2008-12-02 13:47:12 +00:00
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<title>FSFE - Analysis on balance - Standardisation and Patents - by Georg Greve</title>
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2008-12-03 14:20:39 +00:00
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<p align="right">[ <a href="ps.en.pdf">PDF version (94k)</a> ]</p>
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2008-12-02 13:47:12 +00:00
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<h1 align="center">Analysis on balance:<br />Standardisation and Patents</h1>
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<p class="indent"><em>This paper provides an analysis of the
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2008-12-02 14:30:26 +00:00
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interaction of patents and standards and finishes with some
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concrete proposals to address the most pressing issues. It was
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written under the assumption of very little background knowledge,
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and therefore provides some of the background necessary to
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understand the issue. An expert in the field should be able to
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skip the Background section.
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</em></p>
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<p align="right"><em>
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-- <b><a href="/about/greve/">Georg C. F. Greve</a></b>
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<br />FSFE, President
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<br />2. December 2008
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2008-12-02 13:47:12 +00:00
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</em></p>
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<h2>Introduction</h2>
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<p>Software patents have been a hugely controversial debate, with
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lines of battle drawn primarily between large corporations holding
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large patent portfolios and engaged in multiple cross-licensing
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2008-12-04 00:53:43 +00:00
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deals, and the Have-Nots, entrepreneurs, small and medium
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2008-12-02 13:47:12 +00:00
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enterprises, and software users from the student using GNU/Linux all
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the way to institutional users in governments.</p>
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<p>This debate got a lot quieter with the rejection of the software
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patent directive in 2005. Its place in the headlines was taken by
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2009-03-21 20:14:24 +00:00
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other debates, such as standardisation. Open Standards have been a
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buzzword for years, but never has this term been discussed more
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intensively.</p>
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<p>On Wednesday, 19 November 2008, both debates met in Brussels at a
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workshop titled
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2009-09-25 10:08:17 +00:00
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"<a href="http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=3371">IPR
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in ICT standardisation</a>", although "Patents in ICT
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standardisation" would have been a more suitable name because the
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discussion was exlusively about the interaction of patents and
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ICT standardisation.</p>
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<p>Patents and standards are fundamentally at odds, so many people
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call for a balance between patents and standards. This article
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comments upon the workshop and explains why standards should prevail
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over patents at least in the area of software.</p>
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<h2>Background: Patents & Standards 101</h2>
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<p>The idea of patents is not new. Its roots lie in the royal
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"litterae patentes" that conferred exclusive rights to certain
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people. Democratic governments eventually took the position of the
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monarchs, and patent legislation has evolved over time, but the
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fundamental characteristics of what is a patent have not
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changed.</p>
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<p>Succinctly put, a patent is a monopoly granted for a limited time
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by the government on behalf of its citizens.</p>
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<p>The term monopoly has many negative connotations, and for good
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reason. A monopoly stifles innovation and increases price due to the
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absence of competition. On these grounds a monopoly is generally
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understood to be to the detriment of economy and society. It is not
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illegal to obtain a monopoly, but society has a legitimate interest
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in limiting abuse of the power that a monopoly confers, and seeks to
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achieve this through antitrust law.</p>
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<p>The monopoly right created by a patent brings with it all side
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effects of a monopoly. It is granted by the state because it is
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understood that the absence of patents might prevent publication of
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breakthroughs, which is understood to be more harmful than granting
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the patent monopoly.</p>
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<p>This initial patent deal is based upon disclosure, so that others
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can learn from and build upon a new idea. Lack of useful disclosure
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or advancement of public knowledge translates into the granting of a
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monopoly with no return for society.</p>
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<p>Like patents, standards are closely related to disclosure. The root
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of the word standard appears to go back to heraldry, where it refers
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to a symbol that is used to make a rallying point visible in
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battle.</p>
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<p>Modern use of the term keeps that meaning of publicly visible point
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of reference, although it has been transferred to other areas. So
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among other things it is understood as "<em>something established by
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authority, custom, or general consent as a model or example</em>" or also
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"<em>a structure built for or serving as a base or support.</em>"
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(from <a href="http://www.merriam-webster.com/dictionary/standard">Merriam-Webster
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On-line dictionary</a>).</p>
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<p>In Information and Communication Technologies, a standard has both
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the above meanings. According to
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the <a href="http://www.bsi-global.com/en/Standards-and-Publications/About-standards/What-is-a-standard/">British
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Standards Institution</a> (BSI), a standard is "<em>an agreed, repeatable
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way of doing something. It is a published document that contains a
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technical specification or other precise criteria designed to be
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used consistently as a rule, guideline, or definition. [...] Any
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standard is a collective work. Committees of manufacturers, users,
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research organizations, government departments and consumers work
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together to draw up standards that evolve to meet the demands of
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society and technology. [...]</em>"</p>
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<p>The underlying idea is that a standard establishes common ground,
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it provides the means for interoperability and competition. This is
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especially true for ICT due to their strong networking effects. If
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all participants in an ICT market adhere to the same standards and
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make an effort to guarantee interoperability, not only can customers
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choose freely between various products and services, they can also
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exchange information with one another without problems.</p>
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<p>In contrast, absence or failure of standardisation warps networking
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effects in a way that monopolisation becomes almost certain. Users
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of one product or service could only interoperate with users of the
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same product or service. Over time, one solution would attain such
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a large user base that other users are de-facto left with the choice
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to join this group, or be unable to communicate fully with the
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majority of users. This could for instance be achieved by bundling
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software with a predominant hardware platform.</p>
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<p>So standards are largely an instrument to enable competition for
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the public benefit. The purpose of standards is intrinsicly
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anti-monopolistic.</p>
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<p>It is also pro-innovative. Since derivation from a standard
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automatically breaks it, standardisation and innovation seem opposed
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goals, and to some extent they are. But where all changes are done
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in consensus between implementors, the result is an updated version
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of the standard available to all. The second path is innovation on
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top of the standard, using the standard as a base for innovation
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rather than innovating inside the standard.</p>
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<p>Due to its global, consensus-driven nature, the first process is
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comparatively slow. Another problem is the substantial barrier to
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entry into the standards process. As a result, large companies are
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overrepresented in comparison to small and medium enterprises (SME).</p>
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<p>The second path is open to everyone, private person, SME, or large
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industry. It is also limited only by the speed of development of the
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team making the innovation. If the innovation was made by just one
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party, there will be a temporary monopoly. But given a certain
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maturity, the innovation is then likely to be formalised into a
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standard again, forming the base for the next innovation to be built
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on top.</p>
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<p>While the first path allows primarily for slow, small improvements,
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the second path allows for full participation of the economic
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majority and is much better suited for groundbreaking ideas and
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arguably the more important to protect for society.</p>
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<h2>Conflict: Fundamentally opposed instruments</h2>
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<p>The fundamentally different goals for patents and standards
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surfaced multiple times during the debate, for instance in the
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speech of Mr Karsten Meinhold, chairman of the ETSI IPR Special
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2009-09-25 13:42:31 +00:00
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Committee,
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2009-09-25 13:48:57 +00:00
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<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3635&userservice_id=1&request.id=0">
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who summarised it</a> as "<em>IPRs and Standards serve different
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purposes: IPRs are destined for private exclusive use, Standards are
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intended for public, collective use</em>".</p>
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<p>Both patents and standards derive their justification from the
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public benefit, yet upholding one deprives the other of its
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function. Standards seek to counteract monopolies, patents establish
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them. Or, as Tomoko Miyamoto, Senior Counsellor of the Patent Law
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Section in the World Intellectual Property Organization (WIPO) said
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in
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<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3633&userservice_id=1&request.id=0">
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her presentation</a>:
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2009-09-25 10:08:17 +00:00
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Patent thickets and patent hold-ups may arise from
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2009-03-16 16:17:33 +00:00
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certain forms of legitimate exploitation of the exclusive rights
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conferred by patents.</p>
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<p>In other words: Conferring these exclusive rights is the intended
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function of the patent system, and legitimate usage of these rights
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brings about consequences of patent thickets and patent
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hold-ups. Allowing patents on standards consequently is an
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intentional act to grant monopolies on standards to certain parties
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that includes the right to block implementation by other
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parties.</p>
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<h2>Ex-Ante Disclosure</h2>
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<p>There are multiple attempts through which the standardisation
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community has tried to mitigate these effects over the years. One of
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these mechanisms is called "Ex-Ante Disclosure." The parties working
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on a standard use this mechanism to commit to licensing terms while
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the standard is still being drafted. If these terms are not
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acceptable to the other parties working on the standard, the
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technology that is covered by the patent is not included in the
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standard.</p>
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<p>What are acceptable terms is highly subjective. A large corporation
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with big patent portfolio and existing cross-licensing agreement
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with the holder of the relevant patents might consider adding one
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more patent to the agreement a minor inconvenience. The same
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situation looks substantially different from the perspective of a
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small or medium enterprise that typically has at most a small patent
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portfolio and has to expect extortionate licensing.</p>
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<p>Since SMEs are strongly underrepresented in standardisation, Ex-Ante
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Disclosure is likely to bring more satisfactory results to large
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corporations with large patent portfolios that compete in the same
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area. The economic majority generally has no say about the
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acceptability of the terms.</p>
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<p>Another issue of ex-ante disclosure is difficult enforcement, as
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Suzanne Michel, Assistant Director Office of Policy and Coordination
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of the U.S. Federal Trade Commission
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(FTC)
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2009-09-25 13:48:57 +00:00
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<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3631&userservice_id=1&request.id=0">
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pointed out in her presentation</a>.
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2009-09-25 10:08:17 +00:00
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The FTC had found that <a href="http://en.wikipedia.org/w/index.php?title=Rambus&oldid=251605519">Rambus
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2008-12-02 13:47:12 +00:00
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Incorporated</a> had joined and attended standardisation meetings of
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the <a href="http://en.wikipedia.org/wiki/JEDEC">Joint Electron
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Device Engineering Council (JEDEC)</a> in order to modify their
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patent applications to cover technology that was under discussion
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for inclusion in future standards. In the opinion of the FTC, this
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behaviour was deceptive, violated JEDEC's disclosure policy, and
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illegaly gave Rambus monopoly power.</p>
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<p>The <a href="http://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_District_of_Columbia_Circuit">D.C. Circuit
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Court</a> disagreed with the interpretation of the FTC in their
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April 2008 decision. According to Ms Michel, the court said that
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avoiding so-called
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"<a href="http://en.wikipedia.org/wiki/Reasonable_and_Non_Discriminatory_Licensing">Reasonable
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and Non-Discriminatory</a>" (RAND) licensing terms does not
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constitute abuse, and that there is no proof that JEDEC would have
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avoided technologies if it had known that Rambus was planning to
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use its patents to the fullest extent allowed by law. The court
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also expressed reluctance to make patents unenforceable based on
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vague disclosure policies.</p>
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<p>Both patents and standards derive their justification from the
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public benefit. There was no additional disclosure of new technology
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provided by the patents that Rambus filed on the standards that were
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about to be published. Giving Rambus monopoly power over standards
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developed by JEDEC is also detrimental to public interest. So it
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seems likely that a full public interest evaluation of this
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situation would give that indeed the public interest did not prevail
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in this case.</p>
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<p>So it would appear that the FTC was correct in its evaluation, and
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so was the court, because establishing time-limited monopolies is
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the very purpose and function of patent law. The role of courts does
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not extend to the undoing of laws and most legislators have not
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given the public interest conflict between patents and standards
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consideration.</p>
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<p>JEDEC has meanwhile updated its disclosure policy, which may help
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to avoid similar issues in the future. Considering the value that
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patent law has in relation to standardisation for many courts, only
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a future court case can demonstrate whether the issue has been
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resolved in a way that holds up to formal legal review.</p>
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<h2>(F)RAND</h2>
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<p>This is true for all standardisation bodies that require ex-ante
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disclosure, which most of them don't. Instead the majority of bodies
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appear to rely on purely voluntary disclosure and the assurance that
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patent holders involved in the process will agree to so-called RAND
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or FRAND
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("<a href="http://en.wikipedia.org/wiki/Fair,_Reasonable_and_Non_Discriminatory_Licensing">Fair,
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Reasonable and Non Discriminatory</a>") terms.</p>
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<p>One common criticism of (F)RAND terms is the lack of a definition
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of what is reasonable and for whom. During the 2006 Internet
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Governance Forum (IGF) in Athens, Susy Struble of Sun Microsystems
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<a href="http://www.youtube.com/watch?v=CNUdqEqjbOQ">pointed out</a>
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that what is reasonable for one party may not be reasonable to
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another.</p>
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<p>Licensing practices do indeed vary, and are influenced by various
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factors, including, but not limited to, whether or
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not a company has a stake in the relevant market, and how
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aggressively it pursues its patent revenues.</p>
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<p>Additionally, patents can be sold or acquired as part of a business
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restructuring or acquisition. A future patent holder may consider
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different terms reasonable, so could a patent holder who did not
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participate in the standardisation process and never committed even
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to RAND terms.</p>
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<p>RAND terms generally amount to a vague assurance to license upon
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request. Such an assurance does not constitute a perpetual license
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on the patent and is not valid for the new holder of a patent. So a
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new holder can choose freely how to enforce the patent, including
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patent hold-ups on all existing implementations of the standard.</p>
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<p>As Ms Miyamoto from WIPO pointed out, a patent hold-up is a
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legitimate and intended use of the patent system. So even in a RAND
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regime, there is a substantial amount of uncertainty that invariably
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favors large companies, which not only have deeper pockets, they
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also have larger legal departments and patent portfolios.</p>
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2008-12-02 14:30:26 +00:00
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<p>It is this uncertainty that has caused great frustration among SMEs,
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2008-12-02 13:47:12 +00:00
|
|
|
which Charles Schulz of Ars Aperta summarised as RAND referring to
|
|
|
|
"RANDom licensing at the sight of competitors."
|
2009-09-25 13:42:31 +00:00
|
|
|
In
|
2009-09-25 13:48:57 +00:00
|
|
|
<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3639&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
his presentation</a>,
|
2009-09-25 10:08:17 +00:00
|
|
|
Mr Schulz also pointed out that (F)RAND terms are
|
2008-12-02 13:47:12 +00:00
|
|
|
discriminating against Free Software. Even RAND terms linked to zero
|
|
|
|
royalties, the so called RF-on-RAND ("Royalty Free on RAND"),
|
|
|
|
RAND-RF ("RAND Royalty Free") or RAND-Z ("RAND with Zero royalties")
|
|
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|
terms often exhibit the same problems because they do not permit
|
|
|
|
sublicensing.</p>
|
|
|
|
|
|
|
|
<p>Free Software
|
|
|
|
(<a href="/documents/freesoftware">a.k.a. Open
|
|
|
|
Source, FOSS or FLOSS</a>) is based on the principle that every
|
|
|
|
living person and every legal entity can be a user, developer,
|
|
|
|
distributor, or any combination of the above. Only conditions which
|
|
|
|
permit this to take place are acceptable to Free Software, which is
|
|
|
|
<a href="http://www.flossimpact.eu/">estimated</a> to reach 32% of
|
|
|
|
all IT services and 4% of European GDP by 2010.</p>
|
|
|
|
|
2009-09-25 13:42:31 +00:00
|
|
|
<p>In
|
2009-09-25 13:48:57 +00:00
|
|
|
<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3641&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
her presentation</a>,
|
2009-09-25 10:08:17 +00:00
|
|
|
Amy Marasco, General Manager Standards Strategy of
|
2008-12-02 13:47:12 +00:00
|
|
|
Microsoft, emphasised that she does not consider Free Software a
|
|
|
|
business model. That is true to the same extent that proprietary
|
|
|
|
software itself is not a business model. Business models are what is
|
|
|
|
built on top of both Free Software and/or proprietary software.</p>
|
|
|
|
|
|
|
|
<p>Ms Marasco continued to point out that all these business models
|
|
|
|
are legitimate. And while there are strong differences in opinion
|
|
|
|
about which software model is the better and more sustainable choice
|
|
|
|
for economy and society, from the perspective of a political
|
|
|
|
analysis of standards, all business models based upon proprietary
|
|
|
|
software, Free Software, or a mixture of the two need to be
|
|
|
|
considered valid and legitimate.</p>
|
|
|
|
|
|
|
|
<p>As mentioned before, the Free Software related parts of European
|
|
|
|
GDP are estimated to reach 4% by 2010. All parties agree that all
|
|
|
|
business models, including those incorporating Free Software, are
|
|
|
|
legitimate. This raises the question whether it can be considered
|
|
|
|
Fair, Reasonable and Non-Discriminatory to exclude this legitimate
|
|
|
|
part of economy by choice of patent licensing terms.</p>
|
|
|
|
|
|
|
|
<h2>Harm from exclusion?</h2>
|
|
|
|
|
|
|
|
<p>The situation bears an odd semblance to the situation with
|
|
|
|
<a href="http://en.wikipedia.org/wiki/Counterfeit_drugs">counterfeit
|
|
|
|
pharmaceuticals</a>, where the argument for patent enforcement is
|
|
|
|
generally accompanied by public health considerations. But only
|
|
|
|
effective pharmaceuticals that are identical to the patented product
|
|
|
|
would actually violate the patent. Health risks arise primarily
|
|
|
|
where the patents are not being violated.</p>
|
|
|
|
|
|
|
|
<p>In standards, the situation is somewhat similar. If patents are
|
|
|
|
part of a standard, only an implementation that is covered by the
|
2009-03-21 20:14:24 +00:00
|
|
|
patents provides an effective antidote to monopolisation. Having to
|
2008-12-02 14:30:26 +00:00
|
|
|
circumvent patents will generally break standards compliance and harm the
|
2008-12-02 13:47:12 +00:00
|
|
|
public benefit that is the driving force behind standardisation.</p>
|
|
|
|
|
|
|
|
<p>So patents in standards have the potential to make full
|
|
|
|
interoperability impossible for legitimate businesses in some
|
|
|
|
markets. As the aforementioned
|
|
|
|
BSI <a href="http://www.bsi-global.com/en/Standards-and-Publications/About-standards/What-is-a-standard/">points
|
|
|
|
out</a>: "Standards are designed for voluntary use and do not impose
|
|
|
|
any regulations. However, laws and regulations may refer to certain
|
|
|
|
standards and make compliance with them compulsory."</p>
|
|
|
|
|
|
|
|
<p>Once a technology has been standardised, certain choices are no
|
|
|
|
longer made for technological quality. Even where a better solution
|
|
|
|
exists that would have the additional value of not violating a
|
|
|
|
potential patent on the standard, an implementor would choose to
|
|
|
|
follow the technologically inferior standard in order to have full
|
2008-12-02 14:30:26 +00:00
|
|
|
access to the market. Such a case reverts the initial idea of
|
|
|
|
patenting: The technology is valuable because it is patented, not
|
2008-12-02 13:47:12 +00:00
|
|
|
patented because it is valuable.</p>
|
|
|
|
|
|
|
|
<p>There are also cases where certain standardisation organisations,
|
|
|
|
e.g. the <a href="http://www.iso.org">International Organisation for
|
2009-03-21 20:14:24 +00:00
|
|
|
Standardisation</a> (ISO) have a privileged position with
|
2008-12-02 13:47:12 +00:00
|
|
|
governments for procurement decisions. Due to patents and
|
|
|
|
insufficient (F)RAND conditions, not all standards priviledged in
|
|
|
|
this way can be implemented by all legitimate market participants
|
|
|
|
that should be able to compete in public tenders.</p>
|
|
|
|
|
|
|
|
<p>So through the special priviledge for organisations like ISO which
|
|
|
|
accept terms insufficient to guarantee competition, the monopoly
|
|
|
|
right conferred by patents translates into an oligopoly or even a
|
|
|
|
monopoly for public procurement. This exclusion of competition from
|
|
|
|
tenders by means of patents on standards is detrimental to the
|
|
|
|
public benefit because it leads to higher prices and consequently
|
|
|
|
higher taxes.</p>
|
|
|
|
|
|
|
|
<p>Remedies for this situation would have to address the way in which
|
|
|
|
governments grant procurement preferences to standards, the way in
|
|
|
|
which patents are handled in standards, the patent system itself, or
|
|
|
|
a combination of all of the above.</p>
|
|
|
|
|
|
|
|
<h2>Attempted remedies</h2>
|
|
|
|
|
2008-12-02 14:30:26 +00:00
|
|
|
<p>Good patent research costs around 100.000 EUR per case according to
|
|
|
|
Rigo Wenning, Legal Counsel & Patent Policy Team Contact of the
|
2008-12-02 13:47:12 +00:00
|
|
|
W3C/ERCIM who spoke about
|
2009-09-25 13:48:57 +00:00
|
|
|
"<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3636&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
Standards, Patents and the Dynamics of Innovation on the Web</a>." The W3C is
|
2008-12-02 13:47:12 +00:00
|
|
|
indeed the only Standards Setting Organisation (SSO) that has a
|
|
|
|
sufficient patent policy for its standards in order to accomodate
|
|
|
|
all legitimate business models.</p>
|
|
|
|
|
|
|
|
<p>From the perspective of most SMEs, 100.000 EUR patent research costs
|
|
|
|
are prohibitively expensive. But even large companies will find this
|
|
|
|
cost considerable, which is only one of the cost generators. More
|
|
|
|
damage can be caused by injunctions against a product, or claims for
|
|
|
|
damages. In
|
2009-09-25 13:42:31 +00:00
|
|
|
his
|
2009-09-25 13:48:57 +00:00
|
|
|
<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3646&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
presentation of IBM's "SoftIP"</a> concept, Roger Burt, Senior Counsel of IBM
|
2008-12-02 13:47:12 +00:00
|
|
|
Europe introduces the issues with a quote from a BSA et al. Amicus
|
|
|
|
brief in eBay v MercExchange. The quote summarises the problems of
|
|
|
|
large industry rather well:</p>
|
|
|
|
|
|
|
|
<quote class="indent"><em>"Technology products typically consist of hundreds or
|
|
|
|
thousands of patented components. It therefore is impossible for
|
|
|
|
technology companies to investigate all of the patents, and pending
|
|
|
|
patent applications that may be relevant to a new invention (product),
|
|
|
|
notwithstanding their best efforts to do so. When, as frequently
|
|
|
|
occurs, the claim of infringement is not made until after the new
|
|
|
|
product is released or the industry standard has been adopted,
|
|
|
|
designing around the claim is no longer a realistic option. Because an
|
|
|
|
injunction will issue automatically upon a finding of infringement –
|
|
|
|
even if the claim relates to an insignificant part of the product –
|
|
|
|
the target of the claim is forced to pay an extortionate settlement in
|
|
|
|
order to preserve its business."</em></quote>
|
|
|
|
|
|
|
|
<p>Another attempt to keep patents fees from becoming exorbitant even
|
|
|
|
for the largest corporations was introduced by Tim Frain, Director
|
|
|
|
IPR regulatory affairs, Nokia in his presentation about
|
2009-09-25 13:42:31 +00:00
|
|
|
|
2009-09-25 13:48:57 +00:00
|
|
|
"<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3649&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
FRAND Best Practice</a>."
|
2009-09-25 10:08:17 +00:00
|
|
|
Mr Frain advocates a system based on "Aggregated
|
2008-12-02 13:47:12 +00:00
|
|
|
Reasonable Terms" & "Proportionality" (ART+P).</p>
|
|
|
|
|
|
|
|
<p>The underlying idea of this approach is that if every patent holder
|
|
|
|
individually charges patent fees they consider Fair, Reasonable and
|
|
|
|
Non-Discriminatory, the resulting fees may easily add up to 50% or
|
|
|
|
more of the cost for the end product. So all patent holders should
|
|
|
|
commit ex-ante that the aggregate licensing cost for all patents
|
2009-03-21 20:14:24 +00:00
|
|
|
should be reasonable. As an example, Mr Frain cited that in Nokia's
|
2008-12-02 13:47:12 +00:00
|
|
|
view, the patent licensing fees on the communication technology for
|
|
|
|
mobile phones should be below 10% per handset.</p>
|
|
|
|
|
|
|
|
<p>Both approaches are attempts to control the use of monopolies
|
|
|
|
granted by patents and as such are trying to get voluntary buy-in
|
|
|
|
from other parties to not exercise rights that the patent system has
|
|
|
|
granted them.</p>
|
|
|
|
|
|
|
|
<p>Unfortunately they both fall short of the criterion of
|
|
|
|
non-discrimination against legitimate business models, and the ART+P
|
|
|
|
approach also has the practical weakness that convergence joins more
|
|
|
|
than one kind of technology per device, so the total patent
|
2009-03-21 20:14:24 +00:00
|
|
|
royalties on a smart phone may still reach 50% even if the costs for
|
2008-12-02 13:47:12 +00:00
|
|
|
GSM & Co are limited to 10%. But even these 10% can be
|
|
|
|
considerable for laptops with included UMTS modems, or embedded
|
|
|
|
devices, an area in which the profit margins are typically far below
|
|
|
|
10%.</p>
|
|
|
|
|
|
|
|
<p>To put it in the form of a controversial question: Is it fair and
|
|
|
|
reasonable that patent holders receive a higher monopoly rent than
|
|
|
|
an innovative company stands to gain by bringing out a new product
|
|
|
|
and bearing all the risk associated with it?</p>
|
|
|
|
|
|
|
|
<h2>Cui bono?</h2>
|
|
|
|
|
|
|
|
<p>So who benefits? As explained before, patents are designed as a trade-off. Their
|
|
|
|
benefits are often explained with the lone inventor having a genius
|
|
|
|
idea. Would it be fair if this inventor published the idea only to
|
|
|
|
see a large company bring it to market faster than the inventor
|
|
|
|
could, with no financial reward for the inventor? Most people would
|
|
|
|
agree this is not fair.</p>
|
|
|
|
|
|
|
|
<p>In the absence of patents, such an inventor could only choose
|
|
|
|
between accepting fate, or keeping the innovation secret for as long
|
|
|
|
as possible while trying to bring it to market. Patents grant a
|
|
|
|
temporary monopoly for the inventor in return for publication, such
|
|
|
|
that the inventor can find investors, set up a company, finish
|
|
|
|
product development, bring it to market, and enjoy a head start
|
|
|
|
before others can compete normally.</p>
|
|
|
|
|
|
|
|
<p>This mechanism seems to have worked reasonably well for some time
|
|
|
|
in the past. But some basic parameters have changed, while patents
|
|
|
|
have been extended in an essentially unreflected way to more
|
|
|
|
areas. This is particularly true for software, where patents play no
|
2008-12-02 14:30:26 +00:00
|
|
|
meaningful role in disclosure, breaking the patent deal for society
|
|
|
|
whereas the time of bringing new innovation to the market and the
|
|
|
|
time between groundbreaking discoveries has been decreasing.</p>
|
2008-12-02 13:47:12 +00:00
|
|
|
|
|
|
|
<p><a href="http://en.wikipedia.org/wiki/Ray_Kurzweil">Raymond
|
2008-12-02 14:30:26 +00:00
|
|
|
Kurzweil</a> found an exponential pattern in innovation reaching back
|
2008-12-02 13:47:12 +00:00
|
|
|
all the way to single-cell organisms. Concluding that this must be
|
|
|
|
a universal principle, Mr Kurzweil has been
|
|
|
|
making <a href="http://en.wikipedia.org/wiki/Predictions_made_by_Raymond_Kurzweil">predictions</a>
|
|
|
|
for the future of which several have turned out to be largely
|
|
|
|
accurate so far. When applying this principle to patents, from the
|
|
|
|
constant duration of the monopoly guaranteed follows an
|
|
|
|
exponential growth of the value of an individual patent.</p>
|
|
|
|
|
|
|
|
<p>The price that society is paying for granting patents has been
|
|
|
|
<a href="http://en.wikipedia.org/wiki/Exponential_growth">growing
|
|
|
|
exponentially</a> since the time that the initial patent bargain was
|
|
|
|
struck. This would explain why the price for the patent system seems
|
|
|
|
increasingly exorbitant with growing calls for reform, which have
|
|
|
|
led to the recent announcement of the
|
|
|
|
"<a href="http://www.ftc.gov/opa/2008/11/ipmarketplace.shtm">First
|
|
|
|
in Series of Hearings on Evolving Intellectual Property
|
|
|
|
Marketplace</a>" by the U.S. Federal Trade Commission (FTC).</p>
|
|
|
|
|
|
|
|
<p>Remedies to this problem could be to decrease the lifespan of
|
|
|
|
patents, adapt them to the specific situation in the field, and
|
|
|
|
exclude fields from patenting in which patents provide no meaningful
|
|
|
|
disclosure.</p>
|
|
|
|
|
|
|
|
<p>When it comes to standards, it was An Baisheng, Deputy Director of
|
|
|
|
the Division of Technical Regulations Department for WTO Affairs of
|
|
|
|
the Chinese Ministry of Commerce who raised the question of public
|
|
|
|
vs private benefit in his presentation titled
|
2009-09-25 13:48:57 +00:00
|
|
|
"<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&doc_id=3632&userservice_id=1&request.id=0">
|
2009-09-25 13:42:31 +00:00
|
|
|
Strike the Right Balance between Public and Private Interests in IPR in ICT
|
2008-12-02 13:47:12 +00:00
|
|
|
Standardization</a>".</p>
|
|
|
|
|
|
|
|
<p>Taking our "lone inventor" scenario above, the question that we'd
|
|
|
|
have to ask for patents on standards is: Would it be fair if our
|
|
|
|
inventor could prevent someone else from bringing to market an
|
|
|
|
innovation of their own that somehow interacts with the initial
|
|
|
|
invention? To make it less abstract: Should a patent on a typewriter
|
|
|
|
extend to carbon copy paper that has the right size to be used in
|
|
|
|
that typewriter? Most people would agree this goes too far.</p>
|
|
|
|
|
|
|
|
<h2>Potential Remedies</h2>
|
|
|
|
|
2008-12-02 14:30:26 +00:00
|
|
|
<h3>1. Interoperability trumps patent</h3>
|
2008-12-02 13:47:12 +00:00
|
|
|
|
|
|
|
<p>During the software patent debate in the European Union there was
|
|
|
|
consensus among SME, Free Software and big businesses
|
|
|
|
representatives from companies such as IBM or Sun Microsystems that
|
2008-12-03 14:20:39 +00:00
|
|
|
patents which limit or prevent interoperability should be unenforceable.</p>
|
2008-12-02 13:47:12 +00:00
|
|
|
|
|
|
|
<p>In the European Union, this could be introduced into the ongoing
|
|
|
|
Community Patent debate. On a global level, WIPO should consider
|
|
|
|
this as part of its ongoing Development Agenda discussions.</p>
|
|
|
|
|
|
|
|
<p>Once implemented, this would solve the most harmful side-effects
|
|
|
|
for all legitimate business models and give interoperability and
|
|
|
|
competition preference over monopoly rights. Considering the
|
|
|
|
extraordinary networking effects that exist in this market, such a
|
|
|
|
preference seems justified.</p>
|
|
|
|
|
2008-12-02 14:30:26 +00:00
|
|
|
<h3>2. Update policy in SSOs</h3>
|
2008-12-02 13:47:12 +00:00
|
|
|
|
|
|
|
<p>Secondly, Standard Setting Organisations (SSOs) could update their
|
|
|
|
patent policies to ensure that their standards are usable in all
|
|
|
|
business models. Many SSO representatives in the meeting maintained
|
|
|
|
that it was not their place to mandate certain patent policies. At
|
|
|
|
the same time,
|
|
|
|
the <a href="http://www.itu.int/ITU-T/dbase/patent/patent-policy.html">Common
|
|
|
|
Patent Policy</a> of ITU-T, ITU-R, ISO and IEC already states the
|
|
|
|
principle that "<em>a patent embodied fully or partly in a
|
|
|
|
Recommendation | Deliverable must be accessible to everybody without
|
|
|
|
undue constraints.</em>" As this analysis demonstrates, current
|
|
|
|
application of RAND falls short of that principle.</p>
|
|
|
|
|
|
|
|
<p>There is additional precedence supplied by the common way in which
|
|
|
|
SSOs protect standards against potential later claims from Copyright
|
|
|
|
holders by requiring all participants to a standardisation process
|
|
|
|
to assign their copyright to the SSO. Applying appropriate similar
|
|
|
|
measures on patents for similar reasons seems justified.</p>
|
|
|
|
|
2008-12-02 14:30:26 +00:00
|
|
|
<h3>3. Provide intermediate and migration possibilities</h3>
|
2008-12-02 13:47:12 +00:00
|
|
|
|
|
|
|
<p>Many patent-encumbered standards already exist, and even if WIPO
|
|
|
|
ends up agreeing on a general interoperability preference, it will
|
|
|
|
take decades for this to become local law.</p>
|
|
|
|
|
|
|
|
<p>As an intermediate solution, (F)RAND needs to be enforced in a way
|
2008-12-04 22:49:38 +00:00
|
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that the license terms do not discriminate against any valid business
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2008-12-02 13:47:12 +00:00
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model, as is still common today. A potential solution could be to
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tie (F)RAND royalties to the downstream licensing revenue.</p>
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<p>Business models that are based on proprietary licensing based on
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copyright or patents for revenue would continue to operate as they
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do today. Business models that do not rely on such licensing revenue
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would be enabled to interoperate and compete.</p>
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<p>Taking this step would also realign ITU-T, ITU-R, ISO and IEC again
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with their declared Common Patent Policy.</p>
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2008-12-02 14:30:26 +00:00
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<h3>4. Update governmental procurement guidelines</h3>
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2008-12-02 13:47:12 +00:00
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<p>Governments and Inter-Governmental Organisations should update
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their procurement guidelines to procure only products based upon
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standards that do not discriminate against any legitimate business
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model. This means a review of blanket approval for certain standard
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setting organisations, and only a limited approval for organisations
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that have not updated their patent policies appropriately by the
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time of the review.</p>
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<hr />
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2008-12-02 14:30:26 +00:00
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<p><em>DISCLAIMER: This paper was written from the
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2008-12-02 13:47:12 +00:00
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perspective of an expert in the field of software. The conclusions
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may apply in their entirety, partially, or not at all to areas
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other than software.
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</em></p>
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