Back to the future

The FTC is suing Qualcomm, the chip maker, in the first major monopoly case since the Microsoft one all those years ago. In his weekly newsletter, Matt Stoller provides a useful historical comparison to put the case in its context:

Qualcomm is a very important corporation, but one you may not have heard of because it doesn’t do consumer oriented work. The company makes critical components for cell phones, the stuff you don’t see but that goes into the guts of telecom systems. Its technology connects phones to cell networks, and it makes its money by selling chips and by licensing its patents to device makers.

The story of how Qualcomm monopolizes is pretty simple. The corporation does what Bill Gates did to computer manufacturers and what John D. Rockefeller did to railroads, as I wrote a few weeks ago. Rockefeller’s oil was critical to railroads, and Gates’s operating system software was critical to computer makers. Both of them thus forced their dependents to give them a fee not just for every Rockefeller barrel of oil or Microsoft OS license, but a fee for every one of their competitors’ as well. They taxed their competition and made it impossible to compete.

Qualcomm does this as well. As its competitor Intel explained, Qualcomm “refuses to sell [phone makers] any chipsets unless those manufacturers also purchase separate patent licenses that require them to pay exorbitant royalties for every handset they sell, regardless of whether the handset contains a Qualcomm chipset.” In other words, it’s the Gates/Rockefeller playbook. Find an essential chokehold, and use it to control the industry.

Qualcomm uses a few other anti-competitive tactics. It refused to license its patents – essentially standard and necessary for the industry – to competitors. And it cut exclusive deal arrangements with customers to box anyone else out of the market. (You can read the rest of Intel’s amicus brief if you want to hear expensive lawyers accurately whine about being treated unfairly.)

The strange thing is, though, that important sectors of the US government are trying to intervene in the case, effectively opposing the FTC. Their argument is that the suit undermines national security.

The DOJ argument is basically saying, yeah, Qualcomm does all that stuff, but Judge Gorsuch said it’s all legal and efficient, and we don’t want to dissuade the liberty to abuse patents and market power. Two other officials, one at the Department of Defense and another at the Department of Energy, also weighed in. Ellen Lord, a former defense contractor and the Under Secretary of Defense for Acquisition and Sustainment for the DOD, argued that Qualcomm’s position as a monopolist enables it to support national security and help China. A Department of Energy official Max Everett basically said the same thing.

The national security argument is BS, says Stoller, but not for the reason you’d think. He quotes an excerpt from a WSJ OpEd by Michael Chertoff, a former senior Cabinet officer in previous US administrations.

In the technology race against China, the U.S. should prefer to let competition drive innovation rather than support exclusive national champions. Apart from the economic inefficiency, a single-source national champion creates an unacceptable risk to American security—artificially concentrating vulnerability in a single point. The government’s argument in support of Qualcomm isn’t prudent, and if courts accept it, the result would be a self-inflicted wound to U.S. national interests. We need competition and multiple providers, not a potentially vulnerable technological monoculture.

Underpinning this argument is a prevailing denialism about China in the American Deep State. What happens, Stoller says, is that China either hacks US corporations to steal their intellectual property, or acquires it legally when they try to do business in China. So: China innovates at speed by topping up its own (substantial) native ingenuity with the ideas and wisdom of its US competitors, while those same competitors are locked out by monopolisation and patent restrictions from exploiting that same, locally-developed intellectual property in their own country.

End result: China races ahead. Madness on stilts.

The prosecution of Aaron Schwartz – and what it might mean

This morning’s Observer column:

On Monday, BBC Four screened a remarkable film in its Storyville series. The Internet’s Own Boy told the story of the life and tragic death of Aaron Swartz, the leading geek wunderkind of his generation who was hounded to suicide at the age of 26 by a vindictive US administration. The film is still available on BBC iPlayer, and if you do nothing else this weekend make time to watch it, because it’s the most revealing source of insights about how the state approaches the internet since Edward Snowden first broke cover…

Read on.

Aaron Swartz: cannon fodder in the war on internet freedom

This morning’s Observer column.

Even those of us who shared his belief in open access thought this an unwise stunt. But what was truly astonishing – and troubling – was the vindictiveness of the prosecution, which went for Swartz as if he were a major cyber-criminal who was stealing valuable stuff for personal gain. “The outrageousness in this story is not just Aaron,” wrote Lawrence Lessig, the distinguished lawyer who was also one of Swartz’s mentors. “It is also the absurdity of the prosecutor’s behaviour. From the beginning, the government worked as hard as it could to characterise what Aaron did in the most extreme and absurd way. The ‘property’ Aaron had ‘stolen’, we were told, was worth ‘millions of dollars’ – with the hint, and then the suggestion, that his aim must have been to profit from his crime. But anyone who says that there is money to be made in a stash of academic articles is either an idiot or a liar. It was clear what this was not, yet our government continued to push as if it had caught the 9/11 terrorists red-handed.”

The phrase that came to mind when I first saw the indictment against Swartz was Alexander Pope’s famous rhetorical question: “Who breaks a butterfly upon a wheel?” It would be possible to write off the Swartz prosecution (as some have done) as the action of a politically ambitious attorney general, but actually it fits a much more sinister pattern. It was clear that a decision had been made to make an example of this cheeky young hacker and in that sense this grotesque prosecution sits neatly alongside the treatment of Corporal Bradley Manning, not to mention the hysterical reaction of the US authorities to WikiLeaks…

iPhone, uCopy, iSue

Eminently sane Economist piece about the Apple v Samsung patent case.

It is useful to recall why patents exist. The system was established as a trade-off that provides a public benefit: the state agrees to grant a limited monopoly to an inventor in return for disclosing how the technology works. To qualify, an innovation must be novel, useful and non-obvious, which earns the inventor 20 years of exclusivity. “Design patents”, which cover appearances and are granted after a simpler review process, are valid for 14 years.

The dispute between Apple and Samsung is less over how the devices work and more over their look and feel. At issue are features like the ability to zoom into an image with a double finger tap, pinching gestures, and the visual “rubber band” effect when you scroll to the end of a page. The case even extends to whether the device and its on-screen icons are allowed to have rounded corners. To be sure, some of these things were terrific improvements over what existed before the iPhone’s arrival, but to award a monopoly right to finger gestures and rounded rectangles is to stretch the definition of “novel” and “non-obvious” to breaking-point.

A proliferation of patents harms the public in three ways. First, it means that technology companies will compete more at the courtroom than in the marketplace—precisely what seems to be happening. Second, it hampers follow-on improvements by firms that implement an existing technology but build upon it as well. Third, it fuels many of the American patent system’s broader problems, such as patent trolls (speculative lawsuits by patent-holders who have no intention of actually making anything); defensive patenting (acquiring patents mainly to pre-empt the risk of litigation, which raises business costs); and “innovation gridlock” (the difficulty of combining multiple technologies to create a single new product because too many small patents are spread among too many players).

Some basic reforms would alleviate many of the problems exemplified by the iPhone lawsuit. The existing criteria for a patent should be applied with greater vigour. Specialised courts for patent disputes should be established, with technically minded judges in charge: the inflated patent-damage awards of recent years are largely the result of jury trials. And if patents are infringed, judges should favour monetary penalties over injunctions that ban the sale of offending products and thereby reduce consumer choice.

And it’s nuts letting this stuff go to jury trial.

That “Apple Tax”

Horse sense from Jean-Louis Gassée

Following last week’s verdict against Samsung, the kommentariat have raised the specter of an egregious new Apple Tax, one that Apple will levy on other smartphone makers who will have no choice but to pass the burden on to you. The idea is this: Samsung’s loss means it will now have to compete against Apple with its dominant hand — a lower price tag — tied behind its back. This will allow Apple to exact higher prices for its iPhones (and iPads) and thus inflict even more pain and suffering on consumers.

There seems to be a moral aspect, here, as if Apple should be held to a higher standard. Last year, Apple and Nokia settled an IP “misunderstanding” that also resulted in a “Tax”…but it was Nokia that played the T-Man role: Apple paid Nokia more than $600M plus an estimated $11.50 per iPhone sold. Where were the handwringers who now accuse Apple of abusing the patent system when the Nokia settlement took place? Where was the outrage against the “evil”, if hapless, Finnish company? (Amusingly, observers speculate that Nokia has made more money from these IP arrangements than from selling its own Lumia smartphones.)

Patent absurdity exposed at last

This morning’s Observer column about Richard Posner’s landmark ruling.

What brings Posner to mind this Sunday morning, however, is not his views on obesity but on intellectual property. You may have noticed that in the last few years the world’s biggest technology companies have become lavish patrons of the legal profession. Apple, Google, Samsung, HTC, Microsoft, Oracle, HP, Amazon and others have being suing one another in courts around the globe, alleging that they are infringing one another’s patents. The resulting bonanza for lawyers has long passed the point of insanity, but up to now the world’s courts seem powerless to make the litigants see sense. As a result, judges find themselves allocated the role of pawns in what are effectively business negotiations between global companies.

Until now. What happened is that Posner, in an unusual move, got himself assigned to a lower court to hear a case in which Apple was suing Google (which had purchased Motorola in order to get its hands on the phone company’s patent portfolio) over alleged infringement of Apple’s smartphone patents. Posner listened to the lawyers and then threw out the case. But what was really dramatic was the way he eviscerated the legal submissions. At one point, for example, Apple claimed that Google was infringing one of its patents on the process of unlocking a phone by swiping the screen. “Apple’s argument that a tap is a zero-length swipe,” said Posner, “is silly. It’s like saying that a point is a zero-length line.”

Running out of new ideas

This morning’s Observer column.

We’re now at the stage where we should be getting the next wave of disruptive surprises. But – guess what? – they’re nowhere to be seen. Instead, we’re getting an endless stream of incremental changes and me-tooism. If I see one more proposal for a photo-sharing or location-based web service, anything with “app” in it, or anything that invites me to “rate” something, I’ll scream.

We’re stuck. We’re clean out of ideas. And if you want evidence of that, just look at the nauseating epidemic of patent wars that now disfigures the entire world of information technology. The first thing a start-up has to do now is to hire a patent attorney. I had a fascinating conversation recently with someone who’s good at getting the pin-ups of the industry – the bosses of Google, Facebook, Amazon et al – into one room. He recounted how at a recent such gathering, he suddenly realised that everyone present was currently suing or being sued for patent infringement by one or more of the others.

How have we got ourselves into this mess?

Why Congress is so attentive to the needs of the content industries

How nice to see it expressed so directly.

Reinforcing the fact that Chris Dodd really does not get what’s happening, and showing just how disgustingly corrupt the MPAA relationship is with politicians, Chris Dodd went on Fox News to explicitly threaten politicians who accept MPAA campaign donations that they’d better pass Hollywood’s favorite legislation… or else:

“Those who count on quote ‘Hollywood’ for support need to understand that this industry is watching very carefully who’s going to stand up for them when their job is at stake. Don’t ask me to write a check for you when you think your job is at risk and then don’t pay any attention to me when my job is at stake,”

This certainly follows what many people assumed was happening, and fits with the anonymous comments from studio execs that they will stop contributing to Obama, but to be so blatant about this kind of corruption and money-for-laws politics in the face of an extremely angry public is a really, really, really tone deaf response from Dodd.

It shows, yet again, that he just doesn’t get it.

From Techdirt