Search

Open Source Series - Blog Post 2: The Inequality Crisis

Updated: Feb 13

Imagine inventing something revolutionary? Perhaps a device that could diagnose disease instantly or a highly efficient battery? Would you want to keep the glory to yourself, make your idea available to anyone, or would you want to earn some well-deserved compensation from everyone that benefits off your work?


These are some simplified questions in the increasingly complicated world of intellectual property and open source. While intellectual property rights have initially protected individuals to preserve credit for their brilliant ideas, it has simultaneously become an outlet to reinforce inequality. As patents are being hoarded by larger and wealthier corporations, smaller firms or individuals are not able to compete or scale up as quickly. Additionally, as the technology developed from these patents enabled companies to capitalize on its productivity, it has also led to a decline in the labor share and limited consumption. Open source offers liberation that is not given by the realms of intellectual property. Open source has created a revolution in many industries by enabling equal access to individuals, startups, and large corporations to apply hardware and software to complex problems without having to design them from the ground up.


Why the Patent System Got So Much Traction


The patent system has long been held to be a driver of innovation. Its main supporters, typically large corporations and research institutions, claim that patenting their work incentivizes achieving breakthroughs. For example, the United States Patent and Trademark Office (USPTO) receives six times as many patent applications as it did in 1980, experiencing a current backlog of more than 500,000 applications (USPTO 2016).


People with advanced skills in computer science, biotechnology, and other technical areas who see a surge in demand for their expertise are largely compensated through patent and copyright monopolies. With a different set of rules for promoting innovation and creative work, there could be far less demand for their work. Moreover, the use of the patent system has led to a rise in the number of businesses boosting Research and Development (R&D) efforts to discover cutting-edge technologies. What used to be primarily led by the federal government, a majority of R&D spending is now being propped by businesses. In 1953, federal funding accounted for 54% of all R&D spending, while business contributed 44%. By 2015, 69% was being led by business while only 22% was by the federal government (Shambaugh, Nunn, and Portman, 2016).



Figure 1: Number of Utility Patents at the USTPO (Source - IP Watch Dog)


The Consequences of IP


A majority of the world's largest companies still heavily support the patent system. For example, IBM spends more than $6 billion a year on R&D with an in-house staff of more than 370 patent lawyers. Moreover, they initiate purchases of patent portfolios worth billions as a way to protect them from lawsuits by other corporations. This is evident in Google's buying Motorola for $12.5 billion, predominantly for the approximately $4 billion worth of patents the company had on smartphone technology (Skillcorn, 2016).


However, as more corporations have capitalized on R&D to earn from patents and copyrights, their efforts have resulted in products being sold at high prices that would be free or nearly free if no government granted monopolies were present. For example, the prescription drugs industry has led to people spending over $420 billion in 2018 in the United States for drugs that would cost nearly less than $105 billion in the free market. The difference is $315 billion annually or 1.6 percent of GDP. Factoring in software, medical equipment, pesticides, fertilizer, and other areas where these protections account for a large percentage of the cost, the gap between protected prices and free market prices are estimated to be around $1 trillion annually (Baker, 2018).


Using Open Source to Break Inequality and Ease Innovation


The open source model disperses access to products and services with the tradeoff of loyalties and incremental profit. While advocates of IP argue that strong patenting systems inspire innovators and incentivize technological breakthroughs, many experts in science and other technical industries argue that they inhibit innovation. For example, genetic researchers have argued that the patent has prevented the development of better tests and diagnosing methods, and therefore interfered with the advancement of science (Stiglitz, 2013). This is further justified by that claim that creating barriers to knowledge makes it less accessible, and therefore innovation is inhibited.


The case for pursuing open source is multifaceted in regards to providing equal access to information and technology infrastructure. Firstly, the open source model is reliable in that it leverages a peer-to-peer exchange and a peer-review process to ensure that technology is up-to-date and adaptable under rapidly changing conditions. For example, Docker is a growingly popular open source technology that is designed to make it easier "to create, deploy, and run applications by using containers (Open Source, 2019)." Containers allow developers to package up an application with all of the essential parts, including libraries and other dependencies, and ship it out as one package. Through this process, the developer can ensure that the application will run on any other Linux machine regardless of any customized settings that machine might have that could differ from the machine used for writing and testing the code.



Figure 2: Using Containers as an Open-Source Method to Provide Access

(Source: Docker.com)


The negative outlooks on open-source claim that reducing patents can inhibit innovation and lack benefits or paths to compensation for open source software developers. However, this isn't always the case. Open source can actually encourage developers and entrepreneurs to build and deploy products since the software used has very low overhead costs per projects. The open source model allows software developers to outsource their work to other developers for cheaper costs and provide bug fixes that add quality assurance to the product. Additionally, businesses that use open-source models can generate revenue to financially support themselves and incentivize product development. In the case of software products, entrepreneurs can adopt business models like a 'community edition' or 'freemium' model that sustains business. Some popular business models include:


  1. Support Sellers: In this model, businesses give away the software product, but sell its distribution, branding, and after-sale service. This is what Red Hat does.

  2. Loss Leader: In this model, you give away open-source as a loss-leader and market positioner for closed software. This is what Netscape does.

  3. Widget Frosting: In this model, a hardware company (for which software is a necessary adjunct but strictly a cost rather than profit center) goes open-source in order to get better drivers and interface tools cheaper. Silicon Graphics, for example, supports and ships Samba.

  4. Accessorizing: Selling accessories - books, compatible hardware, complete systems with open-source software pre-installed. It's easy to trivialize this (open-source T-shirts, coffee mugs, Linux penguin dolls) but at least the books and hardware underly some clear successes: O'Reilly Associates, and SSC are among them.

Source: opensource.org


With these methods of generating business through open-source services, it is clear that the patent system is only one of many of providing resources to technology and information developers (at least for software). In all other respects to supporting innovation, government-financed research, foundations, and competition are alternatives to financially support and recognize brilliant minds.


Government Can Bridge Inequality through Open Source


I posit that government can lead the movement for open source R&D efforts to support smaller firms and the nation's aspiring entrepreneurs. The U.S. government runs a host of technology transfer programs, including the U.S. Small Business Innovation Research and Small Business Technology Transfer, that develop and evaluate new technologies with potential for commercial applications, enhance the competitiveness of individual small businesses, and expand areas of exploration and cooperation for all non-federal partners. These current programs target entrepreneurs to develop patents that can be commercialized and scaled up to promote business and economic development. However, these programs could make the technologies available for free implementation under open source licenses. More specifically, government tech-transfer programs should lead research and development efforts to create cutting-edge technology, and then provide open source distributions to smaller firms to build business. Instead of creating patents on behalf of these firms, governments can assist them in adopting one of the Open Source Business Models as displayed above to become economically sustainable. By doing this, governments would be able to promote local research and development, rather than depend on external suppliers or importing costly technological products.


Closing Thoughts

Frequently, intellectual property rights inhibit smaller firms and developing nations from receiving technologies to build new products based on existing ones. However, open source mitigates these barriers of transfer and development problems. By having low adoption costs and less expensive infrastructure, technology developers are able to communicate easier and improve services faster. Moreover, the low technology acquisition costs due to no license, import fees, or transaction overhead can incentivize entrepreneurs to prototype without the fear of infringement. Lastly, open source offers low technology development costs since the projects are developed in cooperation with participants, thereby sharing the costs of information and building. While the IP system has enabled corporations to scale up in size and revenue to provide economic growth, it has simultaneously restricted future entrepreneurs and firms to advance and improve current systems.


References:


Skillicorn, N. (2016, August 31). How the Current Patent System Actually Hurts Inventors. Retrieved 2020, from https://www.inc.com/nick-skillicorn/how-the-current-patent-system-actually-hurts-inventors.html


Shambaugh, J., Nunn, R., & Portman, B. (2017, December). Eleven Facts about Innovation and Patents. Retrieved February 13, 2020, from https://www.brookings.edu/wp-content/uploads/2017/12/thp_20171213_eleven_facts_innovation_patents.pdf


Stiglitz, J. E. (2013, July 15). How Intellectual Property Reinforces Inequality. Retrieved February 13, 2020, from https://opinionator.blogs.nytimes.com/2013/07/14/how-intellectual-property-reinforces-inequality/?mtrref=undefined&gwh=C6D5F2EDDB2DDEEDECE13F29ABCA4E88&gwt=pay&assetType=REGIWALL


Vaughan-Nichols, S. J. (2015, April 16). It's an open-source world: ​78 percent of companies run open-source software. Retrieved February 13, 2020, from https://www.zdnet.com/article/its-an-open-source-world-78-percent-of-companies-run-open-source-software/


What is Docker? (2019). Retrieved February 13, 2020, from https://opensource.com/resources/what-docker


Useful Links:

https://cepr.net/images/stories/reports/ip-2018-10.pdf

https://www.ipwatchdog.com/2018/04/11/fewer-patent-applications-filed/id=94436/

https://opensource.org/advocacy/case_for_business.php

https://www.cs.sfu.ca/~cameron/tech-transfer.html

https://www.slideshare.net/jamilkhatib/open-source-the-next-big-thing-in-technology-transfer-to-developing-nations-2074014

https://www.ipwatchdog.com/2015/11/24/theory-patents-strong-patents-benefit-consumers/id=61341/

14 views1 comment

© 2023 by Kurien Thomas.