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Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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1. Introduction

1.1 The Role of Standards and Patented Technology in Standards

This report addresses the complex relationships among the development of technical standards, their ownership, in part as intellectual property (primarily in the form of patents), and their diffusion into competition. For reasons described below, the report focuses on the information and communications technology (ICT) industry where issues involving these relationships especially rise to the fore because of the importance of licensing essential patented technologies across multiple uses.

Standards are technical specifications that aid the development of certain beneficial features of products and services. To become “standards,” such specifications undergo some process of examination and approval, whether through regulatory systems, private industry bodies, or simple market acceptance by consumers, that recognizes they are sufficiently effective to merit wide adoption. Standards are ubiquitous throughout markets and are adopted for multiple purposes. For example, they exist in agriculture, foodstuffs, and medicines to assure minimum safety and health levels. Emissions standards apply to electricity generation and automobiles to improve air quality, while banks are subject to fiduciary requirements to safeguard financial stability. Standards determine minimum levels of information that must be provided to the public by government agencies and commercial enterprises. Standards also play a useful signaling function, for their adoption signifies compliance with specified performance characteristics.

Standards are developed to resolve various market shortcomings in unregulated markets. These problems may arise from externality costs, such as pollution of air and water, lack of information about the health and safety characteristics of goods and services, and network vulnerabilities in the electrical grid and financial markets. They also reduce transaction costs between technology producers and users in the selection of inputs and products. Without question, the development and adoption of appropriate standards to address such issues help create markets, support the functioning of efficient competition, and raise consumer welfare.

Standards have taken on increasing importance for international commerce. For example, empirical evidence points to the important role standardization plays in supporting international trade by raising consumer confidence in traded goods (Moenius 2004; Clougherty and Grajek 2012). They also support increasing global investment by facilitating information sharing and data trans-

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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fers among affiliates within multinational firms and among participants in international research networks. In turn, the use of standardized technologies helps achieve economies of scale and scope, both within and across borders. Innovation and growth are increasingly dependent on the development and use of appropriate standards.

Many standards, including those of greatest relevance for this report, enable products designed and produced by different companies to operate and communicate with one another. Such “interoperability” standards, when implemented broadly across markets, give rise to beneficial network effects and efficiencies. Interoperability standards are important in many industries but particularly characterize the information technology, mobile telephone, and consumer electronics sectors. Indeed, standards can effectively create new markets in such sectors. The positive implications for market efficiency and consumer welfare are clear: the world would be more fragmented and unproductive if software and telecommunication technologies could not operate across multiple platforms and devices.

Technology developers often rely on patents to commercialize their inventions and, ultimately, to support investments in research and development. These investments often produce technologies that are incorporated into standards. Indeed, in many fields of ICT, a substantial share of relevant technology is patented or the subject of patent applications at the time a standard is developed. Thus, the incorporation of patented technologies into ICT technical specifications is virtually inevitable and, by facilitating the benefits of standardization, is ultimately in the public interest. Incorporating these patented inventions can result in a standard with better performance, improved cost effectiveness, or a better match with other design requirements. It is increasingly the case in ICT that some design requirements cannot be met at all without including patented technology. Moreover, the potential to receive royalties for access to patented technology creates incentives for participation in standard-setting and attracts parties that contribute valuable knowledge and technical insights.

There is an inherent tension between the interests of inventors, who seek economic returns on their R&D investments, and users of new technology, who want access on affordable terms. This tension is even stronger in the area of standards, which, by their nature, must find widespread acceptance and, if patented, may give rise to two problems for market competition. The first is lockin, where patented technology that is not readily replaceable must be implemented for products to work. The second is potential hold-up, where patent holders seek royalties substantially in excess of the value a technology had prior to its incorporation into a standard.1 In this context, policies and guidelines governing how widely and the terms under which such technologies are licensed are critical for supporting markets in downstream products.

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1See Chapter 3 for extensive discussion.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Striking a sensible and efficient balance regarding the management and licensing of intellectual property, primarily standard-essential patents (SEPs), in ICT standards is a central problem for standard-setting organizations (SSOs), their members, and government authorities. The importance of balance is especially pronounced where there is a critical need for seamless interoperability among software, components and other technologies embedded in microelectronic devices, such as cellular telephones, and other technically sophisticated products, and where there are a large number of patents on the relevant inputs. Owners of patents on technologies to which access is required for making these products work certainly have incentives to license their use to implementers of various complementary technologies and products. However, the licensing terms and conditions they set may limit the access of some potential licensees who could otherwise bring successful products to market or may impose costs that impede technology utilization.

It should be noted that there are significant amounts of innovation, including of technologies that enter standards, from open-source approaches. Open-source innovation is common in software and certain segments of microelectronics and biotechnological research. Such approaches preclude the assertion of patent rights on new technologies, though there may be other restrictions on licensed use. Open-source is an increasingly relevant source of knowledge for standardization. However, it does not raise the same questions that this report addresses, namely the management of intellectual property rights in the standardization process.

Standard-setting organizations (SSOs) play several critical roles in technology and market development. The ultimate objective is to enable competition among rival but interoperable products and services without permitting some participants to block others by inefficiently asserting patents. Thus, their first important task is to ensure the interoperability of technology products and to facilitate the necessary exchange of data through the development of industry standards. Second, these organizations realized long ago that to foster competition they needed to place controls on how member firms manage their SEPs. Thus, they developed intellectual property rights (IPR) policies intended to ensure reasonable access to patented technology necessary to implement their standards.

How SSOs operate varies widely across technologies and regions, as this report will demonstrate. In general, however, they seek to encourage or require member firms to both disclose and license SEPs, whether to fellow SSO members or non-member companies, under terms generally referred to as reasonable and non-discriminatory (RAND) or fair, reasonable and non-discriminatory (FRAND).2 The purpose of the FRAND framework is to facilitate the licensing

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2What these terms might actually mean is a subject of considerable discussion and controversy, as will be discussed later in the report. It is generally agreed that the terms may be used interchangeably. FRAND is used in this report because it is generally used

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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of critical patented technologies to designers and implementers of components and final goods. Where multiple technologies may be needed to ensure interoperability and functionality but are not available, competition, innovation, and the growth of markets may be stunted. For this reason, how firms and SSOs approach licensing of SEPs and other patents recently has attracted the attention of competition authorities in major jurisdictions.

Many complex questions arise in this arena. For example, what are the IP disclosure expectations of SSOs and are they mandatory rules or voluntary guidelines? Do SSOs define various licensing practices and requirements and do such practices vary between member and non-member users and implementers? Is there a common understanding of the effects of a FRAND licensing commitment? Are there limitations regarding the role of SSOs in defining or enforcing licensing obligations? How do such procedures and policies vary across geographic regions, including in major emerging economies? Finally, although the committee does not address this question directly, how does the recent mushrooming growth of patents in key industries affect the ability of SSO members to manage and license their intellectual property to facilitate technology use?

1.2 Standards and Patents in ICT and Emerging Technologies

This report focuses on such questions in the ICT sector because interoperability needs and network economies are critical in this area. Moreover, patenting has become more prevalent in this sector in multiple countries, and those patents protect many of the technologies written into standards. Firms seeking to implement standards or develop improved technologies would necessarily infringe the patents embodied in those standards unless they have legal access through licensing. The associated questions of selection and disclosure of essential patents included in standards and the terms for licensing them are especially salient in ICT.

Despite this focus, the committee invited presentations at its workshop on several emerging technologies, including bioinformatics, synthetic biology, nanotechnology, and sustainable (green) building materials.3 The presenters described some parallels with ICT in these fields but reported that, to date, the complex patent issues raised in the ICT field have yet to attract a significant attention in these other fields. For example, the field of bioinformatics has evolved largely within academic and governmental research centers. Numerous standards have been developed for data structures and exchange, primarily in small, academically focused groups. Patent issues have not received much, if any, attention and it does not ap-

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internationally. Of course, FRAND is not the only licensing framework entertained by SSOs, as noted in the next chapter.

3See, respectively, invited presentations from Contreras (2012), Torrance and Kahl (2012), Jillavenkatesa, et al (2012), and Contreras and McManis (2012). http://sites.nationalacademies.org/PGA/step/IPManagement/index.htm.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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pear that patenting has yet occurred with any frequency in this field, although the potential for filings in some subfields such as genetic data structures could increase in the future.

Synthetic biology, which also originated in the academic research environment, has attracted the interest of private sector players, who have been active in patenting synthetic biology inventions. Although the potential need seems substantial, few standards have been developed in the field. The most prominent standardization effort to-date, the “bio-bricks” project that has developed a large and growing catalog of standardized molecular “parts,” has sought to discourage patenting of these fundamental molecular elements. Nanotechnology is a more mature field and has numerous private sector players. To the extent that standards are being developed, this activity is occurring at large, established SSOs such as American Society for Testing and Materials (ASTM) International and ISO, which have patent policies in place.

Finally, sustainable building materials represent a large commercial market with numerous sophisticated players. A large number of standards have been developed at a range of SSOs, from small, industry-specific trade groups to large SSOs such as Underwriters Laboratories. In this field, trademarks and certification marks (so-called “ecolabels”) have played a far greater role than patents, and present their own challenges to participants, regulators and consumers.

Despite the relatively low salience of patent issues to date, they have the potential to assume greater importance in each of the fields in the coming years. Accordingly, the committee believes that its findings and recommendations with respect to ICT may have some value to participants seeking to anticipate issues that may be problematic in the future.

There are many long-established SSOs, many with IPR policies operating in relatively mature sectors of the economy such as automobiles and aerospace (e.g., Society of Automotive Engineers), electrical machinery (e.g., National Electrical Manufacturers Association), and other manufacturing industry groups (e.g., Society of Manufacturing Engineers). These are not considered in this report and there should not be any inference that the committee’s findings and recommendations apply equally to such industries and organizations.

1.3 Background of the Study

In 2011, the United States Patent and Trademark Office (USPTO) commissioned the Board on Science, Technology and Economic Policy (STEP) of the National Academy of Sciences to empanel a committee of experts to study and prepare a report analyzing such questions, with an emphasis on an international comparison. The committee began its work in November 2011, with an initial meeting at which stakeholders and other interested parties were invited to make statements on the issues. Subsequently, the committee asked a number of experts to prepare presentations addressing specific aspects of SSOs, licensing and related issues. The presentations were made at a public symposium in Octo-

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
×

ber 2012. In addition, members of the committee engaged in extensive discussions over the period to prepare for the drafting of this report.

A principal motivation of the USPTO request is the increasing importance of standardization and IPR use for global trade and investment. In one dimension, this reflects the growing prevalence of cross-border activities of SSOs, raising the question of how they manage their IPR policies in an international context. In another context, major emerging economies, especially China, now place greater emphasis on their own standardization bodies and associated policies. Thus, the committee was asked to ascertain the status of standardization in high-technology areas in such economies.

Another important context of the study is the growing concern that in some high-technology sectors the system faces increasing difficulties in effectively disseminating the use of patented technologies in key standards. The concern derives in part from the proliferation of high-stakes patent lawsuits involving SEPs in many countries and requests for injunctions to exclude alleged patent infringers from various national markets. Such episodes raise the question of whether the current system strikes an appropriate balance among the various stakeholders in standards and IPR.

There are many indications of the current prominence of these issues. All three branches of the United States government and the European Union have taken an active interest in the relationship between standards and patents. Since our committee began its work there have been hearings in the House of Representatives and the Senate, appellate and district court and International Trade Commission decisions, interventions by the Federal Trade Commission and two Statements of Objections by the Directorate General for Competition in the European Commission, as well as policy statements issued by the Department of Justice, the Federal Trade Commission, and the USPTO, all involving disputes over SEPs and the effect of a FRAND commitment. In this context, one impetus for the study was a desire for an independent, expert view on how public agencies might contribute better to the evolving standards environment to promote competition and growth.

1.4 Statement of Task and Organization of the Report

The Statement of Task agreed to by the USPTO and the National Academies directed the committee to:

…examine and assess how leading national, regional, and multinational standards bodies address issues of intellectual property (IP) arising in connection with the development of technical standards. Through commissioned analysis, a public workshop in Washington and a report of the findings of an expert committee, the project will first document the policies and practices of different types of standard-setting organizations in different geographical contexts. The committee will consider policies with respect to such matters as: requirements for disclosure of IP essential or rel-

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
×

evant to the development and implementation of standards, the terms of IP licensing to implementers of a standard, and whether conditions attached to IP incorporated in standards carry over to a new holder in the event of a transfer of IP rights. The study will assess how these policies work in practice and in a legal context and how variations in these policies relate to different types of standards activities, organizations, and fields of technology. Second, the project will evaluate the effectiveness of these policies in reducing conflict between IP holders and other implementers, balancing the interests of firms of different sizes and with different business models, and balancing the interests of producers and consumers.

With this statement in mind, the committee set the following objectives for its report:

  • Identify and survey a representative selection of major SSOs, with operations in different major countries or with members from multiple regions, in order to describe and document their relevant objectives, policies and practices. The results of this survey are summarized in Chapter 2 of the report.
  • Develop economic and legal analysis of critical issues surrounding management of intellectual property in SSOs, including the use and meaning of FRAND licensing. This discussion is in Chapter 3.
  • Consider how the policies of SSOs relate to obligations or expectations regarding the disclosure of essential IPR and commitments to license them. This is the subject of Chapter 4.
  • Review the implications when FRAND-encumbered SEPs are transferred. Issues analyzed include how the FRAND assurance made by a SEP owner is addressed after the transfer, how parties’ rights are affected by the exchange, and how SSO policy can help avoid problems associated with patent assignments. Legal cases clarifying the potential issues are reviewed as well, with an emphasis on the United States. This discussion is in Chapter 5.
  • Comment on the complex issues regarding the issuance of injunctive relief for FRAND-encumbered licensing arrangements of essential IPR. This area has become increasingly contentious, as discussed in Chapter 6.
  • Relate the activities of SSOs to their interactions with government policy, such as cooperation with prior art searches in patent applications and disclosure and procurement policies. These issues are described in Chapter 7.
  • Describe practices and draw lessons from the operations of SSOs in China, India and Brazil to understand the landscape and priorities of key emerging countries. This analysis is presented in Chapter 8.
Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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The committee carefully deliberated whether to address issues surrounding injunctions, including exclusion orders issued by trade authorities such as the U.S. International Trade Commission, because they are not explicit in the statement of task. Members found it necessary to do so because of the inevitable and close relationships among determination and disclosure of SEPs, licensing conditions, and avenues for relief against infringement. A key question facing SSOs and regulators is determining under what circumstances a FRAND licensing commitment is incompatible with injunctive relief. The committee believed that failing to address this question would not fulfill the terms of its task.

Similarly, the committee decided early in its deliberations to discuss the question of whether and how national patent offices could fruitfully collaborate with SSOs in issues of prior art, affecting patent quality, and the recordation of patent transfers to enhance transparency in licensing SEPs. While this issue was not mentioned in the statement of task, the committee thought it an important element to discuss in the context of licensing transactions and one that could not be separated from the patent transfer question in any case.

The committee acknowledges that the issues involving patents in standard-setting play out in a broader context of national and international policy regarding intellectual property rights. These policies are in flux. For example, some member countries of the European Union are working toward a unified patenting regime and a single patent court. China, India, and Brazil have recently adopted significant changes in their laws that affect the scope of patents and, at least indirectly, the general conditions of licensing. In the United States, the patent system is changing in response to a variety of perceived problems – low patent quality, long delays in patent examination, excessive litigation and abusive tactics on the part of some patent holders.

The America Invents Act (AIA), passed and signed in 2011, ushered in the most significant changes in 60 years including enhanced post-grant opposition procedures, new opportunities for third party-submission of prior art, more resources for the U.S. Patent and Trademark Office, and adoption of the international norm for patent priority, first-inventor-to-file. At the same time, U.S. courts have limited the reach of exclusive patent rights in a variety of ways including ending nearly automatic access to injunctions against infringers,4 raising the standard of non-obviousness,5 and restricting patent eligible subject matter.6

Notwithstanding that these changes are still being implemented and their effects are uncertain, there continue to be calls for reforming U.S. patent law, notably to curb the opportunistic practices of so-called patent assertion entities (PAEs) or patent “trolls.” These firms generally do not practice their patents and

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4eBay v. MercExchange, L.L.C. 547 U.S. 388 (2006). This case is discussed further below.

5KSR International. Co. v. Teleflex, Inc. 550 U.S. 398 (2007).

6Association for Molecular Pathology et al. v. Myriad Genetics, Inc. et al. (Supreme Court no. 12-398, 2013).

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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often are not responsible for the inventions that lead to patents. Rather, they acquire patents for the purpose of threatening large and small practicing companies, which may or may not be infringing, with lawsuits in order to obtain royalties from licenses or monetary settlements or damage awards. According to a recent study by the Obama Administration, lawsuits brought by PAEs have tripled in the last two years and now constitute the majority of patent infringement suits (Executive Office of the President, 2013). Claiming that PAE activity disproportionately hurts small businesses and deters technological innovation in some sectors, the Administration supports legislation favored by a number of large operating companies to discourage such activity by permitting the courts to impose attorney fees on entities that bring unwarranted lawsuits. The Administration would also force patent owners and applicants to disclose the “real party in interest” to shed light on who benefits from PAE activity.

It is quite possible that such reforms, adopted and proposed, will or would reduce some of the pressures underlying the issues addressed in this report. For example, if an outcome of the America Invents Act and recent court decisions is to raise the quality of issued patents—i.e., increase the likelihood that they are truly novel and inventive—then litigation associated with the validity of claimed SEPs could be reduced. Transparency of patent ownership, especially in the case of patent transfers, would enhance the transparency of FRAND licensing commitments, as we discuss later in this report. However, while the committee recognizes the importance of a well-functioning patent system, proposing further fundamental reforms was not part of our charge from the U.S. Patent and Trademark Office or the National Research Council. In any case, it would require a committee with a quite different composition of expertise.

1.5 Economic Context

Issues of standardization and the associated management of intellectual property in technical standards have taken on ever greater importance in recent decades because of three major and interrelated factors. First is the rapid advance of globalization reflected in the growth of global production and innovation networks, both within and across enterprises (Ernst 2006, Maskus 2012). Second is the increasing integration of major emerging economies, such as China, India, Brazil, and Mexico, into world markets for goods, services, and technology. Third is rapid and even accelerating technological change in key sectors of competition where standardization and interoperability are critical elements of success, notably in the ICT sector. As a result, standards and policies need to evolve and adjust over time to reflect the changing technological environment.

All of these factors are transforming and deepening the challenges of effectively managing the development and use of SEPs in an environment of intensifying technological competition. Global enterprises increasingly see control over intellectual property, especially in essential architectural and interface standards, as the major determinant of competitive success. Indeed, control over IP offers one primary means of earning returns on increasingly costly research

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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and development (R&D) investments. At the same time, it is important that implementers around the world have access to these standards to promote product-level competition and procure consumer benefits. Yet they may be developed by SSOs with different rules or implemented in countries subject to varying IPR and competition policies. These pressures explain the need for increasingly sophisticated approaches to managing SEPs in standardization.

Innovation is at the core of both national and enterprise-level strategies for competing in global markets in order to encourage growth and job creation (OECD, 2012). Intensive investments in research and development (R&D) were, until recently, largely confined to institutions and firms headquartered in a small number of advanced economies. Today, however, R&D expenditures exceed 1.5 percent of GDP (a previously high benchmark) in dozens of nations, including China, Korea, and Singapore, where the growth of such investments has been particularly rapid.7 At the firm level, these increases have emerged both within national enterprises and through international investments in R&D performed by affiliates of multinational companies. The latter trend in particular demonstrates the globalization of innovation efforts through research networks (OECD, 2008). Distributing R&D among affiliates can reap several competitive advantages, including reduced personnel costs, enhanced intellectual diversity, greater access to local fiscal subsidies and markets, and higher sales of products and technologies developed for local or regional markets (Ernst, 2006).

Investments in R&D aim to produce new process technologies and higher-quality varieties of goods and services. A central component of this research is the development of technical standards, which exist and are often updated in virtually all industries. Standards often build on scientific knowledge from research in biology, informatics, mathematics, physics, and other basic sciences, explaining why universities and public research laboratories’ such as the National Institute of Standards and Technology (NIST) in the United States, interact with standards organizations. Many technologies, such as those in software and electronic communications, emerge from research in engineering work at both grant-supported laboratories and private firms, requiring cooperation and collaboration among these institutions to achieve standardization.

In this context, two types of R&D investments are fundamental for the commercialization of technologies in several industries. First is the development of a new process technology or product itself, which is largely a private affair though it may be based on the outcomes of knowledge generated via publicly supported basic science. Second is the specification of standards that these technologies and products must meet in order to enter the marketplace.

Standards are developed by a complex mixture of private and public interests. They may be the result of individual firms discovering and promoting a workable specification that achieves customer acceptance. Indeed, standards

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7Data are from World Bank, World Development Indicators. See http://data.worldbank.org/data-catalog/world-development-indicators.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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development has become an important field of corporate strategy in some industries. Standards are also developed by SSOs, which consist of representatives of private and, often, quasi-public entities. They may also be set by government agencies, whether to address a clear market failure or to promote local industrial-development objectives. Governments may regard the standard-setting process as an integral part of national competitiveness and innovation strategies. More broadly, public authorities may be involved in standards development and diffusion because of the recognized benefits they entail. For example, early in 2013 the European Union put in place a new regulation addressing the benefits of standards under recognized rules.8

Within this complex framework firms and SSOs act collaboratively to enhance efficient standardization. Indeed, standards selection often involves difficult engineering decisions to achieve compatible specifications across a variety of complex technologies, while ensuring that any promulgated norms are compatible with user needs. Thus, especially in industries with multiple competing technologies it is necessary to have extensive upfront technical and management consultations to arrive at the most appropriate standards, the fundamental purpose of SSOs. Often the technologies entering standards are patented. Thus, central to this management of standards is the specification of guidelines and rules for the licensing of standard-essential patented technologies.

At the same time, there may be numerous opportunities for firms to engage in exclusionary practices or exploit market power. These problems are likely to be most significant where technologies entering a standard are patented and essential for use, innovation is cumulative, and there are important network effects and interoperability needs. The main competitive concerns of this type, arising from the combination of standardization and the assertion and enforcement of patents, are addressed in detail in this report. Through their IPR policies regarding disclosure, licensing, and transfers of patents, SSOs could, in principle, effectively diminish such problems. Where these policies are inadequate for this purpose, however, competition authorities and the courts play an important role. Thus, in this report the committee offers guidance for both SSOs and public agencies.

1.6 Standardization in the ICT Setting

For the past two decades the information and communications technology (ICT) sector has represented one of the most dynamic commercial markets and most active arenas for standards development. In particular, the convergence of products and services in the Internet and cellular communications sector has transformed the daily lives much of the world’s population and spawned industries in every part of the world with aggregate economic activity approaching $2

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8See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:316:0012:0033:EN.pdf.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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trillion per year.9 The Internet and cellular communications industries had separate origins and until recently followed separate development paths. However, they have converged rapidly in the past five years and it is likely that by now, the majority of devices accessing the Internet use wireless communications. Computers, tablets, phones, and televisions increasingly share these capabilities. With the ability to connect devices anywhere in the world to one another, the Internet and cellular networks rely heavily on interoperability standards developed by SSOs. These standards almost inevitably incorporate patented technologies.

The technologies embodied in today’s complex microelectronic products, such as a smartphone, are governed by hundreds of standards, developed by many SSOs, each with its own culture, governing principles, and specific processes. Indeed, the heterogeneity of practices across SSOs is striking. The following paragraphs describe briefly four multinational SSOs with diverse characteristics.

  • The Third Generation Partnership Project (3GPP) formulates standards for cellular communications. It is a consortium of six national and regional standards organizations, referred to as “organizational partners,” in Europe, the United States, Japan, Korea, and China. Individual members, which are companies associated with one or more of the organizational partners of 3GPP, contribute to producing the standards. Partner SSO policies govern.10
  • The Institute of Electrical and Electronics Engineers Standards Association (IEEE-SA) publishes standards in many categories. Several devices implementing IEEE standards for wireless local area networks (Wi-Fi) and Bluetooth communications are critical components of complex computers and smartphones. IEEE-SA has individual and corporate members and is part of the IEEE, a transnational professional association.
  • An important source of standards governing Internet communications is the Internet Engineering Task Force (IETF). Its goal is “… to make the Internet work better by producing high quality, relevant technical documents that influence the way people design, use, and manage the Internet.” Reflecting the organic, bottom-up evolution of the Internet, IETF activities are open to anyone and there is no formal membership or membership fee.

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9Chetan Sharma estimated worldwide mobile service revenues to reach $1.5T in 2012 and iSuppli projected 2012 factory revenues for mobile communications equipment to reach $376 billion.

10Because there is no independent 3GPP IPR policy, this organization was not included in the survey described in Chapter 2.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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  • The International Telecommunication Standardization Sector (ITU-T) of the International Telecommunication Union (ITU), another source of communications-based standards, is the United Nations specialized agency for standardization in information and communication technologies. The ITU currently has a membership of 193 countries and over 700 private-sector entities and academic institutions. Currently, one of the most prominent ITU-T standards, called “Recommendations,” is the H.264 standard for video compression.

The rapid evolution of ICT technologies and the growth of ICT markets are fueled by intense activity in these and other SSOs described in this report and hundreds more. The work of each SSO is generally conducted by technical committees within the organization that are responsible for individual standards. For example, 3GPP has four Technical Specification Groups, further subdivided into 17 working groups. The IETF's standards development work is organized into eight areas, subdivided into more than 100 working groups.

Each SSO has a unique background, technical scope, and rules regarding membership and participation. Similarly, each SSO has its own set of procedures for introducing, adjusting, approving, publishing and revising candidate standards.11 This diversity is also reflected in the way the SSOs treat intellectual property related to candidate standards and adopted standards. Each SSO (in the case of 3GPP, each of its organizational partners) has its own policy regarding disclosure of essential patents, licensing commitments, and in some cases, transfer of essential patents.

Although standards creation and revision is in large part an engineering discipline, the outcomes of the engineering efforts are strongly influenced, and in some cases mandated by laws, regulatory practices, and judicial systems of the jurisdictions of the SSOs and places where the standards are implemented. Until recently, the sources of standards and the markets for products and services that implement the standards have been concentrated in regions with highly developed economies. However, ICT markets in these regions are beginning to saturate and most of the near-term growth is likely to come from emerging markets, most prominently, China, India, and Brazil. Although they differ from one place to another, the laws, regulatory practices, and judicial approaches to standards are relatively well-established in economically developed countries. By contrast, these practices are still evolving in emerging markets, including those studied by the committee—China, India, and Brazil. Among these three countries, China has implemented the most extensive set of institutions and procedures and Brazil the least.

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11As noted in Chapter 2, however, the large majority of standards bodies accredited by the American National Standards Institute (ANSI) simply adopt the ANSI IPR policy as their own, with little variation.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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1.7 Stakeholders in Standard-Setting

There are a variety of interested actors involved in setting standards and managing and licensing intellectual property in ICT and other sectors, raising questions about finding the appropriate balance among them. The most obvious stakeholders are members of SSOs, including for the most part companies that manufacture products or market services that use the standards, companies that operate networks that practice the standards, firms that develop or acquire technologies purely for licensing, and in some cases academic institutions and government agencies. Many SSO members own patents they consider to be essential to implementation of the standards. Patent owners may have diverse motivations and strategies for utilizing their intellectual property. Some use these assets primarily for defensive purposes, such as to establish a form of détente or enable voluntary cross-licensing of patents among companies, supporting their “freedom to operate” in the marketplace. Others use their patents to generate a stream of royalty revenues; acquire patents to exercise the right to exclude others from using their technologies, as authorized by patent laws; or view patents as assets that help enable financing or entry into new markets where competitors have patent portfolios as well. Many firms have acquired patents for several, or perhaps all, of these and other reasons, following different business models.

There are also many entities that are not members of SSOs but are strongly influenced by the intellectual property policies of those organizations, including owners of essential patents, implementers of standards, and end users. These categories encompass individuals, companies, universities, and governments. For example, in the United States federal agencies are required to adopt private-sector standards under the National Technology Transfer Advancement Act, signed in 1996 (104 P.L. 113; 110 Stat. 775), and Circular A-119 of the Office of Management and Budget (OMB), revised in 1998 (OMB 63 FR 8546, 1998), whenever possible.

Further, it is becoming increasingly common for enterprises to acquire large portfolios of patents, many of which may be SEPs, to gain their implicit economic value. A few recent examples of companies that have obtained large bundles of patents from their original owners are Google, owner of patents acquired by purchasing Motorola Mobility, IPCom, purchaser of patents from Bosch, and the Rockstar Consortium, composed of Apple, Microsoft, EMC, Ericsson, BlackBerry, and Sony, that purchased Nortel’s patents during that company’s bankruptcy proceedings. Such acquisitions raise questions about the transferability of prior licensing commitments.

1.8 International and Multilateral Issues

The committee was asked to address geographical variations in practices and policies, with a view toward identifying their effectiveness in reducing conflict among stakeholders in this area. In this regard the report focuses on three salient features of the global system. First, as described in Chapter 2, there is

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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considerable heterogeneity in practices across SSOs that are located in different major economies. Keep in mind, however, that the most prominent SSOs in ICT are trans-boundary institutions, with membership from multiple locations and uniform rules applied to those members. This sets up an interesting hierarchy of organizations among those that arguably are more national in scope and the major international SSOs, creating opportunities for both collaboration and discord.

Second, a meaningful distinction exists between the government policies of the established industrialized economies and those of many emerging countries. The mature industrialized countries—the United States, members of the European Union, Japan, and to a large extent South Korea—generally share a common policy environment that relies on private sector organizations to develop and implement technologies through decentralized market competition, although university and government research laboratories are important as well.

The situation in key emerging economies is different. Chinese authorities, for example, tend to view standards setting as a centralized, top-down process that may achieve a variety of objectives, including domestic industrial policy and inbound technology transfer. Thus, although Chinese representatives are active in many international SSOs, the government also emphasizes and guides the development of domestic standards in key technologies. In short, China approaches domestic standards-setting more as an element of public policy and management than the province of the country’s enterprises. For their part, India and Brazil are only beginning to develop their standards policies in ICT and it is too soon to know which approach they may follow.

Third, the committee asked whether there are significant differences in laws and court opinions across jurisdictions regarding key elements of IP management in SSOs and firms. Such differences could arise, for example, in the areas of understanding the meaning of FRAND commitments, injunctive relief, transferability of licensing commitments, and public recording of patent transfers. In this context, the committee believes there is scope for greater communication and collaboration among SSOs and the patent offices of major economies, and among courts to reduce legal dissonance.

To the extent that differences in laws and public policies regarding SSOs pose significant difficulties for cross-border trade one might support efforts at international policy or law harmonization. This might be achieved through reformulating the Agreement on Technical Barriers to Trade (TBT) or the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) at the World Trade Organization (WTO) or through additional undertakings on IP standards at the World Intellectual Property Organization (WIPO). The committee chose not to pursue this line of inquiry, believing that it is unclear that there are sufficient problems with the current international system to justify recommending multilateral negotiations that are difficult to initiate and conclude in either venue, and in any case would involve broader issues of trade policy outside the committee’s statement of task (Maskus, 2012). Thus, in the near term we see little role for the WTO or WIPO in this context, though further study of the potential for such involvement in the longer term is warranted. In all likeli-

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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hood, greater societal benefits are available from simply restricting or eliminating nationalistic policies and practices that unduly reduce competition and innovation, a role for national authorities.

Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Suggested Citation:"1 Introduction." National Research Council. 2013. Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communications Technology. Washington, DC: The National Academies Press. doi: 10.17226/18510.
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Patent Challenges for Standard-Setting in the Global Economy: Lessons from Information and Communication Technology examines how leading national and multinational standard-setting organizations (SSOs) address patent disclosures, licensing terms, transfers of patent ownership, and other issues that arise in connection with developing technical standards for consumer and other microelectronic products, associated software and components, and communications networks including the Internet. Attempting to balance the interests of patent holders, other participants in standard-setting, standards implementers, and consumers, the report calls on SSOs to develop more explicit policies to avoid patent holdup and royalty-stacking, ensure that licensing commitments carry over to new owners of the patents incorporated in standards, and limit injunctions for infringement of patents with those licensing commitments. The report recommends government measures to increase the transparency of patent ownership and use of standards information to improve patent quality and to reduce conflicts of laws across countries.

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