GPS technology has been around for a while. Wikipedia puts the start of development at 1973. But it wasn't until the 1990s that it became available for consumer use. And even then, it took some time before the government removed restrictions on accuracy that it had on its use by civilians. (The government had added an intentional error to the signal that made GPS variably inaccurate up to 50 meters.)
With the loosening of restrictions on GPS came furious development in consumer applications—and a flurry of patents.
Which brings us to this month's Stupid Patent of the Month. The dubious honor goes to U.S. Patent No. 6,442,485, "Method and apparatus for an automatic vehicle location, collision notification, and synthetic voice," filed in 1999. The "Background of the Invention" talks about a need for an automatic voice system that could speak for a driver involved in a collision and transmit location details to 911. For example, the patent says that "[i]t would be desirable to have an automatic vehicle location and collision notification system that would ascertain if a vehicular collision had occurred and communicate directly with an emergency facility."
But after this background, the patent devolves into a wilderness of made-up words and technobabble. The patent includes fabricated phrases such as "Location Comparator-Indicator Module" and "Automatic Speed Controlled Location Detection Module." (Google searches of these phrases turns up nothing other than results related to the patent.) Reading the patent to try to figure out what it means becomes an exercise in cross-referencing and guesswork. Even worse, key terms in the claims (this is the part of the patent that is supposed to clearly explain what that patent covers) don't even appear in the description of the purported invention. This means that it is very difficult, if not impossible, to understand what the claims mean and to guess how a court might interpret them.
This sort of made-up gobbledygook is likely what has allowed NovelPoint Tracking LLP, the owner of this month's Stupid Patent, to sue over 90 companies for infringement. The latest round of lawsuits, filed on March 27, 2015, includes companies such as Subway (the sandwich artists, not a company related to transportation), McDonald's, and Burger King.
And what do these fast food franchises have to do with vehicle location, collisions, and synthetic voices? With respect to Subway, NovelPoint claims that Subway's Windows phone mobile application infringes NovelPoint's patent.
Here's the description of Subway's app from Microsoft's website:
Don't know where to find a local Subway? We're here to help. This app will display a list of local Subway locations along with the ability to get directions and let your friends know where to meet you.
We don't know what, exactly, NovelPoint thinks it owns, but it looks like it is accusing Subway of infringing because it has an app that shows a map with directions. And given the incomprehensibility of its patent, it can get away with this, at least enough to secure a quick settlement and get out before a court rules that no, in fact, it doesn't own a map with directions.
And indeed that is what appears to have happened. Of the almost 100 cases NovelPoint has filed, exactly none of the cases has had a decision on the merits of NovelPoint's claims. From what we can see, all of the cases have settled very quickly, most likely for small nuisance sums.
Patent owners shouldn't be able to get away with this. Patents should be clear and understandable. If new words are used, they should be defined. And if words already exist in the relevant art, they should be used. NovelPoint's patent is a great example of how using fake terms can be used to obfuscate what the patent actually claims, and then used to claim infringement by something no one would have considered the patent owner to have invented. We have laws that should prevent this sort of gaming. The Patent Office and courts need to start actually enforcing them.
Patent trolls -- sometimes known more politely as "Non-Practising Entities" (NPEs) -- probably have few fans among Techdirt readers, but there are some who try to justify their activities. Here's how the argument usually goes:
Defenders of patent trolls ... argue that they serve as business intermediaries between inventors and commercializers. While the traditional theory of the patent system is that patents encourage innovation by allowing inventors to exclude competitors from the market and therefore earn supracompetitive returns, a number of scholars have argued that the patent system can encourage commercialization of inventions once they are made by allowing the inventor to control who can develop the technology.
Based on our preliminary evidence, the theory that NPEs facilitate innovation either through the creation of new products or by delivering actual technical know-how from inventors to implementers doesn’t hold water. NPEs almost never actually provide any valuable information to their licensees, and they rarely, if ever, prompt the development of any new products. Licensees are paying for freedom to operate -- the right not to be sued for implementing technology they developed on their own but which someone has asserted will fit within their patent rights. Thus,
does not support the efficient middleman hypothesis for characterizing the role of NPEs.
That's a valuable contribution to the debate about patent trolls, but the paper offers other insights. For example, it finds that not only do patent trolls not bring about much technology transfer with their patent licensing, neither does anyone else, either:
That doesn’t mean technology transfer doesn’t happen; it does. But it may mean that technology transfer happens early in the life of a technology, and that secrets, collaborations, and informal know-how, not patents, are the primary focus of real technology licensing agreements.
That's an important point. The paper also provides yet more evidence that the 1980 Bayh-Dole Act, designed to encourage the commercialization of research results through licensing, actually turns universities into patent trolls -- something that Techdirt has discussed before. Although the authors suggest that further research is needed to confirm their results, it already seems pretty clear that both patent trolls and Bayh-Dole need to go.
Just last year, we wrote about how the CEO/founder of the social network Life360 responded to a threat letter from a patent troll, AGIS, by sending a letter titled "Dear Piece of Shit" and explaining why the company had no intention of settling with some stupid patent troll shakedown move. Three days later, AGIS sued for patent infringement. Since then, Life360 has become a vocal opponent of patent trolls, and AGIS in particular. In fact, just last month the company made a really bold move in announcing that it would provide free legal support for any other startups sued by AGIS:
"We have been committed to fighting these baseless claims from the outset and sharing our resources with the tech community. Today, we're taking it a step further and offering to provide free legal support to other small companies being sued by AGIS," said Chris Hulls, co-founder and CEO of Life360. "By providing this support, we can make it economically viable for smaller companies to defend themselves thus breaking the calculus that is core to most patent trolls' existence."
The company also filed a complaint with the California Attorney General against AGIS. And, now, Life360 has won in court as well, with a Florida jury saying that it was clear that the company did not infringe on the AGIS' patent. The "dear piece of shit" letter was entered as evidence during the trial, but Life360 actually used it to its advantage, talking about how Hulls had founded the company and worked for a while without salary, building it up and suddenly got a letter from a company that wasn't even a competitor, telling him he needed to shut down the company in just three days or pay up. That seemed to get sympathy from the jury.
Reporter Joe Mullin spoke to people on the jury and found that the letter actually worked to Hulls' advantage:
"Anyone who got a letter like that—three days, or shut down—of course, you're going to be pissed," said Sheri Coombs, an elementary school teacher in Palm Beach County who served on the jury. "He reacted, and who could blame him?"
The jury didn't invalidate the patent, but agreed that Life360 didn't do everything claimed in the patent, which was necessary for it to be infringing.
AGIS' lawyer, Mark Hannemann, of Kenyon and Kenyon (who Hulls claims is really the one responsible for AGIS trying patent trolling), tried to make a big deal out of the "piece of shit" letter, but that seemed to backfire as well, as Hulls had a ready response:
On cross-exam, Hannemann suggested the expletive was a "calculated move" to get press coverage for Life360.
"The calculated move was not the expletive," said Hulls. "The calculated move was to make clear that we didn't feel that we were infringing and be very public about that with our investors." He wanted to "set a firm tone" showing that Life360 "won't roll over."
It also sounds like Hannemann made another mistake in cross-examining Hulls, in asking him how much he thought a "reasonable royalty" would be on those patents, allowing Hulls to make the simple point that what is in AGIS' patents (7,031,728, 7,764,954, 8,126,441 and 7,672,681) wasn't even remotely important or new:
"Close to zero," said Hulls. Having a map with visual representations of people on it is important, but "Mr. Beyer's patents are not about putting people on the map. There are eight different things for most of these. If we change one of these steps, we are no longer infringing."
If Life360 removed its "call" feature—a feature used by 0.36 percent of its users—it couldn't possibly be infringing anymore, even accepting the plaintiff's other arguments.
"You could make the changes to make it not infringe but you haven't yet, right?" Hannemann asked.
"I was advised by our attorneys that we should not make any changes to our product while this litigation is ongoing because it would be a false admission that we felt we were infringing," Hulls said. "And I think this trial will hopefully show we were not infringing these patents and they're invalid."
And, while the jury didn't go as far as to call the patents invalid, it did definitively say that Life360 didn't infringe. Not that this suggests the "dear piece of shit" letter is advisable, but it didn't seem to work against Life360 in this case.
Also, I hope that other companies sued by trolls think about launching similar programs to Life360 promising to pay the defense costs of other startups as well. That could really put a dent into the trolling business model of shaking down startups that don't have enough cash to fight a patent lawsuit.
The first, Qentis, was covered here previously. Qentis isn't actually a company. It appears to be the trolling byproduct of artist Marco Marcovici. The "company" claims to be algorithmically generating millions of photos and pages of text at a rate that will soon see it creating copyrighted material faster than the creators themselves. At some point, Qentis will hold the copyright of everything that can possibly be created, making every new creation instantly infringing.
Never mind the fact that no one has the computing power to generate photos and text at the rate Qentis is claiming it can, or the fact that algorithmically banging out creative works in advance of others doesn't make independent creations automatically infringing. Never mind pretty much all of it because the claims are so blatantly false as to be laughable, especially considering the source.
On the other hand, Cloem's business model seems a bit more grounded in reality. VentureBeat describes Cloem -- and its aims -- this way:
[A] company that provides software (not satirically, it appears) to linguistically manipulate a seed set of a client’s patent claims by, for example, substituting in synonyms or reordering steps in a process, thereby generating tens of thousands of potentially patentable inventions.
Cloem describes its team as a mixture of patent experts and "computer linguistic specialists." The key element of its potentially-patentable variations lies within "seed lists," which draw from a variety of sources, including (according to Cloem) "70,000,000 patent documents." Its algorithms then brute force together lists of "new" patent claims, which can then be filed and used offensively or defensively.
Cloem's business model seems custom-built for patent trolls, who will be able to "expand" their already-broad patents to nail down even more IP turf. Cloem's service also makes it easy for non-inventors to jam up patent offices with me-too "inventions" based on minor iterations of existing patents. While there's a good chance some of these will be tossed due to prior art, more than a few will inevitably make their way past examiners. With millions of patents just waiting to be iterated into "new" methods, Cloem's service further separates "inventing" from "invention."
It's a system that's built for abuse, but Cloem doesn't see it that way. In response to a somewhat critical post at RatioIP, Cloem's rep offers up the defense of "Hey, we just make the tool. We can't control how it's used."
In our view, Cloem is a logical and natural evolution of the patent system. The technology in itself is neutral. Like a tool, we can use it in many ways, both offensive and defensive. It may well be that we could help to “raise the bar” and get rid of undue patents. Some see our system as an embodiment of the “skilled person” (i.e. which indicates what “routine work” can produce and reach), although we do think that cloem texts can be inventive, that is not excluded from patentability.
And that's mostly true. Entities wishing to protect their prior inventions could "fence off" adjacent territory and deter future lawsuits by producing and filing very closely-related patents. But a tool like this -- if it creates anything patentable at all -- will always be more attractive to the "offensive" side of the equation.
Cloem's pitch sets the company at the forefront of an IP revolution, but its envisioned future is no more heartening than Qentis' dystopian, IP-generating machines of loving grace. At least Qentis is a joke. Cloem's taglines only read like jokes.
With Cloem, you can invent more, faster and cheaper.
Except there's no "invention" taking place. Nothing generated by Cloem's algorithms will be any more "inventive" than all the re-skins and palette swaps clogging up the "Games" section in mobile app stores. Cloem hopes to bridge the gap between its "silos of knowledge" and its silos of synonyms, somehow coming up with worthwhile patents in the process. Sure, previous knowledge always informs new creations, but it takes more than swapping the sentence "a plurality of discrete content items arranged chronologically" around in the method description to generate inventive, worthwhile patents.
As you may know, Disney has something of a reputation when it comes to copyright and the public domain. While the company itself is somewhat notorious for taking works from the public domain, putting its own animated spin on it and then claiming copyright as far as copyright will take them, it also was the prime mover in extending the term of copyright back in 1998 in the "Sonny Bono Copyright Term Extension Act," which is often referred to as the Mickey Mouse Protection Act. It holds that nickname because Disney lobbied heavily for the Act and because it prevented Mickey Mouse from reaching the public domain. As Tom Bell has shown, there's a well-known Mickey Mouse curve that shows copyright extending basically every time Mickey Mouse is about to hit the public domain:
So it's not often you see Disney out there defending the public domain -- and the importance of keeping it vibrant and supported by new things. However, that seems to be (sort of) what Disney is, in fact, arguing in a Supreme Court case known as Kimble v. Marvel. There are, of course, a bunch of caveats here. First, it's a patent case, not a copyright case. Second, it's Marvel, not technically "Disney," but Marvel is wholly owned by Disney. The case involves what appears to be a fairly straightforward question: can a patent holder demand royalties after a patent has expired. The obvious answer to this question is "hell no." And, in fact, that's exactly what the Supreme Court itself said in 1964 in Brulotte v. Thys Co.:
"We conclude that a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se."
But, because there can always be questionable rulings, there was another court ruling that (bizarrely) found that you can get a license for something that was never patented if you work out an agreement to that nature (that's Aronson v. Quick Point Pencil). This has made things messy.
In this case, some Spiderman fans patented a an invention of a toy that could shoot webs out of the toy's wrists, a la Spiderman. Marvel bought the patent from the inventors, promising a royalty if the company made such a toy, which it did. The patent expired in 2010 and Disney/Marvel stopped paying. The inventors sued... and have so far lost twice in the lower and appeals courts. The issue is now before the Supreme Court, with the direct question of whether or not the ruling in Brulotte should be overturned. Hopefully, it will not be. Once something is in the public domain it should stay there. And that is exactly what Disney/Marvel is arguing -- in ways that seem somewhat antithetical to the company's stance on copyright. Take this for example:
An essential part of the bargain at the heart of the patent
system is that, when the patent term ends, all rights
associated with the patent terminate and the patented
idea is committed to the public domain for the free and
unrestricted use of all. The same policy concerns animate other well-settled patent precedents, including
the rule that a licensee may not be required to continue
to pay royalties after a patent is invalidated. Private
parties are properly forbidden from attempting to
evade those congressional judgments.
Just switch out copyright for patents and you see how this looks quite out of place for Disney to be arguing, since it has fought incredibly hard to make sure that the "end" of the copyright term is an amorphous, ever changing concept that is always in the future. And then there's this incredible statement, warning of how horrible it would be if royalties might accumulate forever:
If anything, modern developments underscore the need to
protect the public domain from the aggregate toll of patent royalties that would accumulate forever
You don't say, Disney. How very, very interesting...
Hopefully the Supreme Court makes quick work of this and sides with Disney in protecting the public domain on patents. But it will be interesting to see these statements come back up a couple of years from now as Mickey Mouse nears the public domain again, won't it?
Last year, Techdirt noted how the Supreme Court's decision in Alice v. CLS Bank seemed to be having a positive effect on limiting the patentability of software. Against that background, it's regrettable that Spain appears to be moving in the other direction with its new Patent Act (original in Spanish), which is being brought in without any public debate, it seems. The key section of the proposed law is Article 4, which spells out patentability. It specifically says (Section 4c) that "computer programs" are excluded from patentability -- but then goes on to add (Section 5) that it is only software "as such" that is excluded. This is the same formulation that is used in Article 52 of the European Patent Convention (EPC), which dates back to 1973, when the application of digital technology was very different:
(1) European patents shall be granted for any inventions which are susceptible of industrial application, which are new and which involve an inventive step.
(2) The following in particular shall not be regarded as inventions within the meaning of paragraph 1:
(a) discoveries, scientific theories and mathematical methods;
(b) aesthetic creations;
(c) schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers;
(d) presentations of information.
(3) The provisions of paragraph 2 shall exclude patentability of the subject-matter or activities referred to in that provision only to the extent to which a European patent application or European patent relates to such subject-matter or activities as such.
That "as such" clause in the EPC opened up a huge loophole for companies to seek patents on software in Europe, even though "programs for computers" are explicitly excluded. The same is likely to happen in Spain.
It is still not approved by the Parliament, but the Government (proposer) has majority there (@Ppopular)
So, potentially there is hope for people in Spain to write to their MPs, to urge them not to repeat yesterday's mistakes by exposing Spain to unnecessary litigation that will stifle the country's local software industry, but that seems a rather slim hope.
The TPP negotiations are still being conducted with a total lack of transparency -- especially compared to TAFTA/TTIP, where public pressure has led to the release of a large number of documents from the EU, though not from the US. Despite that secrecy, the TPP negotiators seem to have no qualms about proclaiming the talks as nearly "done." Since they have been saying something similar for years, skepticism is required, but it is possible that negotiations might be getting closer to the end game where all the really difficult issues need to be addressed.
That makes the absence of any official release of the draft text pretty appalling. Assuming that the final text will be released if and when an agreement is reached, this will leave very little time for the complex provisions to be analyzed properly before the national votes take place in some TPP countries. Given what's at stake -- TPP is likely to have a big impact not just on trade, but also on many aspects of daily life -- one group has decided to pre-empt that eventual release, and to analyze what information we have, notably from leaks. HIA Connect, based in Australia, describes itself as follows:
A resource for health impact assessment (HIA) as a method and a process to ensure that public policies, projects, plans, and programs contribute to the health of the population and health equity.
A report released today by a large team of academics and non-government health organisations reveals that the Trans-Pacific Partnership Agreement (TPP) poses risks to the health of Australians in areas such as provision of affordable medicines, tobacco and alcohol policies and nutrition labelling. Many public health organisations have been tracking the progress of the TPP negotiations over the past several years and have expressed concerns about the potential impacts and lack of transparency.
As that makes clear, the academics and other experts who put together the report are concerned about a number of adverse effects that TPP is likely to have. Some are familiar, for example the impact on affordable medicines, or on the ability to regulate and restrict tobacco advertising -- an area where Australia is already suffering thanks to corporate sovereignty provisions in other treaties. Others are new, but similar: some TPP provisions could limit the regulation of alcohol availability and alcohol marketing, and restrict alcohol control measures such as pregnancy warning labels. Food is another area where labeling restrictions in TPP could prevent governments from warning about the consumption of unhealthy ingredients.
Of course, supporters of TPP will doubtless say that all this is premature, and that nothing certain can be said until the final text is released -- a point echoed by the authors of the report:
"In the absence of publicly available current drafts of the trade agreement, it is difficult to predict what the impacts of the TPP will be," said Dr Deborah Gleeson, one of the report's authors. "In the study, we traced the potential impacts based on proposals that have been -- or are being -- discussed in the negotiations.
But as Gleeson goes on to point out, there's a very easy way to remedy this problem:
"The only way to properly assess the risks is to allow a comprehensive health impact assessment to be conducted on the final agreement before it gets signed by Cabinet."
Given that people's health and even lives may be at stake here, it is irresponsible for participating governments to withhold the draft texts -- especially since they are allegedly so close to completion -- and thus to prevent a proper health impact assessment of them being conducted well in advance of any final votes.
Over the last year, there's been plenty of good news in the fight against the abuse of patents to stifle innovation. A bunch of court rulings have gone the right way, with the biggest being the Supreme Court's ruling in the Alice v. CLS Bank case, that has resulted in many courts invalidating patents, the US Patent Office suddenly rejecting more patents and a rapid decline in patent lawsuits.
Based on that, you might think that we no longer need patent reform. But you'd be wrong. Patent trolls are regrouping and fighting back. Despite the big drop in patent lawsuits following the Alice ruling, patent trolls have come up with some new ideas, and have recently ramped up the filing of new trolling lawsuits at a rapid pace. And there have even been a few victories. While the dollar amounts were relatively low (especially compared to what was asked for), a troll who claimed to have a patent over Bluetooth 2.0 (despite "inventing" it years after Bluetooth 2.0 was on the market) was awarded $15.7 million, and the world's biggest patent troll, Intellectual Ventures actually won a case against Symantec (but got "only" $17 million).
But, earlier this week, there was the big one. A pure patent troll, Smartflash, with a collection of vague and broad patents (US 7,334,720, US 8,118,221 and 8,336,772 -- all for "data storage and access systems") has been awarded $532,900,000 from Apple, despite everyone happily admitting that Apple came up with the idea on its own. Here's the East Texas (of course) court jury form:
And, yes, Apple could probably pay that off with the spare change falling off the edge of Tim Cook's desk, but that's not really the point. Rulings like this don't seem to create any value towards actual innovation. Smartflash once had a product, but it failed in the marketplace over a decade ago. Apple built a product that people actually wanted. Shouldn't we be rewarding the people who actually make the things people want, rather than subsidizing failure by the successful?
Smartflash's lawyer told Ars Technica's Joe Mullin that this ruling is actually a "great example of why the patent system exists." Actually, it's a great example of how screwed up the patent system is. The lawyer also spewed this load of bullshit:
The thing about a patent is—let's say you have a university professor who spent two years researching something. It's irrelevant the effort that [an infringing company] spent to build it. It's the person who came up with it first. That's the way the Constitution, and the patent laws, are written. It's designed to cause people to spend money and time innovating. The patent office publishes it, so that advances the state of the art. In exchange for that, you get a property right.
That's also not how the Constitution is written, though it is (unfortunately) how patent laws are written. But that's not a way to get people to spend "money and time innovating" because the actual innovators here -- Apple -- had to pay out to the guy who failed in innovating. Being "first" isn't innovating. Building the product someone wants is.
Either way, Apple will appeal this ruling (and those other rulings are likely to be appealed as well). And in the last few months, CAFC has actually been shown to have gotten the message about problems with its previous interpretation of patent law. But, in the meantime, we still need serious patent reform.
Vice president and Chief Internet Evangelist for Google. He is responsible for identifying new enabling technologies and applications on the Internet and other platforms for the company.
That suggests someone whose main job is to look forward, rather than back, and with a certain optimism too. But an article in the Guardian reports on a speech he gave in which he is not only concerned with the past of online technologies, rather than their future, but is also issuing an important warning about their fatal flaws:
Humanity's first steps into the digital world could be lost to future historians, Vint Cerf told the American Association for the Advancement of Science's annual meeting in San Jose, California, warning that we faced a "forgotten generation, or even a forgotten century" through what he called "bit rot", where old computer files become useless junk.
Of course, he's not the first person to raise that issue -- Techdirt wrote about this recently -- but Cerf's important contributions to the creation of the Internet, and his current role at Google, lend particular weight to his warning. That said, the Guardian article seems to miss the central reason all this is happening. It's not that it's really hard to create emulators to run old programs or open old files. The real issue is tucked away right at the end of the article, which quotes Cerf as saying:
"the rights of preservation might need to be incorporated into our thinking about things like copyright and patents and licensing. We're talking about preserving them for hundreds to thousands of years," said Cerf.
The main obstacles to creating software that can run old programs, read old file formats, or preserve old webpages, are patents and copyright. Patents stop people creating emulators, because clean-room implementations that avoid legal problems are just too difficult and expensive to carry out for academic archives to contemplate. At least patents expire relatively quickly, freeing up obsolete technology for reimplementation. Copyright, by contrast, keeps getting extended around the world, which means that libraries would probably be unwilling to make backup copies of digital artefacts unless the law was quite clear that they could -- and in many countries, it isn't.
Once again, we see that far from promoting and preserving culture, intellectual monopolies like patents and copyright represent massive impediments that may, as Cerf warns, result in vast swathes of our digital culture simply being lost forever.
We've written a few times about Elon Musk and Tesla's decision to open up all of Tesla's patents, with a promise not to sue anyone for using them. We also found it funny when some reacted to it by complaining that it wasn't done for "altruistic" reasons, but to help Tesla, because of course: that's the whole point. Musk recognized that patents frequently hold back and limit innovation, especially around core infrastructure. Since then, Musk has said that, in fact, rivals are making use of his patents, even as GM insists it's not.
However, as some may recall, when Musk made the original announcement, the terms of freeing up the patents were at least a little vague. It said that Tesla "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." That "in good faith" claim had a few scratching their heads, and pointing out that still gave Tesla an out. We were a little disappointed that the company didn't make the terms entirely clear, believing that the "in good faith" line would likely scare away some companies from actually using the patents. However, recently, at the Detroit Auto Show, when questioned about this, Musk clarified that he really meant to make them completely free for anyone to use, no questions asked, no licensing discussions needed:
Around the three-minute mark someone asks how many automakers have taken Tesla up on the offer to use its patents, and Musk notes:
Musk: We actually don't require any formal discussions. So they can just go ahead and use them.
Reporter: Is there a licensing process?
Musk: No. You just use them. Which I think is better because then we don't need to get into any kind of discussions or whatever. So we don't know. I think you'll see it in the cars that come out, should they choose to use them.
In other words, Musk is saying what most of us assumed all along was the point. Hoarding the patents and blocking others doesn't help him at all. Letting others expand the market does. And licensing discussions are unnecessary friction and a waste of time.
All good, right?
Well, no. It appears that clueless Wall Street types are absolutely flipping out over this (possible registration wall). Some outfit called "Technology Equity Strategies," which doesn't seem to understand the first thing about how innovation actually works, posted an insanely long and ridiculously misguided note on how this is horrifying for anyone invested in Tesla. The descriptions are hilarious, where you can almost hear these Wall Street types pulling out their hair over this idea of *gasp* actually letting others use Tesla's patents. First, it notes that Musk called them "open source" patents, and spends way too much time detailing the "official" definition of open source, and then says that the patents are now "public domain" (apparently not recognizing that public domain and open source are not the same thing -- though in this case it might not matter). Technology Equity Strategies is very upset about this.
The restrictions in the June 12 blog of "good faith" and "we will not initiate" are over with. They are finished. These patents are either in the public domain, or they have at minimum been rendered unenforceable against all users, "good faith" or not.
Why? Because in their non-innovation minds, all they care about is how do you best value the stock, and giving up patents is giving up an asset. The note first (mistakenly) argues that many areas of the tech industry rely on patents as barriers to entry and that's where their advantage comes in (rather than execution, which is the truth). And so, it thinks now some other company will just come in and eat Tesla's lunch:
Is it possible that the massive capital and labor needed to attain leadership might not be eroded in by imitators in Asia, by large companies with resources to buy market share, by companies whose strengths are manufacturing process, global footprint and scale?
If so, the embedded option on a leader in a new niche in the auto industry and on a shift in the competitive dynamics in the auto industry might indeed be a valuable option.
But Mr. Musk was not interested in that. He is happy to give away the advantages that actually provide great profitability in some sectors of technology. He wants to compete as an auto company, in the brutal and capital intensive way that auto companies compete. More fundamentally, he is willing to eliminate the possibility in the future of competing as a technology company, which depend on the IP protections of patents, copyright, and trade secrets.
Of course, the reality is that Musk recognizes what many in this sector recognize: that sharing the ideas helps speed along innovation, creating greater and greater opportunities, which you can realize by executing well. Musk is confident in Tesla's ability to execute and (as we noted earlier) recognizes that sharing the patents actually helps Tesla by getting more electric vehicles on the market, meaning more overall infrastructure that makes Tesla cars more valuable.
This is the ridiculousness of Wall Street: sometimes it simply can't understand the nature of a non-zero sum game. Giving up any "advantage" is seen as helping others, without recognizing that helping others can also help you out tremendously. Instead, these investor types believe in the myth of intellectual property, that it's patents that make a company valuable:
Intellectual property is an important foundation for valuation technology companies. Funds that own Tesla may not be the same institutions who own GM or Ford, but many will be familiar with Qualcomm and ARM.
IP goes a long way in explaining why Qualcomm has a market cap of $110 billion, and ARM has a valuation of 23 billion (18x trailing revenues) while Nokia and Dell were sold for less than two times revenues. Nokia and Dell did fine work for a while as manufacturers and product companies. There was a time when they too looked like winners based on product execution. But they didn't own core IP, and so when product cycles shifted, they were left with little value.
Yes, ARM and Qualcomm are both patent-focused companies (that dip their toes into trolling all too often). And, yes, companies that don't execute well can lose out in the end, but cherry picking a few companies that have flopped on execution, while pointing to a few trollish companies as success stories, doesn't make a very strong argument. It's basically saying "yes, invest in the companies that don't believe in their own ability to execute, who have a fallback as a patent troll." That's not exactly a strong endorsement. Tesla believes in its own ability to innovate -- and these Wall Street guys think that's a bad thing.
And then there's the rewriting of history:
Let's look at Apple. Apple and Steve Jobs learned the hard way. Some of us will recall that an early Apple (believing that IP wasn't important) opened up its IP to the basic Mac interface with a royalty free license to Microsoft.
This resulted in Microsoft Windows taking nearly the entire PC market from Apple, and nearly bankrupting Apple. In his second chance, Steve Jobs learned about the importance of IP. This is a lesson that Mr. Musk failed to absorb.
Except, that's totally incorrect. While Apple had licensed a few aspects of its UI, that licensing agreement became meaningless by the time of Windows 2.0. Then Apple sued Microsoft and lost, because it was trying to use copyright law to claim things that could not be covered by copyright law. And that's not why the PC took over the market. So this isn't a lesson that Musk failed to absorb, because it never happened.
The Grand Gesture shows the worrisome sincerity in Musk's repeated statements that he is primarily on a mission to get other companies to sell a lot of electric vehicles, not to make money.
A worrisome sincerity? No, it's showing that Musk recognizes that if the market for electric vehicles does not grow massively, then he won't make money. He very much wants to make money, and a good way to do that is to build out the overall market for EVs, allowing Tesla to thrive. And these Wall Street folks first mock the idea that Musk might first invest to grow the market, by then... claiming that Asian makers might do the same thing:
No doubt Mr. Musk believes that if the industry embraces EVs, then Tesla will succeed as part of it. But is this plausible, that everything will just work out for the best. Is it plausible that Musk can succeed as a manufacturer in the U.S. competing against manufacturers in Asia who may take zero margins to grow a business, using Musk's proven designs? U.S. companies have learned over and over that IP is necessary to get a sustained profitable return on their innovations.
Actually, no. Plenty of tech companies don't think that IP is "necessary" to get sustained returns -- they think the opposite. Patents get in the way of profitability. They require lots of lawyer time and threats of lawsuits.
Frankly, Tesla opening up its patents seems like a move that shows how confident it is in its execution abilities, and makes the company a lot less likely to rest on its laurels and become nothing but a "licensing" company down the road. The fact that people who don't understand what a mess patents are and how they slow down innovation are now jumping in making ridiculous claims like Tesla's decision is why Apple can now jump into the EV car market just shows how little some people understand patents. The "myth" of patents as a powerful tool of innovation is still out there, and that's a shame.