Carefully and in detail Bunnie explains "gongkai", the Chinese approach to intellectual property in the technology space. He shows how a focus on capabilities rather than products, on embodiment rather than licensing, has led to a technology ecosystem that is faster and more customer-focused than the Western system. Because it doesn't have the Western focus on legal means to exclude competition, it is much more competitive. It is capable of supporting both large companies, such as Xiaomi, Tencent, Alibaba and Baidu, but also a vibrant mass of smaller and smaller companies, down to one-man garage shops, all making money. Bunnie uses many examples, including:
- The fact that it is essentially impossible for a small Western company to build a cheap smartphone because of the IP licensing involved, whereas in China a complete smartphone motherboard costs $12 quantity one from any number of manufacturers, ready for the case of your dreams. He compares this with a $29 Arduino, with only a fraction of the capability.
- The comparison between Ailibaba's Alipay ($700B in 2015) system and Apple Pay ($11B in 2015). Note that Alipay is an open platform, Apple Pay is a walled garden.
- The difficulty Western companies have in monetizing consumer technology products, because it takes only a few weeks from the product becoming available on Amazon to its being swamped by similar, but cheaper, products from Chinese companies. See, for example, the hoverboard:
Shane Chen patented a device of this type in January 2013 but in 2015 stated that he had not earned anything from sales and would litigate. Separately Segway Inc. sued various manufacturers for infringement of their patents in 2014, before itself being acquired by one of them, Ninebot, in 2015.
Note that patent litigation was filed just as the product died in the market; it was basically irrelevant.
The function of systems based on legal exclusion, such as patents and copyrights, is to prevent competition and implement monopolies. No system of this kind can survive against a truly competitive system because it cannot respond fast enough. A 20-year patent or a 120-year copyright on technology is guaranteed to be obsolete long before it expires.
38 comments:
So I'm guilty of not having seen the talk and am relying on your synopsis here... I agree that copyright and patent law is largely borked as-is, but I can understand, from my western perspective, frustration at not being able to eek any profit from an innovation before getting hammered by copy-cats. My personal interactions and observations, in academia at least, that even something as simple as explaining that a piece of work should be cited and not blindly copy-pasted could be a challenging cultural gulf to cross.
Ian, you need to watch the talk. It describes a completely different ecosystem that allows for profit (less than monopoly profit, but profit) while delivering much better consumer value without exclusion and with strong competition.
And, as you note, it isn't like the Western system of exclusive rights is actually working to prevent copying. It is, however, creating massive monopolies, driving inequality, destroying citizens rights, and enriching lawyers.
See also Mike Masnick's Could You Design A Worse Patent Reform Bill Than The STRONGER Patent Act By Senator Coons? Don't Think So.
Glyn Moody's Danish University And Industry Work Together On Open Science Platform Whose Results Will All Be Patent-Free shows that the Danes have figured this out:
"Danish industry loves it:
The idea of collaborating in such a patent-free zone has aroused enormous interest in industry and among companies that otherwise use considerable resources on protecting their intellectual property rights."
This fits well with my world view.
My friend Matt Marx defended his HBS dissertation with a masterful analysis of the effect of Michigan's change in noncompetition enforcement on patent filings. When Michigan allowed big companies to enforce noncompetition agreements, patent filings (his measure of "innovation") went down, even accounting for economic downturns. Anecdotally, noncompete enforcement has been part of the explanation for why Silicon Valley has flourished while Massachusetts' equivalent, Route 128, has languished. It's not the difference between MIT/Harvard and Berkeley/Stanford.
If Bunnie is right, China is going to keep kicking our butts while we fight over who first called dibs on good ideas instead of investing our time and energy in making them better.
To my understanding, patents were supposed to be a bargain between an inventor who had invented something truly novel and would typically keep it a trade secret to prevent others from practicing the invention. So you'd give IP the rest of the world—who benefits from learning how it's done—in exchange for a period of monopoly rights so that you can keep practicing your invention as if it were a trade secret. It makes a lot of sense for something like chemical synthesis or materials engineering, but it makes next to no sense for "one click ordering", which pretty much any practitioner of the art of e-commerce could embody with only that three-word précis.
Patents have evolved from "I'll publish my commercially valuable secret in exchange for a period of protection" to "legally binding dibs". John Oliver invented this term, as far as I can tell, discussed here: http://time.com/3827888/watch-john-oliver-patent-trolls-last-week-tonight/
More protection isn't going to make us more competitive in a global economy. The Arduino/smartphone example is a great one.
The EFF's Stupid Patent of the Month reports:
"On August 29, 2017, the Patent Office issued U.S. Patent No. 9,747,468 (the ’468 patent) to JP Morgan Chase Bank, titled “System and Method for Communication Among Mobile Applications.” The patent covers the simple idea of a user giving a mobile application permission to communicate with another application. ... The Patent Office handed out a broad software monopoly while ignoring both common sense and the real world."
Because:
"JP Morgan’s “invention” was not just obvious, it had been implemented in practice. At least some mobile applications already followed the basic system claimed by the ’468 patent. In early 2012, after Apple was criticized for allowing apps to access contact data on the iPhone, some apps began requesting user permission before accessing that data. Similarly, Twitter asked for user permission as early as 2011, including on “feature phones”, before allowing other apps access to its data. Since it didn’t consider any real world software, the Patent Office missed these examples."
Exactly how is giving this monopoly to JP Morgan Chase supposed "to promote the progress of useful Arts"?
Amanda Chicago Lewis at GQ reports today's patent system dysfunction:
"a secretive company called BioTech Institute LLC had begun registering patents on the cannabis plant. Three have already been granted, and several more are in the pipeline, both in the U.S. and internationally. And these are not narrow patents on individual strains like Sour Diesel. These are utility patents, the strongest intellectual-property protection available for crops. Utility patents are so strict that almost everyone who comes in contact with the plant could be hit with a licensing fee: growers and shops, of course, but also anyone looking to breed new varieties or conduct research. Even after someone pays a royalty, they can’t use the seeds produced by the plants they grow. They can only buy more patented seeds."
People complain that USPTO grants many bogus patents. More usefully, Greg Aharonian posted to Dave Farber's IP list an extremely interesting explanation of why the USPTO grants so many bogus patents.
Patent holders are evading the patent review process by claiming sovereign immunity, for example by "selling" their patents to Indian tribes:
"The drugmaker Allergan announced Friday that it had transferred its patents on a best-selling eye drug to the Saint Regis Mohawk Tribe in upstate New York — an unusual gambit to protect the drug from a patent dispute.
Under the deal, which involves the dry-eye drug Restasis, Allergan will pay the tribe $13.75 million. In exchange, the tribe will claim sovereign immunity as grounds to dismiss a patent challenge through a unit of the United States Patent and Trademark Office. The tribe will lease the patents back to Allergan, and will receive $15 million in annual royalties as long as the patents remain valid."
Rachel Sachs' post on a Harvard Law blog Be Very, Very Concerned About What Allergan Just Did adds a lot of detail to the red flag raised by the New York Times in the previous comment:
"In short, if repeated and taken to its logical conclusion, this transfer has the potential to prevent most invalidity challenges to any drug patents."
But on Dave Farber's IP list Greg Aharonian corrects her:
"In short, if repeated and taken to its logical conclusion, this transfer has the potential to prevent any invalidity challenge to ALL patents."
Greg points out that there's very little specific to drug patents in Rachel's post. It has been updated, which accounts for the mismatch in wording. The update points to further legal scholarship on this issue; none seems reassuring.
It didn't take long to find out that Greg Aharonian was right. At Ars Technica, Joe Mullin's Apple is being sued for patent infringement by a Native American tribe reports:
"Apple gets sued for patent infringement dozens of times each year, mostly by little-known shell companies with no products—the types of companies often derided as "patent trolls." But the newest lawsuit seeking royalty payments from iPad sales is likely a first: the recently created plaintiff, MEC Resources LLC, is wholly owned by a Native American tribe. The MEC lawsuit appears to be using Native American legal rights to avoid having the US Patent Office perform an "inter partes review" that could invalidate the patent."
The House Committee on Oversight and Government Reform is investigating Allergan's patent transfer to the Regis Mohawk Tribe.
Calling it "One of the most brazen and absurd loopholes I’ve ever seen, and it should be illegal.":
"Sen. Claire McCaskill (D-Mo.) has introduced a bill (PDF) that would head off Allergan’s strategy without waiting to see whether the judges at the Patent Trial and Appeals Board will even approve it."
Cory Doctorow reports that:
"Section 108h of the Copyright Act gives libraries the power to scan and serve copies of out-of-print books published between 1923 and 1941; it's never been used before but now the mighty Internet Archive is giving it a serious workout, adding them to their brilliantly named Sonny Bono Memorial Collection ... The Archive is working with Tulane's Elizabeth Townsend Gard and her students, who are planning to post "thousands" of books to the Bono Collection (currently they've done 67 of them)."
Brewster Kahle has the details here.
The judge in the Allergan patent suit asks:
"whether the Tribe should be joined as a co-plaintiff in this action, or whether the assignment of the patents to the Tribe should be disregarded as a sham."
Who knew that authors who have signed away their copyright may be able to get it back? Creative Commons and Authors Alliance have released the Termination of Transfer tool:
"Creators of all kinds routinely transfer rights to their works (by signing publication contracts that assign copyright to their publishers, for example). While many of these agreements last “for the life of copyright” (which under current United States law generally means seventy years after the author dies), the law takes into account that these terms can ultimately be unfair to authors and artists. This is where “termination of transfers” come in.
In the United States, authors can use the termination of transfers laws to regain the rights they have signed away. But because the law is complex, and because it requires that authors wait years or decades to take advantage of it, creators need to be patient, savvy, and persistent to exercise this right."
A interestingly different view of the Chinese technology innovation ecosystem from NYU professors Clay Shirky interviewed on video by Scott Galloway, primarily on the sales, marketing, delivery and support aspects. Especially interesting on the Xiaomi flameout.
Hat tip to Barry Ritholtz.
Judge throws out Allergan patent, slams company’s Native American deal by Joe Mullins at Ars technica reports:
"A federal judge ruled today that patents protecting Allergan's $1.5 billion blockbuster dry-eye drug, Restasis, are invalid due to obviousness."
and:
"But Judge Bryson's opinion (PDF) on the matter makes clear that he does not endorse or validate the deal to essentially purchase sovereign immunity from the St. Regis Tribe.
"The court has serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed," Bryson writes. In his view, Allergan has paid the Tribe to "rent" its sovereign immunity at the US Patent Office."
Portugal Bans Use of DRM to Limit Access to Public Domain Works by Jeremy Malcolm on the EFF's Deeplinks blog reports on Portugal's new law on DRM:
"Portugal has recently passed a law on copyright that helps to strike a fairer balance between users and copyright holders on DRM. The law doesn't abolish legal protection for DRM altogether ... However, Law No. 36/2017 of June 2, 2017, which entered into force on June 3, 2017, does grant some important new exceptions to the law's anti-circumvention provisions, which make it easier for users to exercise their rights to access content without being treated as criminals."
These include permitting circumvention of DRM for "fair use" (e.g. by libraries and archives), banning DRM-ing of public domain or government-financed works, and requiring authorization from the copyright owner for the use of DRM.
Empirical evidence from the Brookings Institution for three reasons for bogus patents. Timothy B. Lee reports they are:
* The United States Patent and Trademark Office (USPTO) is funded by fees—and the agency gets more fees if it approves an application.
* Unlimited opportunities to refile rejected applications means sometimes granting a patent is the only way to get rid of a persistent applicant.
* Patent examiners are given less time to review patent applications as they gain seniority, leading to less thorough reviews.
Go read the whole thing.
In Why Mickey Mouse’s 1998 copyright extension probably won’t happen again Timothy B. Lee writes:
"we talked to groups on both sides of the nation's copyright debate—to digital rights advocates at the Electronic Frontier Foundation and Public Knowledge and to industry groups like the Motion Picture Association of America and the Recording Industry Association of America. To our surprise, there seemed to be universal agreement that another copyright extension was unlikely to be on the agenda this year."
Maybe hell will really freeze over and a Disney copyright expire.
In Why the roots of patent trolling may be in the patent office Timothy B. Lee reports on more research into the dysfunction of the patent system:
"A recent study suggests that the roots of the patent trolling problem may lie with the US Patent and Trademark office—specifically with patent examiners who fail to thoroughly vet patent applications before approving them.
So-called patent trolls "disproportionately purchase and assert patents that were granted by 'lenient' examiners," write Harvard economist Josh Feng and his co-author Xavier Jaravel of the London School of Economics in a December paper.
... Feng and Jaravel found that examiners who demand the fewest changes to patent claims account for a disproportionate share of patents that ultimately wind up in patent lawsuits.
And these effects are large: the pair found that patents reviewed by examiners who are one standard deviation more "lenient" than average are 63 percent more likely to be purchased by a patent enforcement entity and 64 percent more likely to be involved in litigation."
"the lead partner at Shore Chan DePumpo, Michael Shore, is a wee bit sensitive about [the trainwreck resulting from tribal sovereign immunity claims]. Roy Schestowitz of the site Techrights.org has been writing about all of the PTAB shenanigans in numerous posts on his site. For example, here's a post he wrote on March 18th, about the anti-PTAB movement. That post, along with earlier posts about the PACED Act included a headshot of Michael Shore, the lawyer mentioned above.
Last week, another lawyer from Shore Chan DePumpo, Shukri Abdi, sent Schestowitz a laughably ridiculous cease and desist letter, claiming that Schestowitz was infringing on Shore's copyright in using a thumbnail of his headshot in those stories."
From Mike Masnick's Lawyer Behind Failing Sham To Protect Sketchy Patents Sends Bogus Copyright Cease & Desist To Blogger. Read the whole of it; you'll be glad you did.
"The Supreme Court on Tuesday upheld the constitutionality of a process for challenging low-quality patents. Since its creation in 2011, this "inter partes review" process has dramatically lowered the cost of defending against frivolous patent litigation." from Timothy B. Lee's Supreme Court upholds patent review process, dealing trolls a blow.
Greg Aharonian has a contrary view on the Supreme Court decision because of the intransigence of the Court of Appeals of the Federal Circuit:
"The Court of Appeals of the Federal Circuit (just below the Supreme Court) recently ruled against one company that three times defended itself in PTO IPR challenges to its patents. The losing side appealed to the federal courts, and the CAFC ruled that the federal courts are free to completely ignore the PTO's decisions, and that the battle starts anew. IPRs can easily cost $300,000. So after spending $1,000,000 at the PTO to fight off three IPRs, the patent owner probably will have to spend another $1,000,000 fighting the same battle in the federal courts."
Time for the Supremes to smack down the CAFC again.
In Patent Troll That Sued EFF And Lost... Now Loses Its Bullshit Patent As Well Mike Masnick reports on a success for the inter pares review process. As the EFF's Daniel Nazer writes:
"Now the Patent Office has found key claims from the ’400 patent invalid.
The ’400 patent described its “invention” as “a Graphic User Interface (GUI) that enables a user to virtualize the system and to define secondary storage physical devices through the graphical depiction of cabinets.” In other words, virtual storage cabinets on a computer. E-Bay, Alibaba, and Booking.com, filed a petition for inter partes review arguing that claims from the ’400 patent were obvious in light of the Partition Magic 3.0 User Guide (1997) from PowerQuest Corporation. Three administrative patent judges from the Patent Trial and Appeal Board (PTAB) agreed."
"In a unanimous decision, an appellate court has resoundingly rejected the legal claim that sovereign immunity, as argued by a Native American tribe, can act as a shield for a patent review process." reports Cyrus Farivar in Court: Native American tribe can’t be a “sovereign” shield during patent review. So that "one weird trick" didn't work.
"First, examiners grant considerably more patents to the firms that ultimately hire them. This fact alone does not imply examiners are ‘captured’, but comparisons among the over one million applications rule some alternative explanations out. For example, the difference is not driven by whether some examiners are more generous overall or whether certain firms are, on average, more successful."
From Revolving Doors and Regulatory Capture, an important study by Haris Tabakovic and Thomas Wollmann. They demonstrate that granting patents applied for by a law firm is an effective and widely used technique for getting hired by the law firm in question, and that such patents are of lower quality than average.
Cory Doctorow's How the patent office's lax standards gave Elizabeth Holmes the BS patents she needed to defraud investors and patients starts:
"When legendary grifter Elizabeth Holmes was 19 years old, she conceived of a medical device that could perform extensive diagnostics in an eyeblink from only a single drop of blood; she had no idea how such a device would work or whether it was even possible, but that didn't stop her from drawing up a patent application for her "invention" and repeatedly submitting to the patent office until, eventually, she was awarded a patent for what amounted to a piece of uninspiring design fiction."
It is based on a must-read op-ed at Ars Technica by the EFF's Daniel Nazer entitled Theranos: How a broken patent system sustained its decade-long deception:
"For any disaster as large as Theranos, there’s plenty of blame to go around, of course. Both Holmes and former COO Sunny Balwani now face federal fraud charges. Theranos’ star-studded board of directors failed to do adequate oversight. Walgreens ignored warning signs before launching its in-store partnership. Some VCs and journalists were too eager to believe Theranos’ unproven claims.
But the patent system also played an important, and often overlooked, role in the situation. The USPTO gave out patents much too easily, giving Theranos early credibility it didn’t deserve. Theranos then used these patents to attract staff, investors, and business partners. The company would last for 10+ years and burn through half a billion dollars before the truth finally emerged."
Are “Patent Trolls” Stick-Up Artists or Just Benign Middlemen? from Chicago school economists Ufuk Akcigit and Jeremy Pearce argues that:
"First, we find evidence that NPEs can be beneficial in improving allocation of technologies to end users (benign middleman), but also use the patent system to threaten litigation on downstream firms (stick-up artist). Second, the existence of NPEs in the market for ideas could discourage downstream innovators and encourage upstream innovators."
It suffers from treating all patents as presumptively valid.
Timothy B. Lee's How Qualcomm shook down the cell phone industry for almost 20 years reports on Judge Lucy Koh's massively documented 233-page opinion that Qualcomm's patent abuse violated anti-trust law:
"The legal document outlines a nearly 20-year history of overcharging smartphone makers for cellular chips. Qualcomm structured its contracts with smartphone makers in ways that made it almost impossible for other chipmakers to challenge Qualcomm's dominance. Customers who didn't go along with Qualcomm's one-sided terms were threatened with an abrupt and crippling loss of access to modem chips.
"Qualcomm has monopoly power over certain cell phone chips, and they use that monopoly power to charge people too much money," says Charles Duan, a patent expert at the free-market R Street Institute. "Instead of just charging more for the chips themselves, they required people to buy a patent license and overcharged for the patent license."
Now, all of that dominance might be coming to an end. In her ruling, Koh ordered Qualcomm to stop threatening customers with chip cutoffs. Qualcomm must now re-negotiate all of its agreements with customers and license its patents to competitors on reasonable terms. And if Koh's ruling survives the appeals process, it could produce a truly competitive market for wireless chips for the first time in this century."
Go read the whole thing and weep.
Mike Masnick asks a good question in If Patents Are So Important To Innovation, Why Do Innovative Companies Keep Opening Up Their Patents Rather Than Enforcing Them?:
"If patents really were so vital to innovation, why would all of these innovative companies be so quick to give them up? And why is it so incredibly rare that any of them assert patents against competitors? Instead, so much of the patent litigation we see is against those innovative companies coming from a variety of patent trolls (frequently lawyers who never innovated at all) or also ran companies which may have been innovative in the past but have long since seen their innovative days in the rearview mirror."
Mike Masnick reports on the total corruption of the patent courts in Former Patent Litigator Becomes Federal Judge And Begins Advertising For Patent Trolls To Come To His Court (And They Have In Droves):
"as Patent Progress notes, there's a new judge vying to be at the top of the patent troll's Christmas list, and he's in West Texas. Judge Alan Albright, a former patent litigator, was appointed to the bench in 2018 -- and he literally went on a tour to convince companies to bring patent cases in his court"
Read the whole thing - it is a truly appalling story.
Michael Olenick explains how the patent for CRISPR ended up with Feng Zhang while the Nobel for ti ended up with Jennifer Doudna and Emmanuelle Charpentier in Latest Nobel Prize in Chemistry Demonstrates How the US Patent Office Screws Inventors.
Mike Masnick takes Judge Rader to the woodshed in Watch Out: The Patent Maximalists Are On The Warpath To Destroy Innovation And Empower Patent Trolls. Who is Judge Rader?
"Judge Randall Rader, who ran the federal patent court, the Court of Appeals for the Federal Circuit (CAFC), for many years before stepping down due to an ethics scandal.
That ethics scandal? Being way too chummy with patent lawyers who practice before him. As we've noted over the years, part of the problem with the setup of CAFC -- a special appeals court for all patent appeals cases to go to -- was that the judges on it tended over time to buy into patent maximalism, because they basically only spoke to patent lawyers."
Go read the whole thing.
Dean bake's Yet Another Diatribe on Patent Monopolies and How They Are Not Talked About in Polite Company points out another downside of patent monopolies:
"In case the point is not entirely clear, by raising drug prices far above the free market price, patent monopolies provide a powerful incentive for drug companies to push their drugs, even in contexts where they may not be safe or the most effective treatment for a specific condition. This is Econ 101. People respond to incentives. The high prices allowed by patent monopolies give companies large incentives to sell as many prescriptions as possible.
While generic companies also make a profit and also have an incentive to sell as many prescriptions as possible, the margins for generic manufacturers don’t provide anywhere near the incentives provided by patent monopoly prices. In the former case, we may be looking at markups of, say 100 percent, over the costs of manufacturing and distribution. In the case of patent-protected drugs, the markups can easily be several thousand percent. For those sorts of profits, companies are willing to lie about the safety and effectiveness of their drugs."
Finally, the New York Times Editorial Board wakes up to the problem in Save America’s Patent System:
"The United States Patent and Trademark Office is in dire need of reform.
The agency was created more than two centuries ago for the express purpose of protecting and promoting innovation. For most of the ensuing decades, it has stood as a beacon of American ingenuity. But critics say that by the time the office issued its 11 millionth patent last year, it had long since devolved into a backwater office that large corporations game, politicians ignore and average citizens are wholly excluded from. As a result, not only is legal trickery rewarded and the public’s interest overlooked, but also innovation — the very thing that patents were meant to foster — is undermined."
The staff of opensource.org have a blog post entitled NOME patent troll stripped of patent rights:
"A recent decision at the US patent office may well give patent trolls cause to steer clear of open source projects – even more than the fierce resistance the community impressively funded and mounted in the GNOME case.
The patent troll who attacked them also lost the patent it was using for the assault, following the persistent efforts of McCoy Smith, an open source community legal specialist.
...
In October 2020, Smith’s firm LexPan Law filed a re-examination proceeding against the Rothschild ‘086 patent. Unwilling to let companies such as this—trolls who exploit patents without significant businesses other than collecting patent royalties or litigation settlements—continue to threaten the open source community, Smith pointed out in a re-examination request to the U.S. Patent & Trademark Office that the patent was not for any new invention. They agreed. As a result, all of these “claims” in the Rothschild ‘086 Patent – the part of a patent describing what the patent rights cover – have consequently been canceled. The Rothschild ‘086 patent can no longer be used against any victim, including open source projects."
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