Tom Petrocelli's take on technology. Tom is the author of the book "Data Protection and Information Lifecycle Management" and a natural technology curmudgeon. This blog represents only my own views and not those of my employer, Enterprise Strategy Group. Frankly, mine are more amusing.

Monday, July 10, 2006

The Intellectual Property Dilemma

The lifeblood of any technology venture is intellectual property, usually called IP. IP is what a tech venture owns. One look at a modern technology company and you realize the following:

  • They don't have factories - Manufacturing is almost universally outsourced, much of it overseas

  • Brands are transient or nonexistent - Other than Apple with its "i" and "e" products (which is becoming tiresome) most technology companies don't have strong product brand recognition. The other exception to the rule is Microsoft with it's Windows and Office franchises but even those are slipping. Most people have stopped referring to Windows as anything but the version ("Are you running XP or 2000?")

  • Products change rapidly - Product lifecycles in many categories, especially PCs and consumer electronics, are as short as six months. A technology company cannot hope to milk the same product for years on end like Proctor and Gamble can with Tide.

All of this adds up to a need to develop and protect core technology. Technology drives innovation, products, and sales, not the other way around. The more walls you put around your technology, in order to prevent copying, the bigger your competitive advantage.

Herein lies the dilemma. The more you try and protect technology, the more difficult it is to work with others and the more restrictive the environment becomes for customers. If you open up technology so that others can use it - in order to develop the ecosystem your technology needs to thrive - you lose control over it. Over time, what was once a competitive advantage becomes commonplace and free. The tech company loses control over key technology and can no longer derive as much value from it.

The other problem is that too tight a control can actual inhibit innovation and usefulness. Let's face it, there are some features that are important to customers that you may not wish to or cannot develop. If others can, then everyone benefits. It's like holding Jello. Squeeze too tight and and it squishes through your fingers.

One solution is licensing. You can tie select partners, or anyone who wants to have a relationship with you, to agreements that restrict what they can and cannot do. That leaves you in the drivers seat. Unfortunately, these agreements are not always enforceable overseas. This is especial true in the developing world where IP and contract laws are not get fully realized. There are also a number of places where different cultural views of property exist. These work against the enforcement of agreements and basic IP rights.

You can sometimes use technology to protect your technology. The whole Digital Rights Management (DRM) space is about
using technology to protect IP. However, DRM cannot easily discriminate between legitimate and illegitimate uses of IP.Two prime examples of DRM technology gone awry are the limitations placed on downloadable music or the silly way that Microsoft makes your computer phone home to reinstall your software. The restrictions placed on legitimate use angers customers and inhibits the spread of the product.

The open source world thinks it has the ultimate solution: give the technology away. This is a great way to develop core, commodity infrastructure. However, even open source relies on licensing, the GPL primarily, to make sure that there is no misuse. The open source license is, in this respect, just a different type of wrapper like proprietary licensing or DRM. As long as the wrapper can be enforced it works fine. The chief advantage of open source licensing is that by being less restrictive, there is less incentive to actually break it. There is also less advantage to be had from the IP. This is why you rarely see open source used for complete applications. The exception is community developed products like Firefox where the profit motive doesn't exist, and even that's changing.

So, where's the solution? Open source, DRM, restrictive licensing? Hardly any hold up in all environments. Either there are onerous restrictions on customers or it is impossible to truly protect the IP worldwide. However, I think I have a solution - social pressure. That's right, simple morality. If the world community responds with disgust and disdain to pirates, the pirates cannot thrive. Instead of suing customers or sending the FBI and Interpol after would be pirates, shame the the priates customers. Expose them and shame them! My guess is if the RIAA had simply called the parents of the big music sharers and said "do you know what your kid is doing" the big time distribution of downloaded music would have stopped sans all the negative publicity. What CEO wants to have his name in the paper with THIEF slapped across it. No one I know.

Of course there will still be outliers. There are always immoral people who will do what they want. Shame works here too. Others will not want to do business with wrong doers. If you don't think that Microsoft's reputation as a ruthless killer of small companies doesn't hurt it, then you haven't been looking at their stock price. Social conventions are very powerful tools.

So, as a community, lets resolve to gently inform people as to why we have IP rights and what their duty is. Bind us, not to a faceless legal document that practically no one understands except the lawyers, but to other people.
Even in the developing world this can work since they presumably want to do business with Western countries. We have a strong cultural prohibition against piracy and should not do business with those who don't, regardless of cost considerations. If we make this clear and live up to our ideals the whole issue of how to protect IP will finally find some balance.

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