Once the cost of litigation, speculative patent portfolios and patent-office folly is taken into account; what should be a finely-balanced weapon to protect innovators has become, in the world of software at least, the nuclear missile of corporate warfare.
Market competition vs regulation
Government micro-regulation of most aspects of online business can be avoided if the free and open market works.
It's not that I'm a raving libertarian see-no-evil capitalist - capitalism sucks! But it sucks less than state control, since the link between customer and corporate revenue is far more direct than the link between elector and government in most democracies.
The public can kill almost any corporation if sufficient numbers choose not to put their ££s, €€s, $$s into its products.
The internet helps open up all markets, even offline businesses, as it closes the feedback loop between customer and supplier on a scale never previously possible:- where suppliers choose to "bunker down" and ignore customer concerns, customers will simply communicate their experiences directly with other customers.
The link between customer perception and revenue was already perfectly clear, but until recently, companies invested in public relations as a method of maintaining an illusion of good service. Now they are faced with only one realistic option:- actually providing a good service.
Regulatory emphasis should be on keeping the markets free and open rather than attempting to regulate for a specific "desirable" outcome - simply because the variables are so numerous and interactions so complex that micro-regulation is more likely to result in undesirable unintended consequences than fixing any specific given problem.
Part of keeping the market free and open involves preventing anti-competitive practices, ensuring accuracy in product descriptions, and preventing barriers to entry for new innovative players.
Patents and intellectual property rights
The intent of the patent system on a whole in noble, and fits neatly with the notion that governments should encourage and protect innovation as an important part of a free and open market.
Designed for the industrial era, where it could cost tens or hundreds of millions in today's terms to "tool-up" a factory to bring a new product to market; patents prevented so-called fast second advantage. The first company to bring a new product to market shoulders all the risk that buyers will not buy in sufficient numbers or at a sufficiently high price to warrant the investment in tooling up a factory.
A fast second enters the market after price and demand has been tested. Furthermore, second-movers frequently indulged in industrial espionage to copy as much of the factory design as possible, thereby reducing cost and risk!
Patents offer a limited state-backed monopoly (20 years) as a reward for investment in new ideas, but this comes at a price to the consumer.
With no lawful rival, the innovator is pretty much in control. If the public wants their product, they have to pay a price set by the company, not determined by the market. Standards of customer service and an ethical regard for customer rights may go out of the window when there is only one legitimate supplier of a product.
So patents (and copyright, when it comes to consumer media like music and films) are a double-edged sword. They encourage innovation, thereby giving consumers something they might not otherwise have had, but consumers get that product on terms set by the patent holder.
The patent thicket and litigation costs
I made the analogy between patents and nuclear missiles because litigation can be incredibly destructive to companies, and effective deployment is beyond the reach of most corporations. Mid-sized corporations which attempt to enforce a technical patent risk being obliterated in extremely expensive counter-suits.
The problem has three sides:
- Large corporations invest in massive, often speculative, patent portfolios. See Google's recent intention to bid on Nortel's patent portfolio.
- Patents are granted far too often for ideas that aren't patentable. Particularly the notion of inventive step that is important in distinguishing between an patentable innovative advance and a non-patentable logical solution to a problem is highly subjective. What is often blindingly obvious to a software engineer seems inventive to a patent clerk. Additionally, it's increasingly difficult to establish where prior art exists (you can't patent someone else's work, even if they chose not to patent it themselves).
- The cost of litigation could bankrupt a small country!
It can cost £1m to defend a business against an unjustified infringement claim (The Enforcement of Patent Rights, IPAC 2003), and evidence cited in Gowers (pp8.61) suggests smaller businesses can find it easier to pay licensing fees on a patent they believe to be invalid than mount a court challenge.
Whilst it costs relatively little to file a patent (around £10,000), the cost of litigation alone puts legal remedies beyond the reach of most innovative smaller technology companies.
Furthermore, the biggest companies continue to develop their patent arsenal to use in "self defence". It's not quite mutually assured destruction, but the combined cost of litigation and settlement fees could reach a billion dollars (Kodak v Apple and RIM)
The legal options for small companies are severely limited by the ability to fund litigation, allowing large companies to act with relative impunity. El reg only today alleges Apple have questions to answer in the case of a UK-based developer Greg Hughes, whose app for wirelessly syncing an iPhone with iTunes was last year rejected from the official App Store. Apple yesterday announced a similar feature would be included in iOS 5!
As well as buying patent portfolios, large corporations have other tools I've witnessed (and been party to) to maximise their patent arsenal:
- Aggressive patent scrubs to protect everything in a product (overkill, but understandable)
- Cash rewards for patent filings, with further bonuses for granted patents, on any vaguely related idea - even if not used in a current product and with no plans to use in current product
- "Defensive publications" in own journal of any vaguely patentable idea, as a "prior art" catalogue in case need to challenge other patents
See also: copyright and the digital economy act - copyright gives 100+ years protection for some works, whereas the saving grace of patents is they expire after 20 years.