How to enrich lawyers
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It seems that today Google patented the Doodles, the special logos that appear on its homepage in occasion of events such as anniversaries of inventions or of births. At the same time, Microsoft sued Barnes&Noble on the Android-based ebook reader for patent infringement. What is going on?
Patents are an element of debate in the modern world, especially in the field of software where there is no physical product that can implement a patent's content. After a recent workshop on innovation by Politecnico di Milano and Torino, I have decided to research more on the topic.
The reason behind patent's persistence in today's law codes is to function as a stimulus for innovation. New inventions produced positive externalities from what is called a technology spillover: a revolutionary product like the personal computer or the mobile phone produces benefits not only for its buyers (who acquire value in the form of the product) and sellers (who receive money in the transaction), but for any part of the society, since these tools can be used to lower costs of goods and services for everyone. Another common example of goods that provide positive externalities are education and basic research.
Yet since the benefits of these goods are not only rip from buyers and sellers, the private market fails in providing them in optimal quantity. Economically speaking, the supply curve remains low, while the actual value provided by innovations, education and research would be far higher (note that this concept are commonly the subject of some chapters of microeconomy books, so forgive me for cutting it to the bone.)
Government's intervention is necessary to fix this market failure. While basic research and education (depending on the country) are directly funded, governments commonly prefer to provide legal means of appropriation for the benefits of invention, such as copyright and patents (although the historical origin of them is more obscure).
As Paul Graham wrote in How to make wealth, appropriating the product of an invention is mandatory for stimulating innovation:
[In the Renaissance] the Europeans rode on the crest of a powerful new idea: allowing those who made a lot of money to keep it. [...] The same recipe that makes individuals rich makes countries powerful. Let the nerds keep their lunch money, and you rule the world.
However, patents are becoming more and more a braking mechanism for innovation. He said let the nerds keep the money, not the bullies wearing a suit hired by the other rich nerds.
When we start discussing about patents and their effect, PageRank came to my mind.
PageRank is a patented algorithm, assigned to Stanford University and in exclusive use by Google. It is indeed one of the most powerful weapons in the rise of Google as the first search engine on the web.
But if you look at just one random of citations of that patent, you'll find for example the patent Hypertext document retrieving apparatus for retrieving hypertext documents, which is a crawler. It's unclear to me if a crawler must be licensed, but imagine if the concept of crawling was covered by a patent and you couldn't implement it without paying royalties. This would pretty much stops many of the "startup in a garage" companies.
In fact, patent are known to dampen cumulative inventions: patents are in the hand of different people and it is often the case that dozens of different licenses are necessary in order to build a single device like a motherboards or a phone. Since each innovation builds on the previous ones in the field, patents effectively prevent slow this process: again, it's impossible to build a search engine without a crawler, and if you want to enter the market of search engines you're in the hands of the crawler's patent owner.
While now it's common for large companies (Oracle, Microsoft, Nokia, Google) to mutually sue each other all the time in order to pursue FUD strategies, the picture is far worse when patent trolls.
Consider Research In Motion's case (producer of the BlackBerry). In 2000, it was sued by NTP, a patent troll, who claimed to have invented wireless email first. RIM lost 6 years and 600 million dollars to settle the case.
Patent trolls do not want to exploit economically a patent, and it is the same for them if an innovation reaches the market or it is killed by their behavior. Money and time is wasted on patent negotiations and in courts, while defensive patenting arises and startups hire lawyers instead of programmers.
Especially if a company has already started investing in a technology, patent trolling assumes the form of an extortion. In the mobile field, which is a very promising cash cow, we have seen already a dozen of cases in the last year, regarding Android and video codecs.
Non-legal methods of appropriation
What if patents didn't exist? Fortunately for the innovators, there are many non-legal (non-legal, not illegal) methods to protect their ideas, but which don't waste resources on litigation and don't enrich lawyers.
Lead time is a great example of an appropriation mean, although it is more appropriate for hardware devices than software, which is in comparison easier to replicate. If you're the first to the market, you have a cumulaitve advantage in time to stay in the first position. The iPad example was made on the seminar I participated to: Apple did not patent the iPad, nor the tablet concept renamed in some esoteric way.
Nonetheless (and even if the iPad is a piece of junk for an engineer) it is the market leader for tablets, and competitors struggle to provide a better device. Apple also used its lead time well to distance the competition: the announcement of the iPad 2 made Samsung rethink its plans for the Galaxy Tab 10.1.
Process secrets are naturally protected, with respect to product one: while you can reverse engineer GMail client-side interface, how Google manages to crawl billions of pages and update daily, or how a team of Google testers work together are probably as important as the codified knowledge of PageRank. Process and tacit knowledge are hard to copy, unless you are able to hire many, many former employees from Google...
For what concerns pure software, source code is already legally protected by copyright. But of course cloning an operating system by reimplementing its Api is not forbidden, and it's one of the most diffused open source practices.
The legislation on patents is not clear in every country:
- in the United States, famous cases like In Re Lowry and State Street Bank v. Signature Financial Group provided patents for data structures and numerical calculations. The U.S. congress has never legislated specifically on software patents; hundreds of patents are continuosly granted.
- In the European Union, programs for computers are excluded from patentability (article 52 of the patent convention) but there are loopholes in the legalese languages used in the text which leaves open the question.
How about investing on research instead of on a legal division?
In conclusion, patents are only one of the tools for stimulating innovation, which is widely backfiring today due to dumb patents being filed every day for defensive and trolling behavior. Even companies who claim of not being evil are volunteer to (or are forced) to enter patent filing and litigation.