48. Requests for the second time, after the first request relating to the discharge procedure was made in 2010, a full report on how Parliament’s Free Software projects have developed with regards to use and users in Parliament, citizen interaction and procurement activities; invites for the second time to investigate, in a full study, Parliament’s obligations under Rule 103 of its Rules of Procedure with regard to Free Software and Open Standards; regrets that Free Software and Open Source solutions are not more widely used in the Parliament’s IT infrastructure;

In the slow-moving world of EU administrative processes, a report on the Parliament’s use of Free Software would provide an important reference point for efforts to make European policy makers more aware of Free Software.

So far, the Parliament is moving in the right direction, but at a snail’s pace. In March, we saw the release as Free Software of an internal tool for drafting and tracking legislation.

Open issues

At the same time, more fundamental problems remain unadressed. The Parliament still offers staffers non-free software for private use, fully expecting them to breach the terms of use of those programs.

The Parliament has also failed to make any progress on breaking free from its lock-in to proprietary vendors. It acquires most of its desktop and software through contracts made by the European Commission. The Commission, in turn, awards those contracts without a competitive tendering process to proprietary software makers and resellers.

The report which the Parliament has now requested from its own administration would represent an important bit of introspection. While not sufficient, this is a necessary condition for improvement.

Document Freedom Day is an annual campaign to build awareness for Open Standards and interoperability. Over 50 events are taking place today around the world around this date, from Nicaragua to Taiwan to Ghana.

Open Standards and interoperability help to put us in control of the technology we use. When it comes to electronic health systems, some questions have already been answered for us.  It’s clear that healthcare in future will rely ever more heavily on computers and databases.

But other questions don’t have an answer yet. What will these computers do, exactly? What data will these databases contain? And who will control them?  These are the questions that policy makers need to answer. The shape of tomorrow’s world will depend on the answers they give.

Healthcare is a key service that citizens expect a modern, civilised state to provide. As we’re discussing data protection and data portability, healthcare is perhaps the most difficult field. That’s because electronic medical records hold information on you that is very personal, even intimate.

Your patient record can tell others how long you are likely to live; whether you can have children; and how productive you’re likely to be as a worker.

This information greatly influences how others relate to you, and the choices you can make. Medical confidentiality is like privacy, only more so.  Will an insurance company take you on if you have a pre-existing condition?  Will your bank ask you to submit a copy of your medical record before processing your mortgage application?

How does an eHealth system have to be designed so that it protects such sensitive information, and yet makes it available to the right people at the right time?  Here are some fundamental considerations as we’re setting out to answer this question.

The fundamental design principle of an eHealth system must be that individuals have ultimate control over their data. Not the state, not health insurers, not other intermediaries. This will be challenging. But without this basic principle, it’s impossible to design an eHealth system that respects people’s freedom.

Second, individuals must be able to choose who they trust with their data. They must be able to freely choose between data service providers, just like today we choose an email provider whom we trust, and who provides the sort of service that we like.

They must be able to switch between services, and take their data with them.  Making data portable like this will only be possible with Open Standards – standards that anyone can implement without restrictions.

Third, the system needs to be open and transparent. Anyone with the appropriate certification should be able to set up a data service provider.  For this to work, the system must rely on Free Software and open interfaces.

Free Software allows everyone to understand how the system works, and make sure it’s secure. Open interfaces enable healthy competition within the system. Incidentally, OpenMRS, a widely used Free Software medical record system already in use in many countries, received a Free Software award yesterday.

This is a very different approach from the centralised model that some states have used.  Large collections of data always attract unwelcome attention. It is impossible to guarantee that they will not be abused in future.  The solution is not to create them in the first place. Instead, let’s create a decentralised system of service providers, flanked by strong regulation and supervision.

As we discuss how to build electronic health systems, let’s keep some fundamental considerations in mind: Privacy, data portability and transparency will be crucial to building systems that work for European citizens rather than against them.

Today, the European Commission slapped the company with a fine of EUR 561 million (ca. USD 731 million) for breaching a 2009 settlement over the bundling of Internet Explorer with Windows. Under this agreement, Microsoft promised to display a “browser choice” screen on Windows installs in Europe, inviting users to choose other browsers besides the company’s own program.

At FSFE we were cautiously optimistic at the time. We were glad that the European Commission had taken on this issue at all, but we also pointed out that regulators would have to keep a close watch to make sure the browser choice screen was having the intended effect:

It is now up to the users to take advantage of the choice they are offered. Gerloff reminds the EC that it will constantly need to monitor the success of the ‘ballot screen’. “Microsoft is a convicted monopolist and has broken countless promises in the past,” he says. “We urge the European Commission to keep a sharp eye on how well this measure plays out in practice.”

After initially displaying the choice screen in new installs, Microsoft stopped doing so after a while. It claimed that this was due to a technical glitch which had simply gone unnoticed. For more than a year.

Sure. Why would anyone at a company of Microsoft’s size feel the need to keep an eye on such minor details as antitrust settlements?

Joaquín Almunia, the EC’s competition chief, was clearly not amused. In a statement on the fine, he said:

The lack of compliance is, as a matter of principle, a serious breach of EU law itself.

If companies agree to offer commitments which then become legally binding, they must do what they have committed to do or face the consequences – namely, the imposition of sanctions.

I hope this decision will make companies think twice before they even think of intentionally breaching their obligations or even of neglecting their duty to ensure strict compliance.

Faced with a blatant breach of the agreed settlement, the Commission had no choice but to act decisively. The alternative of doing nothing, or imposing a minimal token fine, would have made European competition regulators look like paper tigers.

As Microsoft has now, again, learned to its cost, the EC demands to be taken seriously on such things.

Yet while large in absolute terms, the fine amounts to 1% of the company’s revenue in 2012. There is a danger that companies of this size see regulatory interference as a mere cost of doing business, rather than as an impulse to mend their ways. To achieve this, more forceful measures may be necessary, such as excluding offenders from public procurement for a limited amount of time.

Yet today I want to highlight a couple of less prominent people and the software they’ve written. They’re not as well known,  but they make an important contribution to my work and productivity.

There’s Marius Gedminas, who develops gtimelog. Consisting of a few Python scripts, this neat little program is essentially a digital stopwatch. I tell it what I’ve been doing, and it tells me for how long I’ve been working, on which tasks, and how many hours I’ve already worked this week. It also generates reports summarising all this information. The data lives in a very simple plaintext file, and it’s very easy to make edits later. This is useful when I’ve been working away from the computer, for example while attending an event.

This is pretty basic stuff, of course. But used right, it makes a lot of difference. This kind of monitoring is especially important because like everyone else here at FSFE, I’m passionate about what I do. When you’re working for a good cause like Free Software, it’s always easy to say “I’ll just put in a few more hours”. This is fine for crunch time, but it’s dangerous when it becomes  a routine thing. When I’m working too much, creativity disappears first; then, quality; then, motivation; and somewhere in the process, my family usually begins lodging serious objections.

This is why I use gtimelog, and encourage FSFE’s staff to do the same. For me and many others, the program has become an important tool to manage our workload. It helps us to stay creative, productive and passionate. It helps us perform over the long run.

The other person I want to mention here is Debian’s Stefano Zacchiroli. He’s a three-time Debian Project Lead, and a very cool guy. He also happens to rely on some of the same productivity tools that I use: Mutt, to deal with insane amounts of email, and emacs org-mode, to deal with insane amounts of tasks.

Both of these tools by themselves are wonderful. They’re even cooler when you get them to work together. That way, I can turn emails that I’m reading in Mutt into tasks that get listed in org-mode. And this is exactly what Zack has made possible,  with a few scripts (he tells me an update is in the works). I still have to try these out, but I’m already looking forward to a better workflow.

Marius, Zack: Thank you very much!

During a game of capoeira, my partner’s shin ended up on top of my foot, and I ended up on top of his folded leg. The bones in my left foot didn’t appreciate the sudden arrival of ca. 150kg of pressure on a very small surface area, and gave way. This is the result:

You know you’re in trouble when the doctors look at your injury and call it “interesting”. But right now, things are looking up. After spending a week in bed with my foot propped up, I had surgery today. They put a couple of wires in my foot, and gathered up all the little bone splinters and put them back where they belong. A couple more days in hospital, and I’ll be back home with my family.

I’ll have to walk on crutches for six weeks or so, meaning that I won’t be able to travel. It’ll be three months until I can get slowly back to practicing capoeira again. Currently I’m focused on recovering, but I’ll ease my way back into work over the coming weeks.

If you’re waiting for a reply from me and not getting it, now you know why.

The Free Software angle

There’s a Free Software angle to this, too. During my initial visit to the hospital, they gave me an X-Ray. On the pictures, there seemed to be nothing out of the ordinary.So they sent me home, told me to cool the foot and stay in bed, and predicted that I’d be out and about again in a week’s time.

The next morning, the hospital called me. They had noticed a tiny detail on the X-Ray pictures. Could I come in again for a CT scan? On these pictures, taken from all angles at a much higher resolution, the full extent of the damage became apparent.

As they sent me back home to wait for surgery, they gave me a CD with my CT scan pictures on them. They came in a format I had never heard of before: DICOM.

Since I was very curious what was going on with my foot, I dug around for DICOM viewers. After a little digging, I found Aeskulap. It’s a neat Free Software program (GPL for the top layer, LGPL for the middle layer, BSD for the bottom layer) that lets me look at those DICOM images, rotate them and zoom them. While it didn’t make my foot work any better, it did make me feel better about my foot.

The UK government is certainly taking a long and winding road towards Free Software and Open Standards. The UK’s public sector doesn’t use a lot of Free Software, and many smaller Free Software companies have found it comparatively hard to get public sector buyers for their products and services. The main reason is that government agencies at all levels are locked into proprietary, vendor-specific file formats. Government’s tendency towards gigantic IT contracts didn’t help. Francis Maude, minister for the Cabinet Office, said today that “despite accounting for half the turnover in the UK economy – were winning only around 6.5% of Central Government’s procurement spend.”

Today, the UK took a long-awaited, important step towards fixing this problem. (FSFE press release) It published a set of “Open Standards principles” (pdf). They’re effective immediately, and all central government bodies will have to abide by them. It also put out a response to the public Open Standards consultation that it had run up to June 2012. (See FSFE’s response to the consultation.) In this post, I’m covering only the Open Standards principles.

The first thing we need to look at in an “Open Standards policy” is how the term “Open Standards” is defined. FSFE has a clear definition, and it appears that the UK government has been paying attention. Patents that are essential to implementing a standard must be licensed free of royalties or other restrictions. And that’s what the UK government has finally done here:

Rights – rights essential to implementation of the standard, and for interfacing with other implementations which have adopted that  same standard, are licensed on a royalty free basis that is compatible with both open source and proprietary licensed solutions. These rights should be irrevocable unless there is a breach of licence conditions.

There’s none of the pussy-footing that turned the European Interoperability Framework from a valuable document into a useless mush two years ago.

Francis Maude, Minister for the UK’s Cabinet Office, has it right when he says:

Following this consultation I am today publishing our Open Standards Principles. These set out that Royalty Free open standards are key to levelling the playing field for open source and proprietary software in government IT.

And that competition between open source and proprietary software can result in lower licensing costs and increased innovation in government IT.

These Standards are going to have a huge impact. In the future all Government bodies must comply with the Open Standards Principles or apply for an exemption. And a challenging comply or explain process is being implemented, through the existing IT spend controls process.

The Open Standards Principles contain a number of important points. Many of these are things that FSFE has been pushing for for a long time.

The product choice made by a government body must not force other users, delivery partners or government bodies, to buy the same product e.g. web-based applications must work equally well with a range of standards-compliant browsers, irrespective of  operating system, and not tie the user to a single browser or desktop solution.

and

Government bodies must be clear about the user need and functional outcome for a standards-based solution in specifications so  that suppliers can meet these needs. Government bodies must not specify particular brands or products.

If this sounds revolutionary, it shouldn’t. Here, the government merely makes clear what is already required under European law.

The cost of getting out of a proprietary solution often turns into a roadblock for efforts to migrate to Free Software, when it doesn’t serve as an excuse to not even consider such a migration (yes, European Commission’s DG DIGIT, I’m looking at you). This is something the UK government gets right in its new policy:

As part of examining the total cost of ownership of a government IT solution, the costs of exit for a component should be estimated at the start of implementation. As unlocking costs are identified, these must be associated with the incumbent supplier/system and not be associated with cost of new IT projects.

So if a government body buys into, say, Microsoft Office, it can’t simply rely on the sticker price for the solution. It also has to add how much it will cost, for a future migration five years from now to convert millions of files into a different format. With proprietary formats, this cost can be substantial. With Open Standards, it’s usually zero.

There’s more. They openly admit that their customary ways of buying software and services weren’t working so well:

The Government’s procurement choices have resulted in a lack of diversity in existing government IT contracts. As a purchaser of IT, this restricts our options and threatens value for money.

This is refreshingly honest.

It’s good to see that the government took up FSFE’s recommendation to avoid large IT contracts, and use larger numbers of smaller contracts instead, so as to give SMEs a chance to participate.

Government bodies can ask for an exemption from the Open Standards policy for a particular case. While this may sometimes be necessary to keep operations running smoothly, it also represents a back door that, if widely exploited, could render the entire policy ineffective. One way to mititgate this risk is to expose any exemptions to public scrutiny:

All agreed exemptions to the open standards policy must be published, detailing the standards specified and the reasons for  exemption, unless there are national security considerations which prevent this.

We’ll all need to be vigilant that this doesn’t turn into an easy way out of implementing the policy. The government of course needs to take the lead here, but if they fail to do so, we can help make sure that things stay on track.

In this and other respects, the UK government wisely recognises that policies by themselves don’t do much good – they also need to be properly implemented. Public scrutiny will help drive this process:

Government bodies must provide publicly available information on their alignment with compulsory open standards for software interoperability, data and document formats. Implementation plans for transition to the open standards or open standard profiles, within a specific timeline, must be published.

When it comes to procuring Free Software, one frequent obstacle is that the people actually handling the procurement may not be familiar with the subject, and may not have the necessary knowledge to obtain the advantages of Free Software for their organisation. So the government will offer training and guidance:

Procurement, project management, information and IT professionals in government bodies must have the skills to make appropriate choices in IT specifications and bid assessments, in line with the Open Standards Principles. Training and guidance should be offered through partnerships with established profession and skills development networks.

On the whole, the Cabinet Office has done a great job with this policy, covering not only the principles of Open Standards, but also the practicalities of effectively implementing the policy. From what we hear, the big proprietary vendors have put them under tremendous pressure. There is sure to be some pushback. In the interest of those living and working in the UK, let’s hope that the Cabinet Office keeps its nerve.

For the EPO, organising this debate was something of a gamble. They’re widely criticised for their practice of awarding patents on computer programs, and the debate tends to get rather heated. While I couldn’t disagree more strongly with the way they do things at the EPO when it comes to software, I give them credit for putting this debate together. It was also refreshing to hear Ioannis state clearly that the EPO grants patents on software, as long as the program makes a “technical contribution” – that’s somewhat clearer than the line about “computer-implemented inventions” we’ve mostly seen the EPO employ so far.

There were many interesting points in the debate, though, as you might imagine, consensus was in short supply. The argument that I made was that we need to encourage innovation; that patents are only one of many possible tools to encourage innovation; and that in the case of software, they’re horribly counterproductive. That’s why we need to get rid of software patents, and bring the patent system under the control of political institutions, so that we can design an evidence-based innovation policy as required by the circumstances. [See here for FSFE's work on software patents.]

Read on for the full discussion.

The argument against software patents

I started out with a look around us: The Internet, the World Wide Web, Free Software were not only not patented; they were only successful precisely because they were not patented.

Then came the basics. A patent is basically a social contract. The inventor gives us a new idea, we as a society give her a limited monopoly to use that idea. As with any contract, we need to check whether we’re actually getting a good deal.

This contract is just a means towards a more important end: promoting innovation and, ultimately, progress.

So we need to ask:

• Do patents on software lead to innovation that wouldn’t have occurred otherwise?
• Is granting a monopoly the only way to obtain this innovation?
• By granting a monopoly, what follow-on innovation are we passing up?

Looking at the classic Bill Gates quote about how “the industry would be at a standstill today” if programmers had started patenting their software earlier, I pointed out that that’s pretty much where the smartphone industry is today. Every day seems to bring a new patent lawsuit in the area. Patents have degraded into just another stick to beat competitors with. The captains of the mobile industry can only keep their ships steaming ahead through the patent tangles by burning piles of cash in the kettles of litigation.

There are two basic disconnects that make patents so horribly unsuitable for software. The first is that patents last many years, while development cycles in software are measured in months. The other is that a patent gives its owner a very strong monopoly power, while at the same time the hurdle for coming up with a patentable idea in software is extremely low. The “one-click” patent is a case in point, as the technology’s original developer explains:

I was asked “Why didn’t you patent this yourself, if you developed it first?” My reply was “It only took me an hour to build; if I went down to the patent office after every hour of programming, I wouldn’t get very much done.”

The effect is that there are many ideas around that are patentable under current rules – and many of them actually are patented.

Today, it’s impossible to create software without infringing someone’s patent. If you’re running a basic online shop, you’re touching on ca. 11,000 patents (see Bessen/Meurer (2008): Patent Failure, p.9). Complex programs are made up of thousands of ideas, any of which could be patented. Running patent searches is costly, with a price tag of ca. 10,000 EUR per search (though newer companies are trying to bring down the cost). But that still means that if you were to do things properly and investigate before putting your product into production, you’d spend hundreds of thousands, if not millions on patent searches that won’t contribute anything to your product. In addition, it’s practically impossible to tell where the area covered by a software patent ends unless you ask a judge. So in practice, rather than doing extensive patent searches, even the world’s largest software companies mostly close their eyes and hope for the best.

As a result, infringement is rampant. Big companies get rid of disputes among themselves through cross-licensing deals. Essentially, they put their piles of patents next to each other. The company with the smaller pile pays the other one a bit of money, and then they agree to leave each other alone. (The former CEO of Sun Microsystems, Jonathan Schwartz, explains the game rather well.)

Small companies can’t play this game. Once they become valuable enough to present a rewarding target for patent litigation, the industry incumbents can just blow them out of the water. Cost figures given for what it costs to start litigating a patent, but three million Euro per case doesn’t seem uncommon. That’s not the damages, mind you – it’s just the cost of getting the case going.

Yet litigation is only the last of a long chain of insidious tactics, starting with FUD (e.g. Microsoft claiming to hold 200+ patents on the Linux kernel, but never showing them to anybody) and paying dubious “experts” to toot the incumbents’ horn, on through pressuring companies into licensing deals in order to profit from a product that the incumbent had absolutely no part in creating (Microsoft’s campaign to force Android device manufacturers into licensing deals, in order to bring up the per-device cost of Android to the same level as that of a license for Windows Phone 8).

Obviously, this has nothing to do with innovation, and everything to do with reducing competition in the market. Unfortunately, competition is a key driver for innovation – and, unlike with patents, nobody is disputing that.

The risk of being exposed to patent litigation makes it risky and costly to innovate. In the US, an increase in software patents actually went along with a  reduction in R&D spending (Bessen/Hunt via Jamie Boyle in 2005). Patents also provide terrible ROI. In 1999, US public companies made profits of 3bn USD from patent licensing – but the associated litigation costs were 12bn USD. (Bessen/Meurer, 2008; excluding pharmaceutical companies)

Patent trolls (or “non-practicing entities”) are a growing concern. While I didn’t have time to discuss these, I did briefly highlight an even greater risk: Mass aggregators like Intellectual Ventures, which hoover up patents by the thousands. These entities are basically behaving like hedge funds of the patent world. They’re also pushing litigation through thousands of shell companies. They’re not just a huge problem today; as they refine their techniques of monetising patents, they’re likely to impose a significant additional tax on innovation, which will be paid by all of us. (If you want to know what’s headed our way, read this research paper.)

Hearing the other side

Simon Davies went up to speak after me. (I haven’t seen his presentation online yet, so I’m trying to summarise his overall points as accurately as possible. I’ll be happy to add a link if the presentation becomes available.) He argued that the EPO is acting correctly in granting patents on software that makes a “technical contribution”. Regarding my point about political control of the patent system, he pointed out that there have been two recent opportunities to change the rules (an update of the European Patent Convention in 2000, and the software patent directive in 2005, and that both these initiatives failed to resolve the lack of clarity in the EPC. As a consequence, the EPO is left to its own devices in interpreting the EPC.

He has a point there, of course – the political process so far has failed to effectively address the problem of software patents. But that doesn’t mean we should give up on politics. Yes, the process of making policy is often as gruesome and messy as that of making sausage. But even if our democratic institutions aren’t perfect, they’re the best system we know of to take decisions as a society. We need more democratic control over innovation policy, not less.

Policy also tends to lag the real world by years, if not decades (hello, copyright!). Since the reform attempts that Simon cited, the negative effects of software patents have become even clearer than they were in the early 2000s.

Simon also mentioned a number of statistics showing that the number of patent filings on software since the 1990s had grown at about the same pace as the number of Free Software projects; and that the US, with its extremely liberal approach to granting patents on software, at the same time was the most dynamic environment for software companies

As he himself admitted, correlation isn’t causation. Based on the research I’ve seen and the industry experts I’m talking to, the growth in Free Software projects and the US’ vibrant software business scene exist not because of software patents, but in spite of them. Software patents are acting as a tax on  developers and as a brake on innovation, and removing them should make both Free Software and the technology sector even more dynamic than they already are. That’s a growth opportunity we’re currently wasting.

Interestingly, Simon first highlighted the moral argument that the Free Software community is making against software patents – that it’s wrong to exclude others from using a good idea. He then made a moral case of his own, arguing that inventors are entitled to benefit from their ideas, and citing the late Steve Jobs’ moral outrage over supposed patent violations in Android. I always thought that Jobs’ position on Android was a rather difficult one to take for someone who lived by (and loved) the phrase “good artists copy; great artists steal”.

He admitted that patents can be a problem for competition. I don’t share Simon’s optimism that competition authorities will be able to deal effectively with abuses. Participating in the European Commission’s lawsuit against Microsoft has given us at FSFE a first-hand experience of what competition policy can do. While the case resulted in a record fine against Microsoft, competition policy is slow and blunt as an instrument. Instead of waiting for years and years for conflicts to be resolved (and putting in tons of work in order to make it happen), it would be much easier to preclude abuses from occurring in the first place, by eliminating patents on software.

Answering to my point that the Internet and the WWW had grown so rapidly because they were not patented, Simon brought up RSA, saying that this patented encryption algorithm had enabled e-commerce to really take off. On closer inspection, it turns out that RSA was released into the public domain in 2000, two weeks before the patent expired. The bulk of growth in e-commerce came after 2000, when the technology was no longer patented.

Where is Europe headed?

The US approach of generously granting software patents has led to the current litigation crisis in the mobile industry, the rise of trolls and many other problems. Will Europe go down the same road? Currently, the EU is trying to finalise a single patent system for Europe, the “unitary patent“. While it’s debatable whether or not this is a good idea in principle, the proposal that’s currently on the table would give the EPO even more autonomy in interpreting the rules. Given its record, this would significantly increase the number of software patents granted in Europe. It would also make enforcement more effective, meaning that patent holders (many of whom are large companies) will find it much easier to litigate their patents here than is currently the case.

Instead, we’re asking the EU to bring the European patent system back under political control. The patent system needs to be understood as a tool of innovation policy, among many other tools available. Making it possible to take recourse to the European Court of Justice in patent disputes is necessary, but not a sufficient condition for a working innovation system – and the current proposal for the unitary patent does not offer even this minimal opportunity.

Currently, a lot of policy on patents (as well as copyright) is made on the basis of faith and rather dubious argument. We urgently need to move on towards evidence-based policy making. Before a major policy decision is taken, several independent experts need to analyse the options. Results need to be reviewed periodically, and if they’re not satisfactory, the policy has to be adjusted.

This will also make the patent system more flexible, and more responsive to society’s needs. The world is changing, as businesses in countries like China, India and South Korea are increasingly giving western firms a run for their money. Historically, countries have adjusted their patent system as suited their economic needs. Will European companies still be so keen on a strong patent system when their Chinese competitors start filing and enforcing more patents?

We expect that the discussion will take place later in the fall of this year. This means that there is more time for you to discuss software patents and the unitary patent with the MEPs on the Legal Affairs committee.

Of course, the issue of the unitary patent continues to evolve. Here and at fsfe.org, we will continue to provide updates on the situation as it evolves.

In the meantime, you can call the committee’s MEPs. You can also get your company to sign a declaration against software patents aimed at MEPs.

There is no empirical evidence that patents serve to increase innovation and productivity, unless we use patents themselves to measure innovation and productivity. [p1] This is the “patent puzzle”: there is no increase in rate of technological progress despite ever-stronger patent protection [p1].
Innovation is hardly ever born out of patent protection. Instead, it is the fruit of highly competitive-cooperative environments.  Innovators profit mainly from first-mover advantages, not patents. [p1]

Political demand for strong patent protection comes from old and stagnant firms, not new ones. Mature industries turn to patents only after an initial “hot” phase of innovation and rampant growth, as their growth potential shrinks and the industry becomes concentrated. [p1] Case in point: While Apple released its first iPhone in 2007, it did not really start to use patents to fight competition from Android until 2010. [p4]

Patents block competition and innovation

The basic problem of patents is that existing monopolies block future innovation. This is made worse because modern products consist of many thousands of potentially patented ideas. Anyone who holds a patent on any of these ideas is potentially in the position to block the product or levy a tax on it.

In mature industries, patents are widely used to inhibit innovation, prevent entry and encourage exit of competitors: [p5]

“The dead hand of dying institutions ­ Texas Instruments was famous for this and now we have the example of Microsoft ­ gets hold of the industry as they attempt to tax consumers, new entrants and any potential competitor.” [p5]

There is no statistically significant correlation between measures of productivity and patenting activity. [p17] But there is a significant correlation between competition and productivity growth. [p18]

In an example of the inefficiencies created by the patent system, Research in Motion paid 612.5 million USD to NTP for a patent license. Patent was later invalidated, but RIM didn’t get its money back. “In this setting it is no surprise that patent trolls hope to get rich quickly.” [p6]

Patents don’t actually serve to spread knowledge through the publication of ideas that would otherwise have been kept secret. Disclosures in modern patents don’t provide enough information to replicate the technology. Also, innovators will patent exactly when the amount of time for which the workings of an invention can be kept secret is smaller than the duration of the patents. This may merely shift the focus of innovation away from things where the workings of the invention can more easily be kept secret. [p2f.]

Patents in the pharmaceutical industry

Pharmaceutical companies may value patents more highly not because the initial fixed costs of developing a new product, but because disclosure is more meaningful when it comes to drugs. The chemical formula is available to competitors essentially for free. The clinical trials to prove that a new drug works account for 80% of the development costs.

On the other hand, the high monopoly prices of life-saving drugs imposed by the pharmaceutical industry have a great social cost. Instead of patents, a prize system might work better, fostering innovation while minimising the social costs. [p4f] Pharmaceutical products often sell for hundreds of times their marginal cost of production. [p6]

Abolition is the only solution

It may be theoretically possible to design a patent system that actually promotes innovation. But the political economy of patents makes it impossible to build such a system. So Boldrin and Levine argue that the only solution is to advocate outright abolition of patents: [p10]

“Being not a “property” right but rather a “monopoly” right, patent possessors will automatically leverage whatever initial rents their monopoly provides them with in order to increase their monopoly power until all potential rents are extracted and, probably, dissipated by the associated lobbying and transaction costs.” [p11]

Over the last two centuries, governments have progressively enlarged and strengthened the monopoly powers granted by patents. “At each stage of this process of enlargement the main driving force were the rent-seeking efforts of large, cash rich companies unable to keep up with new and creative competitors.” [p14]

Policy recommendations

Patents are akin to trade restrictions, as they prevent the entry of foreign competitors into national markets. Trade restrictions were vastly reduced over the past decades. It is time that the same reduction is applied to the patent system.

As the abolition of the patent system will require a transitional period, Boldrin and Levine make a number of policy proposals for this interim phase, such as [p21f.]

• Stop the expansion of the patent system, and stop favouring patent holders in the judicial process.
• Anti-trust and competition policies are key to fostering innovation.
• Stop exporting US / European policy on patents to the rest of the world through WIPO, WTO and TRIPS – the balance of trade in patents might easily reverse within a couple of decades.
• Tailor patents’ length and breadth to the needs of different industries. Move away from one-size-fits-all approach.
• Reverse the burden of proof for patent applications. Patents should only be granted when strictly needed on economic grounds.
• Use prizes to foster innovation, and ensure that the results of publicly funded innovation becomes available to the public.

The most surprising point is that the European patent system isn’t actually in any way related to the European Union. Instead, it is run by the European Patent Organisation (EPOrg). This is an entirely different organisation from the EU. It is governed by the European Patent Convention. The EU and the EPOrg are two separate supranational bodies. The EPOrg is not subject to decisions of the European Union or the European Court of Justice.

The EPOrg consists of two bodies: The European Patent Office (EPO) as an executive body, and the Administrative Council as a supervisory body. The  Administrative Council exercises very little control, so that the EPO basically runs itself. While the EPO claims that it merely administers existing law, it has over the years, little by little, reinterpreted the limits of the European Patent Convention.

Software patents are a case in point. Article 52 of the European Patent Convention clearly rules out patents on “programs for computers”. Yet the EPO has merrily been granting these for years. It argues that as soon as a computer program has a “technical effect” – making a hard drive spin, lighting up pixels on a screen – it is a physical machine, and therefore patentable.

Why this drift into ever more, ever broader patents? A large part of the answer lies in the way the EPO is financed (pdf). While it is nominally under the control of the EPOrg’s member states (through the Administrative Council), the money to run the EPO comes from the fees that patent holders and applicants pay. Accordingly, the EPO has an incentive to grant as many patents as possible.

You can learn more about the European patent system in these Wikipedia articles , unitary-patent.eu and this presentation.

What will change with the unitary patent?

If the current proposal for the unitary patent passes unchanged, it will make a bad situation worse. Currently, national courts in EU member states are in charge of handling patent disputes. Under the current proposal, these powers would pass to a new European patent court, run and staffed by the EPO.

This is exactly the wrong direction in which to take things.

When deciding whether an idea is patentable, or what exactly a patent covers, courts can take either a broad or a narrow view. If they take a narrow  view, they will look only at the patent itself and the technicalities of the patent system’s rules. This often leads the court to decide that the patent in question reaches further than it really does. Other courts then interpret such decisions as precedents. In consequence, not only the reach of each patent grows, but also the range of ideas that can be patented.

The new patent court would be an international organisation outside the institutional and judicial framework of European Union law. The European Court of Justice has already made it clear [.pdf] that the patent court as currently envisioned would be illegal. This means that an important element of the current proposal can’t actually be implemented. What will happen if the proposal is adopted anyway is anybody’s guess.

Out of control, or at your service?

Patents are one tool among many to promote innovation. There are many other things we can do to encourage people to come up with new ideas, and to turn them into products: better education, tax breaks for research and development, subsidies for companies that bring new products to market, and so forth.

Patents also have very different value to different industries. Pharmaceutical companies typically find patents very valuable, while ICT companies and software developers in particular consider them devastatingly harmful to their businesses. As the plethora of patent litigation in the smartphone space shows – with Apple vs Samsung only the latest example – patents on software have degenerated into mere lottery tickets. Companies amass as many of them as they can, in the hope that one of them will win big. But this is a game of kings. The smaller companies and SMEs that make up the backbone of Europe’s economy can’t afford to play.

We can only resolve this tricky situation if we actively take control of innovation. We can’t leave it to the EPO to develop patent policy; the EU has to take charge, led by the democratically elected European Parliament. Patent policy needs to be integrated into a larger innovation policy strategy.

Patent policy belongs under legislative control. Our current political processes and institutions aren’t perfect, but they’re certainly better than the EPO’s secretive insider culture. Good patent policy needs transparency, accountability and participation. The current proposal for the unitary patent lacks all of these things.

Take action

• Support FSFE
• Read about the unitary patent and FSFE’s demands
• Write and talk to your country’s MEPs on the Legal Affairs committee about the unitary patent