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Lecture 1 Discussion

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Article on 'hijacking' of cumulative innovation

Interesting article from First Monday:

The economics of open source hijacking and the declining quality of digital information resources: A case for copyleft

-- Tapan

Additional Readings

The following readings contain additional information on last night's material:

1) On Whether Patents are Good for Software Development:

James Bessen & Eric Maskin, Sequential Innovation, Patents, and Innovation, (Jan. 2000), available at http://www.researchoninnovation.org/patent.pdf

2) On the Liberality vel non of IBM’s Licensing Policy:

Ronald Mann, The Myth of the Software Patent Thicket (2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=510103

3) Prof. Scotchmer's forthcoming book: Suzanne Scotchmer, Innovation & Incentives (MIT Jan. 2005). (The book is available at http://mitpress.mit.edu/catalog/item/default.asp?sid=872E36D5-2D83-4889-B3C4-DDB4DEF36AE3&ttype=2&tid=10277)

4) Finally, just for fun, two Golden Oldies. As far as I know, nobody has noticed them before. The first (I claim) shows that the key Internet technology of packet switching already existed in the Soviet Union ca. 1948. The second presents an anecdote describing IBM's experiences with "the anticommons" during the 1950s.

A Great Novelist Foresees the Internet

"Clipping, damping, amplitude compression, electronic differentiation and integration of normal human speech were engineering desecrations comparable to the dismemberment of a southern resort area like Novy Afon or Guzuf into little fragments of matter, stuffing them into a billion matchboxes, mixing them all up, flying them to Nerchinsk, sorting them out and reassembling them in their new location so that the result could not be distinguished from the original -- a recreation of the subtropics, the sound of waves on the shore, the southern air and moonlight." A I Solzhenitsyn, The First Circle (Harper & Row: NY: 1968). T. P. Whitney, Trans.

The Anticommons at IBM:

“At an August 1955 meeting with key engineers in Poughkeepsie, Watson Jr., chided them from hesitating to use ferrite cores in commercial products because of Wang’s patents. He quoted his father as saying, ‘That’s the most ridiculous reason for not moving into a new area that I’ve ever heard of because, one way or another, we can negotiate with Wang.’

“Indeed, the company was able to obtain rights to Wang’s patent for the reasonable fee of several hundred thousand dollars. . .

“Watson’s confidence that rights to any patent could be obtained at a reasonable fee, or the patent circumvented, appeared to be justified. But by the end of the decade, his confidence was deeply shaken. [Jay W.] Forrester had filed a a patent application under which MIT (through its patent management firm, Research Corporation) was demanding royalties of 2 cents for every magnetic core used in a coincident-current memory. This demand, made in November 1959, was quickly rejected for IBM by James Birkenstock who noted that ‘in our core storage units we employ seven of our own patents, as well as having acquired licenses under five patents from outsiders which were necessary to make the Forrester patent usable.’ If a royalty of 2 cents per bit were demanded under each of these patents, the cost per bit for royalties alone would be 26 cents, making core storage economically infeasible. Based on this analysis, Birkenstock concluded that a royalty of 2 cents per bit was ten to twenty times too much. But Research Corporation indicated it had already rejected an offer of 1 cent per bit, so an impasse resulted.”

[In an October 1960 interference proceeding, Forrester lost its ten broadest claims to a rival patent held by RCA. IBM had a cross-license to RCA’s patents.] “The jubilation was short-lived, however, as Research Corporation continued to demand royalties of 2 cents per core and initiated a civil action to regain the lost patent claims. Thus while IBM engineers were developing cost-effective memory designs and improving manufacturing techniques, litigation between RCA and MIT plodded slowly in the courts toward a settlement that would have profound ramifications on IBM and the entire data processing industry . . .

[IBM experimented with several other technologies, including “the Flute.”] “The experience with the Flute helped to emphaisize that there was no attractive alternative to coincident-current 3D selection ferrite-core memories. IBM had obtained rights to use all relevant patents except Forrester’s – and the validity of that patent was still being argued in the courts.

“Meanwhile, IBM engineers cointued to develop improved ferrite-core memory design and manufacturing methods as customers ordered more and larger memories. By the end of 1963, the company’s annual production of ferrite cores exceeded 1 billion; a royalty of 2 cetns per core would alone have cost more than $20 million per year. With the IBM System/360 slated for announcement in early 1964, the situation was intolerable. In February, 1964, an agreement was finally reached in which the company agreed to pay a on-time fee of $13 million for the use of Forrester’s patent if at least one of the claims was upheld in the litigation between MIT and RCA. The following month RCA and MIT reached an agreement in which the validity of Forrester’s patent was affirmed, and IBM made its payment to MIT. Larger than any previous payment it was nevertheless dramatically cheaper than the requested royalty of 2 cents per bit.”

C.J. Bashe, L. Johnson, J. Palmer & Emerson Pugh, IBM’s Early Computers (MIT: 1986), pp. 267-70.

Books Mentioned During Lecture

Two books were mentioned during the lecture by Ed Lazowska and Steve Maurer. One was http://www.amazon.com/exec/obidos/ASIN/087584863X/qid=1096603863/sr=ka-1/ref=pd_ka_1/102-7272045-1856915 Information Rules]. The other is http://mitpress.mit.edu/catalog/item/default.asp?sid=872E36D5-2D83-4889-B3C4-DDB4DEF36AE3&ttype=2&tid=10277

The two books complement one another quite nicely. Varian & Shapiro is already a classic. It tells a lot of stories and helps build intuition about what's going on in the new economy. The approach is in the general tradition of "how-to" business books. Prof. Scotchmer's book is just coming out from MIT next January and can be ordered through their catalog. It follows the economics tradition by starting with a handful of assumptions and working out the consequences through simple models. (Full disclosure, I'm a co-author on 3 of the chapters -- smm) It helps you learn to think about IT problems more abstractly. This is obviously a good approach for policymakers, but I also find that the approach provides nice insights for lawyers or businesspeople trying to design practical transactions. I'd say the technical level is a bit easier than the Procuring Knowledge reading, but the main point is that non-social scientists shouldn't be intimidated. Partly, that's because the book is modular -- i.e., it was deliberately written so that you can skip the formal proofs and not lose the thread. Second, I think it's a good general principle to get in the habit of reading books that are slightly too hard for you. That's equally true for IT people reading social science and for social scientists reading about technology! BTW, social scientists use the same math as the sciences, so many tech folk will find the subject surprisingly transparent even at a formal level.