Wednesday, May 08, 2013

Reseller Nation

In the United States more than 200,000 patents a year are issued and each patent has a potential life of 20 years. Most patents are written in broad, vague language that make it almost impossible to build the invention that is claimed just by following the instructions in the patent. This vague language also provides a very blurry boundary for the claims. For the most part, they're idea land grabs.

On the other hand, we have automatic copyright of anything and everything that is written. Each copyright is good for 70 years plus the life of the author. The copyright enforcement regime is incredibly stringent for the consumer, but not for the creator or rights holder. Copyright holders have the power to determine the technology choices available to view or hear protected works. Copyright holders are nothing if not gods in the eyes of the courts.

It is pretty amazing how much power has been given to the rights holders and how little accountability is imposed on the same.

In 2003, The SCO Group sued IBM for copyright infringement. They claimed that IBM had copied code from UNIX into Linux without authorization. After years of motion practice, discovery and many press releases on the part of SCO in the vain hope that IBM would settle, the case has not gone to trial yet. Worse, while that case was in process, SCO was sued by Novell over the copyrights.

In the end, SCO lost a jury trial against Novell where the jury found that SCO did not own the copyrights. What this means is that SCO sued IBM over copyrights it did not own and now there is a teetering pile of counterclaims just waiting for SCO when the trial gets back on calendar again. So far, everyone involved has lost money and everyone on SCO's side has, for now, escaped personal liability for their actions.

Prenda Law seems to be a newcomer that has been making the news lately. Prenda Law is yet another copyright troll that has been tracking Bittorrent users with nothing more than an IP address and suing them for downloading porn, shakedown style. "Just give us the money and we won't publish your name." They have been having a rough time in court lately, mostly because the judge is onto their game.

Even Viacom and Fox have no compunction when it comes to issuing bogus takedown notices to YouTube for content they do not own. There is almost no penalty for their actions, yet, they are costing legitimate businesses real money.

Patent trolls are starting to enter the national consciousness. In polite circles they are known as patent assertion entities. Examples abound, but the largest and probably the most famous is Intellectual Ventures, founded by Nathan Myhrvold. Intellectual Ventures is probably the most feared patent troll on the planet due to its size and patent portfolio.

Patent trolls issue a strong defense against the derogatory term and insist that they are doing good for the country and for innovation. They also take advantage of the uneven evidence burdens placed on patent holders and defendants who have no prior knowledge of the patent (hint: the defense has a a very high burden to prove that a patent is invalid). How else could patent trolls explain the need for thousands of shell companies they set up to collect royalties?

The USPTO has in recent years has operated at or near a 90% approval rate for all patent applications. With so many patents issuing, the USPTO is creating a patent thicket that inhibits newcomers from bringing new innovations to market and still make a profit. To do so, you must gain the support of a deep-pocket incumbent with a legal team that executes very thorough patent searches to clear the rights to bring a new product to market. Even after an expensive patent search, it is still possible to be sued by a patent troll.

These conditions give rise to a patent troll business model that is similar to the copyright troll. "Look, we're not asking for very much money if you settle. Sure it's a lot of money, but fighting us could run into millions. Just sign here, cut a check, and we'll go away."

Patent trolls are killing jobs by raising the barrier to market for any newcomer in almost any market, but with particular respect to the technology market. Small businesses are being sued for using scanners, email and wi-fi. Patent trolls are not promoting innovation. They are cashing in on the innovations of others.

Copyrights and patents combine together to form a very high barrier to market for many potential newcomers. I used to work for a firm that washes windows where I was tasked with creating a customer relationship management system. We decided to embark on this project after we found that what we were already using didn't work for the company (but the developer was very happy with vendor lock-in).

For about a year at the window washing company, I worked with another developer to build a new customer relationship management system. When it was nearly done, my boss asked me how much it would cost to bring it to market to sell to other companies. I hazarded a guess at about $500,000 and that was just to start. I don't think he ever got that off the ground, but he did continue to clean buildings and windows as before, he just had a better system to work with.

With so many barriers in place, there is really only one thing left to do for most people if they want to sell a product. They can resell a product produced by someone else who will then assume the liability for the same. When I say "liability" it is obvious that I'm talking about legal liability. While consumer safety is a considerable liability, patents and copyrights must be cleared before a new product can be brought to market. Now there are so many unknown rights holders waiting in the wings, that clearing all rights is nearly impossible or at least, very expensive.

Few people starting a small business can bring a new product to market if they have to clear all that and then pay suppliers and fabricators to put it all together. Better to join a franchise or a multi-level marketing organization. Care for a glass of Noni juice? If not, there is always eBay.

Franchises are all the rage these days as any shopping center will attest. In a franchise organization, all the rights to business processes and media have been cleared, so all you have to do is follow the manual and the business should just run by itself, right?

That leaves very little room for the true innovators. Most of the innovation these days is a result of serendipity, or an "itch" to fix a problem. Often, innovation and know-how takes place on the shop floor where things - real things - are made. But if you should bring your own innovation to market, you may find that the ghost of Jerome Lemelson has decided to sue your company.

So where do we go from here? A thorough re-examination of our copyright and patent systems is in order. If we want to bring the jobs home, we need to lower the barriers to the marketplace by either reducing the scope of protection and the penalties for infringement, or remove them altogether.

An examination of intellectual property rights should also include a measure of the effects of patents and copyrights on downstream innovation and creative works. If you ever thought regulation was a problem in the marketplace, then intellectual property rights should come under that fold. Intellectual property protection is another form of regulation, but business seems loathe to talk about that.

Until we have that discussion, I don't expect the economy to improve much over the long term.
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