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  4. <title>FSFE - Analysis on balance - Standardisation and Patents</title>
  5. </head>
  6. <body>
  7. <h1>Analysis on balance:<br />Standardisation and Patents</h1>
  8. <p class="indent"><em>This paper provides an analysis of the
  9. interaction of patents and standards and finishes with some
  10. concrete proposals to address the most pressing issues. It was
  11. written under the assumption of very little background knowledge,
  12. and therefore provides some of the background necessary to
  13. understand the issue. An expert in the field should be able to
  14. skip the Background section.
  15. </em></p>
  16. <h2>Introduction</h2>
  17. <p>Software patents have been a hugely controversial debate, with
  18. lines of battle drawn primarily between large corporations holding
  19. large patent portfolios and engaged in multiple cross-licensing
  20. deals, and the Have-Nots, entrepreneurs, small and medium
  21. enterprises, and software users from the student using GNU/Linux all
  22. the way to institutional users in governments.</p>
  23. <p>This debate got a lot quieter with the rejection of the software
  24. patent directive in 2005. Its place in the headlines was taken by
  25. other debates, such as standardisation. Open Standards have been a
  26. buzzword for years, but never has this term been discussed more
  27. intensively.</p>
  28. <p>On Wednesday, 19 November 2008, both debates met in Brussels at a
  29. workshop titled
  30. "<a href="http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=3371">IPR
  31. in ICT standardisation</a>", although "Patents in ICT
  32. standardisation" would have been a more suitable name because the
  33. discussion was exlusively about the interaction of patents and
  34. ICT standardisation.</p>
  35. <p>Patents and standards are fundamentally at odds, so many people
  36. call for a balance between patents and standards. This article
  37. comments upon the workshop and explains why standards should prevail
  38. over patents at least in the area of software.</p>
  39. <h2>Background: Patents &amp; Standards 101</h2>
  40. <p>The idea of patents is not new. Its roots lie in the royal
  41. "litterae patentes" that conferred exclusive rights to certain
  42. people. Democratic governments eventually took the position of the
  43. monarchs, and patent legislation has evolved over time, but the
  44. fundamental characteristics of what is a patent have not
  45. changed.</p>
  46. <p>Succinctly put, a patent is a monopoly granted for a limited time
  47. by the government on behalf of its citizens.</p>
  48. <p>The term monopoly has many negative connotations, and for good
  49. reason. A monopoly stifles innovation and increases price due to the
  50. absence of competition. On these grounds a monopoly is generally
  51. understood to be to the detriment of economy and society. It is not
  52. illegal to obtain a monopoly, but society has a legitimate interest
  53. in limiting abuse of the power that a monopoly confers, and seeks to
  54. achieve this through antitrust law.</p>
  55. <p>The monopoly right created by a patent brings with it all side
  56. effects of a monopoly. It is granted by the state because it is
  57. understood that the absence of patents might prevent publication of
  58. breakthroughs, which is understood to be more harmful than granting
  59. the patent monopoly.</p>
  60. <p>This initial patent deal is based upon disclosure, so that others
  61. can learn from and build upon a new idea. Lack of useful disclosure
  62. or advancement of public knowledge translates into the granting of a
  63. monopoly with no return for society.</p>
  64. <p>Like patents, standards are closely related to disclosure. The root
  65. of the word standard appears to go back to heraldry, where it refers
  66. to a symbol that is used to make a rallying point visible in
  67. battle.</p>
  68. <p>Modern use of the term keeps that meaning of publicly visible point
  69. of reference, although it has been transferred to other areas. So
  70. among other things it is understood as "<em>something established by
  71. authority, custom, or general consent as a model or example</em>" or also
  72. "<em>a structure built for or serving as a base or support.</em>"
  73. (from <a href="http://www.merriam-webster.com/dictionary/standard">Merriam-Webster
  74. On-line dictionary</a>).</p>
  75. <p>In Information and Communication Technologies, a standard has both
  76. the above meanings. According to
  77. the <a href="http://www.bsi-global.com/en/Standards-and-Publications/About-standards/What-is-a-standard/">British
  78. Standards Institution</a> (BSI), a standard is "<em>an agreed, repeatable
  79. way of doing something. It is a published document that contains a
  80. technical specification or other precise criteria designed to be
  81. used consistently as a rule, guideline, or definition. [...] Any
  82. standard is a collective work. Committees of manufacturers, users,
  83. research organizations, government departments and consumers work
  84. together to draw up standards that evolve to meet the demands of
  85. society and technology. [...]</em>"</p>
  86. <p>The underlying idea is that a standard establishes common ground,
  87. it provides the means for interoperability and competition. This is
  88. especially true for ICT due to their strong networking effects. If
  89. all participants in an ICT market adhere to the same standards and
  90. make an effort to guarantee interoperability, not only can customers
  91. choose freely between various products and services, they can also
  92. exchange information with one another without problems.</p>
  93. <p>In contrast, absence or failure of standardisation warps networking
  94. effects in a way that monopolisation becomes almost certain. Users
  95. of one product or service could only interoperate with users of the
  96. same product or service. Over time, one solution would attain such
  97. a large user base that other users are de-facto left with the choice
  98. to join this group, or be unable to communicate fully with the
  99. majority of users. This could for instance be achieved by bundling
  100. software with a predominant hardware platform.</p>
  101. <p>So standards are largely an instrument to enable competition for
  102. the public benefit. The purpose of standards is intrinsicly
  103. anti-monopolistic.</p>
  104. <p>It is also pro-innovative. Since deviation from a standard
  105. automatically breaks it, standardisation and innovation seem opposed
  106. goals, and to some extent they are. But where all changes are done
  107. in consensus between implementors, the result is an updated version
  108. of the standard available to all. The second path is innovation on
  109. top of the standard, using the standard as a base for innovation
  110. rather than innovating inside the standard.</p>
  111. <p>Due to its global, consensus-driven nature, the first process is
  112. comparatively slow. Another problem is the substantial barrier to
  113. entry into the standards process. As a result, large companies are
  114. overrepresented in comparison to small and medium enterprises (SME).</p>
  115. <p>The second path is open to everyone, private person, SME, or large
  116. industry. It is also limited only by the speed of development of the
  117. team making the innovation. If the innovation was made by just one
  118. party, there will be a temporary monopoly. But given a certain
  119. maturity, the innovation is then likely to be formalised into a
  120. standard again, forming the base for the next innovation to be built
  121. on top.</p>
  122. <p>While the first path allows primarily for slow, small improvements,
  123. the second path allows for full participation of the economic
  124. majority and is much better suited for groundbreaking ideas and
  125. arguably the more important to protect for society.</p>
  126. <h2>Conflict: Fundamentally opposed instruments</h2>
  127. <p>The fundamentally different goals for patents and standards
  128. surfaced multiple times during the debate, for instance in the
  129. speech of Mr Karsten Meinhold, chairman of the ETSI IPR Special
  130. Committee,
  131. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3635&amp;userservice_id=1&amp;request.id=0">
  132. who summarised it</a> as "<em>IPRs and Standards serve different
  133. purposes: IPRs are destined for private exclusive use, Standards are
  134. intended for public, collective use</em>".</p>
  135. <p>Both patents and standards derive their justification from the
  136. public benefit, yet upholding one deprives the other of its
  137. function. Standards seek to counteract monopolies, patents establish
  138. them. Or, as Tomoko Miyamoto, Senior Counsellor of the Patent Law
  139. Section in the World Intellectual Property Organization (WIPO) said
  140. in
  141. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3633&amp;userservice_id=1&amp;request.id=0">
  142. her presentation</a>:
  143. Patent thickets and patent hold-ups may arise from
  144. certain forms of legitimate exploitation of the exclusive rights
  145. conferred by patents.</p>
  146. <p>In other words: Conferring these exclusive rights is the intended
  147. function of the patent system, and legitimate usage of these rights
  148. brings about consequences of patent thickets and patent
  149. hold-ups. Allowing patents on standards consequently is an
  150. intentional act to grant monopolies on standards to certain parties
  151. that includes the right to block implementation by other
  152. parties.</p>
  153. <h2>Ex-Ante Disclosure</h2>
  154. <p>There are multiple attempts through which the standardisation
  155. community has tried to mitigate these effects over the years. One of
  156. these mechanisms is called "Ex-Ante Disclosure." The parties working
  157. on a standard use this mechanism to commit to licensing terms while
  158. the standard is still being drafted. If these terms are not
  159. acceptable to the other parties working on the standard, the
  160. technology that is covered by the patent is not included in the
  161. standard.</p>
  162. <p>What are acceptable terms is highly subjective. A large corporation
  163. with big patent portfolio and existing cross-licensing agreement
  164. with the holder of the relevant patents might consider adding one
  165. more patent to the agreement a minor inconvenience. The same
  166. situation looks substantially different from the perspective of a
  167. small or medium enterprise that typically has at most a small patent
  168. portfolio and has to expect extortionate licensing.</p>
  169. <p>Since SMEs are strongly underrepresented in standardisation, Ex-Ante
  170. Disclosure is likely to bring more satisfactory results to large
  171. corporations with large patent portfolios that compete in the same
  172. area. The economic majority generally has no say about the
  173. acceptability of the terms.</p>
  174. <p>Another issue of ex-ante disclosure is difficult enforcement, as
  175. Suzanne Michel, Assistant Director Office of Policy and Coordination
  176. of the U.S. Federal Trade Commission
  177. (FTC)
  178. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3631&amp;userservice_id=1&amp;request.id=0">
  179. pointed out in her presentation</a>.
  180. The FTC had found that <a href="http://en.wikipedia.org/w/index.php?title=Rambus&amp;oldid=251605519">Rambus
  181. Incorporated</a> had joined and attended standardisation meetings of
  182. the <a href="http://en.wikipedia.org/wiki/JEDEC">Joint Electron
  183. Device Engineering Council (JEDEC)</a> in order to modify their
  184. patent applications to cover technology that was under discussion
  185. for inclusion in future standards. In the opinion of the FTC, this
  186. behaviour was deceptive, violated JEDEC's disclosure policy, and
  187. illegaly gave Rambus monopoly power.</p>
  188. <p>The <a href="http://en.wikipedia.org/wiki/United_States_Court_of_Appeals_for_the_District_of_Columbia_Circuit">D.C. Circuit
  189. Court</a> disagreed with the interpretation of the FTC in their
  190. April 2008 decision. According to Ms Michel, the court said that
  191. avoiding so-called
  192. "<a href="http://en.wikipedia.org/wiki/Reasonable_and_Non_Discriminatory_Licensing">Reasonable
  193. and Non-Discriminatory</a>" (RAND) licensing terms does not
  194. constitute abuse, and that there is no proof that JEDEC would have
  195. avoided technologies if it had known that Rambus was planning to
  196. use its patents to the fullest extent allowed by law. The court
  197. also expressed reluctance to make patents unenforceable based on
  198. vague disclosure policies.</p>
  199. <p>Both patents and standards derive their justification from the
  200. public benefit. There was no additional disclosure of new technology
  201. provided by the patents that Rambus filed on the standards that were
  202. about to be published. Giving Rambus monopoly power over standards
  203. developed by JEDEC is also detrimental to public interest. So it
  204. seems likely that a full public interest evaluation of this
  205. situation would give that indeed the public interest did not prevail
  206. in this case.</p>
  207. <p>So it would appear that the FTC was correct in its evaluation, and
  208. so was the court, because establishing time-limited monopolies is
  209. the very purpose and function of patent law. The role of courts does
  210. not extend to the undoing of laws and most legislators have not
  211. given the public interest conflict between patents and standards
  212. consideration.</p>
  213. <p>JEDEC has meanwhile updated its disclosure policy, which may help
  214. to avoid similar issues in the future. Considering the value that
  215. patent law has in relation to standardisation for many courts, only
  216. a future court case can demonstrate whether the issue has been
  217. resolved in a way that holds up to formal legal review.</p>
  218. <h2>(F)RAND</h2>
  219. <p>This is true for all standardisation bodies that require ex-ante
  220. disclosure, which most of them don't. Instead the majority of bodies
  221. appear to rely on purely voluntary disclosure and the assurance that
  222. patent holders involved in the process will agree to so-called RAND
  223. or FRAND
  224. ("<a href="http://en.wikipedia.org/wiki/Fair,_Reasonable_and_Non_Discriminatory_Licensing">Fair,
  225. Reasonable and Non Discriminatory</a>") terms.</p>
  226. <p>One common criticism of (F)RAND terms is the lack of a definition
  227. of what is reasonable and for whom. During the 2006 Internet
  228. Governance Forum (IGF) in Athens, Susy Struble of Sun Microsystems
  229. <a href="http://www.youtube.com/watch?v=CNUdqEqjbOQ">pointed out</a>
  230. that what is reasonable for one party may not be reasonable to
  231. another.</p>
  232. <p>Licensing practices do indeed vary, and are influenced by various
  233. factors, including, but not limited to, whether or
  234. not a company has a stake in the relevant market, and how
  235. aggressively it pursues its patent revenues.</p>
  236. <p>Additionally, patents can be sold or acquired as part of a business
  237. restructuring or acquisition. A future patent holder may consider
  238. different terms reasonable, so could a patent holder who did not
  239. participate in the standardisation process and never committed even
  240. to RAND terms.</p>
  241. <p>RAND terms generally amount to a vague assurance to license upon
  242. request. Such an assurance does not constitute a perpetual license
  243. on the patent and is not valid for the new holder of a patent. So a
  244. new holder can choose freely how to enforce the patent, including
  245. patent hold-ups on all existing implementations of the standard.</p>
  246. <p>As Ms Miyamoto from WIPO pointed out, a patent hold-up is a
  247. legitimate and intended use of the patent system. So even in a RAND
  248. regime, there is a substantial amount of uncertainty that invariably
  249. favors large companies, which not only have deeper pockets, they
  250. also have larger legal departments and patent portfolios.</p>
  251. <p>It is this uncertainty that has caused great frustration among SMEs,
  252. which Charles Schulz of Ars Aperta summarised as RAND referring to
  253. "RANDom licensing at the sight of competitors."
  254. In
  255. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3639&amp;userservice_id=1&amp;request.id=0">
  256. his presentation</a>,
  257. Mr Schulz also pointed out that (F)RAND terms are
  258. discriminating against Free Software. Even RAND terms linked to zero
  259. royalties, the so called RF-on-RAND ("Royalty Free on RAND"),
  260. RAND-RF ("RAND Royalty Free") or RAND-Z ("RAND with Zero royalties")
  261. terms often exhibit the same problems because they do not permit
  262. sublicensing.</p>
  263. <p>Free Software
  264. (<a href="/about/basics/freesoftware">a.k.a. Open
  265. Source, FOSS or FLOSS</a>) is based on the principle that every
  266. living person and every legal entity can be a user, developer,
  267. distributor, or any combination of the above. Only conditions which
  268. permit this to take place are acceptable to Free Software, which is
  269. <a href="http://www.flossimpact.eu/">estimated</a> to reach 32% of
  270. all IT services and 4% of European GDP by 2010.</p>
  271. <p>In
  272. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3641&amp;userservice_id=1&amp;request.id=0">
  273. her presentation</a>,
  274. Amy Marasco, General Manager Standards Strategy of
  275. Microsoft, emphasised that she does not consider Free Software a
  276. business model. That is true to the same extent that proprietary
  277. software itself is not a business model. Business models are what is
  278. built on top of both Free Software and/or proprietary software.</p>
  279. <p>Ms Marasco continued to point out that all these business models
  280. are legitimate. And while there are strong differences in opinion
  281. about which software model is the better and more sustainable choice
  282. for economy and society, from the perspective of a political
  283. analysis of standards, all business models based upon proprietary
  284. software, Free Software, or a mixture of the two need to be
  285. considered valid and legitimate.</p>
  286. <p>As mentioned before, the Free Software related parts of European
  287. GDP are estimated to reach 4% by 2010. All parties agree that all
  288. business models, including those incorporating Free Software, are
  289. legitimate. This raises the question whether it can be considered
  290. Fair, Reasonable and Non-Discriminatory to exclude this legitimate
  291. part of economy by choice of patent licensing terms.</p>
  292. <h2>Harm from exclusion?</h2>
  293. <p>The situation bears an odd semblance to the situation with
  294. <a href="http://en.wikipedia.org/wiki/Counterfeit_drugs">counterfeit
  295. pharmaceuticals</a>, where the argument for patent enforcement is
  296. generally accompanied by public health considerations. But only
  297. effective pharmaceuticals that are identical to the patented product
  298. would actually violate the patent. Health risks arise primarily
  299. where the patents are not being violated.</p>
  300. <p>In standards, the situation is somewhat similar. If patents are
  301. part of a standard, only an implementation that is covered by the
  302. patents provides an effective antidote to monopolisation. Having to
  303. circumvent patents will generally break standards compliance and harm the
  304. public benefit that is the driving force behind standardisation.</p>
  305. <p>So patents in standards have the potential to make full
  306. interoperability impossible for legitimate businesses in some
  307. markets. As the aforementioned
  308. BSI <a href="http://www.bsi-global.com/en/Standards-and-Publications/About-standards/What-is-a-standard/">points
  309. out</a>: "Standards are designed for voluntary use and do not impose
  310. any regulations. However, laws and regulations may refer to certain
  311. standards and make compliance with them compulsory."</p>
  312. <p>Once a technology has been standardised, certain choices are no
  313. longer made for technological quality. Even where a better solution
  314. exists that would have the additional value of not violating a
  315. potential patent on the standard, an implementor would choose to
  316. follow the technologically inferior standard in order to have full
  317. access to the market. Such a case reverts the initial idea of
  318. patenting: The technology is valuable because it is patented, not
  319. patented because it is valuable.</p>
  320. <p>There are also cases where certain standardisation organisations,
  321. e.g. the <a href="http://www.iso.org">International Organisation for
  322. Standardisation</a> (ISO) have a privileged position with
  323. governments for procurement decisions. Due to patents and
  324. insufficient (F)RAND conditions, not all standards privileged in
  325. this way can be implemented by all legitimate market participants
  326. that should be able to compete in public tenders.</p>
  327. <p>So through the special privilege for organisations like ISO which
  328. accept terms insufficient to guarantee competition, the monopoly
  329. right conferred by patents translates into an oligopoly or even a
  330. monopoly for public procurement. This exclusion of competition from
  331. tenders by means of patents on standards is detrimental to the
  332. public benefit because it leads to higher prices and consequently
  333. higher taxes.</p>
  334. <p>Remedies for this situation would have to address the way in which
  335. governments grant procurement preferences to standards, the way in
  336. which patents are handled in standards, the patent system itself, or
  337. a combination of all of the above.</p>
  338. <h2>Attempted remedies</h2>
  339. <p>Good patent research costs around 100.000 EUR per case according to
  340. Rigo Wenning, Legal Counsel &amp; Patent Policy Team Contact of the
  341. W3C/ERCIM who spoke about
  342. "<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3636&amp;userservice_id=1&amp;request.id=0">
  343. Standards, Patents and the Dynamics of Innovation on the Web</a>." The W3C is
  344. indeed the only Standards Setting Organisation (SSO) that has a
  345. sufficient patent policy for its standards in order to accomodate
  346. all legitimate business models.</p>
  347. <p>From the perspective of most SMEs, 100.000 EUR patent research costs
  348. are prohibitively expensive. But even large companies will find this
  349. cost considerable, which is only one of the cost generators. More
  350. damage can be caused by injunctions against a product, or claims for
  351. damages. In
  352. his
  353. <a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3646&amp;userservice_id=1&amp;request.id=0">
  354. presentation of IBM's "SoftIP"</a> concept, Roger Burt, Senior Counsel of IBM
  355. Europe introduces the issues with a quote from a BSA et al. Amicus
  356. brief in eBay v MercExchange. The quote summarises the problems of
  357. large industry rather well:</p>
  358. <quote class="indent"><em>"Technology products typically consist of hundreds or
  359. thousands of patented components. It therefore is impossible for
  360. technology companies to investigate all of the patents, and pending
  361. patent applications that may be relevant to a new invention (product),
  362. notwithstanding their best efforts to do so. When, as frequently
  363. occurs, the claim of infringement is not made until after the new
  364. product is released or the industry standard has been adopted,
  365. designing around the claim is no longer a realistic option. Because an
  366. injunction will issue automatically upon a finding of infringement –
  367. even if the claim relates to an insignificant part of the product –
  368. the target of the claim is forced to pay an extortionate settlement in
  369. order to preserve its business."</em></quote>
  370. <p>Another attempt to keep patents fees from becoming exorbitant even
  371. for the largest corporations was introduced by Tim Frain, Director
  372. IPR regulatory affairs, Nokia in his presentation about
  373. "<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3649&amp;userservice_id=1&amp;request.id=0">
  374. FRAND Best Practice</a>."
  375. Mr Frain advocates a system based on "Aggregated
  376. Reasonable Terms" &amp; "Proportionality" (ART+P).</p>
  377. <p>The underlying idea of this approach is that if every patent holder
  378. individually charges patent fees they consider Fair, Reasonable and
  379. Non-Discriminatory, the resulting fees may easily add up to 50% or
  380. more of the cost for the end product. So all patent holders should
  381. commit ex-ante that the aggregate licensing cost for all patents
  382. should be reasonable. As an example, Mr Frain cited that in Nokia's
  383. view, the patent licensing fees on the communication technology for
  384. mobile phones should be below 10% per handset.</p>
  385. <p>Both approaches are attempts to control the use of monopolies
  386. granted by patents and as such are trying to get voluntary buy-in
  387. from other parties to not exercise rights that the patent system has
  388. granted them.</p>
  389. <p>Unfortunately they both fall short of the criterion of
  390. non-discrimination against legitimate business models, and the ART+P
  391. approach also has the practical weakness that convergence joins more
  392. than one kind of technology per device, so the total patent
  393. royalties on a smart phone may still reach 50% even if the costs for
  394. GSM &amp; Co are limited to 10%. But even these 10% can be
  395. considerable for laptops with included UMTS modems, or embedded
  396. devices, an area in which the profit margins are typically far below
  397. 10%.</p>
  398. <p>To put it in the form of a controversial question: Is it fair and
  399. reasonable that patent holders receive a higher monopoly rent than
  400. an innovative company stands to gain by bringing out a new product
  401. and bearing all the risk associated with it?</p>
  402. <h2>Cui bono?</h2>
  403. <p>So who benefits? As explained before, patents are designed as a trade-off. Their
  404. benefits are often explained with the lone inventor having a genius
  405. idea. Would it be fair if this inventor published the idea only to
  406. see a large company bring it to market faster than the inventor
  407. could, with no financial reward for the inventor? Most people would
  408. agree this is not fair.</p>
  409. <p>In the absence of patents, such an inventor could only choose
  410. between accepting fate, or keeping the innovation secret for as long
  411. as possible while trying to bring it to market. Patents grant a
  412. temporary monopoly for the inventor in return for publication, such
  413. that the inventor can find investors, set up a company, finish
  414. product development, bring it to market, and enjoy a head start
  415. before others can compete normally.</p>
  416. <p>This mechanism seems to have worked reasonably well for some time
  417. in the past. But some basic parameters have changed, while patents
  418. have been extended in an essentially unreflected way to more
  419. areas. This is particularly true for software, where patents play no
  420. meaningful role in disclosure, breaking the patent deal for society
  421. whereas the time of bringing new innovation to the market and the
  422. time between groundbreaking discoveries has been decreasing.</p>
  423. <p><a href="http://en.wikipedia.org/wiki/Ray_Kurzweil">Raymond
  424. Kurzweil</a> found an exponential pattern in innovation reaching back
  425. all the way to single-cell organisms. Concluding that this must be
  426. a universal principle, Mr Kurzweil has been
  427. making <a href="http://en.wikipedia.org/wiki/Predictions_made_by_Raymond_Kurzweil">predictions</a>
  428. for the future of which several have turned out to be largely
  429. accurate so far. When applying this principle to patents, from the
  430. constant duration of the monopoly guaranteed follows an
  431. exponential growth of the value of an individual patent.</p>
  432. <p>The price that society is paying for granting patents has been
  433. <a href="http://en.wikipedia.org/wiki/Exponential_growth">growing
  434. exponentially</a> since the time that the initial patent bargain was
  435. struck. This would explain why the price for the patent system seems
  436. increasingly exorbitant with growing calls for reform, which have
  437. led to the recent announcement of the
  438. "<a href="http://www.ftc.gov/opa/2008/11/ipmarketplace.shtm">First
  439. in Series of Hearings on Evolving Intellectual Property
  440. Marketplace</a>" by the U.S. Federal Trade Commission (FTC).</p>
  441. <p>Remedies to this problem could be to decrease the lifespan of
  442. patents, adapt them to the specific situation in the field, and
  443. exclude fields from patenting in which patents provide no meaningful
  444. disclosure.</p>
  445. <p>When it comes to standards, it was An Baisheng, Deputy Director of
  446. the Division of Technical Regulations Department for WTO Affairs of
  447. the Chinese Ministry of Commerce who raised the question of public
  448. vs private benefit in his presentation titled
  449. "<a href="http://ec.europa.eu/enterprise/newsroom/cf/document.cfm?action=display&amp;doc_id=3632&amp;userservice_id=1&amp;request.id=0">
  450. Strike the Right Balance between Public and Private Interests in IPR in ICT
  451. Standardization</a>".</p>
  452. <p>Taking our "lone inventor" scenario above, the question that we'd
  453. have to ask for patents on standards is: Would it be fair if our
  454. inventor could prevent someone else from bringing to market an
  455. innovation of their own that somehow interacts with the initial
  456. invention? To make it less abstract: Should a patent on a typewriter
  457. extend to carbon copy paper that has the right size to be used in
  458. that typewriter? Most people would agree this goes too far.</p>
  459. <h2>Potential Remedies</h2>
  460. <h3>1. Interoperability trumps patent</h3>
  461. <p>During the software patent debate in the European Union there was
  462. consensus among SME, Free Software and big businesses
  463. representatives from companies such as IBM or Sun Microsystems that
  464. patents which limit or prevent interoperability should be unenforceable.</p>
  465. <p>In the European Union, this could be introduced into the ongoing
  466. Community Patent debate. On a global level, WIPO should consider
  467. this as part of its ongoing Development Agenda discussions.</p>
  468. <p>Once implemented, this would solve the most harmful side-effects
  469. for all legitimate business models and give interoperability and
  470. competition preference over monopoly rights. Considering the
  471. extraordinary networking effects that exist in this market, such a
  472. preference seems justified.</p>
  473. <h3>2. Update policy in SSOs</h3>
  474. <p>Secondly, Standard Setting Organisations (SSOs) could update their
  475. patent policies to ensure that their standards are usable in all
  476. business models. Many SSO representatives in the meeting maintained
  477. that it was not their place to mandate certain patent policies. At
  478. the same time,
  479. the <a href="http://www.itu.int/ITU-T/dbase/patent/patent-policy.html">Common
  480. Patent Policy</a> of ITU-T, ITU-R, ISO and IEC already states the
  481. principle that "<em>a patent embodied fully or partly in a
  482. Recommendation | Deliverable must be accessible to everybody without
  483. undue constraints.</em>" As this analysis demonstrates, current
  484. application of RAND falls short of that principle.</p>
  485. <p>There is additional precedence supplied by the common way in which
  486. SSOs protect standards against potential later claims from Copyright
  487. holders by requiring all participants to a standardisation process
  488. to assign their copyright to the SSO. Applying appropriate similar
  489. measures on patents for similar reasons seems justified.</p>
  490. <h3>3. Provide intermediate and migration possibilities</h3>
  491. <p>Many patent-encumbered standards already exist, and even if WIPO
  492. ends up agreeing on a general interoperability preference, it will
  493. take decades for this to become local law.</p>
  494. <p>As an intermediate solution, (F)RAND needs to be enforced in a way
  495. that the license terms do not discriminate against any valid business
  496. model, as is still common today. A potential solution could be to
  497. tie (F)RAND royalties to the downstream licensing revenue.</p>
  498. <p>Business models that are based on proprietary licensing based on
  499. copyright or patents for revenue would continue to operate as they
  500. do today. Business models that do not rely on such licensing revenue
  501. would be enabled to interoperate and compete.</p>
  502. <p>Taking this step would also realign ITU-T, ITU-R, ISO and IEC again
  503. with their declared Common Patent Policy.</p>
  504. <h3>4. Update governmental procurement guidelines</h3>
  505. <p>Governments and Inter-Governmental Organisations should update
  506. their procurement guidelines to procure only products based upon
  507. standards that do not discriminate against any legitimate business
  508. model. This means a review of blanket approval for certain standard
  509. setting organisations, and only a limited approval for organisations
  510. that have not updated their patent policies appropriately by the
  511. time of the review.</p>
  512. <hr />
  513. <p><em>DISCLAIMER: This paper was written from the
  514. perspective of an expert in the field of software. The conclusions
  515. may apply in their entirety, partially, or not at all to areas
  516. other than software.
  517. </em></p>
  518. </body>
  519. <timestamp>$Date$ $Author$</timestamp>
  520. <tags>
  521. <tag>openstandards</tag>
  522. </tags>
  523. <author id="greve" />
  524. <date>
  525. <original content="2008-12-02" />
  526. </date>
  527. <download type="pdf" content="/activities/os/ps.en.pdf" />
  528. </html>
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