[cryptography] NSA's position in the dominance stakes

Marsh Ray marsh at extendedsubset.com
Thu Nov 18 19:05:56 EST 2010

On 11/18/2010 04:21 PM, Adam Back wrote:
> So a serious question: is there a software company friendly jurisdiction?

As weird as it sounds, it seems that most politicians seem to think of 
patents as being "business friendly" and lump them together under this 
nebulous concept of "intellectual property", which they consider to be a 
fundamental principle of our economy.

> (Where software and algorithm patents do not exist under law?)
> If patent trolls can patent all sorts of wheels and abuse the US and other
> jurisdictions flawed patent system, maybe one can gain business
> advantage by
> incorporating a software company in a jurisdiction where you are immune to
> that.

If you sell into the US you can be sued for infringing US patents. If 
your customer uses your product and they sell into the US then they can 
be sued. Probably other ways you could be sued too. You'd have get an 
opinion from lawyers specializing in international IP, but they usually 
talk in terms of "minimizing risk" rather than "do this and you cannot 
be sued".

> Big companies do such structuring games all the time for tax or other
> advantages. eg many of the big software companies IP is owned by an Irish
> subsidiary and then licensed back. Ireland has a special even lower than
> normal (normal is 12.5%) tax on IP licensing profits. Tada instant corp tax
> manipulation tool, even for US sales - adjust IP licensing fees such that
> retained profit in high tax country is close to zero.

Big companies address this problem by having a stockpile of patents 
themselves. Every large established tech company has a set of patents 
they can use against any other company in their industry. It's the 
game-theoretic equilibrium of mutual-assured destruction all over again, 
except this time it's lawyers rather than cockroaches that stand to 
inherit the aftermath.

Large established companies tend to benefit from this situation since it 
tends to put newer smaller companies at a huge disadvantage.

But the stability of this game breaks down when you have a patent 
holding company that doesn't actually ship any products. (I don't 
consider Certicom to be in this category.) They have nothing to lose. 
They are the equivalent of a non-state actor with small nuclear arsenal. 
They can cause you a world of pain and have no obvious home address at 
which you can retaliate. Thus IP holding companies are vilified as 
"trolls" by the established nuclear club, except when they are created 
by the companies themselves to manage a patent pool for some 
multi-vendor standard like HDTV or RFID.

Nobody understands this better than RIM (who now owns Certicom). They 
went through hell fighting some claims, even to the point of Blackberry 
service shutdowns because of it. Most likely, the Certicom patents were 
attractive to RIM who felt it needed to grow its arsenal.

So patents may add value to a tech company's balance sheet under "IP", 
but not in the sense that you're going to haul Sony into some Texas 
courthouse and have the judge order them to pay you license fees for 
every bluray they make. Sure it could happen, but it doesn't seem like a 
very wise fight to pick. We might expect different behavior now that RIM 
owns them.

Note that none of this has anything whatsoever to do with "promoting the 
progress of science and the useful arts".

But what's really sad is that this baloney has affected my ability to 
sit down and write a computer program that basically does pure math and 
give the resulting system away or use it to produce value.

- Marsh

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