Evils of intellectual thievery: The flipside

Long the scourge of the high seas, piracy continues to strike terror in the hearts of those who own things of value and income-generating assets that others covet. This time around, however, these riches are neither gold, nor silver nor precious stones, but wealth in the form of rights to intellectual property such as brand names, inventions, new scientific discoveries, recorded music and other works of art that have potential commercial value.

Modern pirates are not the swashbuckling, sword-wielding brigands that we are familiar with, but ruffians of a different sort—Internet savvy geeks who can surreptitiously swipe files from one source and electronically make these available to any taker for commercial gain or for whatever other insidious purpose they have in mind. Pirates of this kind are more difficult to apprehend than the hostage-taking variety that operate off the coast of Somalia. Not as brazen, perhaps, but infinitely more wily.

So, why not just leave these e-pirates alone and instead open-source all the material they want? Why not simply allow the free download of intellectual assets and information to whoever wants them, from whoever has them?

“What a crazy idea!!” one is bound to say.

In fact, this is exactly what Bill Gates would have said had anybody suggested this to him in the early 1990s about the Windows operating system. Then something happened on his memorable visit to Beijing several years ago. It suddenly dawned on him that Windows has become—and still is—the most widely used operating system in China, even then emerging as the world’s largest market for Microsoft. No small thanks, Gates himself belatedly admitted, to the many years of bald-faced pirating of the entire range of Microsoft software in that country. Despite the admitted technical superiority of the Linux OS and Apple’s Mac OS, Windows has become, to use a technical term, the “dominant design” in computer operating systems (just as the QWERTY is in keyboard design).

It is now accepted by many academics and by an increasing number of practitioners in the Information and Communication Technology (ICT), media, pharmaceutical, publishing and entertainment businesses that open-sourcing is a potentially effective strategy for expanding existing markets, and for creating new ones. A number of new and innovative business models being put in place by progressive players in the knowledge business reflect an emergent view, put into sharp focus by the recent Wikileaks phenomenon, that knowledge and information should be regarded as free goods and should be in the public domain, not the private preserve of a few individuals and institutions.

The potential of technological inventions or processes, or content in the form of recorded music, printed work, or blockbuster movies, to generate more revenues is the driving force behind a number of strategic moves made by several iconic firms, including Google, IBM and Genentech, and entertainers such as Madonna and Lady Gaga (along with legions of failed authors like myself!).

There are three ways by which these beneficial effects can be realized: (1) creating opportunities to expand existing markets; (2) extending the usefulness, production feasibility and marketing potential of existing products to succeeding generations of new customers; and (3) creating new subsidiary markets for existing products or services.

Let us cite a few examples to buttress our arguments in favor of opensourcing:

In the mid- to late 1990s, IBM famously made a large portion of its huge arsenal of patents for products and processes available to all comers. The company’s CEO at that time (Louis Gerstner, Jr. I believe it was) justified this move by stressing that most of these patents will have lost their economic value unless soon developed, and the only way to do this was to allow others, competitors included, to use them, and for Big Blue—as IBM is fondly referred to—to capture part of the value created through some collaborative projects with them.

Steve Jobs was famously secretive about Apple’s products, and he zealously avoided involving outside partners in their development. The company relaxed this long-standing policy somewhat in regards to the iPhone, some versions of the operating system of which he grudgingly shared with a select few through some loose licensing arrangements. The idea behind this move is to allow others to develop applications software for the iPhone. As of last count, there were over 250,000 such apps, the major reason that the iPhone continues to be a dominant force in the Smartphone market.

Google, of course, has pursued the opposite strategy with its Android operating system, which was open-sourced from the very beginning. As a result of this strategy, Android’s share of the Smartphone market surged to 60 percent to Apple’s 26 percent as of the end of the 3rd quarter of 2012 (this has since slid back to 47 percent to Apple’s 43 percent after Apple released the iPhone 4S).

By open-sourcing an entire array of web services such as Gmail, YouTube, and now Google+, Google has become the world’s largest advertising company, currently valued at over $150 billion.

While she certainly must have realized that her recordings were being downloaded free from several websites and file-shared by her countless fans (remember LimeWire, the erstwhile peer-to-peer file sharing program?), Madonna, as with many other rock stars, offered little resistance, knowing fully well that by having a wider fan base, her income from concerts and endorsements will be vastly enhanced.

Many pharmaceutical firms such as Merck & Co. (now part of Pfizer) have been  offering free antiretroviral drugs to millions of people in Africa with HIV/AIDS who can’t afford them, in the process assuring them of ready markets for their entire range of products in the future from healthy, AIDS-free  customers.

Companies, organizations and individuals who insist on the legal protection of

Intellectual Property Rights (IPR) argue that the free access to their patented or copyrighted works results in a substantial reduction in their incomes from these assets, an assumption that has been found recently to have no factual basis.

This is their main reason for supporting two recent legislative initiatives in the United States to strengthen IPR protection: the Stop Online Piracy Act (SOPA) and the Protect Intellectual Property Act (PIPA). These bills pending in the US Senate and House of Representatives were strongly supported by the Motion Pictures Association of America (MPAA), Recording Industry Association of America (RIAA), Association of American Publishers (AAP) and National Songwriters Association (NSA), which lobbied tirelessly for their passage.

The purpose of these legislative moves in the US is not to pursue the pirates themselves, who include not only illegal operations that copy, produce and market bootlegged products on a commercial scale, along with  the countless web denizens who share files among themselves willy-nilly. Rather, they are aimed at the many websites that facilitate such file sharing, or are suspected of doing so, including Internet icons Facebook, Twitter, Google and YouTube, all of which understandably are lined up against their long-established and better connected adversaries.

This face-off came to a head last January 18 when thousands of sites, led by Wikipedia, signed off for 24 hours in protest of the two bills then pending in the US Congress. It was a battle royale between the Old and the New economies. To the relief of millions of web users the world over, the US Congress blinked first, the bills were shelved indefinitely, and the anti-piracy forces lost—at least, for the time being. Had these bills been passed, as they were about to be, there would have been dramatic and for the large part unwelcome changes in the Internet.

Perhaps it is time for owners of patents and copyrights to realize that their time-tested strategies for maintaining their grip on knowledge—and information goods—have become an anachronism. They should start looking for new business models that are more attuned to the times. The better strategy for sustaining their economic interests is to share these knowledge assets with others in order to maximize economic value for all—themselves included.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a former Professor of Management in UP Mindanao. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)