John Palfrey

I’m at a wonderful summer program hosted by the Kauffman Foundation on Law, Innovation, and Growth. They’ve convened a truly interdisciplinary crowd interested in how law can affect rates of innovation and growth. Many, though by no means all, of the conversations are about innovation in technology-related fields. All the papers presented will be posted to the web site, which (great news) seems to be open for public view as of now.

The conversation about the proper role of intellectual property — patents, especially — in promoting growth, innovation, and entrepreneurship brought to mind a recent post by Jim Moore about the Allied Security Trust. Jim and I have been working together for several years on various entrepreneurial and scholarly projects. In the past few years, he’s been digging in on this question of how the patent law can work to promote start-ups and other entrepreneurs pursuing innovations in the information technology space. He points here to the extent to which large players in the IT sector are working together to develop strong patent pools to keep smaller entrants from competing effectively against them.

This theme resonates with many of the key themes here at the Kauffman Foundation’s event. One of those themes is scale. Many presentations have implicitly or explicitly dealt with whether and how scale effects innovation. From the perspective of entrepreneurs who start and build businesses, this question of the effect of the patent law and how it’s used is crucial. If we stipulate that small-scale entrepreneurs are a key driver of economic growth and innovation generally, and that large firms are (at least) not the only home of socially beneficial innovation, then this issue of patent pools and how they are used is crucial.

I’ve been thinking a lot about what we’re studying actively at the Berkman Center, which I’ve just left as executive director. We’ve not yet done enough serious work on this question of patents and the effect on innovation, growth, and other social concerns. A few scholars at the Center have got a forthcoming paper on patents, but it’s not been an area of focused research. Over time, I think we should get more serious exploring multiple points of view about how the patent system should work in the Internet space. And plainly, the intersection between patent and competition law (or antitrust in the United States) is an essential one to understand, as Mark Lemley and his co-authors, Phil Malone, Francois Leveque and others have been. The new executive director might profitably think about how we could contribute more to this discussion.

As part of our Berkman@10 celebration this year, we at the Berkman Center tonight welcome Francois Leveque, professor at the Ecole des Mines, Paris, and visiting prof at the faculty of law at UC Berkeley. He’s presenting the findings of two new papers, each co-authored with Yann Meniere: “Technology standards, patents and antitrust” and “Licensing commitments in standard setting organizations.”

Prof. Leveque offers us a series of insights about the interaction of economics and law in the context of patents in the standards setting process. One key finding of his papers: it would be best for consumers and for innovation in general for the licensing of patents by players in standards setting processes to occur ex ante, rather than ex post. More surprising, he and M. Meniere argue that it also may be better, under some circumstances for the patent holder also to set the royalty level ex ante. He notes that, in this setting, the interests of consumers and patent owners are aligned. As he goes on to explain, in other settings, these interests may not be so well aligned. Read the papers for more insights, including with respect to the VITA royalty cap policies, ways to mitigate the costs of the risk of hold-up, and his proposal of announcing a royalty cap ex ante as a more flexible means of accomplishing such mitigation while still enabling patent holders to revise the royalties.

Prof. Leveque very kindly participated in both the Weissbad (Switzerland) and Cambridge (MA, USA) workshops that guided our work on Interoperability and Innovation over the past year. His interventions were crucial to informing our understanding of these complicated matters and he was unusually generous with his input, for which Urs Gasser and I and our teams are extremely grateful.

I got word today of the launch of a new service called LegalForce. They’re creating an online marketplace for patents. They’ve also got something of a community-building idea for stakeholders in the patenting system, it appears. It ’s a seed-funded company out of Palo Alto. They welcome inquiries from academics who wish to do research on their data set. Jim Moore — who thinks and works extensively on issues related to patents, software, and innovation — is saying very positive things about LegalForce and what its launch means.

This model makes me think of the argument that Kenneth Cukier put forward in The Economist (reg. req’d.) about a year ago, when he described the development of a market in patent rights — in Mr. Cukier’s view, a positive thing, on balance.  A podcast/interview with Mr. Cukier on this argument is still up, and it seems even The Economist is willing to let you have these thoughts for “free.”

What does it mean?  Surely it’s another sign — not unlike the PatentBoard’s section in the Wall Street Journal every Tuesday — that intellectual property rights have become an asset class.

Jim Moore says “we need a true Creative Commons for patents.” Two substantial posts on patent reform, Microsoft, IBM, and power relationships.

As a follow-up to earlier posts on this topic: Microsoft has filed a large-scale patent application related to RSS. (A news story here and Dave Winer’s post on it here.) Microsoft’s patent application, (published on December 21, 2006, filed on June 21, 2005 — though those may not be the most relevant facts in terms of priority), reads:

“A content syndication platform, such as a web content syndication platform, manages, organizes and makes available for consumption content that is acquired from the Internet. In at least some embodiments, the platform can acquire and organize web content, and make such content available for consumption by many different types of applications. These applications may or may not necessarily understand the particular syndication format. An application program interface (API) exposes an object model which allows applications and users to easily accomplish many different tasks such as creating, reading, updating, deleting feeds and the like.“

As the Guardian notes, Apple applied for RSS-related patents previously. Apple’s patent application, (with a publication date of December 29, 2005 and a filing date of April 13, 2005, i.e., filed and published prior to the MSFT patent application, but not necessarily first in line from an invention standpoint), reads in part:

“Techniques for detecting, managing, and presenting syndication XML (feeds) are disclosed. In one embodiment, a web browser automatically determines that a web site is publishing feeds and notifies the user, who can then access the feed easily. In another embodiment, a browser determines that a web page or feed is advertising relationship XML, and displays information about the people identified in the relationship XML. In yet another embodiment, a browser determines that a file contains a feed and enables the user to view it in a user-friendly way. In yet another embodiment, feed state information is stored in a repository that is accessible by applications that are used to view the feed. In yet another embodiment, if a feed’s state changes, an application notifies the repository, and the state is updated. In yet another embodiment, a feed is parsed and stored in a structured way.”

So has Google, (with a publication date of July 28, 2005 and a filing date of December 31, 2003), with respect to including ads in RSS feeds:

“Incorporating targeted ads into information in a syndicated, e.g., RSS, presentation format in an automated manner is described. Syndicated material e.g., corresponding to a news feed, search results or web logs, are combined with the output of an automated ad server. An automated ad server is used to provide keyword or content based targeted ads. The ads are incorporated directly into a syndicated feed, e.g., with individual ads becoming items within a particular channel of the feed. The resulting syndicated feed including targeted ads is supplied to the end user, e.g., as a set of search results or as a requested web log. Embedding of targeted ads into syndicated feeds and/or user response to the embedded ads is be tracked in an automated manner for billing. The automated targeting and insertion process allows ads to be kept current and timely while the original feed may be considerably older.”

Small companies, including Technorati, among many others (including Newsilike Media Group, Inc.; for my relevant disclosures, please see this page, updated periodically), have also filed applications against this back-drop. Jim Moore has a great deal of interesting and provocative things to say about this dynamic. Anyone interested in the development of Web 2.0, syndicated media, user-generated content, whatever-you-want-to-call-it, ought to pay attention to this emerging story.

In big interoperability news, Microsoft and Novell have entered into a deal to work together. Those are some interesting bedfellows. Much to unpack and understand.

One insight, from ArsTechnica’s report: “From Microsoft’s standpoint, virtualization is a good thing, especially when Windows is the host operating system. A close linkage between Microsoft and Novell reinforces Microsoft’s message to corporate types that Microsoft’s Windows Server and Virtual Server products are serious players, no matter what your mix of operating systems is.”

A copy of an announcement letter, which I received by e-mail, also reads in relevant part: “More importantly, Microsoft announced today that it will not assert its patents against individual, non-commercial developers. Novell has secured an irrevocable promise from Microsoft to allow individual and non-commercial contributors the freedom to continue open source development, free from any concern of Microsoft patent lawsuits. That’s right, Microsoft wants you to keep hacking.”

It brings to mind Bill Gates’ executive e-mail about interoperability by design in software development at Microsoft.

Microsoft has just unveiled a new commitment not to assert certain rights against people who develop code based on specifications that Microsoft has developed. It’s called the Open Specification Promise. Warning: the announcement itself, at the top of the page, is written in legalese, though probably pretty readable legalese. The FAQs make things a lot clearer for non-lawyer readers.

The upshot of this announcement is that it will hopefully turn out to be a Very Good Thing. Bravo to the lawyers and the policy people who no doubt worked very hard on it; the promise obviously reflects a huge amount of careful and open-minded thinking. The notion is that Microsoft agrees unilaterally not to come after people based on IP rights that the company holds with respect to a series of widely-used web services, such as SOAP and various of its progeny, WSDL, and so forth (all listed mid-way down the announcement page). From a geeky-lawyerly perspective, one of the things I like a lot is the fact that the requirement of availing oneself of the promise is yourself NOT to participate voluntarily in a patent infringement suit related to the same specification — commitments of this sort could help to create an anti-patent-thicket. (Maybe, down the road, this aspect of the promise might not prove to be as great as I think it could be, but for now, from here, it looks very appealing, in a detente kind of way.)

Why could this promise help? Any promise of forbearance by a huge player — where they say they won’t stand in the way of your innovating on top of the work of others — is certainly positive. More than that, such a promise that is made “irrevocably” establishes a commitment on the part of the company for the long haul. Set aside the legal enforceability of such a promise, the idea has enormous rhetorical force and would make it very hard for the company to backtrack and to go in another direction. Of course, the idea no doubt has good business judgment behind it in an era of dramatic growth in terms of the open development of web services, including those related to security and to web 2.0 apps.

Why might it not be so great? Well, I think it is a great thing, and not just because we at the Berkman Center have been looking into interoperability, with support from Microsoft and others, and learning more about how companies are taking novel steps in this sort of direction. Its limitation might take a few forms, I suppose. The promise itself has limitations — it applies to some specifications and the promise extends only to some possible IPR-related claims, of course, but that seems natural, especially with such a first step. Other possible limitations: 1) Will developers pay attention to it, and in fact believe it? 2) Will this promise itself be interoperable with other such promises? I am reminded of Prof. Lessig’s speech at Wikimania last month, when he talked about interoperable licenses. Hopefully, others will either follow this lead or help developers to understand how this meshes with other similar promises of forebearance in the marketplace. 3) I don’t know well enough whether these are the right specifications to be included in such a promise. Are there other specs that developers would like to see opened up in this fashion?

Jim has another must-read post in his series of thought-provoking mini-essays on the patent system, innovation, and the web 2.0 space.

Just before summer recess, some prominents senators have revived patent reform legislation (more or less) that had been proposed in the House last year. It’s interesting to witness the politics between the Professional Inventors Alliance (which dislikes these proposals) and the Big TechCos (which are full-bore behind it, it appears).

I should start off by saying that I am not a fan of the patent system as a means of establishing IP rights in software. My critique of the system is (at least) five-fold: 1) there is widespread evidence that the system of granting claims in the United States, at least, is deeply flawed (see the scholarship of Doug Lichtman, Mark Lemley and others, for empirical evidence and policy arguments related to it); 2) the process is prohibitively expensive for small firms and individuals to have a fair shake when compared to the patent-filing goliaths (witness not just the cost of prosecution of patents, but the $3 - 5 million price-tag of most patent litigation); 3) the extent to which these first two factors and others favor incumbents over newcomers — and potential innovators; 4) there are also special cases, such as the standards-setting processes for software, where these and other problems arise and are particularly acute (Lichtman’s piece on patent hold-outs is helpful here, too, and a bit counterintuitive); and 5) the patent system often works at cross-purposes with the goals of teaching and learning, in contexts including computer science, biotechnology, and so forth (we at the Berkman Center have an active research project on this topic, funded by the Revson Foundation). Others — Terry Fisher, Lawrence Lessig, Yochai Benkler (see pp. 437 - 439 of Wealth of Networks for a particularly strong form of the critique of software patents), Jamie Boyle, for instance — have made these critiques more forcefully and more convincingly than I have; this is not novel stuff. While of course I disagree on some fronts, often at the margins, with each of these scholars, I owe much to the line of thinking that they’ve blazed in all of what I do.

OK, enter the complicating factor: what if you are an entrepreneur who is devoted to creating a wonderful new generative (to use Jonathan Zittrain’s term) technology, say in the Web 2.0 space? One hard problem faces you early in the process. So, you get the part about being part of a development community, building your cool new platform, sharing it in various ways, making a market for your services, and generating a return for your investors. But what should you do about patenting? Say you, like me and others, are queasy about the current patent system (”yuck, I just don’t like them,” or “I don’t want to participate in that mess”), you don’t have much time or money, and you face an uphill battle in your crowded marketplace already. What’s a sensible, reasonably public-spirited, honest entrepreneur trying to make a living and a return for investors (if you’re lucky, or unlucky as the case may be, enough to have them) supposed to do?

Some investors I’ve heard speak or write on this topic — Joichi Ito, Brad Feld, A VC, and others — are opposed to software patents generally. As I noted above, I’m in the same camp. But most VCs do not share this view: IP rights are increasingly viewed as an asset, or as a defensive necessity, or both. Why? Well, some argue there’s a market emerging in patent rights (see Kenn Cukier’s long and provocative piece in The Economist on this score; but see the largely failed Ocean Tomo patent auction). Others believe that patents are necessary to create freedom of action in most fields of software.

This conundrum is real, and I’ve learned a great deal from finding myself caught in it. As with many people who teach, I have “outside activities” beyond my work at HLS and Berkman. Outside activities are good because they help pay the mortgage in the Boston area. They are also good because you learn things about the real world and keep you from becoming an ivory-tower-bound caricature of an academic; my teaching and research are plainly informed by outside work in the technology field. My outside activities have been primarily as an investor in RSS-related technologies and helping real entrepreneurs found companies in this space. Outside activities are a pain in the neck because I, anyway, constantly feel a tension between my academic identity (teacher and researcher of interesting Internet law topics) and my outside-activities identity (investor and participant in the marketplace). Much of this tension can be dealth with through disclosure — more on that in a moment. Nowhere is that tension more acute than in this patent space.

So, here’s the hard question: if you are an entrepreneur or investor who dislikes the patent system (either you want it scrapped altogether for software or you want it reformed), what do you do? Do you sink the money and time into participating, one-off, against the big guys and try to patent what you’ve done; do you sit it out and take your chances; do you license from someone the protective cover of some patents; or do you try to find some other solution? I do not know the answer, but I’m genuinely trying to puzzle it out. There probably is no right answer for every entrepreneur and every part of the software space (think of it as a variant of Terry Fisher’s disaggregation argument).

One other fact to be noted: large companies in the ICT space — IBM, Microsoft, HP, Sun, whomever — have massive-scale patenting operations. Some are newer to the patenting game but getting geared up, like Google. These companies have patent portfolios in the thousands or tens of thousands, with claims many times that many. IBM alone has over 31,000 patents and applies for thousands more each year. In the Web 2.0 space, Apple has begun to publish a series of applications. Google has applied for patents related to embedding ads in RSS feeds. No doubt the Intellectual Ventures team has thought about working in this space, or will soon. These entities are far from alone — patent applications related to RSS and other Web 2.0 technologies are coming out all the time. (Smaller companies, like Technorati, have applications pending as well.) As I’ve written before, there’s a difference between obtaining IP rights and enforcing them, so it’s not certain that this emerging thicket of patents will preclude innovation. Apple may never sue anyone at all for infringement of the many claims that may well be granted to it. But should an entrepreneur run that risk?

Here’s one idea. What about working with other small-scale entrepreneurs to do what the big guys do? What if you were to hold your nose and apply for patents that protect your work; share your patents with other little guys (and gals!); agree to reasonable cross-licensing terms for other entrepreneurs; and create a dual-licensing regime to allow highly favorable (no- or low-cost) licensing terms for .edus and .orgs (to solve problem number 5, above)? This is the idea that Jim Moore has been championing in the Web 2.0 space. He’s got a long and thoughtful post about it here. You may not agree with the strong form of his argument, but it’s very provocative. A company that we’ve both been working with, Newsilike Media Group, has applied for a series of Web 2.0 patents, which will soon begin to be published (as applications, to be clear, not as issued patents). Jim’s idea, which I support as an important experiment in this space, is to try to create freedom of action for start-ups and others in the Web 2.0 space by blazing a trail. While Jim and I disagree on some aspects of this matter — we have a genuine, long-standing, always-spirited conversation going on this score from which I’ve learned and continue to learn enormously — I have to say I welcome his efforts to bring innovative thinking to the space.

A key component of this strategy is to try to innovate in the area of no- or low-cost licensing for non-profits and educational institutions. Patent Commons, Science Commons, and others have been working on similar or related ideas. We should all be eager to learn more about this line of thinking. I think it’s brilliant. I very much hope that entrepreneurs will one day have an easy way to subscribe to a license — just like a Creative Commons license for copyrighted works — to give away some or all of the IP rights that you’ve obtained. Maybe it’s limited to certain classes of users (the .org and .edu idea), or fields of use, or the like, but allowing you to stand behind your beliefs while competing on reasonable terms in the marketplace. I’d love to see a way where the little guy doesn’t have to unilaterally disarm him or herself, but can do so in a way that lets him or herself sleep at night.

I am wondering what Yochai would say about this idea as a practical matter. In Wealth of Networks, he writes: “Even if the patent owner has a very open licensing policy — say, licensing the patent non-exclusively to anyone without discrimination for $10,000 — most free software developers will not be able to play.” He continues, “If working on a problem requires a patent license, and if any new development must not only write new source code, but also avoid replicating a broad scope patent or else pay a large fee, then the conditions for free software are thoroughly undermined.” (p. 438). So, if you buy this argument but you also live in a future in which large companies get broad claims via their Web 2.0 patents, what, absent reform that anti-patent people would support, should the entrepreneur do? To me, it’s a hugely vexing problem that requires innovative thinking, challenging the “yucky” feeling many of us have about software patents and honing in on short-, medium- and long-term solutions.

(One further, personal note: I’ve long had on my disclosures page my Personal Patent Profits Pledge: if I make money from any patent activity that is not consonant with my beliefs as to what is good public policy, I pledge to donate those profits to the Berkman Center or a similarly-situated institution that is working on the study and appropriate reform of the patent regime.)

There is much more to be said and learned on this topic. I welcome debate and critique; I think that the cyberlaw community, myself included, has been so focused on copyright that we haven’t delved as deeply into patent (and trademark and trade secret, perhaps, too) as we might. I look forward to participating actively in a pro-innovation, good-for-the-entrepreneur, good for society-at-large outcome. Is there a form of software patenting that can help drive innovation, not frustrate it?

* * *

Addendum, with thanks to Phil for a pointer, here is a bit of a terrific short essay from Paul Graham’s “Are Software Patents Evil?“, which covers much of the same ground:

“Do patents encourage or discourage innovation?

“This is a very hard question to answer in the general case. People write whole books on the topic. One of my main hobbies is the history of technology, and even though I’ve studied the subject for years, it would take me several weeks of research to be able to say whether patents have in general been a net win.

“One thing I can say is that 99.9% of the people who express opinions on the subject do it not based on such research, but out of a kind of religious conviction. At least, that’s the polite way of putting it; the colloquial version involves speech coming out of organs not designed for that purpose.

“Whether they encourage innovation or not, patents were at least intended to. You don’t get a patent for nothing. In return for the exclusive right to use an idea, you have to publish it, and it was largely to encourage such openness that patents were established.”

Worth reading in full.