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Subject: Re: [office] How about an interoperability Subcommittee?

On 5/8/07, Alex Wang <alexwang@sursen.com> wrote:
> Regarding HTML, if someone charges for HTML browser's income only, i.e.
> if and only if MS, Netscape, Firefox get income from their browser, the
> inventer of HTML will charge a fixed percentage from their income, do
> you think it will hurt internet?

Emphatically yes, although I think a better example to illustrate the
problem would be web 2.0 application developers who derive income from
their software. Browsers make a poor example for illustration purposes
because that market is rather completely commodified and concentrated.
There are very few remaining browsers that are not free and their
market share is miniscule. The browser example also raises the complex
issue of whether companies profit by offering free browsers.  I can
see reasonable arguments on both sides of that issue.

There is an incredible rate of innovation in Web 2.0 application
market right now. The market is new, there are an incredible number of
new business startups jockeying for first mover advantages, in short a
time of great flux in that market. See e.g., this database of Web 2.0
applications. <http://itredux.com/office-20/database/>. The way new
markets develop, few of those businesses will survive. Among those
that do, nearly all will be acquired by other companies. It is
possible that one of them will survive under present management; e.g.,
Microsoft is one of the rare first movers to prosper for decades. I
haven't studied this particular market in depth, but I believe I can
safely surmise that some of those start-ups are running on a
shoestring, others are funded by their owner's own capital, some have
start-up money from venture capitalists, and some are spin-offs from
established companies.

But I can also safely surmise that the vast majority are not yet
turning a profit. They hope and plan to become profitable, but aren't
yet. So those are profit-making ventures without profits. Let's assume
that the IPR for HTML say that they need not pay royalties until they
produce a profit. In other words, just as they turn the corner of
profitability, the HTML royalty requirement kicks in and puts them
back in red ink territory with a competitive disadvantage given to
those companies not yet profitable. Do they still owe a royalty? That
is a rat's nest that needs to be addressed. And hasn't our owner of
the HTML IPR given start-ups an incentive to engage in creative
bookkeeping to avoid liability for royalties? E.g., why pay royalties
when you could book what is actually an investment as an expense?
We're talking about small start-ups, nearly all privately held, and
not subject to e.g., SEC regulations requiring disclosures. In every
industry I've looked at, there are certain expenditures close enough
to the border between expenses and investments to lawfully be treated
as either one. The free web browsers might be a good example here.

But I digress. My point is that royalty requirements fall hardest on
start-ups, creating an impediment to their profitability and survival
during a critical stage of their growth. And a royalty scheme that
applies only to profitable start-ups creates an extra barrier to
business growth, penalizing those companies that attain their
break-even points. But from an economic development policy standpoint,
those are the companies that least deserve a penalty. They are the
very companies that are just emerging from their start-up phase. And
small business accounts for well over half of economic growth, at
least in the U.S. Impeding small business growth is poor economic

In my view, a royalty requirement that applies to all without
exemption makes more economic sense than a royalty requirement that
penalizes profitability. I will confess to some bias here; I have a
strong preference for standards without any IPR restrictions at all. I
will go so far as to say that I am already on the public record as
being strongly opposed to all software patents and I am wavering on
whether we should have copyrights as well. "Intellectual property" is
what we lawyers call a legal fiction. It is property only in the sense
that governments have decreed it as such. There is no actual property,
only an enforceable right to exclude others from using something as
nebulous as words and ideas, and to charge money for licensing the
right to use what is in fact more free than the air we breathe. I find
it beyond ironic that we have "free trade" agreements that enshrine
the right to own and use knowledge. There is no natural right to do
so, it is government intervention in free markets, an artificial
monopoly imposed by governments that is the antithesis of free trade.

To me, IP rights in communications protocols, file formats and the
like, are particularly egregious to sound economic policy. In the
software industry, interoperability is the foundation of competition,
what allows the substitutability of goods. This industry has long
closely watched Microsoft's manipulation of file formats and
communications protocols to achieve and maintain a monopoly.
Challenged to justify its actions in two landmark antitrust cases on
two contients, Microsoft has been ordered to cease and desist and to
disclose its communications protocols and middleware APIs. It has
responded by imposing RAND and royalty requirements on its disclosures
and by building a patent thicket around its APIs and communications
protocols. A rather momentuous decision by the European Court of First
Instance is due out later this year that is expected to test
Microsoft's right to do so. Meanwhile, the European Union resolved its
first major constitutional crisis by rejecting a directive that would
have legimized software patents in Europe, an event preceded by
massive resistance by small and medium business owners and the
European citizenry at large. And the U.S. Supreme Court just hinted
that it may declare software patents unconstitutional if it receives
an appropriate case in which to render such a decision.

My well studied opinion is that software patents will soon be no more,
and even more certainly IP rights in file formats and other
communications protocols will be the first casualties. E.g., in
Europe, copyrights may not lawfully be asserted as a barrier to
interoperability and the interoperability issue was the driving force
of the resistance to software patents in Europe.

There is a rapidly growing migration in the software industry toward
standards without IPR restrictions, with growing numbers of
governments, software developers, and software users fueling the
migration. The unmistakable trend is away from IPR restrictions in
software standards.

I respectfully suggest that you study that trend and integrate the
fruits of your research with your business plan. In that regard, a
couple of blogs you might consider adding to your reading list are:
[i] Andy Updegrove's private blog,
<http://consortiuminfo.org/standardsblog/> (Andy numbers OASIS among
his clients); and <http://www.groklaw.net>. Groklaw's front page  News
Picks column does a very good job of summarizing news internationally
relevant to the subject of this conversation on a quite timely basis.

Best regards,


> -Alex
> -----Original Message-----
> From: Bruce D'Arcus [mailto:bruce.darcus@OpenDocument.us]
> Sent: Tuesday, May 08, 2007 9:15 PM
> To: OASIS Office
> Subject: Re: [office] How about an interoperability Subcommittee?
> On May 8, 2007, at 8:59 AM, Alex Wang wrote:
> > I tried to use the example of Java to explain what "balance" means.
> > Sun kept some IPR of Java ten years ago, give up some of them today,
> > it is the "balance". Yes, Sun want to create a market by Java, but I
> > don't think this is the reason that you have very little sympathy for
> > Sun. I respect Sun, J2EE is more popular than .NET, while Windows, IE,
> > MS Office becomes the owner of the world.
> >
> > I was told "share everything", "free for everything"  ever since I was
> > born. I am a Chinese, this is the Communist Party's education. This
> > kind of education still exists in North Korea, and now in OASIS. We
> > treat IPR
> > in extremeness attitude, thus a commercial topic becomes a politics
> > topic. I don't think it is a good manner.
> With all due respect Alex:
> 1) you are comparing apples (programming language, VM, etc.) and
> oranges (standards)
> 2) Sun has opened up Java recently
> So your argument isn't really supported by either logic or
> on-the-ground facts.
> It's not surprising that many people who are a part of standards work
> are very suspicious of attaching restrictions to its use (building
> proprietary tools or applications based on those standards is an
> entirely different matter). You cannot talk about "balance" and "99%"
> when talking about standards, and to say as much is hardly "extremism";
> it's the entire basis on which our internet-based information economy
> works. If XML and HTML were released under RAND, there would be no
> internet as we know it, nor would ODF exist.
> Bruce

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