Panel: IP Rights In Standards Impede Competition, Disadvantage Developing Countries

By Catherine Saez
Standards and intellectual property rights appear to be worlds apart and to respond to opposite purposes, according to a recent panel of legal and policy experts.

While standards are established to ensure compatibility in technology to the advantage of all users at national, regional or international levels, intellectual property rights are meant to provide an exclusive use, reward innovation, and are territorial in nature, according to speakers.

The inclusion of intellectual property rights in standards also is creating an anti-competitive effect, said panellists at the 30 June seminar in Geneva, hosted by the South Centre.

Standards can be of two kinds: de facto standards created by market forces, and de jure standards created by standards-setting organisations. In both cases, the standards can include intellectual property rights.

In the de facto scenario, “the value is in the standard, not in the technology itself,” said Rishab Aiyer Ghosh, senior researcher at the United Nations University (UNU-Merit) in the Netherlands. The value comes from the fact that everybody is going to use the same technology, he said.

“It has strange economic effect” Ghosh said, as a newer technology might not get used, even by the owner of the technology, for compatibility reasons. “That is the network effect.”

IP provides ownership over technologies in the standard. That reduces the competitive effect because if one vendor owns the right, other vendors cannot compete, he said. “Rights over a standard allow control or rent-seeking over the standard. This is reducing the competitive effect,” he said.

Although IP rights are often said to favour innovation, there is evidence to show they do not always have that effect, Ghosh said, for instance in relation to standards. On the other hand, if standards inherently limit innovation, they also provide a platform above which innovation can take place freely.

Impact on Developing Countries

To avoid antitrust issues, access to IP in de jure standards typically is available on reasonable and non-discriminatory terms (RAND), but “reasonableness” is a matter of interpretation, according to Jonathan Band, an attorney in Washington, DC. Moreover, not all standards-setting organisations have RAND policy. The licence fees can be very high, too expensive sometimes for developing countries. “People with deep pockets can afford to litigate” in case of a problem, but developing countries cannot afford it, Band said.

In de facto standards, however, the conflict between IP and standards can have serious effect on competition as there are no constraints such as antitrust legislation, he added.

Technical regulations and standards affect about 80 percent of trade in goods, said Ermias Biadgleng, programme officer at the South Centre. This is an issue for developing countries as standards sometimes hinder their production capacity. For example, child safety standards for lighters might force suppliers either to acquire a licence for the use of patents on safety devices or undertake research and development to engineer new technologies and prove the conformity to the safety requirements, he said.

Multinational corporations are in a better position to set standards and influence them, Biadgleng said, as they hold essential patents and other IP rights on technologies necessary to comply with standards. There also is insufficient disclosure of patents included in standards, he said, with some companies not mentioning pending patent applications. “There should be clarity on the IP policy in SSOs [standards-setting organisations],” he said.

The main problem is patent disclosure, according to An Baisheng of the Chinese Ministry of Commerce. “There is one standard and thousands of patents” related to the standard, he said. Conducting a patent search to identify which patents are in a standard may not be helpful.

Hidden patents can have a negative impact. A lot of Chinese manufacturers go bankrupt as a large amount of profits are paid as royalties, he said. To avoid injunction for patent infringement, manufacturers agree to pay the patent owner whatever is asked, sometimes to the extent of bringing profit to zero. He also said that protection of IP rights remains a priority for the developed world and still enjoys favour in courts and policymakers.

Solutions in Governance and Open Standards

Multi-level governance on IP and standards could be part of the solution, said Biadgleng, involving international standards-setting organisations and the World Trade Organization (WTO) Agreement on Technical Barriers to Trade, and giving preference to royalty-free licensing and open standards.

An alternative approach would be to separate technology from producers, said Ghosh. “The best known example being the technologies around the internet: HTML is the standard way to create web page, and HTTP is the standard protocol for interaction between a web server and web browser. In effect, there is a monopoly on this technology (HTML/HTTP) for interactive content on the internet, but there is no company or group of companies that controls the technology. That is, there is one technology but many, many producers, dozens of web servers and browser software applications exist,” he told Intellectual Property Watch.

For Thiru Balasubramaniam for Knowledge Ecology International, although IP rights in technology standards is a complex issue, governments have an important role to play and policy relevance is obvious in some areas. For example, where the process for adapting a standard is hindered by patent owners’ “opportunistic behaviour,” whether they fail to disclose patent claims or are unwilling to licence patents on a timely basis on reasonable terms.

Compulsory disclosure of patents should be part of the international standardisation bodies, according to Baisheng. He also advocated for a reduction in royalty levels. “As developing countries, we should break the interface, bring back the royalties to a reasonable level,” he said.

In the EU and the US, software copyright laws have evolved in a pro-competitive manner because although software is protected by copyright, copying incurred by reverse engineering in not considered an infringement, but falls under the principle of fair use, according to Band.

“They do not interfere with interoperability, interface specifications are not protected, and reverse engineering is permitted,” Band told Intellectual Property Watch. This evolution is the result of intense lobbying efforts by industries, academics, and NGOs, he said.

However, patent law does not have a fair use exception and could prevent interoperability, as they cover interface specifications or could cover uses made during the course of reverse engineering. “We have to make sure that IP laws are evolving in a positive direction,” he said.

Carl Cargill from Sun Microsystems said that the internet changed the standard system, and the problem of IP and standards needs to be addressed. “There were 200 players when standard started, then the Web happened and everybody wanted to play,” he said. “You can’t touch anything in a browser without hitting a patent.”

Catherine Saez may be reached at csaez@ip-watch.ch