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Are patents and copyrights making innovation impossible?

We hear from an academic who believes that intellectual property law could smother the very innovation it is designed to protect, leaving the economy in gridlock28 Aug 2008

A text transcription follows.

This transcript is for anyone with a hearing impairment or who for any other reason cannot listen to the MP3 audio file.

The following is the text spoken by OUT-LAW journalist Matthew Magee.

Hello and welcome to OUT-LAW Radio, the weekly podcast that keeps you up to date on all the twists and turns in the world of technology law.

Every week we bring you the latest news and in depth features that help you to make sense of the ever-changing laws that govern technology today.

My name is Matthew Magee, and this week we hear from an academic who thinks the laws that are meant to protect innovation may actually be stifling it.

But first, the news:

Lecturer wins £10,000 email libel payout


Judge bans online publishing of suspects' names

A university which sent a department-wide email accusing a lecturer of expenses fraud has paid him £10,000 in an out-of-court libel settlement.

The University of Salford confirmed that it had reached the settlement with Dr Tom McMaster. The university's finance director, Ray Corner, had written in an email to McMaster that the expenses claim was clearly a fraud and that those who submitted and certified it should be ashamed of themselves.

Corner included McMaster's four colleagues in the university business school in the reply, which opened the way for a libel claim.

A New Zealand judge has told journalists that they can print the names of two murder suspects in their paper but not online. The judge said he was worried about the fact that publication online is more permanent than that in newsprint.

Judge David Harvey, who has written a book on the internet and the law, said that no online media could identify the two suspects but that newspapers could and so could the 6pm television news bulletin.

Judge Harvey said that he feared that people would be able to conduct research on the two accused when the case comes to trial. He said he was "concerned about the viral effect of digital publication".

Research conducted online by jurors in trials is becoming a growing problem for courts. Last week a Newcastle court discharged a manslaughter trial after it emerged that one of the jurors had conducted his own research and had talked to his fellow jurors about the results of it.

Earlier this year a child cruelty case involving a celebrity nanny at the Old Bailey was also abandoned because it became clear that a juror had conducted their own research.

That was this week's OUT-LAW News.

One of the great battlegrounds of the digital age has been intellectual property law. Rights activists want restrictions relaxed so that material can be re-mixed, re-used and culture can be richer, deeper and more involving than ever.

Industry and rights holders largely want ever-stronger protection for material to combat the kind of easy mass-scale piracy that digital media allows for.

Society generally comes down on the side of the rights holders – but why? Well, collectively we decide that without adequate protection for income from made up stuff, innovation and invention will stall.

In those circumstances we'd be unlikely to find ourselves short of music or pictures, but we might find the stream of new medicines, new computers and networks and all new technologies pretty quickly dries up.

But what if the protection given by intellectual property law is counter-productive? Could that protection actually cause the stalling of innovation, a stemming of the tide of new technologies?

One legal academic is convinced it does. Michael Heller of Columbia University in New York has just published a book called 'The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation and Costs Lives'.

He says that when intellectual property protection is too strong, innovation suffers. He talked us through his counter-intuitive argument.

Heller: Well I discovered a paradox in the free market and it's this – usually private ownership creates wealth but too much ownership has the opposite effect, it creates gridlock. So when too many owners control a single resource - it can be a patent or a copyright or land - when too many people control a single resource, cooperation breaks down and wealth disappears, everybody ends up losing. So in a nutshell that's the core idea of the book, the problem of too many uncoordinated owners wrecking the possibility of creating wealth from some single larger resource.

As an example, Heller says that someone who came up with a new drug would need to get the permission of the owners of all the processes he needed to use to get that drug to market.

Heller: So imagine a drug developer walking into an auditorium and seeing 50 or 100 or several hundred patent owners each with their essential patent on their lap and the drug developer knows that unless he is able to negotiate with every single one of those patent owners, unless he can negotiate successfully his drug can't come to market. And the result of that, the difficulty of actually making those negotiations is that drugs that could exist, that should exist that could save millions of lives or earn billions of dollars can't come to market. You have the problem of, in that case, too many patent owners blocking each other from creating this larger resource which is the new lifesaving drug. Everybody individually is behaving reasonably well, they are all trying to do what the patent system tells them to do which is to go out and discover things and try to make money from them. But the net result of all of their individual fragmented actions is a collective cost to society, the cost of too few drugs.

Heller is in fact a property lawyer and some of the same issues have presented problems in property law when developers have found that residents hold out for too high a price for their plot because they know the developer needs every single plot to make his plans work.

Heller said that the issue crops up in all sorts of areas.

Heller: The problem of glitches in the patent system that allow us to lose lifesaving drugs are the same glitches, the same paradox that we seen in the copyright system. And we also see the same glitch and paradox in the way that we own land in England and in America. So the first step to solving the problem is to see that across many different areas of the modern economy - of the new economy - in order to innovate we need to assemble, in order to assemble we need to fix a problem deep in the law of ownership.

The issue isn't even a new one. Heller's book recounts how in the early 20th century nobody could get a plane built in America because different people owned the patents to all the different components and charged so much for the use of them that building a plane was completely un economic.

He told us of an even older example of gridlock in action.

Heller: This has been a problem for a thousand years. To jump back to the Middle Ages, if you look back at the Rhine River. Under the Holy Roman Emperor the Rhine was Europe's main trade route and a lot of European wealth was generated by trade along the Rhine. But when the Holy Roman Emperor weakened in the 1200s freelance barons - German barons - set up castles on the Rhine, they set up several hundred castles and once a boatman had to pay several hundred tolls to go from Basel to the Atlantic they stopped doing it. So for 500 years on the Rhine, for 500 years the Rhine was not used as a major trade route because we had the problem of too many owners and too little trade.

But while the problem is not new the extent to which it could cripple industry and innovation is. Heller said that the way products are invented makes us far more vulnerable to gridlock now than at any time in the past.

Heller: What's new? Why now? The answer is that there's been a revolution across the innovation frontier in how we create wealth. It used to be not so long ago that in area after area you would get a patent and then market your product or you would get a copyright and then market your album or you would buy a piece of land, subdivide it and build your housing. That was old style innovation. Today in area after area the way that we innovate is to assemble. So the way that we create new drugs is to assemble patents or the way to create new broadband technology is to assemble thousands of patents and new software the way that we create new music and film is to assemble from hundreds of sources and the way that we create the most valuable products with land, it can be shopping malls or airports, is to assemble pieces of land. So in the new economy in the last 10 or 20 years the locus of innovation has shifted from the individual patents copyrights and pieces of land to the assembly of multiple patents copyrights and pieces of land and the problem is that we've had that shift in the style of innovation but we're still stuck with old style ownership laws that make it very easy to fragment ownership and very hard to put it back together.

So what should we do? How do we ease the gridlock? We could start, says Heller, by reforming the US's patent laws.

Heller: There are tweaks to patent law. So for example in the United States the area of damages that are available for infringement for a patent needs to be fixed. When a patent is infringed the damages that are available now under American law are super compensatory, they give much more to the patent owner than the contribution of that patent would have been to their product. Which means that a couple of law suits can sap the entire profits available from a new product. So one fix to American law is to change the damages formula.

The technology world has an answer to this – standards. This is when the owners of IP get together – as they did for the jpeg picture file format or the DVD player – and agree that they will all contribute their IP so that something universally compatible can be made.

The problem, says Heller, is that getting that agreement is fiendishly difficult.

Heller: So the standard, when it works, can solve the problem of gridlock. But to create the standard you need to get, in the context of the DVD, you need to get 700 or 800 separate patents pulled together into a single patent pool. But there are many areas that we don't have because entrepreneurs can't get the pools together or can't get the standard negotiated.

There are ways to fix the problem, says Heller, but they need industrial and political consensus. We can choose, he says, to avoid IP induced gridlock.

Heller: Gridlock is a choice, so in area after area in the modern economy we see resources being wasted through under use because you have the problem of too many uncoordinated owners. But that's a choice that we make and it's a choice that we can change. We can always fix gridlock if we come up with a smart legal solution. So these are always choices that we make and they are always choices we can change about how to govern the resources that we value the most.

That’s all we have time for this week, thanks for listening.

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Make sure you tune in next week; but for now, goodbye.