In defence of patents

By Ezra Butler on August 13th, 2012

Innovation is a beautiful thing, but its benefactors are constantly the subject of ad hominem attacks. It has become increasingly common among individuals in the tech start-up ecosystem to demonise Patent Assertion Entities (PAE), referring to them as “patent trolls” behind their backs and “Voldemort” to their faces.

The companies, also called Non-Practising Entities (NPE), have long been criticised for their litigious methodologies of ex post patent enforcement. Of course, the mud-slingers are often the same people who promote copycat start-ups and champion the Digital Millenium Copyright Act (DMCA), legislation that allows websites to evade culpability for content hosted by third parties.

One of the major proponents of the anti-patent movement, the Electronic Frontier Foundation (EFF), proudly explains, in an awkwardly-worded, comma-absent declaration:

“You want to distribute your band’s music but the P2P system that’s revolutionized your ability to reach listeners is being sued out of existence a company claiming to own a patent to all streaming media technology is demanding licensing fees and record labels are breathing down your neck over the samples you’ve looped.”

Why is the EFF discounting the fact that someone would actually sell their own music? Why do they use the word “distribute” instead of “sell”? Moreover, what if your streaming music technology is a patented process?

Would it be fair for you to make money from the innovation of another? Bram Cohen, the creator of BitTorrent, created his protocol to be free and open. But no one can force another person to create an open source protocol – though, according to the EFF website, “giving it away for free” is good, a sentiment college students can easily comprehend.

While I agree there are probably some patents which would not hold up in court, categorically rejecting the system is not a solution either. Patents are, by definition, more than just ideas. Patents must include a detailed method of implementation, with prior art specified. In Europe, the patent process is even more rigorous.

Perhaps ironically, Jonah Lehrer’s riveting book Imagine, removed from the shelves last week in the wake of a scandal regarding the falsification of sources, dedicated a chapter to how co-operation and sharing allow technology companies to create more innovative products. Read it, if you still can.

He compares the 1970s’ “Route 128” tech scene in Boston and Silicon Valley, attributing the latter’s success to the openness, interconnectivity and communication between companies. A fine theory, unless you take into account how the offered alternative consisted of completely secretive and closed companies in Boston.

Companies have long admitted that ideas have value, a fact companies have made clear by including valuations of their patents to the price of the company.

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In 1985, Michael Jackson purchased the publishing rights to the 4,000-song ATV music catalog, notably including nearly the entire Beatles discography, for $47.5 million, from a reclusive Australian tycoon. He outbid out a consortium comprised of Paul McCartney and Yoko Ono, among others.

With that purchase, he acquired the copyrights to all his favourite songs by the Liverpudlian band, including the hauntingly beautiful “Yesterday”. A true lover of the art, after completing the deal, he commented about the melodies being “lovely” and “structured so perfectly”, not how financially lucrative they might be to him in the future.

In conversation with The Kernel, entertainment and intellectual property attorney Tamera Bennett recently explained some of the complexity involved in rights licensed and sold in the music business. She offers the example of Dolly Parton’s hit single “I Will Always Love You” and the subsequent cover by Whitney Houston for the movie The Bodyguard.

The owner of Ms Parton’s rights owns the lyrics and the melody, and collects 9.1¢ every time time Ms Houston’s song is purchased or downloaded, the set rate prescribed by the Copyright Royalty Board of the United States Copyright Office. However, were a television programme interested in playing a song on-air, the fee is calculated on a vastly different rate scale as decided by the recording’s owner.

For the former, clearing houses exist to enable to standard remuneration; for the latter, negotiations take place with the owner.

With the creation of its iTunes store, Apple’s fee structure of 99¢ a song introduced uniformity to the field of music, by not assigning a greater or lesser value based on perceived worth. But the iTunes store did something else, too.

“It really did remind an entire industry, and gave a cue to even a culture beyond the industry, that if you provided music in a convenient, direct way and responded to the consumers’ interest and demands, they would in fact buy it, especially if it was priced appropriately.”

So says James Diener, President and Chief Executive Officer of A&M/Octone Records in an interview with the Associated Press after Apple Chief Steve Jobs’ death last year. In other words, Apple affected change in the purchasing habits of the masses.

While the music industry has not fully recovered from the decline which began with the advent of peer-to-peer sharing programs like Napster, the tens of billions of songs sold on iTunes alone represent a sustainable financial model with a bright future.

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Patents are intellectual property, just like the lyrics and melody of “I Will Always Love You”. They require a combination of skill, time, creativity, and inspiration to put together. Similarly, just because someone else utilises the creation in a different work does not necessarily detract from the original work, nor does it cost the original innovator any money to be copied.

To Mr Lehrer’s credit, innovation happens when people know what else is possible, what else has been solved. The patent system doesn’t lock out communication between potential competitors, it ensures the innovators will be remunerated for the creation even if their final product was not as successful.

The EFF makes much ado about the expense associated with the filing of a patent, calling the system broken. Even after spending the time and money in legal fees on securing a patent, the ex post litigation cost for protecting the idea could be exorbitant.

The question must be asked why a standardised marketplace does not exist for the patent world. A location where PAEs and small companies and innovators alike are able to register their patents for licencing purposes. Already sites like Binpress exist to enable developers companies to sell source-code packages, to save dozens of hours and thousands of dollars.

Many of the licences offered cost less than $50 and will save over 50 hours of painstaking coding. Mashery enables companies to provide an API for their services, allowing companies to create revenue channels based on existing information.

For a young company, incorporation of the Google Mapping API is free, until you hit a certain limit. Thea company can test different options and solutions without paying until making sure they have the right solution. Providing a similar a la carte solution for patents, based on usage and success of products, could benefit everyone.

Incubators and accelerators need to inform their portfolios that this is the price of doing business. That said, it would be logical for companies to follow the Microsoft BizSpark model of giving licenses for free to start-ups until they grow to a certain level. Web companies need to understand that patents are as important to licence as API usage. If a consensus can be arrived at for a low cost standard, ex ante licencing will become the mainstream, as in iTunes model.

Currently, companies like Intellectual Ventures sell licences to their entire catalog of patents to companies in a clunky, non-automated process. Companies don’t necessarily need access to the entire catalog, but end up paying for it anyway, whether in money or other patents. An iTunes-like solution would result in a more democratic patent system and be more financially lucrative.

Another cost saving method could also be implemented in conjunction with this marketplace. The platform would be able to employ its own court-recognised mediators, well-versed in technology, to minimise the cost of patent battles.

Marketplaces and standardised cost models exist for other sorts of intellectual property. Why should innovative ideas be any different? As Barack Obama said recently in a speech” “you didn’t build that.” Innovators preceded you and simplified the processes you benefit from. There’s nothing wrong with rewarding them.