Internet Society Panel on Business Method Patents

On Oct. 3, the Washington D.C. Chapter of the Internet Society hosted a panel on patents and the Internet at one of its regular meetings. Vint Cerf moderated the panel, which included:

• Q. Todd Dickinson,undersecretary of commerce for intellectual property and director of the U.S. Patent and Trademark Office
• Jay Walker, founder and vice chairman of Priceline.com
• Tim O'Reilly, founder and president of O'Reilly Associates,
• Lawrence Lessig, professor at the Stanford Law School and author of Code: And Other Laws of Cyberspace

A central issue that had been discussed was the question of "business methods" patents and whether their issuance hampers free development of the Internet, and whether it is appropriate protection for businesses and individuals who invest in that development. Dickinson defended the 583 business-method patents that office approved last year, including the most famous - Amazon's one-click buying. At the other end of the spectrum, Lessig called for a moratorium on business method practices.

For a summary of the panel discussion, see Grant Gross' report on NewsForge.

For more in-depth details, here's a transcript. Cerf opened the discussion with some remarks on the history of open Internet protocols before asking each participant to give a five-minute introduction.

Vint Cerf: Before I allow these gentlemen their five minutes, I am going to steal just a few myself. I want to mention something about patenting and the Internet and its origins. One of the things that is peculiar and interesting about the Internet history is that the TCP-IP protocols were never patented. In fact, they were made available as widely as possible to the public as soon as possible. In fact, it's a little unusual that this happened because it was funded by the U.S. Defense Department, and normally one would have expected, not only would these have been rather close held, but they could even have been classified, except that all the work was done in the open with university researchers, principally coming from the computer science departments.

The openness of those protocols and their availability was key to their adoption and widespread use. I think if Bob and I had not done that - if we had tried to, in some way, constrain and restrict access to those protocols, some other protocol suite would probably be the one we'd be using today and there would be some other thing called the Internet, or maybe called something else doing the same thing, with a different set of protocols. So, that openness was pretty important. The fact that it wasn't patented, I think, was very important.

It's also the case that the Internet Engineering Task Force, which was one of the standards-making activities that takes place under the auspices of the Internet Society, is also relatively resistant to the use of patented technology in the construction of Internet standards. This isn't to say that such patents are ruled out and there are any number of Internet standards that, in fact, rely on underlying patented technologies. An example would be things like IP over Ethernet, where Ethernet itself is a patented technology. But the principal goal of the Internet Engineering Task Force is to make its standards as widely available and as easily practiced as possible. And that generally dictates that they not be encumbered in any fashion, or, if in fact there is some patent encumbrance, that the holder of the patent make the technology available at a fair and reasonable - under fair and reasonable terms and conditions. But, it has happened in the past that the IETF working groups have tried to steer their way around existing patents in order to avoid any encumbrance at all.

The last thing I'd like to observe - and this is something that perhaps we can get into in the early stages of our discussion that Todd might be able to respond to - is that any number of software patents have been granted during the last five to 10 years and a number of them appear to be patents for what is well-known, widely known technology that every undergraduate knows. Now, I'm being unfairly extreme, but I want to make the point that the patent examiners in the office are not necessarily always well-versed in the history of some of the new technologies, particularly software, because software patents were a very recent entree into the arena of things that have been patented. So, it's an issue as we come to grips with patents and the Internet, because the Internet is really nothing without software and everything it does is based on somebody's programs that animate the Network. So, I consider that to be a serious matter of concern, if patents are all wrapped up in software and if we don't have widespread ability to make use of software in order to evolve the Internet.

So, with that bit of introduction, I'd like to ask Todd to tell us a little bit about his view of the Internet and patents and how those two are interlinked. So, Todd, for five minutes it's all yours.

Q. Todd Dickinson: Thank you, Vint, for that introduction. Just to clarify the last point, we've been issuing software patents for a little over 30 years. There has been programmable digital computers for about 50 years, so I think the software that's been widely available and the programmability of software sufficient to allow you to file an application to make it worth your while probably coincided with when the first filing started, but let me start a little further back in the history. No, I'm actually going to start in business methods. I brought one today that was issued by the U.S. Patent Office in 1867. And, it is a hotel registry book. This is the entire claim: "A hotel registry book with the margin of its leaves occupied by advertisements" substantially as described in that drawing, which looks suspiciously like, if you turned your browser to the right too long today and went to a commercial site, what you'd find.

In 1877, we issued a patent to a man named Alexander Graham Bell for an invention now known as the telephone. During the next 15 years, he litigated that patent roughly 900 times. It was eventually decided by the Supreme Court in his favor in the only opinion that occupies an entire volume of the Supreme Court reports. I asked my folks to do a little bit of examination today, or a little bit of digging in the history. Here's a patent from him in 1946 - a method of linking telephones together and then monitoring the relay of the output of that linkage by a series of lamps and circuitry. Here's one from 1976 which links Watts lines together. So, we've been, I think it's fair to say, issuing patents on communications modes and methods of linking them for a fairly long time. We've also been issuing software patents for a fairly long time and business methods for a fairly long time. But, why are we here today? I think we're here today because of two factors: One, a decision by the Court of Appeals for the Federal Circuit, which is the principal appeals court that hears our opinions, about two years ago. I think it's an opinion most people are familiar with called State Street Bank versus Signature Financial. Signature Financial Company - we issued a patent to them in 1993, which they sought to license with State Street and others. Everybody else took a license except the State Street Bank.

State Street Bank started to practice the invention and that led to infringement litigation. The Court of Appeals for the Federal Circuit did two things. They ruled, first of all, that once and for all, yes indeed, software is indeed patentable subject matter under Section 101, so long as that software produces a tangible - and this is their phrase - tangible, useful, and concrete result. They wiped away a lot of fairly confusing tests on transformativeness and others that had been in the law and basically said, "Let's make it simple."

They also ratified or validated the software examination guidelines which our office had promulgated a few years before and said those were a valid means for examining software patents. And then on the other half of the opinion they said that, upon examination, the law under Section 101, which defines what is patentable as basic subject matter, that there is no exception in the law for what are called business methods. And they reviewed what were thought to be applicable precedents and found those were not appropriate.

The judge who wrote the opinion, Judge Giles Rich, was also the man who'd co-written the 1952 Act and drew on that experience. It's important to remember, though, what he said: that software patents and business method patents are patentable subject matter. They still have to meet the test under Section 102 - they have to be new or novel - and under 103 - they have to be nonobvious. And that's basically shifted the burden to us in the office to ensure that the quality of what of we do, in terms of the search and examination process, which is the way we make the determination about whether something is new and nonobvious, is done as well as we can do it.

About five years ago, because of an increase in the number of the applications, which is now rather substantial, we had created a group - a special art unit called 705. Group 705 now has 40 or 45 examiners. We will probably increase that number. All of those examiners that have come to our office either have computer science degrees, advanced degrees, or electrical engineering degrees.

Also, to put it in a slight perspective, last year we issued - out of Group 705 - 600 patents. That was up probably a 100 percent from the year before and this year we expect to issue maybe a thousand patents in Group 705. Last year, we issued 161,000 patents, so this is less than about a half of 1 percent. We have kept records for a long time of the allowance rate for our patents. Overall, our allowance rate has remained steady for about 25 years at around 67 percent - about 67 percent of applications eventually issued. In the business-method area only about 57 percent of patents eventually issue, so it's substantially less. But, earlier this year in response to a number of concerns that were raised and I think rightly so, we issued what was called the Business Method Patent Initiative and it had several parts. Let me just go through them very quickly.

First, one was to work with industries and technologies which were covered by these patents to make sure that we had the latest state of the art brought to the attention of our examiners. We made and have made direct outreach to effected technologists and effected industries. We've had the Securities Industry Association, the Insurance Association of America, the ITAA, and others now, we've entered to actually agreements with them and they've come in and worked with our examiners.

The second thing we've done was provide both training with them on the state of the art and an understanding of where we have databases and where we don't have databases that can be searched. We spend about $12 million a year on external databases and we have a very broad collection of our own, but we're also and always eager to get more. The second thing we did was what we called the Second Look. In this class we had now a primary level examiner or higher take a second look at all those patent applications before they went to issue and many of them have now been turned back. Ironically, I received a call today from a congressman, I won't say from where, who was complaining because a constituent of his had unfortunately made a fairly visible public comment on the fact that a patent was issuing on a particular business method and he wanted to know where that patent was because he had gotten a notice that it had been withdrawn from allowance and I said, "Well, I'll look into it, but my suspicion without having looked into it is that it probably got caught up in the second look process," and this congressman was not particularly pleased that his constituent's patent hadn't issued.

Third, we're requiring the examiners to use the automated search tools. This is the only area where we make that requirement. Most of them do, but our union has been negotiating this point for quite some time. And lastly, we had agreed to hold a round table and we held a daylong round table in our offices about a month ago, the end of July. I think that helped give a lot of voice to this issue.

Another thing that will be coming along that will be very interesting to see: the effect of the 18-month publication. The law was changed by Congress last year so that all patents, except those which are not going to be foreign filed and the applicant specifically requests that it not published, will be published at 18 months and we have in the rules, Rule 99, which allows for the circumstance under which art will be brought, will be sent into the office and will be brought to the examiner's attention. You won't be allowed to comment on it, you won't be allowed to argue it, you won't be allowed to oppose or protest it, but we understand that art will find its way to examiners and we're trying to make the system rational. Why don't we allow protests or opposition? Simple. Congress, last year, in a bill they passed in November, said very specifically in a provision of that bill, that the director shall make no provision whatsoever for pre-grant opposition or protest. And so Congress has told us they don't want pre-grant opposition of a pre-grant review by third parties and we're following what Congress tells us to do.

Lastly, why is this - as a policy matter - important? I think it's important for several reasons. The patent system has traditionally been used in this country by people - the little guys - who are seeking to gain a competitive advantage. In some ways, people have made the argument - I don't know whether this is true or not, I'm not an expert on it - but the argument has been made that the Internet today is where the automobile industry was in some ways in the turn of the last century. There were 500 or 1,000 automobile manufacturers and eventually consolidation took over the market and today we have three automakers. Well, the patent system is a way by which the little guy can gain the toe-hold. The little guy can take that innovation and go to the venture capitalist and go to the bank and get the funding he needs to get that business built and growing.

I think that the possibility of his consolidation is a real one in the Internet environment, as I understand it. We're starting to see some of it now due to other forces. If you're going to order books online, you're probably going to go to Amazon.com. If you're going to order airline tickets online, I know where you might go, too. That doesn't mean that other people can't get into that business, but because of the strength of the brands now and other things, I think you've got other barriers to entry and the way that others can compete now with that is to come up with a better idea and one way to exploit that idea is through the patent system.

So, that's my background. That's a little over five. I went way over fivbe and I apologize for that.

Jay Walker: I'll use less then. You know I'd like to just start by two thank yous. One, you know, Vint and Bob really deserve an enormous thank you for, you know, the contributions they've made in creating a medium that so many millions of people, including all of us in this room, use and I think you're following a long tradition of volunteerism in the country where, many of us in the country, are constantly volunteering to make the country a better place, are constantly putting our time and energy in to teach the young, to help the sick, to work. I think all of us in this room volunteer. I think we all appreciate the incredible role that volunteers do in giving of their time, giving of their assets, in giving of themselves so that we as a society are a better place. We don't mandate volunteerism, of course, from others as a society. That doesn't mean we don't appreciate it. We do. I'd also like to say thank you - how many people in this room either have used Priceline or a friend or a family member has used Priceline? Just raise your hands so I can - I'd like to say thank you to all of you as my customers.

Vint: You didn't ask how many were satisfied, however.

Jay: OK, well, let me take that advice. How many of you were satisfied with the service you received, or put it this way, how many of you were dissatisfied, since we saw how many there were, how many of you were dissatisfied? So, it looks like one, two, three, four, five, and it looked like there were about 75 or 80 hands up earlier. I apologize to those of you who are dissatisfied. If you see me after, I would be interested in your suggestions in how we can make it better, since obviously we did something wrong and no business survives by doing wrong by its customers. None.

Secondly, you made an interesting point at the beginning of the discussion here where you said that you contributed TCP-IP as a contribution and, if you hadn't contributed - your exact words I think were: some other protocol would be in use today. I think that's a very interesting point of view. What you're saying is, if we hadn't invented it and given it to the world, somebody else might have invented it and given it to the world, too, or somebody else might have invented it, like Ethernet, or something else. What's very interesting about that thought is it's not an exclusive idea. People choose to give things to the world and we're often better for it and sometimes commercial organizations create things like Ethernet and they choose not to give them to the world and we're also better for it. In fact, in our society, we have roles for volunteerism and we have roles for commercialism, which is very proprietary, and we balance those roles in our society all the time as we rely on commercial enterprise to deliver benefits to millions of people and we rely on volunteerism to deliver benefits to millions of people.

I think there are three large issues today and then I'll hand the mike to my right. And it's easy to take this debate and make one debate out of it, but there's actually three debates going on. The first debate is about property. Should there by property here? Is the notion of intellectual property applicable to a place like the Internet and does the definition of property need to be reconsidered? Should there be music that is property or should music be free? Should there be software that is property or should anybody be allowed to copy Microsoft's operating system? Should there even be property here? And that's a debate that's remarkable in its depth because there are people of good faith on both sides who believe that property is somewhat inappropriate in this space and so that would be the first debate.

The second debate is really about the quality of the property itself. In other words, if we look at patents as a form of intellectual property, there is a debate whether the property, a right granted by government, is being correctly administered. And so there's an argument whether examiners have the proper tools, whether Congress provides the proper funding, whether the system as it operates allows for the proper examination, whether the union rules as Todd is forced to work with, allow for the necessary quality he's looking for. These are all legitimate debates and so there's a second debate here about, if you will, the quality of granting property as if we were debating the quality of title search firms that have a title search on your house. Today we take that quality for granted. A title search is a title search, but in Todd's world, that isn't so easy to take for granted. And so there is a very big challenge and debate in that area.

The third debate is whether within the property itself there should be a separate class of property for business-method patents. Should there be a distinction of property? Now, historically, there hasn't been in the patent system a distinction of property, but in society we do that all the time. We distinguish property rights and competitive property rights in our world all the time. It's not that unusual. It doesn't happen in the patent system and historically hasn't happened. So it's a debate.

Should there be a new class of property within the patent system which may or may not need improvements to be of higher quality, which itself is a subset of whether there should be property at all. And so as we talk about these issues, and I'll hand it over to Tim now, I would frame the debate as almost three separate debates and, as we ask questions, I would argue that we need to ask the question: At which level are we arguing? Are we arguing property versus no? Are we arguing quality of property creation and its methods? Or are we arguing whether or not property itself should be allowed or distinguished with a new class as a subset of all other property? So that's my story and I'm glad to turn it over to Tim.

Tim O'Reilly: Well, I find myself actually in a surprising amount of agreement with Jay, which I wouldn't have expected. But let's back up a few steps here, just to talk a little bit about the characterization of these issues. I became involved not as a theoretical issue around any of these questions, but really as a pragmatic issue. Many of you probably already know the history, but it's probably worth repeating.

I've actually owned a few patents at various points around software, so I wasn't knee-jerk about it. Somebody once said, "Oh, there should not be any property in this area." But I started to get pressure from my customers who were saying, "We're really mad at Amazon.com about the one-click patent. We'd like you to stop selling your books to Amazon."

I said, "Gee, I've got a lot of people complaining. Why are they so hot and bothered?" And so I wrote a letter to Jeff Bezos saying, "I think you're making a mistake. You're angering a core set of your customers. What's more my customers, the people who are building Internet technologies, are probably your key suppliers of technology. You know, you are not a technology company. You are a company that is benefiting from a community of people who are not playing by patent rules. They're playing by a different set of development rules (which Vint aptly summarized earlier on). It's a culture that has been extremely innovative, extremely productive for all of us as an industry."

This was purely between me and Jeff as a private conversation originally. I said, "I think you're making a mistake," and I used the colorful phrase "I think you're pissing in the well." And, I still believe that, for me, that is one of the fundamental issues.

There is a pragmatic choice that we are making as an industry right now and that choice is whether we want to continue letting the goose lay the golden eggs or whether we want to slaughter the goose and see if we can do a little better that way. And I personally believe it's just purely a pragmatic mistake. We have one of the most fertile periods of innovation that we've seen. When I look at the history of the technology industry, I see periods in which there were low barriers to entry, where there were a lot of small inventors who were not trying to protect their intellectual property rights, and then a period of consolidation in which people start playing by a different set of rules and the level of innovation actually goes down. So, if the purpose of so-called intellectual property rights is to protect innovation, I don't see it working.

So, my basic message to Jeff was actually summed up in a phrase I heard once from Norman Mailer when I was in college. He said, "Being evil is doing something you know is wrong. Being wicked is upping the ante without knowing the consequences." I think that some of the behavior that's going on in our industry right now is wicked. People are changing the rules of an industry that is working really well and I just think it's unwise.

So, that's kind of a different vector than any of this discussion. Once I became involved and started looking into things, I realized that there was a further vector about the Internet culture that was extremely important and that's in the area of prior art. And, some of this is related to what my business is. I've recently come to characterize my business not as being a publisher, but as being somebody who watches what some people refer to as the alpha geeks are doing, and figures out when it's ready to reach the next level of deployment. And then we go talk to those people and get them to write down what they know. Now, the fact is that knowledge is circulating in a fairly large group of people before it's published in a forum that, for example, we might have considered publication even 20 years ago.

At least in the Internet world - I won't speak about other technologies - the people who are using many of the key technologies that are shaping the future, are, in fact, communicating in media that have not historically been considered publication and yet certainly are succeeding in disseminating the ideas very widely. So, for example, you'll find many technologies in which the teaching, if you like, of the art occurred, on a Usenet news group or an IRC channel or some kind of discussion group or through the dissemination of source code from an FTP archive. And, obviously, if thousands of people are learning the art from that method of publication, that constitutes, at least in my mind, a valid set of prior art. And I think that that's part of the reason why my customers get so hot and bothered about software patents.

Some of it is very much misinformed. The media has hyped the issue up. People hear a broad, general description of a patent. As Todd is fond of pointing out, they haven't read the claims, they haven't actually read the patent and yet they react in a knee-jerk way to the broad characterization of it. But, at the same time, there is a real germ of truth to that anger, which I would love to have the people who are involved in the patent industry listen to. And that is, this whole question about whether a patent is obvious, is really more rooted in a change in the way that information is disseminated in the information age. And when I look into how does the patent office search, where do they search, it seems quite clear to me how hard it is nowadays in this industry in transition to find out what it is that people are doing.

Now, let me give a very concrete example. I didn't actually file a patent, but by the standards of patenting today I could say that I "invented" Web advertising. I was the first person ever to do an advertisement on the World Wide Web. And, the fact is I know that some small number of people probably know it. But a few years ago, Wired Magazine claimed that they were the first people to do it. They did it in 1995, I did it in 1993. Now, here's the question that really hit me about this prior art issue: How difficult it would be to find that? Even though I knew it, it took me a few weeks of digging through old boxes of files till I could find a copy of a brochure from GNN, the Global Network Navigator, from 1993 that showed one of those ads. Our Web pages are long gone, maybe you'd find it in a Wall Street Journal article that appeared at the time, but maybe you wouldn't.

The fact is, it's very, very hard in an industry that's moving as fast as we are, where, for example, the Usenet, (which is the source, I believe, of a great deal of prior art in many of the Internet technologies) the archives are no longer even available. And so we have a problem which we as an industry need to come to grips with in order to help the patent office to do a better job.

We're not figuring out how to provide the information that we learn our skills from in a form that is easy for them - for people who want to file patents that are valid - you know what I mean, Jay makes the comment, what good is a patent filing that isn't valid; if you don't have a proper title, you have a problem. And, so one of the things I'd really like to explore are mechanisms for helping patent holders, helping people who are threatened by patents, and the patent office to find prior art in this radically changing, rapidly changing industry that disseminates its information in ways that are not traditional, paper-based methods.

Vint: Let me ask if we could stop there --

O'Reilly: That was my last line.

Vint: All right, and go on now to Larry. Thank you.

Larry Lessig: So, I'm a lawyer with a guilty conscience. I don't make a lot of money, but that's the kind of lawyer I am. I want to start with a story and then a little bit of an explanation of the guilty conscience. There's a movement called the Law and Economics Movement that was born at the University of Chicago in the early 1950s. It was borne when the dean of the Chicago Law School, Edward Levy, who would go on to be attorney general under President Ford, asked an economist from the University of Chicago Economics Department, Aaron Director, to attend his antitrust law class. And so four days a week Levy would teach the class of antitrust in the way lawyers thought about antitrust and on the fifth day, Director would get up every week and show the class, and show Levy, using economics, why everything Levy had said was wrong. And by the end of the year Levy was convinced and a revolution was born.

Now, in that class there was a man named Robert Bork, who went away from the University of Chicago and wrote a book called the Antitrust Paradox, which was published about 22 years later and in that book, he bemoaned the fact that, though at the University of Chicago they had figured this out 22 years before, the Supreme Court had not yet got it. But, Bork's book was extraordinarily successful and when he wrote the second edition, he had to very sheepishly say in the beginning of the book "I know this book says the Supreme Court didn't get it, but they've gotten it and the Law of Antitrust has been radically redone because it finally faced up to a fundamental fact that antitrust was about economics." Now, that was some 35 years after this insight was made and for 35 years lawyers did their damage to the economy by racing around talking lawyer-speak when what they needed to be speaking was economics-speak and because they had an arrogance about the way they think about the world that said, "I have my categories given to me by the framing, the founding fathers, about the way to look at the world and I'm applying them and don't bother me with economic reality." But when that was crushed - that arrogance - antitrust changed.

I share very much Tim's attitude about this question of patents. That attitude is: this is a pragmatic question and I translate pragmatic into economic question. The question is from an economic perspective, do patents do good. Now, you can't answer that question in yes or no for all kinds of innovation. Clearly, patents, for some kinds of innovation, do wildly good things for the economy. There's no doubt about that and so when Mr. Dickinson says there's been a history of patents contributing to innovations particularly for small developers, that's absolutely true. But economists have been saying for a very long time that the question is extraordinarily complicated as you change the field of endeavors.

As you move from one kind of field of development to another and, in particular, there's a growing and strong amount of economic research that says in a field like the Internet, where development is sequential and complementary, strong patent rights can actually do harm to innovation not benefit innovation. Now, my perspective on this debate is just this: There's a hard question out there that has to be answered. What is the good that this does? And, it ought to be answered before we roll out a mechanism, a lawyer's structure for regulating this in the way that patent law regulates it. It ought to be answered before we do that because once that system is rolled out it's extremely hard to roll it back.

Jay Walker will be in court claiming a taking under the Fifth Amendment of the Constitution if somebody comes along and says, well this idea was a bad one, we're going to revoke all these patents. So, we've got to be figuring this out now, but instead of figuring it out now, we're seeing the same debate occurring between lawyers and the rest of the world. We have our systems, we've been doing it for a 150 years, we've always been doing it just like this and we should continue to do it like this for the rest of time and I say bullshit. We ought to be examining in an economically serious way whether this makes sense and when you start from a world where we didn't have, regardless of whether you filed a patent in 1870 whatever about whatever, the fact is people who developed software in this world did not live by the rules of the patent office. They didn't live by that ethic. And, as we see this changing, and it is changing, we should be asking now, prove it to me that this will improve innovation. Prove it to me first and if you can't prove it to me then you haven't the justification for changing a system of innovation which has produced the Internet.

Vint: Now there's a challenge. Now I have vast quantities of questions here and they're all very good. Thank you for your participation in this, but I also wanted to give the panelists an opportunity to shoot at one another on the basis of their earlier remarks, so we'll take about 10 minutes at least to allow the panelists to raise issues with each other before I attack you with questions that have come from our participants in the audience. So, is there anyone who wishes to take the first blow.

Todd: I appreciate Professor Lessig's comments very much, particularly - I guess I'm a little envious - some days I wish I was a professor and only had to think about these things and not actually do the work. But, I got an office to run and I got 1,500 of these applications coming in this year and I got to figure out what to do with them. I don't have the luxury of stopping and waiting for five years while Congress debates whether they're going to change the law or not. With all due respect. We have, I think, made a good faith effort, through the recent initiative, to deal with a number of the very pragmatic, but also philosophical concerns that have been raised about - particularly some of the very thoughtful issues that Tim's raised - about how we gain access to prior art and I think that's a key question.

The courts are the body which are responsible for interpreting the statutes and applying the kind of juris prudential philosophical kinds of overlays that Professor Lessig was talking about and they've said very clearly - the Court of Appeals for the Federal Circuit to this point has said very clearly - that there is no exception under Section 101 for business methods and no member of Congress has introduced a bill changing the standard under Section 101 yet, so we do what we're told to do by Congress and the courts and hopefully we do the best job that we can.

Tim O'Reilly: Todd, can I jump in with something here? In Vint's introduction, he made the point that you have roles. One is, you are managing the patent office, but he also made the point that you are the Advisor to the Administration on Intellectual Property Issues and in that second capacity, it would seem to me that it would behoove you to say to the administration, there are some serious issues here, there are serious debates underway, shouldn't we be cautious? Because I think that's ultimately what Larry is saying.

Todd: I agree with that a 100 percent. This issue has been debated with the administration. I see members of this audience today who are participants in that debate and I think that where we have come down is the business method initiative that we've promulgated, but I didn't mean to single out that congressman who called me today, that occurs regularly. There are people on both sides of this issue that feel very passionately about it.

Tim O'Reilly: There is a taffy pull, no question about it.

Todd: As far as the policy device, we take that very seriously. I think the most learned paper at the moment is the one that Josh Learner from Harvard promulgated on this issue and he basically said that economists have thrown their hands up. Some say that patents impede innovation. Some say that it spurs innovation and there is no concurrence or consensus at least in his particular field as to that - I don't know of any study - I hate to disagree with Larry, but I'd love to see it - I don't know of any study that specifically says that patents are, on the Internet, are retarding the development of the Internet. I think the evidence to the contrary is how rapidly the Internet's grown over the last three or four years while we've been doing patents in this area.

Tim O'Reilly: I'm curious why we have a moratorium on Internet taxation but not a moratorium on Internet patents.

Vint: I'm sorry. Let's not go there. I realize it's a good question, but it is not on the point, so I am going to invoke privilege and say that that's another topic for the D.C. ISOC. We'll get Gov. Gilmore here to discuss that. OK, I have a bazillion questions - this is wonderful - we are not going to make it through all of them by 8:30. Let me tell you, some of you have submitted questions about trademark, copyright and so on. I'm going to rule those out for the moment so that we can stay on topic with respect to patent. And, one of the wonderful questions that came in is for Todd. It says, "Why is the language used in patent applications and PTO responses so arcane?"

Todd: That's an excellent - I've been a patent practitioner my whole career - that's an excellent question. Oliver Windell Holmes once said that a patent is the most complex legal document that there is and, in some ways, he's right. Part of it is a function of a recognized nomenclature and so, because the law specifically allows and has always allowed, this is the phrase of the law: the applicant will be their own lexicographer.

People have used that opportunity, I think their lawyers have used that opportunity, to try to frame the invention in ways that make it a little harder to research. I wish, and I've said this to Tim and to others, I would hope that - I would like the Internet industry to try to come up with a common nomenclature. I am chemist by background and we stabilized our nomenclature over a 100 years ago by international convention and it's relatively well enforced, so maybe that's partly the software industry's need to develop a nomenclature. The other part is the lawyer's fault. I'm a lawyer. That is our fault. We do indeed attempt to - our job very often is to broaden - get the broadest protection we can and still get it past the office and so it is, indeed, a taffy pull and part of that is also an attempt later when these may be litigated to provide a certain amount of wiggle room, though the courts have been - I have to say this - the Court of Appeals of the Federal Circuit has been narrowing the doctrine of equivalents over the last few years which I think takes some of that away. And part of it is just the fact that a body of law has built up around what certain words mean in patent applications.

The difference between comprising and consisting of in a patent claim transitional language is night and day, but to the nonskilled practitioner it probably doesn't make a lot of sense.

Vint: Are there any other attacks that want to be mounted in one direction or another? No. I have to tell you that a rather significant stack of these questions are targeted at Todd, but so we want to spread the - let me raise one curiosity - one of the interesting things about innovation on the Internet I think is a consequence of the fact that when you pulled up a Web page, you had the ability to say View Source and that meant people could see what the HTML code or now XML code was that produced the image that you're looking at or the other effects that you're looking at and people copied that. They would copy each other's pages and they would learn how to write Web pages that way. That sort of goes against some of the notions of trying to control and patent and restrict the use of at least, let me call them programs, written in HTML, or the Web pages written in that descriptive language. In fact, it deliberately prevents it in some sense because it makes it so obvious and so easy to duplicate. I wanted to ask whether that's significant at all in terms of the rapid rate at which people have been able to put things up, try new things out on the network and is that relevant to this discussion about software patents? Does HTML fall into the software framework at all, or XML?

Larry: Well, I certainly think it's extraordinarily relevant because what it's demonstrating is that there's a different model of innovation and development that has taken off and we ought to pay attention to it. Now, you can say, I have all the time in the world to sit around and try to figure this out as a professor, but I think there's something extraordinary here to say that, look, we don't have time to figure this out, we ought to just race ahead with what we've been doing. Right, Mr. Dickinson, you hold a position that Jefferson held in the very beginning of his administration, one of the most skeptical patent people, who was constantly struggling to figure out how far patents should go. And when he spoke about them, he spoke about them not with the second great mistake lawyers have done, not with the word intellectual property, he spoke about government backed monopolies.

Patents are government backed monopolies and it chills me to hear you talk about congressmen calling you and talking to you about whether you ought to be issuing another government-backed monopoly, but I think if we started talking about it like this, then the urgency to start figuring out whether this is doing us any good becomes a lot more real because we didn't need government backed monopolies to create the greatest set of innovations that we've seen in the last generation, two generations and it's quite clear government backed monopolies will increase the cost of innovators, not just people who are going to file for patents, but everybody who's got to now have a lawyer sitting next to them as they code their stuff to figure out what they can do.

Now, in the face of radical changes that we see that we're making, the idea that you can say, "Oh, look we're too busy to sit down and figure out whether it's going to do any harm," seems to me extraordinary. This is the most important part of this economy and the idea that you don't have time to figure it out before you launch the Challenger, that really seems to me to be an extraordinary indictment of our government-backed monopoly issuing office.

Jay: They could go to the dictionary and find every word in every one of your books. All the words are there. Everything ever written is in the dictionary, it's just the sequence that matters. You know, when you look at what has happened, the idea of protecting people's written words in copyright has led to an enormous explosion of innovation. The recombination of words in incalculable combinations forever and ever have enriched everybody in this room. Every author who has ever sweated and labored to create a book did so in part because he knew he would not be taken from in his arrangement of words. Now, we're all free to write words and give them away voluntarily to society. If you do, congratulations, we appreciate it. However, society has no right to take your words and your labor simply because it's part of the great explosion of the written word, of the book, of learning, of the university, whether it's your thesis or not.

We historically have seen periods of enormous explosion in creativity that parallel - the Internet. OK. We have seen periods where innovation has flourished at enormous levels historically and we have learned from history that property typically encourages innovation. Why? Because humans are economic animals, except for economists. Humans are economic animals, and as economic animals, we want incentive, we want reward, we want to be able to control what is our property and created, which is not to say we should not have debate - and let me get to that issue - but in a world that is changing rapidly, the economist and the researchers will spend time researching and debating and that is the nature of a free society, but the society cannot stop during that period.

Property, the first of the three debates I argued, I would argue is beyond reproach and the burden of proof is not on those who would need to say property should be but on those who say property should not be because historically societies that did not respect property rights, all right, ended up in the dust bin of history. And societies that respected property rights moved forward aggressively.

Larry: Jay, you're a lawyer right?

Jay: No, I am not a lawyer. That's a terrible thing to say. Damn it. I am a businessman. Do I look like a lawyer? He called me a laywer. That's rude.

Larry: This will be very brief. Jay, patents and copyright are not property in the sense that your car is property, and this is just ideology to say it is. Our tradition is a tradition that says what you call intellectual property is a balance between government-backed monopolies to create incentives and limits on those monopolies to guarantee that the stuff that you produce comes out into the information commons as quickly as possible. The original conception of what you now rally around and call property is not the protection for your car. I have no fair-use right to use your car. I have no right to get in it and drive it around the block, but anybody has a fair use right to take my book and that's the conception of the framers, not the conception of property in the way that you think of property for your car.

Jay: Let me make just a couple of points. No, there is not a fair--not everyone has a fair use right to take your book. Some do and some don't. There is no fair use in the patent system either today. Two points: you made the point, why don't we stop everything when a new innovation comes along and make a policy determination. What I said was - I didn't say that I was not making that policy review - we are, I said we were, and I said we came out where we came out with the Business Method Initiative. That policy review occurred and will continue to occur and it will be fine-tuned and if Congress wants to get into the debate, that's good, too, and if we see additional abuses, we'll take additional steps, but we've come to where we've come to strike the right balance and we've made that review internally inside the office. But to say that when Vint and Bob came up with the Internet, they were supposed to come to the patent office and say, I've come up with a new technology, will you please make an analysis of whether or not the patent laws should apply to it or not and take a period of time to figure that out before we move forward, is not realistic. You have to, we have to, do both things simultaneously. That's what we do. We've made that policy determination and this is where we've come.

Tim O'Reilly: Let me respond briefly. Jay, you introduced the subject of copyright here, which we'd left off the table. Let me just argue that there's a very significant difference between the kind of rights that are granted by a patent and the kinds of rights that are granted by a copyright. Now, you tried to equate the two. The fact is if I publish a book or one of my authors writes a book and it's protected by copyright, the ideas in that book are disseminated. A patent grants sort of visibility of the ideas, but forbids the use of those ideas without the permission of the person publishing them, so in some sense, they are really inverses of each other rather than in parallel.

Jay: Tim, I think it's a mischaracterization to say patents cover ideas. I am not a lawyer. Patents cover claims that are very narrow and specific, OK. They don't cover ideas. That's part of the promulgation I would argue of a mischaracterization of patent.

For example, I may have an idea, but until I reduce it to practice and specifically determine a set of claims that are novel, nonobvious, and useful, I have nothing. And, by the way, once I do, I have taken a fairly narrow implementation of those ideas for which others are then taught - which the patent is a teaching, OK, and teaches the world everything for a limited period of time, which, by the way, spurs innovation. I know from my real-world experience that those who would seek to build on my inventions, seek to improve them. They get around "my patents" by adding new ideas, new ways to make them better. They may not plagiarize my book, they may not plagiarize your book, but they can build on it, or they can choose to license from me as a businessman if I can charge enough rent to induce them to license versus to design around.

The world is filled with design-arounds. It's filled with competition. You know, Larry's point, which is a stifling of innovation is an important point I don't argue. However, I don't see it. I don't see the lawyers sitting next to my companies and arguing every little piece. I believe it's theoretical.

Tim O'Reilly: I'll answer that one right now with the one case in which I owned a patent. I was sitting there with the decision: do we have our CTO work on development or work on filing patents? We had pretty clear feelings that there were people who were infringing those patents. Once again, do we pursue our business objectives or do we seek legal redress? Those kinds of choices come up for entrepreneurs increasingly and they are a tax on innovation. We did less technical work because we had to do more legal work.

Jay: All property is a tax, because I noticed you have really nice clothes in your closet and I'd like - we're about the same size - and I'd like to borrow some of them.

Tim: You probably have better clothes than I do.

Jay: Property is a tax, no arguments, but it's a balance. Now, you can anecdotally tell me stories of lawyers sitting next to developers and I can anecdotally tell you about investment bankers sitting next to me, OK, and saying, "Where is it?" I'm not arguing the point, I'm just arguing anecdotes aren't a method ...

Larry: OK. Let's go beyond anecdotes. I'm surprised this is not something you're aware of. There's a pretty serious research paper that's been released by a Harvard economist, Maskin and James Bessin, called Sequential Innovation, Patents and Imitation. It was published at the beginning of the year. There is a conference on it that's being held in Paris in November. This is a pretty serious mathematical modeling and empirical study of the effects of patents in different innovation industries.

The conclusion they draw about software is that the explosion of patents in software has had a harmful effect on R&D in these software industries. In particular, this is a quote from their paper, "Between 1987 and 1994, software patents issuance has risen 195 percent, yet real company funded R&Ds fell by 21 percent in these industries while rising by 25 percent in industries in general." Now, this is an economic study that brings out a reality which is an intuition many people share. Your point about what goes on inside of industries is not idiosyncratic. This is Doug Brotz principal scientist of Adobe, saying "Resources that could have been used to further innovation have been diverted to the patent problem. Engineers and scientists such as myself, who could have been creating new software, instead are working on analyzing patents, applying for patents, and preparing defenses. Revenues are being sunk into legal costs instead of into research and development."

Now, I think in principle, you could justify those costs. I think it's possible that these costs - you say that all property is a tax, fine, all property is a tax, but the question is do you have evidence that the benefits outweigh the costs and evidence that the benefits outweigh the costs before you start making the changes? So, I agree you can't figure out the whole world before you proceed with what you're doing, but the point is we are changing the innovation horizon right now. We're changing it, and I would say, following what Tim was saying, why don't we stay with the default until you show us that change is better because it's the change that's being criticized, it's not that we need to figure out what we're going to do next, it's we need to figure out whether we should change before we change.

Vint: Let me jump in for just a second and raise a couple of other observations that would be useful here. We haven't mentioned open-source software yet and it seems to me one of the interesting elements of open-source software is that everybody gets a chance not only to see how you do something, but to actually make use of that open source to do it. I have a history of programming. I don't do much of it anymore, but I made a living doing programming and I remember that the way I did any program was to try to remember how it was I had solved that problem before and then adapt the solution to the next problem. It is sort of like a good mathematician who tries to reduce whatever the problem is to a previously solved problem and then use that. So, open-source and the behavior of many programmers, which is to go back to use techniques they've used before might indeed be, I'm speculating now, might indeed be interfered with if the technique that they used before somehow became somebody's patent and, therefore, something they couldn't use freely without going through some licensing mechanism, so I think that's kind of the area that we're asking about.

Todd: What's the solution? I understand the problem that Larry's raising, but what solution is he proposing? Does he want to change 101? What does he want to do?

Vint: I think he's saying - I think, Larry, without trying to put too many words in your mouth - you may be saying, "Why don't you stop patenting software until we figure out whether it's a good or bad thing."

Jay: I think the answer to that is because people file software patent applications and I could reject them, that's fine, we've rejected for years. They appeal to the Court of Appeals for the Federal Circuit, the Court of Appeals for the Federal Circuit says, you were wrong in rejecting a patent in the trademark office, please issue the patent and so we have to issue it. The Supreme Court said it, the CFC said it, in no uncertain terms. If Congress wants to change the law around software patenting then have Congress change it, but until they do, we need to go forward with what they've told us to do. And we cannot single out technologies, by the way. We cannot single out - I know people say, well, software is important, why don't we single out software. We have - for good or bad - an international obligation under our GAT obligations in TRIPS which says that we cannot discriminate among technologies.

It's in the treaty that we are bound by and so we can't single - we can't say, well, software's this, jeans are that, and toothbrushes are that. We can't. We have to treat them all the same. I'm going to hand it over, but I want to speak to Larry's point because I thought you made a really excellent point. You pointed out that two distinguished academic economists have written a paper, and as we all know, economists will differ over time and I'm sure these are very distinguished economists, but at the same time, we also - I heard one of your statistics where they said, R&D went down, if I heard you correctly, in those industries where patents were sort of clogging up the system.

Larry: Only in software.

Jay: Software. OK, but here's what I would point out. I read a number in Business Week, so I'm not sure it's accurate, because I read a lot of things in Business Week, OK, but what it said was that last year 40 percent of the corporate R&D in America, the total R&D, was coming from venture capitalists. Forty percent was coming from funding sources, which are not typical corporate R&D, which I'm just going to guess aren't in the study. Call me crazy, I'm just going to guess that those guys somehow maybe missed that issue. You can tell me I'm wrong in a second, which is fine, but my concern here is that while we're busy having academics issue papers, the people who are creating jobs, the people who are creating value and the economy as a whole, seems to still be flourishing in the critical sector where the sky is falling.

I'm not saying there isn't problems or challenges, but it appears that it's happening and those of us that are creating hundreds and thousands of jobs and getting capital deployed at risk because we can innovate and get some property here are here to tell you that if we slow this engine down because of the study groups you want to have, I'm not sure you're going to be well serving the economy.

Vint: Larry, before you respond, two points. First of all, it's not clear to me, Jay, that everyone who is generating those jobs is doing so on the basis of software patents, so I want to make sure that it's not left the impression that the only way you can generate energy in this economy is to go off and patent your processes and software.

Tim: For that matter, I was at a conference shortly after the Amazon patent controversy and I got high fives from a lot of venture capitalists. You know, not all the venture capitalists are in favor of patents. You often hear they require them of their startups and the fact is I've had more venture capitalists coming up and saying, "Attaboy! We think this is really starting to clog up the system." I think virtually everybody in our industry - there's a very strong consensus in the high-tech industry - that this is a car careening out of control.

Vint: Even if there were not consensus, there's certainly controversy and, of course, that's why we're all here tonight. Larry, I know you have the microphone, so I'm going to ask you to respond to a question in addition to whatever else you might want to do. Bear in mind that it's 8:15. One question - the question is if you don't have some kind of patent on the technology or the process then how do you lock in shareholder value. I mean, what tangible evidence do you have for your shareholders that you have the ability to control your intellectual property and apply it and, therefore, produce revenues and we hope profits as well?

Larry: OK. Let me answer the other question first and then I'll answer this. Jay, you're right, there's a lot that has to be figured out here about what the economic consequences of this is. This is one paper. The actual evidence that I was siting there was from another set of studies that they're referring to. This is a pretty serious analysis summarizing what's going on in the field. Now, you're on my territory. We're arguing, what is the economic consequence, and let's try to figure that out.

Now, you say, "Well we can't stop building the Internet economy while you figure it out." But my point is, following what Tim was just saying, people who say that they're building the Internet economy don't say that they're building it by building patent portfolios right now. They're building the economy and the patent portfolio game is coming in and being layered on top of it. The behavior is being changed because they now have to face up to a reality imposed by the people I raise for a living - lawyers. Now this is the change, lawyers are making the change and it's not the other side that used to say, "Why do you want to change it?" I'm saying stop doing what my students do until you know what my students do are doing some good.

Now, Todd you say, well, what's the remedy? Well, I agree. You have a job to follow the law of Congress and I'm completely convinced that Congress has told you what to do and the courts have told you what to do and you've got to follow what the courts do, but as you said in the beginning and as Tim echoed, you have another role and the other role is to talk about what the policy ought to be and if you genuinely are worried about what the consequences of different patent policies would be, you could recommend what Congress can do. If Congress changes, that's fine, but here's what Congress should do at a minimum: They should continue to allow you to collect patents, to collect patent applications and to issue patents which can only be used defensively. No offensive use of patents should be permitted during a period of a moratorium.

Vint: What does that mean, by the way? How are you going to get over TRIP?

Larry: I can tell you exactly how to get over TRIPS.

Todd: TRIPS is the Trade Related Aspects of Intellectual Property. It's the treaty that I mentioned a minute ago that requires us to treat all technologies equally.

Larry:Right. First defensive versus offensive. If you get a patent, you can use that to defend against somebody else suing you on the basis of a patent violation.

Vint: So that someone can't stop you from using your own idea, is that ...

Larry: Right and many people are getting patents. Many people are playing this patent game just to be defensive, just so they know that they're not going get blocked out as opposed to offensive use of patents where you go out and you say to Barnes & Noble, "You can't use this technology unless you license it from me." So the proposal is, and I'll answer TRIPS in a second, the proposal is we have a moratorium on offensive use of patents until Congress conducts or commissions a significant and serious analysis to answer the question whether we have any reason to believe it's going to do us good to extend patents in this way.

Jay: Does that if Microsoft takes my property, I can't bring a suit against them, is that what you're suggesting?

Larry: No.

Vint: I don't know lawyers, so I - I just happen to understand the difference between offensive and defensive. Is that what it means?

Larry: That means that you can defend somebody - if somebody is suing you, you can defend it, but the whole issue is whether this should be your "property" and the answer to the question of whether it should be your "property" is if it does the economy good to be issuing monopolies to you and whether it does the economy good to issue monopolies to you is a very complicated question and we just shouldn't simplify it by raising up the American flag ...

Jay: ... in the middle of the longest peace-time economic expansion in the history of country.

Larry: Right, built by patents or built before the patents had the effect?

Jay: There's no evidence that they harm the economy.

Larry: Wait, wait, wait. We just cited evidence that there's an effect ...

Jay: ... paper that says that ...

Larry: No, no, so you've made the study and you're concluded that this isn't the effect?

Jay: I have read the study and I have not come to any conclusion on Microsoft specifically.

Todd: You made a good point that we need to continue to study it. My point is we have. You're right, we are in a policy-making role in the administration and I've indicated where the current administration policy is in this regard and I've indicated where, and the fact that, the administration is very open to continuing this debate and dialog. That's one reason I'm here tonight to hear it, but just because we don't go where you want it to go doesn't mean it's necessarily wrong. There are a lot of different takes here.

Larry: Of course not. Of course not. I don't have a conclusion either about it, but you agree there's a pretty significant change that's occurred since 1997 and State Street Bank. So, if there is an effect caused by patents it's ...

Todd: ... when Bill Clinton came into office there were about 100 web sites. That's how recent the Internet is in innovation. The first Internet patents, Internet related patents, were filed about the year and half after that. To say these two things are happening simultaneously is not correct.

Larry: Well, to say that patents have been "regulating" the Internet market prior to 1997, I don't think is correct. Patents have become a reality in effecting how people do their business modeling very, very recently, so you can't say that the Internet growth explosion is caused by patents. The Internet growth explosion happened long before patents became a significant part of the equation.

Todd: How long before? Three years, five years?

Vint: No. The commercialization of the Internet started in 1990 and the World Wide Web element of it really exploded around 1994 when Netscape Communications released its Netscape Navigator, so - that was 6 years ago - in the last six years a lot of the applications, business applications on the Internet, rode on top of the World Wide Web. Let me, because we're getting close to the end here, I wanted to ask the gentlemen on this panel, is there a process by which we could better understand whether the issues are in fact - this question of software patent - is in fact either beneficial or not? Is there some mechanism, some process by which we could figure that out? Is there any way to measure anything? One of the questions, for example, was what percentage of software patents are rejected by - I don't know whether you keep statistics like that, but ...

Todd: In this business method software area, about 43 percent are rejected. I wish that, because the current law requires us to keep them confidential, I wish I could bring examples of them here, but all these - there is somehow a public perception that we're just letting the flood gates open. On the contrary, the average allowance rate for all technologies across the board of the office is around 67 percent. In the business-method software, Internet area, class 705, it's 57 percent. That was last year's number. That was before we instituted the second look and I'm willing to bet that with the second look, it will be probably closer to 50 percent.

Vint: OK. Here's another very basic question that was asked. Regardless of how you define Internet property, when does it become property? In other words, for example, in the copyright world, which we said we weren't going to go into, when you write something it becomes your property when you write it so ...

Todd: Patents are only enforceable upon issue in the United States, so it does not become defensible property until it issues. One change will come, though, later this year when we move to 18-month publication. Once a patent application will be published, the applicant has what are called provisional rights, meaning they can enforce it against an actual infringer to the extent there are actual damages having given actual notice to that infringer and it has to be, once the patent eventually issues, then it has to be a claim that survives that process. So, actually, we're expecting a fairly large number of, we're planning at least, for a fairly large number of early publications, people filing - particularly in emerging technologies, particularly in software - where people will file that application and request publication immediately so that they can trigger that provisional right and then go after protection.

Jay: I'd like to suggest something we can do in the spirit of that question. I think here's the challenge and even if we all disagree, I still think we would agree maybe on this. There is no question that we want the highest quality examination. There is no question we want prior art databases that are far more sophisticated than the ones today so we don't ask the courts to eventually tax us all with uncertainty in legal costs. There is no question that the office needs more people and more equipment. There is no question that Congress takes the funds we pay as inventors and siphons off a significant percentage of it to fund other general purpose programs that have nothing to do with the examination.

Instead of investing more of our society's money in higher quality results, they are literally skimming off the top some enormous 20 to 25 percent, I don't know the exact numbers. So, there is no doubt that if we want Todd to do his job and we want better quality and we want better examination and we want other improvements maybe we want to discuss how opposition can be put into the process. We're not going to argue that, but if we don't get on the phone and use the taffy pull to say, look Congress, if you don't at least give them their fees, if you don't at least invest in this area, if you don't at least build open databases that programmers and software people can post things to, if you don't allow examiners maybe to be able to post questions in public in some way that Todd feels is within the rules in the law, then it isn't ever going to get better. So, we've got to support the system for some incremental change quickly that's driven by money and then we've got to support a dialog which I think is perfectly - Larry's perfectly legitimate point - on what in the information age is the meaning of property. What in the information age is the meaning of examination?

Larry: Let's not ask that philosophical question. I mean, philosophy is not the issue. It's a pragmatic question and so I'm completely willing to agree with you. I sign on to doubling no more of these limitations and taking money away from his office - you know, billions of dollars taken away over how many years - complete support for massive increase in the patent office's infrastructure. But then here's the deal I want: We get an agreement that we have a serious analysis, call it a commission, that asks that pragmatic question: Is there good evidence that changing the law as it effectively has been done to expand into business methods and software patents will increase innovation? Is there good evidence?

Jay: We should ask that for jeans. We should ask that across the whole of technology. To single out one area ...

Larry: I agree.

Todd: It's being asked and I think - I thought everyone knew, maybe they don't. The National Science Foundation has commissioned a study which is being done right now on just that very question and I think they're - I think it's going to come out next year. The president of Yale and I think the senior vice president for research at Xerox are heading up the study.

Larry: Right. I wasn't really asking about the nature of the study, but the consequence from the result. I'm saying let's structure the answer in the following way: If it comes out and says there's no good evidence that this will increase innovation then why don't we remove the patent tax that the software industry feels that they have to go through this game of issuing patents when there's no good evidence it's going to do any good and why don't we remove the business-method patent tax that issues for people who want to have business methods in cyberspace when there's no evidence it's going to any good. The consequence of this study should be if it can't show it's going to do some then we should remove this layer of government-issued monopolies and go back to the open-source base that we had before.

Jay: You want a big study group filled with the experts and you want this big study group to decide whether people who are using the patent system are doing a better job at creating value in this society than the people who might be abusing the system and that this study group should sort of decide?

Larry: Patents don't create value, patents allocate value to a patent holder. The value is created independent of the patent and all we're talking about it whether this system will create increased innovation. That's the question and if it doesn't why do we keep it.

Vint: I have a - we're very close to running out of time and I have a lot of people here who want to jump in. You guys are going to get attacked when you get off the stage. One thing that I would like to kind of summarize before we close. Let me just observe that in other matters of intellectual property people have managed to choose whether they are going to protect or not the idea that they've had. Interestingly enough, we were lauded I think inappropriately, Bob and I made a policy decision at DARPA not to patent the technology. This wasn't a voluntary thing, we were paid to work there, but the purpose behind implementing the protocols was to get them out there so everybody could build them so the military would be able to buy any equipment in any networking system from any vendor and make it all work together so they wouldn't be held hostage to any one vendor, software and hardware. That was the principal technological motivation at least as I saw it.

In any case, it seems to me that there might be - you might argue - well you can choose to patent your business process or your software or not and the worry that I would think Larry might put on the table is that if you choose not to do so and someone else takes that same idea and is able to patent it then you may be prevented from using that without paying a license fee.

Todd: That would just be a mistake.

Vint: That would be a mistake. So, this would be a prior art kind of issue.

Todd: If you are not the venturer, you cannot by law govern.

Vint: So, one of the worries that the Internet Society - or the Internet Engineering Task Force guys have is that they worked together on a standard for a period of a year or two and as they come to closure on the standard what we call - have been calling a submarine patent arises which contains arguments and claims about a particular technique which wasn't revealed to the people who are developing the standard and, in fact, predates the development of the standard and so that has raised a number of concerns on the part of the standards makers.

Andrew: Several comments. First of all, I think that standards makers now, I think as they come together, require that all patents or other electrical property developers are a function of the standards we are setting in process are required I think to be dedicated to the public.

Todd: Well let me address the submarine question. Congress has changed the law in several meaningful ways over the last year or two to address that question. That's why we have 18-month publication. That's why we have prior-use exception for business methods. If you have been using a business method and someone later comes along and patents it, Congress carved out a specific exception for that last year in the bill. And, as I mentioned with 18-month publication, that issue of art or of patents that have been too long submerged in the office I think will become much less of a problem, maybe it will be eliminated as a problem. They also changed the law several years ago so that patents are granted - patents are valid for 20 years from the date they're filed, not for 17 years from the date they're issued no matter how many continuations or divisions or other extensions that you might get in the office so people are less incented to submarine patents now because they are cutting into their effective overall time. So there are a number of mechanisms that have come into place in the just the last year or two which deal with that question.

Tim: I'd like to bring up one further issue that relates. A little bit to Jay. You keep bringing up this question of my property, and "can Microsoft take my property?" and I guess I want to put the opposite question to you. A lot of Internet developers who have been of developing in the open-range model, so to speak, feel the way perhaps that, in the Old West, ranchers versus farmers felt. Because the fact is that what we feel is that you're taking away our property. Because once you fence off an area that has been open, we can no longer do some of things that we used to do in that space. And so I think that issues are complex in that there really are two cultures that are, in some sense, at war with each other.

There is a culture that says we're going to carve off an area that we're going to defend as our own. And that actually makes it more difficult for the people who are trying to innovate through sharing [to continue with what they were doing]. And the problem is that here we have a set of technologies that were originally developed through a mechanism of highly evolved sharing. When people come in from the other culture it makes it more difficult for us to do what we did. So we feel that you're threatening our property, which is the property of innovation through imitation and leap frogging. You're trying to impose a culture with legal arguments that basically says, "You can't do that anymore. You have to do it by our rules." And that's the cultural war at the heart of some of this. You know, the lawyers are, in effect, hacking the hackers' system. You know, we talk about hackers but [in this case] the lawyers are hacking the technical world.

Vint: I'm going to have to draw a close to what has been a very stimulating and thought-provoking discussion. I want to thank all of you for joining us tonight. I apologize to all of you whose questions didn't get asked. One is almost tempted to take these and put them on a Web site somewhere just to allow further debate and discussion because certainly they would raise a good deal of interesting questions. Let me thank the panel very, very much for engaging us tonight. And let me thank the Internet Society and Booz Allen and the other sponsors tonight for having allowed us to join you prior to the other debate that's about to take place.