Read the seven articles that make up the survey in the October 22-28th 2005 edition of the Economist. (Subscription necessary.)
Excerpts:
"The role of intellectual property is changing from that of an asset used by businesses for their own purposes to that of an input for webs of innovation among clusters of firms. Intellectual property is moving from enabling a transfer of knowledge to creating a market for it. It is providing liquidity for innovation.......These days, companies are using intellectual property to provide legal certainty for their development community. Be it through licensing agreements, patent pools or a commons for open-source, innovations are increasingly being shared." (Emphasis added.)
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"It may be better to limit rather than expand the scope, duration and protection provided by intellectual property. But there is no way of being sure without serious economic study. Inexcusably, that has been lacking. Intellectual-property policies are often made without a proper basis, and strongly influenced by private lobbying. A first step towards a more coherent policy is the Adelphi Charter issued earlier this month by a prominent group of intellectual-property experts organised by the Royal Society of Arts in London. One of its merits is to lay down a public-interest test for governments to use before expanding intellectual-property rights. The default option, it says, should be to leave well alone, and the burden of proof should be on the advocates of change."
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"IBM alone now earns over $1 billion annually from its intellectual-property portfolio. HP's revenue from licensing has quadrupled in less than three years, to over $200m this year. Microsoft is on course to file 3,000 patents this year, when in 1990 it received a mere five. Earlier this year it set up an entirely new corporate division to exchange its technology for cash or equity in start-up firms. Nokia has recently started licensing its technology to other firms and plans to do more. And some companies, such as ARM, a British firm that designs the blueprints for microchips used in wireless devices, do little other than create and sell intellectual property."
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"In principle, patents open up innovations in two ways. First, they confer only temporary rights; once patents expire or are abandoned, the intellectual property they are designed to protect passes into the public domain. Second, they require the details of the invention to be disclosed so they can be replicated. This permits follow-on innovation, which is essential for industrial progress.
"More recently, as the patent system has evolved, it has been seen to provide other benefits. It leads to a degree of economic specialisation that makes business more efficient. Patents are transferable assets, and by the early 20th century they had made it possible to separate the person who makes an invention from the one who commercialises it. This recognised the fact that someone who is good at coming up with ideas is not necessarily the best person to bring those ideas to market.
"Such specialisation is now so common that it is taken for granted. Semiconductors, the silicon chips that power digital devices, are typically designed by specialist firms that are good at engineering, but physically produced by other firms whose expertise lies in manufacturing. As the patent system has matured and licensing has become much more widespread, these transfers are turning business relationships on their head. Some economists argue that the growth of patent transactions is establishing a proper 'market for technology'."
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"The technology industry faces the question of whether today's abundance of patents, rather than lubricating the gears of innovation, may be clogging them up. Already, businesses are having to negotiate with other firms in order to do basic things such as reading files from different proprietary formats; and the design of new technology products now involves lawyers as well as engineers. The proliferation of patents might prove a serious encumbrance to businesses, just as travellers along the Rhine in medieval Europe were slowed down by having to pay a toll at every castle.
"James Boyle, a legal scholar at Duke Law School in North Carolina, claims that the current increase in intellectual-property rights represents nothing less than a second 'enclosure movement'. In the first enclosures, in 18th- and 19th-century Britain, the commons—open fields used by many, belonging to all, owned by none—were fenced in, and nearly all land became private property. By analogy, the granting of property rights on ideas, to the extent it is happening today, is plundering the intellectual commons of our public domain.
"Others see the expansion of intellectual-property rights as hugely beneficial, leading not only to more innovation but to more openness."
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"Nokia has over 12,000 existing patents globally, and 10,000 innovations in the process of being patented. It files around 1,500 applications a year. IBM has around 40,000 patents and is granted 3,000 more every year, which has made it the number one recipient at America's patent office for the past 12 years. HP last year ranked fourth in America, with 1,783 patents; worldwide, it holds around 25,000. Microsoft has recently sprinted into the market, with around 10,000 applications pending.
"Patents have grown in parallel with an increase in spending on research and development. One rule of thumb is that tech companies file almost two patents for every $1m they spend on R&D........by the end of the 1990s firms were able to obtain more than twice as many software patents for every R&D dollar they spent than at the start of the decade."
"Despite this proliferation, numerous economic studies show that only about 5% of patents end up having any value, and that a small handful of those account for most of the income received from patents. Moreover, according to a study by America's National Bureau for Economic Research in 2000, patents were less effective in protecting innovation than things like secrecy, speed to market and complementary manufacturing, sales or service."
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"Intellectual Ventures represents a radically new business model for technology—a cross between a venture-capital fund, a law firm and an R&D lab. It wants to finance inventors to do what they do best—invent—and obtain patents on those technologies. Then it wants to license those innovations to the world (and pursue infringers with razor-fanged determination).......Already a gaggle of firms with fancy names such as iPotential, ipValue, Yet2.com and ThinkFire are making a business of patent transactions, and hedge funds are acquiring patent portfolios."
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"IBM......pledged 500 of its existing software patents to the open-source community, to be placed into a patent “commons” that allows open-source software developers to use the innovations and build upon them without risk of infringement......Nokia said it would not assert its patents against the inner code of Linux, a popular open-source computer operating system. In June, Red Hat, a big Linux distributor, said that it, too, would contribute to a patent commons. In September, Computer Associates donated 14 patents for free use by the open-source community. Open Source Development Labs, an industry forum, has offered to act as a repository for patent-commons projects......Sun Microsystems.....(has) made its Solaris operating system open-source.
"The trend towards open software code is an example of a bigger development in the technology industry: a new approach towards collaboration and “open innovation” that at times seems to work around the traditional intellectual-property system, and at times is directly fostered by it......
"How do IBM, Sun and others make money on open-source? The answer varies from company to company, but has to do with standards, interfaces and something the techies call “ecosystems” (that is, a community of third-party developers and service businesses that contribute to, and enhance the value of, the underlying product)......By giving up proprietary lock-in, firms can reap the advantages of open-source that accrue not just to one company but to all firms industry-wide. They can sell software that works on Linux, and they can count on a far wider ecosystem of developers and service companies to improve the software that benefits both them and their customers."
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"For the moment, both (India and China) are better known as places where intellectual property needs special protection. As a strategy for economic development, nabbing someone else's patents is nothing new. Immediately after America's declaration of independence, its government made it official policy to steal inventions from Europe, expediting the country's rise as an industrial power in the 19th century, notes Doron Ben-Atar of Fordham University in New York. Yet in India and China, the pressure for respecting intellectual property more is now beginning to come from domestic businesses.
"It will be a long, uncomfortable process, but again there are precedents. Japan, Taiwan and South Korea, which started off by competing mainly on cheap labour, ended up challenging the West's biggest technology companies. Taiwan now makes the vast majority of the world's computer components, and its companies own a plethora of patents. South Korea's Samsung became one of the top ten recipients of patents granted by America's patent office in the 1990s, and still is. Japan earns the largest number of patents at the same office after America itself."
Final comment
The articles together describe a rapidly changing institutionalization of intellectual property in ICT industries. On the one hand, (much appreciated by the Economist) market institutions are evolving to commercialize intellectual property. On the other hand, civil society institutions are evolving promoting open source intellectual property. Knowledge once held by the firm through trade secrets is increasingly being shared. It will be interesting to see how the institutions continue to evolve, and whether they will do so in ways to enhance and promote innovation and technological progress.
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