When dot-com patents go bad

The auction of Commerce One's intellectual property demonstrates that patents are worth more today as weapons than anything else. That's wrong.

By Jason Schultz

Last week, the financial and technological world saw yet another dot-com star go dark. In 1999, Commerce One Inc. was the belle of the dot-com IPO ball. Promising a gateway to faster, more efficient business-to-business (B2B) transactions over the Web, it was the No. 1 initial public offering of 1999, boosting its stock price over 600 percent and making millionaires out of its founders. After the crash of 2000, however, Commerce One’s fortunes reversed, leading it down a path to delisting and, eventually, bankruptcy.

As in most bankruptcies, Commerce One’s creditors sought to sell off the company’s assets to the highest bidder, hoping to recoup its lost investment and satisfy the $9.7 million of outstanding debt the company had left behind. What made this fire sale different from most, though, was the power of a single set of assets — Commerce One’s Web services patent portfolio. In a relatively rare decision, the bankruptcy court decided to separate the sale of these patents from the sale of the rest of the company, thereby allowing a separate bidding process to take place exclusively for the patent portfolio.

This decision drew significant attention from the patent community, including companies such as Intellectual Ventures and ThinkFire Inc. that persist solely on the acquisition, licensing and litigation of patents. With these new bidders in the game, the auction became highly competitive, eventually ending with a bid from the mysterious “JGR Acquisitions” for $15.5 million. (The rest of the business was sold for a mere $4.1 million.)

While the sale of patents is nothing new, the Commerce One patent auction highlights a disturbing trend in our current patent system.

When faced with two choices — selling a company’s patents as part of its overall assets or selling the patents alone — the court (and the market) chose the latter. This means that in the eyes of the legal system and the marketplace, the Commerce One patents were more valuable to independent licensing firms as legal threats than they were to an actual company that makes a Web services product.

This is not what the patent system was intended to promote. The idea behind patents is that inventors and manufacturers of new products should have some protection against free riders in the marketplace that would otherwise copy their innovations. If competitors are able to simply copy the innovations of those first to market, few will have incentives to release their products to the public. In this instance, however, we see the opposite result.

Here, the patents at issue were less valuable to companies that actually produce Web services products than they were to firms that produce nothing but lawsuits and licensing threats. In other words, patents like these have become worth more as weapons than as protections for companies competing in the marketplace.

Many have compared these new patent licensing firms to terrorists, and in some ways, the analogy is apt. When the Soviet Union collapsed, one of the biggest worries was that rogue military personnel might sell off one or more of the USSR’s nuclear missiles to a terrorist group. Securing those weapons became a top priority. The reason was fear — fear that the terrorists, who had little to nothing at stake in terms of world peace and national stability, would use the missiles to extort or manipulate the world political climate. Unlike the United States or China, which could be retaliated against and which had a stake in stability, terrorists were essentially immune from attack, and thrived on instability.

With the patents of bankrupt dot-coms, the dynamics are similar. Rogue licensing firms buy up these patents and then threaten legitimate innovators and producers. They have no products on which a countersuit can be based and no interest in stable marketplaces, competition or consumer benefit. Their only interest is in the bottom line.

While profit itself is often a worthy objective, it is not always synonymous with innovation. Every dollar a tech company pays to patent lawyers or licensing firms is one less dollar available for R&D or new hires. Thus, many companies that offer new products end up paying a “tax” on innovation instead of receiving a reward. When this happens, it’s a signal that the patent system is broken. Forcing companies to pay lawyers instead of creating jobs and new products is the wrong direction for our economy to be headed and not the result our patent system should be promoting.

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Where does the anti-SOPA movement go next?

Challenging the kings of copyright requires a new vision of the public domain

By Alex Sayf Cummings

(Credit: Salon)

Topics:Intellectual Property, Stop Online Piracy Act, on

The last few weeks have witnessed a remarkable convergence of conflicts over copyright: the arrest of Megaupload mastermind “Kim Dotcom” in New Zealand, an unprecedented show of unity among Internet giants such as Wikipedia and Google to fight anti-piracy legislation in Congress, and similar protests in Poland against new copyright measures. In a world wracked by recession, war and revolution, a topic oft-dismissed by journalists as “arcane” — copyright — has surged to the top of the political agenda.

Indeed, supporters of anti-piracy legislation in Congress have confessed their ignorance of how copyright and the Internet work, saying the details were best left to the “nerds.” Lawmakers soon heard from the nerds, though, as an online insurgency spread to thwart the Stop Online Piracy Act, galvanizing opposition across the political spectrum in a novel way, from the Creative Commons left to right-wing blogs such as RedState. The campaign epitomizes a promising new turn in American politics, as critics of intellectual property law finally find an audience and, more important, the makings of a political constituency.

It was not always so, to say the least. Advocates of stronger copyright won an almost unbroken string of legislative and political triumphs since the early 1970s. A burst of piracy in the late 1960s, stimulated by the ease of recording on magnetic tape and the appearance of bootlegs of Bob Dylan and the Beatles, prompted Congress to extend protection to sound recordings in 1971. Thus began a continual expansion of the powers of copyright, with the term of protection extended from a maximum of 56 years to the life of the author plus 50 years in 1976, and another 20 years added in 1998.

Entertainment industries argued they needed protection. In a deindustrializing economy, they were job creators, net exporters of American goods. Disney reps in the early 1980s warned Congress that movie piracy would undercut jobs and tax revenue. With trademark bombast, Hollywood lobbyist Jack Valenti declared in 1982, “We are going to bleed and bleed and hemorrhage, unless this Congress at least protects one industry that is able to retrieve a surplus of trade and whose total future depends on its protection from the savagery of this machine.” (He was lobbying against the dreaded VCR.)

Meanwhile, opponents of stronger copyright had little to offer. Most were tape duplicators, who built their businesses on copying records and making mixtapes. These “pirates” urged Congress and state legislatures not to extend the length of copyright or bolster the power of rights-holders, but lawmakers paid them little attention.

Only with the rise of a new generation of copyright critics in the 1990s did a credible resistance emerge. Academics such as Lawrence Lessig, Kembrew McLeod and Siva Vaidhyanathan pointed out how excessive copyright protections allow corporate behemoths to push around small competitors while stifling creativity, such as mashups and sampling in hip-hop.

At first, this critique remained limited to a small constituency of tech activists, artists and academics. But Duke law professor James Boyle offered a prescient diagnosis of the movement’s problems in 1997, when he urged an “environmentalism for the net.” Environmentalism became one of America’s most vital and broad-based new political movements in the late 20th century, but its influence was initially limited. Scientists and nature lovers worried about environmental degradation, but they faced a difficult challenge persuading others that individual issues — a dam in a public park, suburban sprawl, pollution — were connected in a way that demanded broad public concern. The idea of the environment encompassed many issues that were different but related.

Critics of copyright, Boyle suggested, needed to theorize about the public domain in the same way nature lovers conceptualized the environment. They needed a framework to explain how intellectual property affected the people as a whole, and not just the librarians, musicians or teachers who might run up against the limits of copyright. For instance, a handful of polluters might benefit richly from easing clean air standards, while exposure to carcinogens hurts the broader population in a diffuse and indirect way. Similarly, lawmakers were reforming copyright law at the behest of those who stood most to profit from it — entertainment industries — but at the cost of impoverishing a public domain that most people thought little about.

The last decade reveals how an anti-copyright movement emerged along the lines laid out by Boyle. Efforts to curb copying on the Internet sparked a new consciousness that copyright was not merely an abstract or remote issue, relevant only to lawyers and movie studios, but a palpable everyday concern. The Recording Industry Association of America stirred outrage by picking on 12-year-old girls and college students for file-sharing, but such indignation only pointed the way to a more comprehensive awareness of the public domain.

The assertion of powerful resistance to SOPA may signal the moment when a new American constituency begins to question copyright. Members of Congress who are normally happy to give Hollywood whatever it wants began to abandon the legislation, as voters roared their opposition and sites such as Wikipedia coordinated an effective blackout. Critics of SOPA succeeded in changing the subject from property rights and stealing to a discussion of sharing and freedom, reviving the old idea that citizens had an interest in a vibrant and free public sphere above and beyond protecting the profits of rights-holders.

Why the (seemingly) sudden change? Wikipedia, no doubt, offers a model of nonprofit public service and “peer production” that stands in stark contrast with the self-serving image of a pirate. “Imagine a world without free knowledge,” the site said, emphasizing the social good of sharing information. And it cannot be stressed enough that today’s conflict over copyright has broken down as a battle between different sectors of big business, with Google and Facebook squaring off against companies like Disney, which favor the strongest possible property rights. The tech-vs.-content divide makes this struggle different from earlier legislative fights, when opponents of pro-copyright measures had few friends with deep pockets.

Where the debate goes from here is hard to say, but the broad alliance between academics, bloggers, big tech and everyday Internet users has already achieved an unprecedented victory by rolling back proposed anti-piracy laws. The recent arrest of Megaupload’s Kim Dotcom, however, threatens to complicate the picture. With his flashy cars and lavish lifestyle, Dotcom represents perhaps the worst-case scenario for free information — a handful of individuals getting ridiculously rich off other people’s work. In fact, he may resemble too closely the older image of the sleazy record execs who lived the high life by exploiting artists. This is certainly not the image that advocates of sharing and free expression want as their poster child.

For such an anti-copyright movement to succeed, though, the focus must remain on free speech, not on the profits of Disney or Dotcom. Free culture could just be a case of “new boss, same as the old boss,” if a new breed of middlemen at file-sharing sites were able to profit from trafficking in other people’s work. Sharing is one thing, but when money changes hands it is quite another; few people think that inserting a photo of Richard Nixon or Newt Gingrich into my blog post is hurting anyone, since the original photographer or website that hosted the image is no worse off, and I am not trying to make money by blogging. Fair use may protect such practices, though that protection is by no means certain — copyright trolls such as Righthaven enjoy a brisk business threatening websites with infringement lawsuits in order to force them into out-of-court settlements. The anti-copyright movement must fight to preserve the zone of noncommercial copying and sharing that fair use is meant to protect from such attacks.

It must also offer solutions. There must be a way of reconciling practices such as sampling and file-sharing with copyright law that is not solely designed to enhance the power of rights-holders. Creative Commons already offers licenses that creators can use to selectively permit copying and sharing of their work, while YouTube has developed a kind of “opt out” model that removes copyrighted material when rights-holders object (but still hosts a vast number of unlicensed TV clips, concert recordings, and so on).

American history also offers guidance for policy. For instance, Congress forged a novel compromise between songwriters and record companies when it considered how to regulate sound recording in 1909. Composers and music publishers wanted to license their songs individually, charging whatever the market would bear, while labels wanted a free supply of songs to record on piano rolls, wax cylinders and discs. The solution — known as a compulsory license — balanced both interests by making record companies pay composers a flat royalty for each copy (i.e., recording) of a song they produced. Thus, performers and labels could choose whatever songs they wished to record without the burden of negotiating a price for each song individually, and composers were ensured an income from the sale and enjoyment of their works.

Lawrence Lessig and others have called for a similar compromise for file-sharing. In this way, we could look at file-hosting services such as Megaupload and Rapidshare as a kind of radio. DJs do not have to call up Moon Unit to get permission every time they want to air a Frank Zappa song; instead, they pay for blanket licenses from composers’ organizations such as ASCAP and play whatever they like. Likewise, file-hosting services could negotiate a formula to compensate for the copyrighted content users upload and download. Such an arrangement would raise issues of privacy and fairness, but a blanket license scheme offers one possible way for Internet users to go on freely sharing and creators to be paid.

Critics such as Boyle and Lessig have never been truly anti-copyright; they simply believe the law has become too skewed in favor of rights-holders. In the 1970s, for instance, record industry lobbyists rejected a compulsory license for recordings, which could have set a flat price for using copyrighted sounds in mixtapes and samples. The result was a process for obtaining permissions that is so cumbersome and costly that many musicians choose not to use samples. With an eye toward innovation and compromise, we could create a system that facilitates sharing, copying and free exchange without shortchanging artists or surrendering to the interests of big business. A new movement must sustain a vision of sharing that serves the public good if it is to succeed in changing the conversation about copyright. Thwarting quick passage of SOPA was just a start.

: Alex Sayf Cummings is assistant professor of History at Georgia State University. His book on music piracy and intellectual property law is forthcoming from Oxford University Press, and he is a co-editor of the blog Tropics of Meta. More Alex Sayf Cummings

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Does culture really want to be free?

Are new media companies "digital parasites"? The author of "Free Ride" tells Salon piracy is killing art

By Scott Timberg

(Credit: l i g h t p o e t via Shutterstock)

Topics:Art in Crisis, Copyright, Internet Culture, Intellectual Property

Over the last few weeks, Salon has been looking at the destruction of the creative class by the Internet, the recession and a transforming economy. A new book, “Free Ride,” by the journalist Robert Levine, intersects with some of these concerns. Subtitled “How Digital Parasites Are Destroying the Culture Business and How the Culture Business Can Fight Back,” Levine’s book looks at how publishing, the music industry, newspapers and other industries drank the dot.com Kool-Aid, effectively killing themselves off. He’s particularly interested in copyright, the U.S. government’s role in unleashing the Internet and the impact of digital piracy.

Levine, a former Billboard executive editor who has also contributed to Rolling Stone, Vanity Fair and the New York Times, asks, effectively: Can the culture business survive the digital age? It’s a welcome reconsideration after the cheerleading that has greeted the Web and the structural changes in the U.S. economy. We spoke to the Berlin- and New York-based Levine about how we got here and where we go next.

The Internet has caused a revolution, and in any revolution there are winners and losers. How do you think that’s worked out here? Who’s won and who’s lost, so far?

I think the revolution is still ongoing. The short-term losers are media companies. The short-term winners are technology companies. The long-term loser is everyone. I don’t think anyone wins. The premise of my book is that most online companies rely for their content, and hence for their money, on traditional media companies. If they destroy that business model, it’s unclear what they’re going to have to distribute. If you look at YouTube, eight of the top 10 videos are major-label music videos. If the major labels shrank to the point where they can’t make videos, YouTube isn’t much of a business. It’s still a great social phenomenon, but it’s not much of a business.

Was this inevitable, or were there policy choices that led to this state of affairs?

Oh, I think it’s all policy choices. It’s inevitable that there would be a problem, but technology creates uncertainty and regulation solves uncertainty. When the car was [created], no one knew how fast you were allowed to drive. We came up with speed limits and that solved some of the uncertainty – didn’t solve it perfectly, but it made the roads safer. As copying technology evolved, we came up with other copyright laws to regulate it. Media companies thrived. Technology companies thrived. And despite not liking each other, they thrived together. A VCR isn’t very valuable if you can’t rent any good movies. Movies aren’t very valuable if you can’t watch them on a VCR. Then [Congress] came up with the DMCA, which I think was sort of the original sin. The idea was we have to say something before you want to take something that infringes on copyright down…

And DMCA is?

I’m sorry, the Digital Millennium Copyright Act. The important provision was notice and takedown. You have safe harbor from copyright liability if you follow this notice and takedown procedure. It turns 300 years of copyright law on its head by making it an opt-out system instead of an opt-in system. Dozens of sites will use this interview until you specifically tell them not to. That’s very different from “they can’t use it until they ask for permission.” What that does is it destroys the market.

One of the desirable things that copyright laws do is create some kind of market for intellectual property. We’ve had that for 300 years. That should change and it should evolve, but what we’re doing now is we’re dismantling that market. I think that’s really scary, because, first of all, you are going to see a lot of job loss. Secondly, I think you’re going to see the quality of things get affected. You see that happening with newspapers already. Third, I think the whole system suffers. Google News is not as useful if there’s not as much news to Google. I mean, Google is an information search tool, right? It’s not a moral issue. But the problem you’ve created, you create a very powerful incentive for somebody to create a better search engine. You eliminate [the] incentive to create better journalism. That is a problem.

Music was one of the first businesses to get hit hard. What happened there? Was it all piracy?

This is one of those questions that is hard to answer. It’s very hard to say exactly what caused what, and I would argue that separating those things out is impossible. Right now, the single biggest problem with CD sales is all the stores where you used to buy CDs are closed. Well, what caused that? Well, people started buying songs online. That became a problem because people were only buying singles instead of albums and they weren’t spending a lot. Well, why did that happen? Because piracy put so much downward pressure on prices that you have to take any deal, whether it’s a good deal or a bad deal. It’s very hard to separate these things. Any study where people say this has nothing to do with piracy is a bunch of bullshit.

When the Internet emerged, we thought we would be dropping the middleman out of this, that musicians and artists would connect directly with their fans.

The middleman hasn’t been eliminated. There’s a new middleman. YouTube is the new middleman. YouTube, just now, was giving professional content creators advances against future royalties. Is it a good middleman? I don’t know. YouTube has a lot of good technology. They obviously have other advantages. It could be a smart deal. It depends on the advance; it depends on what you want. But I would say that the idea that YouTube is fundamentally different from a record company is silly. YouTube probably has a higher percentage of the market for online video than all four major labels combined have of recorded music. Who’s stopping their market power? No one, and everyone is saying it’s a progressive thing.

Europe has responded a little differently to piracy and assaults on copyright. What effect has it had?

Well, I think it’s two things. One is, in continental European law, there’s a different tradition of copyright. One of my problems with the “copyleft” is that you don’t hear that. If you read Lawrence Lessig and Tim Wu and all those sort of copyleft books, and there are 25 or 30 of them, you’ll see copyright is a limited monopoly and a balance between the author and the public interest, if you will. That is very true. It’s the roots of Anglo-American copyright law. What you rarely hear is that the French tradition – and this applies, to varying degrees, to a lot of other countries in Europe – copyright is a fundamental right. It is your work and you have a fundamental right to it. What’s interesting is you have a lot of people talking about the right to remix. In Europe, not only is there very little legal support for a right to remix, there’s a decent amount of support for a right not to be remixed. You have a right to the paternity and the integrity of your work. It’s a moral right. So someone says, “I want to remix Rob Levine’s book so that every 10 words it’s going to say: Rob Levine eats stinky poo” – by the way, I’m fairly certain that somebody would call this an art project – I can say, “No. I have a right to my work.” I think a lot of people would find that very reasonable.

The idea that the Internet is somehow immune from law or regulation or the protection of people’s rights has been seen as a progressive idea. It’s the “free and open Internet.” But if you really think about that for a second, that’s not a progressive argument. It’s a libertarian argument, because the same regulations that annoy you might be the regulations that protect me.

From the beginning, hasn’t the Internet been framed as the second coming of the Wild West?

I think it’s been framed as the second coming of Jesus H. Christ in full 3-D Cinerama Smell-O-Vision. Look, a lot of very smart people believe the Internet will change things that won’t change because they come out of human nature. Like people look at Wikipedia and they say, “See. People will all work together. We don’t need regulations.” I think that Wikipedia is a great thing but I wouldn’t want to change my system of government based on the 10-year track record of Wikipedia. Right? It gets a little wacky. People like to cooperate; people like to give things away. Yes, but people also like to violate the rights of other people. I want certain kinds of protections.

Your book is about several industries. You talk about the music industry, the movie industry, publishing, etc. I wonder if there is a common mistake that you saw most or all of these industries make along the way?

Yes. Listening to people who don’t have your interest in mind – they have their own interest in mind. When Google says newspapers should be free on the Internet, they may really believe that, but you also have to keep in mind that it’s a huge help to them. Right? I was on a panel a couple of weeks ago and this guy from Creative Commons said: “You should concentrate on art; you shouldn’t worry so much about these contracts.” That’s exactly what any artist should never do. The record company guy does not want to make you money; he wants to make him money. Same with your concert promoter. Same with Google. They are not on your side. They’re on their side. I don’t think that’s a bad thing, because Google’s greed and self-interest has led to the creation of a valuable company, and many jobs, and some really remarkable technology, but it’s the government’s job to make sure they don’t trample the rights of other people.

How often is free speech used as a cudgel against copyright that claims free speech?

Several times a minute. Free speech is very important in the U.S. It’s a more important value than copyright. In most countries it is. But there’s an argument on the other side. There’s a great quote by Justice Sandra Day O’Connor that says: “The Framers intended copyright itself to be the engine of free expression. By establishing the marketable right to the use of one’s expression, copyright supplies an economic incentive to create and disseminate.” That’s a pretty powerful argument on the other side.

Her argument, which I think is yours, is that copyright doesn’t inhibit free speech, but encourages free speech.

I think it does both to different degrees. It’s not that simple. Let me be clear, I hammer on that Justice O’Connor quote because it’s not something you’ll see in a lot of other books. But this is a complicated issue. Copyright often encourages free speech. It sometimes inhibits free speech. The idea that copyright is the be-all and end-all of free expression is simplistic. The idea that it inhibits free speech is simplistic. I think this is true of politics in general, but everyone argues about stuff like a 4-year-old.

Entertainment companies talk about digital theft. In my mind, that’s not a useful way to talk about a problem. The problem is copyright infringement. If you download my book illegally, I’m not angry. I hope you don’t. If a lot of people do it, I’ll be angry. The idea that someone is going to download my book illegally doesn’t bother me. The idea that someone is selling advertising against that transaction and profiting from it really does upset me. There’s just a lot more nuance there. You have one side calling it digital theft and saying that downloading things is a moral wrong. You’d have to ask a philosopher. Then you have another side saying you have the right to see movies. Well, that’s even dumber. I don’t think anyone is going to go to hell for downloading “Iron Man 2.” But saying you have the right to download it is also pretty silly.

We need to look at what copyright was meant to do. It was not meant to inhibit the copying you do at home. It was meant to give you monopoly that’s limited in scope and that’s limited in time to profit from your own work. That’s what I want. I want to have a monopoly on profiting from my own work. So, if you lend my book to a friend, God bless you. If you put it on the Internet and distribute it to 100 people, even if you are not benefiting from it directly, that goes against what we’re talking about on a very basic level. You can hire expensive lawyers to parse this in all sorts of ways, but let’s get real here. Mass distribution of stuff like this is really a problem. That’s what I’d like to see: a nuanced legal solution to solving and a nuanced discussion of what’s going on.

If you look at countries with functioning copyright systems and countries without functioning copyright systems, who creates more culture? That’s not a question. Cory Doctorow gave a speech at the New America Foundation about how copyright endangers democracy. That’s not a responsible comment. That’s just a bunch of bloviating. Democracies tend to have copyright. Countries with copyright tend to be democracies. I’m not suggesting a causal relationship, but to suggest that copyright endangers democracies – it doesn’t even meet the laugh test.

Let’s look to the future. You say in your last chapter: “Over the next decade, we will choose between two competing visions for the online world: media companies want the Internet to work more like cable television, while technology companies want cable to run more like the Internet.” Tell us what you mean by this.

If you think about the cable system, it’s closed. You can’t publish or broadcast without permission; you can’t receive or consume without paying. On the Internet it’s the opposite. Anyone can publish or broadcast; just about anyone can consume without paying. And again, sorry to keep hammering on this, I would say that those are two absolutes. There’s a lot of problems with the cable system. It leads to monopolization. The prices keep going up and there’s a lack of diversity of points of view. But there’s also good things about it. Television has never been better. We enjoy better TV. If you say, “Oh my God. Look how my cable bill rose in the last 10 years,” what you get is completely different. It’s a revolution of quality. Now let’s look at the Internet. It does a lot of things as well. You’ve got free expression. It’s a great thing. The Internet is very valuable. You get an incredible diversity of opinion. It’s very cheap. There’s a lot of good things about it. There’s also some bad things about it. It resists regulation in a very fundamental way. You have some people saying the Internet must be cable-ized; you have other people saying that cable must be Internet-ized. Is that really the best we can do? My argument is that we deserve better. I don’t want to choose between “Breaking Bad” and the skateboarding bulldog.

I would like to see the advantages of both. I would like to think the technology would allow that. And I’d like to think we can regulate smartly to encourage that.

What would you like to see happen? What’s the best-case scenario for the situation we’re in now? Because some things aren’t coming back totally. Newspapers, publishing, probably not coming back.

I’d like to see enough law applied in a smart way that we can bring back a market. U.S. publishing is never coming back, but I think we can enforce enough law to create a market, and that’s what we need. There’s obviously problems with the market. I’m not one of these “worshiping at the altar of the market” kind of dudes. But the market for intellectual property has served us very well both in terms of job creation and in terms of art. And I think that that is very important.

: Scott Timberg is a former Los Angeles Times arts and culture writer who has also contributed to the New York Times, GQ and other publications. He is the co-editor of the book "The Misread City: New Literary Los Angeles." He blogs at scott-timberg.blogspot.com/. More Scott Timberg

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Are your genes somebody else’s property?

A federal court ruled on Friday that companies could hold patents for human genes. Here's what the fuss is about

By Peter Finocchiaro

Are your genes somebody else's property?

Topics:Intellectual Property, Science

Can companies make you pay to look at your own genes? A federal appeals court ruling on Friday found that they could.

To be more specific, the court ruled that human genes, when isolated from their natural genetic housing (the chromosome), can be patented. The decision has been welcomed warmly by the biotech industry, which can now claim dominion over bits and pieces of our genetic blueprints. However, the ruling has been panned by critics who say it’s unethical and counterproductive to label human genes as intellectual property.

The decision revolves around a company called Myriad Genetics, which holds the patents to two genes, BRCA1 and BRCA2, which are linked to the development of ovarian and breast cancers. Myriad acquired the patents in question years ago, and markets a product called BRACAnalysis, which screens for predisposition to ovarian and breast cancer. The company charges $4,000 for the service. With the patents, it has the exclusive rights to isolate and analyze the two genes.

But is that right?

Let’s start with the obvious: A patent is a legal tool used by the state to reward and encourage innovation. Anything from a mechanical widget to an industrial process to a pharmeceutical product can be patented, as long as it meets certain criteria. However, firmly established legal precedent prevents anyone from patenting natural phenomena. After all, logic would seem to dictate that something that occurs in nature is categorically not an invention, and thus should not be eligible for patents. Therefore, scientists who work with the human genome cannot patent large swaths of our genetic sequences, even if they can protect certain processes for mapping them.

But the argument gets more complicated when we talk about individual genes. The sequences of DNA that become our genes are contained in the 46 chromosomes that make up the human genome. Extracting, or “isolating” singular genes is a complex, labor- and resource-intensive process. (That process, by the way, is absolutely eligible for patents.) The U.S. Patent Office has been issuing patents for genes for years. More than 4,000 currently exist. And isolated genes are considered “the cornerstone of the biotechnology industry.”

Those who hold gene patents claim that the process of isolating them makes them materially different from their original forms, and thus, inventions. Critics argue that a gene is basically the same, whether it’s in a chromosome or in a petri dish. Both sides, meanwhile, argue that theirs is the best way for fostering innovation. Patent holders believe the system is necessary to incentivize a complex and costly process. And detractors believe that the legal tool is simply a way to stymie competition.

Which brings us to Friday’s decision.

The Myriad lawsuit

In 2009, a group that included doctors, scientists and the ACLU challenged Myriad’s gene patents in court. They argued that the company — by monopolizing the BRCA genes — was restricting the ability of patients to receive timely and affordable medical care — and without a sound legal argument. In particular, the complainants argued that:

Because of the patents and because Myriad chooses not to license the patents broadly, woman who fear they may be at an increased risk of breast and/or ovarian cancer are barred from having anyone look at their BRCA1 and BRCA 2 genes or interpret them except for the patent holder.

As the Atlantic’s Andrew Cohen notes:

The central question of the case, then and now, was whether “isolated” human genes are unpatentable “products of nature” or patentable as “markedly different” compositions from their “unisolated” counterparts.

Dueling rulings

A U.S. District Court ruled against Myriad last year, arguing that “DNA’s existence in an ‘isolated’ form alters neither [the] fundamental quality of DNA as it exists in the body nor the information it encodes.” The Justice Department likewise argued that genes are not patentable. The two judges who overturned that decision disagreed, claiming that “isolated” genes do not occur in nature, and that they necessarily have to be extracted in a lab.

On the one hand it is obviously true that singular bits of our DNA do not simply spring into existence independent of their larger genetic framework. But a number of outspoken critics believe this to be a semantic argument only. TechDirt’s Mike Masnick, for example, presents a telling analogy: “Basically, [the judges] seem to be arguing that because a severed finger is not attached to a hand, the finger is not naturally occurring.” This was a sentiment also sounded by the lone dissenting opinion in Friday’s decision, Judge William Bryson.

In summing up the issue, Forbes’ Steven Salzberg, a longtime critic of gene patents, has this to say:

Scientifically, it shouldn’t matter how the judges define “isolated” DNA. And as two federal judges have now ruled, genes are not inventions, full stop. What’s more, gene patents slow down science by throwing legal barriers in the path of anyone who wants to work on those genes.

Where from here?

The ruling touches on a particular sensitive area of intellectual property law. For all the furor over the copyright infringement encouraged and enabled by the Internet in recent years, patent enforcement arguably has a much larger impact on the direction of the U.S. economy. The Myriad case will likely be heard by the appeals court again, in front of the entire bench of judges, rather than just a panel of three. And, as Popular Science notes, “the lack of clarity, and the complex and controversial nature of the case, makes a hearing by the [Supreme Court] seem likely.”

: More Peter Finocchiaro

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Why patent lawsuits and hot tubs don’t mix

A tale of interface design, monopoly control in the spa world, and lots and lots of bubbles

By Andrew Leonard

Why patent law suits and hot tubs don't mix

Topics:California, How the World Works, Intellectual Property

Have you ever stared blankly at the control panel of a hot tub, baffled by even the simplest of tasks — such as how to turn on the jets, or adjust the temperature, or even just turn the damn thing off? Perhaps you blamed your inability to comprehend on your state of impairment — a not uncommon malady unfortunately associated with hot tubs.

I’ll bet you never blamed monopoly control of hot tub electronic control systems or abusive intellecutal property law litigation!

I sure didn’t (and believe me, I have been baffled by many a hot tub), and as my readers know, I’ll blame monopoly control and out-of-control intellectual property laws for almost any sin, at the drop of, uh, a bathing suit.

But Jamie Love’s IP-Health Digest alert, which normally concentrates on news from the pharmaceutical sector, dug up a tantalizing snippet of a lawsuit filed by a Californian manufacturer of hot tub electronic control systems claiming that another California company — the apparent Microsoft of the hot tub world — was restricting competition via aggressive litigation. Hot tubs and patent infringment? That’s got Labor Day weekend written all over it. I had to know more.

According to the complaint filed by Newport Controls against Balboa Instruments Inc, there have never been all that many suppliers of control systems to the companies that assemble hot tubs in the United States — referred to in the complaint as “original equipment manufacturers, or OEMS.

Historically, the options for Electronic Control Systems options have been limited because of the small number of Controller Suppliers and their relative lack of technical sophistication. Hot Tub OEMs and consumers alike therefore had limited choices and, for example, had to accept displays with cryptic messages requiring the use of an instructional manual for even basic operations.

You see! It wasn’t your fault! And how crazy is that? How are you going to hold an instructional manual without spilling your champagne?

Recognizing this need, Rogerson Aircraft Corporation, a highly successful aeronautics industry supplier of flight instrumentation and control systems has spent nearly three years developing a series of revolutionary Electronic Control Systems, based on technology also being developed for avionics use.

Italics mine. Newport Controls is a division of Rogerson. And what, I know you want to know, before you head out for a three-day weekend that I dearly hope is filled to the brim with overflowing hot tubs, constitutes “revolutionary” in the context of hot tub control panels?

These control panesl feature full-color LCD video displays, plain text messages, pop-up alerts… [The] video displays… allow infrmercials to encouraged repeat business…

Hmm. An infomercial broadcast from my hot tub! Suddenly, I am rethinking my instinctive sympathy for the underdog. Please, someone, anyone, file a patent infringement suit that stops these buzz-killers in their tracks, ASAP!

Which, of course, is exactly what Newport is alleging in their complaint that Balboa is doing. The bulk of the complaint accuses Balboa of violating the Sherman Antitrust Act by using its monopoly (defined by Newport as 70-75 percent of the market for hot tub electronic controls) power to crush Newport’s attempt to get a piece of the market. You see, Balboa doesn’t just dominatethe electronic control system niche. The private equity company behind Balboa has been gobbling up lots of other hot tub equipment suppliers. If you don’t play ball with Balboa on one component, alleges Newport, the company will shut you out on all the others. And if that doesn’t work, Balboa will sue you for patent infringment, claims Newport. As a result, complains Newport, the company has been able to make only one sale of its control system product.

I can’t tell from the complaint how good Newport’s case is, and I’ve been unable to find any press coverage of this swirling hot tub squabble. And my guess is if I tried to make any phone calls at 4 p.m. on the Friday before Labor Day Weekend to further report this story, I’d find out that everybody involved has already shut down for the day and is headed for the nearest hot tub (or standing, champagne glass in hand, staring dumbly at a cryptic control system trying to figure out how to turn the damn thing on.)

All I care about right now is that nugget of an idea — that sometimes, the quality of our lives is degraded by unecessary constraints on the flow of ideas. It takes a lot of work to screw up a hot tub — but obviously, it can be done. It should never have happened. How many hours of human happiness have been sacrificed to bad interface design? How many hot tubs have been too hot or too cold? Fight the power! Let a 1000 hot tub control systems bloom!

Enjoy your weekend.

: Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard

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Music industry wants even more control

Not satisfied with our current Draconian rules, the copyright cartel aims for absolute power

By Dan Gillmor

Topics:Copyright, Intellectual Property

In the surely-you’re-joking category, here comes the music industry to say it needs even tougher copyright rules. Sorry, no joke.

As CNET’s Declan McCullagh reports from a conference in Aspen, Colo., Cary Sherman, president of the Recording Industry Association of America, complained about “loopholes” in the current copyright system. But what he calls loopholes are among the few parts of the law that remotely temper the absolute control that the RIAA and its allies, mainly in the movie business, want copyright holders to have over everything digital.