Internet-Induced Constraints on Freedoms: The Implications for Innovation Agenda

1. Internet-Induced Constraints on Freedoms:The Implications for InnovationRoger Clarke, Xamax Consultancy, CanberraVisiting Fellow, Dept of Computer Science, ANUhttp://www.anu.edu.au/people/Roger.Clarke/....../II/NOIE020709.pptNational Office for the Information EconomyCanberra, 9 July 2002

2. Internet-Induced Constraints on Freedoms:The Implications for InnovationAgenda • The Digital Era • Its Impacts • Freedom of Access to Information • The New Dark Ages • The Process of Innovation • Constraints on Innovation • Access to Information • Copyright • Patent

3. Information Objects ‘Then’ (early 1990s) • Tangible things (books, journal issues, photos, vinyl LPs, audio-tapes, microfilm, video-tapes, cassettes, diskettes, CD-ROMs, games-cartridges) • A person bought, rented, borrowed or visited a tangible thing, or gained admission to a location where it was reproduced, performed or played • The person had no need for a copyright licence • Replication was expensive, required infrastructure • Copies were accessible by one person at a time

4. Information Objects in the Digital Era • convenient and inexpensive Creation desktop publishing packages, PC-based graphic design tools, animation, digital music generators • Conversion of existing materials scanners, OCR, digital cameras, digital audio-recording • near-costless Replication disk-to-disk copying, screen-grabbers, CD-burners as a consumer appliance

5. Information Objects in the Digital Era • very rapid Transmission, unmeasurably low costs modem-to-modem transmission, CD-ROMs in the mail, emailed attachments, FTP-download, web-download • inexpensive and widespread Access PCs, PDAs, mobile phones, public kiosks, web-enabled TV in the workplace, the home, public kiosks, Internet cafes • computer-based Analysis of data data-matching, profiling, data-mining, pattern-recognition software • convenient Manipulation of data-objects word-processors, sound and image processing tools

6. Defining Aphorisms of CyberspaceThe New Yorker5 July 1993

7. Defining Aphorisms of Cyberspace • On the net, nobody knows you're a dog • There's no 'there' there • The Net treats censorship as damage and routes around it • National borders are just roadbumps on the information superhighway • National borders are not even roadbumps on the information superhighway • The street finds its own uses for things

8. Defining Aphorisms of Cyberspace‘Information Wants To Be Free’‘Information Wants To Be Free To Go Anywhere’ “Information wants to be free because it has become so cheap to distribute, copy, and recombine” “Information wants to be expensive because it can be immeasurably valuable to the recipient” “That tension will not go away”

9. Cyberculture Ethos • Inter-Personal Communications • Internationalism • Egalitarianness • Openness • Participation • Mutual Service • Community • Freedoms • Gratis Services

10. Cyberculture Economics • 'barn-raising' - Rheingold as distinct from 'horse-trading' • a 'cooking pot' - Ghosh "keeps boiling because people keep putting in things as they themselves, and others, take things out" • a ‘honey-pot’ - Clarke a culture of appropriation plagiarism as good not evil A culture of mutuality needs an economics of indirect and/or deferred exchange

11. Alternative Economicsof Scarcity and of Abundance • Conventional, Neo-Classical Economics • The basis of value is Relative Scarcity • More Supply = More Competition = Lower Prices OR • Information Economics, Economics of Networks • The basis of value is Critical Mass • The more there are, the greater the value of each Iron Ore cf. Fax Machines Vinyl carrying Analogue Music cf. Digital Music

12. Shareware (1983-) Free Software Foundation (1985-) CopyLeft Gnu Public Licence (GPL) Open Source Institute (1998-) Unix BSD Unix Gnu Linux SSLeay OpenPGP Mozilla Apache Open Office Mailman The Open Source Movement

13. The Open Content Movement • Xanadu ‘Transclusion’ (1965) • quote w/- copying, & with µpayments • Ted Nelson’s ‘Transcopyright’ (1997) • have a statutory right to re-publish by pointing, and pay (cents) for it • Open Content • Project Gutenberg • Open Directory Project - http://dmoz.org • opencontent.org • Public Licences

14. MP3 Napster Gnutella, KaZaA, et al. CD-quality digital sound in files sized 1 MB/minute a central catalogue of a distributed database, to facilitate sharing of MP3 files a distributed catalogue of a distributed database, to facilitate sharing of (MP3?) files Peer-to-Peer (P2P)e-Sharing / e-Trading

15. The Digital RevolutionImpacts on Publishing • Increased Appropriation • Reduction in Payment Morality • Disintermediation • Collapse of Publishing • New Business Models • Re-Intermediation

16. Disruptions in e-Publishing • Publisher-to-Consumer Sale and Distribution (dis-intermediation of wholesalers and retailers) • Originator-to-Consumer Sale and Distribution (dis-intermediation of publishers as well) • Consumer-to-Consumer Sale and Distribution (reduction in revenue flow to originators)

17. Encyclopædia Britannica • in 1991, EB sold 400,000 printed copies @ $1,500 each • in 1993, CD-ROM competitors emerged esp. MS Encarta (Funk & Wagnall’s) • in 1997, EB sold 10,000 printed copies • since late 1997, EB has tried: • mailed optical disks @ $200, then $100 • a web-site supported by advertising • a subscription-based web-site, with different terms for the B2C and B2B markets

18. Alternative E-Publishing Business Models(‘Who pays what to whom, and why?) • revenue from the content-accessor / 'user-pays': • subscription fee for access for a period of time • fee for access ('pay-per-view') • shareware • revenue from a third party: • advertisers • sponsors • revenue from the copyright owner: • fee for publication ('vanity press') • fee for storage or access • revenue from a complementary activity

19. Information Protectionism • censorship, esp. extreme pornography, incitement to violence, instruction in violence, neo-Nazi organisation, holocaust denial, racial vilification, sedition, activism • library intrusions, esp. compulsory filtering, access to borrowing records • reduction in FoI, esp. post-12 September • defamation, reputation-friendly and hostile to freedom of access to information, dramatically more threatening since the Internet

20. Defamation on the Web • Mining magnate / football club owner / religio-cultural-philanthropy identity • Footprints in Melbourne, NY, Tel Aviv • Article prepared in Manhattan NY, published in Barron’s Digest (Dow Jones / WSJ), and made available on a web-server in NJ • Defamation suit in Victoria • Where did publication occur? Everywhere?! • Don’t criticise Mahathir or Goh Chok Tong, because their reach has been extended ...

21. InventionTheconception of a new ideaExpression of a new idea in a prototype apparatusInnovation The application of knowledge to the manufacture and deployment a new kind of artefactThe articulation of an inventionThe adoption of a new product or process

22. ‘Tacit Knowledge’ informal and intangible exists only in the mind of a particular person ‘knowing that’ cf. ‘knowing how to’ not readily communicated to others ‘Codified Knowledge’ expressed and recorded, in a more or less formal language (text, formulae, blueprints, procedure descriptions) disembodied from individuals communicable information

23. Codified Knowledge An omelette recipe A combination of structured and unstructured text Tacit Knowledge The expertise to interpret the recipe, to apply known techniques and tools to the activity, to recognise omissions and exceptions, to deliver a superb omelette every time, to sense which variants will work and which won't, and to deliver with style

24. Technology • A combination of: • codified knowledge about artefacts, artefact manufacture, and artefact usage • tacit knowledge of many individuals • business processes within multiple organisations, into which are integrated codified and tacit knowledge • artefacts designed, manufactured and used by means of that codified and tacit knowledge • educational materials relating to artefacts, artefact design, production, use, maintenance

25. Info Flows Within the Innovative Organisation

26. Info Flows Within the Innovative Sector

27. Big-Bang Innovationcf. Cumulative Innovation • Genuine ‘breakthroughs’ do occur • But most Innovation is progressive: • Dependent on Interaction with others, and often on Contributions of others, including Users, Suppliers and Competitors • Process Innovation is often needed, in order to support Product Innovation • Step-wise Refinement results in Incremental Emergence or Conversion

28. Conventional Economics Information is an Output Info is highly appropriable Imitators contribute little, and are ‘free riders’ There are few natural protections for innovators Innovators need a monopoly Imitators must be punished Information Economics Information is also an Input In many circumstances, not so Many imitators add value, and hence contribute to cumulative innovation There are many natural protections for innovators Monopoly hinders innovation Mere imitators must be punished, but investigation, enhancement and extension must be encouraged Alternative Economics of Innovation

29. Who Does Digital Media Threaten? • To those who do well under the old regime: • very few originators (authors, musicians) • mainly the major publishing houses (of books, journals, music, films) • Control Mechanisms wielded by publishers: • re I.P., ownership of vast catalogues of it • re originators, through terms of contract, and promotional budgets • re infringers, through nastygrams, lawsuits

30. Manoeuvres by the Major Publishing Houses • Technological Protections for Digital Objects • Expansion of Copyright Scope, de facto • Embedment in Marketspace Mechanisms of Existing, Expanded and Imagined Rights • Lobbying for, and Enactment of, Laws: • Expansion of Copyright Scope, de juré • Criminalisation of hitherto civil law breaches • Enlistment of Law Enforcement Agencies • Transfer of Enforcement Costs to the public

31. Technological Protections for I.P. ObjectsPassive Technologies – 1 of 2 • object-protection, at various stages: • under the owner's control • in transit • under the licensee’s control • by means of: • encryption • device-specific encoding / crippling e.g. DVDs are region-specific, and film-publishers have state-enabled means of controlling sales of media and media-players

32. Technological Protections for I.P. ObjectsPassive Technologies – 2 of 2 • means of tracing rogue copies: • 'watermarking' technology (to uniquely identify the publication) • 'fingerprinting' technology (to uniquely identify the particular copy)

33. Technological Protections for I.P. Objects Active Technologies – 1 of 2 • notification to the licensee of their rights at the time that the object is accessed • licensee: • identification • identity authentication • disablement / destruction of the data object: • in the event of licence expiry or breach • if played on a ‘non-approved’ device

34. Technological Protections for I.P. Objects Active Technologies – 2 of 2 • enforcement mechanisms, client-side • prevention, e.g. preclude actions that breach permissions for rendering • recording of: • actions that exercise permissions • (attempts to) breach the licence, e.g. making copies beyond the permitted limit • reporting of (attempts to) breach the licence

35. Technological Protections for I.P. ObjectsInformation Infrastructure • siphoning off of Internet bandwidth for VPNs • enhanced server controls over clients • enhanced identification of: • devices • individuals • a new protocol suite, controlled by governments and large corporations

36. Copyright Expansion • Accidental Need for a Consumer to Have a Licence • Shift From Copyright to Contract • Threats to Fair Use, e.g. for research and study • Threats to Statutory Licensing • Threats to Equitable Public Access • Threats to Anonymous and Pseudonymous Access

37. Copyright ExpansionismWhat Major Publishing Houses Are Seeking • Existing Exclusive Rights of a Copyright-Owner: • to reproduce/copy, to re-publish, to adapt • The Broader Rights being sought include: • control of use through rendering, incl. display, print, play, ‘read’/render as speech • control of transport, incl. transfer, lend • control of derivative rights, incl. extract, embed • control of ‘time-shifting’ and even backup

38. Embedment in Marketspace MechanismsElectronic Copyright Management Systems (ECMS)Digital Rights Management Languages (DRML) • Proprietary (Xerox et al.) • Industry-Standard • Owner-Oriented • Corporate-Consumer-Oriented • Balanced Standards (ODRL) • Originator • Owner • Corporate Consumer • Individual Consumer

39. Civil Liberties Abusesin the Service of Publishing Houses • criminalisation of many mainstream activities (DMCA) • lawyers’ ‘nastygrams’ threatening prosecution (Felten) • gaoling for lengthy periods, without bail, with delayed charges, and with charges withdrawn once the chilling effect has been achieved (Skylarov, Johansen) • additional proposals (in an Aust Parltry report!!): • reversal of the onus of proof • increased civil seizure powers • withdrawal of self-incrimination privileges

40. Patent Issues • von Clausewitz Revisited: I.P. as a Weapon of National Strategy • Patentability of ‘Business Methods’ • Greatly Lowered Threshhold of Novelty • Collaborative Standards undermined by Patent-Based, Proprietary Monopolies • Anti-Innovation Uses of Patents

41. Patent Law as a Weaponof U.S. National Strategy • US Government Policy since Carter • Dictated by the interests of very large corporations that acquire and use patents as part of their business model • US Government Pressure through WIPO • Craven Weakness of some Governments • Naiveté of yet more Governments, which have failed to recognise and participate in the game of international strategy

42. U.S. Software Patents, andBusiness Methods Patentswith Some Blind Followers • Explosion from c. 1990 • USPTO’s extraordinarily liberal approvals, following a change in US Government policy designed to advantage US corporations • 2000 filings in the US in 1999, of which 1350 re Internet, and 500 re e-commerce • 1500 filings in Australia in 2001

43. Instances of Ridiculous Patents • Multimedia (Compton) • One-Click Shopping (Amazon) • Affiliate Program Linking (Amazon) • Reverse Auction (Priceline) • Display of Text and Images (Pangea) • Automated Credit-Checking (Pangea) • Consumer Payment for Clicking (CyberGold) • Method of Swinging on a Swing US Patent 6,387,227 issued 9 April 2002

44. Web-Linking – British Telecom, 4,873,662 of 1989 • Vannevar Bush, Atlantic Monthly, 1945 • Ted Nelson’s Xanadu, 1960-65 • Engelbart, 1968 – “innovations demonstrated that day [included] hypertext, object addressing and dynamic file linking” http://sloan.stanford.edu/MouseSite/1968Demo.html • But there are even more patents!! http://www.cptech.org/ip/business/hyperlink.html • IBM – 6,195,707 • Lockheed Martin – 6,154,752 • IBM – 5,924,104

45. Method of Swinging on a SwingUS Patent 6,387,227 issued 9 April 2002Steven Olsen, St Paul MN 55104 “The method comprises the steps of: (a) positioning a user on the seat; and (b) having the user pull alternately on one chain to induce movement of the user and the swing toward one side, and then on the other chain to induce movement of the user and the swing toward the other side, to create side-to-side motion”. http://news.com.com/2100-1023-885552.html

46. Miniature Patents • ‘Petty Patent’ • Australian 'Innovation Patent’ • nominally: to lower costs for SMEs • in practice: to make SMEs a more attractive takeover target, by offering the purchaser cheap I.P.

47. The Uses of Patents • Revenue • Licensing Fees • Extortion (Settlement << Legal Costs) • Window of Opportunity for Super-Profits • Too-High Licence Fees • Prolonged Negotiations on Terms • Denial of Licences • Threats of Litigation • Defence of Litigation through Threat of Counter-Suit Based on Own Patents

48. The Views of the NASDAQ-listed Australian company Catuity Inc. • When sued, $1 million needed, just to play • Utter uncertainty about the ratio decidendi • 3/3 legal opinions negated by the court • The judge imputed counter-intuitive, non-standard meanings to ‘receipt’ and coupon’ • Eventually the parties called it quits anyway • “Patents are a worthless must-have”

49. Origins of the Problem • Aggressive U.S. Strategy, Naive Multilateral Adoption • Patent Examination • “a coarse sieve, not a fine filter” • Reflects Prior Art Base, but not Domain Expertise • Patent Contesting Process • Abject Failure • Patent Cases before the Courts • Very lowthreshholds of originality, inventiveness • Absence of technical expertise, assistance or advice • Plenty of excuses to ignore expert evidence

50. The (Information) Economics Assessment • Progress depends on Cumulative Innovation People stand on the shoulders of .... ... lots of busy elves • Evolution is rapid, and 16-20 years is eternity • Many breakthroughs involve low investment • In the eBusiness Context, Barriers to Innovation? • The Absence of Patent Protection is seldom • The Presence of Patent Protection is