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Interventionist Public Policy Can Ruin What We’ve Built

Ecosystems can be fragile things. What looks lush, hardy and beautiful can prove to be surprisingly delicate. Things we take for granted can fall apart – often because humans changed something that proved to be fundamental to the ecosystem.

Macquarie Island sits in the Indian Ocean, just south of New Zealand and Australia. Seal hunters sailed there in the 19th century and, as is common with places visited by ships, non-native rats also ended up on the island. To control them, sailors brought cats, and also introduced rabbits to ensure a food source on the island. Both cat and rabbit populations exploded, and the cats took a taste for the native birds, decimating that population. So, humans trapped and eliminated the cats, and introduced a virus, Myxoma, to control the rabbit population. Both efforts worked … except that the rabbits who survived the virus were now immune to it, and with the cats gone, they began to multiply, as rabbits do. Today, Macquarie’s hills, lush with plant life a decade ago, have been grazed down to bare nubs.

A business or technology ecosystem can be just as vulnerable to ill-advised meddling, and a recent example has me concerned about the fate of not just a specific technology that’s become very important to all of us – Wi-Fi – but also other related ecosystems if ill-advised efforts to weaken the U.S. patent system continue.

Wi-Fi is like air – you only notice it when it’s gone. We often take for granted the efforts that go into the development of these core technologies, but we shouldn’t. Many companies compete at meetings of the Institute of Electrical and Electronics Engineers to come up with improvements to the Wi-Fi standard (technically, IEEE 802.11) and, thanks to their efforts, Wi-Fi today is 1,000 times faster than it was 19 years ago.

In standards like Wi-Fi, the companies that competed to develop the standard get paid by the companies that make products through patent licensing fees. The products are fine, but the standard is often the true driver of value. If you don’t think that’s true, unplug any Wi-Fi router and copy its network name and password onto a new router implementing the same standard. Notice a difference? I didn’t think so.

In 2015, driven by a small group of companies, the IEEE changed its patent licensing policy, shifting the licensing from being a percentage of the end-product cost to being based on the significantly lower cost of the chip. Many nuanced legal arguments were brought to explain the change, but as usual, the simplest argument was the real driver: product manufacturers were trying to save money by paying less to the companies doing the research.

The result of the IEEE’s change has been a disaster for Wi-Fi and threatens to be a disaster for American consumers and businesses. The lifeblood of research – of any business activity – is revenue, and by slashing patent licensing revenues, the IEEE has removed the business incentive to conduct advanced research. Why invest in R&D, why commit your best engineers to solving problems, if you can’t get paid for it?

How do we know that investment in Wi-Fi is slowing down? One example is a recent study from Ron D. Katznelson that looked at the IEEE’s own numbers and found that, after the new licensing policy was implemented, there was an 83-percent decline in the average supply rate of non-duplicate Letters of Assurances to IEEE standard development activities. LOAs indicate that a new patent has been filed, and if LOAs aren’t being filed, it essentially indicates that research and development is not being contributed.

No crime would be complete without a cover-up. When one of the companies behind the IEEE rule change saw an initial version of Mr. Katznelson’s study in 2016,they recognized how bad the optics were, and so they flooded the IEEE with duplicate Letters of Assurance. These submissions covered technologies that had already been contributed to Wi-Fi standards, or covered issues that had no bearing on improving the core technology. The company then funded an IPLytics study measuring overall LOAs to argue that the number of LOAs remained constant. It was a feeble attempt to cover-up evidence clearly showing that investment in Wi-Fi is slowing.

Like Macquarie Island, each bad decision, no matter how small, can bring about unintended consequences. Today, it’s Wi-Fi that’s affected. Tomorrow, perhaps cellular technology, pharmaceutical research or other areas of the economy.

This year, the U.S. Chamber of Commerce ranked our patent system 10th in the world – the very first time we’ve not occupied the top spot. Our patent system continues to erode, to be attacked, often by people with good intentions. We need to stop intervening with activist policies, lest our island become deforested and barren as a result of short-term thinking.

Gil Amelio is an American scientist and business executive who was CEO of National Semiconductor (1991-96) and Apple Computer (1996-97) and is a fellow of the Institute of Electrical and Electronics Engineers (IEEE), a venture capital investor, and a director of multiple companies.

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