Microsoft's Subtle Knife Through the Heart of EU Software Industry

One of the striking changes at Microsoft over the last twenty years is how savvy it has become in terms of lobbying and influencing political opinion. There was a time when, like most serious tech companies, it regarded this kind of sneaky...

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One of the striking changes at Microsoft over the last twenty years is how savvy it has become in terms of lobbying and influencing political opinion. There was a time when, like most serious tech companies, it regarded this kind of sneaky activity as beneath it – something that only tobacco companies would stoop to. No more; today, it bombards everyone and anyone with a constant stream of carefully-crafted policy papers and posts designed to achieve its goals.

Here's the latest one. It comes form the "Positions" page of Microsoft's Digital Policy site in Europe. It's called simply "Intellectual Property", and is written in a deceptively simple style, as if it were some non-contentious statement of truths universally acknowledged.

For example, it begins by stating baldly:

IP benefits innovation, companies and society.

Well, no actually. As the lawyer Stephan Kinsella puts it in a post that links to dozens of academic papers supporting his view:

it is striking that there seems to be no empirical studies or analyses providing conclusive evidence that an IP system is indeed worth the cost. Every study I have ever seen is either neutral or ambivalent, or ends up condemning part or all of IP systems.

In particular, studies have shown how intellectual monopolies actually hold back innovation, because they remove the incentive to invent once patents have been obtained that can be used to sue competitors into submission. James Watt is the classic example of the stultifying effects of intellectual monopolies on a field's subsequent development.

Moreover, the book "Patent Failure" shows that for industries like software, patents don't even benefit companies that own them: on balance they actually lose billions of dollars every year as a result.

Society certainly doesn't benefit from the added costs that this inefficient system adds. That can be seen from the Microsoft tax that HTC has to pay on its Android phones – a cost that will inevitably be passed on to the customer, but for no additional benefit.

The next section of the Microsoft post is actually the key one, since it contains these apparently unremarkable sentences:

For many years, EU directives and regulations have supported a more harmonised system of IP protection throughout the region.

…

Developing a unitary EU Patent system that is efficient, cost-effective and of high-quality would be an important next step.

This is the central message of this particular post, which is trying to push EU legislators to agree on the unitary EU patent system – still mired in disagreements after all these years. After the failure of the direct approach to introducing software patents into Europe, the unitary patent idea has become the back-door way of achieving the same goal.

The basic idea is that once a unitary patent system is in place, companies will simply get their software patented in those European jurisdictions that are least rigorous in this respect, and they must then be recognised everywhere in Europe – a classic race to the bottom.

What European politicians fail to understand is that bringing in software patents in this way will not benefit indigenous companies, but only the large US companies – since they are the ones with the money to patent in Europe every trivial idea they already claim in the US. Small European software houses that obtain them will either be forced to cross-license, or simply sued until they run out of money. Either way, software patents will bring them no advantages, and many disadvantages.

The inevitable result of this will be that the cost of software in Europe is driven up as more patent taxes are added by US companies demanding their tithe of European software production, and that many smaller, independent European software houses will be forced out of business, or acquired at knock-down prices. That makes this apparently anodyne policy document a real knife through the heart for the European software industry as a whole.

Bringing in software patents in the EU will also have the useful knock-on benefit for Microsoft that it will discourage other industries from using open source in their products for fear of patent litigation.

The rest of the post carries on in much the same vein, presenting the topsy-turvy argument that "effective protections IP increase foreign investment and technology transfer into developing countries" when the opposite is the case for software – there is a net outflow of money – as I've explored in detail in a previous post.

Microsoft even has the gall to praise the secretive and disproportionate Anti-Counterfeit Trade Agreement (ACTA), whose completely one-sided nature is shown by the fact that the US has stated it won't be bound by it, but expects all its vassals partners to implement it without complaining.

Indeed, ACTA can be regarded as the global equivalent of the unitary EU patent system: bringing plenty of benefits for the US and its industries, and practically nothing for the EU except for a few cheesemakers there. Both should be rejected.

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