From: tcmay@got.net (Timothy C. May)
Date: Sat, 7 Oct 95 12:56:08 PDT
To: cypherpunks@toad.com
Subject: Software Patents are Freezing Evolution of Products
Message-ID: <ac9c0ed8360210042ca0@[205.199.118.202]>
MIME-Version: 1.0
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INTRODUCTION

I'm finally going to write down some of my evolving views on why software
patents are fraught with dangers. Yes, many of you are no doubt already
convinced that software patents (XOR cursor, RSA, digicash, etc.) are a Bad
Idea, but I have a different angle on this which I'd like to present.

SUMMARY

Thesis: Software patents are a bad idea because they freeze the evolution
too early and payment metering schemes are too difficult to arrange, which
also helps to freeze evolution. Software patents are bad because customers
cannot freely and without entanglements incorporate the ideas into their
own products. The situation has become much worse with software, because
there is no physical object which can be used to meter usage of a patent.


HOW PATENTS WORK WITH PHYSICAL OBJECTS

Before explaining this thesis, let's look at how patents work with
_physical_ inventions, even if those inventions embody abstract process or
software inventions.

The microprocessor is a good example, which I'll use here for most of my
examples. (Note that Intel did not try to patent the "basic idea" of the
microprocessor; Gilbert Hyatt claims he filed before Intel produced the
first 4004, but this claim and the swirl of issues around the Patent
Office's granting of a patent to him are a separate topic.)

A microprocessor chip incorporates numerous items that are patented,
copyrighted, or that have trade secret status. Some of these patents, etc.,
even involve design tools used to design the chip. And some of the patents
involve sophisticated production methods. And yet a customer can simply
*buy* the chips and use them as he *wishes*, in hamburger cookers or in
digital money schemes, without any further regard for the patents. No
entanglements.

You go down to Fry's Electronics, buy some Pentiums or PPCs and use them as
you wish. No permissions needed from Intel or Motorola, no complex license
agreements saying you won't use the chips to compete with Intel's board
business or with Motorola's cellular phone business, no restrictions (save
for government laws about munitions, etc.) on who you can resell the chips
or systems to.

That is, the whole set of patent and copyright issues is _encapsulated_ or
_reified_ into the instance being sold. The physical object carries the
embodiment of the patents (including the process patents used to fabricate
the chip: the user of such a chip can be oblivious to these patents and
need not worry that a design will infringe on these patents).

[Sidenote: The astute observer will note some conceptual similarities to
"on-line clearing," to a "cash-and-carry" business. Once you've paid your
money and taken delivery of your 486 or your laser or your widget, how you
incorporate it into future products is generally your business and yours
alone. I say "generally," and legal beagles will point out that some
hardware sales may have restrictions placed on what can be done with the
hardware. Contracts are always possible. But for most objects, there is no
such additional contract. The widget seller has made his money by the sale
of his widget and cannot really try too hard to make more "downstream"
money, except by modifying his future prices to reflect what he perceives
demand to be.]


SOFTWARE IS REPLICABLE

Hardware object cannot be easily replicated, and hence patents can be
reified into the objects. Software objects of course _can_ be easily
replicated, which is why convoluted licensing and complex payment contracts
are involved.

(This is an incredibly important distinction, and one which also relates
closely to why "software ICs" and "object widgets" are not built, sold,
improved upon, etc. by the software industry. Ted Kaehler of Apple once
told me that an H-P analyst/thinker came up with this sort of analysis of
why there is no "software IC" industry to parallel the actual IC industry.
He argues that there is no "learning curve" for software, in the way there
is for physical objects. Sorry, I don't recall his name. If I were pursuing
this essay here as an actual, researched paper, I would did up this guy's
analysis. Also, Brad Cox has done a lot of work on "software ICs"--he
coined the term, in fact--and his papers are worth looking at.)


HOW THIS APPLIES TO THE CRYPTO COMMUNITY

Contrast this with the following "software patent" situations, the ones
directly relating to our crypto community:

1. The public key and RSA patents. RSADSI (and I'm ignoring for now the
implications of the PKP/Cylink complication) wants to see intended
applications and to work out arrangements for license payment based on
profits, volume, effects on their other licensees, etc. This limits the
ways in which the RSADSI patents have been incorporated into evolutionary
and revolutionary products.

2. The Chaum Digicash patents. Digicash wants $150K upfront, plus 10% of
profits. (Cf. Adam Back's posting on this today.) Digicash has their own
particular version they are pushing, but others are effectively shut out of
developing experimental applications. Imagine the situation if the garage
shop developers of personal computers had been forced to pay Intel up front
for the right to design in an 8008 or 8080 microprocessor, and then promise
to pay 10% of their profits to Intel (and 5% to the power supply vendor, 8%
to the keyboard supplier, 4% to the capacitor makers, 9% to the memory chip
companies, and so on....).

In both of these cases, the confusing, complicating, and almost
insurmountable issue is that these conditions are very hard to meet. It's
not just the issue of sharing a business plan with RSADSI or Digicash, it's
the fact that many aspects of one's business are unknown: the viability,
the volume, the future products, etc. The "garage shop" folks usually can't
even get in the door to talk to these companies.


THE REAL ISSUE: TRANSACTION COSTS ARE THWARTING EVOLUTONARY DEVELOPMENT

To me, the issue of concern is not that "software ideas should not be
patented." After all, why should the _idea_ of a safety pin or a windshield
wiper be any more patentable than the idea for a blinded transaction?

Rather, the issue of concern is that the patents on the software ideas and
concepts mean that experimenters, developers, and hackers cannot buy a
license for digicash the way they would buy some ICs and then experiment,
develop, and hack. Another way of looking at this is that _transaction
costs_ are too high and are thwarting normal evolutionary development. The
guy in the garage trying to develop a "digital postage stamp," for example,
can't use the Chaumian blinding protocols without hiring lawyers, paying
Chaum his up-front fee, and laying out his designs and business plans
(which he very probably doesn't even have!).

(Clarification: I'm not saying one can't buy fairly cheap RSA versions,
such as the code in RSAREF. What I'm saying is that one can't get a "core
module" for digicash, for example, and then test out the market with
various implementations, going into volume production with the ones that
are most successful.)

(And you can perhaps tell from my views here that I am not villifying
either RSADSI or Digicash here for their policies: they are trying to make
a reasonable profit in the face of a situation very much unlike the
situation faced for physical objects like microprocessors. David Chaum
points out that "there is no digital coin." Likewise, there is no "software
coin," and so the developers of novel ideas cannot "reify" the ideas in
things they can sell...rather, we see the current approach of convoluted
and restrictive licensing contracts. They try to make up for the lack of a
"software coin" by grilling potential customers about their expected
markets and by setting up complicated contracts to ensure--they
think--enough profits.)


EVOLUTION

What do I mean my "freezing" the evolution of products? Take the case of
Digicash and their test release.

As I pointed out in a recent essay ("Crypto + Economics + AI = Digital
Money Economies"), we are _impoverished_ with regard to the basic building
blocks we have for a digital money system. Where are the equivalents of
what we find necessary in the existing financial world?

Does anybody think that a particular instance of digital cash is the end
state of the evolution of digital cash? It is likely just the beginning.

But by the licensing of particular systems, and by having convoluted and
restrictive arrangements for use of the patents, the evolution of digital
money and crypto systems grinds to a halt. Instead of having dozens of
implementations of digital cash systems (I mean real digital cash systems,
embodying the Chaumian or Brandsian blinding schemes, not the cheesy
"smartcard" systems that are carelessly called "digital cash), we have only
a very few: a road toll system here, a play money experiment there, etc.

Evolution works by _differential reproduction_ (often misleadingly called
"survival of the fittest"). Several dozen variants of personal computers
are introduced (Sphere, Altair, Imsai, Sol, Exidy, Pet, Apple I, Apple II,
IBM PC, Macintosh, etc.), and customers reward the ones they like with
increased sales, causing the "genes" (or memes) of the winning products and
companies and designers to propagate.

The ability to incorporate PGP into tools and objects without complicated
entanglements is one reason PGP did so well. It was a "building block" that
anybody could build into other tools and objects, without regard for how
big the market might be for their tools, without regard to what other users
were doing, etc. (I'm ignoring for the moment any claims RSADSI may have
had that PGP infringed.)


CONCLUSIONS

Both the public key and digital cash situations are being affected by this
inability of people to use the core ideas as building blocks for more
complicated--or more revolutionary--systems. It's as if Intel had, in 1971,
insisted that all designs be approved by them, and that chips could not be
sold to competitors who had already licensed the chips, and that 10% of all
profits be ceded to Intel. This would likely have had a big effect on the
explosion of applications that came about in the years since the micro's
introduction.

Do I have a solution for RSADSI, Cylink, Digicash, and others? Given that
there is no "software coin," my hunch is that no simple solution exists.

To take David Chaum's case in particular, I think he'll end up making a lot
more money by being the guru and consultant on digital money systems (the
inventor of a field and all) than by having licensing schemes which are
probably unenforceable and which are mostly slowing down the evolution of
the bits and pieces needed for true digital money economies.

I've had these ideas swirling in my head for a long time, and thought it
was time to share them with you folks.

Comments are welcome.


--Tim May


Views here are not the views of my Internet Service Provider or Government.
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
tcmay@got.net  408-728-0152 | anonymous networks, digital pseudonyms, zero
Corralitos, CA              | knowledge, reputations, information markets,
Higher Power: 2^756839      | black markets, collapse of governments.
"National borders are just speed bumps on the information superhighway."