Chris Stokel-Walker, over at Buzzfeed, has an absolutely fantastic feature article all about the creation of the video game Pong by Atari. 40 years ago, this week, Atari delivered the first 12 Pong machines (outside of a prototype at a local bar that proved how addictive the game was). The full article is wonderful, with tons of well-researched details. You should absolutely go read it. But one bit that might be interesting to folks around here: this game, which nearly everyone agrees launched the entire video game industry (now pushing $80 billion per year), was based on infringement. Actually, it looks like Atari's founding was basically based on copying games. Before Pong, it had a different video game console, called Computer Space, which was basically a copy of Spacewar!, a game created by MIT student Steve Russell in 1962.

However, it was Pong that set the world on fire. And... it was almost entirely based on Nolan Bushnell copying someone else's idea:

Meanwhile, the first TV-based home console, the Magnavox Odyssey, designed by gaming-industry forefather Ralph Baer, was being released. The Odyssey was demonstrated in Burlingame, California, on May 24, 1972. "It turned out that Al started at Atari almost exactly the same day I went up to see the Magnavox game," says Bushnell. Around the same time, Baer was at Tavern on the Green in Central Park, sitting amongst the 30 or so East Coast retailers to whom his employers were trying to sell his creation. Beaming with pride, Baer could barely sit still. "The entire Magnavox product line for 1972 was displayed there," he explains. "That included the Odyssey game, which was the hit of the show." One of the games on the Magnavox console was a version of tennis.

"I thought the game was kind of crappy," Bushnell says. Yet people were lining up to play it, "and they were kind of having some fun. I thought, If they can have fun with this shite" — Bushnell breaks off into a hearty laugh — "if it can be turned into a real game, that'd be great." On the drive back from the demonstration, "I got thinking of ways it could be improved."

Boom. Bushnell had someone on his team: re-create that basic tennis-like game for arcade machines. And that's what they did. But, they made some improvements. This is, of course, the nature of how innovation works. Two key steps: build on the idea that you see elsewhere... and figure out a way to make people love it. And that's what happened. This, once again, highlights the difference between invention and innovation in a fairly striking manner. And, while the creator of the Magnavox tennis game, Baer, wasn't thrilled about it, the article makes it clear he grudgingly admires Bushnell's ability to take that silly game and turn it into a giant industry.

Baer, the inventor of the Odyssey, is to this day ambivalent about his competitor. "Mr. B. didn't 'invent' anything," Baer, now 90, told me via e-mail, "but he started a whole industry, the arcade video game industry. Give the man credit for that achievement. He just simply didn't invent anything."

So here's the quick question: which action here was more valuable? Baer's or Bushnell's? This is one of the issues that we've tried to make for a while. For all the talk of how infringement "harms" the inventor, if someone else can build a massive market where the originator failed, isn't that better for society and the economy?

Oh, and part of the reason that the industry itself became so big, was because tons of others jumped into the market as well, often copying Atari (and, eventually, figuring out how to do it better -- which is why consoles today are from Nintendo, Microsoft and Sony... rather than Atari).

Other developers, big and small, saw the runaway success of the game and brought out their own clones to take a slice of Pong's pie. Allied Leisure released around 20,000 cabinets of Paddle Battle in March 1973. Nutting Associates, the company Bushnell and Dabney had worked with to release Computer Space, ended up releasing Computer Space Ball, which was strikingly similar to Pong. There was Paddle-Ball from Williams Electronics, and Rally from For-Play. Midway Manufacturing, then a pinball machine company, dipped their toe into the waters of arcade games with Winner in 1973.

In fact, as various studies have shown, with a developing market, it actually helps quite a bit to have lots of copying going on, because it basically cuts the marketing costs of developing that market a ton. That was clearly true with the video game market:

These manufacturers doubled down on their advantage: Not only could they piggyback on Pong's PR success, they did not have to take into account the cost of developing the game: They could simply lift its internal machinery wholesale.

Yes, the article highlights that eventually Bushnell had to pay off Magnavox, after they pulled out a broad patent "regarding interaction between machine-controlled and player-controlled elements on the screen," but Bushnell insists that he only paid out because the settlement costs were half of what it would have cost to have won in court (sound familiar?). Once again, the article quotes Baer admitting that even if he invented the game, credit has to go to Atari:

"That's the business," he says. "Most inventions are based on some prior history. Al Alcorn knew absolutely nothing about the existence of the Odyssey game — he deserves the major credit for getting Atari started successfully."

The thing is, this isn't a unique story by any stretch of the imagination. Look into the histories of lots of developing industries and you see the same basic thing. Lots and lots of copying and building off of each other... and quite frequently it's that very fact that leads to those industries being so successful. Yet, we look to shut off that possibility due to an over-reliance on things like intellectual property, which hinders that kind of market development.

Six years ago, we wrote about Andy Kessler's fascinating book, The End of Medicine, which got me to totally rethink how nearly every society approaches healthcare today. Even though the book is years old, I recommend it frequently. The key issue is that we still tend to treat healthcare as something driven by two key industries: pharmaceuticals and insurance. However, the book is based around the idea that, in pretty much every other industry, technology tends to (1) get better and (2) get cheaper. But that doesn't happen much with healthcare -- and that's because it's all about insurance and drugs. That means it's really about treating the symptoms, rather than actually trying to prevent problems.

One story in the book that has stuck with me is the description of a possible home-based heart scanner. The argument was that we really aren't that far off from being able to wake up in the morning, walk into the bathroom and scan your body, such that your computer (or phone?) would immediately pop up a 3D scan of key internal organs, such as your heart, allowing you to see if everything's okay. No waiting for chest pains before you get your heart checked out. Why not check out your heart every single day, and have the 3D model immediately available?

We're not quite there yet, but a few months ago, I was introduced to Dr. Fabien Beckers and his co-founders of the fascinating startup Morpheus Medical -- and when he described the product they were working on, which some have called "a Google Earth for cardiologists", I immediately recalled that product from Kessler's predictions. Morpheus is building an amazing product, where a simple heart scan creates a 3D model of the heart non-invasively and shows flows and pressure. Morpheus doesn't go quite as far as the example in Kessler's book yet, but this is a serious team and the existing product looks amazing. You can read a bit more about the offering here. Among the key features is the fact that they can just use data from a quick MRI to build this 3D model and show all sorts of useful data to doctors at a fraction the cost of what's out there today. A product that is cheaper, faster, better and can help keep people healthy? It seems amazing.

The team leading the company really is a bunch of all-stars. Dr. Beckers has run a series of companies, often driven by the ability to use technology to advance social good. For example, before Morpheus, he built and ran a company called Kameleon Technologies -- which was initially built off the idea of helping design a better guidance system for the blind. That technology then expanded to be useful in the consumer space, using the same concept to create interactive billboards for advertising purposes, called Mobizone. And, oh yeah, he has a PhD in quantum mechanics from Cambridge University -- hence the "Dr." title. The rest of the team is equally talented. The origin of the company came from a meeting between Dr. Beckers and John Axerio-Cilies, who was working on a PhD in fluid dynamics at Stanford. Add to that Albert Hsiao who has a PhD in bioengineering, and Shreyas Vasanawala, an associate professor at Stanford whose own works is focused on pediatric MRIs, and it's a monster team of innovators building an offering that I hope drives the healthcare revolution in the direction that Kessler described in his book.

It will not surprise some that the biggest roadblocks the company may face are regulatory, rather than technological. But the amazing thing is that the biggest one may be immigration regulations. You see, Beckers, who put the company together and has been instrumental in building it up, is not an American citizen, and due to our immigration policies, there's a very real chance he can't get a visa to stay in the US. Is this really the sort of thing that the US wants to be known for? Kicking out pioneering innovators like Dr. Beckers as he seeks to build a company that can really drive the healthcare market forward would be a massive loss to the US and the public at large, especially if it leads to difficulty in keeping the company going. I know the experience first hand, having tried to start a company many years ago, where my partner couldn't get the appropriate visa, leaving us unable to proceed.

Years after reading that Kessler book and imagining a world where we might finally focus on using technology to really solve healthcare problems outside of the pharma industry, I'm hopeful that we may finally be near such a world. Hopefully our short-sighted immigration policies let that kind of innovation move forward (and move forward here in the US).

We've covered the various regulatory and legal fights that Uber has been dealing with lately. The company, which basically has set up a super convenient way for people to book a ride (and, in some cases, taxis), keeps running up against a combination of local regulatory agencies who tend to feel that they get to lord over anyone who attempts to do anything involving driving people around for money, as well as existing limo and taxi providers who fear a more efficient system (especially when they profit off of inefficiencies). Of course, some politicians and taxi/limo drivers recognize that greater efficiency is actually good for everyone, allowing a more convenient and useful system, and filling in gaps when regulated supply strains the system.

However, too many are just focused on the status quo. And this isn't to say that there isn't a place for regulatory bodies to ensure that cabs and limos are safe and that they don't take advantage of passengers. But the line between protecting passengers and protecting legacy players from competition sure does become a blurry line very, very quickly. And this week a bunch of these companies have run into legal problems on their home turf. Uber, specifically, has has been sued in San Francisco by some cabbies demanding that the company be shut down. They claim that Uber's car hailing service is really an unregulated taxi service, and thus, unfairly competing with them.

Perhaps the bigger issue, however, is that the California Public Utilities Commission (PUC) has fined Uber and two other companies, Lyft and SideCar (who offer ridesharing). As that Wired link notes, this seems to be a clash between two core concepts that seem to thrive in San Francisco: on the one hand, freedom to innovate and disrupt and, on the other hand, support in government intervention for the public good. I'd argue that the two concepts aren't in quite as much conflict as the article suggests, if the intervention actually is for the public good. The problem is that's not really clear here, and it's not hard to see how it's really for the sake of limiting competition.

SideCar points out that this is a case of regulators not knowing how to classify an innovation:

asserting that we are operating a transportation carrier... is like saying Airbnb is a hotel chain, that Travelocity is an airline, or that eBay is a store

Lyft, similarly, suggests that there's a problem in regulators taking a square peg and trying to shove it into a round hole, because they've never seen a square before:

Transportation has historically been a highly regulated industry, and the existing regulations weren’t designed to imagine a world where two neighbors who have never met are able to connect within a matter of minutes to share a ride across town.

Uber's CEO, Travis Kalanick, told Wired that the PUC fine is particularly ridiculous in its case, since it only works with drivers who are already regulated by the PUC. It's just offering them another channel for finding customers. But under the PUC's ruling, it appears that they want those people to be doubly regulated, which seems completely wasteful:

Our contention is that if you read the regulations, such a notion doesn’t make sense. Are we supposed to give drivers a second drug and alcohol test? Are we supposed to have cars inspected by the DMV a second time after they’ve already inspected (our) partners’ vehicles?

In the end, you have to wonder if the role that regulators have still makes sense for these kinds of innovators. Yes, there are issues about safety and avoiding scams, but the various companies have built in systems to deal with that -- such as driver ratings and public reviews. Those types of things weren't really possible in the past, which is why you needed a PUC to make sure taxidrivers weren't ripping people off. But now the "PUC" can be the public itself. But... that only works if you believe the regulations are supposed to help the public, rather than the legacy players.

There's been a lot of discussion lately about how far the US has fallen behind other countries when it comes to high speed broadband. And many are taking it for granted that high speed broadband is important to economic growth and viability. Yet Tim Worstall, over at Forbes, argues that "High Speed Broadband Doesn't Matter A Darn" because a UK study showed that people don't use super high speeds. He quotes a report (pdf) from Booz & Co.

But speed in itself is not enough to encourage usage. Ofcom (an independent regulatory authority for U.K. communications industries) has noted that in 2011 superfast coverage of the U.K. was at 60 percent, but only 6.6 percent of all connections were taking advantage of the top speeds. This suggests that focusing on availability is no guarantee of deriving full benefit from the investment.

Worstall then uses this to argue that speed isn't an issue and we shouldn't invest in faster broadband:

As should be obvious, it’s not the speed of the internet that produces the economic growth. It’s the people using the internet that does. And if only 6.6% of the traffic is using the speeds we already have then there really isn’t much of a case for throwing billions at making it all faster. So that, presumably, only 6.6% of the traffic will use that higher speed.

In fact, given the low numbers even bothering to use current speeds I’d say this is a very good argument for not spending a lot of money to roll out high speed broadband everywhere. The most important reason quite possibly being that I rather doubt that broadband is going to be the technology of choice for much longer.

This reasoning is faulty on many, many levels. First off, if you look at the full Booz report, almost every conclusion is exactly the opposite of what Worstall suggests. He seems to take that one paragraph out of context, and assume that because only a small percentage of people were taking advantage of "top speeds" it means that there's no real demand for it and no economic benefit.

That's making a big assumption. He's right that "it's not the speed of the internet that produces the economic growth," and that it's the people, but he ignores that part of what brings in those people are the services online -- and new, better and more useful services are quite frequently enabled by higher speeds. It's almost hard to imagine how much more can be done online as speeds pick up. A decade ago, the idea of so much video online was crazy. And yet, here we are.

Second, the fact that only a small percentage of people are using full broadband capabilities is meaningless. That's a snapshot, not a look at the trend. What happens is that as more services offer up useful features that increase the number of things you can do with broadband, more people will use it. The last thing you want to do is get caught waiting -- and then suddenly have all your users pissed off that the broadband can't handle the latest and greatest applications and use cases.

Faster broadband doesn't immediately get soaked up, but it does lead to greater investment in bandwidth-intensive services, and that will increase usage and expand the economy. Taking one quote out of context and then looking at a snapshot rather than a trend is not a particularly compelling reason to pull out on key infrastructure investment at a time when it's needed most.

As a therapist would tell a couple bickering over each others' working and spending habits, Republicans and Democrats now quarreling over the federal budget should change the framing of topic. Instead of focusing only on how much the government should tax and spend in the economy we know, the leaders of the opposing parties should look at what the economy could quickly become if government passed laws encouraging productive private sector investment in growing technology-driven markets.

Forbes Magazine has just run a cover story on how the $3.9 trillion education market--$1.3 trillion in the United States alone--is about to be radically transformed by a new breed of venture-backed disruptors. Almost half of the education venture deals in the last decade have closed in the last two years. Investments in digital health care start-ups in 2012 are up 73% from last year. Health care start-ups exceeded all other sectors, including software, as the largest recipient of angel investments.

Four major national carriers, and other regional firms, have raced to build the largest deployment of high speed mobile broadband in any large country. Cable, telephone, and satellite firms are offering faster broadband, with WiFi connectivity taking on new and better dimensions in innovative network architectures. On these new platforms, e-education, e-health ventures and all manner of e-services based on government data can proliferate.

For the two political parties wedded together against their wishes by the will of the voters, common ground for agreement can be found in asking how government can help more services be created more rapidly on the knowledge platform that already hosts the most exciting business developments in the economy. Here are four examples of a multi-step program for going along and getting along.

• Step one: Congress should require the Executive Branch to implement the recommendations of a group of a high-tech CEO council that identified about $1 trillion in savings achievable by 2020 through better use of technology.
  
• Step two: Congress should overhaul corporate taxation so as to reward job creation, expand research and development, encourage long term and sustainable equity growth, provide regular returns to shareholders, sustain sensible balances of risk and reward, and applaud success in exporting goods and services for sale in other countries.
  
• Step three: Congress should require the Executive Branch to aggregate its purchases of bandwidth so as to drive increased capital into new networks, and to move all government services into digitized forms delivered to all broadband customers.
  
• Step four: Congress should require that all classrooms and libraries have the opportunity to win major monetary awards from government for providing breakthrough e-learning capabilities to their communities.

Inside the Beltway, years of irresolvable debate have left many Republicans and Democrats discouraged and distrustful of each other. Their battles against each other have produced a war against new ideas that they both have sadly won. If they looked outside the Beltway, they would see an America brimming as never before with hope for technological change. Our government's leaders can surprise themselves and delight the country by passing useful laws and delivering an improved standard of living for all -- and full employment. Then -- just as occurred when a trillion dollars of private investment built Internet 1.0 in the 1990s -- a rapidly growing economy would do more to balance the budget than any imaginable combination of tax increases and spending cuts.

Reed Hundt was chairman of the Federal Communications Commission from 1993 to 1997. Blair Levin oversaw the creation of the National Broadband Plan and is now a fellow at the Aspen Institute Communications and Society Program. Their e-book, "The Politics of Abundance: How Technology Can Fix the Budget, Revive the American Dream, and Establish Obama's Legacy" details the plans in this article. See www.politicsofabundance.com for a slide presentation and to download the e-book from any major e-publishing site.

One of the main forces driving the move to open access is the idea that if the public has already paid for research through taxation or philanthropy, then it's not reasonable to ask people to pay again in order to read the papers that are published as a result. The strength of this argument is probably why, in part, open access continues to gain wider acceptance around the world.

But the same logic could be applied to the commercialization of publicly-funded research. Why should people be asked to pay often elevated market prices demanded by companies for these products -- which naturally try to maximize profitability -- when it was the public that funded the initial work that made those products possible in the first place?

As with open access, the challenge here is to come up with an alternative approach that allows new medical treatments to be made available as widely as possible. A recent paper by John Frangioni in Nature Biotechnology, pointed out by @MaliciaRogue, offers a novel solution based on open-source development managed by a non-profit foundation:

In this open-source model, sublicensing to for-profit entities is encouraged but is nonexclusive. For-profit companies licensing the technology are encouraged to innovate on the platform, which will provide protectable IP for them, help lower the barriers to market entry and provide patients with even better versions of the technology. Open-source information exchange and evolution of the technology is encouraged rather than discouraged, with the premise that knowledge will empower for-profit companies that want to carve out IP-protected niches while empowering academic scientists with a firm grasp of the state of the art.

It's a detailed, fascinating piece that explores the current problems with the commercialization of research, including the following thoughts on why the Bayh-Dole Act of 1980 has failed to boost technology transfer from the academic world to industry as originally hoped:

In the wake of Bayh-Dole, the technology transfer policy of many AMCs [academic medical centers] has been to pursue the broadest patent rights for as many inventions as possible (all at great expense), sometimes without sufficient regard for whether there is enough validation of a discovery for assets to be licensed and/or commercialized; similarly, too often, startups are spun out of AMCs without sufficient due diligence, resulting in many enterprises that fail to receive sustainable funding from the investment community.

Frangioni's approach is quite different. Since the non-profit foundation is funded by the public, the focus is on maximizing patient benefit rather than financial return. On novel way of doing that is requiring reciprocity from those using the foundation's knowledge:

enablers [researchers, surgeons and technology licensees] can purchase technology but only after signing an agreement to deposit knowledge gained with the technology into the Knowledge Bank [a publicly accessible database], through what we call the knowledge feedback loop. Here again is the principle of giving something when getting something: the purchaser must create new knowledge for the public good to have access to the technology.

This is exactly how open source software works: anyone can take the code and build on it, but they must give back their additions to the community so that others can build upon them in exactly the same way. The results in the software field, where open source dominates the Internet, supercomputers and -- thanks to Android's underlying Linux foundation -- smartphones, speak for themselves. Whether Frangioni's experience of putting these ideas into practice with his FLARE Foundation can be generalized, remains to be seen. But it certainly seems an approach worth exploring.

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For many years, we've pointed out that the research shows that patents are not a proxy for innovation. In fact, they're not even clearly correlated. There is no link between the amount of innovation and the number of patents received. The only thing that patents seem to spur is... more patents. But... because patents are often falsely associated with innovation and because they're easy to count, it's a very easy way for the lazy press (and politicians) to assume that they're showing how innovative a certain geographic region might be. We've actually called CNN out on this lazy trope before, but it hasn't stopped them from coming right back and posting a silly article about the "most inventive states" based entirely on patent counts.

Unfortunately, this only serves to reinforce the bogus narrative that patents are a reasonable proxy for innovation, and ignores the true nature of innovation. It's no surprise that lazy journalists would do this kind of thing, but it is a reminder that we really need much better metrics for measuring innovation.

Larry Downes has a good piece over at Forbes discussing how it's often best for innovation if regulators stay the hell away from innovative industries. He notes the very different paces (innovation quick, regulation slow) and how that leads to bad outcomes:

The wildly different clock speeds of Moore’s Law and Washington law, however, make for increasingly damaging collisions at the intersection of technology and public policy. Even with the best of intentions, lawmakers, regulators, and judges can’t possibly anticipate tomorrow’s innovative products and services. Nor can they guess how specialized legislation, thrashed out over the course of years and infected by lobbyists and special interests, will return to haunt us when technology inevitably changes.

Faced with the unknown unknowns of dramatically new products—social networks, location-based ads, driverless cars–the best advice for governments is simply to leave them alone. Don’t just do something, stand there. At least until it’s crystal clear that the market has failed, consumers are being harmed, and that lawmakers have a remedy that won’t make things worse.

However, regulators often don't understand this at all. They think that the quick pace of innovation means that companies themselves should slow down -- and that it's their job to force them to do so. Downes shares this troubling story:

At a conference I attended over the summer, on the other hand, the Federal Trade Commission’s Julie Brill got it dangerously wrong. Given the novelty of policy problems in privacy, cybersecurity and competition in the fast-changing Internet ecosystem, Brill argued, both Washington and Silicon Valley should proceed with caution. “Regulators need humility,” she said, “but so do companies.”

The dynamism of the Internet ecosystem certainly calls for more humble trade policy. But the last thing we want is for companies to slow down so Washington can catch up. In Silicon Valley, we have a special name for humble start-ups. We call them failures.

That's not to say that there isn't room for any regulations -- but as Downes notes, the thing that DC should be most focused on is "fixes to previous government efforts that tried but failed to fix a problem that turned out not to need a regulatory solution." Other industries seem to want handouts and investments and the like, but you don't see that much in Silicon Valley.

I was recently on a call with some entrepreneurs and some government officials, in which we were discussing a few laws -- and the government folks kept asking the entrepreneurs if they needed help protecting against copycats (generally foreign ones). The entrepreneurs kept ignoring the question -- and it kept getting asked. Eventually, someone on the call said: "Um. No. Look, someone's going to copy us. We know that. But we don't care because we know we can innovate faster than anyone who copies us." The government folks seemed confused, with one saying something to the effect of "that's great if you can do that, but..." But that really is the difference in mindsets. Entrepreneurs really just want to build stuff and are confident (sometimes too confident) in their own abilities to compete. We don't want government handouts -- we want government to get out of the way.

That's not to say companies should be free to do absolutely anything, but as Downes notes, we don't need the government fiddling around where there is no evidence of real harm. If there is harm, then you can understand why it can make sense to get involved -- but too often government officials seem to think they should get involved just because there's a possibility of harm, or because a competitor got beaten. But that's not good for innovation and it's not good for the public.

If all goes technologically to plan, then beneath this text, we'll be running our YouTube stream of my chat with Kal Raustiala and Chris Sprigman, authors of The Knockoff Economy. The chat will happen from about 11am to 11:30am PT via live streaming. If you're tuning in late, you can watch the full recording below. If you haven't yet read the book, you should -- but first you can check out excerpts on the importance of those who "tweak" the work of others, and on what the music industry can do, based on lessons from other industries or professions that don't have monopoly restrictions on competition.

We've talked in the past about how Nobel Prize winning economist Eric Maskin has done research questioning the value of patents in software and in other industries. So it's not surprising -- though still fantastic -- that he's responded to the recent NY Times piece by Charles Duhigg and Steve Lohr that questions the value of our broken patent system. Maskin has sent a letter to the NYTimes arguing that the article did not go far enough:

...the article doesn’t go far enough.

It argues that software patents may reduce innovation because they are too broad, vague and loose — criticisms that are well taken.

But if these were their only shortcomings, then simply tightening patent standards would solve everything. Unfortunately, the problem is deeper than that.

Specifically, in the software industry, progress is highly sequential: progress is typically made through a large number of small steps, each building on the previous ones. If one of those steps is patentable, then the patent holder can effectively block (or at least slow down) subsequent progress by setting high license fees.

His conclusion? In such industries (which, by the way, may go beyond just software), we should probably just get rid of patents altogether:

...in an industry with highly sequential innovation, it may be better for society to scrap patents altogether than try to tighten them.

This view is not new in economics circles, but it's good to see more people realize that the patent system may be doing exactly the opposite of what we're told it does.