This is Part 4 in a series of articles in which contributor Stacy Baird presents and in-depth analysis of the role of governments in standards setting initiatives which is released on a bi-weekly basis. For previous instalments see here: Part 2, Part 3 – Editor

PART 4: The Least Formal IT Standard Setting: Patent Pools and De Facto Standards

I have discussed the alphabet soup of formal standards setting forums where thousands of IT standards have been adopted. At the other end of the spectrum from formal SDOs is one of the least formal approaches to standards setting, that of “patent pools.” Patent pools are often used to address complex patent licensing issues surrounding standards in an efficient manner. A “patent pool” is the sharing, or pooling, of patent ownership interests to benefit the market at large. There is a long history of the use of “patent pools” in connection with the development of standards and the adoption of proprietary technologies into standards. The broadcasting, consumer electronics and computer industries (collectively the IT industries in such a look back into history) have long been part of that history.

Often it is the pioneers in an industry or technical achievement that use the patent pool. An early example in the IT sphere was the Associated Radio Manufacturers, later renamed the Radio Corporation of America. Formed in 1924, the Associated Radio Manufacturers brought together the radio interests of American Marconi, American Telephone and Telegraph (AT&T), General Electric and Westinghouse, to develop standards for radio parts, spectrum management, and television transmission standards. Fast forward to 1998, when Sony, Philips, and Pioneer developed the DVD-Video and DVD-ROM standard specifications, and 1999, when Hitachi, Matsushita, Time-Warner, Toshiba, and others pooled patents for DVD compliant products. Modern computing technology standards using patent pools include MPEG, MPEG-2 AAC audio codec, DVI, and USB. RFID vendors formed a patent pool to resolve intellectual property rights ownership issues. The U.S. Patent and Trademark Office has clearly stated its support for patent pools, as has the Federal Trade Commission and the Department of Justice, providing guidelines for antitrust enforcement in regard to such collective rights management.

Another common avenue for the development of a standard, of course, is where a technology is so widely adopted by consumers or users that it becomes a de facto standard. Examples of de facto IT standards include the mini-DV videocassette format, Adobe PDF file format, Apple iTunes’s AAC audio file format, Microsoft Windows Media Player WMP file format, Hewlett-Packard’s Printer Control Language (PCL), and Sun Microsystem’s JAVA programming language, among numerous others.

There are also circumstances in which consumers or other users (i.e., industry members or segments) embrace multiple competing standards that then co-exist in the market. Some examples of widely adopted, yet competing standards include the various flavors of high speed communications standards such as IEEE 802.11 (a/b/g/n and so on), USB-2, IEEE 1394, and DVI; the competing digital video disc formats, DVD+ and DVD-; the competing EISA v. MCA, current multiple format standards for digital video (i.e., progressive, interlaced formats in various resolutions: 480p, 480i, 720p, 720i, 1080p, 1080i), and in earlier days, the Ethernet architecture as it competed with IBM’s Token Ring. Notable cases where competition between standards resulted in consumer confusion and a delay in consumer interest in the overall commercial offering include the competition between Betamax and VHS, SuperAudio CD and DVD-Audio, and Blu-ray and HD DVD. On the upside, such market behavior results in user choice. Competing standards that survive in the market may each meet users’ differing needs even at the expense of true interoperability. Similarly, if multiple standards develop and are each adopted by the market, the result may be standards-agnostic platforms (devices) or multi-standard platforms that are interoperable through conversion or gateway tools or otherwise (this is a less difficult matter, and therefore more common, in regard to software as compared to hardware). The downside is the potential for inefficiency or consumer confusion that could forestall widespread adoption.

Eventually, where there is a viable commercial market (the convergence of a mature technology or standard and the conditions where consumers are truly interested in the having the products made possible by the standard), either the market formally adopts a standard or multiple standards (and those standards coexist), or a de facto choice evolves.

Quite commonly something more oblique, more conceptual, and in fact, more flexible than formal standards development organizations, and more formal than patent pools or the evolution of a de facto standard. “Consortia” are formed by businesses with a common interest in establishing a technology as a standard. I will discuss consortia in my next entry.