ICTs are characterised by the fact that they allow the manipulation, broadcasting and reproduction of information and ideas. As a result, the advance of these technologies has the basic effect of encouraging the spread of ideas and their use.
Ideas, as an economic asset, have the quality of being non-rival goods: just because a person uses an idea does not mean that others cannot use it too.
Non-rival goods
If Peter eats an apple, John cannot eat it. In contrast, if Peter uses a recipe, John can also use it.
ICT industries spend a lot of financial resources on developing new knowledge, with the aim of making a profit on the exploitation of these ideas. From the point of view of the interest of general society, every time new knowledge arises, whether it is a scientific discovery, a new technique, or something else, the diffusion of this new idea poses a problem. Firstly, it is clear that once this new knowledge is available, it is in the interest of society to disseminate the idea as far as possible. However, the companies that have developed this knowledge have done so in order to gain a profit from it, and they can only do this by restricting access to the new knowledge. Without some form of protection against the immediate dissemination of this knowledge, we run the risk that companies will not invest money in the search for and development of new ideas and knowledge.
Advanced societies have created different institutions and mechanisms to facilitate the generation of new scientific and technical knowledge. Scientific creation is financed through public resources. The development and funding of more practical and applied knowledge for the creation of new production techniques and new products is generally left to the private sector. In these cases, public institutions adopt the role of promoting private-sector activity by protecting intellectual property through the institution of a series of legal concepts, most notably copyright, patentsand trade secrets.
Copyrightprotects the particular expression of an idea.
A typical example is the right of the author of a song or book over his or her work, which means that nobody can publish or distribute it without his/her consent. A person or company that makes a useful discovery may apply for a patent on it, which prohibits others from using this discovery without consent for a specified number of years (usually 20). Lastly, with trade secrets, companies can keep new knowledge secret and receive legal protection for theft. In this case, the inventor is obviously not protected if others make the same discoveries independently through their own efforts.
While proper use of some of these concepts of intellectual property protection may actually stimulate technical and economic progress, unfortunately, they pose two problems: it is highly questionable that all these legal concepts really do protect the development of ideas and that, in recent years, many companies have made spurious use of the legal concepts that could be useful for them. Instead of legitimately protecting their innovation, many companies use their copyrights and patents as anti-competitive instruments to safeguard their market power and make it harder for more innovative rivals to enter.
In the case of software, the emergence of proprietary systems has made it easy for companies to keep trade secrets due to the possibility of distinguishing between the software's source code and binary code. We can use a program, i.e. we can get the hardware – be it a computer, mobile phone, game console, ATM, etc. – to work with a computer program by incorporating the binary code on to the computer without having access to its source code. Therefore, proprietary software companies use a business model based on charging money for providing a copy of the binary code of their software. The result is that, without knowing the source code, we cannot discover why the program works one way but not in another, and we naturally cannot edit it to allow us to do other things.
The trade secret (not revealing the source code), then, allows companies firstly to hide the developed product from their rivals and then, despite everything, to sell a product to consumers (the binary code of the software program).
Free software is the exact opposite since it is based on sharing the source code of the program. As we shall see, this requires the development of an entirely different business model based on offering a service: the ability to modify and adapt the software to customer needs using the expertise and knowledge of the computer engineer.
Copyright, patents and innovation
P. And you don't agree with patents in software either...
R. Let's just say that I am very sceptical that they serve the purpose they were supposedly designed for. Software is an industry where innovation is sequential. Every new discovery or improvement is constructed on what has been developed before, like a tower. A patent applied at a certain level of the tower slows down further developments. In practice, this works like a monopoly.
Interview with Eric Maskin, 2007 Nobel Laureate in Economics, published in El País, 29/06/2008.
Recommended reading
You can read the full interview in the article published inEl País on 29/06/08 "Es difícil prevenir una burbuja"
Is it true that a creator is really that unprotected without copyright or patents on their ideas? Many creators seem to think so. For example, in a discussion with the CEO of the Bimbo company, published in El País on 11 August 2006, the famous chef Ferran Adrià said:
"One thing that has not been resolved in this country is the protection of creativity. You can copy without fear. R&D makes little sense. The same thing happens in restaurants."
...
"You invent something and a month later, somebody's copying you! In life, there are things that are wrong, things that don't work, and this is one of them. You can work on something for years with hope and ambition and, a month later, someone comes along and introduces it without having put in any effort whatsoever..."
Recommended reading
You can read the whole discussion in the article published in El País on 11 August 2006.
Is it really that easy to copy his ideas? Does this mean that his business model cannot work? We can be sure of one thing: his business is working. So what stops Ferran Adrià from running out of customers?
1)Firstly, what Ferran Adrià really sells to his customers is not an idea (a recipe) but rather the cooked dish. For the idea to be consumed by his customers, it must be incorporated into a specific cooked dish, just as one does not buy a concept of a car, but rather a specific car.
2) Secondly, in relation to the fact that we consume or use products and services that are the materialisation of an idea, it is not enough to have access to the idea, i.e. the "recipe". To turn it into the cooked dish, we must have the skill and knowledge and the right tools. With regards the latter (tools), Adrià himself often says that the public should not expect to repeat the dishes he cooks in his restaurant because home kitchens do not have the right tools. He recommends cooking simple things at home.
Therefore, the investment in the tools that will enable us to replicate the idea puts limits on the possible number of imitators, and hence, on the number of true copies, that is, dishes cooked by professionals to rival his own. This is a fundamental point to bear in mind with any industry. Copying an idea is not as obvious as it seems, i.e. transforming it into a product or service requires some knowledge (be it the expertise that comes with experience or the knowledge gained by study, or both) and investments in machinery, tools, raw materials, etc., which limit the true rivalry in the industry.
The professional technician
This is something that probably occurs in every professional activity. We may be able to change or regulate the taps in our homes, but we will probably not have the tools that a plumber has (buying them just to change a tap every number of years would be excessive), even if we really believe that we have the technical skills to do it.
3)Thirdly, as Maskin notes in the case of software – and as is also the case of textile design and software development – culinary innovation is sequential and cumulative: each new recipe is not started from scratch; it is based on previous results. This is something that Adrià himself explains in a series of articles written in conjunction with Xavier Moret and published in August 2002 in El País, chronicling his travels to different countries:
"Trips are now adopted as a method of creation; that is, we go to be inspired, to seek out the sparks that will give us ideas, or specific ideas from other cuisines that can evolve our own cuisine.[...] I think that this approach of knowing what others do is vital in any activity in which you want to evolve."
Thus, innovation does not appear to come from scratch. On the contrary, each time he comes up with a new recipe, it is inspired to a greater or lesser extent by that of his predecessors, whether in the established cuisine of the culinary tradition of his own country or in the cuisine of other countries. His reputation as an inventor of recipes and good executor of them (his reputation, built on the experience of those who have dined at his restaurant) allows him to enjoy what we call in section 1.3. "competitive advantage through differentiation", which means that he can charge a higher price than other chefs (perhaps his imitators) without losing his clientele.
Alternatively, a company can base its competitive advantage on its lower costs, as we saw above with Zara: while perhaps not the most innovative company of its sector, it is inspired by or adapts the designs of other companies with a certain style (i.e., people like to wear the clothing it sells in its stores) and it is capable of doing so at lower costs than its rivals.