Tag Archives: technology

Innovation and Software Patents

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Whenever a new type of product is released there are a lot of difficulties with intellectual property. This is being played out in biotechnology and software. As recently as last year it was possible to patent human genes in the US. See this link for the recent verdict against it. The ACLU also had a write up from 2009 when this case was still ongoing about the history of genetic patenting. Software is another case of this. Many people argue that since software is an algorithm or series of statements that leads to a result it should not be patentable. This makes sense as mathematical proofs are unable to be patented. The argument is that for proofs these are discoveries and more natural processes than creating technology.

In the EU it is not possible to obtain a software patent at all. They claim that with software there are multiple different methods to obtain the same output. Software patenting is a very recent trend. The most famous example is the Amazon.com one-click to buy button. Which, if you don’t know what it is, basically allows you to store an address and a credit card and automatically buy whatever product you’re looking at. Fairly simple right? Well there was a lawsuit against a major competitor, Barnes and Noble about this in ’99. Some how this patent managed to survive the re-review, even though it’s a fairly obvious idea and could be implemented in about a billion different ways. On the billions, I’m not even exaggerating. There would be so many different interactions that could make the actual implementation totally different. These range from database types, information request, how the data is actually stored in the data base. There could be nothing similar between the implementation at all, yet Amazon ones all the methods to do this. In terms of patents this is effectively an amazing patent.

Let’s put this more simply. If software patents had been allowable in the 70’s when software first started to take off we would be living in a different world. BIOS have been owned by IBM until 1990 or so, which would have made manufacturing computers a two horse race between Apple and IBM. Microsoft or Apple could have patented the Operating system, and then the graphic user interface. IT innovation would have been non-existent. Think of this, some one could have patented data sorting. There are a many different ways to sort data in the CS world and all of them would have been covered by a single patent. Then some one could have decided to patented sorting on a multi-core computer (by then sorting as a patent would have expired).

Software is more like a mathematical proof than it’s like inventing the computer.

Innovation in the software world has been amazing because it has been something of a free for all. However, there are drawbacks to this lack of IP protection. In the most recent version of iOS, iOS5, Apple has been accused of lifting many of it’s new “innovations” from apps that have been rejected from the app store, or that have been selling in the jailbroke iPhone app store. Here’s the link for the article. How do we deal with cases like this, either Goliath stealing from David or David stealing from Goliath? There needs to be some sort of protection.

Potentially copyright should cover this, or a registered design. Perhaps in the case of the app stores a non-compete agreement should be signed if the app is rejected by Apple. Meaning Apple won’t steal it. However, there is no easy solution. Software design thefts are going to be very difficult to manage and deal with.

Patents and Innovations

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So, I think that the news that Apple and Nokia decided to drop lawsuits against each other is a good starting point for this discussion. Here’s the BBC article discussing the decision. Basically, Apple decided to license several patents from Nokia. Which in itself has some implication for innovation within the Smart Phone market.

I plan to do several of these types of posts. However, in this one I will focus specifically on smart phones. This will extend to many other product spaces, but not to software or business models.

So first what are some implications of this agreement by Nokia and Apple? Well, the most obvious is that they aren’t suing each other any more. The less obvious is that neither of these cases was heard by a judge or a jury. This doesn’t allow us, the observer, to actually know if these patents were valid or not (see my post on patents to see what a valid patent is). In some cases the patent office, whichever office, may approve a patent that is invalid. This could be due to prior art, like the PB&J sandwich described in my patent post, or that it’s an obvious invention. The only way that a patent’s validity can be overturned is by a jury or a judge. Let’s say that Nokia is also suing HTC over the exact same infringement. HTC doesn’t believe that the Nokia patent is valid so they were also counter suing saying that it’s an invalid patent and HTC has the reasons why. So, this case goes to trial and Nokia is now able to say that Apple is currently licensing this patent from them. This claim will give a great deal of credibility to Nokia’s claim. At this point HTC may have to decide to license with Nokia to avoid the potential of a huge fine.

In this case Nokia has a tract record of being an innovative firm. What happens when the firm isn’t an innovative firm or has no products though? Well, these cases happen all the time. For instance a few years ago RIM, the maker of BlackBerry was hit with a lawsuit that would have effectively shut down the Blackberry network, or prevent emails. Here’s a link to when it started. While at the time it was a $60million fine, it eventually got up to $612.5 million. The firm suing BlackBerry NTP, doesn’t actually produce anything. They are a patent management firm. In other words, a patent troll.

So what does this do to our economy when it’s based upon innovation. Patenting is supposed to protect innovative firms from competition so they can exploit their invention. It’s supposed to grow the economy, as these firms can license out the patent and allow other people to manufacture the product. Well, in this case it took $612.5 million from the pocket of a firm that was innovating and creating a product and put it into the pocket of a firm that doesn’t produce anything. That’s not the best for innovation.

There are some good things about the patents though. For instance, once the Xerox patent expired for the copier, there was an explosion of innovation in the field and Xerox nearly lost all market share. It had to sprint to catch back up. How did this happen? Well, you are allowed to work on a patented technology for research and development. Xerox’s competitors didn’t sit idle while Xerox was dominating the market. They were waiting until they were able to sell a product and then unleashed pent up innovation onto the market. This was an excellent thing for consumers. We can thank the fact that this patent ran out for our 3 in 1 printers.

Innovation

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Yesterday I said I was going to discuss how patents impacted innovation. However, I think the first thing we need to do is clarify what innovation is. Schumpeter, described innovation as bringing a product to the market. He claims that without innovation, invention is worthless. Indeed, patents play this out. There is no legal requirement to actually manufacture anything that you’ve patented. I will discuss that in more detail tomorrow though. Schumpeter also notes that these innovations are the source of creative destruction in the economy. He claims that through innovation we are able to keep growing. He called these the long waves. See the picture below for a representation of these waves and the innovations that drove the economy at the time.

Based on Schumpeterian principles we can see that we should expect growth slow down and potentially economic issues at these times. So, if an innovation is bringing a product to a market, in what ways can we innovate? There are four ways in which innovation can occur in a product; Incremental, Modular, Architectural and Radical. Please see the picture below:

Henderson and Clark ,1990

Most innovation occurs in the upper left hand corner, incremental innovations. These are fairly obvious and most people aren’t surprised to see these products. Products like iPhone 3G after the iPhone first came out. this was an incremental innovation on this product. While Apple did a fantastic job making it sound like it was a radical innovation, it simply wasn’t.

The next most likely is the modular. In this case it could be considered that an electric car might be a modular change. As you only have to change one part of a larger piece of equipment. In this case a combustion engine is replaced with an electric engine.

The architectural changes are less common than either of the previous. As these ones typically require a great deal of changes within a firm. An architectural change can be described as going from a ceiling fan into a box fan (Henderson and Clark 1990). Seems pretty simple right? Well, there are a lot of changes that go into this innovation. You have to think about how to keep the box from falling over. How to keep the noise down. How to protect the users. You also have to manufacture everything differently. So, in many cases there are two innovations within an architectural innovation. One at the product level and one at the firm level. Another example is the reintegration of the original developers of the Mac into Apple after the successful product launch.

The final type of innovation is the radical innovation. This is the stuff that “creative destruction” is made from. When these types of innovations occur most of the previous knowledge base is blown away and the innovators have to start all over again. I’d say the most common example of something like this would be with game consoles. Basically each time a new one comes out everything starts all over again. Other examples can include things like the Jet engine from the propeller. Not only did this require changes in the aircraft but it also required changes in the runway, it needed to be longer than before.

There are many cases of Radical innovations and in some cases they completely reworked our economy. IT/ICT is the most recent set of radical innovations that is shaping our economy. These technologies are heavily patented and impact our economy. Tomorrow I will look at how these patents interact with innovation to increase or decrease the rate of innovation.

Further reading/Citation:
Henderson, R., Clark, Kim. “Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms” Administrative Science Quarterly, Vol. 35, No. 1.
http://dimetic.dime-eu.org/dimetic_files/HendersonClarkASQ1990.pdf

What is a Patent?

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In the news we hear about various lawsuits from high tech companies over patents. Right now there is a tangled mess of patent lawsuits flying back and forth between firms like HTC, Microsoft, Apple, Google, Motorola, Nokia, and the list goes on. So what are they suing each other about? Why are they suing each other? What kind of impact does this have on innovation in general?  All of these are important questions. To answer these first we need to understand what a patent is. In the most basic form a patent is a contract between the government and an inventor. This contract bestows certain rights to the inventor and certain obligations that the inventor must fulfill for the government. However, not everyone can enter into this contract. There are requirements for earning a patent. Note I say earning a patent not obtaining one. This is important.

Smart Phone Patent Thicket
So, how does the inventor earn this patent? Well, there are three basic criteria. The invention has to be novel, non-obvious, and useful. To be novel means it has to be new, no one has come up with this idea before. To be non-obvious, it has to be something that a person couldn’t figure out by looking at the device. For example if there is a patent on nail clippers, you can’t get a patent on a larger nail clipper. It’s an obvious invention. To be useful means it has to be intended for some sort of use and isn’t just technical details of something that cannot be used. This are the general requirements of patents. However there are some other nuances. For example, in Europe you cannot patent software but you can in the US. In Europe and the US you cannot patent genes. Basically these nuances are part of the reason why patent lawyers exists.
This doesn’t explain the patent mess shown above though. How does this happen? Well, the patent bestows a temporary monopoly for the inventor. Typically this is about 20 years, in some cases it can be extended like for pharmaceuticals. Here’s a link to a patent, i just picked one at random from RFIDs. So looking at this, if you scroll down until you see the word “Claims” these are what actually are protected. These items are what the inventors actually have the monopoly on. These are typically worded very vaguely and broadly to ensure maximum coverage under the law. Which means it’s easy to step on people’s toes. Which they will sue you for. I’ll discuss this in more detail in another blog post.
Since this is a contract, what does the government get in return? The inventor has to give full disclosure of how this invention works. Below you can see a picture from Philips’ electric razor. 
Philips electric razor USPTO
The release of this information should allow any competitor to recreate this technology in their lab. 
That is basically a patent. Rights to protect the invention with release of how the invention works. I will answer some of the other questions I posed in later blogs.