Keith Mallinson’s blog in IP Finance 11 May 2011 notes:  However, in the vast majority of cases, the (F)RAND regime and bilateral licensing agreements have enabled the successful deployment and rapid growth of standards-based products and systems. Some notable examples of such successful deployments include the GSM (with four billion users) and WCDMA (with approximately one billion subscribers expected by yearend) wireless telecommunication networks. The flourishing market for mobile phones, which have transformed our business and daily lives, is evidence of the success of the economic incentives created by the IP system and the market-driven FRAND framework for licensing standards-essential IPR

Page 7 notes, “Care should be taken to ensure the right balance between protection of rights and access, i.e. to develop “fair regimes rewarding and incentivizing inventors and creators, whilst ensuring the circulation and dissemination of goods and services, the exercise of other fundamental rights and the promotion and preservation of cultural and linguistic diversity.”  In the standards world we use the term balance to denote the importance of including within the standards discussions the diversity of materially interested parties in the work. The term ‘balance’ is used differently in the Communication; but it is not clear what is meant. Does it suggest reform of the existing balance struck in the patent laws (or merely the copyright rules, as the Communication details further)? The patent laws relate, for good reason to ‘rewarding and incentivizing inventors and creators’. But they do not primarily relate to ‘circulation and dissemination’. If businesses invest now, under the belief that their innovations can be protected under the patent laws, to find that what they had understood to be the legal framework will be changed ex post, this will affect legal and commercial certainty.  The tone of the document, as relates to patents, is inconsistent with this issue of ‘balance’, which has already been struck by the patent laws (disclosure for protection & exclusive use). Nor should we ignore the reference to the balance taking into account the ‘exercise of other fundamental rights and the promotion and preservation of cultural and linguistic diversity’.

Finally, with respect to IP and Competition policy, the Communication states at page 4:  “Strong protection and enforcement of IPR should be accompanied by rigorous application of competition rules in order to prevent the abuse of IPR which can hamper innovation or exclude new entrants, and especially SMEs, from markets”.  But does not the legitimate exercise of IP rights allow for the exclusion of new entrants if the IP holder so wish? Exclusion from the market is precisely what IP does (when the market is defined as the market for the protected technology).  Does this statement mean that antitrust will be used to soften the legitimate exercise of IP rights? Does this sentence in the Communication suggest that EU competition rules will trump intellectual property protection and that competition law will be used to define what IPRs can be legitimately enjoyed? This would seem to be rather revolutionary.

]]> http://www.talkstandards.com/a-single-market-for-intellectual-property-rights-in-a-global-world-of-standards-and-competition-policies/feed/ 4 http://www.talkstandards.com/a-single-market-for-ipr-%e2%80%93-necessary-but-not-comprehensive-enough-to-boost-innovation-and-growth-in-europe/ http://www.talkstandards.com/a-single-market-for-ipr-%e2%80%93-necessary-but-not-comprehensive-enough-to-boost-innovation-and-growth-in-europe/#comments Tue, 07 Jun 2011 14:45:37 +0000 Knut Blind http://www.talkstandards.com/?p=7618 The Communication of the European Commission about a “Single Market for Intellectual Property Rights” provides a comprehensive approach of initiatives covering all relevant Intellectual Property Rights (IPRs).  All proposed initiatives are justified based on the current knowledge about the economic impacts of IPRs and other intangibles on companies’, but also economies’ competitiveness and growth. Furthermore, the current fragmentation of the markets for IPRs in Europe is certainly a disadvantage for European companies especially related to the United States of America, Japan and, meanwhile, also China. However, the approach is not comprehensive enough to boost innovation in Europe.

Innovation is the successful implementation of new products, processes and services in the market. And their wide diffusion is crucial for economic success. Consequently, the Communication references the “development of standards such as GSM and UMTS is a European success story based on diligent management of IPR … due to … Europe’s viable IPR system”.  The success of these cases is only partly due to Europe’s viable IPR system, but more based on the intelligent and strategic management of standardisation processes.  Despite referring to successful cases of European standardisation, the Communication does not contain any proposal to promote a further integration of the European standardisation system with the Single Market for Intellectual Property Rights. However, a recently conducted study by the Fraunhofer Institute of Open Communication Systems FOKUS reveals that US companies are much more successful in positioning their patents in international information and communication technology standards and Asian companies have meanwhile also achieved the technology capacity including the relevant IPRs  to set world standards  (see preliminary results under http://ec.europa.eu/enterprise/policies/european-standards/standardisation-policy/policy-activities/intellectual-property-rights/index_en.htm).

Nevertheless, the opportunity for mentioning already started collaborations between the European Patent Office and the European Telecommunication Standardisation Institute ETSI and for making further proposals to integrate the European Single Market for Intellectual Property Rights more effectively with the European Standardisation Organisations has been missed. And even more severely, the upcoming stronger competition from the well known competitors in the US and Japan and the new competitors from the emerging countries, like China and Korea, has been ignored. However, not only the link to the standardisation system has been disregarded, but also the relation between IPRs and open source, especially in the software area. In general, the dimension of the successful diffusion of innovative ideas into global knowledge markets needs to be emphasised much more – in addition to the licensing of IPRs, which is according to the OECD (2009) focusing on patents already well developed.

Finally, the strong focus of the Communication on the Single European Market for Intellectual Property Rights – despite mentioning the international dimension – is already obsolescent for more and more innovative companies being active in global markets trying to exploit the benefits of the new paradigm of open innovation.

Indeed IPRs, including patents, trademarks, design rights and copyrights, can serve as incentives for innovation and can help identify trusted producers. In this context, there is no doubt that the latest Strategy for European Intellectual Property Rights reflects the belief in the IP system as a power-hub for innovation in Europe.

Yet the success of this strategy does not only depend on the EU’s ability to effectively implement this strategy, not least with regard to the registration, protection and enforcement of IPRs in Europe.

In order for this strategy to be truly effective the EU should also consider how if can become more innovative in the first place!

In Putting knowledge into practice: A broad-based innovation strategy for the EU (2006), the European Commission acknowledged the dependence of Europe’s future on innovation. In doing so, it identified how tackling climate change, depleting national resources, sharp demographic changes and emerging security needs were all reliant on Europe’s ability to harness innovation.

Yet despite the ambitious goals that were set in the Lisbon Agenda and the Europe 2020 agenda, the EU is still lagging behind its main trading partners. Indeed several studies have shown that the Union’s competitive innovative edge is potentially waning. Comparative studies are showing that some emerging countries, particularly China, are beginning to close the innovation gap in respect to investment (though not in regards to patents), whilst it seems that no ground is being made by Europe on leading countries, such as the United States and Japan (in both investment and patents). There are also indications from European industry that the financial crisis could have a negative effect on investment on innovation which, considering the arguments laid out earlier, could undermine aspirations for an innovation-led recovery from the financial crisis.

To this extent, a far greater challenge than the implementation of an EU IP strategy is to create the potential and the basis to generate the knowledge assets that can be protected by IPRs in the first place. Without a stronger knowledge-based platform in Europe it is not really clear how significantly the new IP strategy would benefit the current European economy.

In other words, the new IP Strategy is a necessary but insufficient step to step up the level of the innovation in Europe, yet nevertheless it is a step in the right direction.

Meir Pugatch, Director of Research, Stockholm Network

This article is authored by George Willingmyre, President and founder of GTW Associates http://www.talkstandards.com/author/gtwassociates/

This forthcoming article is part of Talkstandards’ upcoming event “A New Strategy for European Intellectual Property Rights” and will be published Tuesday June 7th.

• GMT 15:00
• Europe: CET 17:00 / London 16:00
• US: Eastern 11:00 / Pacific 08:00
• Beijing 23:00
• Sydney 01:00 (7th June)

See here: http://www.talkstandards.com/a-new-strategy-for-european-intellectual-property-rights/

This article is authored by Knut Blind, TU Berlin, Chair of Innovation Economics; Fraunhofer FOKUS, Public Innovation; Rotterdam School of Management, Chair of Standardisation
http://www.talkstandards.com/author/k-blind/

This forthcoming article is part of Talkstandards’ upcoming event “A New Strategy for European Intellectual Property Rights” and will be published Tuesday June 7th.

• GMT 15:00
• Europe: CET 17:00 / London 16:00
• US: Eastern 11:00 / Pacific 08:00
• Beijing 23:00
• Sydney 01:00 (7th June)

See here: http://www.talkstandards.com/a-new-strategy-for-european-intellectual-property-rights/

This article is authored by Meir Pugatch, Director of Research, Stockholm Network
http://www.talkstandards.com/author/meir-pugatch/

This forthcoming article is part of Talkstandards’ upcoming event “A New Strategy for European Intellectual Property Rights” and will be published Tuesday June 7th.

• GMT 15:00
• Europe: CET 17:00 / London 16:00
• US: Eastern 11:00 / Pacific 08:00
• Beijing 23:00
• Sydney 01:00 (7th June)

See here: http://www.talkstandards.com/a-new-strategy-for-european-intellectual-property-rights/

The events featured articles are briefly summarized below, including links, and the event page can be found here: www.talkstandards.com/eu-standardization-from-formalism-to-pragmatism/

Steve Mutkoski -
Standardization, Government Policy and the “Consumerization of IT”

www.talkstandards.com/standardization-government-policy-and-the-%e2%80%9cconsumerization-of-it%e2%80%9d

Steve Mutkoski draws a parallel between internally facing eGovernment standardization strategies and the “consumerization of IT” faced by enterprise CTOs in the early 2000. The lesson being that Government interoperability policies need to have both the pragmatism and flexibility to ensure that they continue to evolve and serve the citizen as both customer and consumer by reflecting the technologies that citizens want to use. “If citizen centric eGovernment is to have any meaning, government interoperability policy itself has to put the citizen into the center of the equation.”

Susannah Sheppard -
Shortlines: The new European Interoperability Framework

www.talkstandards.com/shortlines-the-new-european-interoperability-framework

Co-authored by Susannah Sheppard and Richard Kemp, the authors discuss a number of issues and implications of FRAND licensing within the EIF v2 which rejects the assertion that ‘open’ means royalty free in its contextual definition of the meaning of ‘open specification’. In fitting with the general principles of public procurement law and policy, the wording accommodates both proprietary and open source software implementations, to not exclude or discriminate against large sectors of potential suppliers. This opens up competition from proprietary providers as well as permitting any open source solution and is not incompatible with ‘open’ standards in the ICT domain then falls in line with EU law in other fields such as EU competition law.

Michele Herman -
FRAND versus Royalty-Free

www.talkstandards.com/frand-versus-royalty-free

Michele Herman describes the shift of the EIFv2 wording from “a royalty-free basis” to “FRAND terms or on a royalty-free basis” as recognition of the infeasibility of widespread practical application of a royalty-free mandate. Concerns have long been raised that an open source 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 clarifies that both FRAND and royalty free patent policies are sufficiently “open.”

Meir Pugatch -
A Formal Path Towards Interoperability and Standardisation

www.talkstandards.com/a-formal-path-towards-interoperability-and-standardisation

In many ways, the recent EU white papers on e-Government and horizontal cooperation agreements establish frameworks for standard setting that are already practiced in many cases, including FRAND licensing. Meir Pugatch questions whether it is necessary for policymakers to mandate a formal path towards interoperability and standardisation? Policymakers should take a balanced, collaborative approach toward building the most competitive and dynamic ICT marketplace possible.

George Barker -
EIFv2: From Objectives to Action

www.talkstandards.com/eifv2-from-objectives-to-action

Rather than seamless interoperability, the objectives of the EIF boil down to optimal interoperability within a framework of open and competitive markets. Yet the emphasis placed on existing standards in procurement policies and the active involvement by EU Governments in standards bodies are likely to have adverse efficiency effects. By using procurement powers to limit competition between standards, and standards bodies they will limit the extent of choice, competitive pressures and incentives for innovation and may entail the effective formation of a buyer-cartel, and abuse of market power by EU Governments.

James Bryce Clark -
Encouraging Openness and Innovation

www.talkstandards.com/encouraging-openness-and-innovation

It’s not a bad thing to be cautious in designing technology policy, but an overly formal, hierarchical regime for standardization has not served European needs well. A smart Information Society requires smart information policy and public administrations to take a much more thoughtful, deliberate and facilitative role in leading information ecologies, and in understanding and continually improving their own influence on information transactions.

George Willingmyre -
European Codes and Guidelines for Standards Processes in a Bilateral and International Context

www.talkstandards.com/european-codes-and-guidelines-for-standards-processes-in-a-bilateral-and-international-context

In this contribution, George Willingmyre compares the EU’s recently published EIFv2 and updated Horizontal Guidelines to similar codes and guidelines for standards developers. The comparison is made with the American ‘OMB A-119’, for a US perspective, and the WTO’s ‘Decision on Principles for the Development of International Standards’, for an international perspective, and made in 4 key area. Namely:

• Membership and access to development
• Public Review
• Availability of standards in development and once published on reasonable terms
• Intellectual property available on a non-discriminatory, royalty-free or reasonable royalty basis to all interested parties (RAND)

Ajit Jaokar -
A More Pragmatic Approach to IPR

www.talkstandards.com/a-more-pragmatic-approach-to-ipr

The current EU document (EIF v2) attempts the complex task of defining an ‘Open standards’ by setting out qualifying criteria. The primary issue is upon which the criteria touch is FRAND and to the use of IPR in standards. Ajit Jaokar comments that as we get into a more complex regime of interplay between devices and software, the IPR issue will be a common theme of discussion in standards. But has the emphasis truly shifted from ‘questioning IPR inclusion’ to ‘accepting IPR transparency’?

The ‘question mark’ depicts an open ended question which leads to other questions:

• Was EU standardization based on formalism?
• Is it now based on pragmatism?
• What do these two terms mean anyway?

The current EU document (EIF v2) has to be viewed in context of the predecessor – EIF v1 which was released in 2004 and debated since then. EIF v1 tried to define ‘Open standards’, a complex issue in itself. EIF version 1 set out four criteria that a specification must have in order to be considered an “open standard”. EIF v2 contains an alternative version of these criteria.

The criteria touch on many issues but chief among them is FRAND and to the use of IPR in standards. As I have said before, as we get into a more complex regime of interplay between devices and software, the IPR issue will be a common theme of discussion in standards. In future, even JavaScript will depend on hardware optimization, which could potentially involve IPR.

EIF v2 Section 5.2.1 sets out a three part definition for “open specifications:”

If the openness principle is applied in full:

• 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 addition to these three criteria for openness, EIF v2 also permits government officials to use specifications that may not fully meet the principles outlined above.

So, the emphasis has shifted from ‘questioning IPR inclusion’ to ‘accepting IPR transparency’ i.e. patents should be declared and licensed in a Fair, Reasonable and Non-Discriminatory manner. This is compatible with leading Open source licenses such as BSD, Apache and European Public License but not GNU.

So, to come back to the question of the forum: Have we shifted from formalism to pragmatism?

I would say: the emphasis has shifted from ‘questioning IPR inclusion’ to ‘accepting IPR transparency’ and this is certainly a more pragmatic approach.

The H.264 vs WebM discussion goes to the heart of how we define the term ‘standard’.  There are many interpretations of what exactly constitutes a standard, but central to the meaning of a standard is the notion of collaboration between companies and the creation of a viable ecosystem. Hence, standards are often tied to the idea of shared control and a defined governance process. Control can take many facets: the ability to contribute to the specification, the ability to change the specification, transparency etc.  People often conflate the concept of open standards and open source software and this is one area where confusion can be problematic.

Consider the case of Android.

Open source projects, like standards projects, usually have a defined governance process which dictates how changes are made to the code base (in the case of an open source project) and the specification (in the case of a standard).  The idea of single firm (or person) control of an open source project is commonly discussed and in many regards accepted (Linus Torvalds is considered the benevolent dictator or the Linux Kernel).  Android software is open sourced, supposedly free but if we examine the governance process we can see that it is controlled by one company (Google).  By that, I mean, anyone can contribute to Android, but which contributions make it to the final build is controlled by the governance model (hence by Google).

In the standards context, however, there has typically been much more concern about single firm control of a specification.  Witness lots of discussion over the years questioning whether the “benevolent dictator” title could be applied to Sun’s stewardship of the Java specification.  This concern exists because where a standard defines required interoperability interface information, vendors without a say in development may be placed at an extreme competitive disadvantage.  By contrast, in the open source context, a vendor can simply chose whether or not to use code from an open source project or write its own code.

So there should be concern when one company essentially sets the framework for the collaboration for the ecosystem and effectively controls both the inputs and outputs to the process.  WebM is clearly not a standard with an open and inclusive governance process, but instead  a technology that was developed by a single company in a closed process.

We are likely to see more of such discussions in the future, since a growing number of potentially important technologies (the SPDY project, a possible replacement for HTTP comes to mind).

Why is that?

The Web has evolved very well with simple hypertext and http protocols but we are now entering an era of greater complexity.  In this new era, it is critical that the new technologies are developed and managed by an open and inclusive process.  Ecosystems built and managed by one company will come under greater scrutiny.

That’s why the H.264 v.s. WebM discussion goes to the heart of what is a ‘standard’.

Background

The Web was initially not designed to deploy video content but users have always felt the need for video content. To fill in the gap for web based video, Adobe stepped in with Flash. Flash became a de-facto web standard and was deployed as a Web based plugin. This is normal for the Web – i.e. third party plugins are encouraged as a way to evolve the Web. Over time, the Flash plugin became the dominant de-facto standard for video on the Web. With HTML5, Web standards bodies have decided to create a new standard which supports the deployment of video on the Web natively (i.e. without a plugin). Overall, this is considered to be a good idea with the HTML5 standard seen as the official avenue to deploy (standards based) video. However, this left the question of which video format should be deployed within the next generation browsers. Which has resulted in the current debate between H.264 and WebM.

The players and the stakes

There is a lot at stake here, much like the VHS vs Betamax wars a generation ago. This is especially more so if we consider Web video will be a part of emerging mobile devices. Even though the H.264 format is a standard, there are some companies who own IPR related to the standard. MPEG-LA, the body which owns the IPR has made some concessions towards royalties but for many, including the Chrome group at Google, there remain concerns. The alternative is WebM, which is not a standard but is open source and royalty free. WebM is not a standard since it is developed by Google. It is open sourced but Google maintains the governance model (much as it does for Android). In contrast, H.264 is also open sourced BUT is not royalty free.

There is precedence with this move of one person/entity maintaining the governance model – such as Linux with Linus Torvalds – but when companies become custodians of an open source product, even when it is royalty free, there is an obvious conflict of interest and we see that with Google-Android. The rationale behind such a move from Google is self-interest i.e. encourage adoption of WebM when it is free, open sourced and royalty-free and hope that it becomes a de-facto standard for video and usage patterns could be captured for marketing.

Observations and Conclusions

A lot is at stake here but here are some observations:

- Adobe used a proprietary extension to the Web to solve a practical problem. Thus, Adobe was an innovator.

- The h.264 standard includes IPR.

- The free and open source initiative is actually controlled by one company (through the governance model).

- Two products in the same company (Chrome and YouTube) are following somewhat different strategies with respect to video

The only conclusion we can draw is: such paradoxes increasingly common