Ross Gittins has an excellent piece on the intellectual property aspects of the US FTA. There’s nothing that will be news to readers of this blog or, even better, that of Kim Weatherall (who I see has also linked to Gittins) but it’s good to see the message getting out to a wide audience. Perhaps this will help to put a bit of steel in Iron Mark’s spine.
24 thoughts on “Gittins on the FTA”
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John Quiggin 
JQ,
Good link, and excellent article. I’m still gobsmacked that the FTA has such blind support in Australia given it is so one-sided in favour of the USA. It’s an abomination that should be torn up and renegotiated.
Fyodor, I suggest that the FTA is two-sided in favour of both countries. But I agree that the change to copyright introduces a cost to the agreement as we’re a net importer of protected materials and the change is insufficient to induce meaningful change in behaviour. Adjusting the Dee Report estiamte of IP costs for a 5% depreciation rate gives a total cost of a couple of million. Not enough to make a difference to the broad conclusion of a net benefit.
The FTA should be torn up iff (if and only if) we replace it with complete unilateral liberalisation. 🙂
John Humphreys,
I’m in favour of unilateral liberalisation, but we’re not likely to get it, so a negotiated agreement is the alternative.
Given that the USA already has a massive trade surplus with Australia (i.e. we have a mssive trade deficit with the USA), and we have proven ourselves to be loyal allies, I think we could have negotiated ourselves a better deal than the FTA.
I don’t doubt that you believe that Australia will be better off under the FTA than before, but that’s not the point. We could have negotiated a BETTER deal, so why didn’t we, and who amongst our politicians has the guts to say so?
We could have negotiated a BETTER deal, so why didn’t we, and who amongst our politicians has the guts to say so?
Iron Mark for one – this is exactly the line he’s running. You need to seperate three issues though:
(1) Could we have negotiated a better deal? Absolutely, and Howard has betrayed the national interest by not being credibly prepared to walk away at the time (he preferred the boost to his re-election chances of even a bad deal).
(2) What are the chances of getting a better deal now?
Negligible.
(3) Given (2), are we better off with or without this particular deal?
Better off, not so much because we gain by approving it (the economic cost/benefit is, I reckon, small beer, though the copyright extension is bloody annoying,) as because we lose by rejecting it now – to do so strengthens the paleo-left and sends a nasty signal to the yanks and to other potential partners.
I don’t understand why people are so sure that we could have got a better deal. Australia wanted this FTA more than the U.S. and we do gain from it. The Americans know this and so they have the upper hand.
Also, we got a lot of what we wanted. If we had walked away from the table because of sugar, I think it likely that we would have got no deal. I doubt that we could have successfully bullied America with the threat of walking away.
DD’s analysis implies that we are better off accepting, not because the deal is a good one, but only because we have already signed, and backing out now “sends the wrong message”. On this basis, we would clearly have been better off to walk away from the deal in January and send the right message, namely that we won’t get screwed for the sake of a deal.
Yep, we would have been better off walking away in January – but this is not January.
Its like the Iraq thing – it was palpably stupid to have invaded and Bush should (and probably will) pay the penalty, but the hard question for his opponent is where to now rather than where to then.
I was really surprised by Gittins’ articles on patents, because he has essentially surrendered his column to a PR operation. Most of the second column, in particular, consists of the message from an anonymous “software engineer,” which just happens to be the main PR message of open source activists regarding the FTA. I generally like Gittins’ work on labour markets and I can’t understand why he accepted such a message at face value.
There are concerns with patents, but there’s more to it than the knee jerk responses from the public software crowd. First, most software patents are not actually granted to software companies at all, but to other businesses. Only about 10 percent of software patents are granted to software companies, according to the OECD 2004/01 Report on Patents and Economic Performance. This calls into question the claim that software patents are part of a “racketeering” effort by the software industry. It also suggests that regulation would affect and possibly harm much broader sections of business. In The Myth of the Software Patent Thicket, Ronald Mann writes: “Because there is considerable ambiguity about exactly what a software patent is – they do not fall into any specific PTO class – and because many patents in the classes that indisputably do constitute software patents are held outside the industry, that work says little or nothing about the software industry itself. As I suggested above, software is unusual among patentable goods in its interaction with all sectors of the economy. Thus, there are some software features in a wide variety of otherwise unrelated products.”
Second, several studies report that patents have significant benefits for small firms and new entrants, directly contradicting the claims of patent opponents. This has particular relevance for Australia. Mann writes that the benefit of excluding competitors is primarily used by small firms, not large ones, and that patents let small firms signal their technical competence to third parties, especially investors. A well known study by Bronwyn Hall and Rosemarie Ziedonis makes the same points. (Hall BH & Ziedonis RH, 2001, The patent paradox revisited: an empirical study of patenting in the U.S. semiconductor industry, 1979–1995, RAND Journal of Economics, Vol. 32, No. 1, Spring 2001.)
The author of the message in Gittins’ piece is also misleading in citing deleterious consequences of patents in support of open source. They are different subjects. For example, open source is not innovative at all. Most of it consists of copying successful commercial technology. For commercial firms, sometimes it’s an end-of-life strategy for a dead product or, as in IBM’s case, part of an attack on business rivals. I discuss this further in my IPI paper.
The claim that commercial developers don’t want to compete is plain wrong. Commercial developers have been competing for the past 10 years and winning. Linux has only 1 percent of the mass market, according to Google web logs. It is open source activists who are seeking government favoritism and funding.
I discuss patents and other things in my submission to the Senate inquiry.
. . . open source is not innovative at all. Most of it consists of copying successful commercial technology.
Care to explain why Perl Python PHP and most of the internet infrastructure are non-innovative?
You think Perl and PHP are innovative?
And before you ask, my argument regarding early internet technology is that they are academic products. One of the issues in the debate over software IP is that open sourcers include everything as “open source.”
My arguments regarding open source are explicitly regarding claims for government assistance being made by activists, especially to compete in the important, highly engineered desktop space. I go into this in my IPI paper.
Gee, if only there had been some experiment to see if you could have software innovation without software patents… Oh, wait! There was, and we got high level languages and quicksort and object oriented programming and graphical user interfaces and AVL trees and ray tracing and a whole host of other innovations and fortunately none of them were patented.
And it’s amusing to see that Healy has to resort to using his own special definition of “open source”.
Tim, I don’t think you can contribute usefully to these debates. I provided business information about the effects of patents. I said nothing about the effects of patents on innovation. My reference to open source was that the author of the message in Gittin’s piece deceitfully used the discussion of the deleterious effects of patents to introduce unrelated PR for open source activism.
If you haven’t read my Senate submission yet, please feel free to do so. I make it quite clear that patents are an issue of concern.
And yes, I will be quite careful about my definitions. One of the problems in the software IP debate is the accidental and deliberation confusion of issues.
Tony, patents provide benefits for the companies that hold them. But those benfits are costs for other companies and consumers and the net effect is a cost. Now that cost might be justified if patents promoted innovation. In the case of software patents the evidence suggests otherwise — before they started granting software patents there was plenty of innovation in software.
And here’s what your own reference, Mann, wrties about software patents and OSS:
Tim, here’s what I wrote in my section on patents in my Senate submission:
“Patents for business processes are one area where I believe caution is warranted. In software, there’s not really any need for them, and they can allow freeloaders to improperly profit from the work of software developers, just as open source does. This caution does not apply to patents in other technologies.
“For software, properly enforced copyright combined with protection of source code suffices to prevent theft and enable healthy competition. Note that open source does not have this simple protection available to it.”
I refer not just to Mann but to others who also express cautions about patents. Again, the point of my post was to address the simplifications in Gittins’ article.
Tony,
consists of the message from an anonymous “software engineer,” which just happens to be the main PR message of open source activists regarding the FTA.
I am an Australian working in the software industry in Nth Virginia. I have contributed to open source as well as based corporate projects off of opensource project. The main issue with software patents is that they are unnecessary. Software is protected by copyright, and any distribution without the copyright holders express permission is grounds for a civil case against the transgresser. This is true for proprietary as well as open source software.
Patents are artificial monopolies put in place by government legislation.
All these do is add artificial barriers of entry to new players in the market. For example, IBM also used patents to extort $20 million from Sun when they were a startup.
In the US in the there has been the recognition of software patents, DMCA anti-circumvention legislation as well as UCITA legislation (in Virginia). All these are attempts to halt the reverse engineering of processes through software emulation. The reverse engineering of the IBM BIOS by Compaq would never have happened with all this legislation. Laughably, the legislation has been abused with Lexmark crying DMCA on their printer cartridges.
The Au-US FTA adds a DMCA-like clause to Australian copyright law. it also adds an extension to the existing copyright term. The Sono Bono Act in the US is laughingly known as the Disney Act as copyright extension pops up every time Disney’s prize asset of Mickey Mouse comes close to falling out of copyright.
For example, open source is not innovative at all. Most of it consists of copying successful commercial technology. For commercial firms, sometimes it’s an end-of-life strategy for a dead product or, as in IBM’s case, part of an attack on business rivals.
Open-source commoditizes any software it turns its hand too. The operating system, office suite and browser have all been successfully commoditised by open source. The price point for an OS or Office Suite is now the cost of a download. Microsoft will have to start adding value above a GUI, Browser and Email client or they will fail as a software company. Apple already has a niche though they have copied the Linux/BSD style of Unix underpinnings with an easy to use GUI. Microsoft is surviving by leveraging their monopoly on the market and they have the largest way to fall.
Open-source also has tremendous business value. The Jakarta projects represent amazing business value for Java developers. Different projects in that group have been innovative in their time. Many are off high enough quality and innovation that they have been absorbed into commercial J2EE distributions.
I also think you misunderstand the opensource product market. We use Red Hat on our servers, it is a cheap powerful Unix operating system that can be used on i386 hardware from commodity vendors like Dell and HP. Our web based products use Apache/Tomcat and our web software is constructed from open source libraries. We have used it to build a strong and sustainable business. We contribute to opensource projects as we need to. Opensource is brilliant.
If opensource is encumbered with silly patents like Amazons one click patent, all that does is increase the barrier of entry for us to compete in that market. We dont produce software, even though software is central to our business model – we supply services. Yet if we have to license off unnecessary patents, it becomes a government mandated rent on our cost for a service and inhibits our ability to quickly enter the market and compete.
Patents came into being back in the day when invention and production were capital intensive. If the software engineers in Gittens article are coming up with ten software patents a day, then it shows how ludicrous the system is. Software and information follow an abundance model with extraordinary low barriers of entry.
One of the reasons for the high tech bubble was this low barrier of entry. The cost of manufacturer is essentially zero. A compiler for a large program takes minutes to run. Add to this, the cost of the compiler is zero as well. gcc is opensource with a cost of download as its biggest expense. The cost of production is also near zero, as copying is cheap, quick and easy on a computer. Software doesnt need the protection that inventors in the industrial era did.
Cameron Riley
Tony, properly enforced copyright is essential for preventing the theft (i.e. the conversion to private property 😉 of Open Source software too, if it is GPL licenced.
Cameron, let’s refrain from knee-jerk responses. I’m not a fan of patents, as you will see if you read my post above or my paper. However neither do I automatically dismiss them. They do have value and, contrary to the headline and theme of Gittins’ article, software companies are not the biggest users of the particular class of patents he talks about – software patents.
You also seem to write from the perspective of a customer of software. It is perfectly fine for customers to lobby for cheaper goods, just as employers lobby for cheaper workers. One of the problems in this debate is that the interests of software developers are overlooked. For example, you write that the cost of production (for software) is near zero, because copying is cheap, quick and easy on a computer.
You seem not to be aware that the cost of creating software is the time, education and training cost of software engineers. Software does not get created at the click of a button. It takes months or years for significant products or systems. That is the issue.
I appreciate the input from you and others but won’t be able to conduct a complete software IP debate here.
Tom, in my Senate submission I wrote: “Open source activists nowadays stress that they love and support copyright. Technically they are correct; they use copyright to force restrictions on downstream users.
“In practice the movement is an undermining of copyright. Open source uses copyright to strip the benefit from the creator, rejecting the original intent of copyright. It relies on the original drafters of copyright never imagining that beneficiaries of copyright would use it to deny benefits to themselves. This is particularly so with the notorious GPL.”
I agree that this isn’t the place for a comprehensive software IP debate, but the effect of the ‘notorious’ GPL (perhaps ‘well-known’ would have been a less loaded description) is that if you create something which is valuable enough to be used and enhanced by others, you will also benefit from those enhancements, so copyright is *not* being used to strip benefits from the creator, it is being used to provide benefits to the creator which they would not get if they either kept the source secret, or licenced it under a less restrictive open source licence (e.g. Apache).
And surely the intent of copyright is to give control of IP to its creator — how they use that control should be up to them.
P.S. of course sharing of enhancements works well in practice under the Apache SF licence, but is not mandated as it is under the GPL.
Tony
You also seem to write from the perspective of a customer of software.
No I wrote that previous reply as a software developer. As a creator of software goods and as a software architect in a company whose business model is entwined with the software we produce to support our services.
One of the problems in this debate is that the interests of software developers are overlooked. For example, you write that the cost of production (for software) is near zero, because copying is cheap, quick and easy on a computer.
To reiterate, I am an Australian software developer currently working in the Nth Virginian telecommunications industry.
You seem not to be aware that the cost of creating software is the time, education and training cost of software engineers. Software does not get created at the click of a button. It takes months or years for significant products or systems. That is the issue.
Mate, I dont think you fully understand the software process. The creation of software, including the writing of it is all design. Software source code development is an ongoing design process. The manufacturing process is during compilation and the production is the copying and distribution. The most expensive part of software is the writing the source code, but under a construction analogy that is all the design process.
To many software development methodologies (especially agile methodologies), the final source code is the final design document. Often design visualization tools like UML, javadocs/pydocs etc generate themselves from the source. I always ensure my projects have a continuous integration process where these things are generated automatically each night.
Software follows an abundance model, manufacture, production and distribution are cheap, so cheap they are near zero. In my projects they are managed by automated scripts. The timely and expensive part is the design process (the writing of code). Opensource is an attempt by software developers to defray the costs of this process by commoditizing the software itself. For a software developer opensource libraries are invaluable.
If those libraries fell under patent issues it would raise the cost of software for many companies, including the company I am with. Already the deployment of SuSe in Munich has been halted while the German government there tries to determine patent issues that might arise with the EU adopting software patents.
Cameron Riley
Cameron, I’ve developed more things than I can remember including some that were world leading at the time, and including some you probably use every day.
Your discussion doesn’t really address my point that developing useful software requires many weeks, months or years time, and is not the same thing as copying the finished product.
Maybe your background is more in scripting and maintenance-type programming? A telecommunications company is a customer of software developers, not a developer, generally.
Your discussion doesn’t really address my point that developing useful software requires many weeks, months or years time, and is not the same thing as copying the finished product.
The design process (the writing/refactoring to the point of distribution) of the source is the most capital intensive component in the software process. However opensource commoditizes and defrays the capital investment. For instance if I want to write an operating system, I could gather a bunch of highly talented engineers and spend 50 million on them to get something to market in three years. Or I could just download the source code to Linux/BSD/Darwin or whichever takes my fancy and compile that. What would have entailed me trying to raise a bunch of capital has been defrayed to the cost of a download and compile. Opensource commoditizes source code.
If software patents are allowed in the Australian system, all it will do is increase the capitalization costs. If Microsoft, EOLAS, whoever has non-negotiable patents on Linux (which Munich is worried about) it does nothing bu increase costs and add artificial barriers to entry into that market. What was once a commodity market with companies competing on service, now becomes a capital intensive market where companies compete on the ability to capitalize to overcome the initial barriers.
As to software companies who produce proprietary software, just because they chose to compete in an industry that has a capital intensive design process does not entitle them to government protection through the legislative creation of artificial monopolies in so-called “intellectual property”.
Market economies move toward abundance models. Processing power, informational exchange etc have moved to abundance models. The intellectual property laws such as patents come from a robber-baron era of industrialization. They are a clumsy attempt to create artificial scarcity for already capital endowed companies. They are entirely unnecessary in a process that has already moved to abundance and as such are just a clumsy legislative monopoly that is a barrier to new competitors seeking to enter and create new markets.
Cameron Riley
The problem here is that you interpret all software development as recreating existing software, and it simply isn’t. There are billions of dollars of value yet to be created in the software economy, of innovative new stuff. Under the open source model, the creators won’t benefit sufficiently for this to occur in Australia. Fortunately, it seems our politicians are slowly starting to understand what the software industry is.