More on Intellectual Property

Last week I started writing about intellectual property issues. This week, I want to compare designing with software creation and explain why trying to keep things secret may not be the best course of action.

An example of intellectual property theft

Screenshot of Marlin's website
Screenshot of Marlin’s website

When I read the article on stopping intellectual property theft, I was intrigued by the statement:

Blatant IP theft, such as Greenblatt sees when foreign competitors “Xerox copy” the designs his in-house engineers come up with, has devastated the value of new technological innovations. If competitors are simply going to steal the designs and sell them for a fraction of the cost, what is the point of making those designs in the first place?

There are a couple problems I see with this quote. First, the article says

where foreign competitors “literally copy-and-paste [the Marlin Steel] website,” including both his name and the company’s name, and then blatantly copy any new designs that his mechanical engineers come up with.

I have to ask, how much detail are you putting on the website? I looked around briefly, but didn’t find specific drawings or models. I’m not quite understanding how it is that competitors are stealing designs based on what I saw posted. Second, I want to compare this situation with one from the software world and see if having your designs copied is as bad as it’s made out to be.

Comparing software design to industrial design

Open Source evangelist Eric Raymond wrote about business models for Open Source software (software where the user has access to the code, not just the programs to run). One case was interesting if you apply it to the industrial situation. In the software world, he wrote:

One very instructive recent case is Digital Creations, a website-design house started up in 1998 that specializes in complex database and transaction sites. Their major tool, the intellectual-property crown jewels of the company, is an object publisher that has been through several names and incarnations but is now called Zope.

When the Digital Creations people went looking for venture capital, the venture capitalist they brought in carefully evaluated their prospective market niche, their people, and their tools. The VC then recommended that Digital Creations take Zope open-source.

By traditional software industry standards, this looks like an absolutely crazy move. Conventional business school wisdom has it that core intellectual property like Zope is a company’s crown jewels, never under any circumstances to be given away. But the VC had two related insights. One is that Zope’s true core asset is actually the brains and skills of its people. The second is that Zope is likely to generate more value as a market-builder than as a secret tool.

To see this, compare two scenarios. In the conventional one, Zope remains Digital Creations’s secret weapon. Let’s stipulate that it’s a very effective one. As a result, the firm will able to deliver superior quality on short schedules—but nobody knows that. It will be easy to satisfy customers, but harder to build a customer base to begin with.

The VC, instead, saw that open-sourcing Zope could be critical advertising for Digital Creations’s real asset— its people. He expected that customers evaluating Zope would consider it more efficient to hire the experts than to develop in-house Zope expertise.

Digital Creations’ software design wasn’t what made the company valuable. It was the people who could come up with that software, and customize it for the users. If Marlin’s designers aren’t making commodity designs, then the value of that company is how they customize a solution for a particular user. That kind of thing can’t be taken from the website and done overseas. If potential customers can see the quality and detail Marlin puts into its intellectual property, then customers will hire Marlin and not the overseas competitors who don’t have the same design skills.

Stealing intellectual property vs. reverse engineering

One of the ways companies can recreate the work of others is through reverse engineering. This process happens frequently. There are companies whose sole purpose is to sell hardware and software to make reverse engineering possible. Does this count as intellectual property theft? Do you have to take drawings or models from someone in order to infringe on their intellectual property rights? Aren’t patents supposed to provide protection for these designs?

Rather than add new legislation and regulations, which may not help at all, and could be exploited (see “patent trolls”), maybe we should simply use the tools that are already available to protect intellectual property. Tell me what you think. Leave a comment below.

Intellectual Property Rights

In a recent article on stopping IP theft, the author talks about how to protect intellectual property in the manufacturing field. While I don’t think having designs and innovations stolen is a good thing, I wonder if legislation and regulation are effective means to deal with the problem. I will draw comparisons to the music and movie industries to show how intellectual property claims can become exaggerated. I also draw parallels with Open Source software development and show how copying may not be a bad thing.

What is “Intellectual Property”

As Wikipedia puts it, intellectual property is:

a legal concept which refers to creations of the mind for which exclusive rights are recognized.[1] Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property rights include copyright, trademarks, patents, industrial design rights, trade dress, and in some jurisdictions trade secrets.

While property rights are an old social construct, dating back thousands of years, treating thoughts, ideas, and concepts as property is a relatively new practice. Unfortunately, the word “property” carries with it some baggage.

When property is a tangible physical object, the theft of that object deprives its owner with the value associated with the object. If you take my bike, I can’t ride it as long as you have it. The problem I see with intellectual property is, the act of copying something like a design doesn’t deprive the owner of the property. If I download a CAD file of a part, that doesn’t prevent the designer of that part from having the file or making the part. Yes, it’s true that I don’t have to rely on that individual to produce the part, which may deprive him of some revenue. However, he’s still able to produce the part for anyone who wants to buy from him.

How the music industry sees intellectual property

Stolen Intellectual Property in Korea
Image from Rex Roof on Flickr

A couple of years ago, the Recording Industry Association of America sued Limewire for $75 trillion. At the time of the lawsuit, the GDP of the United States was about 14 trillion dollars. The entire combined world-wide GDP was about 62 trillion dollars. Somehow, the recording industry felt it was entitled to more money than existed in the world at the time. How was this possible?

Because it is difficult to quantify the value of an idea, the statutes that establish fines for intellectual property violations can be wildly out of touch with reality. In the Limewire case, there were about 11,000 individual files in question. However, each file had been downloaded thousands of times. To the recording industry, this constituted millions of violations worth trillions of dollars. The penalties for infringement are far greater than the potential loss of income. The statute allows for awards of $150,000 per incident. When the average cost of a song on iTunes is $0.99, I have a hard time understanding how downloading that song cost the artist $150,000.

Next week, I’ll continue this topic with parallels to Open Source software and suggest why maybe imitation really is the most sincere form of flattery.