"[...] Peter Day talks to some of the rising stars of the new revolution and finds out how the computer industry is changing yet again.
The world's biggest computer companies are being threatened by a host of new start-ups powered by open-source software, strings of inexpensive computers,and 'mash-up' websites which combine information in innovative ways. [...]"
Despite some small inaccuracies concerning a few legal and technical terms this podcast deserves a broader audience. Implicitly referring to Mr. Schumpeter, Mr. Day unfolds the history of the 20th century as a succession of a first era covering the first half of the century when increasing cheap mass production of goods in order to be able to satisfy the basic demands of the people was of primary concern, followed by a second era ending with the dotcom bubble, where goods could be produced in excess of demand so that the consumer, iconised by the credit card, moved into the focus. Now, according to Mr. Day, we have entered another era where more and more people appear to embody a doubled nature of being both consumer and creator at the same time.
Mr. Day illustrates his findings by way of examples taken from the world of open source software. He clearly refers to that what Mr. Stallman would insist to call Free Software but Mr. Day doesn't bother with such particularities. Anyway, he presents sketchy portraits of a bunch of entrepreneurs and start-ups leaving the closed conventional business models of the 20th century well behind. His podcast closes with a hint towards the term creative destruction, coined by Mr. Joseph Schumpeter, as Wikipedia knows:
"[...] Creative destruction, introduced in 1942 by the economist Joseph Schumpeter, describes the process of industrial transformation that accompanies radical innovation. In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. [...]"
Now, accidentially on the same date of Mr. Day's podcast, the EU Commission has published a Study on the Economic impact of open source software on innovation and the competitiveness of the Information and Communication Technologies (ICT) sector in the EU:
"[...] Direct economic impact of FLOSS
The existing base of quality FLOSS applications with reasonable quality control and distribution would cost firms almost Euro 12 billion to reproduce internally. This code base has been doubling every 18-24 months over the past eight years, and this growth is projected to continue for several more years.
This existing base of FLOSS software represents a lower bound of about 131 000 real person-years of effort that has been devoted exclusively by programmers. As this is mostly by individuals not directly paid for development, it represents a significant gap in national accounts of productivity. Annualised and adjusted for growth this represents at least Euro 800 million in voluntary contribution from programmers alone each year, of which nearly half are based in Europe.
Firms have invested an estimated Euro 1.2 billion in developing FLOSS software that is made freely available. Such firms represent in total at least 565 000 jobs and Euro 263 billion in annual revenue. Contributing firms are from several non-IT (but often ICT intensive) sectors, and tend to have much higher revenues than non-contributing firms.
Defined broadly, FLOSS-related services could reach a 32% share of all IT services by 2010, and the FLOSS-related share of the economy could reach 4% of European GDP by 2010. FLOSS directly supports the 29% share of software that is developed in-house in the EU (43% in the U.S.), and provides the natural model for software development for the secondary software sector.
Proprietary packaged software firms account for well below 10% of employment of software developers in the U.S., and 'IT user' firms account for over 70% of software developers employed with a similar salary (and thus skill) level. This suggests a relatively low potential for cannibalisation of proprietary software jobs by FLOSS, and suggests a relatively high potential for software developer jobs to become increasingly FLOSSrelated. FLOSS and proprietary software show a ratio of 30:70 (overlapping) in recent job postings indicating significant demand for FLOSS-related skills.
By providing a skills development environment valued by employers and retaining a greater share of value addition locally, FLOSS can encourage the creation of SMEs and jobs. Given Europe's historically lower ability to create new software businesses compared to the US, due to restricted venture capital and risk tolerance, the high share of European FLOSS developers provides a unique opportunity to create new software businesses and reach towards the Lisbon goals of making Europe the most competitive knowledge economy by 2010.
Indirect economic impact: FLOSS, innovation and growth
Strong network effects in ICT, the related capitalization for installed dominant players, and some new forms of IPR scope extension risk leading to innovation resources being excessively allocated to defensive innovation. There is a case for a rebalancing of innovation incentives as to create a more equitable environment for innovation that targets publicly available technology for new functionality.
FLOSS potentially saves industry over 36% in software R&D investment that can result in increased profits or be more usefully spent in further innovation.
ICT infrastructure has a 10% share of European GDP, providing a basis for a further 2.5% share of GDP in the form of the non-ICT information content industry. However, a large and increasing share of user-generated content is not accounted for and needs to be addressed by policy makers; FLOSS increases the value of the ICT infrastructure, supporting this wider information ecosystem.
Increased FLOSS use may provide a way for Europe to compensate for a low GDP share of ICT investment relative to the US. A growth and innovation simulation model shows that increasing the FLOSS share of software investment from 20% to 40% would lead to a 0.1% increase in annual EU GDP growth excluding benefits within the ICT industry itself - i.e. over Euro 10 billion annually.
Trends, scenarios and policy strategies
Equitably valuing the use of FLOSS, the 'true' share of software investment rises from 1.7% to 2.3% of GDP in the US by 2010, and from 1% to 1.4% of GDP in Europe. Doubling the rate of FLOSS take-up in Europe would result in a software share of investment at 1.5% of GDP, reducing but not closing this investment gap with the US.
The notional value of Europe's investment in FLOSS software today is Euro 22 billion (36 billion in the US) representing 20.5% of total software investment (20% in the US).
Europe's strengths regarding FLOSS are its strong community of active developers, small firms and secondary software industry; weaknesses include Europe's generally low level of ICT investment and low rate of FLOSS adoption by large industry compared to the US.
FLOSS provides opportunities in Europe for new businesses, a greater role in the wider information society and a business model that suits European SMEs; FLOSS in Europe is threatened by increasing moves in some policy circles to support regulation entrenching previous business models for creative industries at the cost of allowing for new businesses and new business models.
Europe faces three scenarios: CLOSED, where existing business models are entrenched through legal and technical regulation, favouring a passive consumer model over new businesses supporting active participation in an information society of 'prosumers'; GENERIC, where current mixed policies lead to a gradual growth of FLOSS while many of the opportunities it presents are missed; VOLUNTARY, where policies and the market develop to recognise and utilise the potential of FLOSS and similar collaborative models of creativity to harness the full power of active citizens in the information society.
Policy strategies focus mainly on correcting current policies and practices that implicitly or explicitly favour proprietary software:
Avoid penalising FLOSS in innovation and R&D incentives, public R&D funding and public software procurement that is currently often anti-competitive
Support FLOSS in pre-competitive research and standardisation
Avoid lifelong vendor lock-in in educational systems by teaching students skills, not specific applications; encourage participation in FLOSS-like communities
Encourage partnerships between large firms, SMEs and the FLOSS community
Provide equitable tax treatment for FLOSS creators: FLOSS software contributions can be treated as charitable donations for tax purposes. Where this is already possible, spread awareness among firms, contributors and authorities.
Explore how unbundling between hardware and software can lead to a more competitive market and ease forms of innovation that are not favoured by vertical integration. [...]"
This conveys an important message in particular for the patent people: Whether you like it or not, be prepared to see that the Open Source business model is here to stay, and expect that in some core fields of software engineering such collaborative approaches are virtually unstoppable. The report has examined the Open Source Model for software, and I can't really believe that it would work in other industries where heavy investments into tangible goods are a prerequisite of innovation.
It might not come as a surprise that the overall attitude of the report towards the patent system as it stands today is quite negative. The authors appear to have little legal knowledge, and somewhere in the text they re-iterate the fairy tale that "new laws codify rejection of software patentability in Europe" (page 195). They like to quote other authors with the same attitude affirmatively, e.g. by saying"algorithmic patents lead to frequent repetition of research without significant innovation and use of sub optimal techniques in commercial software" (page 121, referring to a paper of Mr. Philippe Aigrain published in 2001). However, the lengthy paper nevertheless also bears some intersting points like this here (page 114ff.):
"[...] There is considerable evidence on the relationship between FLOSS dvelopment, innovation and the ICT industry, of which some examples have been provided above. With regards to innovation, it may be useful to compare the role of FLOSS, which in its nature supports diffusion of knowledge, to patents that are justified for, among other things, promoting disclosure of knowledge and resulting innovation. In fact, patents have been found empirically to be a poor means of promoting disclosure.
Arora et al (2003) find that 'patent disclosures appeared to have no measurable impact on information flows from other firms, and therefore no measurable effect on R&D productivity'. Arundel (2001) finds that 'a consistent result in survey research on the use of patent databases is that they are among the least important external information sources available to firms'. His analysis of 12 445 firms' responses to the CIS survey results shows that between 5% and 18% of small and medium-sized firms find patents to be a useful source of information.
In the case of software as a component of ICT innovation, there is interesting data comparing FLOSS and patents from the on-going study for the European Commission's DG Information Society. The surveys show (Arundel et al 2006) that more firms think free software source code is an important source of new ideas (17%) than patent databases (5%). The firms are from a broad spectrum of ICT producing and ICT using sectors, from software to medical instruments and automobile manufacturing. The opinion of individual innovators (engineers) is perhaps more relevant as questionnaires on patents sent to firms are more likely to be answered by the legal department than by innovators. Far more innovators within firms think source code (41%) is moderately or very important sources of new ideas, compared to patents (24%).
While we do not know how much of this software that is a source of new ideas is licensed under reciprocal terms, these data show that open source software is succeeding in providing disclosure to a much greater degree than patents. This is certainly at least in part due to reciprocal licenses such as the general public license (GPL) that provide a legal requirement to disclose (much as patents are supposed to do). If a legal framework is required to promote disclosure and follow-on innovation, there is therefore some evidence to justify an argument that reciprocal open source licensing provides a more effective framework than the current patent regime. [...]"
With other words, the patent system as it stands appears not to be well-suited for supporting creativity and inventiveness of the crowd. Too few engineers or other prospective inventors read patent documents on a regular basis. The promise of the patent system to give a knowledge feedback does not live up to the expectations at the time being. Something needs to be done.
A part of the problem surely lies with the zealots of various anti-patent campaigning organisations who do desire to exploit certain problems with the patent system as a pretext for abolishing (or at least crippling) it. However, there is another significant contribution to that problem which appears home-grown. Not long ago, it was not even possible to have a free download of a full patent document without a hassle. We are now happy that e.g. esp@cenet and Depatisnet offer such PDF files. But that is, on the long run, not enough. Let us revert to a keyword already mentioned above: mash-up. Why do we not see any relevant large-scale mash-up applications with patent data? Compare the situation with that in the field of geo-data: Google simply has "enforced" free availability of satellite imagery plus related map data by commercially buying them up and integrating them into their products, enabling blossoming of numerous mesh-ups based on the on-line availability of geographic data. Would such solution also be feasible with regard to patent databases? Google has already started with dealing this way by providing U.S. patent data. However, I am a bit sceptical because of quasi-statically delivering PDF or TIFF files with images of patent documents is per se insufficient. What is needed is some sort of API, e.g. a SOAP interface to bibliographic, text and legal status data. And the Patent Offices are sitting on that data. Only the European Patent Office appears to have opened a public SOAP interface to their wealth of data so far. Why don't other Offices follow? And, how can anyone reach a consensus on some standard format accepted by all Patent Offices?
From a legal point of view, a community of creators of copyrighted works like software appears to be perfectly authorised to set up a copyright regime that fits with their goals and desires. This is the positive part of Open Source licenses like the GPL. However, from a legal point of view such communities do not have the slightest lever to ban enforcement of patent rights of any third parties. In thinking to utilise the GPL as a political instrument against the patent system in its entirety there lies some ill-plotted hubris, the dark side of the GPL.
Nevertheless it might be wise to think of improving the patent system in a way that it becomes more useful for individual inventors and SMEs than it is today. And many of those problems are somehow related to the dissemination and analysis of patent data. When should it be possible to solve such problems if not now, in the era of the global data networks and virtually unlimited computing power?
If the patent community does not recognise the need for reforms in due time they might later on face the truth in Mr. Schumpeters's word of "creative destruction" as an intrinsic principle of modern capitalism in some unpleasant moment.
The 
latest podcast [MP3 Audio] of 
Mr. Day illustrates his findings by way of examples taken from the world of open source software. He clearly refers to that what Mr. Stallman would insist to call Free Software but Mr. Day doesn't bother with such particularities. Anyway, he presents sketchy portraits of a bunch of entrepreneurs and start-ups leaving the closed conventional business models of the 20th century well behind. His podcast closes with a hint towards the term creative destruction, coined by 
not even possible to have a free download of a full patent document without a hassle. We are now happy that e.g. esp@cenet and Depatisnet offer such PDF files. But that is, on the long run, not enough. Let us revert to a keyword already mentioned above: mash-up. Why do we not see any relevant large-scale mash-up applications with patent data? Compare the situation with that in the field of geo-data: Google simply has "enforced" free availability of satellite imagery plus related map data by commercially buying them up and integrating them into their products, enabling blossoming of numerous mesh-ups based on the on-line availability of geographic data. Would such solution also be feasible with regard to patent databases? Google has already started with dealing this way by