Steve R. points me to this fascinating New York Times article on Wall Street’s patent race:
For now, all the big firms seem to be playing nicely with one another. Many lawyers involved in patenting systems and products on Wall Street label the patents as defensive in nature. They say Wall Street banks are trying to patent products or software systems in an effort to protect themselves from claims or litigation brought by individuals or small companies whose primary business is holding patents–those known to their detractors as patent trolls.
But some warn it is merely a matter of time before the patent activity turns from defensive to offensive. Wall Street firms will eventually look for ways to license the technologies or products they have patented, hoping to earn a high-margin revenue stream, or they will begin to litigate against each other, lawyers say.
“Right now, people are figuring out they need some playing cards so that if someone comes to us and says ‘You’re infringing,’ well, we have some patents and we can do a cross-licensing deal and everyone goes away,” says Raymond Millien, a former patent lawyer for American Express who is now the general counsel with Ocean Tomo, a merchant bank specializing in intellectual property. “But there are going to be some companies on the Street who are going to start licensing their products and enforcing the patents to get a revenue stream from them.”
It’s hard to avoid the conclusion that the patent system has gone badly awry. The standard theory of patents is that inventors get patents to allow them to share information about their inventions with other companies. But it doesn’t sound like anything of the sort is happening here. A few companies are getting patents so they can extract royalties from other companies for “inventions” they discovered independently. And the rest of the industry is getting patents in self-defense, so that they’ll have some ammunition to defend themselves when the more aggressive firms come knocking.
There’s a weird disconnect between academic discussion of patents and what’s going on in the real world. At least in the realm of software and business method patents, companies have long since dropped any pretext that their “inventions” are genuinely novel discoveries. This is very different from the academic conception of patents, in which inventions are always assumed to be clearly defined and non-obvious. Software and busines method patents might promote innovation on academics’ blackboards, but in the real world, it’s hard to see them as anything but a burden.
I recently discovered Jane Jacobs’s legendary book, The Death and Life of Great American Cities. I think there are a lot of interesting parallels between the arguments she makes about urban planning and the issues we argue about in technology policy. (one example that I’ll save for another post: her prescriptions for healthy cities are almost all oriented toward increasing the power of network effects generated by peoples’ proximity to one another. My previous post about non-money-mediated markets reminded me of the chapter in Jacobs’s book about congestion.
Jacobs lived in New York when she wrote the book in 1961, and she described a political battle over whether to widen a road that ran through a large park in the city. The city planners, citing congestion problems, wanted to widen it and turn it into an expressway. Jacobs, in contrast, says that local activists, after beating back this proposal (which would have split the park in half and generally made life miserable for the locals) succeeded in getting the road closed entirely. The officials predicted mayhem in adjacent streets, as all of those extra cars re-routed into the side streets. Yet, according to Jacobs, nothing of the sort occurred. If anything, traffic on nearby streets actually declined.
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Last year I linked to this fantastic article by Clay Shirky on the reasons micropayments never took off. Shirky wrote:
A transaction can’t be worth so much as to require a decision but worth so little that that decision is automatic. There is a certain amount of anxiety involved in any decision to buy, no matter how small, and it derives not from the interface used or the time required, but from the very act of deciding.
Micropayments, like all payments, require a comparison: “Is this much of X worth that much of Y?” There is a minimum mental transaction cost created by this fact that cannot be optimized away, because the only transaction a user will be willing to approve with no thought will be one that costs them nothing, which is no transaction at all.
Thus the anxiety of buying is a permanent feature of micropayment systems, since economic decisions are made on the margin – not, “Is a drink worth a dollar?” but, “Is the next drink worth the next dollar?” Anything that requires the user to approve a transaction creates this anxiety, no matter what the mechanism for deciding or paying is.
Shirky’s argument looks as solid today as it did six years ago. He pointed to three payment methods as alternatives: aggregation (bundle the business section with the sports section), subscription (take the paper every day), and subsidy (have advertisers pay for the paper). These have all clearly taken off–subsidy especially. Shirky followed that essay up with another in 2003:
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The DVD CCA is set to remove hurdles to burning of legally-downloaded movie content to ordinary DVDs:
The impending technical and policy changes involve the copy group’s proprietary technology known as the Content Scramble System, or CSS. The association, an arm of Hollywood studios, licenses the encryption technology to makers of DVD players and other electronics companies and applies it widely to movies on DVDs to restrict illegal copying.
The association said it will soon expand licensing to movies that are digitally distributed on demand or a la carte–and not just for movies that are mass produced on DVDs.
The group also is working with disc makers to produce CSS-compatible blank DVDs.
It’s unfortunate that the reporter doesn’t go into any more detail about what, exactly, a “CSS-compatible” DVD is, or what the previous licensing obstacles were. My guess is that the primary change is that the CCA has green-lighted the creation of “Type A” media, which is required to encode CSS encryption keys in a format that commercial DVD players will be able to use them. I wonder if the widespread availability of “Type A” media will also make it possible for consumers to create exact digital copies of mass-produced DVDs with their home DVD burners?
The Property Rights Alliance, an arm of Grover Norquist’s American’s for Tax Reform with a history of producing error-ridden propaganda in support of stronger IP law, is urging Senator Specter to push two “property rights” bills through his committee. One is the Senate version of H.R. 4128, which denies federal funds to projects that rely on eminent domain abuse. The other is the Perform Act, the music industry’s top legislative priority for the year.
As I explained last fall, the tactic of linking the RIAA’s pet issues with the fight over eminent domain is cynical and deceptive. The owners of real property across the country are genuinely under seige in the wake of Kelo, as the legal system abandoned them, and legislatures have failed to protect their rights. In contrast, the holders of intellectual property have had an unbroken streak of legislative and judicial victories over the last decade, giving them far more sweeping powers under the law than they’ve ever had in the past.
The Perform Act has nothing to do with shoring up property rights. It’s an ill-advised technology mandate that would limit the functionality of digital music devices.
But that isn’t to say that there’s no similarities between the RIAA’s lobbying effort and the legislative fight sparked by the Kelo decision. What the two issues have in common is this: in each case, well-financed and well-connected corporate interests are lobbying for special favors from the legislature. Fortunately, in each case, a coalition of public interest groups and ordinary citizens is fighting back.
It never ceases to amaze me what some people think they have a “right” to in this country. The latest example comes from the field of cable television where “rights inflation” has been spiraling out of control for years. Consider some of the things that people have claimed that they have “a right” to in the context of cable and satellite television over the past 20 years:
* In the 1980s and 90s, a great number of people claimed they had a right to cheap cable TV programming. As a result, the Cable Act of 1992 was passed imposing price controls on basic cable.
* During that same period, it was also argued that certain broadcast channels should have a right to reserve capacity on cable networks to distribute their programming. Consequently, “must carry” mandates were formally enshrined into law requiring it.
* More recently, a number of people are saying they have a right to cable television on any terms they wish including on a channel-by-channel, or “a la carte” basis, instead of as part of pre-packaged bundle of programming. Despite the fact that it could destroy the wonderful diversity of programming we see on TV today, Big Government liberals promote a la carte regulation under the guise of “consumer choice” while Big Government conservatives hail it as a worthy effort to “clean up cable.” The end result is an unholy alliance that seeks to create a new “right” to unbundled couch-potato fare.
* Not satisfied that the push for a la carte regulation will go far enough (or perhaps fearing that it will not be passed into law), the “let’s-have-government-sanitize-cable TV” crowd has also pushed for a right to “family-friendly tiers” of programming. Cable operators started “voluntarily” adopting such tiers late last year.
* Importantly, the reason the industry “voluntarily” adopted those family-friendly tiers was because they were threatened by far more serious censorship proposals from those who feel that have the right not to be offended by anything they see on pay TV. Proposals to extend broadcast indecency speech standards to cable and satellite systems have been seriously debated in the halls of Congress this session.
Could rights inflation get any more absurd? You better believe it. This summer, the Federal Communications Commission (FCC) has gotten all worked up over consumers’ “right” to sports programming!
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Over at the IPCentral blog, I had a lengthy and cordial discussion with Noel Le about the supposed contradiction between the rhetoric of open source and the support open source software receives from corporations. I started my first comment with “I don’t think I understand this critique,” and I’m still confused.
I won’t re-hash that debate, which you’re welcome to read for yourself if you’re interested, but I wanted to comment on the hostile attitude that some libertarian intellectuals seem to have toward open source software. Even libertarian luminaries like Richard Epstein have criticized open source software as “unsustainable,” and insinuated that they succeed only due to the largess of billion dollar software companies. Epstein seems to think that the open source movement is living on borrowed time, and once the folks subsidizing it (the government, tax-funded universities, IBM, the developers themselves, whoever) get tired of all the free riding, the party will come to a halt.
For anyone who’s actually used open source software, or who knows open source programmers, this critique doesn’t ring true. Most open source projects exist and thrive for years before corporations started taking notice of it, and only a small fraction of open source programmers are lucky enough to have employers who pay them to do it full time. Corporate support is obviously beneficial to open source efforts, but they would get along just fine without them.
Indeed, it seems to me that if you want to understand what drives open source software, the logical thing to do is to ask the people who are creating it. Their motivations haven’t exactly been a closely guarded secret. Open source programmers say they do what they do because they enjoy the intellectual challenge, because it helps them develop valuable skills, and because they enjoy impressing the community of their peers. So why don’t libertarians like Le and Epstein take them at their word?
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The Wall Street Journal gets it right in an editorial today, saying that Sprint’s announcement that it plans to invest $3 billion to deploy a nationwide high-speed wireless WiMax network by 2008 is another blow to proponents of Internet neutrality regulation who claim that the broadband industry is not competitive. Hooray for Sprint and the WSJ for pointing out “that out in the real world” competition grows despite the rhetoric in Washington. However, the same editorial gets it wrong when it reports: “WiMax, meanwhile, operates in unlicensed spectrum, meaning Sprint doesn’t have to shell out money in auctions to deploy the technology. WiMax is like a wireless home network or a hot-spot in a coffee-shop, but it works over much longer distances, allowing greater coverage and a wider variety of uses.”
WiMax can be deployed over unlicensed spectrum, but that is not what Sprint is doing. Sprint plans to “put the wireless broadband network together across its 2.5GHz spectrum holdings,” according to The Register and other sources. As I’ve noted before, unlicensed spectrum is great for short-range applications but can’t viably sustain large networks with any serious quality of service.
Nick Carr fundamentally misunderstands Yochai Benkler’s thesis about peer production and its relationship to markets and the firm:
One thing that becomes clear from the discussion [comparing Wikipedia to OSS] is how dangerous it is to use “open source” as a metaphor in describing other forms of participative production. Although common, the metaphor almost always ends up reducing the complex open-source model to a simplistic caricature.
The discussion also sheds light on a topic that I’ve been covering recently: Yochai Benkler’s contention that we are today seeing the emergence of sustainable large-scale production projects that don’t rely on either the pricing system or management structure. Benkler’s primary example is open source software. But panelist Siobhan O’Mahony’s description of the evolution of open source projects reveals that they have become increasingly interwoven with the pricing system and increasingly dependent on formal management structure.
Libertarians have long recognized that the firm and the market can be mixed and matched in complex ways. Firms obviously rely on markets to obtain raw materials and to sell their finished products. Markets are also organized by firms, as in the case of the New York Stock Exchange. Firms also sometimes use markets internally, as with Koch industries, which uses “market based management” to give individual divisions within their firm greater incentives to productivity. Moreover, as Coase described, firms constantly face decisions about which of its goals they should accomplish internally (i.e. using the methods of the firm) and which they should outsource (i.e. use the methods of the market). No one would claim that any significant industry could be run purely as “markets” or purely as “firms.”
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Mike Linksvayer makes a good point about my triumphalist post last week concerning AOL versus the Internet:
How hard is it to imagine a world in which closed services like AOL remain competitive, or even dominant, leaving the open web to hobbyists and researchers?
One or two copyright-related alternative outcomes could have put open networks at a serious disadvantage.
First, it could have been decided that indexing the web (which requires making and storing copies of content) requires explicit permission. This may have stunted web search, which is critical for using the open web. Many sites would not have granted permission to index if explicit permission were required. Their lawyers would have advised them to not give away valuable intellectual property. A search engine may have had to negotiate deals with hundreds, then thousands (I doubt in this scenario there would ever be millions) of websites, constituting a huge barrier to entry. Google? Never happened. You’re stuck with Lycos.
Second, linking policies could have been held to legally constrain linking, or worse, linking could have been held to require explicit permission. Metcalfe’s law? Never mentioned in the context of the (stunted) web.
He’s certainly right that these things would have been bad, and that bad intellectual property policies in the last decade have probably stunted technological progress in ways analogous to the alternative history he lays out above. But I actually don’t think it’s a coincidence that the web played out the way it did. The Internet’s open architecture was a consequence of having incubated in an open culture. The men (and a few women) who built the Internet did so with the conscious intention of building a decentralized, open network. Along with the TCP/IP protocol stack, HTML, HTTP, SMTP, etc, they also developed a set of norms that emphasized openness and collaboration. The result was that when newcomers like Netscape and Microsoft came on the scene, their efforts to transform the Web into a private fiefdom met with fierce resistance from Internet old-timers.
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