L'Ombre de l'Olivier

The Shadow of the Olive Tree

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20 February 2008 Blog Home : February 2008 : Permalink

IP Growth - Intellectual Piracy that is.

Over at the Reg, Guy Kewney has a nice piece about the stresses in the Patent system. In it he points to US companies like Qualcomm who seem to be particularly rapacious about how much royalty they charge for their patents and about how the companies in the chain don't appreciate it. There are some delicious quotes such as this bit from someone who might be a Huawei exec (a company well known for its somewhat casual attitude to other people's IP) and from Broadcom (which isn't):

"We are paying 25 per cent of the price of every product in royalties to Western businesses. It has to come down to at least ten per cent." Which is, of course, improbable, as my consultant friend observed to him. "We'll have to do something about it," repeated the angry [Chinese] entrepreneur.

"Are you suggesting you will stop paying royalties?"

"That is not my decision," said the exec. In other words, he knows someone who will make that decision.

America's IP owners are well aware of the friction. Even the most rapacious intellectual pirates are calling for reform of a system which is destroying any goodwill there ever may have been for patent holders.

McGregor again: "The problem is multiple charges for royalties. For example, if I sell you a device on which I hold a patent, you have to pay me royalties. But what if you sell that device onto someone else, who incorporates that component as part of something they sell on to a fourth party? Am I justified in chasing that someone else for royalties on something for which you've already paid, and then for their customer in turn?"

If you want my view about why people haven't really taken the UMTS and are ever so keen on LTE and WiMAX it is because of the patent situation. Qualcomm is not the only offender, indeed it may not be the most egregious one, but it is certainly an excellent example of a company which seems determined to extract every cent it can no matter or not whether that ends up strangling a technology at birth or shortly afterwards.

I am of the belief that IP is a good idea. That patents and copyrights (and trademarks FWIW) add value to human society and we need them. However, and this is something that Qualcomm execs, IP law firms and media publishers need to bear in mind, if you abuse a system you will wreck it. Even if your abuse is strictly legal (and we won't discuss the way lobbyists get laws passed here as that as a whole seperate can of worms), if you are preceived as charging more for something than it is worth then people will look for alternatives. These alternatives could be different products/technologies that are priced more reasonably or they could be just finding ways to use the product/technology without bothering to pay. The way people are sticking with EDGE or using Wifi/WimAX are good examples of choosing alternatives, Rambus' travails in the DRAM business a few years back would be another. As for the avoiding altogether strategy just look at the music industry.

It all boils down to what economists call rent-seeking and this is not a popular thing. Indeed if you think about the age of Aesop's Fable of the dog in the manger it hasn't been popular for thousands of years. The danger here is that the rent-seekers and rip off merchants will so abuse the system that we will lose all respect for IP. This, it seems to me, will be a very bad situation to end up in. This is also an area where further government regulation is a good idea because all IP is protected ab initio by government regulation. I don't know what the regulation should be but I'd suggest schemes like setting maximum royalty rates, tapered rates (so that older patents or copyright works get less) and situations where after a certain length of time patents and copyrights are required to be non-exclusive with licenses required to be granted to anyone who will pay the royalty fee and so on.

There also probably needs to be some thought given to how to make IP work in a global environment. What we are seeing from the pharma industry (and the pirate movie business) is that one high fixed rate clearly doesn't work but that in a world of open trade, multiple rates leads one to grey market imports and so on.