FRAND versus Royalty-Free

A number of questions were posed for the upcoming TalkStandards event. This contribution is responsive to the following question:

The EIF v2 sets out attributes of “open specification” as well as a comment which appears to give public administrations some discretion to reference specifications that do not meet these openness criteria “if open specifications do not exist or do not meet functional interoperability needs.”(Section 5.2.1)  How does this differ from the language in EIF v1 and what are the practical implications of this difference in language?

The definition of the openness principle in EIFv2 differs from EIFv1.  In EFIv2, the openness principle is satisfied if the following are met:

• All stakeholders have the same possibility of contributing to the development of the specification and public review is part of the decision-making process;
• The specification is available for everybody to study;
• Intellectual property rights related to the specification are licensed on FRAND terms or on a royalty-free basis in a way that allows implementation in both proprietary and open source software.

In EIFv1, to be considered an open standard, the following characteristics needed to have been met:

• The standard is adopted and will be maintained by a not-for-profit organisation, and its ongoing development occurs on the basis of an open decision-making procedure available to all interested parties (consensus or majority decision etc.).
• The standard has been published and the standard specification document is available either freely or at a nominal charge. It must be permissible to all to copy, distribute and use it for no fee or at a nominal fee.
• The intellectual property – i.e. patents possibly present – of (parts of) the standard is made irrevocably available on a royalty-free basis.

FRAND versus Royalty-Free

The shift of the requirement from “a royalty-free basis” to “FRAND terms or on a royalty-free basis” recognizes the infeasibility of widespread practical application of a royalty-free mandate.  In practice, some ICT standards in use today are developed in consortia that may have royalty-free (“RF”) patent policies which typically permit patent holders to include other FRAND terms and conditions  (“FRAND-RF policies”) in any RF license they may  negotiate with prospective implementers.  Some of these standards are initially developed and reviewed by only a relatively small number of participants, whereas the same standard may be reviewed by a much larger and broader range of participants to the extent that it is later submitted to more formal standards development organizations such as ISO/IEC/ITU.

The ISO/IEC/ITU Common Patent Policy like many such standards development organizations permits FRAND licensing.  Further many consortia have adopted FRAND policies.  As a result many standards, even those that start out under a FRAND-RF policy are later ratified in a standards body under a FRAND patent policy. The shift in the definition of openness, along with EIFv2’s added provision that “public administrations may decide to use less open specifications, if open specifications do not exist or do not meet functional interoperability needs” begins to recognize practical implications associated with applying this framework.

Open Participation

Both EIF v1 and EIFv2 address the openness of the standards development processes used by many standards setting organizations (“SSOs”), i.e., both consortia and more formal standards development organizations.  Caution should be taken in trying to characterize any SSO development process according to the “openness” criteria set forth in either EIF v1 or EIF v2.

Many consortia do not share draft specifications or even published specifications with all parties but instead limit access to member organizations.  Membership, however, in such consortia is typically open to any party that is interested in joining.  As a result, most consortia are “open” to all parties although contributions and feedback may not come about through public reviews as may be the case with a few, but not all, of the more formal standards development organizations.

The decision-making processes in many SSOs are based on a member’s willingness to pay certain dues or undertake certain additional obligations that are not requested of other members.  Characterizing “how open” an SSO’s decision-making processes is will likely be quite subjective.  Many SSOs’ decision-making processes could therefore fall outside the criteria for “openness” if that term is characterized too restrictively.

Licensing Model Neutrality for Implementations

Concerns have long been raised that an open source software (OSS) implementation of a standard is only possible if the standard is developed under a royalty free patent policy despite abundant evidence in the marketplace to the contrary.  The EIFv2 makes it clear that both FRAND and royalty free patent policies are sufficiently “open.”   Specifically, implementations of a standard distributed under an open source license or another license are possible if the standard is developed under a FRAND policy that allows a reasonable royalty, and likewise both open source and proprietary licensed implementations are possible when a standard is developed under a FRAND-RF policy. Clarification in the EIFv2 that OSS implementations do not require special royalty-free policies is very useful.