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Thu, 2006-Feb-09

Patent and Copyright in and Efficent Software Industry

This is the first in a series of articles I may or may not get around to writing over the next week or so to clarify some ideas leading into the Efficient Software Initiative. Some of the ground in this article is covered also in Math You Can't Use, who's sixth chapter I read after drafting. I think this article is a little more focused on the core economic issues and has value standing on its own. Note that Math You Can't Use makes use of the terms "goods-oriented" and "labour-oriented". I use the terms "manufacturing industry" and "service industry" for analogous concepts. Disclaimer: I am a software developer, not an economist.

It is incorrect to say that software is just maths, and is therefore not patentable. Physics and engineering are just maths, so our total understanding of our physical environment is just maths. If that were sufficient justification to prohibit patent, all engineering design would be exempt from the system. We must instead look for an econmic justification for prohibition of patent on software, and I think such a justification can be made.

The patent and copyright systems attempt to solve the same base problem. If I invest a certain monetary value of time and skills into a product development it is important I can recoup my costs and ideally can make a profit. Because my initial investment excluded input from other parties, so should the benefits I reap. I deserve a limited time monopoly on what I produce.

The problem with this reasoning is that it essentially applies to a manufacturing industry. A manufacturing industry is one where an initial investment is made before and throughout a development cycle, before a later cycle allows me to recoup my costs and feed my family. Mass-market software has traditionally been a manufacturing industry, however this is changing. The software industry is remaking itself around services.

Services follow a different business model. Instead of having to recoup costs at a later stage of product development, services acquire funding "in-phase". Software developers will remember that the old ideal for software development was the waterfall model. Requirements definition was followed by design, and then by implementation. After implementation comes sale and the recouping of costs. We have been moving away from that model for many years. It patently does not work for most software devlopement. Instead, we began with spiral models and have ended up with agile or extreme methods. These approaches to software development dictate a cyclic model. You plan a little, you implement a little, you test a little, and you deploy a little. An important economic aspect of these models is the potential for in-phase recoup of costs.

The agile approach goes as far as saying that a customer representative is on your development team. They drive this week's development and have enough insight into the development as a whole to help make go/no-go decisions for the project. If funding should stop, that is ok. The customer will have selected their most important features for early implementation and will have discontinued the project only as diminishing returns make continuing uneconomic. Because the funding was in-phase, all costs have been covered for the developers. There is nothing that needs to be recouped after the implementation phase. The roles of customer and investor have merged.

So if software is a service rather than a manufacturing industry, if software development does not have to recoup its costs out of phase, then it stands to reason that patent and traditional copyright do not benefit the industry as a whole. The barrier to entry that both systems create to new entrants (particularly the patent system) is a deliberately anti-competative feature and an anti-productive one. They will have an overall negative economic effect when there is no corresponding productivity increase created by the out of phase recoup of costs. Given the software industry's growing importance to the world's economy, it stands to reason that both systems need to die for software. Software patents should be the first to go.

Patents and copyright do not make sense in a services industry. If I patent the ideas behind a dog-walking industry, customers cannot be benefited. Instead, I will be reducing the quality and scope of services available to them and increasing their costs. I should be putting my energies into running my service efficiently, and outsource that which is not my core competancy. If new ideas will make me more efficient I'll spend the research and development dollars to produce them, but the funding will come from the business I run and not from the sale of these ideas to other dog walkers. The same analogy applies to the software industry. If I patent the ideas behind internet search or behind the playing of video files, I am reducing the quality and scope of services available to computer users. I should focus on providing great search and video services to my users and use those dollars to fund any necessary research. If my service is providing software to make a particular business model more efficient, I should focus on meeting customer demand for efficiency improvements. I should not be trying to sell them a product. When the industry is built around in-phase cost structures the patent system only acts to prevent my competitors from matching my performance in ways that lock them out of the whole industry and provide an overall poorer marketplace for the services themselves. Economically speaking, it is the services that count. It isn't the paltry research industry sector.

Patents are intended for industries where it takes a number of years to develop a product and the costs must be recouped later. This works in drug industries. It may even work in research sectors of the computer industry. If I labour away at creating a new video codec system that greatly improves quality for the same computational and bandwidth requirements as convetional technology, I need a way to recoup my spent youth. If such an incentive is not given, the improvements may not be made. However, I would argue that the bulk of the industry will be services-based. Some segments will be hurt by the transition, but for the most part a greater level of innovation will be recorded rather than a lesser one. Segments based around services will work to fund other segments in order to improve their own services offering. This will occur naturally as required, and will also be in the form of in-phase funding.

The change is already beginning, but at the same time existing players in the sofware market are rallying to try and keep competition out. The efficiency of the software industry will suffer if they succeed, and thus the efficiency of the world economy will also suffer.