Thursday, June 9, 2011

ITSSD Director's Guardian UK Article - 'A Call for Caution on Open Source Software' Triggers FOSS Community Backlash & ITSSD Responses - Part 1

Many within the European FOSS community were visibly upset by the publication on May 23, 2011, of the ITSSD Director's Guardian UK article entitled A Call for Caution on Open Source, available online at: .

Indeed, several members of the European FOSS community responded with accusations that the publisher had succumbed to software patent corporate lobbying pressure and proceeded to attack this author with ad hominem critiques.  These responses are to be found following the article at the website url noted above.

For the most part, this author refrained from responding in kind, and in an effort to both inform and educate the broader Guardian readership, provided detailed substantive comments in dialogue with two of the commentators.

Set forth below are this author's substantive responses, (also accessible online at: ) one of which focuses on one of the commentator's apparent reliance on a March 2009 report prepared by the Netherlands Bureau for Economic Policy (CPB). The report, which is entitled, Competition, Innovation and Intellectual Property Rights in Software Markets, can be found online at: :

"Dear Arjen Kamphuis:

I appreciate your efforts to contribute ‘knowledge’ to the Netherlands Audit Court; however, considering that you responded to solicited government comments via a specially formed ‘Linked-In Group’ rather than as a paid or specially invited unpaid advisor to government, you served as an informal adviser at best, and more likely as a member of the general public whose views on the subject matter were given no greater weight than other such views so contributed.  If you can establish otherwise, please do.  If you cannot, we must apply the necessary discount factor to your comments.

You claim rather boldly the following: “The report has been pretty much shredded to bits by a wide range of expert both in- and outside government. It is flawed in methodology, lacking basic understanding of the relevant strategic questions and reports ‘facts’ that are just plain wrong.” But, you don’t provide any evidence of such “shredding”, other than by referencing and applauding your own opinions and comments ( ; ).  Is there more evidence that you are holding back from us?

1) As concerns your comments regarding the March 2011 Netherlands Audit Court report, it is perhaps advisable to take a step back in time in order to analyze the Netherlands Bureau of Economic Policy’s March 2009 report lauded by the FOSS community and its industry and media sycophants as the more credible report ( ).

The plain fact is that the March 2009 report prepared by the CPB – Netherlands Bureau for Economic Policy (CPB Document No. 181 - ) was itself an aspirational and academic document the purpose of which was “to analyse the economic effects of promoting open source software on competition and innovation. Based on existing insights from the economics literature, this study analyzes policy options in the light of software market characteristics, such as the incentives to innovate under different software licensing regimes and market failures that may occur in these markets. The document proposes guidelines to determine under which circumstances various types of policy intervention may be desirable to improve dynamic efficiency.” 

In other words, its purpose was to identify a way to create a policy framework to achieve the end of promoting greater use of OSS in government and within society in general to achieve evolving policy ends of government influenced by the FOSS and industry communities.

As is commonly known the “document addresse[d] the following questions:
1. What are the incentives to innovate under different licensing regimes of software? 
2. What are the market failures in software markets?
3. How do incentives and market failures affect welfare?
4. What can policy makers do to alleviate market failures and enhance welfare in software markets?”

Are you now saying that each of THESE questions did not “impl[y] a series of unspoken assumptions” or presuppose a certain outcome?  Please be honest with the readership of this Guardian blog.

And, now, onto the merits of the Ministry’s March 2009 study itself which is rather ‘light’ in terms of research and analysis.

“17. Investigation into economic effects of open source software

The Bureau for Economic Policy Analysis (CPB) has been instructed to conduct an economic investigation into the relationship between the promotion of open source software and the effects of this on innovation and competition in the ICT sector. There is increasing academic interest in the economic impact of the introduction of open source software. It is sensible to survey what these effects are, particularly on the functioning of software markets (for example to what extent customers’ profit).”

“...For the sake of conciseness, this study exclusively focuses on open source versus proprietary licensing in software markets, and does not consider problems and issues related to open versus closed standards.”

This conditional phrase, in its own right, is suggestive of the ‘light’ nature of the research and the analysis performed.

In the section entitled “The Role of Intellectual Property Rights in the Innovation Process”, the March 2009 report very generally describes such role in conclusive fashion (with one footnoted reference to a few commentators) as extremely limited notwithstanding the abundance of evidence throughout global society to the contrary, and largely bypasses any substantive discussion of the subject matter:

Loosely speaking, intellectual property right (IPR) protection ensures an exclusive right to market a product during a given time period. These exclusive rights effectively create the possibility of a monopoly position with regard to the product in question... From an economic perspective, an IPR regime is supposed to work as a mechanism to provide and protect the incentives to innovate. Such an incentive mechanism can take various forms. Hence, a fundamental issue concerns the optimal design of IPRs, in the sense that it minimizes the welfare loss from monopoly pricing, subject to the constraint that the incentives for innovation are not undermined.”

The March 2009 report then moves on to suggesting alternatives to IPRs as an incentive to innovation, adopting the same line of argumentation adopted by NGOs engaged in the famous patents and health public debates: “A more general question is whether there exist mechanisms next to IPRs that aim at maximizing the surplus generated by innovation. Examples of such mechanisms are prizes and procurement.”

Surely, there is no presupposed outcome here, is there?

Next, the March 2009 report warmly embraces the insights of academic Joseph Stiglitz, whose views are anathema to many in industry and government, whether US or European-based, upon which the report then bases its main proposition:

““The [...] intent [of the intellectual property regime] is to provide incentives to innovate by allowing innovators to restrict the use of the knowledge they produce by allowing the imposition of charges on the use of that knowledge, thereby obtaining a return on their investment” (p. 104). Nevertheless, one can argue that “[...] many of the most important intellectual advances are not covered at all by the patent system”(p. 105).”

As evidence, the report briefly cites two commentators who have allegedly analyzed the birth of the internet: “Bessen and Maskin (2004) make a similar observation related to the growth of the Internet: “[...] the economic model underlying this traditional argument is surprisingly limited. [Much] creative activity is not the work of lone creators. Rather, it is interactive and involves the contributions of many different parties. Indeed, innovation is often sequential, where each creator improves on the work of the previous iteration” (p. 2).”

The March 2009 report then provides the first tentative presupposed conclusion:

“The basic idea of this observation is that in the standard model, copying and imitation are equally “bad”. However, when the innovation process is interactive and sequential, imitation is not the same as copying, but it ultimately helps to create value for society.”

The March 2009 report next compares PS and OSS focusing on the psychological and emotional motivations underlying OSS development which it implies is an intrinsically valuable enterprise that also “creates a value for society”. Thereafter, the report discusses how OSS creates revenues:

“[U]nder open source licenses firms do not derive market power from their license because everybody can use, improve and distribute the product for free. Profit maximizing firms will therefore only invest in open source software if this is profitable for other reasons, or if they derive market power from other sources. One possible business model for commercial firms is what Lerner and Tirole (2005a) call ‘living symbiotically’. Suppose the open source product generates revenues in a certain complementary and proprietary activities (products or services). If the additional profits in these complementary activities outweigh the costs of ‘going open source’, then disclosing the source code can be an attractive strategy. [a/k/a/ creating a ‘loss leader’] Complementary activities may for example be technical support, education, training, but also increased sales of complementary and proprietary software...(22 Increased sales of complementary and proprietary products may be caused by network effects (see section 3.2.1), but also by a greater willingness of consumers to adopt the proprietary software.)...Private firms must convince volunteer contributors that the project is not simply abandoned to the open source domain if complementary activities become a commercial failure. One way of convincing participants is by making sufficiently large investments in open source development...Another source of revenues may stem from reduced development costs, for instance because of external development support, including the maintenance of the software by OSS communities (knowledge spillovers, see in section 3.2), and debugging.”

Thereafter in Section 3, the March 2009 report famously describes ‘the relevant market failures in the software market’ that call for a shift in government procurement from proprietary software to open source software, consistent with the ‘public interest’:

“This section described the relevant market failures in software markets. Market failures, if they remain uncorrected, may lead to market outcomes that deviate from the socially optimal choices. Policy makers therefore have to understand and take into consideration what types of market failures are present and how they affect welfare. Software markets exhibit several important market failures: customer lock-in caused by network externalities or switching costs; economies of scale caused by the need to purchase specific, complementary inputs at a substantial cost; and knowledge spillovers.”

There are no implied assumptions or value-laden presumptions reflected within this phraseology, are there? And, furthermore, where is the hard evidence of such market failures?  The March 2009 report lightly references certain authors and materials but fails to submit them to rigorous analysis. 

Furthermore, in the section entitled “Effects of incentives and market failures on welfare”, the March 2009 report, once again, takes a light broad-brush approach in identifying the marketplace ‘sweet spot’ for OSS.  Apparently, without much analysis, it then makes the following conclusory statement:

“[I]f software development requires mainly programming skills and contracting about derived works is inefficient while a continuing stream of follow-on innovations is socially valuable, then open source business models perform better than proprietary business models.” 

In addition to making such statement, the report also ‘concludes’, without much evidence, that there is only a limited role for proprietary software:

“[F]om a welfare point of view, market power might be needed and proprietary business models tend to dominate open source business models if specific inputs (such as non-programming skills) are needed so that development costs are high, or there are no obstacles (such as information asymmetries) with regard to contracting on follow-on innovations, or both.

This statement appears in the summary of the section notwithstanding that “open source licensing across the board would not necessarily bring any benefits compared to proprietary licenses, but would rather entail social costs”.

Moreover, the March 2009 report focuses on “[T]he potential role of the government” in addressing “market failures [which] lead to inefficient market outcomes” (no value-laden assumption here!).

Obviously, it is claimed that government intervention is absolutely necessary to ameliorate the software market failures, even where the market is operating as it should and market participants’ behaviors do not rise to the level of an ‘abuse’ (from a legal perspective) of their respective market positions.

“To correct for these market failures, policy intervention may be desirable. The question in this chapter is therefore what policy makers can do to alleviate market failures and enhance welfare in software markets. We assume that the government acts in the public interest, that is, it aims at maximizing welfare...To address market failures and enhance welfare, several policy options are available: stimulating demand, stimulating supply and lowering entry barriers.”

In assessing the most promising intervening role for government, the March 2009 report proceeds to discuss theoretical economic constructs, again without much empirical evidence to support the propositions made and conclusions drawn.  Yet, the March 2009 report nevertheless clearly acknowledges the risk of, and lists several possibilities for, “government failures”; it also stresses that governments must undertake due diligence and an economic cost-benefit analysis prior to making any decision to intervene in software markets.  It even admits that the use of competition policy in cases of market abuse may be preferable to government intervention in procurement markets:  

“Before discussing the policy recommendations, let us stress that specific interventions require a strong motivation, the more so because of the risk of government failure. In practice, competition policy and making sure that consumers can ‘vote with their feet’, are the best candidates to counterbalance market power and reduce entry barriers. The reason is that consumers are better informed about their own preferences with regard to new products than the government. Nevertheless, there may be a case for additional, ex ante intervention. However, it should be verified that this type of intervention is not counterproductive with regard to competition law enforcement. A more precise analysis of policy interventions discussed in this document that complement competition policy, is beyond the scope of this study.

The FOSS and pro-FOSS industry communities in which you reside seem to ignore these admonitions when supporting the March 2009 report and critiquing the March 2011 Netherlands Audit Court report.

Arguably, it is precisely because of the March 2009 report’s admonitions (and we must applaud the report’s authors for experiencing at least a moment of public conscience), the limited nature of the research and analyses undertaken and the lack of empirical evidence provided therein supporting the adoption of OSS across-the-board within government procurement e-Government systems on ‘public interest’ grounds, that the Dutch Parliament requested the Netherlands Audit Court to undertake cost-benefit study reflecting the actual rather than hypothetical performance of OSS relative to PS.

Unfortunately for the FOSS and industry communities seeking greater government intervention in national and municipal procurement markets in the name of the ‘public interest’, the Dutch Audit Court report did not say what they wanted it to say.  Consequently, there have been ongoing efforts to “shred” the Audit Court’s report and the credibility of its authors.  These ad hominem efforts are baseless and ring hollow, and they reflect nothing more than the same lobbying effort undertaken by such stakeholders (“IGOR” and the FOSS community) at the European Commission, the UK Cabinet, etc. to secure their private interests at the expense of the public interest.

Therefore, it would be a leap of faith and intellectually dishonest for you to continue to argue that the March 2009 report demonstrates an overall balanced approach to addressing a real/genuine public welfare issue. It would also be a stretch for you or anyone else to claim that the March 2009 report was, overall, a productive use of taxpayer funds.

2) As concerns your comment about asbestos (, you are well aware that the likening of closed proprietary systems to cancer-causing asbestos is a bit extreme. Yet the imagery that you seek for it to create is quite useful to your cause.  It provides a convenient analogy for those who endeavor, through policy intervention, to severely restrict or eliminate the use of closed proprietary software systems in government procurement initiatives as many national governments within and beyond Europe have already convinced themselves was necessary.

The purpose of the Dutch Audit Court’s report was simply to verify such claims and to determine the extent to which such activities were undertaken at the expense of the Dutch public’s interest (i.e., at taxpayer expense) and whether the benefits obtained therefrom were actually (not hypothetically) commensurate therewith.

3) As concerns your studied review of the March 2011 Dutch Audit Court report, there DOES appear to be some additional evidence which you have thus far withheld from public view that casts serious doubt about your objectivity.  Since you have freely provided readers with weblinks to your consulting firm website, it would seem appropriate to return to that website.  And, when we do – Voila – we discover that one of your key industry clients is IBM Nederland!  ( ; ). What more do you have to say about your objectivity with respect to such report?


Dear ‘Brownie Boy’ (alias Michael Brown):

While you are entitled to your opinion, your ad hominem attack makes you appear to be more the wingnut...

Perhaps you should learn more about the different socio-political and economic theories underlying the US vs. EU regulatory approaches which would lay bare the distinct visions of private property, and IP by extension, within each legal jurisdiction.

The US Anglo common law/contentious justice-based legal system is far different from Continental European Napoleonic civil law/preventive justice-based legal system. While the former generally regulates what you cannot do, the latter generally regulates what you can and cannot do.

The US Constitution is premised on the notion of natural rights (civil and property-based) and on the proposition that “We the People” grant government the right/privilege of governing us. Unfortunately, for you, the constitution of Australia, like that of the UK and other commonwealth nations, and that of the continental European civil law nations, was given to the people by the royal governments, along with the rights conveyed thereby in order to secure their legitimate rule. Since such governments granted their peoples the right to be free, including the right to own and use property, including IP, under stipulation (or outright threat of withdrawal, historically speaking), legal and political scholars have determined that such rights were and remain attenuated in scope and exercise.  In other words, scholars have compared property rights in the US which are ‘negative’ exclusive rights, whereas property rights in Europe and other third countries are ‘positive’ conditional/attenuated property rights. (If you would like I would be pleased to point you to the scholarship:  (pp. 18-26))

Hence, when US exclusive private property right holders engage in business abroad and are subject to less robust private property right protections (or more stringent regulation) in civil and/or common law countries than are afforded (imposed) under US law, then, barring any treaty that would protect their rights as if they had been exercised within US territory, such assets are, as a matter of fact, deemed to be at greater economic risk; e.g., to the extent that the right to exercise them has been severely restricted, curtailed and/or otherwise eliminated. Such attenuation of the right to property can be extreme, as in the case of an outright expropriation; or it can be less extreme as in the case of an indirect regulatory ‘taking’ that restricts the use, exercise and economic value of the property right within the meaning of US constitutional jurisprudence.

Lastly, as concerns your comment that I refer to certain foreign regulations as ‘socialist’ in content or implementation, I confess that many knowledgeable Europeans with whom I have spoken in my career, especially within the past ten years, have admitted to the growing influence of ‘soft’ regulatory welfare state socialism (not to be confused with Marxism) within the European Continent. (Here, too, I can point you to the scholarship: ).

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