HBS seminar 3/26/14: Dark Markets, Bad Patents, No Data

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This presentation for the Digital Initiative at Harvard Business School looks at how digitization interacts with the patent system and the systemic dysfunction that results. This version is annotated for the benefit of the reader.

Transcript of HBS seminar 3/26/14: Dark Markets, Bad Patents, No Data

  • Dark Markets, Bad Patents, No Data Institutional and Information Failure in the Digital Economy Brian Kahin Fellow, MIT Sloan School Center for Digital Business Senior Fellow, Computer & Communications Industry Association Digital Initiative Harvard Business School March 26, 2014 This version enhanced for those not present at the event.
  • digital technology effects in most economic policy domains: financial regulation, tax arbitrage, regulation of services, telecom regulation, competition policy, intellectual property. an enabler (usually taken for granted) and source of disruption, opportunity, arbitrage, disequilibriuum. effects mediated/amplified/extended by firms but institutions and policies typically slow to change
  • examples: financial system, patent system, US healthcare mix of public agencies, institutions, markets, instruments, and relationships less system and more ecosystem : many points for private ordering and state intervention mix of different languages, different logic especially in patents technical explanation directed at person having ordinary skill in the art claims: legally operative terms that require interpretation (claims construction) algorithmic language of code globalization complex public-private systems
  • need for multidisciplinary approach to public-private systems law and economics political economy applied transaction cost analysis institutional/policy design complex systems place in the curriculum?
  • digital economy fundamentals exponential increasing processing power, bandwidth, storage rapid but unpredictable change digital content, communications, algorithms/logic combinatorial layers, modules, systems, platforms, functional integration, things Brynjolfsson and McAfee, The Second Machine Age 2014
  • combinatorial (can be viewed from two directions) bottoms-up functional aggregation and integration top-down (architectural) platforms degrees of openness DoD, IBM, Microsoft modules and interfaces standards compatibility vs substitute function vs implementation public vs private
  • digital economy fundamentals exponential increasing processing power, bandwidth, storage in general, rapid change over many years digital content, communications, algorithms/logic combinatorial layers, modules, systems, platforms, functional integration, things connected (a critical 4th fundamental) global reach, addressing, search; boundary- spanning, complements
  • primary/secondary/tertiary effects (a quick sense of the complex interplay) boundary spanning >> category blurring perfect sharing and global scaling competition for the market cheap transacting >> open innovation efficient markets new business models, transformed markets modularity and complementarity relations across boundaries algorithm-based management of data, information, knowledge documenting, monitoring, measuring, and modeling asset sharing/partitioning
  • first-order policy implications exponential -- schizophrenic response to rapid change rapid reaction: copyright, obscenity inertia: patent law, taxation, antitrust digital radical change for content and communications (confronts copyright, free expression, telecom) combinatorial too complex for intervention connected discourages local intervention, promotes harmonization, creates transborder tensions/arbitrage
  • copyright radical enablement of intermediaries and end users (owner-enabler-user); reuse and piracy policy response: notice and takedown trademark conflict with domain names (network admin) domain names: global, generic, unlimited Internet governance trade secret rapid dissemination by insiders, third parties (similar to primary copyright problem) hacking, industrial espionage, cyberconflict tool for discouraging executive mobility impact on intellectual property regimes
  • implications for patent system exponential unlimited capacity for software functionality accelerated time-to-market and product cycles digital algorithms as basic tools (at what point do basic tools become applied and patentable?) enables content, process, and communications covergence limited by patent portfolios (smartphone wars) combinatorial (complex products/systems) vast functionality at multiple overlapping levels drives patent proliferation content, communication, GPS, sensors, other technology.
  • Colleen Chien, Functional Claiming, Presentation to the 2/12/13 USPTO Software Roundtable Colleen Chien, Functional Claiming, Presentation to the 2/12/13 USPTO Software Roundtable problem of structured complexity in combinatorial
  • implications for patent system exponential unlimited capacity for software functionality accelerated time-to-market and product cycles digital Benson: algorithms as basic tools (at what point do basic tools become applied and patentable?) enables content, process, and communications covergence limited by patent portfolios (smartphone wars) combinatorial (complex products/systems) vast functionality at multiple overlapping levels drives patent proliferation content, communication, GPS, sensors, other technology. connected extreme vulnerability of networks ($612M Blackberry settlement) global markets, global patent warming, global prior art
  • up 66% in last 4 years
  • updated from Bessen, A Generation of Software patents (2011) up 100% in last four years!
  • rapidly rising litigation for software-related patents
  • first presidential initiative on patents in 47 years and only two years after the America Invents Act
  • White House report: PAE suits are concentrated in the IT sphere; according to one estimate, 82% of PAE defendants were sued on the basis of a software patent (in contrast to only 30% of those sued by non-PAEs) (Chien and Karkhanis, 2013). Software patents are nearly five times as likely to be in a lawsuit as chemical patents; business method patents are nearly fourteen times as likely (Bessen 2011). Risch 2011: Average PAE suit is filed 8.3 years after patent issues
  • percent of patents allowed.JPG Cotropia, Quillen, and Webster 2013 difficult to get at it because of lag and continuations (in the U.S. an application cannot be conclusively rejected); authors had to get underlying data via FOIA request
  • Best places to work in federal government PTO moves from 105th to 1st place from 2009 to 2013 as allowance rate rose, patent office became a more pleasant place to work
  • The U.S. has had a 230-plus year love affair with innovation. It started with our Constitution, in which our Founding Fathers made patents an affirmative right the government is required to grant to anyone who meets the legal requirements. former Under Secretary of Commerce for Intellectual Property David Kappos, Stanford Technology Law Review, May 2013 But the patents clause is in Article I (enumerated powers), not the Bill of Rights; Congress is empowered but not required to grant patents. And patents are a negative right, not an affirmative right. They do not give owner the right to practice invention only the right to exclude others from doing so.
  • [T]he defense establishment insisted on an intellectual property rights regime that was scandalously and productively loose relative to what has evolved over the three decades since then. William Janeway, Doing Capitalism in the Innovation Economy, 2012 The landscape was once very different, especially in semiconductors and software. DoDs insistence on second sourcing and technology sharing was a major force behind the culture of Silicon Valley.
  • 1952 Patent Act, written by patent lawyers drawn from the Patent Office, from industry, from private practice, and from some government departments. (1966 Presidents Commission no patents on computer programs) (1972 Benson patent on algorithm denied by SC) 1982 Federal Circuit, created to hear all patent appeals and make patent law more uniform made patents easier to get, easier to assert, more powerful, harder to invalidate, and more abstract. 1990 USPTO becomes fee-funded 1996-2002 mission: To help customers get patents. subsidy for examination creates incentive to grant patents 1998 State Street decision business methods patentable, as well as software activist opinion by judge who drafted 1952 Act institutional background
  • market developments in IT defensive portfolios, cross-licensing portfolio monetization secondary markets