Google, Hewlett-Packard, Cisco, Verizon and Ericsson have reportedly joined together to fund a snake-killing operation.   Smart technologists and small companies beware.

Here is the story, from the ever-observant Valleywag Silicon Valley blog:

Copyfight: Google, HP and others form League of Extraordinary Patent Holders
“Google, Hewlett-Packard, Cisco, Verizon and Ericsson are among the companies rumored to be behind the formation of the Allied Security Trust. Ponying up $250,000 down payments and $5 million in escrow to make purchases, the trust seeks to buy patents…”

The article above reports the development correctly, but incorrectly argues that the motivation behind this Alliance is to protect against a prior patent pool, Intellectual Ventures.  This despite the fact that several companies are reportedly members of both pools. Actually, both of the patent pools have exactly the same attraction to large companies:  Large companies use these pools to keep small, emerging companies out of their markets and/or to force small companies to sell out to large companies before becoming a threat.

How does this work?   Patents are a way for a small company to protect itself from predatory large firms while the small company remains small.  Company S has a new idea, but little financing, marketing, distribution, or manufacturing.  So it starts to grow with very little clout.  As it grows, if it grows, it attracts the interest of large companies it has the potential to threaten.  The large company’s first move is to clone the offer–think of Google Videos, which was a response to YouTube.  But if the small company has good patents, the large company must think twice about cloning.

The large company’s second move is to try to buy the small company on the cheap.  While the two firms negotiate, the large company will attempt to learn the small one’s secrets, and improve its clone.   Again, if the small company has good patents, the large company will be deterred from doing this, and/or punished for infringement later by the courts–think Microsoft in a number of cases.  Microsoft, by the way, is estimated by stock analysts to have more than twelve billion dollars in infringement liabilities moving through the legal process.

Eventually, the well-protected small company grows to the point that it can sustain market attacks from large ones.  This is the nightmare scenario for large firms.  Think of Google against YouTube (before it bought it) and Facebook (today).  Now the large firm must either pony up a billion-dollar-plus price and buy the upstart (Google buys YouTube) or suffer the effects (Google in the face of Facebook).

The motivation of both the Allied Security Trust and of Intellectual Ventures is to protect the oligopoly positions of their large member firms.  The largest firms in the IT space–Google, IBM, Microsoft, are not so much in competition with each other as with the future.  They are not in competition with existing firms so much as with “companies unborn” who may–and probably will–disrupt their markets as profoundly as they disrupted their predecessors’.

Large companies are not afraid of each other–in general
they have worked out relations that work to the benefit of
each other.  Rather, Google, for example, is most afraid of the likes of Facebook.  There are always new small innovative companies capable of growing large enough to
challenge the current behemoths.  Strong patents help small
companies stay independent while they grow. Small companies use their patents to help stave off crushing clone-based competition from the slower-moving but vastly more powerful giants.

What large companies are afraid of is innovation by small companies
and individual inventors. Both the Allied Security Trust and Intellectual Ventures
are mechanisms invented by large companies to make them safe from
small, disruptive newcomers.  Both enable large companies to buy up
patents that might pose potential threats, and get them out of the
hands of small firms and individuals.

These alliances are just one of the means large companies are using to
consolidate their power and protect themselves from competition from
smaller rivals.  Phony “patent reform” sponsored by large
companies is another.  Phony “reform” (called “Patent Deform” by Britt Blaser) is an attempt to secure market power by weakening patents. Note that all of the large IT companies file thousands of patents each year.  Do the large companies sue each other?  No. With each other they have “mutually assured deterence” where if one company sues that other can counter-sue, and their relations will melt down.  No large company does this.  But large companies do sue and punish unmercifully smaller  companies that challenge them.

The great fiction is that large companies mostly compete with each others.  Not true.  Large companies work out “arrangements” with each other.  Large companies compete against smaller companies that have the potential to grow large.

The most insidious campaign large companies are currently using to crush small ones involves PR.  Large companies have quite successful reframed “infringer” (themselves) to “victim,” and “small innovator without market power” to “troll.”  Give me a break. The term “patent troll” was coined by an Intel CFO.  Intel uses its patents unmercifully against small  companies.  For example, Intel sued AMD for years in order to keep AMD from growing into an effective challenger.

The future of American innovation depends on small companies.  Small companies, in turn, depend on patents.   Biotech and pharma companies know and accept this, which has made innovation in biology vibrant in the US.  Energy companies know it as well.  Energy innovation is thriving.

By contrast, innovation has slowed in information technology. As any investment analyst, and he or she will tell you that consolidation is the key to understanding high tech today.  Oracle, Google, Microsoft, IBM, HP and Intel are consolidating their respective parts of the market.  Only the social networking space remains contested, and the domination of MySpace, Facebook, and YouTube is increasing rapidly.

This consolidation seems surprising and ironic, given the amount of independent talent available in high tech, and given the educational value of the open source movement (free as in “free ideas” and “free education”).  What is happening?

What is happening is that large companies in the technology space use their market power to crush, control, and consolidate innovation by individuals and small companies.  How is this happening?  Why is this happening in high tech but not in biology and energy? In biology, the biotech sector is flourishing and big pharma, appropriately, is on the mat.  In energy small companies are the rage.  In automative, now seen as a segment of the energy business, small electric car companies are thriving as GM collapses.

What is different about high tech?  Simple, patents and other property rights are being systematically attacked by the large high tech companies, and pundits and scholars are going along with this.  The open source movement is terrific for education.  The free software movement, by contrast–”free as in beer”, not “free as in ideas”–is terrible for the property rights of individuals and small companies.  Idealistic innovators are being conned by large companies into giving up the rights to their ideas.  Free indeed, free for big companies to exploit.

The announcement of the Allied Security Trust is just another step toward the serfdom of the individual innovator in the high tech sector.   The Allied Security Trust is another way to ensure that the most talented members of this generation go to work for Google, IBM, and Microsoft, rather than competing with them.

James Baldwin

And this after her attempt last night to rain on the parade of Obama’s victory, a victory that is undoubtedly a milestone for race relations in this nation, and in the world.

This effort will be about as successful as the (failed) attempt by big Clinton donors to pressure  Nancy Pelosi by threatening to withhold contributions.

Obama Clinches Nomination; First Black Candidate to Lead a Major Party Ticket - NYTimes.com
Robert L. Johnson, a prominent Clinton-backer and the founder of Black Entertainment Television, said Wednesday on CNN’s “American Morning” that he planned to enlist members of the Congressional Black Caucus to push Mr. Obama to accept Mrs. Clinton as his vice presidential nominee, adding that Mrs. Clinton had not directed his efforts but was aware of them.

The study is based on dosing mice with resveratrol, an ingredient of some red wines. Some scientists are already taking resveratrol in capsule form, but others believe it is far too early to take the drug, especially using wine as its source, until there is better data on its safety and effectiveness.

Bill Richardson will make history today. His endorsement of Barack Obama will start a cascade of endorsements that will bring the swift end of the Clinton campaign.

Why? Because the professional observers have long believed that there is close to a zero chance that Hillary can win the nomination. She has been battling to undo party rules in Michigan and Florida. This was her last hail Mary attempt to block Barack, and neither is going to happen, as of yesterday. Without them she has essentially no chance of winning the nomination, no matter how well she does in her one remaining stronghold, Pennsylvania.

Meanwhile, Barack launched a national dialogue on race–much needed and much desired by leaders of all faiths, colors, and communities. Barack created a leadership moment for our society, turning a crisis of misunderstanding into a national opportunity for honest discussion. By the way, lets give some of the credit to bloggers who engaged in the dialogue early. Once again, bloggers helped open up a topic that otherwise might have festered below the surface.

So now party leaders see that the time has come to unify the Democrats, and none too soon. Bill Richardson is moving for unity today. This is his own very important leadership intervention, perfectly timed. It will be catalytic. Expect others to follow quickly. Expect Hillary to suspend her campaign within days, in the interest of unity.

Of course they could not control the local situation. They think they “underestimated the opposition.” Actually, they deluded themselves about being able to control the situation–or any similar situation.

More important, the mix of autocracy and democracy (invasion and occupation and elections) was so transparently wrong that it turned off both democratic and autocratic leaderes in the nation. And it frightened both democratic and autocratic governments around the region.

Internally, this upset the delicate balance of forces that was keeping the country from melting down. In the region, it wrecked the balance that kept the middle east, if not peaceful and democratic, at least relatively stable.

Finally, by persisting with this plan, the US lost all legitimacy everywhere, and with it the ability to influence anything.

In my own experience this pattern is surprisingly common. Consider situations you are facing.

The answer, as far as I can tell, is that the US must admit its powerlessness to control, and must look beyond itself for answers. It must make allies–and more important take data, analysis and advice, from people and nations outside of the region, outside of its ideological spectrum, and outside of the United States.

The same is broadly true in other fields. Most biotech innovation happens in universities or small labs. Even Apple, the famous innovator, is highly dependent on small outside design firms, and a few individuals carefully nurtured in the firm, for both look-and-feel and technology innovation.

The US as a whole needs innovation.

The US needs to nurture innovative individuals.

2. The following analysis shows that strong patents are pro-innovation. I have excerpted a small bit, but please click to the full article. From Science magazine.

The author points out that patents of building blocks promoted innovation across history and across industries.

3. This puts to lie the arguments supporting a bill that weakens patent law, currently being pushed by Patrick Leahey of Vermont.

Efforts to weaken patent law come almost entirely from two groups. First, the lobbyists for very large, traditional firms. In information technology, it is the established “gorillas” like IBM, Microsoft, Google, and Cisco. Second, from policy wonks who are funded by the big companies.

These big gorilla techs named above are today’s version of the big auto companies, big plastics companies and big pharma companie, each of which tried to quash patents as they tightened control over their industries.

Big companies dominate their industries by economies of scale, by monopolies and oligopolies on distribution, and on stopping new entrants by “killing the snake while it is small” (or buying the snake when it is mid-sized).

In autos, they succeeded. In plastics and pharma they did not. In materials and in biotech there are vibrant communities of independent think tanks and innovation laboratories that make their living licensing patented inventions to larger firms or directly to the public.

The information technology industry looks more like the early auto company days than it does the early biotech days. This is because small companies in information technology have not figured out the value of their intellectual property, and how to protect it.

Big companies in information technology depend on squashing small companies, buying intellectual property on the cheap from small companies, and buying pioneering companies on the cheap. They can easily do this when the small companies either don’t protect their intellectual property (a problem in many small software companies) or open source their technology in unwise ways. Big companies are now trying to weaken the patent system before the small companies wake up to its value.

Who is taking the money from these big companies to do their bidding? Senator Patrick Leahey of Vermont–for whom John Chambers, CEO of Cisco, held a big fundraiser in Vermont. Why did Chambers, who lives in Silicon Valley, come to Vermont to do a fundraiser. You connect the dots.

Leahey is now aggressively pushing changes to the patent system that make it harder for small companies to succeed, and easier for big companies to triumph.

Leahey has, to put it bluntly, sold out.

He probably figured no one would notice. This is typically how Senators agree to sell out. They pick an issue that is important to a group of wealthy companies, and try to slip changes in unnoticed.

Shame on your Senator Leahey.

BIOTECHNOLOGY: The Patenting of DNA — Doll 280 (5364): 689 — Science
..in the USPTO’s view, new areas of technology do not create the need for a whole new specialized patent law. In many ways, the arguments currently being used for DNA sequence technology resemble those voiced 30 to 40 years ago when polymer chemistry was an emerging technology. At that time, people argued that if broad generic claims were granted on the building blocks of basic polymers, it would devastate the industry. In fact, no such disaster occurred. For example, the issuing in 1965 of a basic patent broadly claiming a vulcanizable copolymer of aliphatic mono-olefins and unsaturated bridged-ring hydrocarbons (3) did not preclude the later issuing of patents to different inventors for several copolymers of this type (4). These patents represent early examples of ethylene-propylene-diene monomer (EPDM) rubbers, which are highly weather- and ozone-resistant, stable to thermal aging, and have good electrical insulating properties. These EPDM rubbers have been commercially important as components in tires, weather stripping, radiator hoses, wire insulation, impact modifiers, and roofing.

EPDM copolymers were assembled from three basic building blocks that could be combined in many different ways and, as such, generic and specific claims to these copolymers are analogous to claims that may be issued to DNA inventions. Just as the issuing of broad product claims at the early stages of this technology did not deter development of other new vulcanizable copolymers, the issuing of relatively broad claims in genomic technology should not deter inventions in genomics. Two relevant examples of this in the field of biotechnology are the polymerase chain reaction (PCR) and the human immunodeficiency virus (HIV) protease, which were patented and then widely licensed to permit the biotech industry to continue to grow and benefit from these inventions.

The same patentability analysis is conducted for every patent application, regardless of whether the application is for a computer chip, a mechanical apparatus, a pharmaceutical, or a piece of DNA. In every field of technology–whether emerging, complex, or competitive–all the conditions for patentability (such as statutory subject matter utility, enablement, written description, novelty, and non-obviousness) must be met before a claim is allowed (5).