Excellent points, Dave!

I was always dubious of the mantra "No patents = no innovation".

Never forget what Gates himself said:

A Patent Lie

,----[ Quote ]
| Microsoft sang a very different tune in 1991. In a memo to his
| senior executives, Bill Gates wrote, "If people had understood how
| patents would be granted when most of today's ideas were invented,
| and had taken out patents, the industry would be at a complete
| standstill today." Mr. Gates worried that "some large company will
| patent some obvious thing" and use the patent to "take as much of
| our profits as they want."
`----

http://www.nytimes.com/2007/06/09/opinion/09lee.html

Also see:

http://www.pcpro.co.uk/news/99155/big-businesses-boast-of-patent-benefits-for-small-businesses.html
http://news.com.com/Bill+Gates+and+other+communists/2010-1071_3-5576230.html?part=rss&tag=5575731&subj=news.1071.20

Of the text --The intellectual property racket must end. Intellectual property laws were designed to promote innovation, not to allow monopolists to stifle it. We have an entire generation that has been taught that new ideas have to be “protectable� to be worthy of consideration. (...) I’ve never felt I needed a monopoly to be successful; I just needed to be faster than the other guy,-- from an historical point of view, intellectual property laws were designed to promote disclosure of information, not to promote innovation.

Back around 1860, a man named Spencer got a patent on a repeating rifle. Having a patent right, he made a deal with investors who furnished the money to build the plant to make the rifles. The rifles were truly an innovation, changing the way battles were fought, as illustrated at Gettysburg on July 3, 1863 by a man named Custer, and more vividly by a man named Wilson at Selma. Of course, after the end of the Civil War, no one was buying the rifles, and the patent right was valueless, all in about five years. And the US Army decided that repeating rifles were not an innovation after all, going to single shot Springfield rifles. And then in June 1876, a man named Custer, with men armed with single shot rifles, faced a group of Lakotas, armed with repeating rifles. Custer couldn't move fast enough.

Separately, see
Getting the Patent Reform Wars on Track at
http://www.ipfrontline.com/depts/article.asp?id=14520&deptid=4

See also
http://ipbiz.blogspot.com/2007/03/stem-cells-and-electric-cars.html

which includes:

Of course, the technology that "worked" to put commercial electric vehicles on the road ca. 1912 is still around. That's just like the technology for repeating Spencer rifles was around in 1876, when Custer and his men were using single-shot rifles against Crazy Horse and friends, who were armed with repeating rifles. The concept of "innovation" can be very pliable. For electric vehicles, it is not the electric motor that is at issue, it's the battery and it's the cost of fuel. And the latter is changing. Battery-fueled vehicles may not compete with gas cars on energy density, but they may compete on energy density per dollar.

Lawrence B. Ebert
June 28, 2007

Excellent post. Hell yes! Go tell it from the mountain. Of tangential relevance: http://www.mindtouch.com/blog/2007/06/26/open-letter-to-osi/

I think that there are two illogical assumptions in your comment.

Firstly, the majority of US patents are NOT granted to large companies but to small ones, single inventors and universities. Without the legal power to enforce the right to exclude the large companies to simply appropriate the new ideas, it is naive to think that simply going fast to market will allow the creative ideas to be rewarded by market success and allow the potential financial outcome to secure loans and VC capital to develop the ideas into a product or service.

Second, the most valuable patents are those that represent such significant step that (1) it will take a decade or more to diffuse into society and will require plenty of patience and additional ideas, (2) that their applicability will encompass so many fields that it goes beyond any single company business plan; (3) that in order for society to benefit, the basic innovation must find itsway into MANY companies' products so that network effects give the public the full benefits.

A good example of this is the MPEG compression technology. Today, there are about 100 patents that have been declared essential to the MPEG standard. These patents have been granted to large companies, small companies, and individuals and universities. The whole world of digital video licenses these essential patents to produce video cameras and streaming web TVs, etc... There are over 900 companies licensing the patents, and the royalties of over $500M per year are collected by a pool administrator, MPEG-LA, and distributed to the essential patent owners. They divide the total amount of royalties every month, based on the number of patents in the pool. Thus, and individual with 2 patents gets about 2% of the total royalties, and a large company with one patent gets 1%.

Now, is this a bad system to reward the creative juice and share the benefits of the total amount of work with the whole world???

Vincent

I'm not against the patent system or for people getting paid for innovation. I am against the pervasive fear mongering engendered when patent holders issue unsupported claims about intellectual property infringement.

Individuals and companies, both big and small, should have the opportunity to be creative and to be rewarded for their creativity.

On the other hand, what we see today in software intellectual property is a behaviour that borders on extortion. Claims of patent infringement without a willingness to back up the claim are what has riled the community. Worse, these claims without public foundation only serve to undermine the legal system of intellectual property by causing disrespect for the very system the patent holders seek to exploit.

If a company is so sure of their patent-backed innovation then they should be willing to fully defend the particular patents rather than using a broad portfolio to intimidate innovators.

I'm sure I'll be writing more on this subject. It's not black and white, yet. Those who are intellectually dishonest about their intellectual property will surely make it black and white and will cause a backlash against intellectual property that will, in the end, benefit no one.

I did a bit of research on patents and "Intellectual Property" back in 1992-93. One thing that struck me about its payoff for the small company was that a small company could invest hugely in getting a world-wide patent coverage - this about hardware, since not all countries care for the US software patent mania - spend much more time than intended getting this coverage, then have their business ripped off by a bigger company with bigger pockets and never get to recoup that investment of time and money.

It of course gets much, much worse with "software and business method patents", which I consider another name for fraud.

Another thing about "Intellectual Property Rights" is the same problem one has with shoddy SF - nobody considers the flow-on effects of even a small change in one of the parameters: read some of the older SF and you'll see a world that never could have existed, because the relevant effects upon social habits of just one change - say, the Pill - was never considered. So, we have a World Wide Web on the Internet taking over the role of the radio/telegraph/telephone system for managing trade between nations. It to a large extent has also taken on a good many of the sea's role, as a highway for information, since information is now a tradable commodity. The law of trade via the sea also includes some quite necessary property laws dealing with derelicts, etc, that pose a risk to the sea roads. We call that sort of law Salvage and Finders Law. What do we do about an Operating System/Office Suite combination that poses the same sort of risk to Internet/WWW trade as a derelict tanker in a busy sea road? (We know who you are, and no, we're not mentioning any names, Microsoft. ;)

That to me is the worst intellectual dishonesty of the "Intellectual Property Rights" shysters.

>> A good example of this is the MPEG compression technology

>> Now, is this a bad system to reward the creative juice and share the benefits of the total amount of work with the whole world???

The system is horrible because it gives monopoly power for a very long time to the one getting the patent even if 20 others rediscover the ideas within months or a small number of years (or days or even if they had discovered it before but kept it closed). How can you call fair or good a system that gives all the money to one person, gives nothing to the many others that made the discover around the same time, and then makes things worse by not even allowing the others to compete. I wonder if there is even a single patent of the 100 or so relevant to MPEG compression (as you mentioned) that falls outside of this category. I mean, is even a single one of those hundred patent owners being anything but highly over-compensated?

Protectors of the patent system are either quite hypocritical (if they say anything but that patents are an element of US law unfair to the vast majority of citizens but which they are happily willing to exploit) or are very delusional (if they think that there are anything but a handful of patents that would merit even near to 17 years -- and with improving access to information and cash, these 17 years are getting longer and longer).

The theoretical flaws with the patent system have always existed but are clearly shown in practice through software patents in part because software is a field that has achieved a very low barrier to entry, ie, there are many inventors today. Costs other than time (which we can all afford) are close to zero (the Internet deserves particular credit): the costs to access the majority of information needed to make the majority of "inventions" are close to zero; the costs to build the prototypes are close to zero; the costs to find capable helping hands to refine and build the rest of the products that contain the "inventions" are close to zero; the costs to advertize the product are close to zero; the costs to get the product into the hands of consumers are close to zero. Certainly, more can be spent on any of these areas but the tools are there so that good products are discovered and used for little beyond the cost of time.

A very important contributor to shedding light on these short-comings is the growing accessibility to patenting (more educated people in town and easier/cheaper access to information/ads: more lawyers, more marketing individuals, more inventors, more entrepreneurs, etc).

Patents today in the software industry are being used to keep those that refuse to do the above to continue making monopoly royalties trying to force those that will do the above from not doing it. It is very difficult to argue that the consumer is benefiting through patents in these cases. BTW, the reasons some apparently give away their product mostly has to do with two things. One, people with a principal incentive other than to maximize profits now find it easy to help bring their inventions to life when all costs besides time costs are virtually nonexistent. Two, there are many business models to work from when you have an industry that is based on products and services. The time costs means the service component is not free, but the product can in fact be given away for free as it has basically zero marginal costs to get into the hands of consumers. Costs beyond these are optional and used to gain competitive advantages. If they are born, presumably there is a way to recoup them (eg, selling low margin items in much greater quantities: related merchandize, CD's, tangible publications, etc; eg2, increasing the services fees).

>> Firstly, the majority of US patents are NOT granted to large companies but to small ones, single inventors and universities. Without the legal power to enforce the right to exclude the large companies to simply appropriate the new ideas, it is naive to think that simply going fast to market will allow the creative ideas to be rewarded by market success and allow the potential financial outcome to secure loans and VC capital to develop the ideas into a product or service.

Again, you assume that these "inventors" actually have ideas that are worth any more than a few months of patent protection, that others wouldn't or haven't come to similar conclusions, etc. You assume that a royalty stream through a forced monopoly is the best and fairest way to monitize these wonderful inventions.

The entrepreneurial inventor will find rewards in competition with other inventors. VC's always look for places to put their money to work. What patents do is they mean that patents are now necessary to get funds because your competition has patents if you don't. Take patents from the arsenal of weapons and once again entrepreneurial inventors will find that they can convince VC's to take risks on them without a need for patents. The solution isn't to try to fight the war without being armed as well as your competitors. The solution is to remove weapons from the field of play, weapons that do more harm than good. And in many cases, the inventor may just find out that however valuable his/her contributions, it isn't that many times more valuable than the efforts of many others in other supporting fields of work (who would make many times less), nor that they are that much smarter than other inventors not getting patents but producing the ideas and products nevertheless.

Inventors and consumers, on the whole (ie, beyond the few lucky ones) are losers in this (software) patents scheme. At least directly they are the losers. So why does it exist then? Well, first let me mention that the laws of the land are written by lawyers. Patent law might very well provide more work for lawyers than the alternatives (but not necessarily). Secondly, as long as a minority of citizens have the majority of the money (or even just a significant portion) and control the majority of decision-making positions and as long as money continues to be the best currency able to buy others' help (such as the help of the inventor that likes to patent things, the lawyer to help him patent it, and the lobbyists to help ensure the monopoly laws stay in place), help which is comparable or better than those who accept other currencies... As long as these things are true, the lawyers will get paid (through their representatives in legislatures) to write the laws that benefit this minority group.

If you want to change a broken system, sell it to the masses because they do have two very valuable currencies, the power to vote (this doesn't trump money's power though.. not yet anyway) and the power to decide what to buy. FLOSS is succeeding to a degree because it is providing free access to good software. Do Representatives really think they can get away with effectively outlawing this FLOSS? Remember, it isn't theoretical any longer. The end consumer will quickly and directly feel and be told about what they are losing if patents become enforced/enforceable to such an end.

>> Second, the most valuable patents are those that represent such significant step that (1) it will take a decade or more to diffuse into society and will require plenty of patience and additional ideas, (2) that their applicability will encompass so many fields that it goes beyond any single company business plan; (3) that in order for society to benefit, the basic innovation must find itsway into MANY companies' products so that network effects give the public the full benefits.

Without agreeing or disagreeing with this statement, let me add: Yeah, too bad most patents don't fall into this category yet still have the exact same power. You argue against the idea that fast to market is doable in these cases. You don't say that fast to market doesn't work in other cases which constitute the majority of granted patents.

You also don't argue against a view that alternatives to patents would achieve the same effects or better from the point of view of the inventors or society. If anything, the relative lack of enforcement of patents on software indicates the kinds of rapid advancements that are possible without the use of patents. Even if I knew next to nothing about patents and inventions, am I supposed to believe that taking the methods of slow moving industries and applying them to the fastest moving industry of all time is supposed to make the super fast moving industry move even faster?? Sure its hypothetically possible the slow industries know how to speed things up more than the fastest moving industry of all time, but is it likely? .. of course, if we *want* to slow progress to a more manageble rate and divert unjust income towards a few while everyone else is forced to sit on the sidelines and not participate.. then patents are what we need.

In conclusion:
Patents are not a tool to reward inventors. Patents are a tool that adds restrictions to a free market and so can be used by some market participants to exclude others. Given we are talking about monopoly power for a very long period of time, patents are giving a very small number of participants a very large advantage over the rest.

The system is designed for two classes of people. It's for those that want to make more than what they would otherwise make with their inventions in a free market (remember that engineers already make decent amounts even without making very many inventions) and who don't give a #### about screwing everyone else contributing inventions or ingredients to inventions and not playing the patents game. It is also for those that would otherwise lose out in the marketplace but have lots of cash and so buy up monopoly rights from the government ahead of time to ensure their success. [Yes, some will fail even with these protections so yes it requires some skill on the part of the patent rights beneficiary/exploiter.]

It would be nice if people who claim that intellectual property laws are stifling innovation actually cited any evidence -- any evidence at all! -- to support that view.

Everywhere I look, I see innovation racing ahead in industries where patenting is common. This includes the software industry, where studies (such as Robert Merges's at UCLA) consistently show that after more than ten years of patenting, the industry itself remains less concentrated than the average U.S. industry, new startups are emerging in even greater numbers than before patenting got underway in software, and innovation keeps going at an amazing pace.

Now I'm a believer in open source software as an alternative to the proprrietary model of software development. But don't kid a kidder, okay? Open source as a business model would not survive 15 minutes were it not for the extensive financial support of huge patent-holding firms such as IBM. As a recent study at the University of Texas School of Law noted (May 2007), "The commercially-successful open source programs all share the salient characteristic that they benefit from extensive financial support of large incumbent firms."

As for Microsoft using its patents to club small companies, here's a fact I bet you didn't know:

Microsoft has NEVER unilaterally sued another company for patent infringement in federal court. Never. Not once.

It filed an international trade commission action against Belkin last year, I think. AQnd it has counter-sued a few firms that first sued it.

But show me the unilateral patent suits that Microsoft has used to club other firms. Go ahead, show me.

The fact is, some critics of the IP system are still living mentally in the industrial age, where patents really were the weapon of choice against competitors. Today, in the knowledge economy, they are far more commonly used as vehicles for collaboration between firms, as in Open Innovation co-development deals.

Sure, we've got too many patent lawsuits, but the rate is declining. And besides, today's litigation rate is far far below that of the mid-19th century era of the Great Inventors, when the litigation rate was an astonishing 2% of all issued patents. It's probably one/one-thousandth of that today.

I want to deal with each point you raised in turn and state whether i agree or disagree, if you will bear with me.

Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes. Yes.

Ok?

>> It would be nice if people who claim that intellectual property laws are stifling innovation actually cited any evidence -- any evidence at all! -- to support that view.

There are a great many software developers who develop without reading patents. As long as they are not sued or the patent material is not brought to their attention, they continue to innovate. FLOSS is growing at a dizzying speed just this way.

As long as patents are not enforced or used as a threat in any great number against those developing the solutions, as is the case today in the software field, it is almost as if they don't exist. [I am mostly looking at the FLOSS developer pov.]

>> Everywhere I look, I see innovation racing ahead in industries where patenting is common

Patenting is allowed in any field (US) by law. Whether or not there is innovation a percentage will patent. If innovation is large, patenting will necessarily be greater (1 percent of 100 is 1; 1 percent of 100,000 is 1000).

See the previous point also.

>> This includes the software industry, where studies (such as Robert Merges's at UCLA) consistently show that after more than ten years of patenting, the industry itself remains less concentrated than the average U.S. industry, new startups are emerging in even greater numbers than before patenting got underway in software, and innovation keeps going at an amazing pace.

Software is a fertile field for growth. Unlike traditional patents that involved high costs to experiment with prototypes, innovation in software is basically as easy as coming up with the idea (once you have the basic tools of the trade). Just like a percentage will patent in a high growth industry, high growth also means more startups -- necessarily, all else being roughly equal. If you hadn't noticed, computing is much more affordable these last 10 years than the 10 prior (at least to get some real juice). FLOSS has taken off these last 10 years. The Internet is a phenomenon of the last 10 years. Your researchers need to learn to distinguish correlation from cause and effect.

>> But don't kid a kidder, okay? Open source as a business model would not survive 15 minutes were it not for the extensive financial support of huge patent-holding firms such as IBM.

Are you telling me people would not code without IBM financial backing? Are you telling me that IBM funds the companies out that have a FLOSS business plan (eg, Mysql)? It is tough to figure out what you mean. I say that IBM should leave FLOSS to see if FLOSS needs IBM or the other way around. No kidding.

>> As a recent study at the University of Texas School of Law noted (May 2007), "The commercially-successful open source programs all share the salient characteristic that they benefit from extensive financial support of large incumbent firms."

Maybe I'll take a look at that. It would be interesting to see what they call commercially successful. FLOSS allows in-house growth and outsourcing to both small and large companies. I wonder if the in-house savings and the small consultant companies are factored into this equation.

And once again, the projects that are more important to large commercial entities will get their backing. Being that these large commercial entities already by definition do a lot of business, it almost follows directly that these projects that get their backing will be among the more "commercially-successful" ones. If IBM was not funding kernel development it would be IBM's loss. The Linux kernel project is large regardless of IBM. IBM gained business from Sun Micro and others and revived breathed life into their mainframe business after they jumped on the Linux caravan. Sun hadn't nearly as much and continues to suffer. Red Hat is a bigger backer of the kernel than IBM is. Red Hat is pure FLOSS; they make money on services like the many companies that make good money on services. Is IBM backing the general services industry? Did IBM really save the kernel or did they simply recognize value and decided to be among the first to exploit it. Go ask those advocating FLOSS within IBM. Go to any such company that is opening their products to see if they are looking to be nice and help the FLOSS community or if they are trying to revived their businesses because the closed model wasn't working for them (at least in the cases where they chose to tap the community).

Go ask, really, no kidding.

>> As for Microsoft using its patents to club small companies, here's a fact I bet you didn't know....

Microsoft is doing the "gentlemanly" thing: looking to strike licensing deals.

>> The fact is, some critics of the IP system are still living mentally in the industrial age, where patents really were the weapon of choice against competitors. Today, in the knowledge economy, they are far more commonly used as vehicles for collaboration between firms, as in Open Innovation co-development deals.

>> Sure, we've got too many patent lawsuits, but the rate is declining. And besides, today's litigation rate is far far below that of the mid-19th century era of the Great Inventors, when the litigation rate was an astonishing 2% of all issued patents. It's probably one/one-thousandth of that today.

Here is a fact I am sure you *do* know. Companies that have "too much" success too fast are shown the 20th+ century way of doing business in a patent world: they license from the big dogs of the business or they get sued to death. The industry has learned that patent lawsuits are counterproductive when you can do the "gentlemanly" thing instead. Patents can be bogus as heck, but they can still be used to sue small firms to death. To get bad terms but better than otherwise, the up-can-comers have to grow their patent portfolio (this naturally makes independent patenting inventors all too happy). Doing this adds greatly to the cost of doing business. This limits competition. This is the 20th+ century way of using the patent system to block competition. [Patents are not only used this way.]

[To conclude:]
As I expressed at the very beginning of this reply, my main worry is that FLOSS will be hampered because of companies like Microsoft [they do most of their business as closed source software]. To the extent MS just wants to rack up patents and get sued by smaller companies and only attack those companies back (which is irrelevent if the attacker is not a producer of products that are subject to patent attacks.. eventually, more business methods will be patented and these patent trolls will too become vulnerable).. I could care less.

And then there is the principle of the matter. Patents are an arrogant expression. For every software patent that can be argued (even if ultimately unsuccessfully) to be worth 17 years of protection, more than 100 others can be found that can be just as well argued to be worth considerably less. Such a monopoly granting system is broken.

Remember, patents are a by-product of a society that allows them and of innovation that is *already going on* in particular industries because these innovations lead to profitable business ventures. Where it is difficult to recoup costs, patents provide a way to tax competitors out of business (especially newer ones) instead of passing the costs on to consumers or deal with less profitable competing wars.

The Internet has brought a lot of innovation and has lowered the cost to entry in the field of programming (including lowering many other costs of doing business since software products are reproducible at essentially zero cost). All of this innovation and competition naturally attracts patenting. When you have such a large and growing pool of water, you will naturally get more and more that will decide to pee in it.