From xdrudis@tinet.org  Mon Aug 13 19:35:00 2001
From: xdrudis@tinet.org (Xavi Drudis Ferran)
Date: Mon, 13 Aug 2001 20:35:00 +0200
Subject: [Patents] market failures in non-patent software property
In-Reply-To: <Pine.LNX.4.33.0108121742510.6589-100000@mulix.oas.a2e.de>; from phm@a2e.de on Sun, Aug 12, 2001 at 06:03:46PM +0200
References: <0.700002152.348272752-738719082-997400737@topica.com> <Pine.LNX.4.33.0108121742510.6589-100000@mulix.oas.a2e.de>
Message-ID: <20010813203500.B372@golem>

I'm replying to a message that I didn't see (I'm not on the 
intprop-l@topica.com mailing list). 

I have only seen a quotation from PILCH Hartmut and maybe I
didn't understand all due to lack of context or something. 

In fact I think I'm saying little more or less than PILCH, but since 
I only realized now that I have it written, I hope you don't mind 
me sending it anyway. 

El Sun, Aug 12, 2001 at 06:03:46PM +0200, PILCH Hartmut deia:
> On Thu, 9 Aug 2001, gaikin wrote:
> 
> > Software patents: that's from the Inc. magazine article. Think again,
> > people.
> 
> > "Third, Clemons and Hitt cite a case involving a consulting contract in the
> > financial services industry. A credit-card company hires a systems developer
> > to build a complex database to correlate private product-use data with
> > publicly available customer data. The objective is to identify the
> > predictors of profitable customers so that new products can be developed for
> > such clients. The systems consultant builds the database and then - having
> > acquired expertise in developing data warehousing systems for the credit
> > card industry - it proceeds to underbid competitors for work at other credit
> > card companies. It not only re-uses expertise but also the actual code from
> > its previous engagement. "More damaging to the original client, the
> > consulting firm can now pitch this work to competing credit card companies,
> > and with the expertise acquired during its first implementation, it can
> > enable these firms to successfully implement 'copycat' technologies years
> > before they otherwise would have been able to do," Clemons and Hitt note.
> > The rapid deployment of the same technology by rivals dramatically shortens
> > the period of competitive advantage that the original client enjoys."
> 

> At last an economic argument with reference to a realistic situation!
> Thanks.
> 
> However this is still a case where the market mechanisms can be trusted.
> 
> Several scenarios might evolve:
> 
> 1 the credit card "technology" is considered fairly trivial and not in
>   need of a longtime competitive advantage.  Thus the subcontractor will
>   work at attractive conditions for many clients in short sequence.
> 2 the "technology" is considered highly competition sensitive.  In that
>   case the development will be carried out in-house or the subcontractor
>   will be closely associated with the monopoly benefits.
> 
> Even if things didn't work out so well and the financial services company
> was deterred from its investment by a "lack of protection", the following
> questions would have to be asked:
> 
> 1 Would such a deterring effect really constitute a market failure and a
>   macro-economic loss?  Or would the progress of computing just take a
>   different (and perhaps more efficient) path?
> 2 In case we affirm that there is a market failure, would patents really
>   constitute a remedy?  Are complex database structures really adequately
>   characterised by categories such as "novel" and "inventive" ?
>   Wouldn't it be better for the financial service company to
>   oblige its subcontractor by an explicit contract or perhaps
>   to argue the case for special applications of copyright and
>   competition law, perhaps in the context of the anti-cloning / sui
>   generis debate ?  Wouldn't it be very short-sighted of us as legislators
>   to solve some imperfections in these laws by jumping on the bandwagon
>   of an old IP system which was never created for addressing these
>   problems?
> 
> --
> Hartmut Pilch                                           http://phm.ffii.org/
> Protecting Innovation against Patent Inflation	      http://swpat.ffii.org/
> 80000 signatures against software patents         http://www.noepatents.org/


Anyway,

I'll ignore the part that says that the subcontractor uses code from 
the previous contracts to underbid next contract. I hope we agree that 
this could be prevented by copyright (if not, please explain it to me).
The original costumer should have negotiated that the copyright be 
assigned to them and not to the subcontractor, or as PILCH says, 
with a specific contract about the work (the copyright might stay with 
the subcontractor but he would not be allowed to use it in contracts 
with the competition of their first customer).

So I understand that we're left with a case in which specific 
experience (call it concepts, ideas, inventions) gained
with one customer is used in subsequent contracts with competing customers.
I call that specialization, and I was told at school that it was the 
basis of civilization. 

I think this is not a market failure (or maybe a desirable one, I don't 
know enough about markets). I think this an analysis failure. By 
using terms such as invesment in technology, we associate the experience
with something as building an expensive  machine that is paid and owned 
by the first 
customer and then secretly put to work at night for the following 
customers.

I see it more like a problem of creating knowledge about a problem. 
And one problem with knowledge (unintended pun) 
is that although it can be imperfectly 
stored in documents, and imperfectly shared in conversation and 
imperfectly put to work in software, it only lives in the mind of people.
Since people is not owned, knowledge can't be really owned, although 
it is so valuable that people will always try (and so have always done).
When people complain that without patents they can't own the knowledge 
that lives in people, I start to understand the statements by Krzysztof 
"Critto" Sobolewski comparing patents with slavery. 

I'd like to paraphrase the example situation given with another which 
consists in creating knowledge and is not usually regarded as building
property. Since I'm not expert in the field it possibly does not sound 
realistic, but try to see what I mean, please.

Let's imagine some building company hires a law consulting company to 
investigate the way they can circumvent some legal requirement in their 
contracts with providers. The 
law consulting company finds a "hole in the law" and so clearly documents
it that any lawyer seing the report will settle in favor of the customer
without going to court. The law consulting company then underbids 
other building companies about advice with relations with providers. 
Then the law consulting company uses the experience gained in the 
research paid by the first company with other competing companies, 
they even reuse some paragraphs in the report.
  
Should we patent legal reports to prevent this?. I hope not. The sensible 
approach is to use copyright + private contracts + hiring and keeping 
your own staff for sensitive issues. This is exactly what PILCH proposed
if I understand it. 

And this brings me to the recurring topic of copy-cat protection.
I don't understand why anything more that copyright (traditional, 
without DMCA or 2001/29/EC) and industrial secret is needed. 
For instance, some long time ago somebody (I think it was PILCH) 
mentioned the following situation (or something similar):

Company A shows a demo of some software 
in a software fair, and a bigger company B indepently implements 
that idea very soon and put company A out of the market. This 
seems unfair to A at first sight. But then why did they have to 
show off an inmature product?. After all if they had it ready for the 
market, company B couldn't get it on time. If they didn't and it 
was only a prototype, then why were they "selling" what they didn't have
yet?. To get capital to be able to produce it?. Then I think they 
risked too much, and were selling thin hopes to investors. I don't 
want protection for A.

I can't really think of cases where more copy-cat protection than 
simple traditional copyright and industrial secret is needed. I 
guess I should do my homework and read the sui generis law 
proposal...



-- 
Xavi Drudis Ferran
xdrudis@tinet.org



