2. A Comparison of SSO Policies and Practices

2.1 SSOs Surveyed for the Study

This chapter reviews and compares the primary approaches to policies regarding intellectual property rights management and licensing rules across 12 major standard-setting organizations operating in the information and communication technology space. This material is abstracted and summarized from a background paper written by two members of the committee available online (Bekkers and Updegrove, 2012).1 In consultation with the full committee, the authors selected these organizations of various types of SSOs, including the “business models” they and their members tend to follow, inclusive of several geographic membership models (national, regional and global), and comprehensive in sectoral breadth within ICT. Given available time and resources it was not possible to survey more than a selection of the many hundreds of relevant SSOs in ICT, an aggregation that seemingly grows larger each week. The information gathered from documentation, questionnaires and telephone inquiries was current through 2012. The committee is aware that several organizations, including ETSI, ITU, W3C and IETF, are considering changes to their IPR policies. The SSOs surveyed are listed below.

International Organization for Standardization (ISO)

International Electrotechnical Commission (IEC)

International Telecommunication Union (ITU)

Institute of Electrical and Electronics Engineers (IEEE-SA)

European Telecommunications Standards Institute (ETSI)

American National Standards Institute (ANSI)

Internet Engineering Task Force (IETF)

Organization for the Advancement of Structured Information Standards (OASIS)

VMEBus International Trade Association (VITA)

World Wide Web Consortium (W3C)

High Definition Multimedia Interface (HDMI) Forum Nearfield Communications (NFC) Forum

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1See http://www.nap.edu/catalog.php?record_id=18510.



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2. A Comparison of SSO Policies and Practices 2.1 SSOs Surveyed for the Study This chapter reviews and compares the primary approaches to policies re- garding intellectual property rights management and licensing rules across 12 major standard-setting organizations operating in the information and communi- cation technology space. This material is abstracted and summarized from a background paper written by two members of the committee available online (Bekkers and Updegrove, 2012).1 In consultation with the full committee, the authors selected these organizations of various types of SSOs, including the “business models” they and their members tend to follow, inclusive of several geographic membership models (national, regional and global), and comprehen- sive in sectoral breadth within ICT. Given available time and resources it was not possible to survey more than a selection of the many hundreds of relevant SSOs in ICT, an aggregation that seemingly grows larger each week. The infor- mation gathered from documentation, questionnaires and telephone inquiries was current through 2012. The committee is aware that several organizations, including ETSI, ITU, W3C and IETF, are considering changes to their IPR poli- cies. The SSOs surveyed are listed below. International Organization for Standardization (ISO) International Electrotechnical Commission (IEC) International Telecommunication Union (ITU) Institute of Electrical and Electronics Engineers (IEEE-SA) European Telecommunications Standards Institute (ETSI) American National Standards Institute (ANSI) Internet Engineering Task Force (IETF) Organization for the Advancement of Structured Information Standards (OASIS) VMEBus International Trade Association (VITA) World Wide Web Consortium (W3C) High Definition Multimedia Interface (HDMI) Forum Nearfield Communications (NFC) Forum 1 See http://www.nap.edu/catalog.php?record_id=18510. 31

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32 Patent Challenges for Standard-Setting in the Global Economy The first three SSOs are the International Organization for Standardization (ISO), International Electrotechnical Commission (IEC), and International Tele- communication Union (ITU), which is a United Nations treaty organization. These are large, formally recognized SSOs with global membership consisting of nationally designated private or public-sector representatives, although indi- viduals and firms participate as well. These groups develop standards through extensive collaboration with national standards bodies. Notably, in 2007 they adopted a common patent policy and set of guidelines. While this decision re- sulted in a largely harmonized set of IPR rules, each of the three SSOs retains some flexibility for implementing specific requirements. Next is the IEEE (originally the Institute of Electrical and Electronics En- gineers), a professional association with over 300,000 individuals around the world as members and the publisher of numerous technical journals. Standards development occurs in the IEEE-Standards Association (IEEE-SA), which is responsible for several critical specifications, including Ethernet, Wi-Fi, and Firewire. The fifth SSO is the European Telecommunications Standards Institute (ETSI), a body focused on information and telecommunications technologies, including fixed, mobile radio, converged broadcast and Internet technologies. Although founded as a regional group, some of its standards have become adopted around the world. For example, ETSI developed GSM, a highly suc- cessful standard for mobile telephony, and participated in construction of its successor, the 3G UMTS/W-CDMA specifications. ETSI has an extensive IPR policy, which evolves over time, sometimes under the influence of the European Commission. Since 2003, it has collaborated with the European Patent Office to expand the latter’s database to include thousands of technical contributions made to ETSI as part of the standard process. These documents can now be searched for prior art. The sixth entity is the American National Standards Institute (ANSI), which is not a standards-setting organization. Rather, it is a national, non- governmental organization that supports standards development in the United States and the standards-related interests of America abroad.2 As part of this role, ANSI accredits SSOs—approximately 200 in all—with respect to their standards development activities. If these SSOs fulfill certain criteria, called “essential requirements”, they can create standards that ANSI will approve as “American National Standards,” of which there are now over 10,500. ANSI in- cludes adherence to its IPR policy among these criteria, defining a baseline set of rules that accredited organizations must meet, though these groups have lee- way in setting their own procedures so long as they are not in conflict with the essential requirements. For purposes of this report, we will refer whenever pos- sible to the ANSI’s IPR requirements for accredited SSOs as if they were those of an actual SSO. In fact, a large majority of its accredited SSOs follow the ANSI IPR policy without variation. 2 Many international companies with U.S. business operations are members of ANSI.

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A Comparison of SSO Policies and Practices 33 Next is the Internet Engineering Task Force (IETF), a group of academic, industrial, and government engineers working to improve the technologies driv- ing the internet. Among its other functions, IETF develops Internet standards, the most famous of which is the TCP/IP protocol suite of programs. There is no membership in IETF per se and standards are adopted on the basis of a “rough consensus.” Regarding patents, IETF prefers to adopt standards not encumbered by known IPR claims, unless protected technologies offer considerable technical superiority to available alternatives. Patents and patent applications covering technologies under consideration by IETF are required to be disclosed as early as possible in developing technical standards. The eighth group is the Organization for the Advancement of Structured Information Standards (OASIS), which focuses on e-business and web service standards. OASIS is often referred to as a consortium for it operates outside the typical infrastructure of traditional SSOs. Through a series of revisions of its IPR policy, OASIS has developed a new and more flexible approach to assign- ing obligations relating to essential claims in patents. In particular, in 2005 it adopted a “multi-mode” IPR regime permitting a working group to operate un- der a set of guidelines that either would or would not allow participants to re- quire payment of licensing fees under a FRAND arrangement. This approach has now expanded to four modes, including one based on a non-assertion of patents. The ninth organization is VITA (originally VMEBus International Trade Association), which works on standardization in a variety of electronics areas, such as avionics and other military and industrial applications. This SSO is the only one in this set that requires members to make ex ante disclosure of the most restrictive licensing terms, including economic terms that the SEP owner re- serves the right to demand. VITA is also unusual in that it declares its intention to enforce all disclosure terms and conditions on essential claims, take action against frivolous assertion of SEPs, and require members to submit to binding arbitration when conflicts arise. The next SSO is the World Wide Web Consortium (W3C), which devel- ops standards used in connection with the Web and other technologies. Con- sistent with the development culture of the Web, the W3C in 2003 adopted a license-fee-intolerant patent policy. Its members see the Web as basic global infrastructure that needs the widest possible distribution of its technologies and standards. Thus, it pursues a FRAND royalty-free policy. Our eleventh SSO is the High Definition Multimedia Interface (HDMI) Forum, a consortium which focuses on standards for a compact interface among compliant devices to share uncompressed digital audio/visual data. Implement- ers of the proprietary HDMI technology must pay royalties to developers of pa- tented technologies in the standard, including the original seven founding com- panies. Further developments of the standard from its initial form are subject to agreements under which patent owners agree not to assert any essential claims against implementers.

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34 Patent Challenges for Standard-Setting in the Global Economy Finally, the Nearfield Communications (NFC) Forum is a consortium founded in 2003 to develop and market its short-range wireless interaction standard enabling data exchanges among consumer devices, for example, to facilitate payment transactions. All members must respond to requests for dis- closure and licensing of SEPs to reduce the possibility that such claims will be asserted later to the detriment of an implementer. To summarize, four of the organizations considered here are formal SSOs, one is a standards accreditation group, and the remainder are consortia of com- panies and/or individuals. All have global membership, though ETSI is largely European-based and IEEE-SA and ANSI are largely U.S.-based, and the stand- ards activities and IPR rules of all the SSOs have international reach. Some work in broad areas of technology, while others focus on specific technical spec- ifications. In the aggregate they span the ICT space, including consumer elec- tronics, telecommunications, the Internet and Web, and related areas. For purposes of developing the materials summarized below, the authors of the background paper collected available documents from each SSO that are relevant to organizational IPR policies. These policies were analyzed in a stand- ard format drawn largely from the American Bar Association’s Standard Devel- opment Patent Policy Manual (2007). The authors further developed a series of questions posed to SSO representatives, along with an invitation to comment on the accuracy of their analysis. Consistent with the basic charge to our commit- tee, the findings in the background paper, and those summarized in this chapter, are descriptive in nature rather than assessments of effectiveness, which in any event would depend on a large set of economic, technological and social factors for each SSO. Later chapters of this report offer deeper assessments of some key standards-related IPR policy questions. 2.2 A Note on Terminology Readers of this report who are already familiar with standards and intellec- tual property management know that there are many intricacies and complexities in how policies are conceptualized and put into operation in licensing markets. This means, among other things, that there may be multiple names for closely related concepts that, while they may vary importantly in legal contexts, can be captured with a single overarching title. Doing so permits us to discuss princi- ples without having to cover all possible outcomes, except where we need to be precise to avoid confusion. This approach should clarify our analysis through- out. In that context, we will use the following blanket terms, recognizing there are differences among elements covered.  Standards is our word referring to numerous similar terms, including standards, specifications, and recommendations.

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A Comparison of SSO Policies and Practices 35  Standards-setting organization (SSO) incorporates all variants of groups that develop standards, including Special Interest Groups (SIGs), standards-development organizations (SDOs), consortia, and other entities. The acronym SSO is often used interchangeably with SDO but, in principle, the former term covers the activities of both setting and managing standards, including associated intellectual property issues. Hence, we opt here for SSO.  Fair, reasonable and non-discriminatory (FRAND) is used to cov- er both RAND and FRAND commitments, whether royalty-free or otherwise. FRAND is more commonly used in Europe and RAND in the United States but the words are sometimes used interchangeably. Our choice of the acronym FRAND is meant to cover both terms.  Standard-essential patent (SEP) refers to both patents that are es- sential to the use of a standard and the essential claims of such pa- tents. Some IPR policies focus on essential patent claims rather than SEPs and, indeed, a properly crafted rule rarely imposes licensing ob- ligations to claims other than the essential ones. However, the analyti- cal concepts involved are largely common to both terms and SEP ap- pears to be in wider use in the literature. Note also that the word “necessary” is sometimes used in place of “essential.”  Licensing commitments and licensing obligations are used inter- changeably to cover a wide set of activities, including letters of assur- ance, declarations of licensing positions, licensing statements, licens- ing undertakings, and similar pledges.  Disclosure refers to the various processes within which a firm or in- dividual informs an SSO and other entities that it owns or is aware of a patent, or patent application, that may be relevant for a standard. This usage is different from the concept of disclosure at a patent of- fice, which refers to the information an applicant must provide to sat- isfy certain requirements for obtaining a patent. 2.3 A Caveat on Coverage We note at the outset that the forms of intellectual property to which we re- fer in this report are limited to patents, whether essential to a standard or other- wise. Other IPRs certainly arise in this area. For example, SSOs or other entities may own copyrights in a written technical standard or manual, but typically this is relevant only to the reproduction and distribution of those materials and not to the implementation of standards. More relevant is computer software that must be deployed as a necessary component of a technical standard, making it a form of “essential copyright.” In most cases, such software is used for such purposes as defining required outputs, as opposed to being used by an implementer in its prod- uct. As the background paper notes, such essential copyrights are only addressed

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36 Patent Challenges for Standard-Setting in the Global Economy by a small number of SSOs.3 Copyrights are an area in some flux regarding ICT standards and are likely to become more important over time. Firms employing or developing standards may own trademarks and simi- lar distinguishing characteristics, which may implicate some licensing consider- ations in the marketplace. The ITU-T has a set of guidelines in this area and ANSI also provides related guidance. Some SSOs in the ICT area pay relatively little attention to trademark issues. For example, the NFC Forum clarifies that contributions of rights to trademarks are not required under its policy. Nor are trademarks included in the IETF definition of essential IPR. ANSI generally discourages the required use of trademarks in developed standards. Neverthe- less, trademarks and certification marks play an important role in certifying that different products are compliant with specific standards. Compliance certifica- tion and trademark usage are not addressed in this report. Other forms of intellectual property that are sometimes mentioned include utility models, inventor’s certificates, and database rights. It seems that IPR oth- er than patents rarely have been disclosed under terms of SSO policies.4 While not directly relevant to ICT, plant patents and plant variety rights may take on increasing importance in standardization in other fields, such as biotechnology and life sciences. Finally, many SSOs do not expect members to disclose trade secrets because their disclosure likely would cause the trade secrets to lose con- fidentiality. In general, where trade secrets are revealed as part of a license the parties must arrange contractual terms to sustain secrecy. In the committee’s view, therefore, IPR elements other than patents are secondary to the issue of essentiality when it comes to the licensing and access procedures that are the subject of this report. 2.4 SSO Approaches to Basic IPR Issues Given the considerable complexities involved in the interplay between standards development and IPR licensing, both in themselves highly complicat- ed subjects, it is impossible to review all of the variations in SSO policies in this overview section. Rather, we take a high-level view of the essential principles involved in order to set the foundation for later discussion in the report. Still, we are keenly aware that details matter and that any summary of this kind may leave open as many questions as it answers. Further, we are aware that SSO pol- icies may be changed at any time. Thus, we encourage readers interested in spe- 3 Of the 12 SSOs surveyed, the IPR policies of six include essential copyrights and those of the others do not. IETF includes them in essential IPR and treats them in the same manner as patents. Bekkers and Updegrove, op. cit., p. 36. 4 Design patents that cover new and ornamental designs (as opposed to utility patents that cover useful inventions put to practical applications) are typically not involved in standards because alternative designs may be employed to make patented versions non- essential. However, the rapid increase in design patents to protect computer-generated imagery, such as graphical interfaces, likely will lead to their growing role in standards.

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A Comparison of SSO Policies and Practices 37 cific policies of particular SSOs to consult the background paper, from which this summary is drawn. With respect to prior literature, to the committee’s knowledge no one has made a comprehensive investigation of SSO patent policy formulation. Lemley (2002) took a first step by documenting substantial heterogeneity in IPR policies across SSOs. This chapter complements his study by taking a more detailed look at the policies of a smaller number of organizations. We find substantial varia- tion in aspects of IPR policies that were not examined by Lemley, such as the definition of essentiality, rules for disclosure of third party patents, the mecha- nisms for establishing licensing commitments, and the scope and revocability of those commitments. As we note below, SSOs rarely state their objectives. Thus, it is hard to determine what motivates differences in IPR rules, or to evaluate how SSOs perform in relation to stated goals. Lerner and Tirole (2007) assume that policies are chosen to benefit members (modeled as a single technology sponsor), subject to the constraint that later adopters must find the SSOs' "certification" sufficient- ly credible. In our view, the Lerner and Tirole approach captures some important features of the policy-formulation process. However, it would be equally valid to model SSO policy formulation as an open-ended negotiation among prospec- tive members with varied interests, often building on an existing set of rules and policies that forms an important reference point in such negotiations. Farrell and Simcoe (2012) discuss the role of inter-SSO competition in this process, observ- ing that such competition may take different forms with correspondingly differ- ent effects for competition and consumer welfare. Ultimately, the committee did not find sufficient systematic evidence to take a strong stand on how the SSO policy formulation process works, or might be made to work better. However, there was a consensus among committee members that encouraging SSOs to be more explicit about their policy goals might help those who wish to build the empirical foundations for a better under- standing of the rule-setting process. Despite this lack of clarity regarding pro- cesses within SSOs, the committee was able to arrive at consensus recommenda- tions regarding a number of specific policies. Articulating policy goals It may be surprising that few SSOs state explicit goals for their IPR poli- cies, despite their evident importance. There are many objectives that SSOs could pursue, even if unstated, ranging from promoting widespread adoption of their standards with minimum restraints on access arising from IPR and ensuring that each essential IPR is available on reasonable and non-discriminatory terms, to ensuring fair compensation for SEP owners and providing enough structure that good-faith licensors and licensees understand their rights and obligations. The general absence of stated objectives presumably reflects the difficulty of reaching agreement on organizational aims among SSO members with disparate

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38 Patent Challenges for Standard-Setting in the Global Economy interests. Companies with large patent portfolios that are active in multiple SSOs may see different opportunities and burdens in specific policies than do smaller participants with few patents. Further, SSOs with broad coverage across tech- nology classes may find it difficult to determine a set of objectives that make sense throughout their activities. Organizations focused on very specific tech- nologies, such as W3C, HDMI Forum and NFC Forum, may find it easier to articulate their underlying goals. One potential concern about the general absence of articulated objectives is that SSOs may find it hard to evaluate their IPR policies. For example, while some SSOs generally posit the importance of essential IPR disclosure for select- ing and disseminating their standards, it may not be that the actual disclosure processes are effective for that purpose. A related concern is that organizations rarely attempt to define critical concepts and steps, such as FRAND terms and conditions or disclosure timing. Defining essentiality of patents and claims In general, a SEP is a patent protecting an invention required to practice a given industry standard, so that infringing essential patent claims is unavoidable when implementing the standard. Defining essentiality is important both for disclosure and licensing obligations within SSOs. In their IPR policies, all 12 SSOs address the need to declare possibly es- sential patents or the possible ownership of SEPs. However, just six include copyrights essential to implementation of a standard within their definitions. In these cases the essential copyrights are treated under the same language as SEPs, which may be problematic in light of key legal differences between patents and copyrights. However, ETSI has a separate IPR policy for copyrights including an explicit software license. IETF requires that any software source code (essen- tial or non-essential) included in a standard must be available under an open- source license. While some SSOs define essentiality to mean there are no technological alternatives, others also mention the concept of “commercial essentiality,” meaning that non-infringing alternatives may exist but are too expensive or cumbersome to be worth bringing to the market. This situation is particularly likely in ICT because once a standard is widely adopted it may become econom- ically infeasible to deploy an alternative workable technology due to network economies. In fact, just two SSOs (IEEE and VITA) include commercially es- sential patents within their IPR policies regarding disclosure and licensing commitments and one (ETSI) explicitly rules the concept out. To be sure, whether a technology is commercially essential is often a subjective issue, which may explain why some SSOs do not consider that notion in their IPR policies. A further distinction of note is that within a SEP some claims may be con- sidered mandatory for successful implementation of a standard. Others, howev- er, may read on optional portions of the standard but could be quite important if the implementer chooses to conform to that optional set of requirements and are

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A Comparison of SSO Policies and Practices 39 therefore referenced in the standard.5 Licensees may wish to incorporate both within a transaction, while some licensors may prefer to withhold the optional portions or negotiate separate arrangements with terms and conditions that may not meet FRAND guidelines. In this case the implementer may find it difficult to avoid infringement when it sees the need to use the optional claims or patents. This situation raises the question of whether such optional claims should be in- cluded within the ambit of SSO IPR policies. Our inquiry revealed that the poli- cies of the three large, global SSOs—ITU, ISO, and IEC—restrict their defini- tions to technically mandatory claims, which may or may not include required patents that read on the optional portions of the standard in question. Two groups—IETF and VITA—do not define optional claims, suggesting they are subject to licensing rules. ANSI rules leave it up to the SSO to decide whether optional claims are or are not subject to licensing obligation. The other six SSOs formally include optional components of SEPs in their IPR regimes. We mention one other important element on which the surveyed SSOs have widespread consensus. Ten of the twelve clarify that essentiality is defined with respect to patents necessary for implementing the final standard. Several technologies may be disclosed as essential during development of the standard but not all of them may turn out to be necessary for the final specification. Only those that are ultimately necessary retain essentiality for purposes of the licens- ing obligations in 10 cases. Despite the attention of SSOs to the essentiality issue at the broad level, Bekkers and Updegrove find a surprisingly wide variation as well as imprecision regarding how this extremely important element should be defined. In a number of cases there is a neglect to address important concepts or there was a decision to use vague language. We note that this outcome may result from the negotia- tions leading to formation of the SSO or adoption of its IPR policy. Disclosure of SEPs Most SSO IPR policies have two core elements: (1) rules regarding disclo- sure of patents that may have essential claims and (2) rules regarding licensing commitments or statements of non-commitment. While conceptually distinct, disclosure and licensing commitments are often intertwined. For example, pa- tents are often disclosed in the same declaration form that includes licensing commitments. These relationships vary in complex ways across organizations. For example, in some SSOs a respondent who fills out a licensing statement signals that it believes it owns patents that will likely become SEPs, which must be disclosed. In others, participants may reserve the right to seek a paid license but are allowed to submit blanket disclosures that do list specific patents that may not be essential. 5 These may be distinguished from non-essential claims within a patent. The policies of 11 SSOs exclude non-essential claims from the definition of essentiality and, therefore, from associated IPR rules.

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40 Patent Challenges for Standard-Setting in the Global Economy This lack of a disclosure obligation generally arises in broader and more comprehensive cross-sectoral SSOs because its members may be large enter- prises with very large patent portfolios. Determining which patents may be es- sential can be costly and burdensome. Making a FRAND commitment for any SEPs that the patent holder ends up holding regarding the final standard ensures that it will not use any of its SEPs to block implementation of the standard. It also reserves the right to license for a fee, which keeps the patent owner’s op- tions open while avoiding the need to scrutinize its patents. Indeed, most IPR policies do not mandate patent searches because of the cost implications. Thus, the scope of disclosure obligations reflects a balance between the benefits of providing substantial information and the burdens of providing it. This balance means that disclosure is effectively less than it might be with complete infor- mation revelation. Most of the policies of the surveyed SSOs seek formal disclosure at some point in the standardization process and it is typically tied to an expectation that the member concurrently state its intentions regarding whether it will license its SEPs under terms of the organization’s IPR policies.6 This obligation is intended to result in a legally binding commitment with respect to SEPs. However, since it may be made late in the standard development process, the need to avoid in- fringement of a SEP that is eventually not made available for licensing can re- sult in a significant loss of time before a standard can be adopted. To be more precise, all of the surveyed SSOs except the HDMI Forum, which has no formal disclosure mechanism, obligate those who submit a tech- nology they wish to include in the standard either to disclose the specific patents they own and believe would be essential, or at least to indicate that they likely hold SEPs. ANSI leaves this matter up to the SSOs it accredits. Some require the submission to be on a royalty-free basis while others permit the submitter to reserve the right to charge a fee. Submitters are sometimes not permitted to re- fuse to license any SEPs in their own submissions, but they can choose to not license SEPs where they did not contribute their technology to the SSO in ques- tion. Similar options face participants in standards working groups, which are obligated to disclose relevant essential IPR. Two SSOs, ETSI and IETF, further obligate members who are non-participants in working groups to disclose SEPs, while this is encouraged but voluntary in ITU, ISO, IEC, IEEE, ANSI, and OASIS. The umbrella organizations ISO and IEC go further to obligate disclo- sure by those who receive a draft standard and have patents that may be essential for its use.7 IETF and W3C impose a similar requirement and OASIS requests such disclosure, presumably because non-members may participate in drafting sessions. 6 An earlier and informal process is the patent call, by which participants in a technical discussion are expected to reveal patents of which they are aware that may contain essen- tial claims with respect to the ultimate standard. 7 Receipt of a draft standard may occur, for example, through involvement in the pro- cess through a national standards body.

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A Comparison of SSO Policies and Practices 41 Finally, all of the SSOs have rules covering participants’ disclosure to members of known or suspected SEPs owned by members, participants, or unre- lated groups. Such disclosure is mandatory for working group participants in ITU, ISO, IEC, ETSI, OASIS, and W3C, while again ANSI leaves the matter to its accredited SSOs. It is encouraged by IEEE and IETF, while VITA requires disclosure if the member or participant is a licensee of a third-party patent that may be essential to the standard. VITA, W3C, and VITA waive this requirement if disclosure, even to the SSO’s members, would violate a promise of confiden- tiality. Note that these organizations vary considerably in terms of what consti- tutes knowledge of potentially essential IPR, subject to disclosure, on the part of members and participants. It could be undefined or extend to personal knowledge (IEEE and IETF), elements that could be discovered by reasonable efforts (ETSI), or even patents that could be found by a “good faith and reason- able inquiry” (VITA). Still, none of these SSOs requires patent searches, so the obligation to disclose typically has some limitations. A risk of the emphasis on disclosure of specific patents that potentially could be essential to a standard—a policy aimed at minimizing the chances of missing relevant SEPs—is over-disclosure of IP by participants who reveal more SEPs and other patents than ultimately necessary to implement the final version of the standard. Such problems could be reduced, and the list of clearly essential patents clarified, by combining formal patent searches with efforts to assess essentiality after the standard is defined. However, it is important to note that none of the surveyed SSOs requires a member to engage in a patent search for purposes of disclosure or has a formal process for adjudicating the essentiality of patents. This reflects concerns expressed by members, especially large companies with multiple technologies, that a formal search across their large portfolios of pa- tents would be expensive and may not even be definitive in terms of unearthing relevant SEPs. For those patent holders who do not proactively seek FRAND licenses from implementers this cost is not defrayed by licensing revenues. Among our sample, ETSI has the broadest disclosure obligation, because it applies to all members and all standards activities and prohibits the use of blanket disclosures. While the scope of the disclosure rule depends on the knowledge of individuals and the companies they work for, which may be lim- ited if they are not working on the draft standard, the obligation in ETSI is nev- ertheless the widest of any organization in this study. A contrasting case is W3C, which has a limited disclosure obligation. The reason is that members of this SSO commit to license SEPs on a royalty-free (RF) basis if they are participating in the development of the relevant standard, making disclosure necessary only when a member seeks to exclude a patent from the default RF commitment. This RF “default mode” is thought to encour- age implementation of W3C’s standards and is consistent with the organiza- tion’s preference for access to technologies.

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42 Patent Challenges for Standard-Setting in the Global Economy Timing of disclosure SSOs must decide whether their IPR policies recommend formal disclo- sure early or late in the standardization process, which is a difficult tradeoff to be managed. For technical committees undertaking this approach, early disclo- sures of potential SEPs and patent applications offer the advantage of develop- ing standards that choose among and combine these technologies, while bypass- ing less promising ones. However, it is quite difficult at the immature stage of a standard for members to determine which patents may be essential, reducing disclosure quality. Further, this risks selecting technologies that are outdated by the time the standard is released, while patent applications may be denied or have their claims significantly limited. In short, there is a high likelihood of in- adequate information with early disclosure. Late disclosures help address this problem but raise the risk that a draft standard will have developed so far that it may be difficult to work around an as-yet undisclosed SEP. This could pose a significant access problem for implementers if the late discloser chooses not to make a FRAND licensing commitment. This is a hard problem and its best resolution probably varies with indi- vidual standards and technology areas. In this context, it is not surprising that SSOs have widely varying, and at times vague, policies. The common ITU/ISO/IEC policy calls for disclosure as early as possible but this seems to mean at a stage where the standard is sufficiently mature that possible essentiali- ty may reasonably be determined. ETSI requires disclosure in a timely fashion and has the ability to sanction members that engage in intentional delays. ANSI encourages early disclosure but does not spell out what this might entail. W3C’s approach is similar. VITA goes furthest, with a policy specifying precisely when a disclosure must be made and extensive guidelines on timing of disclosure. It is noteworthy that the majority of SSOs do not specify any procedure for updating information about essential IPR, such as the denial of a patent ap- plication or the expiration or legal cancellation of a patent, although the SSOs with data-sharing arrangements with the European Patent Office (EPO) are able to track developments in a patent application and in patent families. Blanket or specific disclosures A second dimension is the precision with which SEPs must be disclosed. The basic issue is whether disclosures should identify the specific patents be- lieved to be essential or blanket statements that a company believes it owns like- ly essential patents without specifically identifying them. The former policy obviously provides more complete information to standards developers and po- tential implementers than does the latter and for that reason is preferable in prin- ciple. However, identification of specific patents may not always provide suffi- cient value to justify the cost of doing so. Sometimes there may be a preference for a company to make a FRAND commitment for any SEPs it has that end up being essential to the final version of the standard, as opposed to only making a

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A Comparison of SSO Policies and Practices 43 commitment that runs to specific patents. This approach may be sufficient for effective implementation of the standard, especially where the patent holder largely uses its SEPs for defensive purposes. Some SSOs—ETSI, OASIS, and VITA—require specific patent disclo- sures and do not permit blanket declaration, though the disclosures are often based on a trigger, such as the personal knowledge of the individual participat- ing in a standard’s development. The policies of IEEE and ITU/ISO/IEC allow parties to file blanket disclosures, though the ITU requires disclosure of specific patents if the owner is not willing to license them on a FRAND or FRAND-RF basis. At IETF, blanket disclosures are permitted only if the owner commits to license its patents on a FRAND-RF basis. Disclosing patent families A particular technology may be the subject of patent applications or grants in more than one country and the aggregation of these patents may be called a family. Many standards, especially in the ITC area, are implemented in numer- ous countries. Thus, it is important for firms to disclose all the jurisdictions in which it seeks or has protection for its SEPs, preferably as a family rather than as individual patents. The common policy of ITU/ISO/IEC states an expectation that families will be disclosed and ANSI recommends this. ETSI’s policy speci- fies that its disclosure requirements are satisfied if at least one member of a pa- tent family is disclosed, information about potentially related patents is generat- ed by linkage to the EPO database. In practice, many ETSI members disclose more than one patent per family. The publicly available ETSI database now con- tains information on patent families due to a recent program of cooperation be- tween ETSI and the EPO.8 Common disclosure templates and public release The increasing prevalence of SEPs, especially in ITC standards, has raised the importance of precisely stated disclosure requirements and licensing com- mitments that share considerable commonality. As a result, SSOs increasingly require the use of standard forms to ensure that disclosed information is com- plete, clear, uniform, and easy to consult once published. In most cases, these forms are used both to make disclosures and to choose among available licens- ing options. Bekkers and Updegrove revealed that the majority of SSOs now use disclosure and licensing templates. Nearly all the SSOs publish their formal disclosure documents, usually on websites. Again, ETSI is notable because its cooperation program with the EPO to develop the Database Restructuring (DARE) project matched disclosed pa- 8 We note that the patent holder is not the entity providing this family information, which may raise questions about its accuracy in some instances. See Chapter 7 of this report for a review of this program.

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44 Patent Challenges for Standard-Setting in the Global Economy tents with the EPO’s patent database. Patents in the ETSI database are now con- siderably easier to access and compare across countries. A related element of transparency is the extent to which the minutes and reports of working group meetings are made public, which might be of particu- lar importance to patent examiners in determining prior art and to licensors and potentially courts seeking to determine whether alternatives to patented technol- ogy were available at the time of standardization. Most of the broader and longer established SSOs, including ITU/ISO/IEC, ETSI, and IETF, do release such documents and invite non-members to technical meetings where sensible. Nar- rower and more recent SSOs, primarily consortia such as VITA, the HDMI Fo- rum, and the NFC Forum, maintain the confidentiality of their documents. Licensing commitments9 In general, SSOs aim to ensure that licenses for SEPs are available to all implementers, or that owners will not assert their essential IPR against firms that develop standards-compliant products. The minimum objective for virtually all SSOs is to ensure that all known SEPs are available under FRAND licensing terms (10 of the SSOs), with some favoring or requiring royalty-free FRAND terms (six SSOs). If an SSO discovers that an essential patent is not available it will typically attempt to obtain such a commitment or ‘design around’ that pa- tent. This section reviews the primary processes for promoting licensing. There are at least four basic mechanisms for establishing licensing com- mitments. First, several SSOs—ITU/IEC, ETSI, VITA, and NFC Forum—set out a general obligation for its members to submit a licensing declaration, often triggered at the time of disclosure. Participants in this arrangement have the op- tion of not licensing on FRAND terms. Second, ITU/ISO/IEC, and IEEE solicit declarations from members regarding patents they believe might be essential. These declarations are made at the time of receipt of such requests or promptly after; again one option is not to license on FRAND terms. Members may also take the initiative and disclose their own patents by submitting a declaration without waiting for such a request. Third, OASIS, W3C, and the HDMI Forum follow a “default model” in which the obligation to offer licenses arises from membership or participation, meaning that a licensing commitment is agreed to upfront. Even here however, there generally are certain opt-out provisions for firms unwilling to meet required licensing conditions, especially if they did not contribute the implicated SEPs to the process. Finally, at IETF, which has no formal licensing requirement, many participants voluntarily submit licensing declarations with their patent disclosures. A large percentage of these declara- tions indicate that patent holders are willing to license such patents on a royalty- free basis. 9 For analysis of additional issues, such as package licensing and grant-backs of non- SEPs, see Chapters 3 and 5. The IPR policies of SSOs generally do not address these issues.

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A Comparison of SSO Policies and Practices 45 The IPR policies of several SSOs, including ETSI, ITU and ANSI, en- courage patent holders voluntarily to make an early (i.e., well before the stand- ard is finalized) statement indicating that they may own patent claims that could prove to be essential and clarifying whether they would be willing to license these claims under FRAND terms. Once SEPs are actually identified later in the process a separate formal declaration, whether specific or blanket, may need to be issued in some SSOs. The intent of such early assurances is to avoid a situa- tion in which a SEP owner ultimately decides not to license and to make parties to the standard more comfortable about including those SEPs with declared commitments. Other SSOs policies do not mention this possibility. Scope and revocability of commitments In 11 of the 12 SSOs, a commitment to license under whatever terms ap- plies to any and all implementers, underlining the basic interest of SSOs in dis- seminating their standards into wide use. One exception is the HDMI Forum, where the commitment extends only to the members of this SSO or those who have signed a licensing agreement with it. It is important to note that all SSOs state that licensing commitments extend only to use necessary to implement a particular standard and produce compliant goods. Other uses would not comply and therefore would not receive the protection of SSO-facilitated license com- mitments. As to geographical scope, 10 SSOs specify that licensing commitments hold on a worldwide basis, while the other two (ANSI and IETF) do not mention a geographic context. Global commitments are presumably consistent with the non-discriminatory element of FRAND and assist in spreading standards. How- ever, members of our committee are aware of cases where patent owners refused to license in certain locations on the ground that the policies of the relevant SSO did not apply there. What does a licensing commitment actually cover? In five of the SSOs a commitment must include any SEPs that read on the final version of specific standard in question, regardless of whether these patents were actually disclosed by their owner. In two policies the commitment covers only patents actually disclosed. The ITU/ISO/ICU and IEEE policies permit submitters to choose between these models. OASIS makes a distinction between licensing commit- ments of participants, which must apply to all patents with essential claims un- der the standard, and non-participating contributors, where the commitment ap- plies only to SEPs under their contributions. The great majority of SSOs in the sample specify that licensing commit- ments are irrevocable, although a few of them permit “upgrades” under which terms may be replaced later by conditions that are objectively more favorable to licensees. Some organizations, including ITU/ISO/IEC, ETSI, OASIS, VITA, W3C, and NFC Forum, specify that specific licensing agreements are also irrev- ocable before expiration in order to prevent their cancellation against the will of

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46 Patent Challenges for Standard-Setting in the Global Economy good-faith licensees for other than cause.10 They also permit exceptions in cases where the licensor is sued for infringement by its licensee on the latter’s patents. Virtually all SSOs make licensing commitments public. Consistent with its policy on disclosure, VITA informs its members of such commitments, which are also made available to implementers on request. Reciprocity conditions IPR holders that commit themselves to FRAND or other licensing condi- tions may be concerned that they could face a situation where they are obliged to grant a license to a firm that refuses to license its own essential IPR on the same standard or group of standards back under similar conditions. To prevent this, SSO policies allow firms generally to include a condition of reciprocity in the licenses they grant. There are two relevant forms of reciprocity. First, bilateral reciprocity means that the licensee must offer its own essential claims under the same standard on the same conditions (e.g. FRAND or FRAND-RF) to the li- censor, but not necessarily to other members or implementers.11 Second, univer- sal reciprocity means that the licensee must also offers its essential IPR for the same standard on the same conditions to all implementers. Again, there are differences in approach across SSOs. The policies of ITU/ISO/IEC, ETSI, and VITA allow bilateral reciprocity. This form is auto- matically the basis of licensing agreements under the HDMI Forum and the NFC Forum. OASIS and W3C permit universal reciprocity. Under the NFC Forum and ITU/ISO/IEC, licensors who have otherwise committed to royalty-free FRAND licensing can charge royalties to licensees who seek payment from them for SEPs in the same standard, a situation that is not considered a violation of non-discrimination. Finally, nothing is specified by IEEE and ANSI but its members often seek reciprocity of some kind. Ex ante most restrictive terms A patent owner, at an early stage in the standards development process, may make binding commitments regarding the maximum royalty fee or other licensing terms it will seek in licensing contracts. In principle, such information can help inform SSO decisions on whether to include the patented technology in the standard. It may also create an incentive for IPR holders to limit their royalty demands, knowing that a lower price could increase the likelihood that their technology will be included in the standard. Another benefit is that it may help implementers in their licensing negotiations, as an upper bound is known. Whether these effects in fact are common among members of SSOs is unclear, 10 Interestingly, OASIS, VITA, and W3C require licenses to be perpetual, a stipulation that makes sense for W3C, where licenses are royalty-free. 11 U.S. regulators are currently urging SSOs to clarify the specific types of reciprocity they regard as consistent with a FRAND commitment.

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A Comparison of SSO Policies and Practices 47 while the net benefits of such disclosure are much debated. Just one (VITA) of the SSOs in our inquiry specifies a requirement for ex ante disclosure of licens- ing terms. It is voluntary under IEEE, IETF, and ETSI. Moreover, ETSI has a repository for its ex ante declarations although none has yet been made. In any event, patent owners are free to make statements about licensing terms outside the SSO setting. Injunctive relief None of the policies of the surveyed SSOs imposes any restrictions on what legal remedies a member or third-party beneficiary of a licensing commit- ment may pursue in court. We mention it here because such remedies have re- cently become a matter of considerable concern in courts and among regula- tors.12 Some analysts argue that when a FRAND commitment exists only the economic terms of a license remain the subject for a legal dispute. This is signif- icant because under the laws of some jurisdictions an injunction against the sale of goods will be limited or not granted by a court if the party alleging infringe- ment can be adequately compensated by a monetary award. Others argue, how- ever, that injunctive relief is a key remedy an IPR owner should be entitled to seek if its patents are infringed. 2.5 Transfers of Licensing Commitments An important subject for our committee is the transfer of patents with es- sential claims subject to licensing or non-assertion obligations. This has become an increasingly key issue with the proliferation of sales of patent portfolios and legal variations across countries about the treatment of such commitments in the event a patent owner goes bankrupt. The basic question is whether licensing obligations travel along when SEPs change ownership: is the new owner bound to the same commitments? Further, how far do the commitments travel in the event of successive ownership changes? Another question is the extent to which an original patent owner may incur any liability to someone sued by the trans- feree for infringement, if that owner had not informed the recipient of an en- cumbered licensing commitment. In this section we review the approaches taken by our surveyed SSOs.13 In summary terms, five SSO policies—ITU/ISO/IEC, ETSI, IEEE, VITA, and HDMI Forum—state that obligations must be transferred with patent ownership, thereby requiring that the patent holder bind its successor-in-interest. OASIS mentions the issue only in the context of bankruptcy. ANSI and IETF do not specify a policy. More specifically, the ITU/ISO/IEC common policy has a strong section on patent transfer, defining obligations for the original patent holder. Essential- 12 The committee considers this question in detail in Chapter 6. 13 This transfer issue is discussed more fully in Chapter 5.

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48 Patent Challenges for Standard-Setting in the Global Economy ly, a patent holder that has entered into a licensing commitment must ensure that the transferee also is bound to the same commitment. The clear intention of ITU/ISO/IEC is to have a strong set of rules on transfer of obligations, but there remain some ambiguities. For one thing, it is not clear if this policy applies only to participants in the drafting of a standard or also to all parties that submit a licensing declaration, although the latter are likely included. Next, when a new owner acquires a full portfolio of patents from a party that originally filed a blanket disclosure, it can remain unclear which of these patents is encumbered by licensing obligations. In this case, the ITU/ISO/IEC policy speaks of “rea- sonable efforts.” In VITA, the general licensing obligation explicitly provides that transfer- ees of patents are to be bound. However, the IPR policy does not provide details on how this obligation is to be satisfied by a member making a transfer. In W3C there are no specific provisions on patent transfers as such. There is, however, a statement that in the case of the acquisition of an entity that is subject to licens- ing obligations, the obligations will continue to exist. In support of this state- ment, the document refers to a clause in the W3C policy that specifies that commitments are made “for the life of the patents in question.” The policy does not provide details on how this obligation is to be satisfied by a member making a transfer. The HDMI Forum, which has a recent IPR policy, includes a short clause on patent transfer. When transferring patent claims encumbered by a covenant not to assert (the mode provided for under the HDMI documentation), the owner must ensure that the new owner is also bound to the same licensing commit- ment. It is not clear whether the commitment will apply across cascading owner- ship transfers, because the new owner might not be an HDMI Forum member. For their part, IETF and NFC Forum have no provisions concerning patent transfer at all. An ANSI IPR policy task force is currently considering whether the ANSI patent policy or related guidelines should address the transfer question and, if so, how. Finally, none of the SSO policies specifies that the organization or other parties need to be notified of ownership changes. Although such changes may become visible to other stakeholders if the new owner submits a licensing decla- ration, this will not always be the case. In many countries, some but not all own- ership changes must be reported to the patent office. Still, patent offices often do not provide mechanisms to make patent ownership changes visible. Moreover, patent transfer recordation practices vary widely across different offices with regard to both what can and must be recorded and how the records may be ac- cessed. 2.6 Summary Observations Standards-setting organizations have greatly improved the clarity and pro- cedural coverage of their IPR policies from their rudimentary state prior to the late 1990s. In some degree this was forced by legal conflicts, including the

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A Comparison of SSO Policies and Practices 49 Rambus case, which exposed problems associated with SSOs having unclear IPR policies.14 Competition among SSOs has also pushed reforms. However, there remain a number of areas of ambiguity and some issues, such as the trans- fer of licensing obligations when patents are sold, that are only now being ad- dressed. Indeed, there are many other areas that could be analyzed here. Howev- er, we focus on three issues. First, SSOs generally do not define what is meant by FRAND and its component terms: “fair, reasonable, and non-discriminatory.” This ambiguity invites increasing litigation in which courts must decide between different par- ties’ widely divergent interpretations of FRAND. Some consortia agree up front on the terms and conditions for a license to essential patents, and it seems that SSO participants could also gain from greater specificity in the context of pro- moting adoption and implementation of standards. Nevertheless, agreement on a definition of FRAND would be very difficult to achieve in many SSOs for reasons discussed in Chapter 3. Second, IPR policies still leave a considerable degree of non-transparency regarding how patent information is to be disclosed and used and to whom it is to be made available. Particular elements of policy that could be made more transparent include patent-information updates, the lack of information associat- ed with blanket disclosures, and the failure to make disclosures and licensing commitments public. Publicly available SSO patent disclosure databases—and possibly licensing commitment databases—could help implementers, licensors, and many other stakeholders become more confident about how to secure rights, evaluate claims of essentiality, establish royalty fees if any, and understand competition and antitrust concerns. That said, there are valid reasons why blan- ket disclosures may be a prudent option, and it is not always clear how and why disclosed information is actually used. Third, IPR policies of most SSOs do not adequately deal with issues of pa- tent transfers and licensing obligations in today’s increasingly dynamic market- place for patents as assets. The language and mechanisms dealing with this question vary considerably across SSOs. Many policies still appear ambiguous and may not be legally effective in some of the situations they should address, such as those involving licensors and licensees acting in bad faith or in bank- ruptcy proceedings. 14 Rambus Inc. v. Infineon Tech. AG., 318 F. 3d. 1081, 1097 (Fed. Cir. 2003).

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