One of CCIA’s smaller members, TurboHercules SAS, has received a lot of attention recently surrounding its antitrust dispute with IBM, especially because IBM has chosen to rattle its many patent sabers at this much smaller competitor by providing a list of 173 potentially infringed patents. What makes this story a little different from a classic patent shakedown is that TurboHercules is an open source company, and IBM is a champion of open source software. In early April of this year it was reported that IBM accused TurboHercules of “potentially” violating two of the patents in IBM’s “legally binding” Open Source Patent Pledge from 2005. In its pledge, IBM promised the world that it would not assert 500 selected patents (out of IBM’s portfolio of over 40,000) against open source projects. IBM then issued a series of conflicting statements regarding the two pledged patents (see here and here), including one that suggested that the pledge was limited to “qualified” companies that did not compete with IBM. Needless to say, this left many in the Open Source community scratching their heads. The story also highlighted many of the problems endemic to the current patent system.
- Economies of scale in legal resources. Small companies generally have to pay top dollar to defend themselves by securing legal services from outside law firms at retail rates. Companies with substantial resources and a reputation for scorched-earth defenses can deter trolls that are looking for quick and easy settlements.
- Whether the company is actively innovating for the market. Innovation for the market creates exposure in two senses: Creating a new product brings the risk that someone will have thought of a particular element and will patent it first, or already has. Once on the market, its functionality will be exposed for all to see.
The unhealthy combination of large numbers of patents, astronomical costs, high degrees of uncertainty and risk, and massive potential liability is bound to have an adverse economic effect. It induces small companies to stay upstream – or to sell themselves to large companies who are much better positioned to manage risk. Even for large companies, it creates incentives to withdraw from, or at least not aggressively innovate in, some markets. This not only reduces the risk of liability in absolute terms, it allows the company to assert patents aggressively with minimum exposure to counterclaims. Indeed, IBM no longer makes PCs and has largely withdrawn from the mass market for software.
IBM’s inclusion of two of its pledged patents should perhaps be viewed as a blunder by its famously aggressive legal department. However, IBM dug itself in even deeper by suggesting that the pledge it made was limited to non-competitors.
The real problem is not the two patents but the 171 that were not subject to the pledge. In effect, IBM claims that there can be no competition in the mainframe space because IBM holds a thicket of patents that preclude interoperation with its legacy-based software and hardware without IBM’s permission. From the patent holder’s perspective, the nice thing about portfolios and thickets is 1) they make legal challenges prohibitively expensive and 2) they can be “evergreened” so that as long as the portfolio owner keeps making minor changes and adding new patents, the portfolio can exclude competitors forever – instead of the 20-year term of individual patents. These portfolio practices in IT effectively turn the basic idea of the patent system on its head. Instead of the individual patent serving as protection for the little guy, portfolios serve the big guys by allowing them to maintain market share by creating massive legal roadblocks, justified in the name of “intellectual property.”
An unfortunate consequence of the IBM – TurboHercules situation is the fact that one of Open Source Software’s biggest defenders, IBM, has lost the moral high ground in the rhetorical war and likely has gone a long way to validate more recent bad behavior, including Microsoft’s unfortunate threats againstAndroid and its prior threats against Linux and Linux users (a situation that bears an uncanny resemblance to the current IBM-TurboHercules kerfuffle).
Prior to the IBM/Hercules case, not only had IBM been an outspoken and effective supporter of open source at many levels, but its employees had contributed to the underlying Hercules software that TurboHercules uses. The fact that IBM contributed and supported this effort in the past, only to turn on it later as a commercial version emerged, raises substantial questions within the open source community about whether IBM is in fact a trustworthy and committed partner.