Navigating the patent minefield

COMMENTARY--My personal belongings have finally arrived in Dublin. This would all be well and good IF I LIVED INDUBLIN!!! Given that it arrived by boat (I paid forit to go by air), was four weeks late, and was stackedon two pallets like Homer Simpson stuffing his tray atthe all you can eat bar (gee, do you think shipperscharge by the palette?), I’m left wondering if movingcompany employees take lessons in how NOT to do theirjob properly. On the brighter side, the next time Imove, I can just roll my things to my new place, giventhat the larger of the two pallets was beaten intosomething approximating Mork’s space capsule (that’sMork, of Mindy fame).

My mental stage manager has just placed his shepherd’shook around my neck to drag me back to the point ofthis article, which is: patents. They’re popular,they’re controversial, and lots of people worry thatlarge companies will use them to immobilize thecompetition like butterflies in a museum display case. An articleby David Berlind expressed fears that IBM and Microsoftmight use patents to create a "web service tax,"hindering the growth of a technology which manyconsider critical to the future of the internet. Arumor making the rounds claims that Steve Ballmerhinted at patents on .NET technology which might serveas a hindrance to open source implementations. Whether or not Microsoft’s CEO actually said thesethings (it’s mildly suspicious that all claims arebased on asingle report, in German, from CeBIT. DoesBallmer speak German?), it reveals a widespread fearthat large companies will leverage patents to clearaway competitors or make computing unnecessarilyexpensive.

Such fears are not entirely baseless. A famousexample is the LZW patent held by Unisys. LZW is the compression algorithm used in GIF images, a format popular on web pages. Most people were either unaware of the patent on LZW, or else had assumed that Unisys was not enforcing it. Thus, it came as something of a surprise when Unisys suddenly went after ISPs and software vendors demanding royalties for use of LZW, an event which took place long after GIF had reached widespread popularity. Similarly, Amazon holds a patent on "one-click shopping," and used that patent to stop Barnes & Noble, its nearest competitor in the online book sales space, from providing similar functionality on their web site.

However, it's worth stepping back from the trees, asit were, to view the forest. The technology industryis literally awash in patents. Microsoft has been designatedthe assignee in 2,386 patents since 1991, whichmight seem a lot until you consider that IBM has beengranted 24,128 patents over the same period (searchfor both IBM and "International Business Machines" onthe patent office search site). Sun had 3,497 patentsgranted for that period, Intel had 5,652, Apple had1,539, Oracle had 390 patents and Novell had 192.

If each patent came with a royalty charge, computerswould be very expensive and we wouldn't be sittinghere having this conversation because most of us wouldbe lucky to have typewriters. Obviously, most patentsare either not enforced, or are licensed royalty free.

Why is this the case?

During the cold war, the Soviet Union and the UnitedStates built up large stockpiles of weapons of mass destruction. Both had them in large enough quantities as to guarantee the destruction of the other if either chose to use them first. Thus, Mutually Assured Destruction, or MAD, acted as a theoretical barrier to use of such weapons.

Something similar goes on in the patent minefield,without the risk of nuclear fallout. Nocompany can own every patent. It would be tooexpensive, and would involve owning the productivepower of every person capable of applying for apatent. Thus, companies usually refrain from charging licensing fees, because to do so might invite reciprocal charges from the licensee on patents it might own. It’s like a software Pandora’s box. Once opened, development costs go up for all concerned.

Of course, this system isn't perfect. The MPEG groupis well-known for charging licensing fees on itstechnology, as do companies with patents related toWAP. Similarly, if a company consists of little morethan a pile of patents and a team of lawyers toenforce them, there is nothing to prevent suchlicensing fees. Such is the case with InterTrust, whois suingMicrosoft over a number of DRM-related patents.

For the most part, however, the system works becausemost patents are owned by companies with an interestin minimizing royalty payments. Microsoft, IBM andothers will hesitate to leverage patents against eachother out of fear of the consequences in terms ofreciprocal royalty charges. The result is a marketwherein most patents are royalty free.

Licensing in Action: Microsoft
Microsoft is not a company whose business is built onpatent licensing. Even contentious licenses, such asthe license for the CIFSfile access protocol, is royalty-free.

However, a "gentleman's agreement" not to chargeroyalties is not much use in the often cutthroat worldof business. Trusting a competitor not to charge alicensing fee in return for your royalty-freegenerosity can be an expensive mistake. It's farbetter to have such a guarantee in writing. Sinceasking every company to sign a royalty-freereciprocity agreement would be impossible, patentholders who make software sometimes choose to link the reciprocity agreement to certain key protocols other companies might wish to use.

This is the case with the aforementioned CIFS license.As the licensingagreement requires as part of its terms:

3.6 Reciprocal Patent License. To theextent Company owns, controls or can sublicensewithout payment of a fee to an unaffiliated thirdparty, any patents that are required for Microsoft orits licensees to implement CIFS as set forth in theTechnical Reference and distribute suchimplementations, Microsoft and its licensees arehereby granted a license to such patents solely forthe purpose of implementing CIFS as set forth in theTechnical Reference and distributing suchimplementations.

This might partly explain why Microsoft explicitlyforbids usage of the CIFS specification in softwarereleased under an "IPR Impairing License," which isMicrosoft’s legalspeak for the GPL (Other reasonsinclude Microsoft’s interest in reusing open source implementations in its own products, something they cannot do if that code is licensed under the GPL. Products licensed under the BSD open source licenseare free to use the CIFS specification). Asthey explain in the license:

3.3 IPR Impairing LicenseRestrictions. For reasons, including withoutlimitation, because (i) Company does not have theright to sublicense its rights to the Necessary Claimsand (ii) Company's license rights hereunder toMicrosoft's intellectual property are limited inscope, Company shall not distribute any CompanyImplementation in any manner that would subject suchCompany Implementation to the terms of an IPRImpairing License.

In other words, one reason the CIFS spec can'tbe used in GPLed software is that the GPL requires anautomatic relicense of Microsoft's IP to those whohope to build derivative works. To do so would makean end run around Microsoft's attempt to build anironclad system of IP licensing reciprocity. Opensource per se is not at issue. Rather, the issue iswith automatic IP relicensing (and mandatory sourcecode distribution) for derivative works, which areproblems for the GPL but not for other types of opensource license.

Conclusion
Such an arrangement, however, can at best be describedas a detente. There is nothing official which wouldprevent a company from deciding to charge royalties. As noted, certain companies have no need of licensing reciprocity.

As I’ve stated before in Talkback posts, I am not afan of algorithm and business process patents. Iwould subscribe to what Friedrich Hayek said as farback as 1944. Though he wasn't speaking aboutalgorithm or business process patents as such (theydidn't exist then), his statement still holds truetoday:

"...strong arguments can be advanced that serious shortcomings here, particularly with regard to the law of corporations and of patents, have not only made competition work much more badly than it might have done, but have even lead to the destruction of competition in many spheres." (The Road ToSerfdom)

Patents are designed to serve as an incentive toinnovate, particularly in industries where the cost ofresearch & development is high and the barriers toeasy copying low. Algorithm and business processinnovation already have sufficient incentives. Those incentives consist in the sale of software whose advantage is new technology.

Others might copy such algorithms or business processes, but fear of such copying will not deter algorithm and business-process related R&D as it might deter, say, the expensive hunt for new medicine. Algorithm and business process patents create unjustified tollbooths around technology, hindering the spread of good software ideas and leading to a useless patent arms race which needlessly diverts revenue that would be better spent making better software.

It is worth noting, though, the amazing flexibility ofmarkets, even in the presence of bad patent laws. Themarket has spontaneously settled on an arrangementthat ensures most patents are royalty-free, even forsmall companies that are relatively patent-poor.Markets thrive on good laws, but even in the presenceof bad ones, they are surprisingly resilient.