Walt Byers posted this to the pen-l mailing list.

The RIAA sues a miscreant for illegal downloading. The defendant dies. The compassionate RIAA asks the court to give the family 60 days to grieve, before it lowers the hammer.

Not too many posts recently from either Michele (well never from him) or me. We've been giving talks in Australia. We talked about IP at the Macrodynamic Conference at the Australia National University in Canberra. I think we raised some questions in the minds of the audience.

I gave a general audience talk on IP at the Treasury. Australia is famously sympathetic to monopolies. Much anti-trust that would be in the Justice Department in the U.S. is in Treasury in Australia. It was quite a pleasure to meet people who not only meant well, but have their heads screwed on straight. There is always a temptation (and perhaps a paper to be written?) for a government to respond to changes in economic circumstances by "doing something" - generally something stupid. It is fortunate for Australia that they have some public servants who understand that generally the best approach is for government to stay out of the way.

I talked also at Melbourne Business School. I wish I could say that my anti-IP talk was the highlight of the day, but I was paired with Eric Von Hippel of MIT whose talk on user driven innovation was the highlight of the day. The short version: most innovation isn't done by business firms at all, it is done by consumers who improve/invent products for their own use. When it turns out the invention is generally useful, often the firms imitate them. His website is highly recommended.

Finally, I'd be remiss not to draw attention to Josh Gans and his excellent website Core Economics. Aside from some comments on IP and Michele's and my work, there is a great deal of excellent stuff. His post on ownership of the last mile should be read by everyone interested in the internet.

Creswell, Julie. 2006. "A Wall Street Rush to Patent Profit-Making Methods." New York Times (11 August).

An intellectual property arms race is escalating on Wall Street, where financial services firms like Goldman Sachs and Citigroup are building up stockpiles of patents on processes like software-based pricing, trading and risk analysis systems and products like credit cards, exchange-traded funds and exotic derivatives.

While there have been no big clashes yet, the question is, Which firm will be the first to try to enforce its growing portfolio of patents?

Patent activity among financial services firms began to soar in the late 1990's, prompted by the boom in new technology and by the fact that banks were spending enormous sums to upgrade their in-house systems. A federal court decision in 1998 that software and business methods could be patented also fed the rush to seek patents.

The result was a virtual stampede among top financial services firms to the United States Patent and Trademark Office. In 1997, there were 927 patent applications for various methods of processing financial and management data. Last year, there were 6,226.

Perennially understaffed and now overwhelmed by the sheer volume and complexity of these "dreamed up by a rocket engineer" financial products and systems, the patent office has struggled to keep up with the flood of applications. These days, banks and other financial giants are being granted patents they applied for four or even five years ago. Last year, more than 1,000 patents for processing financial and management data were approved, up from 200 in 1997.

Goldman, viewed by many as a patent leader on Wall Street, has hundreds of patent applications in the pipeline and has received patent rights on a couple of dozen products and systems, according to its chief patent officer, John Squires. He joined Goldman in the new position in 2000 after being a patent lawyer with Allied Signal.

"I think there will be increased filings as the convergence of banking and technology is irreversible," he said. "As people spend more and more building systems and deploying technology, they're going to want to make sure they have the rights available to them."

For now, all the big firms seem to be playing nicely with one another. Many lawyers involved in patenting systems and products on Wall Street label the patents as defensive in nature. They say Wall Street banks are trying to patent products or software systems in an effort to protect themselves from claims or litigation brought by individuals or small companies whose primary business is holding patents -- those known to their detractors as patent trolls.

But some warn it is merely a matter of time before the patent activity turns from defensive to offensive. Wall Street firms will eventually look for ways to license the technologies or products they have patented, hoping to earn a high-margin revenue stream, or they will begin to litigate against each other, lawyers say. "Right now, people are figuring out they need some playing cards so that if someone comes to us and says 'You're infringing,' well, we have some patents and we can do a cross-licensing deal and everyone goes away," says Raymond Millien, a former patent lawyer for American Express who is now the general counsel with Ocean Tomo, a merchant bank specializing in intellectual property. "But there are going to be some companies on the Street who are going to start licensing their products and enforcing the patents to get a revenue stream from them."

No one is ruling out the possibility of a patent war between the financial titans some time down the road. It has happened before. In 1982, Merrill Lynch sued the rival brokerage firm Paine Webber, accusing it of infringing on a patent Merrill received on its cash management accounts. Eventually, the two reached a settlement. "Right now, because all of the Wall Street banks are showing record profits, there's not much incentive to sue within the club," Mr. Millien said. "But three years or so down the road, it's hard to say."

Between 1991 and 2004, only 20 U.S. patents for inventions [but not including design patents, plant patents, re-issue patents, etc.] were granted to citizens from LDCs, compared with 14,824 from other developing countries, and 1.8 million to citizens of rich countries.

United Nations Conference on Trade and Development. 2006. The Least Developed Countries Report 2006.

http://www.unctad.org/en/docs/ldc2006_en.pdf

LDC's: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, Timor-Leste, Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

Source: Knell, M. 2006. Uneven Technological Accumulation and Growth in the least developed countries. Background paper prepared for The Least Developed Countries Report 2006, UNCTAD, Geneva.

I recently posted material suggesting a way to avoid the music police. Well here is material testing that I was wrong.

http://www.techdirt.com/articles/20040518/1443220.shtml

Opening Up WiFi Networks To Deny Responsibility from the good-luck-with-that... dept

A short article in Salon comes across a bit too innocently, about someone who has decided to open up their WiFi access to anyone close enough to use it in order to deny any responsibility for any illegal traffic that goes over his network. This isn't a new argument. It's been used before. The problem is that it's unlikely to work. We've pointed out in the past that all of the RIAA's lawsuits against individuals contain no proof that that particular individual was sharing files, but that hasn't stopped the courts from deeming them valid (though, no one has really tested it yet). In this particular article, the guy uses Comcast, and even taunts them that he'll deny any responsibility if he gets accused of sharing music or movie files. Of course, Comcast will immediately cut him off for violating his terms of service that say he can't share his account via WiFi. In theory, he could even be charged with a felony for helping to share an internet connection. Meanwhile, the article attempts to raise deeper issues that we've touched on before about whose responsibility is it if you get hacked. Is it your own responsibility for having weak security? The writer of this article seems to think that's a perfectly valid excuse - even though he's purposely setting the system up with weak security. Considering the recent fines by the government against companies that set up weak security that allowed them to get hacked, he might not have much of an argument. All of that being said, I do think sharing WiFi is a good idea - if your ISP allows you to do it. I think more ISPs should allow (or even encourage) users to share their connection via WiFi, because it makes the connection that much more useful. That doesn't mean there aren't security concerns, but those can be dealt with if the person setting up the system, and those connecting to it are smart about how they do so.

TECH DIRT

For years, the RIAA has claimed that having the IP address of a computer that has shared unauthorized files is the equivalent of having the evidence of who was actually sharing files. That, of course, is false. The IP address simply can help you know who paid for the internet access, but not who was using what computer on a network. In fact, this even had some people suggesting that, if you want to win a lawsuit from the RIAA, you're best off opening up your WiFi network to neighbors. It seems like this strategy might actually be working. Earlier this month the inability to prove who actually did the file sharing caused the RIAA to drop a case in Oklahoma and now it looks like the same defense has worked in a California case as well. In both cases, though, as soon as the RIAA realized the person was using this defense, they dropped the case, rather than lose it and set a precedent showing they really don't have the unequivocal evidence they claim they do.

I found this on Sam Smith's www.prorev.org

This example is not open source, but it suggests the potential of opening processes up.

Musgrove, Mike. 2006. "Lego's Robot Redux: Hackers, Longtime Fans Help Revamp Kits To Build Better Gizmos." Washington Post (29 July): p. D 1.

"In deciding to revamp the aging Mindstorms robot line, Lego turned to its most faithful core of fans: enthusiasts and hackers who had banded together to form their own online support network. In 2004, Lego e-mailed four of its biggest Mindstorms fans across the United States. The team members spent 10 months advising Lego as the Mindstorms Users Panel, discussing their dream lists of what the next kit should and should not be."

"Lego's star chamber, later expanded to 14 members, helped shape what the new robots will be able to do and which parts come in the 571-piece kit. One member was even able to pressure the company into building a part that makes its debut in the new Mindstorms set -- a rare event at Lego, which treats every individual piece with reverence. The new part is a connector that allows two long pieces to be joined at a 90-degree angle."

"The resulting toy has much more up-to-date technology than the original set, including a USB 2.0 port for fast downloads and Bluetooth for wireless connections. With the right parts and programming, a Mindstorms robot can dance in response to sounds or follow the beam of a flashlight. Lego even decided to embrace the hacker community, which has spent years altering the electronic brain of the system to make the robots perform beyond what Lego had intended. The company is making public the new source code, which is the programming that runs the unit, and allowing users to modify it and share their changes, as long as they promise not to profit from it."

My own blog has begun at

michaelperelman.wordpress.com

Mikko raised an interesting point in a comment on another thread. I'm moving it here with some remarks of my own. Apropos of decreasing costs of copying/transmitting, Mikko said

Coase's theorem says that when transaction costs are zero, it doesn't really matter which way we allocate the rights, and I have a fleeting feeling that it also applies to IP. Thus, from economical perspective the question becomes what arrangement minimizes the transaction costs.

I should say that I agree with this. Transactions costs are the heart of the problem - and unlike the cost of copying and distribution they aren't going away. It is true that the internet lowers the costs, for example, of micro-purchases, so that IP owners could potentially contract with lots of people, or collect small payments from many people. But while pure transmission costs are either trivially small, or will be shortly, transactions costs are going to zero. In the final analysis, there is the time needed to read and understand an agreement, and technology is helping a great deal with that part of the cost.

As Mikko says, absent transactions costs, IP wouldn't matter that much either way. That isn't an argument that we should have IP if there were no transactions costs. That is, if transactions costs were trivially small, it would be easy enough to finance new creations/inventions by agreeing to create/invent only if the beneficiaries paid in advance. But in fact the transactions costs are quite high - figuring out who the beneficiaries are, how much the product is worth to them, and negotiating agreements with them is pretty expensive. The transactions costs going the other way - when there is IP, trying to prevent people for putting stuff on P2P networks, for example, is also quite high.

BusinessWeek just published a terrific article, exposing the giant telecom corporations as fraudulently winning regulatory support that will solidify its control over the Internet. In part, justification is to promote the technology, but the article shows their research commitment is minimal. Gimein, Mark. 2006. "The Phone Companies Still Don't Get It: They Block Competition and Charge Too Much." Business Week (31 July): pp. 51-3. http://www.businessweek.com/magazine/content/06_31/b3995070.htm

51-2: "In case you haven't been keeping score, after the original phone company, American Telephone & Telegraph, was broken up in 1984, the country was left with eight major regional telcos. Over the past decade these companies proceeded to gobble one another up. Now there are four: AT&T, Verizon, BellSouth, and Qwest .... The "new" AT&T is actually the rechristened SBC, based in Austin, Tex., which acquired the venerable name last year -- and it's in the process of buying BellSouth. That will leave two phone giants, Verizon and AT&T, and the much smaller Qwest. The biggest wireless carriers are Verizon Wireless, majority owned by Verizon, and Cingular, which is soon to be wholly owned by AT&T. It's not exactly the return of the old Ma Bell monopoly -- the world has gotten way too complicated for that -- but that's a lot of power in the hands of just two companies."

52: "One way in which these companies are very different from the old phone monopoly is that while the original AT&T had a world-class research operation, its successors don't. One of the signal facts of the communications revolution is that virtually all the new technologies that made it possible were developed outside the phone world. Last year, Verizon's revenue came in at nearly $80 billion. AT&T (without BellSouth or Cingular) had revenue of $44 billion. And yet while Intel Corp. spent $5.1 billion last year on research and development, AT&T spent just $130 million. The word "research" doesn't even appear in Verizon's annual report."

52: "The phone giants have even used "innovation" as a key justification for their aggressive merger wave. Last year, when SBC was buying the remnants of AT&T, SBC Chief Executive Edward E. Whitacre made sure to note that by merging, the combined company would have "the intellectual and financial resources to spur innovation"."

Apropos of an earlier post that incited a lot of discussion concerning Chris Anderson's claims about "long-tail" innovation - it seems that I'm not the only one who has doubts about Anderson's data.