During August, Talkstandards.com hosted an open forum focused towards a number of issues related to the tension between traditional software development business models, FRAND and RAND IPR licensing requirements and the open source community. The event was structured such that two featured articles were posted by Talkstandards regular Stacy Baird (Managing Director of Citrus Co.) and James Bryce Clark (from OASIS). In response to these featured articles, a series of expert contributors were invited to post introductory remarks, upon which the event discussion took place. These articles are summarized below. Please follow the links to access the articles in full.

Patents and Open Source Are Not Always Like Water and Oil:
“Patents have long served to enable innovation while assuring the complete disclosure of inventions and a reasonable return to inventors”. While RAND (Reasonable And Non-Discriminatory) licensing requirements, which provide equal and fair access to IP for use in both open and closed standards, has significant support from governments and industry, there exist some within the OSS (Open Source Software) community who wish to abolish RAND licensing all together. In the first of two featured articles, Stacy Baird outlined both the motivations and consequences of this desire.

The OSS Roadmap to a Minefield of Patents:
“Standards bodies are a microcosm of the marketplace: alternative ideas compete for inclusion in a draft” with organizations offering a wide range of approaches towards IPR technology, ranging from allowing to disallowing its inclusion or alternatively falling somewhere in between. In the second featured article, OASIS’s James Bryce Clark reported that “demands for royalties are becoming rarer” particularly during the recent boom in internet technology such as cloud computing which increasingly depends upon interoperability and transparency, in contrast to traditionally closed telecommunications networks.

FOSS (Business), Standards, and Intellectual Property Rights:
There is ongoing discussion covering how FOSS can be used in scalable business and what business models support using FOSS. For instance: “how one makes money when one gives the product away for free”. Stephen Walli argued that the nature of any tension between FOSS and standards is in their relationship and concluded that a well-run FOSS project should have the same level of IPR policy considerations in place as an SDO.

Betwixt and Between: Open source software and RAND standards development patent policies:
Regarding the tension between OSS and RAND, George T Willingmyre posed the questions: “What is the problem? Is this actually a “problem” or a matter of differing goals?” and “what is the lesson?” Arguing that rather than being a conflict between the Open Source definition and RAND, the tension instead comes from certain patent licensing restrictions which are included in some Open Source licenses and RAND. He concluded that the world’s policy makers should take heed when contemplating any decisions regarding Open Source policy affecting standard setting.

The Intersection of Royalty-generating Standards and OSS:
“All open source licenses are not created equal – hard line licenses, like the GPL, place more restrictions on users and thus create tensions with RAND/FRAND that don’t otherwise exist”, argued Daniel Garcia-Schwartz and Anne Layne-Farrar in their co-authored response to the featured articles. Counter to OSS ideals of “Information wants to be free”, the more restrictive the OSS license, regarding IPR inclusion, the less that information flow is possible. These licenses not only limit the pool of information from where OSS reliant firms can draw, but also delay standard implementation due to uncertainty.

Shaping the Debate – Are Some of the Tensions Created by “RAND-OSS” or by “RAND-GPL”?:
Many open source advocates reinforce the belief that RAND is incompatible with open source licenses with phases tending towards too strongly a worded, argued Jay Kesan. But the patent grant in an OSS license does not necessarily result in a royalty-free grant of all patents the distributor holds that read on a certain code, which is important to for maintaining a vibrant ICT sector.

An Open Source Approach to Policymaking?:
As global competition and the convergence of new technologies continues to increases, issues related to standards and standard development is “becoming a growing focus of policymakers who are struggling to keep up with the pace of change”. Helen Disney commented upon the discussion between proponents of open and proprietary-based standards and some of the misconceptions regarding the obstruction of innovation. She argued policymakers should neither “idolize nor demonize” business models based upon either OSS, RAND, etc and should take a more collaborative approach towards the most open, competitive ICT marketplace possible.

Open Standards and Open source – Maturity and beyond:
In many regards Open Source is maturing, claimed Ajit Jaokar citing the recent Talkstandards debate, which focused upon the evaluation a specific Open source licensing options rather than simply the OSS/IPR dichotomy, as part of a continued evolution of the discussion regarding Open Standards and Open Source. Arguing that “Open source licenses are not incompatible with IPR” and that the “Demands for royalties are increasingly depending on the domain” he outlined a series of implications stemming from this maturity.

Standing at the Intersection of RAND and OSS:
While on the surface it may seem a simple debate between RAND and “Open Source” regarding patent royalties, claimed Steve Mutkoski, “neither RAND nor OSS are singular or uniform concepts capable of such a simple comparison”. Outlined a number of ways in which the dozens of OSS licenses currently in use uniquely treat the inclusion of patents, Mukoski described the situation as a “complex legal discussion”.

Standards and Open Source Software:
“Is there an inherent tension between the FRAND … and the imperatives of Open Source software development? In one word, no” argued Timothy Simcoe. Nothing prevents a firm contributing technology to an open standard under a FRAND licensing agreement for free, via a non-assertion covenant or setting the maximum royalty rate to zero during ex-ante disclosure. Simcoe cites the potential holdup possibility as the key priority for policy consideration, in particular the improvement of IP policy (greater transparency, reduced vagueness such as “reasonable” royalty rates, etc).

Proponents of open source software are a creative bunch. Their flexible, open and collaborative way of working has certainly led to innovation not only in software development but also in the way that we now view many aspects of public policy.

On the positive side, the understanding of open source principles and ways of working has motivated us all to be more transparent, more open to creative partnerships and to place a premium on innovation as a public good.
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Both open standards and open source are related but evolving. Given recent events, we could even say that Open source is maturing. Today, rather than considering the dichotomy between open source and proprietary software; we are now evaluating specific open source licenses, how they work with various business goals and how they will play out in the future.

In many ways, our forum topic this month addresses that issue. Stacy says: The answer lies in licenses: not the patent licenses, but certain open source software licenses. James says: Demands for royalties are becoming rarer, in our own domain.
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In July, Talkstandards.com hosted an open forum which covered current issues related to Transparency in EU Standardization. A number of expert contributors posted a series of articles which covered a broad range of issues related to the general theme of the event. These articles are summarized below. Please follow the links to access the articles in full.

Transparency’s Role in CEN-CENELEC Operations:
Elena Santiago, Director General of CENELEC, highlighted the high degree of transparency within the CEN and CENELEC systems, two official European SSOs. She outlined the implemented framework which guarantees this transparency as well as a number of proposed initiatives to further increase its level.

Modernising ICT Standardisation in the EU – The Way Forward:
Describing the EU standardization White Paper as “a weak attempt to focus on important issues”, Ken Krechmer highlighted a number of the EU’s seven key standardization policy areas in which he suggests government involvement may be undesirable. He concluded that the white paper falls short of addressing the needs of a “post-information society”, and instead based upon the outdated goals of a 20th century “industrial society”.

Reform of Standardization Policy: Building a Risk-Based Regulatory System:
Valentin Nikonov and Lorenza Jachia, of the United Nations Economic Commission for Europe’s (UNECE) Working Party on Regulatory Cooperation and Standardization Policies (W.P.6), presented an overview of the groups “holistic approach” to the management of risks within regulatory systems. The approach, which is broadly based upon a series of codified steps, attempts to delicately balance between the two extremes of regulatory systems: excessive regulations and insufficient regulations. The authors describe the WP 6 as able to “provide insight and directions to the reform of standardization policy”.

Trade-Offs related to the Transparency in the European Standardisation System:
Knut Blind broke down a number of issues related to transparency into those associated with the standardization process and those associated with its final output. However, moves towards greater transparency within the final output – ie making the published standard available free of charge – are in many regards challenging the traditional business models of many standards bodies.

The Dangers of Compulsory FRAND Conditions:
Helen Disney warned that “we should be wary of over-restricting IP-related practices”, with respect to the complexities involved in the standardization process and specifically achieving full transparency within it. Highlighting the need for increased dialogue between SSOs and IP-related organisations, compulsory obligations such as FRAND licensing curb the choice and flexibility which are “cornerstones of competition” and risk hurting innovation.

The Silence of the Chips:
Ajit Jaokar warned, that too much transparency may in fact harm end-users through the phenomenon of Obfuscation – concealment of intended meaning in communication. The “Silence of the Chips” is an EU proposal to guarantee an individual the right to disconnect from their networked environment at their discretion – relevant against the backdrop of “Internet of Things” initiatives and complete with a catchy logo. Ajit questioned whether “under the guise of transparency, the only people who will gain any value from it are the mug makers and t-shirt makers”.

The European Framework for Transparent Standardisation:
Simon Hicks pointed out that transparency is important in the creation of standards that “have widespread use or have regulatory links” and that a regulatory framework can “make abuse of the system difficult”, but that the system must also largely be based on trust. “The European Framework for Transparent Standardisation” also addressed the need of standards being discussed in connection to IPR. However, Hicks warned that this “is likely to draw [standards organizations] too much into the commercial arena and take away from the focus on producing standards”.

Transparency in Standardization under EU policies:
Marcus Glader discussed how applying the same requirements applied under competition law on the EU standardization policy, could safeguard that cooperation on standards do not restrict competition. Regulation can affect the market ubiquity of a standard, but also curb development. Glader concludes that “different governance and organization models may be appropriate and efficient”.

Transparency in EU Standardisation – Response from OASIS:
Laurent Liscia, James Bryce Clark and Carol Cosgrove-Sacks argued that EU directives should “promote interorganizational cooperation, and be careful not to style themselves as competition to marketplace efforts”. “Transparency in EU Standardisation – Response from OASIS” also pointed out how transparency in terms of visibility into projects, availability of legal rights and clarity of administration can help improve open standards.

Transparency in standardization has important advantages. It fosters accountability in decision-making, through external and internal review. It also helps companies, including small and medium enterprises, to make informed decisions.

However, transparency can also have undesirable consequences; leading to collusion, grid-locks and strategic commitments. Regulators should accordingly think twice, and be extremely careful about the details, before mandating or regulating transparency in the standard-setting context.

Decentralized market economies tend to be transparent in very fundamental respects. In relation to consumable products, competing firms rely on dissemination of information through pricing, advertising and other means to maximize demand. With respect to processes, on the other hand, firms typically have incentives to be transparent to reduce transaction costs. Audits, financial reports, public disclosures to capital markets serve to reduce capital costs. Furthermore, external review of internal processes can reduce the cost of arms length contracting and thus facilitate vertical specialization. Transparency is accordingly an equilibrium phenomenon in market economies. It is however key that it is a market response to demand and relies on active choices by customers and users and, therefore, on competition between suppliers.

The same fundamentals are true also for standard-setting; perhaps even more so as long as standardization is market-driven. SSOs have a very basic interest in being transparent about standards they have developed. Success for a standard setting organization is directly related to use and deployment of standards that it develops. The very result of the process is disclosure through publication. Firms that contribute with know-how, including IPRs, do so to maximize the use of its knowledge. It is in the interest of IP-holders to maximize dissemination as long as reasonable compensation is guaranteed and participation is voluntary.

The transparency of standard setting organizations, including informal fora and consortia, varies. As for markets in general, information about the products tend to be disseminated quickly and widely. The largest and most important organizations also tend to be very transparent about processes in order to grow in membership.

The question is then, why is transparency not maximized by markets. And, more importantly, should it be. The key to these questions is that transparency often enhances efficiency; but not always. It is accordingly advisable not to generalize and to be very careful about the details.

Transparent pricing (including IPR licensing terms). While transparent pricing can facilitate choices and improve predictability, it may also facilitate commitment and collusion. Examples are numerous. For instance, experience from US auctions shows that too transparent bidding allows producers to split markets. The Danish government learned several years ago that publishing prices can raise, rather than lower, prices. Airlines used pre-publication of fares to coordinate on higher prices on certain city-pairs. It is accordingly critical to keep scope for secret price cuts, price differentiation and rebates to maintain healthy competition.

Transparent negotiations (including committee work). While transparent negotiations can improve access e.g. for small and medium enterprises, it may also result in gridlocks and negotiation failure. Excessive transparency may reduce the prospects for compromises as participants have to publically commit to certain positions before a decision can be reached. It may also foster undesirable signaling and strategic commitments. One should accordingly recognize the value of strategic flexibility. The benefits of disclosing information from internal processes and discussions can therefore vary across organizations.

Transparent decision-making (including public votes). Disclosure of votes has the advantage that firms have to be public about how they influence a particular decision. However, it also has numerous disadvantages. There are fundamental reasons why most democracies use secret ballots. With secret voting it is impossible to verify, and to reward or punish, a particular voter. There are also fundamental motives for why some courts and governments do not disclose the votes. The idea is that the governing body is a collective. The strength of a decision should not depend on the vote. The outcome should be judged on its merits.

Transparent strategy (including full disclosure of IPR). There are tremendous values at stake as collective decisions are taken. This creates incentives for rent-seeking and manipulation. Transparency can support these interests by fostering truthful behavior. It is accordingly desirable that a holder of an (unknown) patent is prohibited from manipulating a standard in its own interest just to create a lock-in that can subsequently be exploited in IPR licensing by that firm. However, the issue becomes more difficult with respect to passive behavior. Standard development is often done by technical experts from large firms. Requiring that these experts always fully understand and disclose the strategy, interests and IPRs of their employer is neither feasible nor desirable.

Transparency is certainly one of the main attributes of European Standardisation. CEN and CENELEC, and their national members (31 countries) constantly work to ensure maximum transparency at all stages in the development of European Standards.

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As Elena Santiago has mentioned, we are undertaking a major effort to improve access to standards and the standards process for SMEs – in the process these measures will benefit all stakeholders.

The study to which Elena referred contained no less than 58 recommendations. Each one is already being implemented in one way or another by one or more of our members. What we are doing is simply to try to extend these existing good practices as widely as possible within CEN-CENELEC and our members.

The recommendations have been grouped into a number of areas of which the major ones are :

- Increasing Awareness/ Education and Communication (web sites, training etc – noting we also have in the ESOs a Joint Working Group on how to improve this generally);

- Improving Access to Standards – Search Facilities, Information and Price (packages for reduced-price access, read-only access for drafts, abstracts of European Standards free of charge on line);

- Easier Use of Standards (making the text easier to understand, fewer cross-references etc);

- Increased Participation – Information on New Projects and how to get involved.

We intend to complete this exercise by the end of 2011. We think this should dramatically improve understanding of openness, noting that many of the issues are in fact related to difficulties to communicate to the market, rather than being barriers as such.

Transparency is a crucial requirement for standardization, requested by the WTO and even more so by all stakeholders involved. The issue of transparency can be divided into two different dimensions: the standardization process and its outputs. Focusing on the process one can further differentiate between issues related to participation, content and rules. Furthermore, transparency is an issue both for formal standardization bodies and consortia.

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This article is co-authored by Laurent Liscia, Executive Director, James Bryce Clark, General Counsel, and Dr Carol Cosgrove-Sacks, Senior Advisor on International Standards Policy at the OASIS Secretariat

How should European standardization policy be reformed to enhance efficiency? Should transparency be a key priority or could alternative measures more effectively improve the current European standardization system?

OASIS, one of the largest and oldest open standards consortia in the Internet and e-commerce field, participates actively in global and European standards coordination efforts. OASIS standards projects have long been initiated and implemented by a variety of European regional and national governments and enterprises.

We have been active in the recent EC projects to re-examine standards policy, and are keen to contribute to this conversation. Our views generally on how EU standardization policy ought to evolve have been circulated widely, and shared with the official policy bodies giving careful consideration to these issues in 2009-2010, especially in response to the ICT standards process – THE WAY FORWARD and participation in the high level EXPRESS process.

In summary, OASIS advocates that government policies and practices should more clearly address the fait accompli of pervasive use of consortia standards at every level of European public and private sector enterprise; and provide tools to welcome and leverage these cooperative industry innovations. Where EU Directives are thought to be ambiguous about “ESO” standards versus industry standards, they should be clarified to address and manage the obvious widespread adoption of both, and the continuing desire of industry participants to use them. De jure organizations should promote interorganizational cooperation, and be careful not to style themselves as competition to marketplace efforts.

Transparency can be an important tool in improving open standards, and promoting cooperation among standards sources, though it is not the exclusive approach to be applied.

Transparency may refer to several facets of the operation of standardization projects:

- One is visibility into the products. End-user implementers, as well as regulators, are better able to assess the evenhandedness and influences on a specification when the draft work and debates that produce it can be accessed openly. Restricted access impairs that ability to evaluate a standard’s quality and any biases. Impaired visibility also is an obstacle to work on interoperability that may come from cooperation or independent reviews.

- One is availability of licensure or legal rights. The obligations of participants and others to make legal rights available, for use of a standard, must be clear. Also, increasingly, as policymakers promote free and open source software, and open government data, some uses and implementations are prevented if standards are not clearly available free of royalty payment requirements, or in some cases, burdened by overly complex or burdensome license conditions.

- One is simple availability, in the sense of access. Standards not readily locatable via the Internet, or standards whose contents cannot be redistributed, or require payment to access, may be less likely to be widely adopted and leveraged by users. We note that there are fundamental unresolved issues with the traditional business models for standards creation, resulting, for example, in disparate standards access fees and practices among ISO, ITU and IEC.

- Finally, one is clarity of administration. The rules that affect an open standard’s development and progress, and decisions taken regarding the same, should be readily available to the public. Those with an interest in the trade-regulation and competition-law aspects of standards outcomes presumably also are better served by more disclosure.

OASIS very much appreciates the opportunity to engage in dialogue with the EU institutions. OASIS looks forward to many continued years of productive cooperation with policymakers and other standards-creating entities, in Europe and globally.

This EU standardization white paper is a weak attempt to focus on important issues. What is an ICT standard? Is a cell phone battery standard an ICT standard? Is a computer environmental disposal standard an ICT standard? Are the standards for telephone electronic components ICT standards? In fairness I do recognize this paper discusses standards that apply to the compatibility of computer or communications systems or equipment, less confusingly termed “compatibility” standards. The confused title is only preamble. Considering that the EU does not even have a reasonable (or widely accepted) definition of a technical standard proposing goals for a “quality” standard or “open” standard is meaningless.

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