Innovation races, a big trial & Fluent

Happy Monday! I got a little carried away with writing today’s stories, so I only have two long reads for you today:

But before we get into it, a PSA: if you’re looking to learn a new language, you need to use Fluent.

Back when I was 16 (a long time ago), I took French as a GCSE. I loved learning French - but shared a reciprocal hatred for my French teacher, who pulled my mum into her classroom one morning and told her I would fail my exams. It made me not want to learn French anymore.

Flash forward to 2021, and I have a new French teacher. My friends over at Fluent help me learn French (and Spanish, if I choose to accept that mission) just by browsing the web.

In the last two minutes alone, I’ve learnt the word comportement by reading a slightly-too-woke Twitter thread and the word avocat by writing this newsletter.

Using Fluent is fun, it’s addictive, and it’s way better than the mean school teachers, Duolingos and Rosetta Stones of the world.

So if, like me, you want to learn a new language but want to do it in the most seamless way possible - add Fluent to chrome for free.

A little under a month ago, I spent my weekend writing about artificial creativity. Since then, I’ve been reading more about the overlap between copyright, patents and tech and – unsurprisingly – the more I read, the more out of my depth I feel. 

Despite these grandiose feelings of naïveté, I recently came across an incredible paper on innovation races by Ryan Hill and Carolyn Stein that I think everyone should read. Here’s their thesis – broken down into oversimplified tidbits.

Why do we need patents? Historically, patents are used to solve a double problem:

1) The problem of incentives. For scientists and tech afficionados, credit is currency. Patent offices are essentially the banks that distribute this currency on a first-come, first-serve basis – incentivizing firms to pour more money into research and development (R&D).

2) The problem of knowledge diffusion. Patents also encourage firms to disclose their inventions, chipping away at the default veil of secrecy most firms in the science-tech world operate under.

So far, so good. Patents mean more money for R&D, more innovation, more shared knowledge. 

Cracks appear, though, we start to talk about clout. Hill and Stein researched structural biologists and found breakthroughs with higher reputational rewards (i.e. more clout) induced more competition and were completed quicker – but at a lower quality.

The pressure to get to the patent office first meant biologists shunned “careful, methodical work” for “quick, dirty experiments.” This slapdash innovation generally required refinement later down the line, leading to a vicious cycle of time and monetary inefficiency.

Patents discourage innovation in other ways, too. In the US, the cost of “patent trolls” – i.e. firms that lock up strategic patents to collect license fees and blackmail companies – makes up 13 per cent of R&D spending.

Case in point: Apple is a patent troll. It sued Samsung using a patent that claimed the slide-to-unlock feature was Apple’s invention despite contrary evidence. After battling it out in court for seven years, Samsung agreed to pay license fees to Apple to settle the case.

For economist David Levine, litigation costs and license fees like these = taxes on innovation that discourage the small(er) inventor.

Patents are necessary (everybody loves clout) but insufficient.

Here are a few suggestions I’ve pulled from people much smarter than me on how patent law can be tweaked to maximize innovation:

Apple and Epic Games - the maker of Fortnite – are going to trial today in a blockbuster case that could upend the entire mobile-app market.

Refresher: last summer, Epic launched a direct payment feature in Fortnite. Apple quickly booted the game off the App Store, claiming Epic violated its guidelines by sidestepping Apple’s in-app payment systems – which charge a 30% commission.

Epic then launched ‘Project Liberty,’ an aggressive legal campaign aimed at liberating app developers from Apple’s “monopolist” shackles.

Epic’s argument: antitrust law focuses on whether a company has hurt consumers by suppressing competition.

In Epic’s telling, Apple routes all downloads through the App Store purely for financial gain. In using its “unique control” over iOS devices to dominate app distribution, Apple robs iOS users of the chance at getting better service at cheaper rates - thereby causing harm.

Apple’s argument: the App Store is a well-vetted app portal that creates a “safe, convenient experience” for iOS users. Tearing this model down would force Apple to spend more money shoring up new privacy and security holes that put users at risk.

If we’re making bets, my money’s on Apple. Epic is facing a Sisyphean uphill battle for a multitude of reasons:

a) Its arguments are pulled from iconic antitrust cases against Microsoft, Kodak and American Express – but Epic is applying these precedents in new ways that have never been tested.

b) Unlike Europe, American courts are notoriously iffy about diving into numbers when it comes to antitrust law – meaning Epic’s contention that 30% is too high a commission fee is unlikely to land. In American courts, legitimate monopolies are allowed to charge high prices.

c) Here’s Fornite’s revenue broken down by operating system:

Benedict Evans explains the implications of this breakdown:

If you couldn’t tell by the 500-and-something words I’ve written on this – I’m super excited to see what happens here.

A win for Epic could tear down Apple’s walled-garden approach to apps, creating an environment where any software could be installed on an Apple devices. Or, in a slightly less-disruptive narrative, the bench could conclude that Apple can maintain App Store exclusivity, but it can’t make developers use its in-app purchasing system.

But the real beauty about this case is that even if Epic loses, it still wins. It’s already accomplished its main goal: drawing Apple into a global debate over how app stores should be regulated – paving the way for underdogs like Spotify to grab the torch and run.

Another bonus: battles between giants this big almost never make it court because there’s too much incentive to settle beforehand. The list of top tech execs set to testify – including Tim Cook – mean some rare (and uncomfortable) disclosures might be on the horizon. 

P.S. the trial will last for three weeks. I’ll keep posting updates whenever something beefy happens. 

Extra reading: the key players set to appear in court.