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Thursday, December 18, 2008

Prof: IP law only needs tweak to encourage open standards

By John Timmer

The technology marketplace is littered with competing standards, some open, others proprietary. A number of academics, both in the legal field and out, have argued that open standards are superior for both the market and consumers. They allow companies to produce products that compete on their merits, rather than their ability to play nice with other hardware or content, and they prevent consumers from being harmed by product lock-ins. A Berkeley Law professor, Robert P. Merges, has just released a working paper entitled IP Rights and Technological Platforms in which he argues that proprietary standards and the intellectual property that back them aren't as harmful as they're made out to be. Instead, a minor modification of IP law should be sufficient to enable a competition between open and closed standards.

Merges outlines the benefits of technology becoming standard, using (of all things) PowerPoint as his example. Since PowerPoint has been widely adopted, more people can view presentations prepared with it, and there's rarely a problem finding a computer to run a presentation. PowerPoint has been kept proprietary, but he also cites Adobe Acrobat (a standardized format encumbered by patents that protect proprietary authoring tools) and Linux to demonstrate that nearly all levels of intellectual property are compatible with something becoming a standard.


Berkeley's Robert Merges

Given that different levels of IP protection are all compatible with the use of something as a standard, why should we care if anything is encumbered by ownership? Merges recognizes that proprietary ownership can create consumer lock-in; there's a price to switching from a standard, both personal (replacing equipment, learning new software) and general (the loss of the network effect). When a single company owns the standards, they can engage in anticompetitive practices and extract prices that approximate the cost of changing.

Open standards, in contrast, should prevent this. Any WiFi router should work with WiFi hardware from any other company, so the ability to extract a price from consumers is limited.

Can competition cure all IP ills?

With that as the backdrop, Merges turns to legal scholarship on intellectual property, where a number of authors have used this sort of analysis to determine that open standards are a public good, and intellectual property laws should be adjusted to encourage them. He argues that much of this scholarship, however, suffers from a terminal flaw: it assumes that the worst-case scenario, where a company fully extracts the price of its intellectual ownership of a standard, will always occur. As Merges puts it, much of this analysis "focuses on granted, rather than exercised rights."

In Merges' view, his intellectual opponents have ignored the power of competition between standards, which prevents companies from exercising all of the rights they are granted. "Optimal policy in this area in my view would look very different," he writes. "It would trust competition to address many of the concerns with open access."

Professor Merges clearly belongs to the school of thought that views competition through rose-colored glasses. "Though temporary advantages, often based on lead time and (usually limited) lock-in effects, may prevail for a time," he argues, "the pressure of competition will usually erode this power in fairly short order." Although this is probably generally true, it's hardly universal—his own example, PowerPoint, hasn't seen any credible competition emerge on the PC. Merges also recognizes that pro-competitive interventions, like several pursued against Microsoft, often come years late and have mixed-to-minimal effect.

He also devotes extensive text to the digital music business, which he seems to believe supports his argument. Here, the competition between open and various DRM-encumbered formats is ongoing, but there are some obvious lessons. For one, various losers in the competitive field have threatened to shut off their DRM license servers, demonstrating how competition among closed standards can harm consumers. For another, one of the winners appears to be Apple, but its success is coming with a product lock-in that appears unlikely to erode "in fairly short order."

Oddly, Merges also highlights the music labels' use of DRM-free music as a tool to manipulate the market (offering it to Amazon, but not Apple) as a positive sign of competition. I'm not sure when I've previously seen actions performed by a cartel of suppliers, taken with the apparent intention to harm a retailer favored by consumers, portrayed in such a favorable light.

Improving IP with a targeted intervention

None of this is to say that Merges' basic point—that government shouldn't tilt the intellectual property system in a way that favors open standards—is wrong. Promoting open standards may be pro-consumer, but it's not clear that overhauling the IP system is the best way to perform that promotion. But, by pretending proprietary standards rarely cause problems and that things quickly sort themselves out when problems do arise, he seems to weaken his own argument.

Regardless of the logic that led him to the conclusion, Merges does have a compelling bit of advice for how to make a minor change to IP legislation that will favor open standards. In his view, licensing terms that promote open use, like Creative Commons, face unreasonable hurdles as a result of the fact that the ownership terms of the intellectual property system weren't designed to handle the sort of guaranteed licenses for use that Creative Commons relies on.

Instead of requiring any further variant of these licenses to jump through legal hoops, Merges suggests that the IP system be modified so it's easier to formally waive specific rights of ownership, or permanently assign them to an outside party. This would allow the developers of technology to retain rights of ownership under the current IP system, while ensuring anyone considering using that technology that the owners won't change their mind and take the IP proprietary in the future.

Although it's hard to agree with all the logic that got him there, Merges' proposal of a useful tweak of the intellectual property system appears to have a lot of merit.

Original here

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