The invention needs to be novel and have utility, or usefulness; I cannot get a patent over something that would have been an obvious idea to an insider in the relevant field of technology, a "person having ordinary skill in the art," or PHOSITA, in the jargon of patent lawyers. But once I get my patent, it gives me a very strong power to exclude others from the invention--even if they came up with it independently. The right lasts for twenty years. Follow-on innovators who improve on my idea can get a patent on that improvement. They can block me from using the improvement. I can block them from using the original invention.

Thus we have an incentive to negotiate if either of us wants to bring the improved innovation to market.

12

So where did software fit? Was it copyrightable writing or patentable invention? There are two issues here. The first is whether there should be any intellectual property rights over software at all. The basic case for that proposition is simple, a cla.s.sic example of the public goods problem described in the first chapter. Software costs money to create, but is cheap to copy. When a youthful Bill Gates wrote his 1976 letter to the wonderfully named Dr. Dobb's Journal of Computer Calisthenics & Orthodontia, he put the point clearly.

13

Who can afford to do professional work for nothing? What hobbyist can put 3-man years into programming, finding all the bugs, doc.u.menting his product and distribute it for free? The fact is, no one besides us has invested a lot of money into hobby software. We have written 6800 BASIC, and are writing 8080 APL and 6800 APL, but there is very little incentive to make this software available to hobbyists. Most directly, the thing you do is theft.4 14

He signed the letter "Bill Gates, General Partner, Micro-Soft."

The hyphen would disappear in time. The philosophy stuck around.

15

Though there are quibbles about the facts in Gates's letter--critics claim he himself did a lot of free riding on public domain code and government-funded computer time--his basic point is that software needs to be protected by (enforceable) property rights if we expect it to be effectively and sustainably produced. Some software developers disagree. But a.s.suming one concedes the point for the sake of argument, there is a second question: should software be covered by copyright or patent, or some unidentified third option?

16

In practice, software ended up being covered by both schemes, partly because of actions by Congress, which included several references to software in the Copyright Act, and partly as a result of decisions by the Copyright Office, the Patent and Trademark Office, and judges. One could copyright one's code and also gain a patent over the "non.o.bvious," novel, and useful innovations inside the software.

17

At first, it was the use of copyright that stirred the most concern. As I explained in the last chapter, copyright seems to be built around an a.s.sumption of diverging innovation--the fountain or explosion of expressive activity. Different people in different situations who sit down to write a sonnet or a love story, it is presumed, will produce very different creations rather than being drawn to a single result. Thus strong rights over the resulting work are not supposed to inhibit future progress. I can find my own muse, my own path to immortality.

Creative expression is presumed to be largely independent of the work of prior authors. Raw material is not needed. "Copyright is about sustaining the conditions of creativity that enable an individual to craft out of thin air an Appalachian Spring, a Sun Also Rises, a Citizen Kane."5 18

There are lots of reasons to doubt that this vision of "creation out of nothing" works very well even in the arts, the traditional domain of copyright law. The story of Ray Charles's "I Got a Woman" bears ample witness to those doubts. But whatever its merits or defects in the realm of the arts, the vision seems completely wrongheaded when it comes to software.

Software solutions to practical problems do converge, and programmers definitely draw upon prior lines of code. Worse still, as I pointed out earlier, software tends to exhibit "network effects." Unlike my choice of novel, my choice of word processing program is very strongly influenced, perhaps dominated, by the question of what program other people have chosen to buy. That means that even if a programmer could find a completely different way to write a word processing program, he has to be able to make it read the dominant program's files, and mimic its features, if he is to attract any customers at all.

That hardly sounds like completely divergent creation.

19

Seeing that software failed to fit the Procrustean bed of copyright, many scholars presumed the process of forcing it into place would be catastrophic. They believed that, lacking patent's high standards, copyright's monopolies would proliferate widely. Copyright's treatment of follow-on or "derivative" works would impede innovation, it was thought. The force of network effects would allow the copyright holder of whatever software became "the standard" to extract huge monopoly rents and prevent competing innovation for many years longer than the patent term. Users of programs would be locked in, unable to shift their doc.u.ments, data, or acquired skills to a competing program. Doom and gloom abounded among copyright scholars, including many who shared Mr. Gates's basic premise--that software should be covered by property rights. They simply believed that these were the wrong property rights to use.

20

Copyright did indeed cause problems for software developers, though it is hard to judge whether those problems outweighed the economic benefits of encouraging software innovation, production, and distribution. But the negative effects of copyright were minimized by a remarkably prescient set of actions by courts and, to a much lesser extent, Congress, so that the worst scenarios did not come to pa.s.s. Courts interpreted the copyright over software very narrowly, so that it covered little beyond literal infringement. (Remember Jefferson's point about the importance of being careful about the scope of a right.) They developed a complicated test to work out whether one program infringed the details of another. The details give law students headaches every year, but the effects were simple. If your software was similar to mine merely because it was performing the same function, or because I had picked the most efficient way to perform some task, or even because there was market demand for doing it that way, then none of those similarities counted for the purposes of infringement. Nor did material that was taken from the public domain. The result was that while someone who made literal copies of Windows Vista was clearly infringing copyright, the person who made a competing program generally would not be.

21

In addition, courts interpreted the fair use doctrine to cover "decompilation"--which is basically taking apart someone else's program so that you can understand it and compete with it. As part of the process, the decompiler had to make a copy of the program. If the law were read literally, decompilation would hardly seem to be a fair use. The decompiler makes a whole copy, for a commercial purpose, of a copyrighted work, precisely in order to cause harm to its market by offering a subst.i.tute good.

But the courts took a broader view. The copy was a necessary part of the process of producing a competing product, rather than a piratical attempt to sell a copy of the same product.

This limitation on copyright provided by fair use was needed in order to foster the innovation that copyright is supposed to encourage. This is a nice variation of the Sony Axiom from Chapter 4.

22

These rulings and others like them meant that software was protected by copyright, as Mr. Gates wanted, but that the copyright did not give its owner the right to prevent functional imitation and compet.i.tion. Is that enough? Clearly the network effects are real. Most of us use Windows and most of us use Microsoft Word, and one very big reason is because everyone else does. Optimists believe the lure of capturing this huge market will keep potential compet.i.tors hungry and monopolists scared.

The lumbering dominant players will not become complacent about innovation or try to grab every morsel of monopoly rent, goes the argument. They still have to fear their raptor-like compet.i.tors lurking in the shadows. Perhaps. Or perhaps it also takes the consistent threat of ant.i.trust enforcement. In any event, whether or not we hit the optimal point in protecting software with intellectual property rights, those rights certainly did not destroy the industry. It appeared that, even with convergent creativity and network effects, software could be crammed into the Procrustean bed of copyright without killing it off in the process. Indeed, to some, it seemed to fare very well. They would claim that the easy legal protection provided by copyright gave a nascent industry just enough protection to encourage the investment of time, talent, and dollars, while not prohibiting the next generation of companies from building on the innovations of the past.

23

In addition, the interaction between copyright and software has produced some surprising results. There is a strong argument that it is the fact that software is copyrightable that has enabled the "commons-based creativity" of free and open source software. What does commons-based creativity mean? Basically, it is creativity that builds on an open resource available to all.

An additional component of some definitions is that the results of the creativity must be fed back into the commons for all to use. Think of English. You can use English without license or fee, and you can innovate by producing new words, slang, or phrases without clearance from some Academie Anglaise. After you coin your term, it is in turn available to me to build upon or to use in my own sentences, novels, or jokes. And so the cycle continues. As the last chapter showed, for the entire history of musical creativity until the last forty years or so, the same had been true of at least a low level of musical borrowing. At the basic level of musical phrases, themes, s.n.a.t.c.hes of melody, even chord structures, music was commons-based creativity.

Property rights did not reach down into the atomic structure of music. They stayed at a higher level--prohibiting reproduction of complete works or copying of substantial and important chunks.

So in some areas of both music and language, we had commons- based creativity because there were no property rights over the relevant level. The software commons is different.

24

The creators of free and open source software were able to use the fact that software is copyrighted, and that the right attaches automatically upon creation and fixation, to set up new, distributed methods of innovation. For example, free and open source software under the General Public License--such as Linux--is a "commons" to which all are granted access. Anyone may use the software without any restrictions. They are guaranteed access to the human-readable "source code," rather than just the inscrutable "machine code," so that they can understand, tinker, and modify. Modifications can be distributed so long as the new creation is licensed under the open terms of the original. This creates a virtuous cycle: each addition builds on the commons and is returned to it. The copyright over the software was the "hook" that allowed software engineers to create a license that gave free access and the right to modify and required future programmers to keep offering those freedoms. Without the copyright, those features of the license would not have been enforceable. For example, someone could have modified the open program and released it without the source code--denying future users the right to understand and modify easily. To use an a.n.a.logy beloved of free software enthusiasts, the hood of the car would be welded shut. Home repair, tinkering, customization, and redesign become practically impossible.

25

Of course, if there were no copyright over software at all, software engineers would have other freedoms--even if not legally guaranteed open access to source code. Still, it was hard to deny that the extension of the property regime had--bizarrely, at first sight--actually enabled the creation of a continuing open commons. The tempting real estate a.n.a.logy would be environmentalists using strong property rights over land to guarantee conservation and open access to a green s.p.a.ce, where, without property rights, the s.p.a.ce could be despoiled by all.

But as I have pointed out earlier, while such a.n.a.logies may help us, the differences between land and intellectual property demand that they be scrutinized very carefully. It is hard to overgraze an idea.

26

So much for copyright. What about patents? U.S. patent law had drawn a firm line between patentable invention and unpatentable idea, formula, or algorithm. The mousetrap could be patented, but not the formula used to calculate the speed at which it would snap shut. Ideas, algorithms, and formulae were in the public domain--as were "business methods." Or so we thought.

27

The line between idea or algorithm on the one hand and patentable machine on the other looks nice and easy. But put that algorithm--that series of steps capable of being specified in the way described by the Turing machine--onto a computer, and things begin to look more complex. Say, for example, that algorithm was the process for converting miles into kilometers and vice versa. "Take the first number. If it is followed by the word miles, then multiply by 8/5. If it is followed by the word kilometers, multiply by 5/8 . . ." and so on. In the abstract, this is cla.s.sic public domain stuff--no more patentable than E=mc2 or F=ma. What about when those steps are put onto the tape of the Turing machine, onto a program running on the hard drive of a computer?

28

The Court of Appeals for the Federal Circuit (the United States's leading patent court) seems to believe that computers can turn unpatentable ideas into patentable machines. In fact, in this conception, the computer sitting on your desk becomes multiple patentable machines--a word processing machine, an e- mail machine, a machine running the program to calculate the tensile strength of steel. I want to stress that the other bars to patentability remain. My example of mile-to-kilometer conversion would be patentable subject matter but, we hope, no patent would be granted because the algorithm is not novel and is obvious. (Sadly, the Patent and Trademark Office seems determined to undermine this hope by granting patents on the most mundane and obvious applications.) But the concern here is not limited to the idea that without a subject matter bar, too many obvious patents will be granted by an overworked and badly incentivized patent office. It is that the patent was supposed to be granted at the very end of a process of investigation and scientific and engineering innovation. The formulae, algorithms, and scientific discoveries on which the patented invention was based remained in the public domain for all to use. It was only when we got to the very end of the process, with a concrete innovation ready to go to market, that the patent was to be given. Yet the ability to couple the abstract algorithm with the concept of a Turing machine undermines this conception. Suddenly the patents are available at the very beginning of the process, even to people who are merely specifying--in the abstract--the idea of a computer running a particular series of algorithmic activities.

29

The words "by means of a computer" are--in the eyes of the Federal Circuit--an incantation of magical power, able to transubstantiate the ideas and formulae of the public domain into private property. And, like the breaking of a minor taboo that presages a Victorian literary character's slide into debauchery, once that first wall protecting the public domain was breached, the court found it easier and easier to breach still others. If one could turn an algorithm into a patentable machine simply by adding "by means of a computer," then one could turn a business method into something patentable by specifying the organizational or information technology structure through which the business method is to be implemented.

30

If you still remember the first chapters of this book, you might wonder why we would want to patent business methods.

Intellectual property rights are supposed to be handed out only when necessary to produce incentives to supply some public good, incentives that otherwise would be lacking. Yet there are already plenty of incentives to come up with new business methods. (Greed and fear are the most obvious.) There is no evidence to suggest that we need a state-backed monopoly to encourage the development of new business methods. In fact, we want people to copy the businesses of others, lowering prices as a result. The process of copying business methods is called "compet.i.tion" and it is the basis of a free-market economy. Yet patent law would prohibit it for twenty years. So why introduce patents? Brushing aside such minor objections with ease, the Court of Appeals for the Federal Circuit declared business methods to be patentable. Was this what Jefferson had in mind when he said "I know well the difficulty of drawing a line between the things which are worth to the public the embarra.s.sment of an exclusive patent, and those which are not"?

I doubt it.

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It is commonplace for courts to look at the purpose of the law they are enforcing when seeking to understand what it means. In areas of regulation which are obviously instrumental--aimed at producing some particular result in the world--that approach is ubiquitous. In applying the ant.i.trust laws, for example, courts have given meaning to the relatively vague words of the law by turning to economic a.n.a.lysis of the likely effects of different rules on different market structures.

32

Patent law is as instrumental a structure as one could imagine.

In the United States, for example, the const.i.tutional authorization to Congress to pa.s.s patent and copyright legislation is very explicit that these rights are to be made with a purpose in view. Congress has the power "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." One might imagine that courts would try to interpret the patent and copyright laws with that purpose, and the Jefferson Warning about its constraints, firmly in mind. Yet utilitarian caution about extending monopolies is seldom to be found in the reasoning of our chief patent court.

33

The difference is striking. Jefferson said that the job of those who administered the patent system was to see if a patent was "worth the embarra.s.sment to the public" before granting it. The Const.i.tution tells Congress to make only those patent laws that "promote the progress of science and useful arts." One might imagine that this const.i.tutional goal would guide courts in construing those same laws. Yet neither Jeffersonian ideals nor the const.i.tutional text seem relevant to our chief patent court when interpreting statutory subject matter. Anything under the sun made by man is patentable subject matter, and there's an end to it. The case that announced the rule on business methods involved a patent on the process of keeping accounts in a "hub- and-spoke" mutual fund--which included multiplying all of the stock holdings of each fund in a family of funds by the respective current share price to get total fund value and then dividing by the number of mutual fund shares that each customer actually holds to find the balance in their accounts. As my son observed, "I couldn't do that until nearly the end of third grade!"6 34

In theory of course, if the patent is not novel or is obvious, it will still be refused. The Supreme Court recently held that the Court of Appeals for the Federal Circuit has made "non.o.bvious" too easy a standard to meet.7 It is unclear, however, whether that judgment will produce concrete effects on actual practices of patent grants and litigation. The Patent and Trademark Office puts pressure on examiners to issue patents, and it is very expensive to challenge those that are granted.

Better, where possible, to rule out certain subject matter in the first place. Tempted in part by its flirtation with the "idea made machine" in the context of a computer, the Court of Appeals for the Federal Circuit could not bring itself to do so.

Where copyright law evolved to wall off and minimize the dangers of extending protection over software, patent law actually extended the idea behind software patents to make patentable any thought process that might produce a useful result. Once breached, the walls protecting the public domain in patent law show a disturbing tendency to erode at an increasing rate.

35

To sum up, the conceptual possibilities presented to copyright and patent law by the idea of a Turing machine were fascinating.

Should we extend copyright or patent to cover the new technology? The answer was "we will extend both!" Yet the results of the extension were complex and unexpected in ways that we will have to understand if we want to go beyond the simple but important injunctions of Jefferson and Macaulay. Who would have predicted that software copyrights could be used to create a self-perpetuating commons as well as a monopoly over operating systems, or that judges would talk knowingly of network effects in curtailing the scope of coverage? Who would have predicted that patents would be extended not only to basic algorithms implemented by a computer, but to methods of business themselves (truly a strange return to legalized business monopolies for a country whose founders viewed them as one of the greatest evils that could be borne)?

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SYNTHETIC BIOLOGY 37

If you are a reader of Science, PLoS Biology, or Nature, you will have noticed some attractive and bizarre photographs recently. A field of bacteria that form themselves into bull's- eyes and polka dots. A dim photograph of a woman's face "taken"

by bacteria that have been programmed to be sensitive to light.

You may also have read about more inspiring, if less photogenic, accomplishments--for example, the group of scientists who managed to program bacteria to produce artemesinin, a scarce natural remedy for malaria derived from wormwood. Poking deeper into these stories, you would have found the phrase "synthetic biology" repeated again and again, though a precise definition would have eluded you.

38

What is "synthetic biology"? For some it is simply that the product or process involves biological materials not found in nature. Good old-fashioned biotechnology would qualify. One of the first biotechnology patent cases, Diamond v. Chakrabarty, involved some bacteria which Dr. Chakrabarty had engineered to eat oil slicks--not their natural foodstuff.8 The Supreme Court noted that the bacteria were not found in nature and found them to be patentable, though alive. According to the simplest definition, Dr. Chakrabarty's process would count as synthetic biology, though this example antedates the common use of the term by two decades. For other scientists, it is the completely synthetic quality of the biology involved that marks the edge of the discipline. The DNA we are familiar with, for example, has four "base pairs"-- A, C, G, and T. Scientists have developed genetic alphabets that involve twelve base pairs. Not only is the result not found in nature, but the very language in which it is expressed is entirely new and artificial.

39