Patents

Via IPCentral, I just finished reading “Patents and Business Models for Software Firms.” The authors assemble a large data set of patents, classify them as software and non-software, and do some statistical analysis as to which type of firms are most likely to take advantage of patents. They conclude, not surprisingly, that product-oriented firms are more likely to patent than service-oriented firms.

What they don’t do (and they acknowledge it) is determine any kind of causal connection among software patents, R&D spending, and innovation. And it seems to me it would be difficult to draw any conclusions about the impact of software patents on overall industry innovation using data of this sort. Software patents clearly benefit firms at the margin, or they wouldn’t seek them. But we can’t conclude from that fact that software patents benefit the industry overall–that would be a fallacy of composition.

It seems to me the best way of evaluating software patents empirically would be at the micro level: that is, look at individual patents and try to estimate the likelihood that the covered invention would have been created without the availability of software patents. Obviously, some will be hard cases, but there are also many easy cases.

It occurred to me that this is the sort of task that could be accomplished in a decentralized, peer produced manner: set up a web page where the user can look at a patent and rate it for obviousness, prior art, etc. There are probably enough geeks out there who hate software patents that you could analyze far more patents in far more detail than a traditional research team could hope to accomplish.

I just registered AmIObviousOrNot.com. I could set the site up, but my web development skills are rather rusty, so it would take me a while. Are there any PHP gurus out there who’d like to help out with a project like this?

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Another day, another absurd software patent: Ars reports that Nintendo has patented the concept of instant messaging in games:

In the claims section, the patent describes a chat system that uses a remotely stored buddy list, supports multiple statuses, broadcasts information about active gaming activities, displays notification of events including the arrival of new e-mail messages, facilitates transmission of player preferences, and enables users to communicate with each other either with voice or text messages. Keep in mind that this patent does not cover game-oriented chat in general; it specifically describes a console gaming chat mechanism that displays game information and uses a buddy list.

Sure, instant messaging and computer games had been around for several years when Nintendo filed for this patent in 2000. But combining them was truly a stroke of genius!

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Via Techdirt, here’s another example of a pointless software patent battle. Creative sued Apple claiming that the iPod violated its patent on the concept of organizing music hierarchically (as if no one had thought of that before). Apple returned fire by claiming that Creative had violated four user-interface patents, and last week they filed a second suit alleging three more infringements of its patents.

What I want to know is: how do defenders of software patents explain Apple’s actions? After all, if those seven patents are valid, that means that Creative has been “stealing” Apple’s intellectual property in seven separate respects. There’s no doubt that if Creative had been violating Apple’s copyrights, say by using bootlegged copies of iPod software in their products, Apple would have wasted no time in suing them. Yet faced with an analogous situation with software patents, Apple has simply sat on its intellectual property.

Here’s my theory: software patents are little more than legal harassment devices. They’re typically so broad that any given product is covered by dozens of them, and so vague that it’s impossible to be sure which products are covered by any given patent. Large companies know that they’re violating dozens of their competitors’ patents, and that their competitors are violating dozens of theirs. They don’t sue because they understand that the result would be a zero-sum legal quagmire that could drown them both in legal fees.

Mike Masnick’s analogy for this is perfect: nuclear stockpiling. Everyone wants a big patent portfolio to use as ammunition in a possible patent war, but they understand the consequences of starting such a war with another big company would be suicidal for both parties. Creative launched a lone nuclear warhead at Apple; it’s about to discover just how painful a full-blown nuclear exchange can be.

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I have a hard time writing about stories like this one without getting shrill. ZDNet is reporting that Net2Phone is suing Skype for violating its “point-to-point internet protocol” patent.

What does it cover?

A point-to-point Internet protocol exchanges Internet Protocol (IP) addresses between processing units to establish a point-to-point communication link between the processing units through the Internet. A first point-to-point Internet protocol includes the steps of (a) storing in a database a respective IP address of a set of processing units that have an on-line status with respect to the Internet; (b) transmitting a query from a first processing unit to a connection server to determine the on-line status of a second processing unit; and (c) retrieving the IP address of the second unit from the database using the connection server, in response to the determination of a positive on-line status of the second processing unit, for establishing a point-to-point communication link between the first and second processing units through the Internet. A second point-to-point Internet protocol includes the steps of (a) transmitting an E-mail signal, including a first IP address, from a first processing unit; (b) processing the E-mail signal through the Internet to deliver the E-mail signal to a second processing unit; and (c) transmitting a second IP address to the first processing unit for establishing a point-to-point communication link between the first and second processing units through the Internet.

Where to begin? This describes an absolutely pedestrian networking protocol. There’s nothing remotely novel or non-obvious about two computers communicating directly with each other without using a server. I don’t even understand what the “invention” is supposed to be. If you asked a random CS major how to implement a peer-to-peer network application, he’d probably come up with a description like this in about 10 minutes.

Some people seem to think that these kinds of bad software patents are anomalies–that there are good ones as well, and that we ought not to throw the baby out with the bath water. Yet I’ve seen news accounts of more than a dozen examples of bogus patent suits in recent months, but I have yet to see an example of a legitimate software patent. There’s an awful lot of bath water here, and I’m having trouble seeing the baby.

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Chicago law professor Doug Lichtman has a great new paper about the patent holdout problem:

A patent holder whose patent is made public only after the relevant technology has been widely adopted can demand not only a royalty that reflects the intrinsic value of that technology but also a royalty that reflects the value of each infringing firm’s technology-specific investments. This is the familiar patent holdout problem, and it particularly plagues the standard-setting process. Importantly, and the insight missed both in practice and in the literature today, the greater the number of patent holders in this holdout position, the less each can expect to earn from this tactic. That is, if fifteen patent holders can credibly threaten to shut an infringer for six months while that firm redesigns its products and services, the value associated with avoiding six months of disruption must be split fifteen ways. If three hundred patent holders can credibly make that threat, the pro rata share drops by a factor of twenty. More patents means less money per patent holder. Less money, in turn, means less of an incentive for a firm to strategically delay in the hopes of being a patent holdout, and less of an incentive for an accidental patent holdout to actually bring suit.

This might explain why standards like MPEG, which are buried in dozens of overlapping patents, haven’t been brought to their knees by litigation. There are probably a number of patent holders who could credibly threaten to shut down the world’s DVD players. However, the MPEG-LA can credibly refuse such extortionary demands, because they know that the moment they allow one patent holder to extort more than their fair share, the floodgates would be opened to continued extortion.

But I also expect there’s some legal realism at work here. No judge is crazy enough to order the sale of all DVD devices be halted. Even if a particular patent holder theoretically has the right to obtain an injunction, in practice they are constrained by the fact that if they behave too outrageously, the judge in charge of the case will begin to rule against them. This further strengthens the hand of standards-setters in negotiations with would-be patent trolls.

What I found most interesting about the paper, though, is how frankly Lichtman–who I don’t think is a critic of patents generally or software patents in particular–lays out the flaws in the current patent system, especially as it relates to high-tech inventions with hundreds of components. He explains how difficult it is for honest technology creators to discover patents that might be relevant to the technology in development, how the system gives inventors the perverse incentive not to search for relevant patents to avoid treble damages, and how the holder of an undiscovered patent can lie in wait until other companies make significant investments based on their patents and then exort large sums of money from the hapless inventor.

Lichtman offers a creative explanation as to why this screwy system hasn’t done more damage than it has, but the broader question is: what can we do to fix the system so it’s not so broken in the first place?

His paper is (as he puts it) mercifully short, so I encourage you to check it out. He has invited comments over at the Chicago law blog.

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In comments to my big DVD post, Urijah points out another obstacle to a completely free and legal version of MPlayer or Xine: the MPEG format is heavily encumbered by patents, and commercial entities generall must pay $2.50 per installation for a license.

I haven’t looked into this issue in detail, but if this article is right, this problem likely extends beyond MPEG-2 to other video-playback technologies:

All patents in the list of the MPEG licence association in regard to the MPEG-4 standard were examined and analysed. After intensive study of relevant literature and more than 100 patents of the relevant companies we can say now: Upon careful examination, we can not find any advances over the prior art in said list that could justify the granting of a patent. Most of these patents should be attackable in court, but who would take the burden of litigation against 900 patents owned by dozens of large companies?

When people talk about “the MPEG-2 patents,” they aren’t referring to a specific patent that describes the MPEG-2 standard. Rather, they refer to 640 holders of patents related to various aspects of the MPEG-2 standard. If 640 patents describe a single video format, it’s a safe bet that a substantial fraction of them cover any conceivable alternative video format. Which means that technically speaking, all free video-playing software is probably technically infringing on numerous patents.

It’s also quite possible that the MPEG-LA wouldn’t bother suing an open source project, which doesn’t have any money anyway. At worst, I would think MPlayer and Xine could charge people $2.50 to download copies of MPlayer or Xine and turn the tribute revenue over to the MPEG-LA. They could still distribute the source code, so this wouldn’t greatly hamper its development as an open source project.

In any event, the best solution is to repeal software patents, which impede innovation in this and many other software categories.

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A couple of weeks ago, Patrick Ross mentioned a talk given in Brazil in defense of software patents:

GWU Law Professor John Duffy defended software patents. A good example of a software patent, he said, is Google’s first patent. It patents their search approach, which starts with a basic search, then involves a search within the search results based on popularity. That innovation has led the company to a market cap of $123 billion, but couldn’t be protected by copyright because the method could be written in a thousand different ways.

Intrigued, I wrote him asking for details. He kindly pointed me to Duffy’s PowerPoint slides.

I’m not impressed. Here, literally, is the slide making the argument about Google:

Patents can make you rich and famous.

Example: Google = $123 billion

Google is built on a a few key software patents.

Now, it’s probably not fair to judge a presentation from its PowerPoint slides. I’m sure Duffy’s presentation was far more nuanced than this simplistic rendering suggests. Still, even taking that into account, this is pretty weak sauce. You can’t just attribute Google’s market cap to its patent portfolio, as though that settles the matter. Duffy’s slide presents no evidence whatsoever that Google’s patent was key to its success. It’s the crudest kind of post hoc ergo proctor hoc fallacy.

It’s hard to see how Google’s story would have been any different in a world without software patents. The slides offer no evidence that any companies have actually been deterred by the existence of Google’s patent from producing a Google knock-off. If you examine the patent in question, it’s far too general to be of much use to someone wanting to do so. What makes Google so great isn’t the general concept of its search, but its superb implementation. They were the first company to take the general concept of treating links as votes and implement it in a way that could scale to billions of pages.

But of course, implementation details are protected by copyright. Which means that in a world without software patents, Google would have gotten along just fine.

Moreover, even if we assume that Google’s market cap is partly attributable to its patents (which I think is unlikely) that doesn’t prove that it’s a good thing. There are all sorts of government programs that make corporations wealthy. Ethanol subsidies have been good for ADM. Defense spending has been good for Northrop-Gruman. New York taxi medallions have been good for those fortunate enough to have one. The policy question isn’t whether these programs serve the companies that benefit from them, but whether they promote innovation and economic growth. I can’t see any reason to think that the availability of software patents makes future Googles more likely. To the contrary, the primary effect of software patents appears to be a kind of rent-seeking, wherein software trolls obtain software patents to extort legitimate companies, and legitimate companies are forced to acquire software patents (and retain lawyers) to defend themselves.

There might be an example of a legitimate software patent out there, but this sure isn’t it.

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Paul Graham’s essays are usually brilliant, but I found this essay on software patents of software patents to be rather short of his usual standard. He actually asks two separate questions: First, given the state of the law, is it evil for companies to seek software patents? And second, is permitting patents on software good policy?

I agree with him on the first question–a technology company that doesn’t play the patent game opens itself up to the risk of extortion by patent trolls. So I don’t blame innovative companies like Microsoft from acquiring software patents in self-defense. And like Graham, I fault companies that attempt to use their software patents offensively against competitors, as Amazon has done.

However, on the merits of software patents as public policy, his defense strikes me as rather weak:

Continue reading →

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Adam Mossoff has written an important paper shedding light on the nature and constitutional status of patents:

Mossoff, Adam, “Who Cares What Thomas Jefferson Thought about Patents? Reevaluating the Patent ‘Privilege’ in Historical Context” . MSU Legal Studies Research Paper No. 03-21

Adam sheds light on what eighteenth and nineteenth century scholars meant by calling patents “privileges.” Lawyers of the day referred to many types of civil rights that helped secured property rights as “privileges.” “Privileges” was a legal term of art for rights that did not arise in a state of nature, but that arose when people joined together in societies under a social contract–civil rights. Referring to such rights as “privileges” was not intended at all to disparage them or disconnect them from property rights (as in the “privileges and immunities” clause). Thus he traces nineteenth century case law that treat patents as a form of property, subject to “trespass” and broadly defended.

Adam’s paper also drew my attention to two other problems, less related to IP, but none-the-less worth mentioning.

1) The sad neglect of legal history in the law schools, and the tendency of the legal system to pick up on and amplify errors in interpreting cases of the past. This has arisen again and again–with privacy law, with the Ninth Amendment, and on and on. In my view this arises originally from the fact that law was not an academic discipline like history. It was a trade. Law professors taught the trade, and did not much try to be “academic.” Objective historical research was not taken seriously, but only as an addendum to advocacy. Today law schools try to be on a intellectual par with graduate schools in philosophy and history and have little interest in trade problems, but objective research is taken no more seriously. If they want to produce scholarship of lasting and real value, they are going to have to up their standards. I should close by saying that there are important exceptions–true legal scholars–but not enough.

2) The second problem is something the tendency of ideological libertarians (including myself) to underestimate the sophistication of natural rights and social contract theory. It is often accepted by libertarians that rights that do not belong in a state of nature are simply problematic. And a good number of libertarians would dismiss such rights as impossible. But that will not do, because then we must dismiss things like the right to vote, the rights of due process, and so on, as impossible, because all these arise not in a state of nature but in civil society. We might well be cautioned about taking discussions of the “state of nature” too literally. Like “perfect competition” or “zero information costs” in economics, it makes a splendid thought experiment. But in reality the evolution of legal systems and societies is vastly more complex.

A longer version of this note is up on IPcentral, for those to whom it looks familiar.

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