Every week, I look at a software patent that’s been in the news. You can see previous installments in the series here. This week’s software patent is held by Telephia, a provider of “performance measurement information to the mobile industry.” They have sued a competitor, M:Metrics, for violating multiple patents, including patent #6,754,470, “System and method for measuring wireless device and network usage and performance metrics.”
The patent is rather vague, but Telephia seems to effectively be claiming the very concept of collecting information from mobile devices. Here’s the first claim:
A mobile wireless device comprising: electronic memory encoded with, data gathering software which gathers information pertaining to device usage from actual use of the mobile wireless device by a user, the gathered information including event data and association of respective events with respective location information indicative of device location during the occurrences of such respective events; and data transfer software which provides the gathered information for transmission.
That describes almost any conceivable onboard system for monitoring mobile device usage. Somehow, I don’t think Telephia was the first to think of digitally collecting information about mobile device usage. And I don’t think that filing this patent ought to give Telephia a monopoly in such data-gathering activities.
I’ll conclude by quoting Mike Masnick’s write-up of the patent from last month.
Both firms are fairly well known in the wireless space for providing data on mobile data usage. However, the idea that one of them should own patents on the idea of measuring such things seems ridiculous. Measuring data usage on computing devices is quite common–and the idea that just because something moves to a mobile device it’s unique enough to deserve patent protection is silly and has little to do with promoting innovation. It’s not as if collecting mobile data usage metrics wouldn’t have happened without patents. It’s an obvious step for the market that has always thrived on data usage metrics. However, even more importantly, these are two research firms. Shouldn’t they be competing on the quality of their data–not who has a patent on the research method?
DSO.com has an in-depth look at a dispute I first mentioned last week between Green Hills and Express Logic over whether Green Hills can reverse-engineer Express Logic’s API in order to build compatible products. I’m pleased to see that Jason Schultz’s take on the subject is about the same as mine:
On June 12 Express Logic accused Green Hills Software, Santa Barbara, Calif., a licensed reseller of Express Logic’s software, of illegally copying its ThreadX API. The API is a piece of the RTOS that defines the interface between the OS and the programs a customer will build on top of it.
Express Logic also claims that Green Hills then used the illegal copy to create an API in its micro-velOSity RTOS. Green Hills has publicly denied all of Express Logic’s charges. The dispute will be adjudicated by a professional arbitrator .
“What’s at stake here,” says Jason Schultz , a staff attorney at the Electronic Frontier Foundation (EFF) in San Francisco , “is a long-time tradition of computer programming–the tradition of interoperability.”
Express Logic’s position strikes me as rather weak:
“If it turns out we’re wrong and that you can, in fact, copy an API without infringing on a copyholder’s copyright, then that opens the door to a lot of other things,” says John Carbone, vice president of marketing at Express Logic, San Diego, Calif . “For example, what other portions of the source code can you copy? Data structures? The comments? The functions? The user manual? That’s dangerous–it’s a slippery slope. Basically, [such a ruling] would make everybody’s API open source. The API would no longer be a distinguishing factor.”
Well yeah, you don’t want a product’s API to be its “distinguishing factor,” any more than you would want railroads to run their trains on different-guage rails. The courts don’t seem to have had any difficulty drawing the relevant distinctions between a program’s interfaces and its source code. There’s little reason to think this case is different.
This week I’ve been discussing the merits of platform monopolies. We’ve established that there’s a plausible case for granting such a monopoly, but that because of network externalities, there are also good reason to be skeptical of such monopolies. There remains the question of how to balance these two factors.
So now I’d like to make the case that the benefits of platform rights are greatly overestimated by the advocates of such rights. My argument comes in two parts. First, the negotiations required by a platform monopoly produces substantial deadweight losses: both because negotatiting permissions costs money, and (more importantly) because there will be socially-beneficial technologies that will never be developed because the necessary rights cannot be negotiated. And second, those profits that can be expected to reach the property owner don’t necessarily cause firms to direct their resources in ways that are economically beneficial.
Today I’ll focus on the first objection, which might be called the “demand side” objection.
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Many years ago, I largely quit following developments on the “universal service” front. It was just too damn demoralizing. After studying the system for many years, I came to the conclusion that the Universal Service Fund (USF) – – and the entire universal service regulatory process – – was one of the most unfair, illogical, counter-productive, regressive, anti-technology programs EVER created in American history, And yet, no one in government seemed to be willing to do anything to fix it. Matter of fact, they actually decided to expand it in recent years with the creation of the E-Rate (or “Gore Tax”) program. And they brought cellular and VoIP into the system as well. Absolutely insane.
I was reminded of that again today when I received a new report from communications guru Thomas Hazlett, Professor of Law & Economics and Director of the Information Economy Project at George Mason University. Hazlett has just penned a devastating critique of the universal service system in which he asks: “What Does $7 Billion Buy?” Answer: not much. Let me just quote from his executive summary here and then encourage you to go read the entire study for more miserable details about this horrendously inefficient government program:
“The ‘universal service’ regime ostensibly extends local phone service to consumers who could not otherwise afford it. To achieve this goal, some $7 billion annually is raised – – up from less than $4 billion in 1998 – – by taxing telecommunications users. Yet, benefits are largely distributed to shareholders of rural telephone companies, not consumers, and fail–on net–to extend network access. Rather, the incentives created by these subsidies encourage widespread inefficiency and block adoption of advanced technologies – – such as wireless, satellite, and Internet-based services – – that could provide superior voice and data links at a fraction of the cost of traditional fixed-line networks. Ironically, subsidy payments are rising even as fixed-line phone subscribership falls, and as the emergence of competitive wireless and broadband networks make traditional universal service concepts obsolete. Unless policies are reformed to reflect current market realities, tax increases will continue to undermine the very goals ‘universal service’ is said to advance.”
And, if you’re a real glutton for punishment and want even more grim details about the system, check out this recent report by PFF’s “DACA” working group on universal service reform. File all this under: “The Unintended Consequences of Misguided Government Regulation.”
Mike Masnick points to a story about the latest front in the federal government’s obsessive crusade against online gambling: advertising companies. Apparently, creating an ad for an offshore gambling web site could lead federal fraud and racketeering charges. Because they conspired “to develop a scheme to defraud gamblers in the United States by inviting, inducing and persuading them to place bets.” The ads apparently “falsely stated that internet gambling on sporting events and contests was ‘legal and licensed.'”
I think it’s a safe bet that the feds haven’t arrested any of the American gamblers who supposedly broke the law by using BetOnSports. And it’s an even safer bet that most of them feel don’t feel “defrauded” by the ads. Unfortunately, the use of fraud and racketeering charges to punish actions that aren’t otherwise illegal is a growing trend.
As Mike says, don’t the feds have better things to do with their time? I thought there was a war on terrorism going on–maybe these officials can help out with that.
From a story in today’s USA Today:
“A year ago, a 37-inch flat-panel model typically cost about $4,000. Now, some can be found for as little as $1,100, says television analyst Rosemary Abowd at Pacific Media Associates. From January to May, the most recent data available, average flat-panel prices tumbled more than 12%, she says.”
While this is stunning to me, it’s not nearly as amazing as the fact that, just a few years ago, most 40+ inch plasmas were going for over $10,000 bucks and couldn’t be found in most “big box” electronic retail stores. You had to go to high-end A/V shops to get them. Today, by contrast, when you walk into Best Buy and Circuit City and are surrounded by walls full of flat-panel displays, many of which are dipping below the $2000 price point as the USA Today story suggests.
We’ve seen the same thing happen with other high-end electronics too, like progressive DVD players and surround sound receivers. I heard the other day that Circuit City is now going to be carrying Denon products, one the best names in the business of consumer electronics and previously only available at very high-end establishments. (I own a killer Denon upscaling DVD player that plays all my surround sound audio discs as well. I love it. Until you’ve heard Pink Floyd and The Flaming Lips in 5.1 surround, you haven’t lived life to the fullest!) Meanwhile, Best Buy now has their “Magnolia” mini-stores within many of their branches that cater to the truly high-end customers. They carry many of the high-end products I use in my home including my incredible Yamaha VX2600 surround sound receiver.
As a result, DVD players and A/V receivers that used to cost a month’s salary can now be had for a couple hundred bucks. Just amazing when you think about it. I have a closet full of “retired” consumer electronics gear that is now just gathering dust. It just makes me sick to think what I spent on all that stuff considering that the gear I’ve got in my living room now cost thousands less and provides a vastly superior audio and video experience.
(No policy angle to all this. I’m just consistently amazed by the wonders of capitalism.)
On Monday I laid out the case for platform monopolies: that they provide firms with incentives to create new products by allowing them to recoup their fixed costs. Yesterday I had two posts arguing that closed platforms can harm consumers by preventing gains to interoperability.
The question is, Is a platform monopoly an effective way to promote the creation of new devices? And is this benefit sufficient to outweigh the opportunity costs of reduced interoperability?
In considering these questions, it’s vital to distinguish between creating a device and creating a platform. Obviously, we want to create incentives for firms to produce more and better devices. But we don’t necessarily want firms to create new platforms. In fact, we only want firms to create new platforms to the extent necessary to enhance the functionality of new devices. If an existing platform will do the job as well, we should prefer the firm to use it, both because that saves the costs of developing the new platform, and because it permits gains to interoperability with compatible devices.
To illustrate this point, I want to offer a brief history of one of the world’s most successful platforms, the x86 computer chip architecture. I’ve discussed Intel’s x86 chip architecture (which powers almost all modern PCs) before as an example of beneficial reverse engineering. What I didn’t talk about explicitly was the role of network effects on the fortunes of the x86 architecture.
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I just got a copy of my friend Tim Carney’s The Big Ripoff: How Big Business and Big Government Steal Your Money I’ve only had time to thumb through it so far, but I thought I’d mention a fascinating chapter on the Enron debacle.
Tim explains how the California power crisis was largely due to the “deregulation” of electricity that Enron lobbied for. I put deregulation in scare quotes because although the regulatory changes introduced in 1998 did increase competition in some aspects of the electricity market, this was far from a free market. Indeed, as Carney documents, Enron lobbied for rules that would rig the market in its favor: the price of power it sold into the California market was unregulated, but the transmission networks which carried that power had an “open access” regime in which prices for the use of the power grid were set by the government. California also prohibited the utilities from generating electricity themselves, forcing the utility companies to buy their power from middlemen like Enron.
Of course, we know the rest of the story: with retail prices tightly controlled and wholesale prices unregulated, wholesale prices spiked and utilities began bleeding red ink. Enron made a bundle, and California got rolling blackouts.
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Earlier today I described the concept of network effects and analogized it to gains from trade. I suggested that public policy should encourage open systems in order to maximize the gains to interoperability.
But there’s an obvious objection to this line of argument, which is hinted at in the IEEE article I referenced yesterday:
Surely it would require a singularly obtuse management, to say nothing of stunningly inefficient financial markets, to fail to seize this obvious opportunity to double total network value by simply combining the two.
In other words, if there are gains to interoperability, it’s in the interests of the firms themselves to make their platforms interoperable in order to increase their value. Firms, therefore, have the necessary incentive to maximize the value of their platforms with or without a platform monopoly.
The problem with this response is that it ignores the question of who captures the gains to interoperability. In a closed platform controlled by a single firm, most of the surplus flows to the platform owner, who is able to raise prices to capture the increased value. Apple is currently reaping the financial rewards from sitting atop a closed platform as it grows to dominate its market. On the other hand, in an open platform, competition pushes down prices. As a result, most of the surplus flows to the consumer. Given that price-fixing agreements are difficult to enforce (not to mention illegal), companies may rationally opt to keep their platforms separate.
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I’m consistently amazed with Microsoft’s XBOX 360 and XBOX Live Network, and not just because of the games I can play on it but because of everything else I can do.
I was reminded of that tonight when I got on the XBOX Live Marketplace to look for a new “NCAA Football 2007” game demo from EA Sports that I wanted to download and check out before buying the game. When I got to XBOX Live, however, the first thing I was greeted by was a notice about the latest “Artist of the Month.” So, I gave that a listen.
Then, my wife came into the room and said something about getting a babysitter sometime soon so we could go see a new movie. But she wasn’t sure what she wanted to see, so I pulled up the movie and TV previews page on XBOX Live and downloaded clips from “Superman Returns,” XMEN 3,” “A Scanner Darkly,” and several other movie clips… all in glorious 720p high-def with stunning digital surround sound. (Indeed, downloading all these high-def clips via XBOX encourages me to just wait for home release of the flix because they look much better on my home projector than they do at the theater!)
A short while after that, my kids came into the room so I decided to pull up something for them. I downloaded some clips from Pixar’s new movie “Cars” and then also downloaded a free version of the arcade classic “Frogger” for my daughter to try out. Here was a game that I pumped countless quarters into as a kid back in 1981, and now my daughter was sitting with me playing it for free 25 years later. On the sofa in our basement. With a wireless controller. On an 8-foot wide projection screen. My how times change!
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.