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