Appeals Court Destroys First Sale; You Don't Own Your Software Anymore

from the let's-see-some-licenses dept

Earlier this year, we noted that the 9th Circuit appeals court was facing three separate important cases about the "first sale doctrine." We also warned that the 9th Circuit can be wacky at times, and its first ruling of the three confirms that, by effectively wiping out the first sale doctrine and stating that buying a piece of software is not really buying a piece of software -- and that, in many cases, you've merely licensed it and cannot resell it. The key point:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

The full ruling is here: The case involved a regular eBay seller, who bought some copies of Autodesk at an "office sale" from a company who was no longer using them. He put four of the copies up on eBay for sale, and in each case, Autodesk sent a DMCA takedown notice. The guy, Timothy Vernor, counternoticed each time and Autodesk failed to reply each time, leading the auctions to be reinstated. However, despite all of this, when the 4th takedown came, eBay automatically suspended Vernor's account, and it took about a month to get it reinstated. So, he sued Autodesk, and claimed that he had the right to sell these copies that he had legally obtained.

Last year, the district court sided with Vernor, saying that Autodesk had no right to restrict his first sale rights (which allow you to resell a legally owned copyrighted product without first getting permission from the copyright holder), and that Autodesk's "license" was really a license in name only, since at no point did the possessor of the software have to return it. Instead, the court pointed out that when you bought AutoCAD, there really was a transfer of ownership.

Tragically, the appeals court disagrees with that, and effectively opens the door to effectively killing off the entire concept of the first sale doctrine, by highlighting the rather simple steps anyone needs to take to make sure any "sale" is really considered a "license," and thus removing the first sale rights. Basically, you just have to say there's a license and that "license" has to have a few rather simple things in it. You know all those stories about video game companies hating the used game market? Well, video game companies just got their "kill the secondary market free" card from the 9th Circuit. Of course, as we've pointed out, having a secondary market tends to increase the value of the primary market, so software companies (and others selling copyrighted works) may wish to think carefully before wiping out the secondary markets.

The court does note that this ruling could have quite a negative impact, but says that it's ruling based on what the law says, and suggests that perhaps Congress may wish to revisit this issue (fat chance of that happening, of course). While it is true that a court must rule within the law, even if it thinks the end result is bad, I think that the court here is using that as an excuse. The more you look at the details, the more you realize this is a license-in-name-only, and (as the lower court realized) the court could easily make that point and stay within the law, protecting these important first sale rights.

That said, this case is hardly over. Vernor's lawyer on the case, Greg Beck from Public Citizen has already announced plans to ask the court to reconsider the case en banc (i.e., with the full panel of judges, rather than just the three judge panel who heard the case), and even if that fails, this case will certainly be appealed to the Supreme Court. Given the two other first sale cases soon to be heard, combined with what appears to be (even if the court denies it) a circuit split with at least the 2nd Circuit on first sale issues, hopefully the Supreme Court will set the record straight and reinstate first sale rights for software. It would be great, of course, for Congress to just step in and fix things, but it's difficult to remember the last time Congress got something right when it came to copyright law... and with lobbying giants like the MPAA siding with Autodesk on this one, you can bet that no one in Congress will be able to secure enough votes to fix things.

This ruling is pretty depressing if you actually believe in property rights. It shows, once again, how copyright is not a property right, but often quite the opposite: restricting what people can do with their own property.

Filed Under: buy, copyright, first sale, license, software, vernor
Companies: autodesk, ebay

Intuit Still Lobbying Hard To Stop Governments From Making It Easy To File Taxes

from the corporate-culture dept

Earlier this year, we wrote about how much effort Intuit has put towards blocking proposals to have the federal government send you pre-filled out tax forms. After all, the IRS already has your information, so why not just send you a form with all of your details filled in, let you check it over for any mistakes, errors or omissions, sign it and send it back? It would save a whole lot of hassle, and certainly would avoid problems caused by simple mistakes. But, of course, if the government made it easy to pay your taxes, why then, Intuit wouldn't be able to sell as many copies of TurboTax. So it's been fighting it all along.

Of course, some states have already implemented similar systems for state taxes, and Intuit then goes on the lobbying offensive to try to repeal those laws. Reader Xan points us to an LA Times story about the lengths to which Intuit is going to try to kill off a highly successful set of programs in California that have made it much easier for many, many, many residents, while at the same time saving the state millions of dollars. It's a clear win-win.

Well, except for Intuit.

Intuit is lobbying hard for California to ditch this tremendously successful program that helps both tax payers and the state, and replace it with a different program that... helps Intuit. It would offer a much more limited offering to many fewer people, mostly designed as an upsell to get people to pay for TurboTax. And, while Intuit hasn't been successful yet, it has been spending plenty of money supporting California state politicians on both sides of the aisle to try to find support for its efforts.

Filed Under: california, lobbying, software, taxes
Companies: intuit

Is Emulating How A Piece Of Software Functions Copyright Infringement? UK Court Doesn't Think So...

from the but-we'll-have-to-wait-and-see dept

It's pretty widely accepted that for there to be copyright infringement of software, the actual code has to be copied. Reverse engineering is not considered infringing. However, software giant SAS is apparently challenging that view and has sued a small company, World Programming Ltd. in the UK and the US, claiming that it copied SAS manuals and source code in creating its own version of the software. The British High Court ruled last week that, while World Programming infringed on copyright in copying the manuals, and also used SAS software beyond the scope of its licensing agreement, it didn't think that reverse engineering aspects of SAS software infringed, though it sent that part of the case to the European Court of Justice to make sure that this ruling fits within the European software directive. Hopefully, the ECJ agrees. Otherwise, it could create quite a mess for anyone who reverse engineers aspects of another company's software.

Filed Under: copyright, reverse engineering, software, uk
Companies: sas, world programming

Patent Lawyer Insists Open Source Stifles Innovation

from the gene,-please,-you're-making-us-laugh dept

I have to admit that I'm finally beginning to believe that patent attorney Gene Quinn is really a joke made up by someone trying to embarrass patent attorneys. He's an elaborate satire of the most ridiculous possible position a patent attorney could take, to highlight via reductio ad absurdum the sheer farcical nature of the positions held by many patent attorneys. He's the same guy who said anyone who was against software patents was against innovation -- even if the evidence showed that getting rid of software patents could lead to greater innovation. He also challenged me to a debate, saying it was impossible to make a statement that patents hindered innovation, and when I pointed out the detailed evidence supporting that position, he insisted he "didn't need" evidence, because of what he could see with his own eyes. I mean, this is not someone that you can take seriously. So I'm now coming to the conclusion that he's really just a made up joke by anti-patent folks to show where the ridiculous positions taken by some patent attorneys leads to.

For example, take the latest "Gene Quinn" post, where he insists that open source software stalls innovation and that patents advance it. First, as you read through the blog post, you realize that Quinn can't actually make that argument. So he doesn't. Instead, he makes a totally different argument about whether or not software developers should spend their time doing searches on prior art. Now, we've had this discussion plenty of times in the past. Due to the way patent law is structured, if a patent holder can show "willful infringement," then they can get treble damages. For this reason many patent attorneys (not just those advising open source developers) recommend not looking at other patents, because some lawsuits involved patent holders claiming there was willful infringement if you had seen their patent. Thankfully, the courts have been raising the standard for proving willful infringement, but still this is a common recommendation.

Except, in Quinn's world, this is something that is just done with open source developers, and then you have to follow a maze of twisty little passages of the mind to watch as Quinn tries to contort this fact (which, again, has nothing to do with open source) into proof that open source is bad for innovation. The key nugget is here:

Stepping back for a moment and looking at the "don't look" advice from a different perspective, for those who want to do original work, I really don't know how you can do anything original without knowing what else is out there. If the goal is an artistic or creative one, as is the case with academia for example, the only way to know where to try and make a mark is to endeavor to know the industry and figure out what others have done, and then seek to identify what hasn't been done. This is one enormously positive aspect of the patent system. While clearly imperfect, when people and companies want to innovate and want to build a business and attract investors from zero to start-up they seek out the spaces where there are opportunities.

Except, of course, almost nothing in this paragraph is accurate. We've already pointed out that the "don't look" advice is spread around widely and has nothing, specifically, to do with open source. Second, developers aren't looking to "do original work." They're looking to do useful work. Necessity is the mother of invention and all that. Innovation doesn't come from looking for something that "hasn't been done." Usually, it's in response to a need that you are seeing in the market place, and when you see that need, it doesn't matter if others are doing something already. The fact that you see a need that hasn't been fulfilled means that there's an opportunity.

In some ways, Quinn's mistake here is simply a restatement of the mistake many patent attorneys make in confusing idea and execution. He assumes that for innovation to occur you need to have an original idea, rather than just a better way of solving a market need. And, the idea that you have to do something "original" to attract investor attention suggests that Quinn doesn't spend much time in the venture capital world. It's pretty well known out here in Silicon Valley that if you come to investors with something truly original, you'll almost never get an investment. It's just too difficult. They can't fit that into the model they're working with. To get an investment you need one of two things -- neither of which is "finding some original space." No, you need a story about how you're doing something the VCs already understand, but better (i.e., the opposite of what Quinn suggests) or you've got a great track record of executing. That's because most good (successful) VCs recognize the difference between ideas and execution. And they'll bet on people who can execute over people with ideas every single time.

There's plenty more that's ridiculous in Quinn's post -- which is why I'm pretty sure that Quinn's blog is pure satire that had me fooled for many years, but I'll just respond to one more point, because it's so amusing:

I have a real philosophical problem with those who want to copy, whether it be intentionally or without knowing. We ought to want to find the open spaces and fill them. That is what Thomas Edison did, and many thousands of others throughout our history.

As anyone who's actually studied Thomas Edison knows quite well, pretty much all Edison did was copy others. Nearly all of his great "inventions" were actually invented by others first. Edison, on the other hand, was great at taking the inventions of others and innovating. That meant making minor tweaks to make the offerings more marketable, marketing the hell out of them... and, oh yes, using the patent system to try to wipe out any of the competition (even if they had much, much, much better products).

Filed Under: gene quinn, innovation, open source, patents, software, software patents

IEEE Celebrates Bilski Ruling With Misleading Press Release

from the software-patents? dept

Glyn Moody points us to the news that the IEEE has put out a press release celebrating the Bilski ruling. This is reasonably upsetting many who find software patents abhorrent to those who believe in technological progress. The IEEE had been part of an amicus filing, where it asked the court for clarity, so it's a little surprising to celebrate this ruling, which provided no clarity at all. Instead, the IEEE claims it's happy that "The U.S. Supreme Court ruled 5-4 Monday that a new method of doing business can be patented, and that the ability to patent software should not be limited." Except the overall ruling was 9-0, not 5-4 (though, the majority binding part of the ruling was 5-4), and the majority ruling doesn't actually make it clear that the ability to patent software should not be limited. In fact, it skips over that question pretty much entirely. So it's not clear what the IEEE is celebrating other than that the court didn't actually address software patents.

Filed Under: bilski, patents, software
Companies: ieee

The Lack Of A Billion Dollar Pureplay Open Source Software Company Shows The Market Is Working Properly

from the economics-of-monopolies dept

A few weeks back, Glyn Moody wrote a column discussing why there were no "billion dollar open source software companies," in response to a discussion he had with Redhat's CEO (Redhat is in the $750 million range):

He said that he did think that Red Hat could get to $5 billion in due course, but that this entailed "replacing $50 billion of revenue" currently enjoyed by other computer companies. What he meant was that to attain that $5 billion of revenue Red Hat would have to displace software that currently costs $50 billion. Selling $50 billion-worth of software -- even if it only costs $5 billion -- is somewhat hard, which is why it will take a while to achieve.

I immediately knew I wanted to write up something about it, as it reminded me of a point I've been wanting to discuss for a while. But I got busy with some other things, and in the meantime, a bunch of other folks picked up the ball and ran with it -- and each time they did, they added something different to the conversation, which gave me more to think about before writing up this post. Matthew Aslett pointed out that this is leading many companies to adopt hybrid models while Stephen O'grady pointed out that the question was really irrelevant. Katherine Noyes, over at LinuxInsider highlighted many other points that people brought up as a part of the discussion. It's all a very interesting read, though none really hit on the two key points that Glyn's original column got me thinking about:

1. There absolutely are billion dollar open-source companies, but they're not pure play open source companies. But that's okay, because a "pure play" open source company is like a record label trying to focus on just selling music. You're in the wrong business -- trying to sell infinite goods -- so of course the direct profits should be limited.
2. The lack of billion dollar pure play open source software companies is a sign of a working efficient economy. In fact, billion dollar pure play open source companies would be a sign of a market failure.

On that first point, I would argue that tons of companies are, actually, billion dollar open source companies: Google, IBM, Facebook and many others, for example, all rely heavily on open source software and are valued at well over a billion dollars. It's unlikely that any of the three would be anywhere near what they are today without open source software. It's just that all of these companies were smart enough not to be in the bad business of selling an infinite good. Instead, they all looked for ways to use an infinite good -- for free -- to make something scarce massively more valuable. With Google it was user's attention and all of the information out on the web. With IBM it was services to support enterprise technology. Even Redhat, the company that kicked off this discussion, really makes its money from services and expertise.

Arguing about the profits directly attributable to pure play software sales of open source software is like only counting CD/digital download sales and claiming that's the "music business." It's not. It's the recording industry.

But the more interesting and more important point is about the lack of billion dollar pure play open source software companies is the fact that this is a sign of a strong, healthy and efficient marketplace. Even if you go all the way back to your Adam Smith, you would know that when you have a company making outsized profits, competitors will enter that market. That's the nature of a free market, and it tends to lead to efficiency, innovation and (most importantly) consumer surplus.

I'm reminded of various studies on modern societies without intellectual property protections (or with very weak intellectual property protections) that often saw thriving and highly competitive industries in those areas. One area that has been particularly interesting to me lately is looking at various countries that did not have patent coverage for pharmaceuticals, but then were forced into it. If you look at the pharma industry in those countries, you see the same story almost every time. Without patents, the industry is thriving with many, many different firms (sometimes hundreds). Yes, a percentage of these firms are certainly pure "copycat" firms, but the ones at the top are not. However, after patent protection is introduced (often with the claim that it will help investment, help competition and help innovation), the exact opposite occurs. Instead, many, many firms either go out of business or are gobbled up by large multinational conglomerates. The overall profits increase to those conglomerates, but the innovation and social welfare declines.

This is, of course, exactly what Adam Smith saw nearly two and a half centuries ago. If you give companies monopolies, they will take monopoly profits, but those monopoly profits come at the expense of innovation and consumer benefits.

So, giant billion dollar companies in markets -- especially markets of infinite goods -- suggests a market inefficiency of some sort. The lack of such pure play billion dollar companies is a good thing. It means the market is acting as it should, and being more efficient and creating greater economic benefit to the wider market. And this goes back to a point that Glyn makes in his original column:

I think this is the first time I've heard someone as senior as Whitehurst admit something rather profound: that open source solutions save money for customers by doing away with the fat margins for existing computer companies -- and thus shrink the overall market. Opponents of open source like to paint this as "value destruction" that takes money "out of the economy" -- as if free software went around burning down offices and warehouses.

What they fail to grasp is that the 90% savings do not just vanish like the smoke from those supposed conflagrations. That money is still in the economy, it's just spent on other items: free software allows people to use their hard-won money for things other than operating systems, office suites and applications. In developing countries, for example, it might mean more funds available for education or health.

And that's exactly the point. When a market is made more efficient, that actually spreads throughout other areas and helps consumer surplus, economic growth and the rest of the world benefit. Automobiles and airplanes "shrunk" the railroad market, but opened up massive new markets. The end result was a much bigger economy and greater economic opportunity and consumer surplus. Automated telephone dialing "shrunk" the telephone operator business, but opened up massive new efficiencies, leading to advancements like the internet itself. And that created massive economic efficiencies and growth and consumer surplus.

So, just as we shouldn't worry about the lack of "billion dollar" pure play open source software firms, we should also not fall sway to the complaints of companies who are being disrupted by these models, about how all that money they make is somehow "disappearing" if the government doesn't come in and protect their business model. What's actually happening is all that money is being put to more efficient use. Unfortunately, it's rare to see politicians or business leaders who actually understand this simple, but important fact, and it leads them to propping up legacy businesses, which actually slows down innovation, economic growth and consumer surplus.

Filed Under: economics, open source, proprietary, software
Companies: red hat

Amazon Patents Predicting Computing Resource Usage

from the prior-art-anyone? dept

Slashdot points us to the news that just last week, Jeff Bezos and Amazon were granted a patent (7,743,001) on "Dynamic Pricing of Web Services Utilization." Much of the Slashdot writeup compares this to old computer timesharing, but if you look at the patent, that's not really what it's about. Instead, it's about effectively predicting computing utilization, and then doing dynamic pricing based on those predictions. Obviously, this is an attempt by Amazon to do more dynamic pricing for its web services offerings.

As you go through the claims, however, it's difficult to see how any of them pass the non-obvious test. If you know anything about predicting usage and/or dynamic pricing, all of this seems to simply repeat all of that. Oh, and if you're looking for some prior art, how about this paper from the 1968 Communications of the ACM by Ivan Sutherland -- no slouch on these sorts of computing issues. Actually, if you compare that paper from over 40 years ago to the patent issued last week, which one actually teaches people how to do something useful? And which is a jumble of words that doesn't teach anything? Every time we hear patent attorneys claim that patents are important because they help teach people how to do stuff, I think of patents like this one which clearly do no such thing.

Either way, later today many people expect the Supreme Court to finally rule on Bilski (today is the last day of the term, and the Supreme Court is expected to finally issue rulings on all of its remaining cases -- though, technically, it doesn't need to). The Supreme Court has taken its sweet time on deciding Bilski and I've heard compelling arguments for how this is good or bad no matter where you stand on the issue. My guess (based on little more than what was said during the oral arguments) is that the Supreme Court will try to craft a narrow ruling that wipes out some really weak business method patents, but leaves software patents mostly legit. Where this Amazon patent falls since it's basically a business method patent with software hooks? That may depend on where the Justices draw the line. We shall see soon enough...

Filed Under: business methods, computing usage, jeff bezos, patents, predictions, software
Companies: amazon

New Zealand Politicians Convinced By Lobbyists To Bring Back Software Patents

from the so-much-for-that dept

There was widespread happiness among software developers a few months back, when it was announced that New Zealand had decided to explicitly ban software patents. Of course, it didn't take long for a lobbying campaign to kick off from those opposed to this provision, and it appears the lobbying was effective, such that software patents will now be allowed -- though, they will still be somewhat limited (as they are in Europe). So, it's not quite as bad as the situation in the US. A New Zealand patent attorney posted a letter from the head of the lobbying group discussing this shift. While that blog post has since been deleted, as of this posting Google still has the cache. Most of the letter rambles on a bit about who was in the meeting, but the key points are towards the end, where he claims that the government official they met with made the following points:

• The intent had never been to ban software patents outright (and the MED would have serious concerns about that if it were proposed).
• If it is patentable in the EU then it should be patentable in New Zealand.
• Software should be treated like other technology, so should have a technical purpose and be an inventive step to be patentable, as in Europe.
• Not just any software would be patentable, it would need to meet the above test.
• Embedded or not embedded is or was not the distinction that is intended.
• The signal that the Government wants to send is to follow European law and practice.

Of course, that does seem to contradict some of what was discussed a few months back, where it was explicitly stated that:

"Protecting software by patenting it is inconsistent with the open source model and its proponents oppose it. A number of submitters argue that there is no "inventive step" in software development, as "new" software inevitably builds on existing software. They felt that computer software should be exluded from patent protection as software patents can stifle innovation and competition, and can be granted for trivial or existing techniques. In general we accept this position."

In general, you accept that position until the lobbyists get busy, apparently.

Filed Under: new zealand, patents, software

Microsoft Decides It Can't Compete With Salesforce.com; Sues For Patent Infringement Instead

from the must-we-remind-you dept

Remember back when Bill Gates said:

"If people had understood how patents would be granted when most of today's ideas were invented and had taken out patents, the industry would be at a complete standstill today... A future start-up with no patents of its own will be forced to pay whatever price the giants choose to impose."

Those days are long gone, apparently. In its latest patent litigation action, Microsoft has decided to sue Salesforce.com for infringing on a bunch of patents. Basically, it looks like Microsoft went through its collection of patents to find whatever they could that Salesforce might possibly infringe on. Take a look at the list:

• 7,251,653: Method and system for mapping between logical data and physical data
• 5,742,768: System and method for providing and displaying a web page having an embedded menu
• 5,644,737: Method and system for stacking toolbars in a computer display
• 6,263,352: Automated web site creation using template driven generation of active server page applications
• 6,542,164: Timing and velocity control for displaying graphical information
• 6,281,879: Timing and velocity control for displaying graphical information (the 164 patent above looks to just be a continuation of this patent)
• 5,845,077: Method and system for identifying and obtaining computer software from a remote computer
• 5,941,947: System and method for controlling access to data entities in a computer network

Amusingly, Microsoft and its super expensive lawyers were apparently in such a rush to file the lawsuit that they put the wrong patent number in on that second to last patent in the filing. Oops. Either way, look over that list of patents and try not to repeatedly shake your head in disbelief at the ridiculously broad nature of each and every one of those patents. And, then, since patent system defenders always remind us that it's the claims that matter, go take a look at the claims and wonder how these patents ever got approved in the first place. Going through that list of patents, you could use them to sue an awful lot of web-based service providers.

Hopefully (though, unlikely), the Supreme Court gets around to issuing its Bilski ruling and puts software patents like these out of their misery. Here's the full filing for anyone interested:

Filed Under: online, patents, software
Companies: microsoft, salesforce.com