order to help us in this quest, we will make use of a simple scenario.

Let's first assume that the owner of the idea owns the transmission medium. Joao has written a book. Joao purchased the paper, ink and expended energy in writing. Joao did so in a room all by herself. It is clear that the ideas in the book belong to Joao, but that the medium (the book itself) is also her property. Fair enough, but this is only half of the transmission process. Up to this point nobody has seen the book; furthermore, nobody even knows that the book exists.

Now Joao sells the book to Ulrich. She gives Ulrich the book and Ulrich gives her 50.000 JPY. Has the information (Joao's IP) been transmitted? Not yet. The medium in which the IP is encoded has changed hands, but it has not yet been interpreted by Ulrich's brain. As we have pointed out before, information without a brain to interpret it is meaningless. Without Ulrich's brain the informational value of Joao's book is the same as the informational value of a rock: exactly zero.

Now Ulrich opens the book and reads it. The second half of the transmission takes place. Ulrich's brain receives the information and process it. 

Now the question becomes how? How did Ulrich's brain receive this information? Through his eyesight. But how exactly? Light from a light source bounced on the pages of the book and it was captured by Ulrich's eyes. Subsequently, these light beams (or photons) were converted into electricity and interpreted by Ulrich's brain.

Aha! So the second half of the transmission is only possible due to the existence of light. Light is the medium used to transmit this information. Therefore the most relevant question is this: who owns this light?

In other words, we accept that in order to transmit IP and make it economically meaningful we need to use a physical transmission medium. But this decision implies automatically that we recognize and abide by the rules of ownership of that medium.  It is for this reason, the fact that we cannot separate economically valid IP from its means of transmission, that elucidating who owns said transmission means is so important.

If we wish to retain our absolute ownership of IPs all we have to do is never to transmit it. However, in so doing, we lose all economic benefits. It is precisely because we are greedy that we take a chance and join our IPs with a transmission medium; to receive an economic benefit. However, in so doing, we become entrepreneurs and this means that we are accepting risk in an attempt to obtain wealth. This risk means that there is a chance that we may lose ownership of the transmission medium carrying our IP and ownership of the IP itself.

And so the next logical question is this: if we somehow lose ownership of a medium carrying our IP, do we also lose ownership to our IP?

The answer is no. In order to lose absolute ownership of our IP, we need to lose ownership to both, the IP and the transmission medium since our IP is meaningless without the medium. If we only lose ownership of IP but not of the transmission medium and somebody uses this medium to copy our IP (encoded in the medium), they are automatically in breach of the Master Contract. How so? Because by definition they are interacting with somebody else's property without a voluntary contract. Please remember that the transmission medium is a physical medium and as such standard property rules do apply.

It is only in the case where ownership of the transmission medium and the IP are lost in a valid manner that the original owner of the IP also loses its absolute ownership.

Economic benefit

Before we continue, we need to clarify what it is that we mean by economic benefit. Do we mean making a profit? Not necessarily. What we mean is that the person acquiring said benefit obtains a physical benefit from the IP.

This is the very same concept that is used in determining if a homesteading act is valid or not. There must be some sort of economic benefit even if prima-facie (at first glance) it does not seem to be so. For example, a piece of land can be homesteaded by living on it and off it and never, ever interacting with anybody outside said land for any reason. An economic benefit is still being created in the sense that the owner is living there. We have explained this principle in detail in our article First Come First Served.

Having said that, it is clear that the main purpose of dealing with IPs outside our brains is to make some sort of profit; however strictly speaking, this is only the most common scenario and not the only one.

Consequences

The issue of having to deal with an IP and the ownership of a tangible (physical) property (the transmission medium) simultaneously makes the determination of absolute IP ownership loss much more complicated that it would normally be.

Luckily enough we have another guiding principle: contract theory.

Armed with the homesteading principle and contract theory, we can solve the problem in two easy steps:

The first one is to classify possible scenarios into a comprehensive number of types for each property (IP and Transmission Medium). They are:

and

The second step is to create a table with all possible permutations in order to study what would happen in each possible case. We did just that and we came up with the following table: