Conference report: 683 patents on the ethernet plug

By EDRi · November 17, 2004

On 9 and 10 November 2004, the Foundation for a Free Information
Infrastructure (FFII) and MERIT, sponsored by OSI, CEA-PME and the
Greens/EFA, organised a conference in Brussels on the topic of ‘Regulating
Knowledge: Costs, Risks, and Models of Innovation’. Its main theme was the
economic consequences of software patents, focussing on economic dynamics,
insurance risks, standardisation failures and institutional interests.
However, it also touched upon the democratic legitimacy of current policy
making, as well as legal analysis of the current directive proposal on the
patentability of ‘computer-implemented inventions’.

Economic experts from the US such as Brian Kahin and Jim Bessen sketched
the economic background of the debate: why do we grant patents, do these
assumptions still hold true in an information economy, and how are patents
used nowadays? According to them, patents are only used to protect about
15% of R&D, and while a different patent policy can increase this share,
at the same time it also affects the effectiveness of the other means of
protection. A balanced approach is obviously required.

Another problem is the increasing litigation, as well as its huge costs.
While showing the steadily climbing curve of the number of patent-related
lawsuits filed in the US, Bessen asked the audience “Who wants to climb
this hill?” Kahin noted the fact that costs of patent litigation do not
scale-down well. Lawsuits over assets worth less than 1 million US Dollar
cost more than those assets themselves.

The problems of software patents in open standards were also discussed
thoroughly. Simon Phipps presented the official Sun view on this issue: it
should never be possible for patents to encumber interoperability, and
‘reasonable and non-discriminatory’ licenses are not a solution. The fact
that these problems are not just theoretical was illustrated by Koen
Martens from the IETF Sender Policy Framework workgroup. Microsoft’s
patents managed to largely waste more than a full year of work on this.

Insurance is often mentioned as a way for small and medium-sized
enterprises to cope with the high litigation costs of the patent system,
but Ian Lewis from Miller Insurance Services Ltd explained that offering
such insurances is not viable. He mentioned astonishing numbers like a
3.000% loss ratio for major insurance companies trying to offer customers
products in this area.

Probably the most entertaining talk of the conference was given by David
Martin from M-CAM, a company specialised in assessing the values of patent
portfolios and technology transfers. His thesis is that the patent system
suffers from an immense integrity and accountability problem. He started
out by giving an example of real world economic consequences of this fact:
large US companies are missing out on huge Chinese contracts, because they
previously licensed worthless patents to Chinese companies (who in turn
were previously accused of ‘stealing’ that ‘intellectual property’).

Another striking example was the ethernet plug. “The degrees of freedom in
a plug, Ladies and Gentlemen, are two. You’ve got the insulative surface,
you’ve got the prongs. That’s two degrees of freedom. The third degree of
freedom is where you shove it”. According to Martin, these two degrees of
freedom are covered by a grand total of 683 patents. He concluded his talk
with the immortal words that “If we don’t actually confront the integrity
problem, which says that we are stimulated to issue garbage (…), we’re
rearranging deck chairs on the Titanic.”

Many other influential speakers, both from the US and from Europe,
explained their view on the (software) patents issue. The economic impact
was analysed using both top-down and bottom-up approaches. The Grokline
initiative was presented, an open, community-based, collaborative research
project on the history of the relationship between patent law and software
development. Its goal is to assess whether patent law, as actually
applied, has recognised true innovation. Wendy Seltzer from EFF stressed
the consequences for online information availability. The merits of the
various directive proposals were discussed. And most of all the need was
stressed for considering patent policy as part of economic policy making,
instead of handling it as a separate entity that stands on its own.

With many renowned speakers, live audio streaming and a large and
interested audience, the conference was a great success.

Program, slides and audio recordings of the panel discussions (9-10.11.2004)

Grokline patent project

(Contribution by Jonas Maebe, board member FFII and conference co-organiser)