Sunday, January 16, 2005

Big Blue becomes bountiful

Jan 11th 2005
From The Economist Global Agenda

IBM is forgoing royalties on 500 of its software patents. In doing so, it hopes to make the computer industry more innovative and, in the long run, to make more money from collaborating with other programmers

IT IS no coincidence that, on Tuesday January 11th, IBM became the first big computer company to flout tradition and make freely available a large number of its patents to anybody using open-source software. For starters, the company holds more patents than any rival: last year alone it was granted 3,248 new licences by the United States Patent and Trademark Office (USPTO). This was 1,300 more than any other company and the twelfth consecutive year in which IBM has topped the list. Indeed, the company currently has about 40,000 active patents worldwide, from which it earned more than $1 billion last year in royalties.

More than any other computer company of its size and type, too, IBM has embraced open-source software (which allows programmers the world over to share the underlying codes and to collaborate in developing new applications), particularly that developed by Linux, an operating system that, unlike Microsoft’s Windows, is freely available to all. Even so, IBM’s decision to forgo royalties on 500 patents covering everything from database and storage management to image processing and networking is a bold step that could have far-reaching implications for the computer industry. In pledging to distribute the codes underlying the patents to programmers working on projects approved by the Open Source Initiative, an industry group, IBM is betting not only that its decision will lead to more innovation but that, over time, it will also more than pay for itself.

Indeed, there are good reasons for believing that today’s system of granting patents is stifling innovation, not encouraging it. Patent offices around the world have never been busier. This is partly because of increasing amounts of work in the fields of the internet, genomes and nanotechnology. But it is also because patent offices are being too lax in granting licences, encouraging firms to rush to register as many (often dubious) ideas as possible in an effort to erect legal barriers against their competitors.

In 1998, America allowed firms for the first time to take out patents protecting so-called “business methods”. These often seem to cover ideas which are neither useful nor wholly novel—simple tests (together with not being obvious) which are supposed to determine whether a patent should be granted or not. Patents, which usually give the holder a monopoly over the process or innovation protected for 20 years, are also becoming more difficult and costly to challenge. In addition, the USPTO is often reluctant to turn down an application because, perversely, doing so involves more time and effort than approving it.

What happens in America is important because the USPTO approves more than 170,000 patents each year, half of them to foreign applicants. And this figure is rising at the rate of about 6% a year. As firms in China and India become more active in western markets, the number of patents applied for is expected to rise even more quickly. So, too, is the risk of overlap: a recent study by M-CAM, a consultancy which studies intellectual property, found that more than 30% of patents make duplicate claims, raising questions about their validity.

IBM’s pledge to make available a slew of its software patents by itself will do little to address the problem of too many patents protecting the wrong things. But it may encourage more technology companies to take a similar tack. If they do, then more firms may be encouraged to collaborate in developing new software instead of trying to forestall their rivals by taking out pre-emptive patents. Jim Stallings, IBM’s vice-president for standards and intellectual property, hopes that other firms will join it in forming what he calls a “patent commons” from which bona fide programmers will be entitled to draw without paying royalties.

Of course, there are good business reasons for doing this. As a leading supporter of Linux, IBM stands to gain if the open-source standard grows in popularity. Linux is particularly suited to business customers with a narrow range of specialised tasks, such as call centres. To this end, IBM has already donated computer code worth $40m to Eclipse, an open-source group that offers tools with which to build software programs. In 2004, IBM also unlocked a program called Cloudspace which cost it around $85m to develop. That said, it could still be a long haul before Linux begins to dent Microsoft’s supremacy. At the last count, over 90% all PCs worldwide ran on Microsoft Windows, compared with around 4% for Linux.

Copyright © 2005 The Economist Newspaper and The Economist Group. All rights reserved.

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