Monday, October 30, 2006

What's wrong with software patents?

I know that many people come to the FFII - as I did - because they feel a deep sense of injustice at how the smaller players in IT are consistently squashed by special interests and monopolists.  But I'm going to look at our core concern - software patents - from a different angle, one based more on economics and less on emotions.

The simple question "what's wrong with software patents" stirs up controversy and divides the IT industry into two camps like no other.  Every group has their own ideology about software patents.  Those who don't like them claim that they are anti-competitive, that they are tools used by industry giants to crush free and open software, that they are bad for innovation, that they are monopolies, etc.  Those who like them claim that they are simply units of intellectual property, to be traded like any other commodity.

All property is a monopoly.  All property can be traded, bought and sold, and can make money for its owners.  The state can declare any resource it likes to be "property".  We are, as citizens, property of the state, and in some countries we can still be traded, bought, and sold, and make money for our owners.

But these are useless truisms.  I can make tenuous comparisons between patents and slavery, and stir up all kinds of emotions.  I'm not going to do that.  Instead, I'm going to look at the very meaning of property, and explore the dynamics that drive the basic notions of "private property".

Property, of any kind, consists of a definition and a system of enforcement.  All the rest is subjective.  There is no intrinsic reason that land or potatoes should be different from ideas, time, or air.  Anyone who argues that it is "right" or "wrong" to define and enforce certain types of property must prove this using more than just rhetoric and dogma.

Let's look at a well-understood form of property: land rights.  Most countries are divided up into plots large and small.  The very concept of "country" is property, but a thousand years ago, only a small part of the world's surface, in and around human habitations, was considered property.  The rest was common lands, belonging to all and none.  The process of turning common lands into shared property, and then into private domains (the "tragedy of the commons") was driven by discussions very similar to the ones we hear today.  The process was driven by greed to some extent, but also by real needs of evolving economies driven by new technologies in agriculture and industry.

A farmer who owns his land is far more likely to look after it than a farmer working on a collective.  Similarly, it is clear that private home ownership is a healthier model in a modern money-based economy than state-ownership of homes.  Private ownership of some things works very well. 

However, this is not the whole story.  Private ownership is not a panacea, and for every example where private ownership is "right", I can find one where it is "wrong".  The roads and streets that connect those farms and houses are owned and managed collectively.  The rain, air, and sun is owned by no-one.  The wild animals and insects that form an important part of the ecology are collectively owned.

There are actually good economic reasons for choosing a private property model for some resources, and not for others.  There are five key rules to consider:

  1. Is the resource mobile, or fixed?  This criteria defines whether it is possible to accurately define the resource, or not.  A mobile resource - such as migrating birds or fish - does not fit the private property model.  Fixed resources, such as lobsters, do.
  2. Does the resource have clear boundaries, or not?  This criteria defines whether it is possible to accurately enforce the monopoly, or not.  Land can be well-defined.  Art cannot be well-defined.
  3. What generates more wealth - exclusive ownership or sharing?  This criteria defines whether it is useful to consider this resource as property at all.  Exclusive ownership of a house generates wealth, but exclusive ownership of roads does not (which is why we removed toll bridges on our roads).
  4. Is the property system economical?  In other words, is the definition and enforcement of the property cheap?  If so, it is accessible to all.  If not, it becomes a priviledge of the rich, and the system itself stops being economically neutral.
  5. Is the property system well-bounded?  In other words, is the definition of the property clear and unnegotiable?  If the definition can be manipulated and changed, then the system that manages it will grow in an unsafe manner.

All forms of property can be tested against these five rules.  The rules are, ultimately, self-enforcing because any society that ignores them will find itself paying the cost, and competition between societies punishes those that choose inefficient economic models.

A well-defined property system can be incredibly powerful.  I'd argue that what brought down the Soviet Union was not the political system, nor military spending, but simply the fact that private ownership of farms and houses was impossible.  There is a direct relationship between house prices (which mainly depend on availability of land) and economic growth, in many countries.  Home ownership creates a middle class, which is the main driver of modern economies.

Let's see what happens when we break the rules.  If we try to create monopolies on mobile resources, we over-exploit those resources.  If we try to enforce monopolies that don't have clear boundaries, we spend a lot on lawyers.  If we create monopolies on resources that should be shared, we lose competitive advantage.  If we create expensive property systems, we unleash special interests.  And if we create unbounded property systems, those special interests will grow out of control.

So I've defined five economic rules that we can apply to any form of property to measure whether it is a good, or bad, concept.  Let's now apply these to the main forms of property that are used in the IT sector, and see what we get.  The four main property forms are: copyright, trademark, patent, and trade secret (which though not defined as IPR, is a real and useful form of property):

  • Copyright: it applies to a fixed resource: a self-defining written expression.  It has clear boundaries (the document or work).  Exclusive ownership does produce wealth, but sharing seems to be a stronger driver, and models such as the GPL that encourage both appear to be the most efficient at producing value.  The copyright system is cheap and well-bounded, except when it comes to lifespans, and we've seen copyright terms extended to life+70, which is extraordinary in today's digital era.
  • Trademark: it applies to a fixed resource: a name, logo, or phrase.  It has clear boundaries (the mark).  Exclusive ownership produces the most value - sharing of marks just weakens them.  The trademark system is very well-bounded, though it could be cheaper.
  • Software patent: it applies to mobile resources: new ways of doing things, or methods.  It has unclear boundaries (methods are difficult to define absolutely, and they overlap in horribly complex ways).  It uses exclusive ownership for resource (new ideas) that produce much more value when shared.  It is poorly bounded (it depends on a set of negotiable definitions such as "technical effect"), and it is very expensive.
  • Trade secret: it is fixed (in your firm). It has clear boundaries (individuals may not pass secrets outside the defined group).  It depends on exclusive ownership.  It is a well-defined system that is easy to apply, and cheap (based on simple contract).

The conclusions are clear: copyright, trademark, and trade secret are good forms of property for the software business, though copyright terms are a problem.  Patents are a bad form of property for the software business, because they amplify the general weaknesses of the patent system:

  • Patents claim to own ideas, which are highly mobile resources, and in software, more mobile than most other industries.
  • Patents have unclear boundaries, and in software these boundaries are even less clear than in other industries.
  • Patents reduce the sharing of new ideas, and software depends on a higher volume of sharing of ideas than other industries.
  • Patents are an expensive property system, and most software innovation is driven by unfunded grass-roots work.
  • Patents are not a well-bounded property system, and in software a boundary between "good" and "bad" patents cannot be drawn.

It is significant, in my opinion, that patent industry has focussed almost exclusively on weakening the definition of software patents, and on strengthening their enforcement.  There has been little or no discussion about the basic justification for creating this form of property, apart from the uselessly broad claim that "ownership of [certain classes of] ideas promotes investment in innovation [in certain sectors]".  This claim, which has always underpinned the patent system has been used to justify a gold rush, a land-grab of ideas in sectors where innovation actually depends on sharing, not exclusion.

Many industries find that poor quality patents are a problem.  But no other industry that has relied extensively on copyright has been subjected to patenting.  The use of patents in software looks a lot more like the errection of a massive new system of private tolls and taxes, than the enablement of a new propertied class.

Software patents were enabled in the USA in 1982 by a Supreme Court decision.  After almost twenty-five years, we would expect to see this new form of property either proven, or disproven.  The bulk of the software sector should, by now, be using patents as their primary tool for justifying new investments.  There should be software patent success stories, to match the many success stories that were and are driven by other forms of intellectual property.

These success stories are just not there.  Instead, we see a sorry parade of lawsuits.  IBM - who has the largest software portfolio, and who has claimed that it is against business method patents - has just sued Amazon for infringing on several business process patents.

In this article I've examined software patents from the fundamentalist view point of how well a property system functions.  This is not art, but science.  We can document and measure, and we prove or disprove property systems.

No sane person can claim that all private property is good, or that all private property is bad.  Would it make sense to sell off all our streets to private owners?  Would it make sense to allow individuals to collect tolls on bridges, borders, crossings, and rivers?  All these property systems have been tried.  There is no firmer believer in private property and punitive enforcement than a warlord.

No honest person can claim that it's a choice between "privatising everything" and "an anti-property communist state".  The choices are between models that work, and models that do not.  History is filled with examples and experiences, and we must recognise and learn from those models, or we will make stupid and avoidable mistakes.  There is, behind the iMatix building in Brussels, a street that was privatised some decades ago.  I've no idea what the intention was, but today we can see the results via Google Maps.  The privatised street has become a wasted area, a car park, filled with weeds.

This is what's wrong with software patents.

Sunday, October 22, 2006

The EPLA Shuffle

In early 2006, the Commission began talking about a "final attempt" to fix the European patent system.

We heard the standard concerns about Europe's innovation gap. "How can we catch up with the Americans?" "How can we prevent the Chinese invasion?" "We need a better system of intellectual property rights." "We need stronger protection for rights holders." These noises came out of the Commission, in meetings, and speeches; we heard echoes from large software companies and the industry clubs they sponsor. SAP, in particular, began calling very loudly for a cheaper, stronger patent system.

And the focus of all these noises has been "EPLA" (the European Patent Litigation Agreement), a new system designed to make it easier to enforce patents. EPLA is not, superficially, about software patents at all. But dig deeper, and it's exactly that: a third major attempt to introduce software patents, by removing all remaining regulation of the patent industry.

Very briefly, EPLA is a treaty between the existing countries who signed the European Patent Convention, possibly with the EU also joining. It is not an EU institution. EPLA would create a new single patent court. This would define and interpret patent law. EPLA judges would be appointed by the same group that runs the EPO. EPLA judges would implement the EPO vision of the patent system and EPLA would kill off all control from national courts. No oversight from parliaments, no right of appear to higher courts.

The Commission (which is acting for the patent industry) has learned from the beating it took last year, when it tried and failed to get software patents legitimised in the European Parliament. The EPLA campaign is more subtle. It is based on two things. First, a well-designed propaganda piece, and second a wide astroturfing campaign to promote that propaganda.

In this article I'm going to dissect that propaganda piece, then examine the pro-EPLA astroturfing campaign. Lastly, I'll explain what the FFII is doing to fight back.
The Commission's propaganda is a clever mix of truth and lies, formulated by experts, and you will find it repeated in part, or in whole, in almost every discussion of the patent system by the Commission, by patent lawyers, or by the EPO. It is this:
1. Europe needs innovation.
2. To promote innovation, inventors and creators need protection for their investment.
3. Protection means a patent system that delivers cheap, high-quality patents that can be cheaply and reliably defended in court.
4. The current patent system is incoherent and does not do any of the above, since it pits the European Patent Office against national courts, who have different interpretations of patent law.
5. The long-term solution is a community patent, i.e. a patent defined by the European Union.
6. A good interim solution is the ratification of the London Agreement, and the setting up of a European Patent Court under the terms of the draft European Patent Litigation Agreement.

It sounds convincing, doesn't it? Sadly, or luckily, we at the FFII are a total and utter cynics when it comes to anything the Commission says, and when you give us neat explanations that end with "and they all lived happily ever after", we are reminded of the Las Vegas proverb: "Every game has a patsy, and if you don't know who it is, chances are it's you."

And in this game, the patsy is the European IT sector, and everyone who depends on it. That's all of us. So let me break down the lie and show you where you were fooled:
1. Europe needs innovation.

This is like saying, "a human body needs air". It's always good to start a lie with a solid truth; it puts your audience at rest. Yes, indeed, Europe needs innovation. Excellent!
2. To promote innovation, inventors and creators need protection for their investment.

Here it starts. Is all innovation driven purely by direct monetary interest? That seems inaccurate. Much innovation is done simply as part of academic competition. Industry innovation is always part of a process that delivers results down the line - in better products, in happier customers, in stronger skills. Often the cost of innovation is trivial compared to the down-the-line costs. Why would protecting that trivial investment have any benefit at all?

Second, watch the language. "Invent" and "create" are key terms that slip in slyly but are used to lever worlds. The first refers to doing anything that is patentable. The second to doing things that are copyrightable. So if you think you're inventing when you write music, wrong! You're creating. Similarly, calling software a "computer implemented invention" is like saying, "software-as-a-patentable-thing". Billions of Euro have been won and lost over such delicate matters as the meaning of a single word.

Third, watch as the author of the lie makes the incredible claim of being able to promote innovation. This is self-flattery from governments, deceit from the patent industry. In twenty-five years of making software, I've seen many, many attempts by big governments to "promote innovation", and they all end in big bills for the tax payer, and little else. Europe has had half-a-dozen "framework programmes" that distributed billions to universities and researchers. The result is a generation of people who are very skilled at requesting framework programme money. Japan had its "fifth-generation computer" project, which probably delayed Japanese IT by five to ten years. The US has had the Bayh-Dole act, which has turned universities into patent-troll incubators and burned-up America's lead in pharma and biotech in a bonfire of litigation.

The list is endless, but basically comes down to this: large governments for the most part don't understand or care that innovation is a natural phenomenon that happens when you let clever people loose in a truly competitve market. Government does not need to promote innovation. Government just needs to define clear and obvious rules of conduct, set itself up as a fair police and judge, and then get out of the way.
The propaganda continues with a sleight-of-hand that fools all but the experts. But it's a cheap trick, once you see how they do it:
3. Protection means a patent system that delivers cheap, high-quality patents that can be cheaply and reliably defended in court.

What happened to copyrights, trademarks, trade secrets? There are many, many more (perhaps millions times more) works of software that are copyrighted than are protected by patents. But because copyright is automatic, unregistered, free, and almost never disputed, it's not worth anything to patent lawyers and politicians looking for an easy metric for "innovation".

So we've gone from a truth to a half-truth. We can accept as a working theory that a better patent system with high-quality patents can, in theory, promote innovation. There are, however, no studies that actually prove this. And certainly no basis for trying to expand the patent system at the cost of existing, working property rights.
Let's look at the follow-up: "...patents that can be cheaply and reliably defended in court."

What happened to "patents that can be cheaply invalidated?" A majority of patent claims are bogus, but the patent offices put the onus of invalidation on society. We have to go to court to invalidate bad patents because the patent offices are so bad at weeding these out and it is difficult and expensive to attack patents at any stage of their life-cycle.

So we've lost copyright and trademarks in the discussion, even though these are far more used and far more useful than patents (we can prove easily that copyrights and trademarks have promoted innovation in many sectors).

Worse, we've lost the right to ignore bad patents and do business as normal. To solve the problem of bad patents, we make them easier to enforce. That's like saying, to solve the problem of car jackings, we allow criminals to carry guns. Suddenly in the name of innovation, we take away the rights of the mass of business people, and give special new powers to a minority. It is probably not a surprise that this minority are mostly patent experts.
4. The current patent system is incoherent and does not do any of the above [since it pits the European Patent Office against national courts, who have different interpretations of patent law].

Yes, the current patent system is incoherent, but not because it fails on the above criteria, which are bogus. The current patent system is incoherent because the EPO has decided to become activist and grant patents that should not be allowed. There is a clear problem - the EPO - but criticism of the EPO totally missing from the Commission's propaganda. Which is only normal, since the EPO and its friends wrote most of it.
5. The long-term solution is a community patent, i.e. a patent defined by the European Union.

This is probably accurate. A does of truth helps to calm the reader, helps calm the growing doubts. But the triple knock-out blow is coming.
6. A good interim solution is the ratification of the London Agreement, and the setting up of a European Patent Court under the terms of the draft European Patent Litigation Agreement.

This is a favourite trick of the pro-EPLA crew: make obscure, complex, and obfusticated references that you know people will be unable to argue with. If your public seems to be wavering, throw in some references to a random draft treaty. Let me take this sentence apart.

First, EPLA is not "interim", it's very long term. There is no mechanism or road map for changing or dissolving it. Once EPLA is in place, it would take agreement from all members of the European Patent Convention (including non-EU countries like Switserland) to change anything.

Second, the London Agreement is about languages, and it's designed to save money for the large firms that patent across all Europe. But despite the Commission's dreams, Europe still consists of many countries and most business is local. Translation of all documents into English, French, or German would make patent litigation disastrously expensive for firms in other countries.

Last, how about that European Patent Court? Sounds fine, yes? Ah, until you read the fine print of EPLA. Guess who would appoint the judges? The EPO. For two years. Goodbye judicial independence. Would the EPC be supervised by a higher court? Forget it. The EPC would answer to no-one. Well, perhaps the European Parliament could intervene if there were problems? No - the EPC is not an EU institution.

Meanwhile, the simple and obvious reform - tell the EPO to stop issuing illegal software and business software patents - is ignored. And it'll continue to be ignored until the US Congress bans software patents, which I predict it will do within five to ten years. The question is whether the Commission will have succeeded forcing EPLA on us by then, or not.

So that's the propaganda piece.

Next, let me explain how the Commission is pushing its pro-EPLA message. It's using an astroturfing technique that has been fine-tuned by lobbyists. Imagine you're a big firm and have invented a new, useless, and probably poisonous product no-one wants, say a medicine that makes people turn bright blue. You start by creating a fake disease. Call it "Affected Skin Decoloration Syndrome". You pay some researchers to conduct studies showing that some aspect of modern living - say, neon lights, or flush toilets - cause excessively pale skin, and that a healthy dose of Turns'U'Blu is an excellent cure. You create a "platform", a lobby group that masquerades as a citizen's group, to clamour for free Turns'U'Blu for all school children and office workers. You find studies that prove that blue skin is resistant to cancer. Eventually, bending to the massive weight of popular opinion, the regulators permit your product and you make great sales.

This is what the Commission is doing for EPLA.
We got:
  • Comments from Commissioner McGreevy in several meetings about the need to fix the patent system.

  • A consultation on "furture patent policy" where a majority of responses asked for EPLA (how the Commission managed to ignore the huge response from the IT sector and stuff the results with hand-picked submissions is a story in itself).

  • Commission Studies on innovation that quoted the propaganda piece almost wholesale.

  • An Commission-run ICT task force that wrote reports asking for EPLA (how the patent trolls took over the task force workgroups is also a story worth writing).

  • A pro-EPLA motion in parliament that repeated the propaganda piece. This motion was launched by MEPs who just happen to make money from patents, and was demolished by the FFII and the saner parts of the European Parliament.

And we expect in December to get a formal announcement from McGreevy about the Commission's plans for EPLA.

Lastly, let me explain what the FFII is doing about this.

Obviously, we have fought, and continue to fight, the pro-EPLA propaganda, with analysis, comment, and action. We work with the European Parliament to ensure they understand what is at stake. Very few MEPs really understand EPLA, so occasions such as the EPLA motion are very useful. We build websites of information. We write briefs, we speak to journalists.

But simply reacting is not enough.

We want a working system of intellectual property rights that uses the right model for each form of work. For industrial products, patents. For software, music, writing, copyright. For names, logos, trademark. For knowledge, trade secrets. These rights must be balanced so that all parties - not just patent holders - are fairly treated.

The current patent "reform" trends are not healthy. They are unbalancing the system of IP rights, and creating severe tensions in several industries, including software, pharmaceutics, and telecoms. The voices of the patent industry and their friends in the Commission are not representative, not neutral.

So the FFII will be launching a new movement in November. This will be a movement to construct a new and better patent system. We will organise support from all sectors, and from all industries that are affected by patents. We will look at the problem of software patents but we will also look at junk patents of all kinds. Most importantly we will be focusing a bright light on the patent industry itself, who regulates it, and who profits from it.

EPLA is a flawed and corrupt initiative that solves the problem of under-regulation by removing all remaining regulation. The idea of a single top patent court, run by an unregulated for-profit patent industry, scares even the most pro-patent industry specialists. The only winners will be the patent lawyers, which is why people are calling this "Europe Pays the Lawyers Again". Let's hope that's not the case.