Thursday, March 10, 2011

Testimony Suggests Regulation of Business is Good for Profits and Innovation

During a subcommittee hearing on about protecting intellectual property on Wednesday, there was a lot of discussion about how the patent process is an important aspect of encouraging people to invest in innovation. While there were witnesses from the medical research industry and another who serves as the chair of the Department of Mechanical Engineering at UNC, the Committee devoted a significant amount of attention to the Chief Technology Officer for Rosetta Stone, Michael Fulkerson. He was there to talk about how the software industry is facing some difficult times protecting their intellectual property because there are a lot of people who download their software for free from pirating websites.

When he was asked what Congress could do to help address the problem of online pirating, Fulkerson said that it’s too easy for the public to find pirated goods. In his opinion, Congress should therefore work with experts to make it harder to gain access to the illegal programs. As a way to describe the situation, Fulkerson said that if a pawn shop was selling pirated goods, the cops would simply go in and shut the place down. With an internet site that allows people to download pirated goods, however, it’s a lot harder to shut down the website. This is further complicated by the fact that many of the sites are operating through servers based overseas.

I was discussing this situation with a friend of mine who has been using Rosetta Stone to learn Italian and she said, “if it didn’t cost more than some used cars, maybe more people would pay for it.” I completely understand where that sentiment is coming from and I imagine a lot of people share her opinion. They would probably be able to reach a broader market if their product didn’t cost so much. Nonetheless, Rosetta Stone’s a company that’s extremely successful and produces a product that people really want to use. The fact that people are constantly searching for ways to illegally download it simply goes to show that the demand for Rosetta Stone is there.

The availability of pirated versions of Rosetta Stone software, however, has the potential to reduce the demand for their products. Fulkerson pointed out that while many of the programs available online are almost exact copies of the software that Rosetta Stone actually sells, there are sometimes glitches that cause the programs to run improperly. As word spreads among various social groups about this glitches, he argues, there is the potential for serious damage to their brand. In other words, they’re not just worried about the money they lose due to illegal downloads; they’re worried the downloaded copies will also have a negative impact on those who were considering paying for language learning software.

The testimony of Fulkerson and the other witnesses all seemed to be coming down to one point: Who would invest in a program or product if other people could simply copy the final product after the most expensive part of the process had already been done? They were therefore calling upon Congress to help ensure that patents are actually protected. This is interesting because businesses, which are usually anti-regulation, are actually coming out and saying that they want the government to do something that would regulate business. In order to explain why they thought regulation was good in this instance, they said that by protecting intellectual property, the government would actually be creating an atmosphere that spurs innovation. Fulkerson, for instance, highlighted how Rosetta Stone recently created a program that allows customers to enhance their speaking skills by talking with native speakers of various languages.

While discussing this latest development in Rosetta Stone, Fulkerson pointed out that they were only able to move forward with these new programs due to the profits they were making previously. This is important to note because all of the witnesses talked about how enforcing patent regulations is crucial to encouraging investment and allowing innovation to be an avenue worth pursuing financially. In other words, a logical conclusion from their testimony would be that regulation of the business world is something that not only helps profits but also spurs innovation.

1 comment:

  1. Virginians might be interested in knowing that Rep. Bob Goodlatte (R-VA6) is the chairman of this subcommittee. The photo in this post is of him and ranking member Rep. Mel Watt (D-NC12) listening to the witnesses answer questions.

    Also, Rosetta Stone is a Virginia based company that started in Harrisonburg and now has its headquarters in Arlington.