Brian Prentice

The day before yesterday I posted the response by Ian Birks, CEO of the AIIA, to my blog on the recent changes to intellectual property rights (IPR) considerations in Australian Commonwealth and State Government procurement policy. Since this is a topic of considerable importance, I feel compelled to respond and reassert my position.

One issue Birks has with me is what he sees as a misrepresentation of AIIA’s focus relative to it’s member base. Specifically he takes exception to the assertion I made that the “AIIA’s position on IPR represents the aspirations of the world’s largest, multi-national IT vendors.” As Birks sees it, this statement unfairly paints AIIA’s position as uniquely focused on the desires of large multinational IT providers when the AIIA is representing a much broader group of industry participants, particularly local small and medium enterprises (SME).

OK, duly noted. But this was a passing comment in a blog almost entirely dedicated to questioning the logic behind the AIIA’s own published reasons why governments should grant IP rights to suppliers as a default contract negotiation position. The point I was trying to make is that this is not a parochial Australian issue. Regardless of the composition of AIIA’s membership, or the process it uses to elect board members, the multi-nationals’ advocacy of this position on IPR means this is a topic of interest to readers outside of Australia. Needless to say, I really don’t think any more keystrokes need to be wasted on membership debates – it’s a red herring. The real issue is whether their position on IPR makes sense to the government – or any of their clients for that matter.

And on that topic, the needs of SME IT suppliers is a central theme in Birks’ rebuttal. So much so that he states:

“This SME consideration is connected with another fundamental point you seem to have skipped, which is that all Australian governments, and particularly state and territory governments, have a very heightened interest in supporting local ICT industry development through their activities and including in their procurement and policy positions.”

Birks’ position is based on the premise that providing benefits to individual suppliers manifests itself as a collective benefit to the industry as a whole. After all, that’s what they’re advocating – that individual suppliers are granted the rights to newly-created IP that the government paid for. But when it comes to intellectual property, things don’t work out that way. Suppliers can leverage this IP to obtain patents which grants them ownership over the underlying algorithms in the code they’re paid to produce. They can use non-compete clauses to keep staff with specific areas of commercial expertise from moving to competitors. The reality is that IP is increasingly being used as the basis to constrain competition rather than foster innovation. IP is also increasingly being used to source licensing fees from 3rd party product development rather than it being used exclusively for internal product development.

There is another very important dimension to IP that Birks perhaps doesn’t realize himself. Specifically, the value of IP increases with mass. Individual pieces of IP are notoriously difficult to value. But when they are combined into a portfolio they provide an organization a unique set of capabilities in their ability to seek license fees from third parties and to fend off requests to pay license fees themselves. The growth in IP portfolios is an indisputable trend in the IT industry.

But this is a particular problem for SME suppliers. It takes a lot of resources to be able to craft, maintain, and exploit IP portfolios and that essentially limits this activity to all but the largest organizations. That means that Birks’ assertion that:

“In truth, the freeing up of IP on a specific piece of Government business is highly unlikely to be a make or break issue for a multinational as their ICT business models are varied and diverse…”

is not actually correct. For one, we are not talking about specific pieces of government business. We are talking about the collection of IP coming from all government business. That will naturally be much larger for the big multi-nationals because of their market position. More importantly, it is these organizations which have the resources to exploit these assets in the context of a larger IP portfolio. The differences in business models are immaterial.

Therefore, if the broader objective of the AIIA in advocating the changes to IPR policy in procurement policy is to support local SME ICT suppliers, than this strategy is misdirected. In fact, I can think of no better way to harm local SMEs over the long term than to gift, by default, the rights to newly-created IP to suppliers. The growing use of IP portfolios will create one of the biggest obstacles to SMEs in their ability to freely innovate and to flexibly respond to market requirements.

On the other hand, supporting local SMEs could be achieved if the AIIA insisted that newly-created IP from government contracts was placed under an open source license agreement by default. That would provide open access by SMEs to the IP even coming from contracted business with the largest multinationals. Such a position is entirely consistent with The Statement of Intellectual Property Principles for Australian Government Agencies. But such a suggestion is nowhere to be found in the AIIA’s white paper to the NSW Government.

But the part of Birks’ response that I find most troublesome is the point where he says:

“It is very progressive of governments in Australia to recognise that the IP is far more sensibly held by the supplier in the vast majority of cases. Those governments that follow this course of policy are directly recognising that they are not typically in the business of commercialising IP and that by being innovative in this sense that they are providing a very real support to local ICT industry development.”

This can only be described as squatter’s logic. It’s the belief that if you don’t use your property in the way I would use it then I have a valid claim over it. This is the thinking that pervades the AIIA’s position on IPR.

I’m operating from a different principle – no one has the automatic right of ownership for something that someone else pays you to produce for them. Nor does a person, or organization, have the right to dictate to their customers the manner in which their property should be used.

Do I believe that a nuanced approach to IPR can help organizations achieve broader strategic aims? Absolutely! But progressive organizations don’t do that through isolated procurement policy changes. Progressive organizations focus on establishing, and implementing, comprehensive IP management programs. Doing so allows them to understand the value of discrete pieces of IP. That would allow an organization to quarantine IP that is important in differentiating itself. It would allow organizations to seek a fair market price for IP that they grant to to third parties, like their IT suppliers. It would allow them to assess the broader benefits of providing open access to the IP.

The bottom line is that the AIIA’s position on IPR will result in some short term gains in expediting ICT contract negotiations. That will come at the long term cost of a needless loss of assets and revenue to the Australian taxpayer. And the benefits which supposedly will flow to local SME suppliers are not only dubious but impossible to quantify. The trade-off is simply not worth it.

There is nothing that Ian Birks or the AIIA has said so far that would have me change that assessment.

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