The Digital Skeptic: Innovators Race to Open Source and Patent 'Safe Space'

NEW YORK ( TheStreet) -- Keith Bergelt says that when it comes to information, greed is not so good.

"We spend millions of dollars a year to buy patents," Bergelt told a very dubious me over the phone a few months back. "And we make them available for free as long as folks agree not to attack each other."

Bergelt is not what you would consider a software do-goodnik.

Rather, he's chief executive of the Durham, N.C.-based Open Invention Network, and as such sits atop what he says is a low-nine-figure intellectual property war chest. OIN gets its cash from the likes of IBM ( IBM), Sony ( SNE) and Philips, and Bergelt spend his days working the global intellectual property market, sifting for bits of IP that pose a threat to so-called open-source software -- mostly based on the Linux operating system and principles.

"We look at firms that have more patents than they need," he said, "or ones that are growing or shrinking and want to alter their portfolio."

He then offers to either buy that patent outright or potentially partner with the patent owner by offering a license into the OIN community. Such licensees gain access to shared legal and patent filing support needed to manage the intricacies of protecting intellectual property.

But it all comes with a major caveat: Every licensee signs an iron-clad non-aggression pact with fellow OIN members.

"We offer a safe environment for innovation," Bergelt said. "It is a form of an intellectual land trust."

Get over it, all you wannabe Gordon Gekkos, Carl Icahns or Thomas Mellon Evans out there. Wall Street investors now face a bizarre digital-age mutation: massive, publicly traded enterprises that -- be sure you're seated -- cooperate!

Learning to use the C word
Now that I have used the "c" word in public -- and have not been struck down by lightning -- investors should realize that Bergelt's notion of intellectual property sharing is absolutely nothing new under the business sun.

"It all started about 40 to 50 years ago," Carsten Emde told me over the phone from Germany. He's general manager of the German-based Open Source Automation Development Lab, which is one of OIN's licensees. Emde represents the interests of 42 companies that employ about 100,000 people worldwide and gross up to $100 billion worth of sales.

He explained that the '60s and '70s were when the world's biggest enterprises - that is, IBM, Xerox ( XRX), HP ( HPQ), Ford ( F) and GM ( GM) -- realized even they could ill afford the costs of developing broad new technologies from scratch.

"R&D became so expensive that firms created a barrier between what was a differentiated product and what was general knowledge," he said. "The differentiated product you invested heavily in protecting. The cost of developing what was general was what you shared with your competitors."

What Bergelt and OIN do, Emde said, is take the shared-cost concept into software development. And since this is the digital age, that concept tests the limits of logical possibilities.

Yea, that kind of big
First off, Bergelt and OIN now control a simply astounding swath of intellectual property terrain.

Last week OIN announced it had more than 500 licensees and a simply astounding patent portfolio. Like the IP for pressure-sensitive biometric devices, the method for accessing and controlling telephone information on a database, XML streaming on the Web and the data entry pad. As in the data entry pad. OIN has a stake in it, and shares it with all.

When I asked Bergelt how what amounted to an information co-op could own so much valuable real estate, he chuckled.

"That's easy," he said. "Open source software is behind more than you think."

Oh, baby, is Bergelt correct. North Bridge Venture Partners, a Palo Alto, Calif.-based investment firm, says essentially every major software company -- that means Microsoft ( MSFT), Oracle ( ORCL), SugarCRM -- has significant open-source components lurking inside. And a full 30% of firms surveyed said open-source code is in 51% or more of what that firm creates.

Even more sobering, these rates are almost certainly higher in critical, fast-growing emerging global economies. Tetiana Protasova, a masters student in Hungary, did an excellent paper on the power of open-source concepts in developing economies.

My favorite line: "Specific cases will demonstrate that the developing countries are already switching to open source." She cited low cost, ease of use and improved security.

Not communism 2.0
Emde, Bergelt and without exception everyone else I spoke with on this topic made it clear that open-source software is not Karl Marx's dream shot at a comeback.

"This is not communism 2.0," Emde told me emphatically.

Even so, there is no denying the sheer scale of the intellectual property holdings of operations such as OIN -- and the growing continents of intellectual property controlled essentially in commons.

Which of course, affects valuation in dramatic and terrifying ways.

Think about it. If all the world's blue chip companies do is to control the mere public-facing sliver of the intellectual property behind their products, pretending they own all the commonly held terrain behind that storefront is risky investing stuff indeed.

Cooperation is not communism. But for investors, it might turn out to be just as dangerous.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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