[Fsfe-uk] McCarthy report withdrawn

[Adam Moran]

hi,

i'm new to this list - i'm cross posting this to the [Fsfe-ie] list

From:   Ciaran O'Riordan
Date:   Sun, 31 Aug 2003 20:11:50 +0100

> BTW, MEPs are being inundated with mail about swpats.  This is good in a
> way but we should try to reduce the volume and increase the quality
> of our lobbying.  i.e. produce joint, peer-reviewed letters so that
> they get a readable amount of mail from us.

i think this is the way to go

From:   Bernard
Date:   Sat, 30 Aug 2003 00:11:56 -0000

> Not neccesarily, it [the directive proposal ]*can* be turned down, but a 
> majority of the MEPs
> would have to agrree. If more english MEPs could get an understanding
> that it's not good for europe, it could be a final step, but we are far from
> it of course.

> I'd say it's essential to convince as many individual MEPs as possible in
> the
> week after the plenary that a directive like the proposed one would
> put the mostly small european software companies at a drawback
> against non-european multinationals.

this is the line with the stance i have been asked to adopt for this 
group http://webarchitects.co.uk/ - i wrote to our local mp richard 
allen, at the weekend, who has this blog 
http://www.sheffieldhallam.co.uk/blog/index.php ... with the same 
attachment as i have put on this one - laura creightons analysis is the 
coherent argument of the small to medium size business

From:   Bernard

> Instead *in my dream* the EP could start an resolution to the commission
> to force the EPO the put examination guidelines into force which prevents
> it from granting patents on software and put an european patent observatory
> in charge to continously monitor the work of the EPO and report it to the
> parliament/plenary regulary - like the European Central Bank does.

my eldest daughter says 'if you are going to have dreams dad, have a big 
ones ;)' ... what's killing software sme's in this country is lack of 
working capital - you just can't borrow working capital as you have no 
'real' business assetts - the e.u. ought to do an 'Airbus' on us and 
give us backing

this next bit is from [Fsfe-ie] list, and i think it makes sense to have 
as much involvement as possible

-----------------------------------

[Fsfe-ie] Minutes [Glenn Strong ] wrote:

>>>    - We could provide a "throwaway" web site
>>>      (e.g. irish-anti-e-patents.org) that we could direct
>>>      people to.

Aidan Delaney wrote:

>> It looks like I may be getting http://ifso.cs.may.ie, if that's any 
help.

i wrote:

if it would help we could set up a site on our servers which run 
http://mkdoc.com/ - this would allow for multiple editors, rss import 
and export, all the usual spiel - we could set it up at a temporary 
domain until one was picked - Ciaran could blog away happilly until more 
folk joined in  ;)  ... and we'd be able to re-purpose each others 
content to suit firstly our mutual and secondly individual goals - my 
guess its all the same goal in any case

strange how the same mode of production used for FLOSS is now our friend 
again to protect it - you never know; there may be hope :)

---------------------------------

let me know if your interested

--
adam


Subject:
[Patents] Creighton: e-Patents and Financial Investing
From:
Seth Johnson <address@hidden>
Date:
Sun, 07 Sep 2003 10:20:07 -0400
To:
address@hidden, address@hidden, address@hidden, address@hidden, address@hidden, 
address@hidden

>> http://vrijschrift.org/swpat/030508_1/index.html



e-Patents and Financial Investing

Introduction

During the hearing about patenting software on May 8, 2003 in Brussels Laura
Creighton spoke in an illustrative way about the subject. She gave
permission to publish the text at Vrijschrift.org. Reading this is a good
starting point to get familiar with the threat software patents cause to our
society. 

Laura's story

Hello, my name is Laura Creighton, and I am a financial investor. I am here
representing my own company AB Strakt, where I am a founder and a Member of
the Board of Directors ( http://www.strakt.com ) and the Python Business
Forum ( http://www.python-in-business.org ) a non-profit organisation
representing 50 companies, from all over the world, who develop software
using the Programming Language Python, and myself as a small investor. Since
January 2000 I have invested nearly 3 million Euros in small software
companies in Europe. I would like to explain to you why Software Patents,
far from increasing competitiveness, actually destroy competitiveness and
are detrimental to my industry as a whole and thus to all members of
Society.

I am not here to denounce the Patent System in general, or to object to the
notion of one central European Patent Office. These goals are laudable. My
objections centre around software patents and software patents alone. I
would like, at this time, to remind you that what you are being asked to do
is to create new law, and change existing practice. You are being asked to
regulate something which has never been regulated before, and establish a
monopoly in software creations. I have read the proposed legislation, and
nowhere do I see any claims as to why Society will be better off if we allow
software patents. The best I could come up with is that some people think
that it would be good to have software patents because the Americans already
have them, while other people believe that if patents are good for other
technology based industries, then they ought to be good for Software as
well.

These are both misconceptions. First of all, the granting of Software
Patents in the United States is an extremely recent phenomenon. Later today
you will hear from American regulators, lawyers, and legal experts who will
report on the results of this experiment. The findings are uniformly
negative (see: James Bessen and Robert M. Hunt, "An Empirical Look at
Software Patents" http://www.researchoninnovation.org/swpat.pdf ). American
software patents are not responsible for the Internet, or the editors and
other programs with which you are likely familiar. We built all of these
things before there were software patents in the United States, at a time
when software, if protected at all, was protected by Copyright and Trade
Secrets. These protections already exist here in Europe as well. They work
fine. So the question then becomes: 'Why are you being asked to change
existing practice?'. As the colloquial expression has it: 'If it ain't
broke, don't fix it.' Why are you being asked for a fix to a non-existent
problem?

A large portion of the blame comes from my corner of the world -- the
investment corner. In order to understand why many venture capitalists are
in favour of software patents (or were at one time), we need take a brief,
historical tour of the Patent System, itself (historically speaking) a
recent phenomenon. (For those who are interested, a more detailed tour is
available at
http://www.patent.gov.uk/patent/history/fivehundred/origins.htm)

Why has Society traditionally handed out patents? What do we get for the
trouble of creating a new class of prohibited activities, and making more
work for our existing civil servants? Why Patents? Traditionally, there have
been five reasons, which I will outline.

The earliest patents were King's monopolies. The King would grant a
monopoly, because he wanted to. This leads to:

1. A way for the King to reward his supporters and friends, and often to
enrich his own coffers.

These sorts of Patents and Monopolies were common. Society did not benefit,
and was indeed harmed by such patents. (In England, patent abuse was
directly responsible for the removing of the King, and his head.) 

2. To import a technique that exists in some other part of the world into a
country where the technique was unknown.

Sometimes, the only way to import a new technique was to grant a limited
monopoly to a foreign expert. For instance, the earliest known English
patent for invention was granted by Henry VI to Flemish-born John of Utynam
in 1449. The patent gave John a 20-year monopoly for a method of making
stained glass, required for the windows of Eton College, that had not been
previously known in England.

Granting this sort beneficial patent was seen by Society (and the king) to
be the lesser of two evils. It presents the typical case, where Society is
told, in effect, 'grant the monopoly or do without'. Without the Patent,
John of Utynam would have stayed home.

3. To enforce standardisation.

When the initial English train inventors began to produce trains, each
picked a different size of a wheelbase. Thus the tracks were set at
different distances apart, and each train could only run on his own set of
tracks. This was hideously inefficient. From time to time, Society grants
monopolies, in areas such as telephony, out of an intense desire to make
sure that everybody in Society is in the same system. In this case the
monopoly, generally a thing to be avoided, is what is desired for its own
sake beyond all other considerations.

These days, most of this effect can be had by mandating that all producers
abide by some common standard, rather than by allowing one player's current
practice to become the standard by forbidding others to compete with him.

4. To allow inventors to acquire private capital.

An inventor often needs capital in order to build a factory for the
manufacture of his invention. In some nations, most recently among the
South-East Asian 'Tigers', the government sees the provision of such capital
as one of its jobs, but generally this is left to private investors. (People
like me.) But people like me are reluctant to part with our capital without
assurances that the other private financiers are not all trying to back
similar projects. On the day our new factory opens, we don't want to
discover that there are 14 other factories scheduled to open the very same
week.

This is especially true because it is atypical for the first entrant into
any market to also be the most successful. Later entrants take the
successful idea, and skip the mistakes made by the pioneers, to produce a
more profitable company. With the granting of monopolies, the nature of the
competition changes. The initial company only has to establish such a
commanding lead that nobody can catch them. They will thus forever remain
the market leader. Their early mistakes go unpunished, since nobody is
competing with them in their industry.

This is bad for Society. But the alternative is worse. Private capitalists
would refuse to lend. They would wait, hoping that somebody else would be
the pioneer, and they would only be 'the team that did it better'. This
would result in many inventions never reaching market at all. Once more, the
Patent is seen as the lesser of the two evils. 'Grant the monopoly of do
without', again.

The computer industry has seen plenty of these sorts of patents -- hardware
patents. We will come back to them later.

5. To defer the extremely high development costs of new products.

This is a relatively new development. Society has seen fit to grant
monopolies because some useful products have enormous development costs. For
instance, in the pharmaceutical industry, researching a new drug is fairly
cheap and easy -- but the clinical trials necessary to demonstrate that the
new product does not harm consumers is overwhelmingly expensive.
Pharmaceutical companies have plead for and received the right to 'gouge'
the local consumers by selling new drugs much above cost, in order to defer
these costs. Again, this is a case where the benefit is considered to
outweigh the disadvantages. If we did not grant such monopolies, then the
government might have to foot the bill for the clinical trials. Better to
let private enterprise do this, and have the users to the newly developed
drugs pay more than they would otherwise need to -- after all, before the
drug was developed and tested, they were doing without.

There is a down-side. Pharmaceutical companies are motivated to develop
drugs which they can sell to the developed world at monopoly (high) prices.
Thus research lags for drugs which would cure or ameliorate the diseases of
the poor, who cannot subsidise any clinical trials whatsoever.

----------------------------

Now, which of these five reasons apply to the proposed new category,
software patents?

Could it be #5? To offset development costs? 

Not a chance. It is only very rarely, as for the deployment of a new Air
Traffic Control System, that software has high development costs. Software
is extremely cheap to develop, compared to other industrial products. There
are virtually no material costs. You really can start a computer company in
a garage -- this is still going on, and out there in the audience are people
who are doing just that. Almost anything else which one can develop will
cost more -- scientists need laboratories, and non-software engineers
require materials with which to create things. The only comparable
activities are in the Arts or Humanities -- composing music, writing a book,
developing a new philosophy or theory.

What about #4? To allow inventors access to private capital?

On the face of it, this seems plausible. But it doesn't stand up, either.
Hardware companies need capital, indeed, to build factories, but the demands
of Software companies are much more modest. The following is the normal
development pattern of small software companies, who intend to produce a
product for retail. (Note, that companies who intend to produce a product
for retail, rather than a service are in themselves, unusual. Most people
who develop software do so as part of the day-to day running of the
companies who hire them as 'the in-house expert', either full time or as a
consultant. What they produce is not intended for retail at all. These
people will be effected by Software Patents as surely as those of us who are
developing commercial products, but I will leave them to tell their story.)

Here is how things work in the Retail Software Industry. A few -- at most 5
-- people get together to form a company and develop a piece of software.
They look for funding. Unless some of the founders have rich parents, they
receive none -- because they cannot convince the lenders to lend. This is
because all they have to offer is their very bright idea. Ideas about the
software I intend to develop are akin to ideas about the hit-CD my band
intends to produce, or the great novel I will write some day. They sound
great, but only rarely live up to their dreams. In the Software industry, we
have a word for such unrealised dreams. We call them 'vapourware'. And
financial lenders have learned to not invest in 'vapourware', for obvious
reasons.

Undiscouraged, our hero-founders decide to develop their software anyway. In
order to fund their venture, they take on a consulting contract, typically
in an unrelated, but lucrative field. This means that their product gets
developed more slowly than would otherwise be the case. If all goes well,
they reach the point where they would dearly love to jettison the consulting
business, and make all of their income on business related to their new
product. Or, if their consulting business is related to their product, they
need to expand.

In short, they need a round of financing. This is where I come in. This is
where I do my investing, and most small innovative software companies need
cash to the tune of 50,000 to 250,000 Euros. This is an incredibly small
sum. There is a tremendous need for this sort of funding, but it is very
hard to find. And Software Patents will not help you acquire this. The
amount of money you need to 'go around the corner' is one or two orders of
magnitude smaller than the amount of money that you need to open a factory.
It is the same problem that faces small businesses in every industry.

The American experience argues that Software Patents were contributory to
the Internet Stock Bubble, and our current climate of economic weakness.
American Venture Capitalists, who were used to funding hardware
manufacturers to the tune of tens and hundreds of millions of dollars, were
uninterested in investing small sums in software companies. They were,
however, interested in investing large sums - the sort of numbers with which
they were comfortable. But before the existence of software patents, it was
very difficult to get them to invest large sums of money in software,
because they could not tie their money to any tangible asset. As the
expression goes: 'it was all vapourware'.

Software Patents changed things. When people were able to patent their
ideas, they were able to go to the capitalists and receive a lot of money.
Thus they began startups with scores of people, way too much equipment, and
a funny idea which might or might not work. Too much money rushed into
ventures which had little or no hope of ever being profitable. Too large an
initial development team meant that the fledgling companies began with a
communication burden which is typical of large, well established companies.
Often they could never develop the software at all. When they could develop
it, it suffered from being developed by too many people. Acrimonious fights
abounded. Small groups of 2-3 people went their own way and had a great time
producing something that was unrelated to the core business. People changed
their minds as to what was their core business more frequently than they
changed socks. And all of this didn't matter -- as long as the money came
in. Software Patents encouraged venture capitalists to make foolish
investments, because they believed the patents were worth something. Venture
capitalists often do not mind if the companies where they have invested go
bankrupt -- as long as they hold title to the patents. They can start over
again with a different team.

Sadly, when the bubble burst, the venture capitalists discovered that their
patents were only good for a trip to court -- or at least some legal
wrangling with a bunch of lawyers. A software patent is not like a hardware
patent, where typically one, or at most a few covers the whole invention.
Dozens, sometimes hundreds of patents, are relevant to any piece of
software. So an investor, who now owns the assets of a defunct company --
cannot take its patents and hand them to a new development team and say
'build this'. It is impossible to develop software today without infringing
somebody's American patent.

The venture capitalists, having lost fortunes backing companies which had no
real product, are now uninterested in investing in any software companies
whatsoever. Right now the American economy could benefit from more
investment -- but the capital is not going into software companies. Again,
part of the problem is software patents. The venture capitalists have
learned that all software is in violation of somebody's patent. So they do
not want to touch the stuff. Thus on the up side, and the down side, the
existence of software patents have contributed to creating the stock bubble,
and making the recovery slower and harder than it needed to be. So #4 is
right out -- the existence of software patents are inhibiting investment
right now, and for very good reason. 

What about reason #3? Would we get badly needed standardisation? 

Would we make sure that all members of society used the same system? Not at
all. We have standards committees for when we need standards. Granting a
monopoly would not produce a better result for those rare cases where we
desire one standard for all. Software changes so rapidly that users of
version X of some program frequently find that their files cannot be read by
version X+1. And consumers frequently complain about 'lock-in' -- an
industry practice where users of a system cannot change to a competitors
system because the conversion cost is too high. The fact that they bitterly
desire to change vendors is a strong indication that we should not grant
monopolies. We could generate software standards this way, but we do not
want them.

What about reason #2? Do we need to import a technique which is not known in
Europe from the rest of the world?

Not in today's global marketplace. Assuming that you can find a desired
software technique which is unknown in Europe, -- you will also find a
salesman who trying to sell it to us.

This leaves us with reason #1 -- a way for the king to reward his favourites
and increase his own coffers. 

The modern insiders are not the friends of the monarch, but patent lawyers,
insurance companies, and other assorted purveyors of overhead. They will
come out very nicely under this scheme. It will also be good for large
businesses. They already have large legal staffs. If they can manage to make
'and have good lawyers' as part of what a company needs in order to compete
within an industry, they are well on their way to locking out the small and
medium sized business. Right now, it is commonplace to demand that software
produced 'for hire' by independent contractors be indemnified from patent
violation. Since this is impossible, what contractors do is to buy
insurance, which is hideously expensive. We are talking about tens of
thousands, sometimes hundreds of thousands of Euros here. Small businesses
generally cannot afford it, so they simply cross their fingers and pray they
are not sued. Those rare ones that can afford such things are treated to an
experience that has the same flavour as paying the Mafia 'insurance' to make
sure that one's business does not burn down.

And as for the monopoly-holders? They often damage themselves in the
process, because the possessor of a monopoly tends to milk it for profits
now, rather than innovate in order to create more profits later. Again, the
computer industry has an instructive example. When IBM released the IBM-pc,
they did not patent the architecture. As a result, people in south-east Asia
quickly began making cheap IBM-pc compatible 'clones'. In the short term,
this was bad for IBM. It was, however, good for Society -- the price of
computers plummeted, and soon everybody could afford one. And, over the long
haul, this has been good for IBM as well. Right now they are selling
programs and services to a whole host of people who would never have become
customers if computers had remained expensive. Not having the IBM-pc
monopoly has benefited IBM, illogical as it seems at first glance.

Notice that I did not mention the reason why most people incorrectly assume
that patents will be good for any industry. They assume that patents protect
'the little guy' from the Big Companies. But in the case of software
patents, the reverse is the case. The Python Business Forum unanimously
condemns software patents as being harmful to their businesses. On the one
hand, large companies hold more software patents than small ones. This means
that it is much more likely that Big Company will be suing you, than the
reverse. Since it is impossible to develop software without violating
somebody's American patent, many European companies have quietly decided to
do without the American market. Lucrative though it may be - the legal
uncertainties make the United States unattractive.

Right now if you produce software in the United States you can be sued at
any time for patent infringement. It is impossible to avoid violating
patents, which are often left for the courts to determine in any case. One
typical practice is to wait until a company is about to 'go public' -- to
sell its stock on NASDAQ or the New York Stock Exchange. Suddenly, you are
told that you are in violation of some patent or other. The patent holder -
often a company that does nothing but hold software patents and wait for
companies like yours to go public, will be happy to drop his lawsuit with
you if you will sign a licensing agreement for some undisclosed amount of
money.

Most companies pay - even if they believe that they could defeat the claims
in court. Not only is it likely to be cheaper to settle than to litigate,
but one cannot afford to have the cloud of litigation as one launches one's
Initial Public Offering. Better to pay the sharks. This is why the sharks
stay in business -- they simply wait for companies to go public and bleed
them at this time. This is bad for business. It is an unofficial 'tax' on
going public, rent seeking of the worst sort. 

But let us say that the unusual does occur. Let us say that you are a real
inventor, not a pure rent-seeker, and you patent a piece of innovative
software. Then you find that Big Company is in violation of your patent.
Terrific News, no? Actually not. The first thing that Big Company will do is
to look at your software, and point out that you are in violation of several
dozen of _their_ patents. They will then offer you a cross-licensing
agreement. You will get to use their patents, and they will get to use
yours. This, of course, does not suit you, who want to stop Big Company from
competing with you, but Big Company has the cash, the lawyers, the time, and
the experience to put up a fight. Most small companies give up at this point
and let Big Company do whatever it wants. But let us say that you are more
stubborn. You decide to go to court.

How do you pay for your lawyer? In most cases, you pay him by assigning him
some percentage of rights to your patent. (Make sure that you save some back
to pay him for the inevitable appeal.) Usually the small inventor loses. But
even when they wins it is often a pyrrhic victory -- the court vindicated
their position, but now their lawyer owns the invention. They have wasted
precious months, often years of their lives in court, rather than creating.
Society has lost again, the lawyers have won, and Big Company continues on
as usual, often purchasing the patent at some ridiculous low price.

Software Patents have not protected the Small inventor from the Big Company
-- instead they have made legal expertise an additional barrier to entry
into the software business. And they scare investors like me out of
investing in software businesses. In the United States there are plenty of
companies whose fervent desire is to become successful enough to make their
founders comfortable -- and no more successful. They are trying very hard to
remain 'too small to be worth suing'. This does not benefit Society either.

And Software Patents harm the Small investor such as myself, and those
companies I would like to invest in. These days I need to reserve capital in
case my own companies get sued. Thus capital is tied, while hungry startups
go without. This, too, benefits only the existing players, who have
eliminated the competition long before it could develop into a threat.
Society is worse off.

In conclusion, software patents are a failed American experiment. We should
not embrace American mistakes, because they do not benefit Society, and
indeed harm the small and medium sized businesses which are the source of
nearly all innovation. I appeal to you to not institute software patents, to
the detriment of all of us. It is _not_ broken. Please do not try to fix it.

Laura Creighton