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Commercial software, sustainable innovation

Responding to critics, Microsoft's Craig Mundie says the licensing model used by many open-source companies turns existing concepts of intellectual property rights on their heads.

On May 3 I spoke at the New York University Stern School of Business about Microsoft's position regarding source-code licensing. I wanted to articulate some of the benefits and drawbacks of the various ways commercial software companies could share their source code.

I described Microsoft's shared-source philosophy, a balanced approach that enables commercial companies to share source code with their customers and partners while preserving the intellectual property rights that support a strong software business. I also articulated some ways in which shared source differs from open source.

The reactions to my statements have been many and varied. I wanted an active debate about intellectual property and the software industry, and I certainly got one.

But this is more than just an academic debate. The commercial software industry is a significant driver of our global economy. It employs 1.35 million people and produces $175 billion in worldwide revenues annually (sources: BSA, IDC).

The business model for commercial software has a proven track record and is a key engine of economic growth for many countries. It has boosted productivity and efficiency in almost every sector of the economy, as businesses and individuals have enjoyed the wealth of tools, information and other activities made possible in the PC era.

Companies have the choice of protecting or relinquishing the intellectual property resulting from their research and development consistent with their particular customer and business needs. As the U.S. Department of Commerce stated in a report titled "International Science and Technology": "Innovation relies on a partnership between the public and private sectors in which the government invests in long-range science and technology and in mechanisms to promote private-sector risk-taking and investment."

We believe that one of these mechanisms is intellectual property rights. Without intellectual property protection, neither innovation nor a healthy commercial software industry is sustainable. The last 50 years of public- and private-sector collaboration has demonstrated that when intellectual property rights are protected, innovators are rewarded for their efforts. Furthermore, technology is advanced guaranteeing economic growth and a cycle of future collaboration, investment and innovation.

In my speech, I did not question the right of the open-source software model to compete in the marketplace. The issue at hand is choice; companies and individuals should be able to choose either model, and we support this right. I did call out what I believe is a real problem in the licensing model that many open-source software products employ: the General Public License.

The GPL turns our existing concepts of intellectual property rights on their heads. Some of the tension I see between the GPL and strong business models is by design, and some of it is caused simply because there remains a high level of legal uncertainty around the GPL--uncertainty that translates into business risk.

In my opinion, the GPL is intended to build a strong software community at the expense of a strong commercial software business model. That's why Linus Torvalds said last week that "Linux is never really going to be a rich sell."

This isn't to say that some companies won't find a business plan that can make money releasing products under the GPL. We have yet to see such companies emerge, but perhaps some will. Recent history tells us, however, that finding a business model that works is difficult. According to ZDNet News, "Ransom Love, CEO of Caldera Systems...said he thinks Microsoft was right in its claim that the GPL doesn't make much business sense."

What is at issue with the GPL? In a nutshell, it debases the currency of the ideas and labor that transform great ideas into great products.

Alfred North Whitehead, the renowned British philosopher, logician and mathematician, observed: "It is a great mistake to think that the bare scientific idea is the required invention, so that it has only to be picked up and used. An intense period of imaginative design lies between. One element in the new method is just the discovery of how to set about bridging the gap between the scientific ideas and the ultimate product. It is a process of disciplined attack upon one difficulty after another."

In other words, a critical flow of information and experimental data follows every major scientific discovery and results in the verification, refutation or refinement of the new idea or theory. To facilitate this process, neither copyright nor patent protections are available for abstract ideas or theories. This is as it should be.

Legendary inventors such as Alexander Graham Bell, Thomas Edison and Henry Ford (who held thousands of patents between them) succeeded precisely because they were able to use funding, management and market insight to deliver their innovations as unique, practical and useful products. Arguably, the creativity and inventiveness needed to deliver their products was comparable to that needed for the underlying theory or discovery that made their business possible in the first place.

When comparing the commercial software model to the open-source software model, look carefully at the business plans and licensing structures that form their foundations. This comparison leads to the conclusion that the commercial software model alone has the capacity for sustaining real economic growth. Intellectual capital has always been, and will remain, the core asset of the software industry, and of almost every other industry. Preserving that capital--and investing in its constant renewal--benefits everyone.