Reflections on the nature of the problem for the economy caused by the potential tension between standards with IPRs and OSS

This article is co-authored by Anne Layne-Farrar and Daniel Garcia-Swartz (bio Here)

As fellow commenter Stacy Baird notes in his contribution to today’s discussion, 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. Indeed, open source and IPR protected software frequently coexist quite peaceably.

While proponents of OSS famously said some time ago, “Information wants to be free”, restrictive OSS licenses unfortunately have the opposite effect. In fact, the more restrictive the OSS license, the less information flow is possible. It is difficult to measure the cost paid for the road not taken, but it is likely non-trivial.

The potential negative effect for firms that rely on OSS with highly restrictive licenses derives from the self-imposed reduction of choice. When organizations rely on the GPL or other similarly restrictive licenses for a specific product, they are precluded from incorporating into that product software that involves royalty payments. The pool of innovation from which they can draw is therefore limited. This reduction in choice is not a problem only if we assume that all software involving royalties is inferior, less innovative, and less relevant than readily available OSS software free of all IPR payments. The moment that we admit that some proprietary software may offer solutions not otherwise available, or available only in a less efficient or lower quality form, then we must also admit that a price is indeed paid by restricting the pool of contributions from which an OSS program can draw.

But the effects are surely more wide spread than that. In particular, it is our experience that many firms that rely on IPR protection shun standard setting organizations with open source leanings. Here the issue is not that existing software solutions protected by IPR are being precluded from inclusion in open source products, but rather that software solutions are not developed at all because the firms that would develop them are leery of OSS entanglements. This second effect exacerbates the first.

A related third effect in the form of uncertainty will emerge in at least some instances. To see the price that uncertainty over IPR and OSS can impose, consider Google’s recent announcement of an “open and free” video format, VP8, “with the goal of creating a standard that anyone can use without paying royalties.”*   The controversy began almost immediately after Google’s announcement. Specifically, MPEG LA announced that it was already working on creating a patent pool with patents that read on the VP8 standard. As the technology underlying VP8 is allegedly not owned by Google and thus is not under Google’s control, neither is the standard’s royalty-free status. Despite any reassurances that Google may make, risk averse firms appear to be avoiding the standard until its status is clarified – the opposite effect that Google was striving for.

The bottom line seems clear: tension between IPRs and OSS is bound to impose some economic costs. Most likely, the presence of strict OSS licenses in a standard setting context will result in reduced innovation and less consumer choice. When uncertainty is thrown into the mix, the cost can include delayed adoption of a standard. These effects appear to be greater the greater the reliance on more restrictive licenses, like the GPL, as opposed to more accommodating ones, like the BSD.

Join the Forum discussion here: http://www.talkstandards.com/questions-for-standards-and-oss-open-forum/

* See “Google’s New Open Source Standard May Never Be Free”", Technology Review, May 26, 2010