Standards-Setting Organisations Increasingly Make IPR A Priority

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Washington, DC – Standards guide many aspects of our lives. They instruct how telephones talk to each other, how the life sciences community shares information, how electrical devices are charged, and how the internet runs, among other things.

It’s standard-setting organisations (SSOs) that facilitate discussions among stakeholders – including intellectual property owners and users – and produce common, typically voluntary technical standards to address needs and concerns of those using the technology. Companies need to make compatible or interoperable products that comply with these standards in order to compete in the global marketplace. And intellectual property is increasingly coming into play in the development of these standards.

“While standards and intellectual property often complement each other, there is often tension between them,” Stuart Graham, chief economist at the US Patent and Trademark Office (USPTO), told those attending a recent National Academies symposium on management of IP in standard-setting processes in Washington, DC. “Collaborative standard-setting does not come without some risk.”

Since companies invest significant funds to develop new technologies and products often protected by intellectual property rights, frequently the best technology for a technical standard is a proprietary technology already owned by an entity that is protected by at least one patent. Implementation of standards also could require the use of patented technology. And when today’s standards are trying to stay ahead of technology, this often leads to conflicts between patents and standards.

The National Academies is working on a report, due out in 2013, that will examine how leading national, regional, and multinational standards bodies address issues of intellectual property arising in connection with the development of technical standards. With the proliferation of the information and communications technology (ICT) sector, particularly industries in which ICT is an enabler – banking, public transportation, e-health, smart grids, biometrics, and so on – the need for clear IPR policies has become even more vital.

Lawsuits in recent years involving large, patent-holding technology firms such as Microsoft, HTC, Nokia, Motorola, Samsung, Research in Motion and Google, has also increased emphasis on the need for clear IPR policies in standards. Many patents often include claims that any entity that implements a standard would infringe on that patent in trying to create a compliant service or product. Known as “standards essential patents,” many companies are trying to obtain more essential patents by either buying up other companies’ patent portfolios or in other ways. SSOs often require owners of patents essential to an industry standard to licence that patent on terms that are fair, reasonable and non-discriminatory (FRAND).

Antitrust agencies, particularly in the US and Europe, are also honing in on this issue. Fiona Scott-Morton, deputy for economic analysis in the antitrust division of the US Department of Justice, said during the symposium that competitors in certain industries often get together and agree on standards to share considerable market power.

“Clearly the tradeoff, the balance gets more favourable to the consumer the better we’re constraining the market power,” she said.

Scott-Morton and others criticised SSOs for having ambiguous FRAND policies. “I think the social compact of SSOs is looking worse than it used to in that it’s creating market power and not restraining market power very effectively,” she added. FRAND commitments that become weaker or more vague upon sale of a patent incentivise sales designed to evade those commitments, she added.

The US is in discussions with the European Commission on possible reforms to tighten up IPR policies at SSOs. Scott-Morton said although some think that will drive companies away from SSOs out of fear of more regulation, “the people who are deterred from the SSOs are those who are planning … to participate in a patent hold-up.” A patent “hold-up” occurs when there is when a demand for higher royalties or other costly licensing terms after the standard is implemented and can subvert the competitive process of choosing among technologies.

Reform suggestions from the US and EC include: IPR policies that create as strong a commitment as possible to bind future owners of the IPR to any FRAND commitments; establish a well-specified procedure to lower cost of dispute resolution; dispute resolution should require that the licensor specify a cash price to aid in evaluation of the proposed licence terms by the third party; and the FRAND commitment should include a process that must be followed before an injunction or exclusion order can be sought by a licensor.

But others say criticism about vague FRAND policies, and charges that IPR in standards have not been properly addressed, is not justified.

“We need improvements, yes, but there are a lot of elements in there that have helped voluntary membership to standardisation work under this,” said Dirk Weiler, chairman of the General Assembly for the European Telecommunications Standards Institute (ETSI), which produces standards for ICT, including fixed, mobile, radio, broadcast and internet technologies.

But participants acknowledged that there is little excitement on behalf of SSOs to develop IPR policies.

“Creating or amending an IPR policy is right up there with root canal work … un-anesthetised,” said Andy Updegrove, partner at Gesmer Updegrove LLP in Boston and co-author of one of the papers submitted to the National Academies on IPR and SSOs. Amending policies is very hard for many companies, he added since “the status quo is normally preferable to the unknown.”

John Kelly, president of JEDEC, which develops standards for the microelectronics industry, stressed that “any SSO in today’s environment that is involved in an area of commerce that involves patents today must have a patent policy from Day One.”

China ‘Ahead of the Game’?

China’s government has been promoting new, indigenous technologies and standards incorporating them, but there are “significant differences” in how standards are developed and how IP is embedded and managed within them, according to a paper [pdf] by Danny Breznitz and Michael Murphree of the Georgia Institute of Technology. Although China views markets as workable, the state provides the strategic vision to ensure progress and enable “fair” competition.

“There’s a belief that dominant technologies or dominant firms that already exist … make it difficult for different technologies to have a fair hearing,” Murphree said, which is why the government steps in to ensure immature technologies have space to grow.

But China has “an intellectual property challenge,” Murphree continued, in that having IP embedded in technologies means the Chinese have to pay for it. As the country continues to seek increased access to foreign technology, “there is a desire for more access to technologies across the board,” he added. Plus China offers its own technologies at a cheap price, he continued, “the idea being that if you mandate an ex-ante declaration what the price will be, if it is low, it will encourage adoption and give new technologies a fair shake.”

Because more enterprises are generating protected IP in China, there also has been a proliferation in both junk and legitimate patents, as well as an increase in IP litigation and government efforts to encourage IP monetisation. “In that way, they are coming to resemble the United States – they sue each other quite regularly,” Murphree said.

But Mark Cohen, a Fordham Law School professor who has vast experience on IPR issues in China and served as the first IP attaché at the US Embassy in Beijing, praised China for having promulgated so many standards at various government levels, and didn’t chastise the country for seeking out the lowest price.

“China is like any other company – like any other country – if you have to pay royalties, you want to pay as little as possible,” Cohen said. The fact that China wants to pay lower licensing rates is not unusual, he added. “In my book, the system has worked very well in China.”

In fact, China’s “has been ahead of the game,” Cohen said, in that its national IP strategy includes a strong emphasis on indigenous innovation and wants to promote associated standards internationally.

New Standards Coming in US, Europe

In the US, investment firms and hedge funds are also putting more focus on IPR standards. “Bottom line, it’s about monetisation of the intellectual property,” said Kent Baker, an IP and standardisation consultant working with the investment industry.” “I really had a cold fish slapped across my face with hedge funds in terms of what [those firms thought] IP is all about” and creating standards, Baker said.

The USPTO is studying IP and standards as a major part of President Obama’s research agenda. One goal is to reduce conflict between intellectual property holders and other stakeholders in the standard-setting process, since there have been increased discussions on standards and IP in recent months, Graham said.

The 2011 America Invents Act (AIA), which reformed US patent law, allows for an expanded third-party submission of prior art system, post-grant review process, and first-to-file system. “The many elements of the America Invents Act are allowing our office to supply a more highly certain patent system to innovators, whether in the standard-setting context or not,” Graham added.

And in Europe, the European Patent Office is planning on releasing new standards within the next year. Standards and contributions expected to be added in 2012/2013 involve 3GPP2 – a collaboration between telecommunications associations to make a globally applicable third generation (3G) mobile-phone system specification within the scope of the ITU’s IMT-2000 project- and OMA, the Open Mobile Alliance, which hopes to stimulate the growth of mobile services. Also forthcoming are cryptography and data security standards and directives.

“Besides the fact we have encouraging cooperation … with major standards organisations, it’s difficult if not impossible,” to find consensus on every issue, said Michel Goudelis, telecommunications director for the European Patent Office. “We have not found open doors everywhere.”

Despite the proliferation of IPR in standards and an increased deference to standards in patent applications, resistance to convergence of standards remains very strong. If governments, stakeholders and SSOs aren’t more receptive to adjustment and cooperation to achieve common interests and goals, Goudelis added, “the war of today will seem like a playground with respect to the war of tomorrow.”

Related Story: ITU Undertakes Work On Standards Essential Patents

Liza Porteus Viana may be reached at lizapviana@gmail.com.

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