Internet Society Panel on Business Method Patents
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Tim O'Reilly: Let me respond briefly. Jay, you introduced the subject of copyright here, which we'd left off the table. Let me just argue that there's a very significant difference between the kind of rights that are granted by a patent and the kinds of rights that are granted by a copyright. Now, you tried to equate the two. The fact is if I publish a book or one of my authors writes a book and it's protected by copyright, the ideas in that book are disseminated. A patent grants sort of visibility of the ideas, but forbids the use of those ideas without the permission of the person publishing them, so in some sense, they are really inverses of each other rather than in parallel.

Jay: Tim, I think it's a mischaracterization to say patents cover ideas. I am not a lawyer. Patents cover claims that are very narrow and specific, OK. They don't cover ideas. That's part of the promulgation I would argue of a mischaracterization of patent.

For example, I may have an idea, but until I reduce it to practice and specifically determine a set of claims that are novel, nonobvious, and useful, I have nothing. And, by the way, once I do, I have taken a fairly narrow implementation of those ideas for which others are then taught - which the patent is a teaching, OK, and teaches the world everything for a limited period of time, which, by the way, spurs innovation. I know from my real-world experience that those who would seek to build on my inventions, seek to improve them. They get around "my patents" by adding new ideas, new ways to make them better. They may not plagiarize my book, they may not plagiarize your book, but they can build on it, or they can choose to license from me as a businessman if I can charge enough rent to induce them to license versus to design around.

The world is filled with design-arounds. It's filled with competition. You know, Larry's point, which is a stifling of innovation is an important point I don't argue. However, I don't see it. I don't see the lawyers sitting next to my companies and arguing every little piece. I believe it's theoretical.

Tim O'Reilly: I'll answer that one right now with the one case in which I owned a patent. I was sitting there with the decision: do we have our CTO work on development or work on filing patents? We had pretty clear feelings that there were people who were infringing those patents. Once again, do we pursue our business objectives or do we seek legal redress? Those kinds of choices come up for entrepreneurs increasingly and they are a tax on innovation. We did less technical work because we had to do more legal work.

Jay: All property is a tax, because I noticed you have really nice clothes in your closet and I'd like - we're about the same size - and I'd like to borrow some of them.

Tim: You probably have better clothes than I do.

Jay: Property is a tax, no arguments, but it's a balance. Now, you can anecdotally tell me stories of lawyers sitting next to developers and I can anecdotally tell you about investment bankers sitting next to me, OK, and saying, "Where is it?" I'm not arguing the point, I'm just arguing anecdotes aren't a method ...

Larry: OK. Let's go beyond anecdotes. I'm surprised this is not something you're aware of. There's a pretty serious research paper that's been released by a Harvard economist, Maskin and James Bessin, called Sequential Innovation, Patents and Imitation. It was published at the beginning of the year. There is a conference on it that's being held in Paris in November. This is a pretty serious mathematical modeling and empirical study of the effects of patents in different innovation industries.

The conclusion they draw about software is that the explosion of patents in software has had a harmful effect on R&D in these software industries. In particular, this is a quote from their paper, "Between 1987 and 1994, software patents issuance has risen 195 percent, yet real company funded R&Ds fell by 21 percent in these industries while rising by 25 percent in industries in general." Now, this is an economic study that brings out a reality which is an intuition many people share. Your point about what goes on inside of industries is not idiosyncratic. This is Doug Brotz principal scientist of Adobe, saying "Resources that could have been used to further innovation have been diverted to the patent problem. Engineers and scientists such as myself, who could have been creating new software, instead are working on analyzing patents, applying for patents, and preparing defenses. Revenues are being sunk into legal costs instead of into research and development."

Now, I think in principle, you could justify those costs. I think it's possible that these costs - you say that all property is a tax, fine, all property is a tax, but the question is do you have evidence that the benefits outweigh the costs and evidence that the benefits outweigh the costs before you start making the changes? So, I agree you can't figure out the whole world before you proceed with what you're doing, but the point is we are changing the innovation horizon right now. We're changing it, and I would say, following what Tim was saying, why don't we stay with the default until you show us that change is better because it's the change that's being criticized, it's not that we need to figure out what we're going to do next, it's we need to figure out whether we should change before we change.

Vint: Let me jump in for just a second and raise a couple of other observations that would be useful here. We haven't mentioned open-source software yet and it seems to me one of the interesting elements of open-source software is that everybody gets a chance not only to see how you do something, but to actually make use of that open source to do it. I have a history of programming. I don't do much of it anymore, but I made a living doing programming and I remember that the way I did any program was to try to remember how it was I had solved that problem before and then adapt the solution to the next problem. It is sort of like a good mathematician who tries to reduce whatever the problem is to a previously solved problem and then use that. So, open-source and the behavior of many programmers, which is to go back to use techniques they've used before might indeed be, I'm speculating now, might indeed be interfered with if the technique that they used before somehow became somebody's patent and, therefore, something they couldn't use freely without going through some licensing mechanism, so I think that's kind of the area that we're asking about.

Todd: What's the solution? I understand the problem that Larry's raising, but what solution is he proposing? Does he want to change 101? What does he want to do?

Vint: I think he's saying - I think, Larry, without trying to put too many words in your mouth - you may be saying, "Why don't you stop patenting software until we figure out whether it's a good or bad thing."

Jay: I think the answer to that is because people file software patent applications and I could reject them, that's fine, we've rejected for years. They appeal to the Court of Appeals for the Federal Circuit, the Court of Appeals for the Federal Circuit says, you were wrong in rejecting a patent in the trademark office, please issue the patent and so we have to issue it. The Supreme Court said it, the CFC said it, in no uncertain terms. If Congress wants to change the law around software patenting then have Congress change it, but until they do, we need to go forward with what they've told us to do. And we cannot single out technologies, by the way. We cannot single out - I know people say, well, software is important, why don't we single out software. We have - for good or bad - an international obligation under our GAT obligations in TRIPS which says that we cannot discriminate among technologies.

It's in the treaty that we are bound by and so we can't single - we can't say, well, software's this, jeans are that, and toothbrushes are that. We can't. We have to treat them all the same. I'm going to hand it over, but I want to speak to Larry's point because I thought you made a really excellent point. You pointed out that two distinguished academic economists have written a paper, and as we all know, economists will differ over time and I'm sure these are very distinguished economists, but at the same time, we also - I heard one of your statistics where they said, R&D went down, if I heard you correctly, in those industries where patents were sort of clogging up the system.

Larry: Only in software.

Jay: Software. OK, but here's what I would point out. I read a number in Business Week, so I'm not sure it's accurate, because I read a lot of things in Business Week, OK, but what it said was that last year 40 percent of the corporate R&D in America, the total R&D, was coming from venture capitalists. Forty percent was coming from funding sources, which are not typical corporate R&D, which I'm just going to guess aren't in the study. Call me crazy, I'm just going to guess that those guys somehow maybe missed that issue. You can tell me I'm wrong in a second, which is fine, but my concern here is that while we're busy having academics issue papers, the people who are creating jobs, the people who are creating value and the economy as a whole, seems to still be flourishing in the critical sector where the sky is falling.

I'm not saying there isn't problems or challenges, but it appears that it's happening and those of us that are creating hundreds and thousands of jobs and getting capital deployed at risk because we can innovate and get some property here are here to tell you that if we slow this engine down because of the study groups you want to have, I'm not sure you're going to be well serving the economy.

Vint: Larry, before you respond, two points. First of all, it's not clear to me, Jay, that everyone who is generating those jobs is doing so on the basis of software patents, so I want to make sure that it's not left the impression that the only way you can generate energy in this economy is to go off and patent your processes and software.

Tim: For that matter, I was at a conference shortly after the Amazon patent controversy and I got high fives from a lot of venture capitalists. You know, not all the venture capitalists are in favor of patents. You often hear they require them of their startups and the fact is I've had more venture capitalists coming up and saying, "Attaboy! We think this is really starting to clog up the system." I think virtually everybody in our industry - there's a very strong consensus in the high-tech industry - that this is a car careening out of control.

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