But there’s more: Content is also struggling, because there is simply too much of it.

The combination of a data flood of biblical proportions with exploding possibility of function, will drown any business model based simply on charging for content.

Business and investors should realize this, and adapt accordingly.

A number of recent events have shown that the conflict between Function (Silicon Valley) and Content (Hollywood) is clearly heating up.

The successful actions against the proposed PIPA and SOPA legislation may well have arisen a new political player in the murky field of lobbying: the social Internet. The political implications are in my view much more important than the issue of copyright – but it is no coincidence that this new phenomenon of not just collecting political funding or votes, but actually determining the political agenda through the Internet and social media, has first arisen around the issues where the Internet and social media cause most havoc: the disruptive effect on 20^th century business models. Expect ACTA to be the next battleground.

At the same time, the US government shuts down the Megaupload site, and manages to convince New Zealand to arrest, in New Zealand, a German national for reasons of copyright infringement in the US. Depending on your political view, the alleged actions are massive theft (Hollywood) or exposing the inefficiency of a distribution monopoly (Silicon Valley). Either way, it remains remarkable that criminal law is used to this extent in order to protect a business model.

More interestingly in the long term, of course, is that within hours, useful alternatives to Megaupload were available. In other words, the policing is obviously failing. My personal view is that this is because criminalizing normal human behavior like sharing what you like just does not work.

Finally, we see that more and more economic studies start to look at empirical evidence, to verify if the basic theory of IP rights, which claims that imposing a monopoly in order to rectify the inefficiency of the market to sufficiently reward innovation and creativity, is actually correct.

How to make sense of it all?

As I wrote earlier, I think the main conflict is between Content (music, film, etc – symbolized by Hollywood) and Function (what we can do with our computers – symbolized by Silicon Valley).

I think Function is most likely set to win, because it evolves faster, and adapts better. Darwinian logic tends to be merciless.

Regardless of mine or your preferences, the observation remains that technology is destroying the possibility to efficiently enforce IP rights, whose function it is to restrict the right to copy. The music industry has still not understood that fighting peer-to-peer copying (and hence piracy) is utterly useless. The argument that this causes economic damage because, as the middleman, they stand out to lose quickly falls apart once you take a good look at it. It is no coincidence that, while the revenue and jobs of the music industry fall, the income and distribution potential of the creators (the musicians) rise.

And Hollywood is obviously next on this slippery slope down the abyss of non-revenue just for Content – neatly illustrated by the fact that Amazon sells 20% of its books at a price of 0.01$, while and still making a small profit, on shipping and availability.

But there is more.

The amount of data produced in our world is exploding. In 2009, more data was created in one year, than in the entire history of humanity until 2008.

And most of that data is still created by humans, not by machines. Expect that to change – the era of data creation has just started, and the speed of data creation will continue to go up.

To put that into perspective: humanity exists for about 150,000 years. In the last two of those, we have produced 9 times as much data as in the whole period before.

Now, under the theory of copyright and other IP rights, all of that data, to the extent there is an expression of human creativity in it, is subject to a distribution monopoly of its creator.

That’s just plain ridiculous. It can never work.

All of those data are creating a biblical flood of massive proportion, drowning out all payable content.

And the turning point is user generated content – which is almost always derivative work. Not only will be it be impossible to stop it, it is actively supported and offered pretty much for free by an ever growing number of technology firms (Silicon Valley).

From an IP perspective, user generated content is a new, hybrid animal.

It typically uses partly automated creation (outside copyright), partly genuinely user generated content (those holiday pictures you took, within copyright, but your own), and partly existing works (that song you put in the background – someone elses copyright). Throw in some user generated functionality, and it becomes clear that most what is created will include elements of copyright and other IP rights, but those IP rights will become utterly unenforceable.

So, not only are IP rights losing the race to keep track with the development of technology, they are also drowning in a sea of newly created content.

How should we react?

Certainly not in the way the old content distribution business is reacting. The idea that distribution monopolies based on copyright will continue to provide a superior return to a business, and allow for margin based on the mere action of distributing, is effectively dead.

Legislating against this phenomenon is as useful as legislating to modify the value of the number pi.

In practice, this means that businesses will have to adapt their business models.

If Content is an important part of the value proposition, it needs a lot more than just the distribution ability in order to become a viable business. Such additional features can be services,  analytics, or intelligence, or indeed technological function.

But selling content, by itself, is probably no longer a viable business proposition.

In other words: Hollywood loses, and Silicon Valley wins. But that is not necessarily bad for the economy as a whole.

This has a profound effect on Business Models based on IP rights.

The SOPA discussion is a good example of the fight between Function and Content – which IP right will win?

 What is Content, what is Function?

Content is the stuff you access and use when you deal with media. A book (the writing, not the physical object) is content.

Other examples of content are music, blogs, film, video, etc. You get the picture (pictures are also content).

Function is what you do with it. Playing a video, copying a song, reading a book, modifying or analyzing data, uploading your photos, etc, etc. are all Functions.

Traditionally, Content and Function are clearly separated. A publishing press produces copies of a book, but the relationship to the content of that book is minimal.

When you scroll through a website reading articles, you don’t perform functions on it that modify or manipulate the content other than storing a copy in the cache memory of your computer, and displaying a view.

So, Content and Function are quite different. You don’t need Content to run e.g. Word or Excel on your computer, but you use their Functions to create such Content.

But that is starting to change. Content and Function are starting to merge – their separation wall is slowly disintegrating.

What does that mean?

Look e.g. at Software as a Service providers. The content they store (the data) is typically only accessible through the functions provided on the website.

If you were able to download the data, and apply the functions on your own computer, that wouldn’t matter. But that is often not the case. You can only get access to the data (the content) through the functions made available in the integrated service.

Any change to either content or data modifies the value of that integrated service to you. If the provider gives you a new analytical tool, the value of your data actually changes, without the data themselves having changed.

And if either the function or the content of the integrated service is unavailable, the other is also useless.

So, the Cloud is breaking down the distinction between Content and Function.

But not only the Cloud. Look at e.g. newspaper Apps on a mobile device. These are software programs, but with functions specifically geared towards specific content. You could not use the Washington Post App to apply functions (e.g. view, post, forward, share) to content from the New York Times website or App.

Content and Function are bundled, they are offered together, and they become the same product or service.

With the rise of User Generated Content, this will massively increase. Look e.g. at www.tabletquiz.com, a website that allows you to easily generate your own App with your own content. In other words, it is User Generated Content and Function (UGCF).

Since it is made in HTML5, it is also platform-neutral, and can run on any environment.

This means that it becomes effectively impossible to apply any kind of Content control system from the outside, because the technology is too open, and too accessible, allowing users to generate not only Content, but also the Function to distribute or reproduce the Content.

So why should I care?

From a business perspective, this has the potential to be quite significant.

This is because Content and Function are typically sold in a very different business model, based on different IP rights.

In a digital world, IP rights are an essential part of the go-to-market strategy. Businesses offer licenses, rights to use, and access to service. These are all based on IP rights.

Content is typically protected by copyright. But Function is not. To the extent function is protected by an IP right, it is protected through the secrecy of software source code (in theory enforceable through copyright, but in practice it is the non-disclosure of the source code that does the trick), or through patents on software.

But what will happen when Content and Function are starting to merge? Which IP right will prevail, and, more importantly, which IP right will the right one for businesses to apply?

In essence, this can go two ways. Function IP rights can prevail, or Content IP rights can prevail.

If Function IP rights prevail, then the merger of Function and Content will lead to looser protection on Content. This has already partly happened as a result of e.g. the fact that technology allows much cheaper copying (Napster and the file-sharing revolution, in other words).  In this scenario, the relative freedom of copying a Function will impact the Content interconnected with the Function, making effective protection of Content very difficult, if not impossible.

Under this scenario, any attempt for a DRM (Digital Rights Management) system is effectively doomed.

If Content IP rights prevail, then the merger of Function and Content will lead to stricter protection on Function. In such a scenario, Content will be used to restrict the function applicable to it.

Currently, I see a movement in favor of Function prevailing over Content. But it clear that anti-piracy initiatives are trying to roll back this tide of free Function liberating Content from its copyright protection. The fact that Content-based industries (“Hollywood”) are having a fight over SOPA with technology-based industries (“Silicon Valley”) is a normal consequence of the merger of Content with Function.

In this battle, of course, Function has one advantage that may well be decisive: it is based on evolving technology, and as we have seen from the continued success of Open Source, technology that is based on openness seems to outcompete closed technology. While this seems inconsistent with the paradigm’s of traditional IP theory, it does seem to indicate that Function may well prevail.

What is certain, in any case, is that this evolution confirms my earlier observations about our current IP rights (especially copyright, but also others) being quite out of date, and not fit for purpose in a digital, connected world, based on collaboration, open innovation and sharing of Content.

It is joined at the hip with the BetaGroup coworking space in Brussels.

We assisted Leo Exter, founder of westartup, in understanding how IP rights apply to his platform and community, aimed at sharing and spreading ideas. We also assisted him in developing the start of a European network/distribution of westartup-sites.

Leo said the following:

“There’s a very good guy who regularly works with startups – if you
haven’t met him yet, talk to Joren De Wachter.  I’ve worked with him
myself – he is honest, transparent, and gives very good advice on legal and
related matters.  Specializes in business models linking content and
software.“

They design, operate and host websites, and create corporate brandings and designs. They had developed this clever plug-in in an open source web-design evironment. Among other things, we are helping them in finding a structure to bring this plug-in to the market, in a way that allows new revenue, while safeguarding the investment they made in the development of this important Intellectual Property.

Recently, we have helped them to restructure the business by identifying and valuing all IP assets, and sheltering them from operational risks.

Lots of IP issues, from the creative commons licenses used to advising to prevent the site to become a place where people breach other people’s copyright.

In collaboration with US counsel, we advised the founders on how to structure that part of the business. The software enabling the writing of musical scores has been downloaded more than 2 million times.

This presents obvious issues around IP rights in content, the unique character of blogs offered, as well as issues of data protection.

We have provided practical advise on how to address IP issues in the business model, which was one of the key elements leading to a successful implementation of the site.

They offer providers of video content a seamless, high-quality streaming service, ensuring that end-users enjoy constant quality, regardless of the end user device they are using.

We help Zentrick with understanding what their IP is, and how they use it best in their business.

This includes deciding on Freedom to Operate studies, assess patentability of their technology, ensure that their standard Terms of Use provides adequate IP elements.

I’m also member of their advisory board.

No more people dying on the roads, no more traffic jams, important reduction of CO2 exhaust, but also massive job losses for car insurance people, taxi drivers, etc.

I concluded by saying I didn’t see a lot of IPR issues there. How wrong I was.

Only last week it emerged that Google is patenting some core technologies – you can read about it here.

Goes to show : understanding IP means understanding technology, and where it leads us.

So I stand corrected: self driving cars have important IPR aspects.

Open Source hardware is starting to be mentioned from time to time.

Unlike Open Source software, which is now well established, it is still relatively unknown.

One of the best-known examples of Open Source hardware is the Arduino board. The Arduino board is a single board microcontroller. It was once described to me as “the hardware core of a robot-brain”, which explains it well enough.

With an Arduino board, you can direct hardware. It can work e.g. as the on-board computer of a toy car, or it can connect your fridge to the Internet, or it can be the core of a private security system in your house. And you can very easily access it, program it, connect it to other machines, engines, etc, and make it do pretty much anything you want it to do.

That flexibility shows the way towards an important development, where a growing part of our hardware will convert into a combination of computer hardware and software. Hardware becomes “programmable”, if you want.

Expect Arduino boards to be found in a product or application near you soon. Since they are Open Source, it is very easy to integrate them into other technology, and the cost of technology (as with most Open Source) is relatively low. As an example, the new “desktop” open source 3D printers use Arduino boards.

So how enforceable is such Open Source hardware? Does it – legally – work?

For software, the question has been answered a number of times. In most countries, Open Source software and Creative Commons licenses have been held to be valid and enforceable.

To my knowledge, no similar decisions exist regarding Open Source hardware. (If you know of one, please comment below and provide a link).

But we can have a look at how current Open Source hardware is put together, and take that as a basis on how enforceable it would be.

When we look at Open Source hardware, a lot of it is actually not very “open source”. Not because it’s not Open, but because it’s not Source. Hardware is – still – not software. If you copy source code of software, you can reproduce it, theoretically, at zero variable cost. For hardware, you still need the actual material to assemble, 3D-print or otherwise manufacture it.

Moreover, the Open Source software system works, because the concept of sharing back changes you make to a software product under the same license is relatively easy, both technically and legally.

So how are Open Source hardware licenses structured, and would they work as well as Open Source software?

Open Source licenses work at three levels.

The first is the design of the hardware. Design documents on Open Source hardware are distributed, either under a Creative Commons license or an Open Source hardware license that has the same effect. That means that the design information is freely available, and that changes to that information must be distributed under the same license. We know that Creative Commons licenses are enforceable. That means that Open Source hardware, at the level of the design knowledge necessary to manufacture the hardware, is probably enforceable Open Source (with the interesting side effect that Creative Commons works more efficiently at protecting content or ideas by ensuring they stay within the Creative Commons, than actual Copyright is in shielding ideas from the public domain).

The second level is software. For Arduino, e.g., the software you need to make it actually work, is licensed under GPLv2.

Again, this is enforceable. So, to the extent software is necessary to operate the hardware (as will become more and more the case), the Open Source character of the hardware is, at least partly, ensured through the software necessary to operate the hardware.

The third level is the hardware itself.

To my knowledge, there are two main licenses known: the TAPR open hardware license and the CERN open hardware license.

The TAPR license specifically states that it is not a copyright license, but an agreement. It covers distribution of the documentation of the hardware, as well as the way in which hardware is built and distributed.

However, it excludes software from its field of application.

The TAPR license works, again, at several levels.

It gives a license to documentation, and obliges the licensee to copy the documentation and share changes under the same principle. This effectively repeats the creative commons approach to design.

It incorporates a duty to attach documentation to any product manufactured using the documentation, and imposes a covenant not to sue for patent infringement against licensees or licensors.

It is the last bit that seems truly new.

What the Open Source Hardware license does, is effectively prohibiting downstream users from enforcing any patents they would have on their improvements of the design or the product.

Is such condition enforceable?

First, we need to see if such license is actually necessary to copy the product itself. In my view, this is not the case. This has to do with the fact that ideas and design information are free to be copied, unless protected by registered design or patents.

What that means is that, anyone who sees a design or a product, is in principle free to reverse engineer or copy it. The fundamental freedom to copy applies.

This fundamental freedom does not apply to software – where any copy of the code is prohibited by the general and automatic copyright monopoly. However, no such automatic monopoly exists for designs or products.

So, therefore, the Open Source hardware license would limit its application to the extent there are patent or design rights in the product or a derivative thereof (as opposed against the Open Source software license, which applies for every copy of the software).

The question then arises whether a contractual undertaking as described in the Open Source hardware license (“covenant not to sue”) would be enforceable against someone obtaining a patent on an inventive step in developing a future version of Open Source hardware. This question is still open.

A second question arises whether the remedy set out in the license (“you lose the right to produce the product if you enforce a patent based on it”) actually makes sense. It may well not.

In a nutshell, the TAPR license seems less obviously enforceable than an Open Source software license, precisely because hardware is in general free to be copied, except if covered by patent or design rights (which are the exception), whereas for most software, the opposite is true (it is automatically covered by copyright). Only certain kinds of software (e.g. software where the expression merges with function, or software code that is not original, or created by a machine, and, in the EU, the code of interfaces) fall outside copyright.

The TAPR license also has a rather interesting reference to “emailing” information. I would have expected an innovative organization to recognize that email is not necessarily the obvious communication tool of the future.

The other Open Source hardware license is the CERN license.

The CERN license differs somewhat from the TAPR license, in two important aspects.

There are also clear similarities. There is a “creative commons” kind of license on the documentation, and a covenant not to sue for patents on new developments.

The most important differences are in the fact that the CERN license acknowledges more clearly the copyright nature of the documentation license, and also clearly mentions design rights (and not just patents).

Again, the question as to how enforceable the covenant not to sue is, remains open.

The essential question is this: if I use the documentation in order to manufacture and distribute the “Product”, and subsequently then modify or innovate, and register my innovation (either as patent or design), and then try to enforce such patent or design – what happens to the products I sold, and what happens to the products (with the new, registered modification)? Can I still manufacture and sell them?

And which remedies are available to the original licensor? Because that could well determine the success of Open Source hardware licenses.

Interesting questions ahead. But first, let’s wait and see if Open Source hardware really can become as successful as Open Source software.