Felix Salmon

Farhad Manjoo has an interesting profile of Cheryl Malone’s Article One Partners, a company which crowdsources the discovery of prior art for use in patent suits. These “amateur sleuths are stamping out patent trolls,” according to the title of the page; the headline is “How To Kill Patent Trolls.”

Which is why it’s surprising that there’s no indication in the article whatsoever that patent trolls are even being harmed, let alone killed, by the actions of Article One. Instead, the whole piece is based on a rather rocky syllogism. If you can find prior art, goes the argument, you can kill a patent troll. Article One finds prior art. Therefore, Article One kills patent trolls. Here’s Manjoo:

Patent trolls should be easy to defeat. Say a company tries to enforce some ridiculous claim, as in the recent case over a 1994 patent covering the entire “interactive Web.” It doesn’t seem hard to invalidate a patent that broad. All you need to do is find descriptions of that invention that date back to before the patent was filed.

The problem is that searching for old inventions is really difficult.

Does Manjoo really believe that “all you need to do” is find prior art, and the court case automagically disappears in a puff of smoke? It would be wonderful were that the case. But the real world, sadly, behaves differently.

Probably the most famous patent-troll case in recent years was the one where a troll named NTP managed to extract $612.5 million from Research in Motion. That case covered five different patents: of the five, the U.S. Patent Office had given “non-final” rejections to all of them, and had issued a final rejection to one, when the case was settled.

RIM had discovered prior art for all of the patents that NTP was suing over — but that didn’t really help them at all. The problem was that the patents had already been awarded to NTP, which meant that NTP was within its rights to sue RIM for as long as it held those patents. Once RIM found out what NTP was up to, it could and did challenge the patents at the U.S. Patent Office, which has a procedure for such things. But the U.S. Patent Office is an entirely separate entity from the U.S. District Court, where judge James Spencer made it very clear that his job was to rule only on whether RIM was violating NTP’s patents, and not on whether NTP’s patents were properly granted. Had RIM not settled the case, the court could and probably would have shut down the entire BlackBerry service.

RIM, of course, offered to post a substantially greater settlement if it could get the money back were NTP’s patents deemed invalid; NTP, naturally, rejected that offer. And challenging patents at the U.S. Patent Office takes time; if you’ve already been sued by a patent troll in U.S. District Court or just about anywhere else, it’s almost certainly too late at that point to look for prior art, take it to the USPTO, get the patent invalidated, and win the case that way. Meanwhile, it’s pretty much impossible to keep tabs on every patent awarded to a possible troll, and try to challenge those patents at the USPTO on the off chance that if you don’t, those patents might be used against you.

So while Article One is surely doing God’s work out there, I think it’s massively overoptimistic to believe that they will make so much as a dent in the patent-troll industry. What they’re doing might well be necessary to kill patent trolls. But it’s very, very far from sufficient.

Update: As commenter rootless_e points out, the jury in the NTP vs RIM case did find against RIM’s claims of prior art. Largely because RIM’s courtroom strategy was unbelievably boneheaded. But the fact remains that RIM was forced to settle the claim before the USPTO could invalidate NTP’s patents.

Very few of us live in a world remotely representative of the nation as a whole; I certainly don’t. How many of my friends and acquaintances have a college degree? How many live in dense urban centers? How many have smartphones? How many have ever voted Republican? In all these respects and many more, the world I see is incredibly skewed. But what about the Stop Online Piracy Act?

I spent last night with a fascinating group of Silicon Valley geeks, talking Bitcoin; among them was Dan Kaminsky, who’s spending most of his time these days lobbying hard against SOPA. And it occurred to me, as we talked very briefly about how the lobbying effort was going, how very lopsided my view of SOPA is.

Everybody I know, and everything I’ve come across on the internet, falls into one of two categories: either they’re vehemently opposed to SOPA, or else they simply don’t know about it. Racking my brain for any counterexamples, the only one I can come up with is a pre-roll ad which I’ve seen before a couple of my videos here on Reuters.com, which complains about pharmaceutical counterfeiting.

In one sense, this is entirely natural: I’m a journalist, and journalists by their nature hate anything which smacks of censorship. On the other hand, I’m also a media professional, and the pro-SOPA lobby is led by media companies of various descriptions. I just don’t know anybody who’s part of it.

Yet the bill is very much alive, and it seems that if a bill makes it to Barack Obama’s desk, he’ll sign it.

Today, in his big NYT piece about the war being fought in Washington, Edward Wyatt is careful to be symmetrical in his descriptions, and talks about how “the howls of protest” against SOPA “have been loud and lavishly financed” by Silicon Valley — it’s one of those articles based on the idea of explaining that there’s a disagreement, without bothering to try to adjudicate whether one side makes vastly more sense than the other.

You don’t need me to tell you that SOPA is an incredibly bad idea — others can do so much, much better than I can. But here’s where I have a genuine question. I know that the MPAA and the RIAA are lobbying hard for SOPA. (As well as, oddly, the AFL-CIO.) They seem to have a lot of politicians on their side. I can also point to an almost unlimited list of people and organizations who are lobbying equally hard against it — although it’s harder to find die-hard opponents of the bill in Congress.

But does SOPA actually have any popular support? Are there any real outside-the-beltway people who think it’s a good idea? If so, where are they? And if not, how did Congress become so bad at reflecting popular opinion?

I guess what I’m asking here is whether the strength of support for SOPA in Washington is an example of the failure of democracy, or whether it’s just another case of a bitterly divided country. I suspect it’s the former, but I really would be interested in finding out about anybody who doesn’t share my views on this subject.

Update: I’m told that Creative America is a grassroots organization of real people who support SOPA. I’m not entirely sure I believe it, though.

Here’s what I don’t get about the NYT’s silly nastygram targeting HuffPo’s new Parentlode blog. It ends like this:

If I have not received a response to these demands within three (3) business days of receipt of this letter, we will have no choice but to pursue all available legal remedies.

This, it seems, puts the NYT, and its legal office, in something of a bind. It’s extremely unlikely that they’re going to get a response to their demands within three (3) business days, or, frankly, ever. Which means that the NYT will have two choices. Either it does nothing — and implicitly admit that its nastygrams are all bark and no bite. Or else it launches a spectacularly pointless and expensive trademark-infringement lawsuit against a blog with a really stupid name, on the grounds that the stupid name (“Parentlode”) is designed “to create an association in the minds of readers” with the NYT’s old Motherlode blog.

Of course the Parentlode name is designed to create that association. As is the rather more germane fact that Parentlode is being written by Lisa Belkin, who founded Motherlode.

Blog names do, of course, have a tendency to follow their authors around. Adam Clark Estes makes a very good point:

Learning the digital ropes, building a devoted audience, tending your personal brand: these are all the sorts of things that journalists are supposed to be doing to adapt to the new news climate. It’s exactly what Andrew Sullivan, who had moved his Daily Dish brand from Time to The Atlantic to The Daily Beast, has done. So too Mickey Kaus who’s ported his Kausfiles moniker from Slate to Newsweek and now The Daily Caller. If Belkin made a mistake it was not initially insisting that she could take “Motherlode” with her if she ever left The Times, as the Freakonomics guys did when they moved their branded blog from The Times to their own site.

We’ve even done it here at Reuters: Matt Goldstein has a blog called Unstructured Finance, which is the same as the name of his old blog at Businessweek; I’m quite sure we’re not going to get sued by Bloomberg as a result.

The NYT lawsuit, then, is pure peevishness — and I don’t understand why that’s an attitude they’re interested in communicating to the world. What’s more, it’s a clear sign that the NYT is still very uncomfortable with helping to build personal brands. Here’s a bit more of the C&D:

Amazingly, Ms. Belkin explicitly draws attention to the connection to the NYTimes.com blog in her first posting today and encourages the false impression that the HuffPo blog is a continuation of the Motherlode blog, albeit with a new name.

False impression? I’d say that’s a true impression. If a blogger moves her blog from one publication to another, then it’s reasonable to consider the new blog a continuation of the old one. This blog, for instance, is very much a continuation of my old blog at Portfolio.com. It features a bunch of cross-posts from when I was at Portfolio, and Portfolio ran a bunch of cross-posts from here after I moved. Even as they hired Ryan Avent to continue to blog at my old home over there.

Obviously, the NYT and HuffPo aren’t nearly as collegial as Portfolio and Reuters were. But there’s a deeper difference: Portfolio was owned by Conde Nast, which is deeply invested in creating individual brands and turning its writers and bloggers into stars. Conde understands that if you want to keep and attract stars, you do that by treating them very well. The NYT, by contrast, seems to think that it’s a good idea to punish its erstwhile blog stars by threatening their new employer with lawsuits. It’s a strategy which can’t help but damage the NYT’s reputation as a great home for writers. Which is yet another reason why it’s so stupid.

Nico Muhly has a fantastic rant about the way in which professional orchestras make it effectively impossible for composers to actually listen to their own pieces, after they’ve been played; the most pungent comment on his post comes from fellow composer Jeff Harrington, who says that he’s never heard a piece that he wrote for two great musicians who have played it 30 times.

The problem here is not that the pieces aren’t recorded — they are. Rather, it’s that the recordings are digital. Because they’re digital, they can be copied perfectly, and distributed widely, with great ease — and that’s something that orchestras are very scared of. They make good money from their digital recordings, and they don’t want to risk unlicensed recordings being found in the wild.

This is a pretty short-sighted view. Nico Muhly isn’t asking orchestras to let him put their recordings online; he just wants to be able to listen, privately, to what his piece sounded like when it was actually played by humans in a concert hall. But in fact it wouldn’t do any harm to anybody if that recording turned up embedded on his website. People who listen to it there would be much more likely to buy the official recording if and when it appeared. Either way, Muhly’s main point stands: composers will write significantly better music for orchestra if they can hear what it sounds like after they’ve done so. And not just composers, either: the same is true for soloists, as well.

In general, it’s depressing and unsurprising to discover that orchestral unions are even more hidebound and reflexively negative, when it comes to the digital world, than record labels. They look at the world of digital music as something to be scared of, and to say “no” to as loudly as possible, unless and until someone comes along with a big bag of money and pays them to say yes. It’s the same zero-sum mindset behind the Authors Guild’s opposition to Google’s attempts to make their work much easier to search for and find.

Google Books was only ever going to encourage more people to buy more books, yet the Authors Guild insisted on hobbling it and extracting as much money as they could from Google before allowing it to go ahead. And making it easy for people to listen to new music online is the best possible way for orchestras and composers to build a new fan base and long-term audience — but instead the orchestras are fighting that which is in their own best interest.

Orchestras suffer no losses if people listen to their sounds outside the concert hall where those sounds were originally performed. In fact, they benefit: anybody who listens to those sounds online is someone who might become a fan and subscriber. But the unions don’t think that way: they just know that they’re paid for performing in the concert hall, and they’re not being paid any extra if and when that performance appears online. And so they’ll oppose any attempt to get it there.

I’m not sure what the best way around this problem might be, but I fear that it’s part of the reason why the extremely vibrant new-music scene has relatively few pieces for full-scale orchestra. They’re hard to write, expensive to perform, and then impossible to distribute in recorded form.

If the artform does survive, I suspect it will be thanks the one group of composers who regularly do hear their music recorded — soundtrack composers for film and TV. So, Nico, is Hollywood calling? That might be one solution to your problem.

(Via the Browser)

I love This American Life’s investigation into patent troll Nathan Myhrvold and his company Intellectual Ventures. You should go read — or listen to — the whole thing, but in a nutshell, they explored what happened if they took Intellectual Ventures at its word.

IV pointed TAL to an inventor called Chris Crawford — a man with a patent which he sold to IV. Inventors! Getting paid! For inventing! Except when TAL tried to talk to Crawford, he wouldn’t answer their calls. And it turns out that IV had sold his patent to Oasis Research, a Texas company with a nameplate address and no employees, for some up-front consideration and a percentage of all litigation proceeds.

TAL goes into clear detail about the idiocies of the patent system — how even software engineers with patents don’t believe that software processes should be patentable; how patents are regularly awarded for ideas which have been around for years; how multiple patents are often awarded for much the same idea; how IV is essentially running an intellectual-property protection racket; and how big companies are amassing patent portfolios not so that they own the intellectual property behind their products, but rather so that they can threaten to sue any company which sues them.

The end result is a highly dysfunctional situation where virtually any startup is at risk of being shut down by a patent suit; and where nameplate companies with no business and no revenues, like Oasis Research, are the perfect vehicles to launch patent suits, since they’re not susceptible to countersuits. Essentially, if you’re small, you have to hope to fly below the radar; if you’re big, you have to pay billions of dollars on patents you have no particular interest in. Here’s how TAL describes the $4.5 billion that Apple, Microsoft, Nokia and others paid for Nortel’s patent portfolio:

That’s $4.5 billion on patents that these companies almost certainly don’t want for their technical secrets. That $4.5 billion won’t build anything new, won’t bring new products to the shelves, won’t open up new factories that can hire people who need jobs. That’s $4.5 billion dollars that adds to the price of every product these companies sell you. That’s $4.5 billion dollars buying arms for an ongoing patent war.

The big companies — Google, Apple, Microsoft — will probably survive. The likely casualties are the companies out there now that no one’s ever heard of that could one day take their place.

The US is in desperate need of patent overhaul. We need to make it easier and quicker to get good patents, and much harder or impossible to get bad patents. We need to abolish the abomination that is the business-method patent entirely. And most crucially we need to allow defendants in patent suits to argue that the patent is invalid because it was awarded in error, with lots of prior art at the time the patent was awarded. Right now, patents can be appealed — but not in the court where they’re being enforced, with the result that trolls with invalid patents can still get paid out to the tune of billions of dollars.

Chuck Schumer’s bill taking aim at business-method patents in the financial industry is a good start; if the sun continues to rise in the east after it passes, that might embolden legislators to start taking aim at business-method patents more generally.

But this is a Congress which is clearly incapable of doing the most obviously right things: given the choice, they’ll always and predictably pick demagoguery coupled with devastation over simple common sense every time. The incoherent and anachronistic patent system is, sadly, with us for the foreseeable future. And the cost of that will be huge, in terms of seven-figure lawyers’ fees, rents extracted by trolls, and, most importantly, lost innovation and entrepreneurialism.

It’s rare that I consider Andrew Ross Sorkin too harsh on Wall Street, but today is one of those times.

Sorkin’s thesis, narrowly considered, is undeniable. Wall Street has clout in Congress; because of that clout, it can get bank-friendly provisions inserted into legislation. But the broader thrust of the column is I think misguided: that the legislation is a bad thing, and that it unfairly benefits banks to the detriment of civil society and the rule of law.

It’s worth reading the column in full to feel the force of Sorkin’s disapproval. He quotes five different people in the column, of whom four are fiercely opposed to the legislation. The fifth, Chuck Schumer, is quoted with the construction “has said” — a phrase dripping with condescension and disbelief. (Schumer’s opponents are given the much more straightforward “according to,” “said,” “said,” and “wrote”.) This might be the first and last Sorkin column to ever treat Maxine Waters with more respect than Chuck Schumer.

The provision in question makes it much harder for financial-services firms to enforce what’s known as “business method” patents. These are relatively new animals, and not particularly welcome ones, either. There’s no good reason why financial innovations should be patented, and there’s every reason why they shouldn’t be. Patents are a way of skewing the playing field and giving one player an artificial advantage over everybody else — the exact opposite of how financial markets are meant to work.

There are far too many patents in general, and enforcement of them often resembles a multi-billion-dollar lottery. But at least outside the financial sector there can be good reason for such things to exist: without them, much R&D expenditure would simply cease. But financial companies don’t have R&D budgets, and given the sorry track record of financial innovation that’s probably just as well. What’s more, the more successful financial innovations — mutual funds, say, or venture capital, or even coco bonds, should they turn out to actually work — are very much in the public domain, open for anybody and everybody to copy.

Sorkin’s attempts to defend the idea of financial business-method patents ring pretty hollow. Some companies’ patents might be “put into jeopardy”, he writes, while others will have to spend money on lawyers trying to defend them. Well, yes. That’s the whole point.

The banks “are attempting to write into law what they have been unable to achieve in litigation,” Representative Maxine Waters, Democrat of California, wrote in a letter to colleagues…

Admittedly, it seems somewhat preposterous that simply processing scanned checks, as DataTreasury does, could be a patentable business method. But we have courts, which have upheld these patents, for a reason…

Experts like F. Scott Kieff, a professor at George Washington University Law School and a senior fellow at the Hoover Institution at Stanford, worry that the law is too broad…

He is worried about the law’s impact not just on investors in the United States, but also about even broader implications. “When word gets out that intellectual property rights are not being taken seriously in the U.S., especially for any class of patents that can be a convenient political target of powerful, well-heeled interest groups like banks, our voracious international competitors will pounce,” he said.

Sorkin never explains why the law might be bad for “investors in the United States”. Given that investors are the foremost consumers of financial services, one imagines they will be very happy if they no longer have to pay rents to patent holders in order to use those services.

As for those “voracious international competitors”, I have absolutely no idea who they are, what they are going to be pouncing on, or even who they’re supposed to be competing with. This is pure rhetoric, unsupported with any actual analysis; Sorkin does wave his hand at an article published in “a Hoover Institution journal”, but without any kind of link it’s impossible to follow the thread any further.

And Sorkin seems to have forgotten that it’s Congress’s job to make laws, which courts then enforce. If the existing law has gone astray — as patent law clearly has — then Congress has the obligation to set it back on its right and proper path. Section 18 isn’t too broad, it’s too narrow.

But that’s not how Sorkin sees it:

Section 18 represents a much larger issue: It is perhaps the most blatant demonstration of the lobbying power of Wall Street and, just as important, the willingness of Congress to support the interests of the banks, even in the face of clear evidence that the law has no purpose other than to benefit the financial services industry.

Well, yes, the law will benefit the financial services industry. No one is arguing that point. And it will hurt rentiers with patents. The important question is whether it’s a good idea from a public-policy perspective. Sorkin ducks that question entirely. But the fact is that if we want a level playing field in financial services, getting rid of business-method patents is an extremely good idea.

Update: Kevin Drum agrees that business-method patents are a bad idea, but still opposes this bill, in much the same way that some free-trade advocates oppose bilateral trade agreements. I see the point; where you stand on this issue is likely a function of how likely you think wholesale patent reform is.

This is a photo of the NYSE trading floor. It was taken on March 3 by Reuters photographer Lucas Jackson, and Reuters holds the copyright. The only permission I need to run this photo is that of Reuters. The NYSE, however, thinks otherwise:

NYSE has common law and Federal trademark rights in and to NYSE’s name and images of the Trading Floor… Moreover, NYSE owns Federal Trademark rights in one depiction of the Trading Floor and common law rights in the Trading Floor viewed from virtually any angle (collectively, “Trademarks”). Accordingly, NYSE has the right to prevent unauthorized use of its Trademarks and reference to NYSE by others.

That’s from one of the most ridiculous nastygrams I’ve seen in a long time, sent by NYSE chief counsel Kendra Goldenberg to Talking Points Memo. If Goldenberg really believes what she’s saying here, none of us is even allowed to mention the name NYSE if we’re not authorized to do so by the NYSE itself — let alone show a photograph of it.

The back story here is that TPM used a photo of the NYSE trading floor back in November, and then suddenly got the cease-and-desist note a couple of days ago, after everybody had forgotten about their story. At no point in the intervening months did the NYSE bother asking TPM nicely whether the photo was really relevant to the story or the right way to illustrate it. Instead, they just came out with a ridiculously tardy — and legally extremely dubious — c&d:

We demand that TMP remove all images of the Trademarks immediately. If we do not receive your response and written confirmation of the removal of all Trademarks within ten (10) days of your receipt of this letter, we will have no choice but to pursue further remedies.

This is an outright lie from the NYSE. TPM did the right thing, and stood its ground, refusing to take down the photo it had every right to use. That’s the end of the story: there’s no way that the NYSE will “pursue further remedies” at this point, they’ve made themselves enough of a laughingstock already. Rather than pursuing further remedies, then, Goldenberg and the NYSE are going to lick their wounds and slink quietly away.

The lessons here are clear: always publish any c&d you receive — it’s the best possible response. Don’t be intimidated by legalese; know your rights. And encourage other publishers to do the same thing: if big companies know that their nastygrams are likely to be ridiculed across the internet, they might be less likely to send them out.

I am a bit worried by the bit of Josh Marshall’s blog post where he says that “TPM is represented on Media and IP matters by extremely capable specialist outside counsel”. You shouldn’t need expensive lawyers to stand up to bullies — and in fact you don’t need expensive lawyers to stand up to bullies. In the vast majority of cases, a c&d is the only bullet these companies will ever fire: if it doesn’t do the job on its own, they won’t take things any further. Unless and until you get an actual lawsuit, there’s no need for lawyers.

Meanwhile, it’s worth wondering how many other publications have started receiving nastygrams from Kendra Goldenberg when they portray the NYSE in an unflattering light — and how many of them have simply folded rather than risk a legal battle with a multi-billion-dollar multinational corporation. That’s why c&ds should always be published, even if you comply with them.

If NYSE knows that even successful c&ds will always be accompanied by widespread ridicule, it might start respecting everybody else’s right to talk about them in any way they please. And it might instead start using the much more intelligent tactic of simply asking nicely if it thinks that it deserves some kind of change or edit.

Speaking personally, when I get a request for an edit or correction or update, I nearly always comply. Blogs are iterative; I make mistakes; I like to correct them. But the one time I don’t make corrections is when there’s been a legal letter sent straight to my superiors or to Reuters’s in-house counsel. At that point, things are immediately adversarial, and out of my hands. So if you want some changes, ask me nicely, directly. It’s much more effective than setting the likes of Kendra Goldenberg on my lawyers.

Two highlights of the Kauffman Bloggers Forum were the presentations on the broken nature of the pharmaceuticals market. And they came from opposite ends of the left-right spectrum: Megan McArdle went first, followed by Dean Baker.

McArdle’s talk was narrowly focused on antibiotics. The problem here is resistance: even before antibiotics start being tested, resistance to them starts showing up. McArdle’s thesis is that this isn’t just a problem of drugs and biological science, but is a market problem too.

The size of the problem of multi-drug-resistant bacteria is immense: more than a million cases a year, many of which end in death. And the cause of the problem, McArdle says, is that “all of the incentives are bad”.

For one thing, the suppliers of antibiotics — doctors and farmers — have no incentive to reduce the quantity of antibiotics they hand out. At the margin, for the individual patient or cow, there’s no great harm in feeding them antibiotics even if they don’t need them. Some patients even explicitly ask for antibiotics “just in case” the infection turns out to be bacterial. But in aggregate, this behavior is exactly what’s causing the rise of multi-drug-resistant bacteria. The way McArdle puts it, “pharmaceutical profits in Europe are marginal, and they’re volume-driven. And in antibiotics, the last thing you want is volume-driven profits.”

Taxing antibiotics would reduce their over-use, at least at the margin — but would also reduce the incentive to develop new antibiotics which can be used where old ones are useless. Stockpiling new antibiotics might also be useful — but again that reduces incentives to develop new ones.

And the patent system is very much part of the problem as well. The way it works, the clock start running out on a new drug the minute it’s invented, even before it enters hugely expensive and time-consuming testing. So drug companies have every incentive to sell as much of a new antibiotic as possible as quickly as possible, while they still have a few years left with their patent in effect. After that, generic copies come on the market, and the price falls dramatically — which again is not necessarily a good thing, in the realm of antibiotics.

Baker’s talk picked up on the problem of pharmaceutical patents, and looked at it more generally. We spend about $300 billion a year on prescription drugs, up from essentially zero a few decades ago. That brings drugs out of reach of people who can’t afford them, and results in people cutting their dosages. It encourages companies to spend billions of dollars developing copycat drugs in order to chase patent rents. It discourages companies from doing R&D on diseases which aren’t tractable to cure by pills. And it means that an enormous amount of valuable of scientific research is kept secret.

Baker’s alternative to all the distortions created by the patent system is simple direct public funding for medical R&D and education: the costs of such a scheme would be lower than the amount we’re already paying on publicly-funded prescription drug benefits, so it would save money on a fiscal basis. All patents and research results would go into the public domain, which would generate huge global benefits.

Both presentations raised more questions than answers: for one thing, it’s politically impossible to enact a wholesale restructuring of pharmaceutical patent rules. These things are path-dependent, and we’ve gone far too far down this particular path to be able to make the enormous leap to something completely different. But even pharmaceutical companies will concede the current system isn’t working: McArdle’s slides came from a researcher for Pfizer, who is desperate to get the word out about how screwed up the current system of discovering, manufacturing, and distributing antibiotics is. Something, clearly, must be done. But I fear that in reality, nothing will be.

I’m way late to the massive and wonderful report on Media Piracy in Emerging Economies by Joe Karaganis and a big team of international researchers. I blame the fact that Karaganis sent me the report a week before it was formally released, on the sensible grounds that it might take a bit of time for me to digest its 440 pages of detailed new information on one of the defining issues of the information age. Of course, like any good procrastinator, I did no such thing. But I’ve read a good chunk of the report at this point, and I highly advise you do likewise — or else sit back with Karaganis’s presentation of its main points.

For starters, Mike Masnick is absolutely right that the report debunks the entire foundation of US foreign IP policy. That policy has essentially been written by the owners of US intellectual property, who jealously protect it and think that the best thing they can possibly do is be as aggressive as possible towards any sign of international IP piracy. As the report shows, this makes a tiny amount of profit-maximizing sense for the companies concerned. But it actually encourages, rather than reduces, piracy in the aggregate.

Think about the NYT paywall, for instance. It’s easy to imagine how the higher the price for which the NYT charges a subscription fee, the more money it gets — even as the total number of people finding ways around the paywall, rather than paying the full amount, would go up. (Here’s a hint: if you run into the paywall, just delete everything past the question mark in the URL, and hit Enter. It’ll think you’re coming straight to the story from outside the wall, and will show you what you’re looking for.)

Similarly, if companies charge only a very high price for their wares in the developing world, most people will become pirates and get that material for much less money. Meanwhile, the piracy notwithstanding, corporate revenues are still being maximized. As the report says,

we have seen little evidence—and indeed few claims—that enforcement efforts to date have had any impact whatsoever on the overall supply of pirated goods. Our work suggests, rather, that piracy has grown dramatically by most measures in the past decade, driven by the exogenous factors described above—high media prices, low local incomes, technological diffusion, and fast-changing consumer and cultural practices.

The big forces driving media piracy in developing countries are real and powerful and will not be changed, no matter how many western politicians get on their moral high horses and insist that countries like India and China build a “culture of intellectual property.” But the irony is that if governments and corporations really wanted to build such a culture, then they would encourage companies to set their prices low enough that the populations of those countries could actually afford to buy music, movies, and software at the full legal retail price. It turns out that domestic companies are quite good at distributing media at low prices, and can build profitable businesses by doing that. But foreign companies have different incentives in the short term, and don’t do that.

One part of the report which is very dear to my own heart is the section on the quality of industry research:

We see a serious and increasingly sophisticated industry research enterprise embedded in a lobbying effort with a historically very loose relationship to evidence. Criticizing RIAA, MPAA (Motion Picture Association of America), and BSA (Business Software Alliance) claims about piracy has become a cottage industry in the past few years, driven by the relative ease with which headline piracy numbers have been shown to be wrong or impossible to source. The BSA’s annual estimate of losses to software piracy— US$51 billion in 2009—dwarfs other industry estimates and has been an example of the commitment to big numbers in the face of obvious methodological problems regarding how losses are estimated. Widely circulating estimates of 750,000 US jobs lost and $200 billion in annual economic losses to piracy have proved similarly ungrounded…

The rationale offered for criminal-syndicate and terrorist involvement is that piracy is a highly profitable business. The RAND report, for example, states (without explanation) that “DVD piracy . . . has a higher profit margin than narcotics”—an implausible claim that has circulated in industry literature since at least 2004.

This study, in wonderful contrast, has enormous amounts of transparent quantitative data, collected over a period of about five years in an attempt to understand just how IP is consumed in emerging economies. (And no, there’s no evidence that organized crime is particularly involved.) To take one of dozens of insights more or less at random:

Our work highlights a more specific transformation in the organization of consumption: the decline of the collector and of the intentional, managed acquisition that traditionally defined his or her relationship to media… it is clearly a shrinking cultural role, defined by income effects and legacy cultural practices.

The collector, our work suggests, is giving ground at both the high end and low end of the income spectrum. Among privileged, technically literate consumers, the issue is one of manageable scale: the growing size of personal media libraries is disconnecting recorded media from traditional notions of the collection—and even from strong assumptions of intentionality in its acquisition. A 2009 survey of 1,800 young people in the United Kingdom found that the average digital library contained 8,000 songs, with 1,800 on the average iPod (Bahanovich and Collopy 2009). Most of these songs—up to two-thirds in another recent study—have never been listened to (Lamer 2006).

Such numbers describe music and, increasingly, video communities that share content by the tens or hundreds of gigabytes—sizes that diminish consumers’ abilities to organize or even grasp the full extent of their collections… On such scales, many of the classic functions of collecting become impersonal, no longer individually managed or manageable. A related effect is that personal ownership becomes harder to specify and measure: consumer surveys are poorly adapted to mapping terrain where respondent knowledge is unreliable… Increasingly, we live in an ocean of media that has no clear provenance or boundaries.

Or check out this wonderful one-paragraph overview of the history of the Bolivian music industry:

The limit case, in our studies, is Bolivia, where the impasse of high prices, low incomes, and ubiquitous piracy shuttered all but one local label in the early 2000s and drove the majors out altogether. The tiny Bolivian legal market, worth only $20 million at its peak, was destroyed. But Bolivian music culture was not. Below the depleted high-end commercial landscape, our work documents the emergence of a generation of new producers, artists, and commercial practices—much of it rooted in indigenous communities and distributed through informal markets. The resulting mix of pirated goods, promotional CDs, and low-priced recordings has created, for the first time in that country, a popular market for recorded music. For the vast majority of Bolivians, recorded music has never been so prolific or affordable.

I’m particularly partial to analysis which shows a strong correlation between the profitability of a movie and the degree to which it’s pirated. I’ve long had this theory with regard to counterfeit handbags: the existence of the fakes only serves to increase demand for the real thing. The connection is less intuitive with movies: if you’ve seen a high-quality pirated copy, you’re not going to want to pay full price for the licit version. But Hollywood revenues are very healthy indeed, and there’s no evidence at all that they’re being harmed by increased piracy.

The most depressing aspect of this report is the fact that it doesn’t seem to have caused anything like the splash that it deserves. It’s an astonishing work of cooperative international scholarship, and really ought to fundamentally change the debate about intellectual-property enforcement in arenas with names like WIPO and USTR. But I fear that it’s too sensible and empirical for that. If the Obama Administration isn’t welcoming this report with open arms, then I fear no one will.

On September 17, 2008, while the rest of us were running around like headless chickens watching the world come to an end, the WSJ‘s Don Clark ran an important story about Nathan Myhrvold’s patent-troll shop Intellectual Ventures:

Unlike most other pure licensing companies, Intellectual Ventures hasn’t filed patent-infringement lawsuits to help force settlements. But the group lobbying on behalf of tech companies in Washington, the Coalition for Patent Fairness — which includes several companies that have been approached for licensing deals by Intellectual Ventures — says it is only a matter of time…

In an interview at his Bellevue, Wash., headquarters, Mr. Myhrvold acknowledged facing resistance from companies he targets for licenses. But his patent inventory gives him leverage to extract settlements without litigation. “I say, ‘I can’t afford to sue you on all of these, and you can’t afford to defend on all these,’” Mr. Myhrvold said.

Now, two years later, Clark drops the inevitable update: Myhrvold hired a chief litigation counsel in May, and has now started suing:

On Wednesday, Mr. Myhrvold’s firm, unable to secure payments from nine companies, announced three patent-infringement suits. One suit names the best-known players in security software—Symantec Corp., McAfee Inc., Trend Micro Inc. and Check Point Software Technologies Ltd.

Some links would have been nice here: Intellectual Ventures is good about posting links to all the patents and complaints, even if it does make you download various PDF files to find them.

The complaints (here’s the security-software one) include some startling facts about the sheer scope of Myhrvold’s operation:

To date, Intellectual Ventures has purchased more than 30,000 patents and patent applications and, in the process, has paid hundreds of millions of dollars to individual inventors for their inventions. Intellectual Ventures, in turn, has earned nearly $2 billion by licensing these patents.

This is all predictably depressing, and poses, as I said two years ago, the single biggest risk to America’s continued leadership in technology and innovation. Intellectual Ventures might do a bit of R, but it doesn’t do any D. Instead, it just sits there, extracting rents (that’s the polite way of saying “blackmailing”) technology companies who actually want to make things.

The long term repercussions of this will be a competitive advantage for companies based in places like China or Brazil which have much weaker intellectual property laws. It’s sad, because patents, as originally envisaged, were designed to encourage innovation, rather than to stifle it.

Time’s Stephen Gandel says that Loan Value Group’s Responsible Homeowner Reward program is one of “the 50 best inventions of 2010″:

Under LVG’s patented Responsible Homeowner Reward (RHR) program, banks promise to pay borrowers who continue to pay on time a lump sum — typically 10% of their original loan amount — when they sell or refinance their home. Miss more than one payment and the reward disappears. It’s still early (fewer than 5,000 people have been enrolled), but LVG says fewer than 10% of the borrowers in RHR have ended up defaulting, compared with a redefault rate of more than 20% for other loan-modification programs.

I like the program too, and am hopeful it will have lots of success. But what’s with that “patented”?

It turns out that RHR is technically an invention of 2009, not 2010, if you look at its patent application. Loan Value Group hasn’t actually been awarded the patent yet—Gandel was a little bit ahead of himself there—but LVG’s Frank Pallotta told me that applying for a patent on the idea “was the first thing we did” after setting up the company, and that the patent application preceded substantially all of the time and effort that LVG put in to building RHR.

Pallotta is an expert in mortgages, not in intellectual property, but he did say that he hadn’t personally ever come across a finance company applying for a patent on its idea before.

What’s more, it’s generally accepted that financial innovations can’t be patented: it’s an argument that Sebastian Mallaby regularly rolls out, for example, to defend and explain the secrecy of hedge funds. If you can’t apply for a patent, then the only way to stop people copying you is to operate in utmost secrecy.

But I’m not a fan of this development. For one thing, it’s unnecessary. The barriers to entry in this business are high: Pallotta says LVG has spent millions of dollars over the past few years building and marketing the program, as well as running it by a lot banks, servicers, investors, and regulators. And what’s more, LVG would probably benefit, at the margin, if and when its idea was ratified by the entrance into the market of other people doing pretty much the same thing.

More generally, I don’t want to see a world where people wanting to do positive things in the housing market are stymied by worries over patent suits. There is a worry that sleazy operators will put themselves forward as doing homeowners a favor when in fact they’re doing no such thing, but patent law is not the best way to stop such people. LVG had a good idea in 2009. But that doesn’t mean it should be able to patent the idea, and implicitly threaten anybody else thinking about entering the space with an expensive lawsuit.

Update: Mike Masnick points out 1998′s State Street decision, which was the point at which financial innovations started being patented.

Lucas Conley’s piece on Ugg for the WSJ’s magazine is a perfect example of why the WSJ shouldn’t have a glossy, fashion-friendly magazine.

Conley does a reasonably good job of covering the way in which Deckers Outdoor Corporation, the American company which owns the Ugg trademark, has become a highly-aggressive trademark troll, and in the process has helped to decimate a small but longstanding Australian industry. But having found that story, he buries it, and ends up capitulating to all the evil impulses of the fashion industry.

If you read closely, you’ll find Conley explaining how, despite the fact that “uggs have been a cottage industry in Australia for decades”, Deckers became extremely aggressive when it comes to those small local companies, slapping them with cease-and-desist orders and in general trying as hard as they could to use trademark law to shut down anybody who might be considered a competitor. It won in the US against Koolaburra, a US firm importing sheepskin boots and selling them under the name “ug”, although it lost in Australia against Uggs-n-Rugs, a 32-year-old sheepskin outfitter. But the big picture is clear:

While Deckers may have lost the Australian trademark battle, the company is winning the war. Today, Deckers owns “ugg” trademarks in over 100 countries, protecting them with high-tech anti-counterfeiting tools and a sophisticated network of lawyers, customs officials, corporate coalitions and private investigators. “Counterfeiting is one of the plagues of a popular brand,” says Leah Evert-Burks, Deckers’ inhouse counsel and director of brand protection. “There are some anti-counterfeiting measures I can’t even talk about. It’s amazing what you go through when you get involved in this world.”

By Deckers’ count, last year the company terminated over 20,000 eBay auctions, shut down over 2,500 websites, and accounted for some 60,000 pairs of counterfeit boots seized by customs officials. While Evert-Burks emphasizes that the vast majority were blatant criminal operations out of China (which often glue inexpensive cow suede to the exterior of the boot in place of twinfaced sheepskin), Stewart says he still receives complaints from Australian vendors who have been lumped in with counterfeiters.

Like a global mute button, the threat of legal action has stifled the Australian ugg industry’s efforts to market internationally. The McDougalls claim to have lost 90 percent of their international business since 2004. Their daughter gave up entirely after Deckers shut down her eBay business. “Almost anyone who sells anything with the word ug, ugg or ugh is infringing on their trademark,” Bronwyn says. “There’s no argument.”

At the same time, however, Conley, or his editors, go to great lengths to be as friendly as possible to Deckers. For instance, he doesn’t actually come out and say that uggs have been a cottage industry in Australia for decades: he feels the need to call them “generic uggs” instead, as though they were somehow copying the Deckers Uggs long before the Deckers Uggs even existed.

What’s more, throughout the article, the Deckers product is referred to in all caps, as an UGG. No self-respecting newspaper style guide would ever allow such a thing, but glossy fashion magazines never had any self-respect in the first place, and it’s clear which side of the line the WSJ magazine falls.

Worst of all, however, is the sidebar, which compares Deckers’ boot to the competition:

The UGG Australia Classic boots come in short (midcalf) and tall versions. Any variation on these heights are not genuine UGG boots.

A genuine UGG has the registered trademark symbol ® next to its logo on the label…

Some fakes use synthetic “fleece”.

My emphasis, but you get the point, which almost tips into self-parody here:

Deckers’ UGG boots are made in China, so if the label says “Made in Australia,” it is not an UGG.

The point is that there are lots of Ugg boots. The most popular Uggs are made by a US company in China. That company owns a bunch of trademarks, which somehow means that the WSJ can talk with a straight face about “genuine UGG boots”, while saying that all other Ugg boots are fakes. But the fact is that an Australian Ugg boot, made by a company which long predates the Ugg trademark, is by any sensible definition just as genuine, if not more so, than the boots that the WSJ is falling over itself teaching us to recognize and distinguish.

Yet somehow Conley feels impelled to inform us that if a boot is made in Australia — the home of the Ugg boot — then “it is not an UGG”.

To give an example of how ridiculous this all is, imagine that an American company — maybe even Deckers, you never know — decided to buy up a small knife-making company in Thiers, France. And say that after doing so, it started to register the name Laguiole, and the famous bee symbol, in jurisdictions around the world.

Deckers then decides to outsource production of Laguiole knives to China, while at the same time slapping anybody else trying to sell Laguiole knives with a cease-and-desist order. It starts impounding any Laguiole knives which are imported into the US, and shuts down any market in Laguiole knives on eBay or in other marketplaces.

Laguiole knives have been made by thousands of French craftsmen for over 150 years, but suddenly there would only be one “genuine Laguiole® knife”, and all the others would, overnight, be branded “counterfeits” or “fakes”; their sales would collapse, while Deckers would essentially hijack all of the brand value which has been painstakingly built up over the generations. And heaven forfend that anybody else try to make Laguiole knives in China — those would get seized at customs, and branded as “blatant criminal operations” by Deckers’ in-house counsel.

If that were to happen, one would hope that the WSJ would try to expose the evil trademark troll, instead of running gushing articles about how the company was serving up “stunning results in the midst of a global recession”. It certainly wouldn’t — one hopes — tell its readers how to make sure they were buying a genuine Laguiole® knife rather than an expensive French “fake”.

Conley mentions in passing, in his piece, that after Deckers lost the lawsuit in Australia, it failed to pay certain legal costs of the winning side, as required under Australian law. If he ever asked Deckers counsel about this, there’s no sign of it in the story. Instead, he concludes with a paean to a highly-successful company:

Although UGG is not the haute couture brand it was years ago—the darling of fashion spreads, the envy of A-list gift bags—its sales are bigger than ever. That “alpha consumer,” the mother picking up her kids at private school in the Range Rover? While she may no longer roll up in a pair of the latest UGG boots, her counterparts at the neighboring public school are pulling away in Explorers full of UGG-boot-wearing adolescents. UGG Australia has become a mainstream brand, always in stock—found in several stores in any mall—and begrudgingly approved of even by its critics for its comfort and utility. It’s an appropriate irony; the humble boot of the masses has come full circle—albeit with a trademark this time. And that’s fashion, according to Simonton. “Things come back,” he says, “but they’re never quite the same.”

Well, “irony” is one way of putting it: the humble boot of the masses is still a humble boot of the masses, but now it’s wrapped up in aggressively-enforced trademarks, ensuring that all the profits from that humble boot accrue to a single multi-billion-dollar multinational corporation. But yes, “that’s fashion”. And you can be sure that a glossy fashion-focused magazine is never going to cut against the grain of the fashion industry when it comes to issues surrounding trademark law and intellectual property.

Which is why it’s crazy that the WSJ tries to cover the fashion industry from within the covers of a glossy fashion-focused magazine. The conflicts are far too big — and, as this story shows, the winner in those conflicts is always going to be the big fashion multinational, rather than the magazine’s readers.

Update: It turns out there already is a Laguiole trademark troll! Thanks to vb2b, in the comments, for the link.

I wonder whether Chantal Martineau stopped to think about her timing, as she wrote her piece for the Atlantic on a movement pushing for the ability to copyright cocktails. Intellectual-property protection isn’t getting great press this week, as Paul Allen has turned overnight into one of the world’s most gruesome patent trolls.

But ever since the seven-year-old sitting next to you in elementary school put his arm around his paper to stop you from copying his work, humans have felt very protective of their ideas, and very angry at anybody who they think might be copying them. As a result, mixologists are now joining fashion designers in looking for copyright protection for their inventions.

It’s all very silly, not least because the last thing the world needs is bartenders suing each other over copying cocktails. Even Susan Scafidi, the person mostly responsible for pushing the ability to copyright fashion design, realizes that copyright is a pretty narrow and limited protection, and that we shouldn’t try to apply it willy-nilly to anything remotely creative. Here’s what she told me back in 2007, telling critics to look at “legal and social realities”:

Furniture is protected by design patents (overall shape), copyright (surface designs), and trademark — not to mention utility patents (innovative useful elements). One lawyer who represents a number of furniture clients described the process of protecting their designs to me as “triage,” identifying what needs to be protected and sending it to the appropriate government office. Cuisine has a small amount of protection from copyright (recipe collections), and much more from the social norms against copying among creative chefs, particularly when it comes to signature dishes. Since my father is a serious amateur magician (and I confess to having performed a bit myself years ago), magic tricks are my favorite inapposite example. Not only is the literature copyrighted, but many effects are deliberately kept secret by magicians, and unlike fashion can’t be torn apart at the seams by interlopers …

Every industry is unique, and most copyright protection is one-size-fits-all.

Cocktails are clearly closer to recipes — in fact they are recipes — than they are to the kind of things which are normally copyrighted, like books. What’s more, they don’t scale. Fashion designers can sell the same design at many shops and to many different customers around the world, just as publishers can sell the same book through thousands of different outlets. But a bartender can only make cocktails one at a time, and there’s no way that I’m depriving a bartender in DC of any revenue if I order one of her cocktails from a bar in New York. As a result, anybody trying to prove damages is going to face an uphill task.

The fact is that the current cocktail renaissance is coming about because, rather than despite, the fact that cocktail recipes are easily shared and remixed, and because the rise of blogs is making doing so easier than ever, helping drive a surge in demand for well-made, well-mixed drinks.

Mixologists like Eben Freeman who want copyright protection seem to me a bit like the small neighborhood coffee shops who got scared when a Starbucks opened up across the street — only to find that demand for their own good coffee went up, rather than down, as a result. The more people copy your cocktail, the more demand there will be for your cocktail, and the happier everybody will be. Embrace it, don’t fight it.