Software Startup? Offshore it

CFO.com adds to our growing list of reasons that software patents are killing innovation and business opportunities in the U.S.:

the United States is nearly alone among global innovators in granting patents to new types of software. Just last year, the European Union rejected a bill that would have allowed software patents; in Asia, Japan is the only major tech power with a software patenting system.

"As it is right now, with software patents being awarded all over the place, it's becoming increasingly unattractive for innovators to set up their businesses here," DeMarco says. "As the number of lawsuits rise, other countries will benefit from our mistake."

Jobs Outsourced Because of US Patent Law

Patently-O makes an important point about US Patent Law and outsourcing:

From a business perspective, this interpretation of the statute gives business executives another reason to send software jobs overseas. If the component was not exported from the U.S., there will be no damages under 271(f).

The Supreme Courty might be able to 'fix' this, but that outcome is unlikely as it would turn over quite a bit of precedent.

Are you excited at the prospect of U.S. software and biotech companies moving all their important research and development offshore? Would you like them to get rid of some of the highest-paying domestic jobs in order to shield themselves from our insane intellectual monopoly protectionism? If so, you should be a big fan of 35 U.S.C. 271.

CBS On Trolls

CBS Evening News looks at the patent troll issue:

Professor Wu says, "patent trolls aren't evil or bad in themselves. They are just taking advantage of a system that is broken."

Indeed. From a game-theoretic perspective, patent trolls are not unethical but rather "rational," optimizing their strategy based on the legal rules of the game and on other players actions. Under such a perspective, it is not the players' fault, but rather a failing in the rules which allows parties to act in ways that are detrimental to the game, but advantageous to them individually.

No matter how you look at it, Wu is right about the system: it is broken.

Ridiculous Patent: Online Rich Media

The USPTO has awarded Patent #7,000,180, which covers "all rich-media technology implementations including Flash, Flex, Java, AJAX and XAML and all device footprints which access rich-media Internet applications including desktops, mobile devices, set-top boxes and video game consoles." Slashdot points out that the patent was applied for 5 years after the release of the original Flash application.

Japanese Domestic Auto Industry Protectionism

Earlier, I compared the Digital Millenium Copyright Act (DMCA) to criminalizing locksmithing as a protection racket for the automobile industry:

Even more draconian are the clauses of the DMCA which make it a crime to create or distribute tools that can circumvent DRM. If you do this, you will go to jail. It is akin to the government criminalizing the production of locksmith tools, and arresting all locksmiths. Under such a scheme, what would you do if you couldn't access your car because your key has been damaged or lost? According to the MPAA or RIAA, you'd simply buy a new car (or, at the least, a new door, doorframe, etc.) Why would such crazy laws ever be passed? And who would push for them? Well, if the entertainment industry controlled the automobile production/repair industries, they might claim that without such government protection, they wouldn't be able to produce as many cars and that a massive loss of production and mechanic jobs would occur. That is the exact argument they have used to this point in authoring, lobbying for, and defending the DMCA

Sounds ludicrous, right?

Wrong.

Japan has a protectionist system very similar to this. Cars older than 3 years are required to go through a very expensive inspection process each year. The cost of this process is such that it is actually cheaper to discard the old car (usually by shipping it to the Philipines) and buy a new one. The Japanese domestic electronics industry is now seeking similar protectionism. This type of protectionism is not very different from that afforded by acts such as the DMCA, or by overly permissive patent regimes.

USPTO Can't Hire Its Way Out

In case you've been following our objections to Patent Office funding coming solely from patent holders (also covered at TechDirt and Just-N-Examiner), Peter Zura's report from a USPTO Town Hall meeting might be interesting. One of the slides from PTO said, "Production -- We Cannot Hire Our Way Out!!!"

Precisely. Allocating more money to expand the number of people working within a broken process does not fix the brokeness. And when the source of that extra money is patent stakeholders... well, would it be any surprise if those stakes end up getting driven further and further into the ground? If you'd like to voice your own views on this topic, Promote The Progress is encouraging you to write your Representative.

Copyright Terms are Too Long

Mary-Beth Peters, the Register of Copyrights, admits on tape that,

We've certainly lengthened the term [of copyright] perhaps -- I won't even say perhaps -- too long a term. I think it is too long. I think that was probably a big mistake, but one that Congress can make.

Indeed. Even the Copyright Office can't explain how extending copyright terms past the death of the author and retroactively lengthening copyright terms for works that were already created in the past helped "promote the useful arts and sciences."

Ridiculous Patent: Serving Cereal

Cereality, a specialized restaurant, holds a patent on “methods and system” of selling cereal, including “displaying and mixing competitively branded food products” and adding “a third portion of liquid.” It turns out that at about the same time that Cereality was opening its first store in Arizona, the same idea struck another innovator in Florida, who opened up 'Bowls.' But since Cereality holds the patent, Bowls might be forced to shut down, or at least stop 'infringing' on Cereality's patent claims, by, for example, selling pizza instead of cereal.

if the public doesn’t start agitating for reform, Americans are going to find themselves increasingly at the whim of the large corporations who own the ideas that form the foundation of the American economy.

Previously:

• Striking Down Business Method Patents
• Twin Problems

Patent Quality Datapoints

What percentage of patents are granted by the USPTO? Looking at their tables for any given year, the percentage appears to be consistently around 50%, but this is misleading. Most patents don't issue in the same year they are applied for, and the USPTO is laboring under an ever-increasing backlog of applications, meaning that the data has to be analyzed across year boundaries.

Several researchers have tackled the problem, with estimates as high as 97% and as low as 62%, with most now agreeing that about 75% of patent applications are eventually granted.

Does the fact that 3 out of 4 patent applications eventually result in a patent grant surprise you? And what does this acceptance rate say about the USPTO's devotion to not granting bad patents? (Hint: unless you believe that 75% of patent applications are for useful, non-obvious ideas that don't have any invalidating prior art, you might be inclined to conclude that the USPTO is not as devoted to patent quality as they should be).

Another data point you may have heard about: the USPTO just granted its 7-millioneth patent. That's 7 million 20-year idea monopolies, every one of them beneficial to innovation, right? As an aside, it took almost 5 years, from the date of application, for this patent to issue.

One last data point: patent grant rates may have increased by 80% over the past 10 years.

All these numbers seem to indicate one thing: the USPTO needs more incentives to grant fewer, higher-quality patents. And one of the best ways to accomplish that may be to stop letting patent holders fund the patent office.

Property Rights and DRM

Wikipedia defines Libertarianism as:

a political philosophy advocating the right of individuals to be free to do whatever they wish with their persons or property as long as they allow others the same liberty, by not initiating physical force, the threat of it, or fraud against others.

Would it surprise you, then, to know that some Libertarians are strong supporters of IP-maximalism, even to the point of arguing that there is no real difference between physical property and so-called 'intellectual' property? (why this position is absurd: here). We've found one in James DeLong, over at IPCentral, who has been arguing in favor of state-sponsored physical penalties for violating DRM (oftentimes called C.R.A.P.) using extremely weak strawmen. Tim Lee and Jim Harper over at the Technology Liberation Front have done a good job of debunking his arguments.

DeLong's confusion about the differences between physical property and authored creations leads him to some contradictory conclusions:

I certainly agree that it is nice for consumers to be able to space shift by playing DVDs on multiple devices. However, this is a product feature, not a moral imperative that justifies destroying society's ability to nurture creativity.

What's wrong with this? For starters, being able to copy data from one medium to another is not a product feature, it is a fundamental attribute of some property that I own: a computer. What is a computer, but a machine for copying bits from one location to another? Anyone familiar with even introductory computational theory will tell you that if you take away that capability, you no longer have a computer. Or, as Schneier eloquently puts it, "digital files cannot be made uncopyable, any more than water can be made not wet."

So here, then, is the contradiction: If I have built or purchased a machine that copies data, any government mandated restriction on my ability to use said machine results in a violation of my property rights. DRM doesn't actually prevent you, in most cases, from making copies -- it simply prevents those copies from being playable by colluding with the software that can decode and play the data. DRM, in itself, attempts to restrict the effectiveness of copying through technical means. By itself this is not terribly problematic; we can view DRM as a type of one-sided contract between the publisher and purchaser of DRM-crippled works (a contract, I might add, that the purchaser never explicitly agrees to). What is problematic is that the U.S. Federal Government wants to be involved in this private contract, by threatening the purchaser with huge fines and jail time if he attempts to use his computer to copy the media, even if such copying is entirely within the scope of fair use under copyright law, and even though it is entirely within my rights as an owner of a bit-copying computer.

Even more draconian are the clauses of the DMCA which make it a crime to create or distribute tools that can circumvent DRM. If you do this, you will go to jail. It is akin to the government criminalizing the production of locksmith tools, and arresting all locksmiths. Under such a scheme, what would you do if you couldn't access your car because your key has been damaged or lost? According to the MPAA or RIAA, you'd simply buy a new car (or, at the least, a new door, doorframe, etc.) Why would such crazy laws ever be passed? And who would push for them? Well, if the entertainment industry controlled the automobile production/repair industries, they might claim that without such government protection, they wouldn't be able to produce as many cars and that a massive loss of production and mechanic jobs would occur. That is the exact argument they have used to this point in authoring, lobbying for, and defending the DMCA.

Exporting "Trolling" to Japan

For many years, the U.S. has fretted about its trade-deficit with Japan and other Asian nations. Today, it appears that we have at least one export that the Japanese are beginning to warm up to: patent trolling.

We've talked before about the recent embrace of trolling strategies by corporate America, and we've also mentioned that traditional [small] trolls have often targeted Japanese companies for litigation because of their general fear of the U.S. court system regarding patents. Doesn't it only make sense, then, that the victims of less-than-fair patent laws would eventually awake to the scheme, and learn to use it to their own advantage?

It seems clear where this is all headed if allowed to continue: a world where the most powerful and rich corporations are not the ones that actually make innovative products, but are instead the ones that are most adept at manipulating the system to carve out huge chunks of the 'ideascape' to claim as their own, and which then sit idly by until some other party does try to make a product whose functionality might broadly cross the unclear boundaries of their patents. What will such corporations look like? They'll look exactly like today's patent trolls, only larger, and their main body of employees will be lawyers.

Giant Trolls: Who Owns Your Home Videos?

Most coverage of the 'patent troll' issue over the past few years has followed an identifiable pattern: little company with no products, and no intention to make any products, uses some overly-broad, ill-begotten patent as a bludgeon against a company that is trying to get an innovative product to consumers. So it was with NTP, Forgent, Acacia, Scientigo, Fraunhofer, and countless others.

Today, AT&T is threatening dozens of companies over the MPEG-4 'standard', claiming ownership of one of today's most widely used digital video formats. MPEG-4 is used in Windows Media, Apple Quicktime, DivX, and most other third-party software video players. It is also implemented in countless DVD players and several PVRs.

Much like GIF, JPEG and MP3 today, the patent trolls have shown corporate America how to rake in money. The formula is simple:

1. proselytize a standard format, and encourage its widespread use,
2. wait until it becomes entrenched in consumer software and products, and only then,
3. send out letters demanding that all implementors pay royalties.

The scary thing is, corporate America is learning. When Microsoft and AT&T start playing the shakedown game with their massive portfolios, it is time to fret and worry. The time for reform which frees ideas from such restrictive private ownership is now.

See also:

• Who Owns Your Images
• Microsoft's FAT Troll

Intellectual "Property?"

Suppose you and I are stranded on an island, and each of us posesses a hatchet and a spot of forest from which to extract resources. Which one of us will use the hatchet to build shelter first? Does the speediest shelter-builder have the ability to exclude the slower from devising a method to build a shelter? Pretend for a moment that there is some advantage to excluding the other from building shelter (perhaps there is also a member of the opposite sex on the island which we both wish to compete for, for example, and having a monopoly on shelter is an attractive advantage). The only way the first builder can actually exclude the other is through use of excessive force -- using the hatchet to cut off the competitor's arms, physically restraining the other, physically removing all building material from the opponent's possession, murder, etc.

And here is where the argument for ideas as 'property' becomes absolutely absurd. If the first builder prevents the second from building, it can only be through depriving him of his physical property: his arms, his hatchet, his trees, his physical freedom, his life. So in order for intellectual property to be maintained, it must be more important than tangible, physical property -- it must be more real than the physical world itself.

Even after depriving the second builder of his ability to construct a shelter, the first builder cannot deprive him of the knowledge to build one, regardless of whether he discovered that knowledge on his own or witnessed it from the actions of the first. The idea exists in the head of the second builder, and no physical theft can deprive him of that thought short of brutal head-trauma. To claim that ideas can be owned by individuals in the same way that physical property can be owned is to claim that individuals can erase memories and knowledge from others.

Patents give ownership of ideas, as exercised in some form, to individuals and corporations. They exclude, by force, others from practicing the claims of the patent. This is the fundamental problem. Intellectual 'property' is in direct conflict with real, physical property. Labelling ideas as property necessarily diminishes property rights over real objects in the real world.

The same is true of the debate over copyright. If you own a pencil and paper, you own physical property. Copyright laws that restrict how you can use that pencil and paper necessarily conflict with the property rights naturally associated with that pencil and paper.

Calling ideas 'property' makes little sense. If you want to argue for giving ideas monopoly protection as an incentive for the act of thinking, fine. But let's call it like it is. Ideas are not private property, and the assertion that they can be maintained as such is ridiculous.

Patent law is a social contract. As long as patent law benefits society, it is reasonable to consider the use of patents as a practicality. But when patent law no longer benefits the society which has traded in their natural rights of creation and sacrificed their right to physical property in exchange, it is just as reasonable to consider fixing the law to bring about better balance.

Calling it "intellectual property" muddies the debate. A better term might be intellectual monopoly, or idea restriction, or C.R.A.P.

BlackBerry Workaround Available

RIM has announced that the software workaround for avoiding NTP patent infringement (and thus an injunction) will be available shortly.

It is increasingly clear that NTP has wasted a large pile of money (both their own, RIM's, and taxpayer's) on this litigation shakedown attempt. And it is increasingly likely that they will not get a single dime in settlement from RIM, given that the USPTO has indicated it will eventually invalidate all five NTP patents at the core of the case, and that any injunction issued by the Judge in the case will have little effect on the operation of the BlackBerry network.

Previous coverage:

• BlackBerry Apocalypse: Soon?
• The Wright Brothers & the BlackBerry
• BlackBerry Tiptoes
• BlackBerry with a Gun Against its Head
• Supreme Court to Reform Patent Law?

The Unclear Borders of Software Patents

If you accept the concept of ideas as property (a fatally flawed, but commonly held concept), then you also accept the idea that property rights are meaningless without clearly indicated borders. If you own a plot of land, for instance, I can know how not to trespass on it by seeing your fence, posted signs, or consulting a map.

In the world of software patents, there are no clear borders. This is especially true when writing a single software application of any utility whatsoever; because of the borderless nature of software patents, such an application may unwittingly trespass dozens of software patents, and the authors of the application have no efficient way of determining that they are trespassing until they are served with a cease-and-desist letter or notified of litigation proceeding against them for infringement.

Slate has this to say on the subject:

The "measurement costs" of software's boundaries—defining where one algorithm begins and another ends—are inescapably high.

This point about measurement costs is borne out in practice. As anyone in the industry will tell you, and as Ronald Mann has documented, most programmers or firms cannot figure out whether they're infringing software patents or not and simply always assume they are. The point is simple: Property without discernable borders brings all the costs and none of the benefits.

The article also delves into judicial activism, revealing the little-known fact that software and business method patents came about not because Congress authorized them, but because the Court of Appeals of the Federal Circuit decided to allow them in the 1980s and 90s.

In this debate it must be remembered that the regime of easy patenting of software is not natural law but an experiment—a judicial flight of fancy in an area of difficult economic policy. To remain healthy, the U.S. legal system should experiment, but it also needs to recognize when its experiments have failed. Both Congress and the Supreme Court have a chance to do something about the problem this year. The rise of the patent trolls is, in this sense, telling us something—that it may be time to end a system that is doing no one any favors.

Patent Fee Diversion

The U.S. Federal government has, for years, put its hands into the Patent Office's coffers, diverting funds to other endeavors. This is because the USPTO is one of the few government agencies that turn a profit.

Critics have pointed to this appropriation of patent money for projects unrelated to patents as one of the problems with the current system. Because the money is getting sucked away, they say, the patent office can't hire enough examiners and can't keep up with the workload. To remedy this, recent reforms have proposed putting a stop to the diversion of profit away from the Patent Office, and Bush's new budget calls for the office to keep all the fees that it earns.

But to me, this seems like it has the potential to make things even worse, and not only for the citizenry of this country. It also spells disaster for the Patent Office. As I mentioned yesterday, misaligned incentives are central to the problems at the USPTO. The goal of infusing the USPTO with more money, according to sources, is to help the Patent Office "become more efficient at approving patents." More efficient at approving patents? How about more efficient at denying bad patent applications? How about more efficient at re-examining ill-granted patents? How about more thorough at searching for prior art?

The problem with letting the USPTO profit from granting patents is that it provides an incentive to, well, grant more patents -- regardless of patent quality. Now, I know that the people who work at and run the USPTO are not evil, and that the vast majority are probably as concerned with improving patent quality as anyone. But a system that provides incentives for certain behaviors is bound to produce those behaviors. If you wanted the Patent Office to keep granting patents willy-nilly, largely ignoring the issue of patent quality, the best incentive you could give them is increased profits from patent grants.

Here's an alternative proposal: The USPTO keeps none of the funds it collects from granting patents, but does get to keep not only 100% of the fees it collects when it rejects a patent or performs a re-examination, but earns an extra bonus from the federal government when it does so (perhaps 100 times or 1000 times the fee amount).

It sounds radical, I know, and perhaps it goes too far. But it illustrates an important principle: if the USPTO is beholden to the government for its funding, it must answer to the government for its performance, which means that it must answer ultimately to us, its citizens. If, on the other hand, the USPTO relies only on funding from patent applicants, it is beholden to no one but patent holders, and becomes the poster-child example of regulatory capture.

Which one of those scenarios does today's USPTO more closely approximate? I'll give you a hint: it rhymes with "circulatory rapture."

How to Litigate Like a Patent Troll

Apparently, your success in extorting royalties over your shaky patents depends largely on the jurisdiction in which you file lawsuits:

In one federal court in East Texas, plaintiffs have such an easy time winning patent-infringement lawsuits against big-tech companies that defendants often choose to settle rather than fight.

Here's an interesting fact from the article: the average cost of defending oneself against a patent lawsuit, according to the American Intellectual Property Law Association, is 2.8 million dollars. No wonder companies, both large and small, often roll over when threatened by a troll, even if that troll's patents are obviously invalid.

Previously:

• How To Become a Patent Troll

Re-exam of Forgent's JPEG Patent Granted

Forgent's JPEG patent may be on the ropes. The USPTO has granted a re-examination requested by PubPat. I'll direct you to Peter Zura for more commentary on the good news.

Previously:

• Who Owns Your Images?
• How to Become a Patent Troll

Yet Another NTP Patent Defeat

This is all over the news today: NTP's fifth patent received a non-final rejection from the USPTO. This brings the total to 5 (out of 5) patents at the center of the BlackBerry case which have received this designation from the USPTO. Unfortunately, even though the Patent Office will likely invalidate all five patents, the court has indicated that it will issue an injunction against the device or force RIM into a settlement before the PTO has a chance to finish their repentance for issuing these ill-conceived patents in the first place.

Previously:

• BlackBerry Apocalypse: Soon?
• The Wright Brothers & the BlackBerry
• BlackBerry Tiptoes
• BlackBerry with a Gun Against its Head
• Supreme Court to Reform Patent Law?

IEEE: We Want a New Type of Patent

The IEEE Spectrum (Institute of Electrical and Electronics Engineers) is running an interesting patent reform article written by Lee A. Hollaar, a professor in the School of Computing at the University of Utah, where he teaches networking and computer and intellectual property law. Hollaar is also a registered patent agent and is the former chair of IEEE-USA's Intellectual Property Committee.

Hollaar proposes a new type of patent to address three problems with the patent system for the fast-moving high-tech industry: 1) it takes too long to get a patent, 2) patent terms of 20-years are often excessive for technologies that are replaced in a matter of a few short years, and 3) patent quality is harmed by insufficient prior art searches.

The new "limited patent" would grant protection from the moment the technology is first used in commerce, would last 4 years from that date, and instead of requiring non-obviousness, would require simply that the product be 'novel.' The novelty requirement would not be determined -- the limited patent would be granted as long as the paperwork was in order. Novelty could be challenged at any point by someone submitting prior art and paying a small fee. The limited patent would thus lose the presumption of validity, but give the inventor some protection while either pursuing a full patent or filing new limited patents on further innovations. The proposed limited patent would also allow a form of the independent invention defense, allowing those parties that could prove they had implemented some of the claims prior to grant of the limited patent the right to continue (but still excluding all others from practicing those claims).

Fees for limited patents would be significantly less than for a full patent application, since they dispense with examination and require very little work from the patent office. Limited patents help improve the traditional examination process by helping to build the prior art database.

The best part about this proposed reform is that it doesn't directly disrupt those who favor keeping the current system as-is; an inventor would be free to choose which type of protection they wanted to apply for, applying for either a traditional patent or a limited patent.

Related:

• Premature Patent Expiration
• Reduce the Fees for Statutory Invention Registration
• The Independent Invention Defense