Via Perfectly Reasonable Deviations, Paul Graham has an interesting blog post from last April (link here) arguing that Microsoft has lost the software applications war to Google and other Web 2.0 software start-ups. While this may be something of an overstatement, the heart of Graham's argument is an open source software application known as Ajax. The "x" in Ajax stands for the XMLHttpRequest object, which allows a web browser to communicate with a server in the background, rather than simply by requesting that the server send a new page. Anyone who uses Google's GMail service has seen this bit of software at work, checking for new messages, notifying the user when a new message arrives, and automatically refreshing the inbox message list to display new messages. Other Google applications using this technology include their online word processing and spreadsheet applications.

The Ajax application manages this behind the scenes communication between browser and server, enabling the kind of applications which used to run from the desktop to run in any web browser. To the extent that applications migrate from individual desktops to the web, the role of the computer operating system becomes less and less important. Given Google's lead in this technology, it's hard to see how Microsoft will keep up, particularly since it requires innovating around its main product. And, the biggest irony here is that Microsoft invented the XMLHttpRequest object to let its Outlook email application work seamlessly with external mail servers.

(As an aside of no relevance to this post, there is a very cool graphical explanation of the Mobius transformations of the plane up on the Perfectly Reasonable Deviations blog.)

There's a depressing story in Sunday's (6/10) New York Times by Stephen Labaton (link here) about the Bush administration's defense of Microsoft against allegations Google has made in several state venues that the Vista operating system's desktop search feature slows down the opeartion of rival search software. It shouldn't come as a surprise that at the center of the story is yet another Bush administration Department of Justice attorney problem. Specifically, assistant attorney general Thomas O. Barnett of the Justice Department's Antitrust Division, wrote a memo defending Microsoft against Google's charge that Microsoft was in violation of the consent agreement it signed in 2001 to settle the antitrust case against it.

While there's nothing specifically wrong with promoting the administration's pro-business policies, Barnett's involvement is problematic:

The official, Thomas O. Barnett, an assistant attorney general, had until 2004 been a top antitrust partner at the law firm that has represented Microsoft in several antitrust disputes. At the firm, Justice Department officials said, he never worked on Microsoft matters. Still, for more than a year after arriving at the department, he removed himself from the case because of conflict of interest issues. Ethics lawyers ultimately cleared his involvement.

While this probably won't become the scandal that the politicization of DOJ hiring and firing practices has, it's an excellent illustration of the problems that high level regulatory capture entails.

One of the key questions with copyright is whether and how creators can profit without it. The economic argument against copyright isn't that creators should work from the kindness of their hearts, but rather that there are economic incentives to produce new creations even without copyright, and these incentives are strong enough that there will be little loss in creativity if copyright were to be abolished.

A key empirical question is to what extent goods that are in short supply are substitutes or complements for things that are not in so short supply. For example, if electronic copies of music trade widely at a very low price, they may generate little revenue for musicians. On the other hand, it they are complementary to live music (and they are) then the "freebie" recordings raise the demand for live performances. So a perfectly reasonable business model in music is to give the recording away for free, and sell the live performances. In the free software industry, copies are cheap or free, but generate demand for (are complements of) services which are not.

What about books? One of the concerns of the publishing industry is that if free or cheap electronic copies become widely available revenue for authors will dry up. (Well that is a concern of authors, anyway.) In other words, are electronic copies substitutes for printed copies? In the long term, portable computers may replace printed books, so this is probably true. But it is far from true today. John Bennett draws our attention to an article by Tim O'Reilly that provides hard data on sales and downloads of Asterisk: The Future of Telephony, by Leif Madsen, Jared Smith, and Jim Van Meggelen, which was released for free download under a creative commons license. The article has quite a bit of information. Typically books sales spike when it is released then decline gradually - in our own research we find most sales occuring in the initial six months after release. The article has only two books to compare, but it seems as if the free download had little impact on sales, at worst causing sales to decline slightly faster. So at the moment at least it appears that elecronic copies are neither complements or substitutes for the printed version, but rather are neutral.

Timothy Lee writes "A Patent Lie" attacking software patents link here. The article makes several good points, ending up by arguing that copyright provides better and less expensive protection, inducing greater competition and lower costs to the consumer.

But why have any protection, other than the basic secrecy which allows the software writer to avoid publishing the code. If the idea behind the software, like Amazon's one-click ordering software, is so obvious, why protect it and prevent anyone else from producing software which serves the same purpose?

Why not reduce the wages of monopoly to an absolute minimum?

Matt Yglesias pokes into another small absurdity in IP, reporting that defense contractors hold copyrights on weapons designs used by toy replica makers and collects fees for their use link here. Now Congress is going to get involved as one Congressman proposes that design copyrights be owned by the government which paid for the weapon designs and receive the toy makers' fees. For me, there is a bit of confusion here in whether it is a copyright, a trademark, or a design patent that is owned. But there seems to be no doubt that a license is available for a fee and it ought to be the taxpayer who benefits.

Korea is breaking new ground as it tries to interpret the application of copyright to user created content (UCC) link here . Issues cited include pornography (taken down), the fair use of plot, characters, and costumes from a computer game (enjoined as unfair), and broadcasting a TV network video of a lawmaker cursing in protest (invasion of privacy).

"New ministry guidelines say copyright [material] is protected by law, but subject matter or broad ideas are not and can be used without permission." The guidelines continue but seem to me to be incomplete and subject to further revision.

The International Trade Commission ruled yesterday, four to two, that next generation Qualcomm mobile phones slated for the big wireless networks contained semiconductors that violated competing chip maker Broadcom's patent link here. Qualcomm has appealed the decision to a federal court and is calling for a quick reversal on the grounds that the mobile operators and consumers will be "irreparably harmed" and are also appealing to the president through USTR. Charges are flying back and forth, but informed industry sources seem to think something will be worked out, no doubt to the cost of the consumer.

A week earlier, Broadcom won a federal district court jury trial that Qualcomm violated three other of its patents. No word on an appeal, but the stakes make it seem certain.

Daniel Gross has an interesting MoneyBox article in Slate (link here) on how the normally merger friendly Bush DOJ Antitrust Division and the FTC have decided that letting Whole Foods merge with Wild Oats (total merger value $670 million) would seriously undermine competition in the high end retail food industry.

Of course, as Gross notes:

We're in the midst of a merger mania, and the Federal Trade Commission and the Justice Department's antitrust division the agencies tasked with assuring that mergers don't harm consumers by reducing competition have approved almost every deal. If the nation's largest hog producer buys the second-largest hog producer? OK. Telecommunications giants SBC and AT&T want to merge? No problem. Giant supermarket company Albertson's and giant supermarket company SuperValu get together? You got it.

Coming up with hard evidence that decisions like this are politically motivated is obviously difficult, but Gross makes a compelling case for it. Check it out.

Bloomberg News reports that Ford won an International Trade Commission ruling barring the import of grilles, headlights, bumpers, side-view mirrors and taillights for the F-150 truck from Taiwan on grounds they infringed seven design patents link here. The design patents are reported to run for 14 years. The finding is subject to presidential review. Ford characterized the parts as "counterfeits" which harm not just Ford, but the entire industry.

Most consumers think the price of replacement parts is outrageous and ask how a grill that fits the vehicle constitutes a new, significant, addition to knowledge or that revealing it somehow conveys an important benefit on the public warranting the granting of a monopoly for 14 years.

Robert Friedel's new book "The Culture of Improvement" is reviewed in the Wall Street Journal today by Adam Keiper.

The contributions of famous entrepreneurs, including James Watt and Robert Fulton, are surveyed. Are Watt's legal strategems part of the story? What about patents as innovation blocking mechanisms?

The reviewer quotes a passage stating that patents can divert attention away from the cumulative history of creativity.

Technology "proceeds by fits and starts;" R&D, best practices, and, yes, patents are part of the story. A visit to Amazon could be in order.