Was Michael Jackson a Patent Troll? Probably not.
Innovation is a beautiful thing and its benefactors are constantly the subject of an ad-hominem attack.
It has become increasingly common among individuals in the tech startup ecosystem to demonise Patent Assertion Entities (PAE), referring to them as unsavoury “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 startups and champion the Digital Millenium Copyright Act (DMCA), the legislation which allows websites not to be held culpable for hosted content 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”. But what if your streaming music technology actually is a patented process? Moreover, what if your streaming music technology actually is a patented process?
Would it be fair for you to make money off the innovation of another? Bram Cohen, the creator of BitTorrent created his protocol to be free and open, a choice which was solely his to make. 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.
Even Jonah Lehrer’s riveting book Imagine, removed from the shelves this week in wake of a scandal regarding the falsification of sources, dedicated a chapter to how cooperation and sharing allow technology companies to create more innovative products. He compared the 1970’s “Route 128” tech scene in Boston and the 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.
In 1985, Michael Jackson purchased the publishing rights to the 4,000 song-rich ATV music catalog, notably including nearly the entire Beatles discography, for $47.5m from a reclusive Australian tycoon. Among others, he beat out a consortium comprised of Paul McCartney and Yoko Ono. With that purchase, he owned 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 “so lovely” and “structured so perfectly” and not how financially lucrative they were. That said, he outmaneuvered many, potentially, more savvy business minds.
The Beatles originally spun off the rights to deflect a massive tax burden in the UK. ATV subsequently bought a majority ownership in the publicly owned company. And was then sold to the Australian Robert Holmes a Court.
In a conversation with The Kernel, entertainment and intellectual property attorney Tamera Bennett was quick to identify the multiple levels of rights licensed and sold in the music business. She offered the example of Dolly Parton’s hit single “I Will Always Love You” and subsequent cover by Whitney Houston in the movie “The Bodyguard”. The owner of Ms Parton’s rights owns the lyrics and the melody, and as such, collects 9.1¢ each 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 based on a vastly different rate scale as decided by the recording’s owner. For the former, clearinghouses exist to enable to standard remuneration, for the latter though, negotiations take place with the owner.
With its creation of the 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. (It should be noted that after Apple removed the DRM (digital rights management) protection from the iTunes store in 2009, they created three pricing tiers for iTunes songs: 69¢, 99¢, and $1.29.) But the iTunes store did something else.
"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," noted 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.
Patents are intellectual property just like the lyrics and melody of “I Will Always Love You”. They both require a combination of skill, time, creativity, and inspiration to create. Similarly, just because someone else utilizes 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 make 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/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 on already created creations. 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 sites, allowing companies to create revenue channels based on their existing information.
For a young company, incorporation of the Google Mapping API for free until they hit a certain limit. That 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 would benefit everyone.
All the incubators and accelerators need to inform their companies 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 startups until they grow to a certain level.
What needs to happen is that 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, much like iTunes model.
Currently, companies like Intellectual Ventures sell licences to their entire catalog of patents to companies, in a non-automated process. It must be mentioned that while it acquires patents, it also creates new patents and spins out companies based on owned technologies.
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-esque solution would result in a more democratic patent system and 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 these patent battles.
Marketplaces and standardised cost models exist for other sorts of intellectual property, why should innovative ideas be any different? As United States President Barack Obama said recently in a speech, “you didn’t build that.” Innovators preceded you and simplified processes you benefit from.