One of the factors missing from discussions of the cost of out patent system is hard data dollars and cents of what it costs society. Some of us have long known that it was a net loss, but that is hard to argue when you don't have the numbers. That has just changed, according to a book review by Timothy B. Lee link here. The book reviewed is Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk by James Bessen and Michael Meurer .

The hypothesis actually tested was, "Patents are supposed to create a positive incentive for innovation by enhancing the profits of companies that develop new technologies. If the patent system is working properly, the average firm's patent portfolio should generate more profits than the total cost of defending against patent infringement lawsuits from other firms. If, in contrast, litigation costs exceed patent profits, that suggests the patent system is actually creating a net dis-incentive to innovation. In that case, innovative companies would be better off with no patent system at all."

"Their data suggests three broad conclusions. First, patent litigation began rising sharply in the early 1990s. The costs of defending against patent litigation for non-chemical firms held steady at about $2 billion per year during the 1980s, but by 1999 (the last year for which they have reliable data), patent litigation was costing defendants more than $10 billion annually. Second, while the chemical and pharmaceutical industries also experienced increased litigation during the 1990s, the problem was much less dire; the patent system still appeared to offer positive innovation incentives for drug and chemical firms."

"Most shockingly, Bessen and Meurer's data suggest that outside of the chemical and pharmaceutical industries, litigation costs for the average public firm actually exceed profits from their patent portfolio by a wide margin. By 1999, the last year in their sample, defending against patent lawsuits cost non-chemical public firms about $12 billion, while their patent portfolios generated only about $3 billion in profits. This data suggests that outside the chemical and pharmaceutical industries, the patent system actually reduces the net returns to innovation; firms don't earn enough from their patents to offset the costs of defending themselves against patent infringement lawsuits brought by other firms."

There are some caveats to the study, so more work needs to be done. But with that proviso, not just the voter (consumer) needs to think about our busted patent system, but so does business and other patent owners. They should be banging the doors down on the Congress to get this changed.

Apple filed a suit against Psystar Corp., a Mac clone provider, to prevent it from selling its $399 Open Computer with copies of Apple's software. Psystar produces its own computers, which are packaged with copies of software it owns that happened to be produced by Apple.

Read it and resolve not to buy an Apple product:

"Apple Files Suit Over Mac Clones".

The library of Congress, along with others, has carried out a study on the impact of copyright on digital preservation link. The 200 odd page report comes to the conclusion that 1) laws were enacted in an analog era, thus do not understand digital preservation; 2) there is little in the sense of mandatory preservation of digital works, like there is for paper copies at the Library of Congress; 3) archives have resorted to piecemeal agreements to digitize works instead of having blanket approval, due to copyright laws.

The report recommends in particular that the law should define "preservation institutions" that can digitize at risk copyrighted material, that they should be allowed to preserve in various formats, that they should be allowed to harvest material pro-actively, irrespectively of the medium and the type of material. In short, the preservation institutions should be granted privileges that allow them to bypass copyrights in a wholesale manner, for the sake of preservation.

Hat tip: DigitalKoans.

One of the things we do not do is pay enough attention to IP developments in other countries. The Economist has a piece entitled "Sharing the wealth; Artists do battle to enrich their heirs link here." The story brings up a subject new probably to most Americans. The operative paragraph is, "For the past two years 4% of the price of a work by a living artist sold through an auction house or by a dealer has been payable to the artist. Sales of less than €1,000 (£796) are exempt, and the tax is capped for anything worth €500,000 or more. Throughout the European Union the tax is payable on sales of works by living artists or those who have died within 70 years; in Britain it is only works by living artists that qualify. The EU allowed Britain this exemption until 2012..... Damien Hirst, Britain's most commercially successful artist, [and] more than 500 signed a letter to the Telegraph urging the government to give them that right. 'Our loved ones often sacrifice a lot to support an artist in the family," [so that] Hirst and his colleagues would like to make sure it is not extended.'" That is a rich extension of copyright with no obvious benefit to society like encouraging innovation.

The Economist notes that the change will have an adverse effects on the British art market and then goes on to note that the gains are collected by only a relative few. "The artist's resale right (ARR) benefits a far smaller proportion of artists than its supporters might assume. A study sponsored by the Antiques Trade Gazette showed that, in the 18 months to August 2007, 10% of the 1,104 artists benefiting from ARR in Britain (around half of whom are British) got 80% of the pot; the bottom 30% received less than £100 each. The royalty has also proved cumbersome and costly to collect.

Michele's and my book

is now out...sort of. You can order it on Amazon except it appears to be temporarily out of stock. I guess that is a good thing. They have links to a few copies from other sellers. Or the publisher Cambridge University Press although they say it isn't available to August. But we know it exists, we've seen, sold and even signed a few copies. The free online version is available here

Here is the official blurb:

"Intellectual property" - patents and copyrights - have become controversial. We witness teenagers being sued for "pirating" music - and we observe AIDS patients in Africa dying due to lack of ability to pay for drugs that are high priced to satisfy patent holders. Are patents and copyrights essential to thriving creation and innovation - do we need them so that we all may enjoy fine music and good health? Across time and space the resounding answer is: No. So-called intellectual property is in fact an "intellectual monopoly" that hinders rather than helps the competitive free market regime that has delivered wealth and innovation to our doorsteps. This book has broad coverage of both copyrights and patents and is designed for a general audience, focusing on simple examples. The authors conclude that the only sensible policy to follow is to eliminate the patents and copyright systems as they currently exist.

While it is still minor league, the amount of free downloadable material continues to grow. Here is one source, a website called Legal Torrents, which uses the Bittorrent software to distribute Creative Commons licensed material link here. Have a look at what is currently available here. All legal and fast to download.

The more people who come looking and download, the more licensed material is likely to be made available.

Tyler Cowen writes on his blog about a recent book, Michael Heller's The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives, whose key message is that the "tragedy of the anti-commons" is often a bigger problem than the better-known tragedy of the commons link here.

He provides this example: "Tarnation, a spunky documentary on growing up with a schizophrenic mother, originally cost $218 to make at home on the director's laptop.  It required an additional $230,000 for music clearances before it could be distributed."

Read the whole piece it is short and right on point.

Interesting post by Mike Masnick of Techdirt, Supreme Court Decision On Guns May Cut Promoting Progress Out Of The Constitution, where he worries that the reasoning in the Second Amendment case Heller--where the prefatory clause "A well regulated Militia, being necessary to the security of a free State" was not held to modify the operative clause, "the right of the people to keep and bear Arms, shall not be infringed"--on the grounds that with similar reasoning, the IP clause might be de-linked from its initial cause "To promote the Progress of Science and useful Arts..." I.e., if the first clause merely states the purpose of the power, but can be ignored, as in Heller, then Congress can still establish copyright and patent even if we can show that they do NOT promote the progress of science and the useful arts.

Well, as I wrote there, Masnick has a reasonable concern, but I think, ultimately, these clauses are different. As this post above notes, in the case of the Second Amendment, the prefatory clause does not limit the operative clause. The limit on federal power is in the operative clause.

In the case of the copyright clause, first, this is a grant of power, not a limit on power. Second, as the poster notes, the power is the power "to promote the progress of science and useful arts" by a certain means, that is, by copyright and patent grants. But the power is clearly linked to "promoting progress." So I think you could probably argue that if IP does not promote the state goals, it's ultra vires. However, I'm afraid the necessary and proper clause would be used to give the feds a lot of leeway.

A full en-banc 11 judge panel was asked to reconsider their previous ill-advised opinion, and a majority managed to come to their senses by an 8 to 5 vote.

In reading the opinion, it is clear what a monstrosity the Copyright Act has become - not just substantively, but in form. What ought to be the simplest of all laws that governs the flow of speech and information for everyone has now reached a level of complexity akin to the tax code.

But if you are patient and are able to get through it, you will understand just how constipated the thinking is of the dissenting judges. (Be sure to read all of the footnotes as well. The majority opinion uses them to eviscerate the reasoning of minority.)

There are so many things wrong with so many issues discussed in the opinion that it is impossible to address in one sitting. I'll only touch upon a few here.

The truly bizarre opinion comes from Judge Birch's dissent, which begins on page 27 of the opinion. Is he really suggesting that if a magazine publisher digitally transfers its pages to a CD-ROM, no copyright violation takes place, but if you then add a search program to the CD-ROM's contents, the photographer who contributed to the magazine then has a valid claim for infringement?? Maybe I'm somehow misreading the opinion, but that is the conclusion I'm drawing from it.

Nope. I didn't misread the opinion. William Patry drew the same conclusion from Birch's original decision. Patry provides additional background on the case in his post. As Judge Burch notes in the 26th footnote to the opinion "Moreover, Professor Patry even refers to me as a 'Luddite' in his recent copyright treatise edition."

In my view, that is a rather charitable word to describe Judge Birch regarding his view of copyright law.

Also be sure to check out his views on pages 72-73 of the opinion that essentially states that it is actually OK for publishers to store historical archives, just as long as access to them is limited to small, elite group of "researchers and scholars" - not the general public.

Judge Anderson's dissent isn't quite as bizarre, but that's not saying all that much. It is still so obviously wrongheaded that it is painful to read. His reasoning can be summed up in the example he cites on page 77 of the opinion which I will paraphrase as such -

Photographer X contributed a photograph to National Geographic Magazine for its March 2000 issue on Africa. He retains copyright in the individual photograph, but National Geographic has the right to reproduce it as part of its 'collective work' - meaning its magazine issue.

Years later, National Geographic decides to publish an anthology of all its past issues that dealt only with the subject of Africa, omitting the issues on other subjects. As part of this anthology, the March 2000 issue was reproduced - bound in the volume along with all of the other issues pertaining to Africa.

Anderson claims that if National Geographic merely re-printed the March 2000 issue as a stand-alone copy, there would be no copyright problem. But by placing it in the context of a larger anthology of Africa, Photographer X now miraculously has a claim for copyright infringement - even though X's photograph is reproduced within the exact same context within the issue itself. [The majority opinion points out in footnote 18 that Anderson's example should indeed be protected activity.)

What the hell is going on in that Circuit?? I realize that the majority thankfully won out in this case, but somebody still needs to switch out the Kool-Aide over there.

The musician Gregg Gillis A K A Girl Talk is making a creative career by borrowing music from established artists. His latest album is a creative compilation of 300 songs. So far he hasn't been sued for copyright "infringement," but that might be due to the fact that his best selling work has sold only 20,000 copies, not enough to rile up the copyright capos. (The usually voluble RIAA didn't comment for the story.)

Fair use is the name of his game. He defends his modus operandi by saying that he what he does is "to take something so familiar and twist it into a new entity." He slices and dices old music so that it becomes his new creation. Game over for copyright.

Here is the article from the Wall Street Journal, June 27, p. B7.