This is a very interesting development in the light of recent decisions on whether Intellectual Property protection applies to computer – user interfaces. In other words, does Intellectual Property apply to how we talk to computers?

Back in 2010, when Microsoft released the Kinect motion sensor, it was hacked very quickly. Already at that time, Microsoft decided to have an open API (technical interface) and SDK (software development kit), allowing other developers and programs to interact freely with the Kinect motion sensor.

Now, even the core code has been opened up, and is available under an Apache 2.0 open source license.

As IP professionals would know, the Court of Justice of the European Union (the supreme court of the EU) has ruled recently that, in the EU, graphical user interfaces are not covered by software copyright (you can find the decision here). It’s important to understand that the decision relates to the functionality of the interface – any design elements or other graphical elements can still be covered by classical copyright (as any artistic design) – but such copyright never covers the underlying functionality, i.e. what the interface does (which is to allow a human user to give instructions to the software program).

The functionality of such interface (and the code expressing such functionality) is free from software copyright.

Without going into too much detail or analysis, there is a very interesting question to be asked here. If the EU says that there is no software copyright in graphical user interfaces, would the same reasoning apply to motion user interfaces? My feeling is that the answer would be positive, since the CJEU also says that technical interfaces (API’s) are not covered by software copyright (the analogy is not perfect – API’s connect different bits of software, not the software and the user).

In other words, we now interact with our computers through the graphical screen of the machine, typically by pointing or clicking. If that is not protected by software copyright, does that mean that the software that allows human-computer interaction by motor sensing is also free from software copyright in the EU?

To my knowledge, the question has never been asked in a court in the EU. But Microsoft may, for this one, have been really ahead of the game.

But as technology is creating new kinds of currencies and new ways to pay, the question of Intellectual Property Rights in money becomes relevant.

1. New money

Amazon has recently started issuing its own currency, called Amazon Coins. Amazon creates and spends its Amazon Coins to pay developers, and will accept payment in Amazon Coins for Kindle purchases.

Amazon is not the first technology business to create its own currency. Microsoft created Microsoft Points, as did Nintendo.

Facebook also created its own currency, Facebook Credits in 2008, but closed down the system again in 201.

Moreover, there is of course Paypal, the now almost ubiquitous online payment system. This is sometimes even seen as an existential threat to some core aspects of banking, such as organizing payment transactions.

And there is BitCoin, the virtual currency created on the basis of an algorithm and computing time, which has recently collaborated with a bank to carry out certain real-world banking operations, such as payments. BitCoin uses an open source peer-to-peer internet protocol, that allows the creation of bitcoin nodes or bitcoin miners based on investments in computing time and solving hashes (e.g. subroutines for database mapping).

So what’s going on?

2. Technology and money

Money has many functions – it allows people to buy and sell (a medium of exchange), it is a unit of account, a store of value, and a measure of debt.

However, a key aspect in all of those functions is that money carries information with it. And Information Technology works on exactly that – information.

So it should not come as a surprise that private operators start to issue their own currency – after all, the monopoly of central banks to issue money is a relatively recent development (19th and 20th century), which never really managed to exclude all private issue of money. A tradeable coupon is, in essence, privately issued money. By that token, an essential part of Groupon’s business model (something which seems in flux) is also the creation of privately issued money.

3. Intellectual Property and Money

As technology companies start to create new currencies, a number of questions arise.

What is the value of such currency? How can it be converted into traditional money such as Euros or dollars? Who controls the currency? And what about Intellectual Property?

In this blog I will only focus on the Intellectual Property aspect of these new, virtual currencies, trying to address the question “can you “own” [the IP rights in] a virtual currency?”.

a) Patents.

Is it possible to patent the process of issuing a currency?

Certainly in the US, the answer seems to be “yes” – for the moment. Facebook has obtained a patent on a method to issue and manage a virtual currency, published in August 2012. You can access it here.

This is a typical “business method” patent, and I’m not really sure it would withstand the “Bilski” Machine or Transformation test that is currently in force.

This then leads to the question whether a process that is in essence fairly simple, straightforward and well-known, such as issuing and managing credit and converting it, becomes patentable when you describe it as done on a computer or through Information Technology, or add the word “virtual” to it.

Also, I’m not sure the Federal Reserve Bank (the US central bank) would be very convinced by the argument that the concepts of issuing and managing money and credit online or virtually were not known as “prior art” in 2010, the date on which the patent application was submitted.

But there is of course a wider issue here. Issuing money is subject to monopolistic rules in many countries – hence the expression “legal tender”. The issuing of generally convertible money (enforced through the legal obligation to economic actors to accept state money as payment) is typically a state monopoly – regardless of the technological way in which such money is issued.

However, it seems like Facebook may now have obtained its own monopoly on issuing a certain kind of money, as long as the particular steps as described in the patent are followed.

Which monopoly will win? The Fed’s monopoly on issuing money or Facebook’s patent monopoly on a virtual way of doing the same? My (virtual) money is on the Fed, but it will be interesting to see if Facebook ever tries to enforce its patent, and, when it does, whether it will stand up to the scrutiny in court.  Since Facebook recently abandoned its Facebook Credit system, this may be unlikely to happen, though. (This whole story also underscores the woefully inadequate operations of the USPTO. Issuing a patent on the method of issuing virtual money is, quite frankly, a sad joke, and clearly shows that the USPTO is not doing its job properly.)

Facebook Credits could only be used within the Facebook environment though, they were not set up as a universal internet-credit.

That’s different from “real” virtual currencies like BitCoin, which are intended to operate outside their own platform, and want to obtain the status of a really convertible virtual currency.

From the Facebook patent, it appears that BitCoin could probably also potentially patent some or more of its functionality; again, the patent system could then be used to monopolize basic economic functions when operated online.

While this obviously makes no sense from a general economic point of view, it could point into the direction of future discussions on who can “own” money, and whether the fact that money-related transactions become more and more technical, makes them more and more vulnerable to patent monopolies.

The conclusion seems to be that technical development on the one hand has a liberating potential effect, through the creation of new kinds of currency by technical means, and on the other hand may suffer from the typical stifling, anti-innovative effect from patent monopolies. However, the latter comment is subject to two important caveats: the Facebook patent (and similar patents that only describe a theoretical process, exactly as in the Bilski case) may not stand up to serious scrutiny in court, and the government monopoly on issuing money may intervene at some point.

b) Copyright.

It seems unlikely that copyright could apply to the functionality of a virtual currency. Copyright typically only applies to expressions, not to functionality.

Of course, the visual and design aspects of a currency, to the extent they can be separated from its functional aspects, can be protected by copyright.

These are unlikely to have an important impact on the value or functioning of such virtual money though, other than as a factor to identify the virtual currency.

c) Trademarks.

Which brings us to the next IP right: is it possible to trademark money? Here, the answer should be much simpler: to the extent the trademark is really distinctive, there’s no reason the service provided by a virtual currency could not be covered by trademark.

Of course, the meaning of the word “counterfeit” becomes quite different when we talk about virtual money.

In this respect, virtual money is probably subject to the same risks  and limitations as online banking – phishing is not exactly a new phenomenon; although it is unlikely to be covered by Intellectual Property any time soon.

d) Fraud and counterfeit.

One key aspect of any currency is that, for such currency to work, it needs to be trusted.

Here, BitCoin has struggled to a certain extent: it has not been free of hackers and problems with security.

However, counterfeiting virtual money is a very different thing from counterfeiting physical bills or coins. It is probably much more difficult, but if it works, it will be much more difficult to trace.

e) Trade secrets & algorithms.

A key aspect of e.g. the BitCoin system is the underlying algorithm. Even though the source code of system is available, some of the algorithm that creates the bitcoins is secret.

This should not be a surprise: a lot of the core intellectual property related to financial transactions is in complex algorithms developed by sophisticated mathematicians working for financial institutions and traders – often called “quants”.

Most of this IP is not protectable through patents or copyrights, and tends to be kept secret by its users.

As a result, it may be that trade secrets are a more efficient protection for the innovative aspects of virtual currencies.

3. Who can own money?

Based on the existence of the Facebook patent, it could be assumed that certain parts of the technological aspect of issuing new currencies could be subject to Intellectual Property.

That would mean that certain private operators could lay claim to monopolistic positions in creating such currencies.

It is, however, not surprising for the issuer of a currency to have a monopoly on their specific currency, so in this respect, it is not certain if IPRs actually add a lot of value.

The analysis becomes different when IP rights start to apply to generic aspects of a virtual currency – as shown by the Facebook patent.

But it is my feeling that it may not be safe to assume the Facebook patent is either valid or enforceable, and if it were, there is some likelihood that regulatory or political powers would actually intervene.

After all, the value of a currency depends on it being accepted by as many economic actors as possible; and building IP shutters may not be the most efficient way to go about it.

In other words: it is quite possible that an open-source approach such as the BitCoin one is, from an IP perspective, the more clever approach.

What seems certain is that this space will continue to evolve, and we are likely to see other new developments.

After all, to the extent banking is dependent upon information inefficiencies, further development of Information Technology could well chip away at the very reason of existence of banking; which could be described as the middle man, hoarding information on efficient use of money.

In this blog I will expand a little bit on why that is the case, and whether something can be done about it.

1. Personalized manufacturing

Remember the ringtone industry?

First started as a bit of a joke, and in order to get rid of that ubiquitous Nokia ringtone, it became possible to personalize the sound of the ringtone of your mobile phone. You could now have your personal choice on how the phone rings.

And people loved it.

Within months, a multi-million dollar economic activity was born, and everyone was creating, offering and downloading personalized ringtones.

Now, 3D printing has started to offer the possibility to print personalized shell cases for mobile phones.

Such personalized mobile phone shell cases are probably unlikely to become a similar run away success right now, but that is only due to the limited number of 3D printers that are around (in other words, for purely logistical reasons). Once capacity catches up, there is no reason why people would not personalize the case of their phone, in a similar way as they personalize their ringtone.

Especially if the cost is similarly low, which it will be.

This points to a key characteristic of 3D printing.

3D printing is “personalized manufacturing”.

And “personalized” is the key to understanding how 3D printing will affect and transform our society, and why Intellectual Property does not fit well with 3D printing.

2. Value of personalized

All major recent developments in consumer software and the Internet are based on the concept of “personalized”.

Facebook, Instagram, Pinterest, Google+, Google maps, Twitter, pretty much most of the App phenomenon, all those new developments and businesses are based on the concept of “personalized”.

Your personalized network, your personalized map, your personalized photos, your personalized life online.

And now the physical world will join in. Products will become personalized.

Your personalized shoes. Your personalized sunglasses. Your personalized teacup.

Everything will become personalized – because we all want the same thing: to be unique.

And we will be able to show how unique we are. The possibilities are endless.

This is a profound change. Since the start of the industrial revolution, we have moved away from personalized products (slowly and expensively made by craftsmen until then), to replace them by mass-produced, standardized products.

While no-one really likes standardized products, we all buy them, mainly because they are too cheap not to.

But 3D printing has a profound impact on that model. No longer will we have to settle for the designs imposed upon us by corporate designers employed by standardized manufacturers. We will be able to design ourselves, or buy, at a fraction of the price, the personalized designs made available online.

In other words, we will leave the manufacturing processes of the Industrial Revolution behind us, we will move beyond the industrial way, and return to the personal way; but this time available to all, at the same, or even lower, prices as the standardized product.

3. And Intellectual Property?

A key characteristic of the Intellectual Property system, as it currently exists, is that it is very closely linked to the manufacturing processes of the Industrial Revolution.

A patent (the right to exclude others to manufacture or distribute a product or use a production process) only makes sense if you make the same product over and over again, in the same or similar way.

In a world where manufacturing becomes personalized, patents effectively become completely useless – because patents need standardized manufacturing in order to have any meaning (let alone value).

The same is true for other IP rights. What could possibly be the point of registering a design, if it takes any person on their PC with some basic training an hour or so to modify it enough to steer clear of possible infringement, and then they can manufacture that design in their own home? The return on investment in filing a design becomes pretty horrendous.

Copyright, as I have stated many times, is a complete misfit for the digital age. It is based on assumptions that were true in the 19^th century, such as high cost of copying, control of distribution chain etc.

Those are simply not true anymore. But copyright is also particularly badly designed (pun intended) for personalized manufacturing based on digital files.

Copyright, in theory, applies to the design itself (to the extent it is not merged to the function), and to the digital file carrying the information necessary to print the product. But copyright does not apply to the function of the print, or the function of what is being printed.

And again, how can you possibly enforce copyright in a standardized product, when the value of 3D printing is in the personalization – i.e. that bit which would fall outside copyright protection in the first place?

I think it is a key aspect that is not well understood by IP professionals. 3D printing will personalize manufacturing.

And personalized things fall outside IP, because IP is based on principles of standardized manufacturing/copying.

After all, when was the last time you heard about the estate of Jimi Hendrix sue someone because they have as a ringtone the intro to “Hey Joe”? In theory, every ringtone is a breach of copyright.

But copyright can’t handle personalized things – so, for ring tones, it has become irrelevant.

Is that the way forward for all IP?

Since my last blog post (two years ago) a lot has changed.

The technology of 3D-printing has made great progress.

And the world of Intellectual Property has started to react to the challenge posed by 3D-printing.

Which, in turn, has caused a surprise reaction by the 3D-printing community.

1. What is 3D-printing?

Although 3D-printing has become much more widely known, not everyone knows about it, and still less people have actually seen it happen.

A 3D-printer is a machine that builds objects, by adding very tiny layers of material on top of each other. It “prints” in three dimensions.

The cheapest 3D-printers are now available at less than $1,000, and they can print you objects such as coathangers, teacups, decorative elements like cufflinks, toy cars, Christmas decorations at a negligible cost, but also prototype models of new product designs; something which typically costs many hundreds or thousands euros to have made.

And the technology is booming and evolving fast.

The potential impact of the 3D-printer on society at large has been compared to that of the PC – arguably, it may be bigger.

Imagine most of your products no longer manufactured in China, but around the corner in a “print-shop”? We could scrap half the world’s fleet, and reduce the ecological impact of any such production significantly. Because 3D-printing is what is called “additive” manufacturing, it produces significantly less waste than traditional manufacturing, which still uses the “carving out and throwing the waste away”.

3D-printing already uses many materials such as plastics, metals, ceramics, bio-materials (including both foodstuffs and elements of human tissue such as cartilage, or a lower jaw, or the carrying structure of organs such as kidneys), with drugs (DNA-based 3D-printing and guns just around the corner).

Since I first wrote about 3D-printing and their impact on IP rights, back in March 2011, things have evolved, both in terms of technology and in terms of Intellectual Property.

2. Technological and market evolution

3D-printing evolves quite fast, particularly at the low-end, customer facing side of the technology. While companies like Materialise and 3Dsystems have grown significantly by providing better and cheaper products at the high-end (allowing much cheaper and complex prototype development), there has been a boom in businesses offering DIY (indeed) 3D-printers, from Ultimaker to Makerbot to RepRap to PP3DP, and I’m forgetting many.

Printers become faster and more reliable, layers of construction become smaller, allowing for more sophisticated products, the scope of prime materials continues to grow.

But, as I said earlier, the real fast growth is, as always, in software. Designs of printable objects increases spectacularly, also thanks to websites like Fabber, Shapeways, Thingiverse and, again, I’m forgetting many.

But the really coolest thing I’ve seen recently is this: 3D-printing of vinyl records – with the music on it! It’s really “replicating music”; while the technology is not quite yet at the desired level, it gives an idea of things to come. Does that mean I will be able to physically copy over my old vinyl record collection soon?

3. Intellectual Property developments.

The world of Intellectual Property took notice, and a number of trends are starting to emerge.

First, the patent trolls wanted to see if they could chip in and make a quick buck out of this. In true patent troll spirit, former Microsoft CTO Nathan Myhrvold’s Intellectual Ventures, filed a patent on a system of Digital Rights Management (DRM)-control of 3D-printing.

Such a system would mean that anyone who wants to 3D-print certain files, would have to pay a license fee; it is not quite clear who to, or why, but it looks like Intellectual Ventures wants to be able to collect lots of money on the back of the innovation and creativity of others (a sad, but typical, use of Intellectual Property Rights, a system nominally designed to “promote science and the useful arts”).

In a similar vein, 3D systems, an “established” 3D-printing business, has filed a lawsuit against Kickstarter – this is an interesting case, since 3D systems seems to assume that because they own certain rights, they would have a right to stop Kickstarter from allowing fundraising for a potential competitor who might, possibly, be in breach of those rights.

So we see the first signs of IP holders trying to levy their usual tax on innovation into a new field.

Secondly, and more interestingly, though, a push-back has occurred by parts of the 3D-printing community.

Unlike the PC, when no open source was around, a lot of 3D-printing technology, both in the hardware and the software, is open source.

This has spurred the Electronic Frontier Foundation into trying to crowdsource efforts to prevent the potential damage to innovation done by patents such as the ones filed by Intellectual Ventures.

While this points at obvious serious flaws in the patent system, which, certainly in the US, continues to lay monopolistic claims to existing technology, or on the basis of mere ideas, it is interesting that crowdsourcing of information is used to try to remedy this. One could opine that finding out about prior art is really the job of the USPTO, but that is going to deeply into the political debate about Intellectual Property Rights.

Thirdly, the question of DRM-protection of printable files seems awkwardly timed, now that most DRM for either music or ebooks can be so easily circumvented, or is indeed lifted.

4. Foreseeable trends

While it is of course very dangerous to predict the future, there are some trends that can be seen.

On the technology side, it looks like the development of 3D-printing technology is both speeding up and spreading out. More applications, more advancement, more innovation is likely to take place. When people already receive body-implants for a lower jaw printed by 3D-printing in 2012, who knows where the limits are.

Also, since 3D-printing is spreading through communities of “makers”, the innovative advantages of an open source approach will probably lead to ever faster incremental improvements, alongside

On the IP field, the issues will be more problematic.

As I’ve stated before, the problem with patents is that they are very hard to enforce in an open environment – when even at the level of the mobile phone market, patent litigation is clearly not cost-effective, and destroys a lot of shareholder value, how will anyone be able to enforce patents against a myriad community of developers and makers?

Unless of course legislation is changed, and the scope of patents is expanded – but that would risk a serious backlash, as anyone who remembers the SOPA/PIPA story will confirm.

Design rights remain problematic; indeed, it is hard to see how design rights or design patents will be useful in blocking access to the market of competitive designs or products. Again, the issue of cost-effectiveness of litigating someone to keep products that can be manufactured at a much lower price off the market will meet with both practical and political problems.

Finally, there is the impact of copyright on the printable files. If I design a chair, or a tower for my toy castle, and that fits neatly with a “game of thrones” game, I do actually own the copyright in the digital file of such tower I designed myself, even if that resembles or fits well with a design from someone else. It is not clear how DMCA would apply to such a file, unless copyright would be fundamentally changed – right now, the copyright only applies to the code, not what the code does.

BitTorrent sites and other peer-to-peer approaches are already developing rapidly growing forums where people can share their files to be printed. It will be a lot less clear for right holders in a product to claim that they have rights in an .stl file developed by someone else, allowing to print a product that looks like, but not quite is, that original product.

Maybe the near future will bring a mighty new battle between those who want more control over the Internet (the right holders), and those who want to use it for the purpose of sharing and innovating (the 3D-printing communities).

EpiGaN is a spinoff of IMEC, the world-leading research institution in nano-electronics and nano-technology.

EpiGaN focuses on providing world-leading III-nitride epitaxial material wafer solutions to manufacturers of top-performance power-management and RF semiconductors. EpiGaN gives device manufacturers early access to a unique and proven power-management technology to be applied in key market segments such as power supplies for consumer electronics devices, renewable and clean-tech energy sources such as hybrid electric vehicles and solar power inverters, wireless RF base stations, and smart grid applications. It has recently started manufacturing III-Nitrides epitaxial material.

During 2012, we set up, together with the senior management (CEO and CTO), the Intellectual Property Strategy of the business.

This IP strategy, which takes into account the results of Freedom to Operate research, together with a patent attorney firm, allows the business to understand how it should use IP at every level of the business to support and implement the business strategy.

Obviously, this goes much further than drafting a patent policy – it covers all aspects of Intellectual Property, from copyright to trade secrets, from patents to open innovation, from contractual aspects to harvesting.

The IP strategy was recently finalized and presented to the board of directors.

Apple’s use of Intellectual Property is probably a prime cause of the Apple slowdown.

But a novel approach to IP – access to the Creative Commons – could help Apple to turn around and be innovative again.

Apple seems to be in trouble.

Apple is about to launch the mini iPad.

While the launch may still contain some kind of surprise, the consensus seems to be that, for the first time in years, Apple is trying to catch up.

That’s new. From the iPod, over the iPhone to the iPad, Apple was always significantly ahead of the competition, and often created new markets.

But the iPad mini is a follower, not a leader. It will compete with other 7 inch tables, such as the Google Nexus 7, the Galaxy Tab and the Amazon Kindle.

This means that Apple is on the defensive , and may find itself struggling to keep market share or gross margin at the high levels it currently masters.

Of course, Apple is not yet where Nokia is – but things can change fast, and the Apple slowdown over the last two years, consistently under-performing against its own, arguably very high, standards,  is remarkable.

Role of IPR in understanding why Apple is in trouble.

This should not come as a complete surprise, though, and Intellectual Property Rights are actually a good way to explain why Apple looks like it’s in trouble.

First, Apple has the problem of fighting the Android operating system, and Android is Open Source. As I have stated before, when Open Source and proprietary go head to head, Open Source tends to win. This is because Open Source, without the burden of IP rights, is more innovative and creative, and allows for faster and more efficient innovation than proprietary systems.

Now, although some claim that Android is not really Open Source, it is Open Source enough to benefit from the Open Source advantage of having less of the IPR-brakes that slow down innovation and creativity in proprietary systems.

This also goes some way to explain why Apple is actually suing Samsung and others over Android, and tries to block the Android system in courts, because it fails to beat them in the market.

The second clue is very much linked to this. Apple has become a very big IP litigator. It has triggered the great mobile telephony patent war, a mistake I have often compared to the start of the First World War – so far, many futile offensives and useless victories, but mainly a big stalemate, and an enormous amount of energy and money wasted with no result whatsoever.

Why is this important? It is important because successful innovators don’t really care about IP litigation. They focus on the products, services, markets and customers.

When a business turns into an IP litigator, it is a telltale sign that they are over the top, and are shifting focus from innovating to trying to collect monopolistic entry rents into the marketplace. Microsoft is a very good example, as it is morphing into the largest patent troll on the planet, with its license on trivial patents on certain Android functionality a case in point. But also look at other dinosaurs with large patent portfolios, like Nortel, Kodak, Polaroid and Motorola, maybe soon to be joined by Nokia.

In other words: IP is not only a cause of slower innovation, IP litigation is also a telltale sign that a business is no longer innovative.

Apple suffers from both: it is burdened by an IP-strong approach in both its innovation and business model, and gets slowed down by IP-litigation and IP-minded thinking.

How the new IP of Creative Commons can help Apple.

But there is hope.

The key problem that this FT article – correctly I think – identifies is that Google and Amazon are Apple’s most dangerous competitors.

This is because, unlike Apple, they use their hardware to monetize their content. For Amazon content is, of course, their main product; Google’s content is the Internet search data that gets accessed through its algorithms.

As a result, Google and Amazon have decided to sell their hardware at much lower margins, because their real margin is in the content they offer. This is starting to hurt Apple quite a bit.

Apple does not really have any content, other than iTunes. But the iTunes business model is in serious decline. The concept of people paying to download music looks pretty outdated in a world that gets swamped by new initiatives offering music streaming, examples being Spotify, Deezer or Grooveshark, but also other approaches such as Soundcloud or Hitlantis. Add to this the technological developments such as HTML5, allowing anyone offering music or Apps to bypass the Apple tax charged by iTunes or the App Store, and we see how this approach to content does not really offer a good solution.

I have no idea if Apple hopes to use TV content in this respect, but it is hard to see how it could have a distinctive difference, unless Apple gains some kind of exclusive access to important pieces of TV content – which I doubt, failing to see why content providers would have an interest in providing such exclusivity.

So how can Apple fight back?

One original way, I believe, which could upset the others, and certainly Amazon, would be for Apple to start using the Creative Commons to offer access to content. Creative Commons is like Open Source, it uses IP rights to prevent the IP brake on innovation or creativity to apply. And, like Open Source, it is of course a continuous source of innovation and creativity, far superior to any system based on the IP-monopolistic approach.

If Apple were to use its hardware to provide easy access to Creative Commons, it would gain access to an enormous wealth of content. While not chargeable upon download, such content, and a structured, consumer-focused and clever approach to it, would still be very valuable. And we know that consumer focus and ease of use were the main Apple differentiators in their approach to hardware, so there is some serious expertise there.

It would also give Apple an opportunity to start collecting the benefits of community and social networks, an area in which it is virtually absent today. Indeed, when you think about it, it is actually quite surprising how much Apple sticks to the old, 20^th century approach of a top-down relationship with its customers.

It may be because of this approach is too embedded that Apple ultimately may decide not to use the Creative Commons, because their closed ecosystem philosophy is anathema to the open character of the Creative Commons. But I think that that would be a big mistake: the Creative Commons is still largely untapped as a business opportunity. And in most open systems, there is a considerable first mover advantage.

I’m not in the business of giving investment advice, but I wouldn’t hold on to those Apple shares too much longer, if I were you.

Davy Kestens, the CEO, did a very successful round of financing, with investors from Belgium and Silicon Valley.

Prior to that, and as part of that exercise, I helped Davy in respect of the transfer of IP to the business, and more particularly fiscal aspects of this question.

We helped them structure their Intellectual Property and ensure they had all necessary rights at the right place in the business at the time of the financing round.

Japan has recently issued a new draconian law  criminalizing “illegal” downloads.

A single download can get you 2 years in jail, or fines up to Y2m (more than US$25,000).

This is part of a worrying trend, where IP infringement is more and more heavily penalized, under criminal law.

But, at the same time, we see how most criminal cases against file-sharers either go nowhere, or collapse fast.

The most famous example, Kim Dotcom, the founder of Megaupload, received apologies from the New Zealand prime minister. While one of the founders of the Pirate Bay is now under arrest, (apparently, without being charged) the website itself continues to work, and allow its users to share content.

Imagine Barack Obama or Hillary Clinton apologizing to the poor woman who was recently fined an immoral US$ 220,000 for downloading 24 songs.

While more than 90% of downloads are “illegal”, and enforcement does not really make any difference, we see, time and again, politicians stating that the solution to IP “theft” is more enforcement.

But why is this policy failing so badly? Why is it that “pirated” content continues to flow across the Internet, and any attempt to stop it is either useless, or so obviously unfair, and therefore bereft of popular support?

1. There is no real evidence.

Criminal law is different from civil law. Civil law is about private interests clashing, and typically asks that a case is judged on the balance of evidence. But criminal law demands much higher standards.

US courtroom TV series have made the expressions “guilty until proven innocent” and “beyond reasonable doubt” almost household expressions.

Criminal law has a very profound impact on people – it can take away your property or your liberty. Therefore, the legal system has put in place severe and serious hurdles before anyone can be declared guilty of a crime.

And we observe how IP infringement cases consistently seem to fail to meet those standards.

The FBI wants to prosecute Kim Dotcom without releasing the actual files on Megaupload. That’s like charging someone with a crime, but the prosecution does not say where it took place, what actually happened, or who did it (and will make sure no witnesses are ever allowed in the court room). That’s just simply not good enough for criminal standards.

In the same vein, we consistently see how content right holders (aka the old music and film industry) think they can prosecute, without even having the burden of proof that they actually are who they claim they are (aka have the IP rights they claim they have). This effectively puts the onus on the defendant: proof you’re innocent, because we state you’re guilty.

And we all know instinctively that that is not right.

Sometimes people get charged because a download or upload is connected to an Internet Protocol address – their computer, or, a shared access to the Internet. But that is not evidence that the owner actually used it for that purpose, as was clearly established in a case where employees of Universal, Sony or Fox  were found to be accessing the BitTorrent (for you know what reasons), or a man in France was convicted, although he could establish he was not the person who used the computer to download.

If it wasn’t so serious, you would actually think these prosecutors are trying to whip up support for the pirate party.

2. There is no real victim

The higher thresholds of criminal law were set up in order to protect values such as physical integrity and property, when threatened by classic crime such as assault or theft.

But IP infringement is not “classic” crime.

Consider how, very often, there’s no real victim. Unlike the situation when you steal my car, and I can no longer drive it, an “illegal” copy does not actually diminish the value of what the original owner can use.

Intellectual Property Rights (IPRs) such as patents and copyrights are not really property; they don’t have the characteristics of classic property. There is no natural scarcity, there is no positive right to use in an IPR, and there is no “loss” in case of concurrent use.

Instead, IPRs are, from an economic perspective, monopolistic exclusive rights, mainly on distribution.

And, frankly, taking people’s house away in order to protect a distribution monopolist, doesn’t have that special ring of “justice” to it.

 3. There is no “wrong”

In the end, criminal law is about morality. Society decides to enforce those values it holds dear.

Criminal law aims to prevent and punish acts that we all consider sufficiently wrong, that we are willing to strip the perpetrator, to a certain extent, of their civil or human rights, by imposing a fine or taking away their liberty.

But, protecting the private interests of distribution monopolists falls very much short of values that society puts at the level where they merit criminal protection.

Busting a monopoly is not “wrong”.

Calling IPRs “property”, and calling infringement “theft” does not change the underlying facts that IPRs simply do not have sufficient moral value to be protected by criminal law.

And interestingly, it seems like some public prosecutors and a good part of the public start to agree on that.

Of course, the right holders will contest – they will claim their monopolies merit the heavy handed protection of criminal law.

But what does that say about the balance of power of private monopolists on the one hand, and the republic and its monopoly of enforcing criminal law, which is supposed to be governed “by the people, for the people”, on the other hand?

If we give criminal prosecution rights to one category of monopolists, what will stop others from claiming the same? How do we justify using the state’s monopoly to impose criminal law to grant random monopolistic rights to one economic actor, at the detriment of its competitors, and, most probably competition and innovation as a whole?

4. Conclusion

It seems to me that the more IPR holders try to enforce their monopoly by using criminal law, the more they are weakening their moral, and therefore, political case.

Criminal law is just too heavy an artillery to point at “pirates” in the middle of the battlefield of a society that starting to discover the benefits of file-sharing, and user generated content.

I would not be surprised if the attempt to try to apply criminal law to their distribution monopoly, may well have been a crucial political mistake of content distributors.

After all, why does society need a monopoly on the distribution of content? It’s not like it’s actually promoting the arts or useful sciences, is it?

In the UK, a government appointed independent study has reviewed the same problem. It is called the “Digital Copyright Exchange feasibility study”, and you can find the report here.

Below is my first analysis. I will look at three questions: 1) Does the report stay within the boundaries of current copyright, or can it think outside the box? 2) Does it address the real issues? 3) Does it provide useful answers?

Staying within (part of) the box

The report, unfortunately, refuses to question any of the basic premises of the copyright system. It never asks the question if the copyright system is fit for purpose. Rather, the report clearly states it stays within the current boundaries of copyright.

That is a great pity. We know that the current copyright system fails badly in the digital universe. To assume that this is due to the technicality of the digital system only, as the report seems to do, shows that the report sits completely “within the box” of the current system. Nowhere does it ask serious questions, or addresses the totally out-of-time premises of the 150-year old copyright system.

The authors of the report have worked closely together with the current content-distributing industry – and it shows. All kinds of statements as to why people do things are accepted without the slightest criticism.

As a result, the report stays firmly within the box of the old content-distributors; the record companies, the film distributors, etc. Their business models are never questioned, nor the basic question whether copyright law, and the resources of the state, including criminal law, should be used to protect a particular business model, based on a particular understanding of technology.

At the same time, the report turns a massive blind eye to the most relevant developments in areas that are covered by copyright, and where huge new activities online have sprung up, but outside the classical content distributors’ channels.

The report completely ignores the explosion of new content that has become available on the Internet outside classical channels. Music is no longer distributed by record companies, but by artists. Books are self-published. Etc. But nothing in the report seems to think this emerging group of authors need to be involved in any way in either analysis or solutions proposed.

In doing so, the report makes the classic mistake of thinking that the old content distribution business actually represents the creative industry (or is still a significant part thereof). To give but an example: the music industry is much, much more than the record companies. It involves such people like the actual musicians. But the report completely ignores this dichotomy, which, in the marketplace, is becoming ever more relevant.

Also, there’s pretty much nothing on relevant new developments on the crossroads of technology, content, and intellectual property.

Creative Commons is mentioned once, in a small example.

There is no mention at all of User Generated Content – a key trend that is sweeping away traditional understandings of copyright. To think that parents who film their children’s birthday party and want to mash it up online with other content, are interested in purchasing licenses to “happy birthday to you” song or other content, that right holders can then randomly withhold, is simply foolish in the extreme.

To think that “voluntary industry practices” will affect the explosion of users who will want to use, re-use, imitate, copy and apply all other kinds of functionality to content, is, quite simply, 20^th century thinking.

But it’s worse.

Not a word about other key industries that also depend on copyright.

Not a word about software. Not a word about functionality in the Internet. Nothing on Apps. Nothing on Open Source. Nothing on Big Data. Nothing on the Cloud. Nothing on hacking, open standards, the public domain. Where’s the analysis of Pinterest? Where’s the analysis on machine-generated content?

The report is, from this perspective, breathtakingly shortsighted.

It deals with a subset of a subset of issues, and extrapolates those into “digital copyright exchange”.

So, from the beginning, the issue of scope of this report presents a very serious problem to its usefulness or credibility.

What are the real issues of copyright in the digital age?

The report never seriously analyses any of the relevant questions as to why copyright is struggling so much in the digital world. There are some fleeting references as to why people might be “pirating” or why they might want to use peer-to-peer services, but there is no attempt at serious analysis.

Reasons or explanations advanced by the old content distribution industry such as the record companies or film distributors are accepted without even the appearance of critical thought.

The simple observation that business models based on creating artificial scarcity in a world where technical reproduction has become ubiquitous are untenable appears nowhere.

The report blandly accepts that copyright holders must be able to refuse to license their content. Then it goes on to validate the statement from the content industry that the lack of content cannot be a valid reason for piracy.

The consequences for the credibility of the report are, of course, disastrous.

If you don’t make a proper analysis of a problem and its causes, how could you possibly come up with a relevant or credible solution?

Are the answers useful?

And yet. There is one observation in the report that is valuable. It is the observation about the enormous importance of data.

This is a good and valid observation. The problem it points to is simple: who owns what, and how can anyone know who owns what?

As I have explained earlier, a mandatory digital registration system is the only workable solution to this problem.

The report recognizes the question, and does suggest, maybe, some kind of voluntary registration, but does not want to go very far in its solution. It calls effectively upon the old industry to voluntary put its systems on a comparable footing and start swapping data or make them inter-usable between systems.

Unfortunately, here, the report suffers from the same extreme short-sightedness.

Setting up a common database of copyright-held content is actually not difficult or expensive anymore. Technically, it has been possible for more than 15 years – in fact, pretty much since the invention of the Internet itself.

The problem is, of course, the old content industry. They wouldn’t be seen dead doing this – and they have consistently refused to use the technology available, in order to create simple and transparent data about who owns what.

Don’t forget that all new developments in both technology and business models in content (music, films, books,…) over the last twenty years have come from outside the traditional industry. This is true both for the negative impact, where the old business models are being destroyed, as for the positive impact, where new business models arise or new technology develops quickly.

For the report now to call upon that same old, failed, industry to do what they have consistently refused to do over the last two decades, is, it must be said, a very sad result indeed.

Conclusion

The report limits itself to an ever decreasing part of the market. It does not perform any meaningfull analysis of the causes of the problem it wants to resolve. Its solutions are re-hashed statements of intent that  the old content distribution industry has consistently failed to live up to, by that same old content distribution industry.

It is a missed opportunity, and a waste of effort and money.

The follow-up will fail, and its recommendations will not be implemented.