In a recently released white paper, entitled Modernising ICT Standardisation in the EU – The Way Forward, the Commission presents a cogent picture of the growing importance of standardization in the ICT sector and delineates a number of admirable goals.
The first of those goals – “to modernise the EU ICT standardisation policy and to fully exploit the potential of standard setting” – is one that few should quibble with, if it is applied to government initiatives. Tied as they have been to the more cumbersome and slow moving formal standard setting, European government procurement efforts and EU legislation have been unable to reap the full benefits of more timely, market-responsive standards emerging from industry fora and consortia. The suggestion that the Commission and the member states should revise their rules (see action items (b) and (c) on page 7 of the white paper) to allow for admission of standards developed by non-formal bodies is therefore a welcome one.
But it is unclear whether the white paper is so circumscribed in its recommendations. If, instead of focusing on action items for the Commission’s own dealings, or making recommendations for member state governments to adopt, the white paper is attempting to offer policy recommendations for the standard setting bodies themselves, then the advice may not be so welcome. Action item (g), on page 9 of the white paper is, in fact, aimed at the standard developing organizations. Before extending its recommendations beyond the Commission’s own purview, however, the white paper must first establish why government intervention is needed in these bodies.
A case might be made for some sort of market failure in ICT standard setting. Certainly many scholars and industry analysts have written copious amounts on problematic behaviors practiced by firms participating in standard setting, include patent hold up, patent ambush, royalty stacking, non-FRAND licensing, and the like. Nonetheless, there has been little discussion in academic or policy circles that problems like these cannot be adequately dealt with by the standard setting organizations themselves. Some specific bodies have indeed instituted rule changes meant to deal with opportunistic conduct by their members (I refer here to the IPR policy changes instituted by VITA and IEEE). In short, the white paper fails to establish why policy intervention is needed, how it will improve upon internal industry efforts, and why any perceived benefits would outweigh the costs involved in circumventing market forces with Commission dicta. Without making that case, the white paper should not go beyond suggestions.
With this (rather important) caveat in mind, however, much of what the white paper suggests is good advice. In particular, the four “attributes” listed on page 4 of the white paper are sound ones:
1. Openness: Making the standard setting process open to all interested parties and relevant stakeholders is important for standard setting on many levels. For instance, if a standard setting body were able to preclude certain firms, it could easily turn a generally procompetitive standard setting process into a thinly veiled mechanism for industry cartelization.
2. Consensus: Defining the voting procedures within standard setting organizations to be based on consensus rules is crucial. Otherwise, an incumbent dominant enterprise could easily hijack a standard. For instance, when voting rules are based purely upon European sales revenues then standard setting erects barriers for new entrants, especially those from other jurisdictions looking to expand operations in the EEA. A firm with minimal European sales will have no voice in the standard setting process upon which it depends. In other words, voting rules can be written as a means to perpetuate dominance and limit new competitive threats, particularly those from abroad (notably, Asia and the US).
3. Balance: Achieving balance between the many (frequently conflicting) interests present in a typical standard setting body is equally important, for reasons similar to those listed above. Intellectual property rights holders should not be able to dictate unreasonable terms to the firms that will implement a standard; firms implementing a standard should not impose restrictive licensing terms on intellectual property rights holders; large firms should not set standards to the detriment of the smaller entities participating; enterprises based in one member state should not set standard setting rules so as to disadvantage enterprises in another member state; and so on. Note that one practical implication of a balanced policy would be instituting an internal grievance process, whereby members could voice concerns without having to escalate their complaints to the contentious level of litigation or complaint to the Commission.
4. Transparency: This last “attribute” is the capstone of the three that precede it. It is needed in order to ensure openness, consensus, and balance. When standardization takes place behind closed doors, without clear sight into how decisions are really made, there is no way to determine whether or not the standardization process is in fact open, balanced, and based upon consensus.
If the Commission is merely offering these four “attributes” (along with the other discussions in the white paper) as advice for standard setting bodies, this is sensible advice. However, if something more is implied, then the case must first be made for active government intervention in industry standard setting. In short, then, my suggestion for “The Way Forward” would be for the Commission to clarify its intentions.