Karsten on Free Software

Microsoft just can’t avoid getting into trouble with competition watchdogs.

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.

Among all the Free Software and Open Standards posts on this blog, here’s a personal announcement.On Sunday a week ago, I had a sports accident that left me with a broken foot.

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.

Today is a good day for Free Software companies in the UK.

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.

On Tuesday, I went to Amsterdam to talk about “How Software Patents Are Delaying The Future” (pdf, 79kB), on a discussion panel organised by the European Patent Office. The other people on the panel were patent attorney Simon Davies and Ioannis Bozas, a patent examiner at the EPO. The panel was moderated by James Nurton of Managing IP. Despite our very different views on the subject, we had very friendly and informative conversations before, during and after the panel.

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.

Continue »

We have learned that the European Parliament’s Legal Affairs committee has taken the unitary patent off the agenda for its meeting today and tomorrow.

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.

Glyn Moody pointed me to a recent draft paper (.pdf) by economists  Michele Boldrin and David K. Levine. It’s an interesting read. Here are the notes I made while reading. I’m posting them in order to make the arguments in the paper accessible to more people. I or FSFE don’t necessarily share these views.

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.