Is Ibm’s Patent Move A Move Away From Property Rights?

Lynne Kiesling

IBM has announced that it will choose not to enforce 500 patents that it holds for code that is used in many open-source applications and environments. From today’s Wall Street Journal (subscription required):

The technology company announced today a pledge that it hopes will establish a sort of “patent commons” on which open-source software developers can base their code.

The pledge amounts to a promise that IBM, one of the staunchest backers of the Linux operating system among major computer makers, won’t enforce any of 500 designated patents against makers of open-source software. IBM has promoted Linux in part to blunt the dominance of Microsoft Corp. as it has tried to spread its operating systems to the corporate-computing world.

“We think this is a radical idea and we hope others follow in our footsteps and add to this,” says John E. Kelly, an IBM senior vice president.

Dr. Kelly says IBM hopes that the pledge will spur collaborative work by open-source developers, effectively turning over problems to a broad platform of volunteer minds and augmenting work done by IBM’s own developers. The patents represent a small fraction of IBM’s giant intellectual-property portfolio.

Stuart F. Cohen, chief executive officer of the Open Source Development Labs, says he hopes the pledge will encourage others. “I could see us getting to 10 or 15 companies with a thousand or more patents in this commons,” Mr. Cohen said. “There definitely are some patents there that will be of value.” Open Source Development Labs, an association of which IBM and other tech heavyweights are members, is home to Linus Torvalds, the creator of Linux.

Users of open-source programs have worried that such code, which is usually pieced together from a variety of disparate contributors, might infringe one of the countless thousands of patents granted on software. A company, Open Source Risk Management, has even sprung up to sell insurance to open-source users worried that they could be sued for patent infringement.

And according to Linux World,

The IBM plan, announced late yesterday, is to donate the 500 patents for free use by software developers – a move which Reuters immediately reported as “marking a major shift of intellectual property strategy for the world’s top computer maker and a challenge to the high-tech industry.”

Jim Stallings, IBM’s vice president in charge of intellectual property, said in an interview – Reuters added -that the move was meant to encourage other companies to unlock patent portfolios in order to spur technological innovation.

And this Linux Insider article points out the obvious: this is a strategic move in the competition for platform dominance between IBM and Microsoft:

“IBM is doing this because it’s very invested in promoting open source,” Laura Didio, senior analyst, Yankee Group, told LinuxInsider. “The open-source community will embrace IBM wholeheartedly because of it.”

“It’s great that they’re doing this…. It will spur development,” Didio continued. “But it doesn’t make for totally blue skies and smooth sailing. You still have to have interoperability and integration with other OS environments, and it’s not just Windows, Mac and Unix. What about all the different flavors of Linux? IBM is not doing this because it wants to be the Mother Teresa of the IT world.”

Didio also questioned which patents IBM was sharing and said that the company still is not indemnifying its open source customers against potential patent infringement lawsuits.

“People have to realize what they’re not getting. IBM is saying, ‘You can do with it what you will, but we’re not responsible for what you do with it,'” Didio said.

“The real end game here is the competition between the two industry giants, IBM and Microsoft,” Didio said.

So what? Why is this important? First, it’s very important, but not necessarily because of the magnitude of the effect of the patents. In fact, 500 patents is only 20 percent of the patents that IBM filed in 2004 alone. So patenting is still a very important aspect of IBM’s R&D and business model.

But IBM is not being hypocritical, as some European anti-patent analysts contend, by saying that they will not enforce these 500 patents while still supporting a legal change in Europe that might lead to increased software patenting in the EU. The difference hinges on some of the important distinctions between the costs and benefits of defining property rights, and the costs and benefits of enforcing property rights.

By continuing to file patents, IBM indicates that it believes that the expected future value of the patented idea outweighs the discounted present value of the cost of acquiring the patent. That idea is not inconsistent with yesterday’s decision to stop enforcing particular patents, a move that indicates that the value to IBM of the patented idea being used in open source development is higher than its use in proprietary R&D and applications. They retain the property right, but they choose not to enforce it. They also are not going to assume any legal liability for the uses to which their patented ideas are put.

Yes, that does put some privately-owned resources into a common pool environment. But if the benefits of using some institutional arrangement to govern that commons are high enough (and transaction costs are low enough), then we should see some other rules governing the use of these patents. The typical rule used for doing so in the open-source community is that if you modify a piece of code, you have to make that modification public, and document it transparently. Part of that documentation should involve the acknowledgement of the use of the patented idea, under the express agreement of IBM to its use.

For a more scholarly treatment of these issues, and an application of them to the Black Death, see this paper that David Haddock and I wrote in the Journal of Legal Studies in 2002.

Clearly IBM sees these patents as having higher-value use in innovating open-source applications and environments, in the Schumpeterian quest for platform dominance. IBM has been on the down side of the perennial gale of creative destruction before, and it is innovating its business model in an attempt to keep the creative and avoid the destruction. But something has been beneficially destroyed here — the coupling of the patent right and the enforcement effort. They are two separate issues. Perhaps this shows a new way to reconcile patents and open source. Or maybe not. We’ll see!

UPDATE: See Jim DeLong’s observations and thorough links over at PFF’s IPCentral blog here and here.