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 (there may be more, these are the most obvious ones to me):
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, and badly-defined property systems can be very damaging. 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):
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:
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 properties 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 can 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 our 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.
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