Also Read: The Disruptive Engine - Innovation and the Capitalist Dream

Forgent Networks from Texas wants to collect a royalty every time someone compresses an image using the JPEG algorithm. It urges third parties to negotiate with it separate licensing agreements. It bases its claim on a 17 year old patent it acquired in 1997 when VTel, from which Forgent was spun-off, purchased the San-Jose based Compression Labs. The patent pertains to a crucial element in the popular compression method. The JPEG committee of ISO - the International Standards Organization - threatens to withdraw the standard altogether. This would impact thousands of software and hardware products.

This is only the latest in a serious of spats. Unisys has spent the better part of the last 15 years trying to enforce a patent it owns for a compression technique used in two other popular imaging standards, GIF and TIFF. BT Group sued Prodigy, a unit of SBC Communications, in a US federal court, for infringement of its patent of the hypertext link, or hyperlink - a ubiquitous and critical element of the Web. Dell Computer has agreed with the FTC to refrain from enforcing a graphics patent having failed to disclose it to the standards committee in its deliberations of the VL-bus graphics standard.

"Wired" reported yesterday that the Munich Upper Court declared "deep linking" - posting links to specific pages within a Web site - in violation the European Union "Database Directive". The directive copyrights the "selection and arrangement" of a database - even if the content itself is not owned by the database creator. It explicitly prohibits hyperlinking to the database contents as "unfair extraction". If upheld, this would cripple most search engines. Similar rulings - based on national laws - were handed down in other countries, the latest being Denmark. Amazon sued Barnes and Noble - and has since settled out of court in March - for emulating its patented "one click purchasing" business process. A Web browser command to purchase an item generates a "cookie" - a text file replete with the buyer's essential details which is then lodged in Amazon's server. This allows the transaction to be completed without a further confirmation step.

A clever trick, no doubt. But even Jeff Bezos, Amazon's legendary founder, expressed doubts regarding the wisdom of the US Patent Office in granting his company the patent. In an open letter to Amazon's customers, he called for a rethinking of the whole system of protection of intellectual property in the Internet age.

In a recently published discourse of innovation and property rights, titled "The Free-Market Innovation Machine", William Baumol of Princeton University claims that only capitalism guarantees growth through a steady flow of innovation. According to popular lore, capitalism makes sure that innovators are rewarded for their time and skills since property rights are enshrined in enforceable contracts. Reality is different, as Baumol himself notes. Innovators tend to maximize their returns by sharing their technology and licensing it to more efficient and profitable manufacturers. This rational division of labor is hampered by the increasingly more stringent and expansive intellectual property laws that afflict many rich countries nowadays. These statutes tend to protect the interests of middlemen - manufacturers, distributors, marketers - rather than the claims of inventors and innovators.

Moreover, the very nature of "intellectual property" is in flux. Business processes and methods, plants, genetic material, strains of animals, minor changes to existing technologies - are all patentable. Trademarks and copyright now cover contents, brand names, and modes of expression and presentation. Nothing is safe from these encroaching juridical initiatives. Intellectual property rights have been transformed into a myriad pernicious monopolies which threaten to stifle innovation and competition.

Intellectual property - patents, content libraries, copyrighted material, trademarks, rights of all kinds - are sometimes the sole assets - and the only hope for survival - of cash-strapped and otherwise dysfunctional or bankrupt firms. Both managers and court-appointed receivers strive to monetize these properties and patent-portfolios by either selling them or enforcing the rights against infringing third parties.

Fighting a patent battle in court is prohibitively expensive and the outcome uncertain. Potential defendants succumb to extortionate demands rather than endure the Kafkaesque process. The costs are passed on to the consumer. Sony, for instance already paid Forgent an undisclosed amount in May. According to Forgent's 10-Q form, filed on June 17, 2002, yet another, unidentified "prestigious international" company, parted with $15 million in April.

In commentaries written in 1999-2000 by Harvard law professor, Lawrence Lessig, for "The Industry Standard", he observed: "There is growing skepticism among academics about whether such state-imposed monopolies help a rapidly evolving market such as the Internet. What is "novel," "nonobvious" or "useful" is hard enough to know in a relatively stable field. In a transforming market, it's nearly impossible..." The very concept of intellectual property is being radically transformed by the onslaught of new technologies. The myth of intellectual property postulates that entrepreneurs assume the risks associated with publishing books, recording records, and inventing only because - and where - the rights to intellectual property are well defined and enforced. In the absence of such rights, creative people are unlikely to make their works accessible to the public. Ultimately, it is the public which pays the price of piracy and other violations of intellectual property rights, goes the refrain.

This is untrue. In the USA only few authors actually live by their pen. Even fewer musicians, not to mention actors, eke out subsistence level income from their craft. Those who do can no longer be considered merely creative people. Madonna, Michael Jackson, Schwarzenegger and Grisham are businessmen at least as much as they are artists.

Intellectual property is a relatively new notion. In the near past, no one considered knowledge or the fruits of creativity (artwork, designs) as 'patentable', or as someone's 'property'. The artist was but a mere channel through which divine grace flowed. Texts, discoveries, inventions, works of art and music, designs - all belonged to the community and could be replicated freely. True, the chosen ones, the conduits, were revered. But they were rarely financially rewarded.

Well into the 19th century, artists and innovators were commissioned - and salaried - to produce their works of art and contrivances. The advent of the Industrial Revolution - and the imagery of the romantic lone inventor toiling on his brainchild in a basement or, later, a garage - gave rise to the patent. The more massive the markets became, the more sophisticated the sales and marketing techniques, the bigger the financial stakes - the larger loomed the issue of intellectual property.

Intellectual property rights are less about the intellect and more about property. In every single year of the last decade, the global turnover in intellectual property has outweighed the total industrial production of the world. These markets being global, the monopolists of intellectual products fight unfair competition globally. A pirate in Skopje is in direct rivalry with Bill Gates, depriving Microsoft of present and future revenue, challenging its monopolistic status as well as jeopardizing its competition-deterring image.

The Open Source Movement weakens the classic model of property rights by presenting an alternative, viable, vibrant, model which does not involve over-pricing and anti-competitive predatory practices. The current model of property rights encourages monopolistic behavior, non-collaborative, exclusionary innovation (as opposed, for instance, to Linux), and litigiousness. The Open Source movement exposes the myths underlying current property rights philosophy and is thus subversive.

But the inane expansion of intellectual property rights may merely be a final spasm, threatened by the ubiquity of the Internet as they are. Free scholarly online publications nibble at the heels of their pricey and anticompetitive offline counterparts. Electronic publishing poses a threat - however distant - to print publishing. Napster-like peer to peer networks undermine the foundations of the music and film industries. Open source software is encroaching on the turf of proprietary applications. It is very easy and cheap to publish and distribute content on the Internet, the barriers to entry are virtually nil.

As processors grow speedier, storage larger, applications multi-featured, broadband access all-pervasive, and the Internet goes wireless - individuals are increasingly able to emulate much larger scale organizations successfully. A single person, working from home, with less than $2000 worth of equipment - can publish a Webzine, author software, write music, shoot digital films, design products, or communicate with millions and his work will be indistinguishable from the offerings of the most endowed corporations and institutions. Obviously, no individual can yet match the capital assets, the marketing clout, the market positioning, the global branding, the sales organization, and the distribution network of the likes of Sony, or Microsoft. In an age of information glut, it is still the marketing, the media campaign, the distribution, and the sales that determine the economic outcome. This advantage, however, is also being eroded, albeit glacially.

The Internet is essentially a free marketing and - in the case of digital goods - distribution channel. It directly reaches 200 million people all over the world. Even with a minimum investment, the likelihood of being seen by surprisingly large numbers of consumers is high. Various business models are emerging or reasserting themselves - from ad sponsored content to packaged open source software.

Many creative people - artists, authors, innovators - are repelled by the commercialization of their intellect and muse. They seek - and find - alternatives to the behemoths of manufacturing, marketing and distribution that today control the bulk of intellectual property. Many of them go freelance. Indie music labels, independent cinema, print on demand publishing - are omens of things to come.

This inexorably leads to disintermediation - the removal of middlemen between producer or creator and consumer. The Internet enables niche marketing and restores the balance between the creative genius and the commercial exploiters of his product. This is a return to pre-industrial times when artisans ruled the economic scene.

Work mobility increases in this landscape of shifting allegiances, head hunting, remote collaboration, contract and agency work, and similar labour market trends. Intellectual property is likely to become as atomized as labor and to revert to its true owners - the inspired folks. They, in turn, will negotiate licensing deals directly with their end users and customers.

Capital, design, engineering, and labor intensive goods - computer chips, cruise missiles, and passenger cars - will still necessitate the coordination of a massive workforce in multiple locations. But even here, in the old industrial landscape, the intellectual contribution to the collective effort will likely be outsourced to roving freelancers who will maintain an ownership stake in their designs or inventions.

This intimate relationship between creative person and consumer is the way it has always been. We may yet look back on the 20th century and note with amazement the transient and aberrant phase of intermediation - the Sony's, Microsoft's, and Forgent's of this world.