11 July 2005

by Steven Saus

Open Source, Open Market

This document went through four different word processors: Atlantis Nova, AbiWord, OpenOffice, and Microsoft Word.  Each does the same thing; they allow me to type words, format them, save them and print the results.  Each is different.  They have different interfaces, load times, native file formats, and a host of cosmetic differences.  This is an example of the state of the software industry in the beginning of the 21st century.  It is a market ruled by differentiated competition, where small differences are major selling points. 

Microsoft's market concentration may give the industry the appearance of a shared monopoly, but it is not.  There are few real barriers of entry as required by a monopoly market, as the many free and low-cost open-source offerings demonstrate.  The main barrier to entry is brand recognition, which explains the market concentration of Windows today, despite the functional alternatives of Linux and Macintosh.  Still, a differentiated market is a variety of free market.  That would have changed in the European Union on 6 July 2005, if the Computer Implemented Inventions Directive had passed.

Instead, the European Parliament overwhelmingly rejected the Computer Implemented Inventions Directive, which would have created a single way of patenting software across the EU ("Parliament Rejects" A11).  While this rejection does not outlaw software patents, it does not sanction them either (Schultz).  Individual member states will decide the matter internally, but this ruling sends a message, which many hope will create a more restrictive view on software patents ("Parliament Rejects" A11).  Software companies are not without protection; software is already covered by copyright law (BBCNews).

It is common to confuse patents and copyrights, so a quick explanation is in order (Stallman).  Copyright is a set of rights to regulate the use of a particular form, way, or manner in which ideas or information is presented (Wikipedia).  The most famous software example was the 1994 lawsuit of Apple Computer, Inc. v. Microsoft Corp.  Apple sued Microsoft for infringing on the "look and feel" of Apple's products.  Though Apple lost the case, largely due to prior licensing agreements, it still demonstrated the power and limits of copyright law on software (Wikipedia).  The company's software did the same things - that was not the issue.  The focus was on the manner in which they did it - the consumer experience.  This concern, along with Microsoft's zealous defense of its trademark strongly indicates the differentiated nature of this market (Thurrott).

A patent, on the other hand, is a set of rights to regulate the use of an idea (Wikipedia).  In 1999, in Amazon.com, Inc. v. Barnesandnoble.com, Inc, Amazon successfully defended patent 5,960,411 (Roberts).  This patent simply describes an online system that saves customer information so that a single click retrieves it on subsequent visits (Roberts).  The crucial difference was that Barnesandnoble.com was not copying the "look and feel" of the Amazon product, but that the function was too similar to Amazon's system.  Other granted patents include Google's patent on displaying search results in bold, and IBM's effective patent on hyperlinks (Guadamuz).  These broad patents - and the lawsuits they spawn - have resulted in an estimated cost of $2,400,000,000 to the industry per year (Ackill). These lawsuits have become so common it resulted in a new term:  "patent trolls"  (McFredries). 

While software patents - like all patents - can stimulate some innovation among programmers, they have drawbacks aside from the cost of litigation.  These patents - if enforced – could effectively change the shape of the software market from a differentiated, competitive market to a shared or pure monopoly.  These patents can inhibit wide adoption of new technologies and raise barriers to entry through the costs of legal fees and interfering with the interaction of programs and data (Schultz).  Competitive markets use a country's resources more effectively, thereby increasing output and efficiency (Mings, Marlin 193).  By moving the software market away from a competitive model, software patents become bad for the economy.

Traditionally, conservatives champion free markets.  Therefore, it is ironic that the Wall Street Journal, in its article about the ruling, quotes members of two political parties who are pleased about the decision. Those parties are the Socialists and the Green Party – unlikely, but victorious, champions of the free market in the European Union.

Works Cited

Ackill, Josh.  "Patent Reform:  Why It's Needed". Information Technology Industry Council.  11 July 2005. <http://www.itic.org/policy/Fact%20Sheet-WhyPatentReform.pdf>.

"Software Patent Bill Thrown Out".  BBCNews.com.  6 July 2005.  British Broadcasting Corporation.  6 July 2005.  <http://news.bbc.co.uk/1/hi/technology/4655955.stm>.

Guadamuz, A.  "U.S. Congress Looking at Possible Patent Reform".  7 May 2005.  Technollama.  10 July 2005.  <http://technollama.blogspot.com/2005/05/us-congress-looking-at-possible-patent.html>.

McFedries, Paul.  "Wordspy - Patent Troll".  10 July 2005.  Logophilia.  13 August 2003. <http://www.wordspy.com/words/patenttroll.asp>.

Mings, Turley and Matthew Marlin.  The Study of Economics:  Principles, Concepts & Applications.  6th ed.  Dushkin/McGraw-Hill.

Roberts, Eric. "Amazon One-Click Shopping"   8 June 2000.  CS201:  Computers, Ethics, and Social Responsibility, Stanford U.  11 July 2005. <http://www-cse.stanford.edu/classes/cs201/projects-99-00/software-patents/amazon.html>.

Schultz, Jason.  "EU Parliament Votes Down Software Patents, 648-14".  6 July 2005.  Electronic Frontier Foundation.  10 July 2005.  <http://www.eff.org/deeplinks/archives/003782.php>.

Stallman, Richard.  "Patent Absurdity".  20 June 2005.  The Guardian Unlimited.  10 July 2005 <http://www.guardian.co.uk/online/comment/story/0,12449,1510566,00.html>.

Thurrott, Paul.  "The Fun Never Stops: Microsoft vs. MikeRoweSoft".  20 January 2004. WindowsITPro.  11 July 2005.  <http://www.windowsitpro.com/Article/ArticleID/41510/41510.html?Ad=1>

Wall Street Journal  "European Parliament Rejects Patent Measure".  The Wall Street Journal.    7 July 2005: A11.

"Apple Computer, Inc. v. Microsoft Corp. - Wikipedia, the free encyclopedia".  6 July 2005.  Wikimedia Foundation.  11 July 2005.  <http://en.wikipedia.org/wiki/Apple_Computer%2C_Inc._v._Microsoft_Corp.>

"Copyright - Wikipedia, the free encyclopedia".  11 July 2005.  Wikimedia Foundation.  11 July 2005.  <http://en.wikipedia.org/wiki/Copyright_law>

"Patent - Wikipedia, the free encyclopedia".  10 July 2005.  Wikimedia Foundation.  11 July 2005.  <http://en.wikipedia.org/wiki/Patent>