Inter-Operability Standards and Intellectual Property

By Donal O’Connell

Interoperability standards

Interoperability refers to the ability of diverse systems to work together or inter-operate, without any special effort on the part of the customer or end-user. It is the ability of two or more networks, systems, devices, applications or components to exchange information between them and to use the information so exchanged. Interoperability standards can help facilitate data integration and transmission.

Compatibility and interoperability is an important goal for many industries, but especially so for the Information and Communications Technologies (ICT) industry, including its customers and end-users. Standardization is a key activity for most companies involved in the ICT industry to drive industry-wide adoption of common technology evolution objectives, to obtain adoption of state of the art technologies and to create global markets for products and services. The adoption of globally agreed common standards enables inter-operation and compatibility of products and services between different vendors’ products and different operators’ networks around the world.

Success for new technologies requires interoperability. Today, significant investments and technically valuable technology do not guarantee success. Standardization is a necessity for interoperability, and is generally the result of efforts by different research and development entities. Standards allow businesses to develop products or services which will be accepted in the market place. It increases competition between industry players and insures quality, compatibility and the interoperability of products and services. As Machiavelli said “…there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things”.

A standards organization, standards body, standards development organization or standards setting organization is any entity whose primary activities are developing, coordinating, promulgating, revising, amending, re-issuing, interpreting, or otherwise maintaining standards that address the interests of a wide base of users.

Standardisation is ideally an open, consensual, “ex-ante” process for achieving interoperability. Ex-Ante is a neo-Latin word meaning ‘before the event’. The standardisation process is conducted and the interoperability standard defined and agreed before products and services are actually created and made available in the market place. There are various types of standard, and there are indeed different approaches to how they are created.

Different types of standards

Formal standards are ones which are established by an official standardization body, such as ETSI, the European Telecommunications Standards Institute. There are many standards organisations. At international level for example, the International Organisation for Standardisation (ISO), the International Electrotechnical Commission (IEC), and the International Telecommunication Union (ITU) have existed for more than 50 years. Generally, any standards organisation may be classified by its role, position and the extent of its influence on the local, national, regional and global standardization arena.

Ad-Hoc standards are unofficial in nature or established by an “informal” industry grouping. They may or may not have participation open to all and they may or may not grant access to the standardised technology to everyone. Some industry-driven standards development efforts don’t even have a formal organizational structure, and they are often project funded by large corporations.

A de-facto or proprietary standard is one where the solution of one (or a few) proprietor(s) become(s) dominant and hence the de-facto standard. It is usually a technical standard that has achieved status informally by public acceptance, market forces such as early entrance to the market and has persisted by tradition. The ‘QWERTY’ system was was one of several options for the layout of letters on a typewriter keyboard. It became a de facto standard because it was used on the most commercially successful of the early typewriters and once people learned the QWERTY layout, they really did not want to re-learn a different system.

Interoperability standards and collaborative innovation

For most standards organizations, much of this work is carried out in committees and working groups composed of technical experts drawn from the member companies and organizations. These committees are often referred to as technical bodies and typically meet on a regular basis. They also rely heavily on electronic communications to help progress the work, especially in-between meetings. For certain urgent items of work, where this frequency of meeting is not sufficient, the standards body may also convene a special task force,  small groups of technical experts, again usually seconded from the members, to work together intensively over a period of time, typically a few months, to accelerate the standard drafting work. In several technical standardization areas, the members, which may include companies, organizations and universities, have very fruitful collaborations and numerous joint projects. These collaborative project teams work towards common goals and appear as highly professional delegations representing all involved in the standardization organizations.

The common goal for such collaboration is to create the best possible technologies, as well as to be in the best possible position to implement cutting-edge technologies. Collaboration in standardization is, indeed, the lifeline for many involved. It is the way for all parties involved to gain a unique, shared insight into the market and its needs. The technical content for the standardization forums is created jointly in these joint projects. Steering groups, formed of business, research and standardization management from across the companies and organizations involved, may guide the direction of the standardization work.

The collaborative element is the foundation for the joint standardization delegations in the various standardization organizations that the companies and organizations are active in. In order to achieve the desired results and to drive the adoption of key technologies to become part of the standard, collaboration is a necessity. The results in terms of the technology topics to be taken to the standardization forums are solid, because many weaknesses are removed through internal discussions and positive challenging within the joint projects. Because of the possible joint history and the trust that follows it, issues are discussed openly from a wider market point of view.

Obviously the standardization organization delegates are the key part of these joint projects. However, a key benefit of the close collaboration is the involvement of researchers and experts from a whole variety of business units and technology groups. This guarantees that contributions to the standardization organizations cover all possible strategic and technical points of view of those collaborating.

Open standards

Regardless of how the standard is created and who creates it, an open standards is one which is open for all to participate in the standard setting process, to decide the applicable rules, e.g. intellectual property and licensing rules, to contribute technical proposals,  and to participate in technology selection. Basically it means that the standard specification is decided by all. An open standard is also one which is accessible to all, so that no-one is blocked from using the standard. However open does not mean free of cost, which is sometimes misunderstood.

A 2004 white paper on interoperability by EICTA, the European Industry Association for Information, Communications and Consumer Electronics Technology defined an open standard as one which properly addressed the issues of control, completeness, compliance and cost. 

• Control: the evolution of the specification should be set in a transparent process open to all interested contributors;
• Completeness: the technical requirements of the solution should be specified completely enough to guarantee full interoperability;
• Compliance: there is a substantial standard-compliant offering promoted by proponents of the standard;
• Cost: fair reasonable and non-discriminatory access is provided to intellectual property unavoidably used in implementation of the standard.

The role of intellectual property in open interoperability standards

Patents underpin open standardization. Patents encourage R&D investment and this is also true for interoperability standards. Patents allow the disclosing and sharing of ideas openly and early. Without patents, it is most likely that secrecy would prevail. Patents allow technical specifications can be promulgated consensually & early, thereby making the process inclusive and not exclusive. However, patents do have the potential to delay or even block the standard and cause a technology “hold-up”.

An essential patent is one whose claims which read onto the standard specification. It is therefore not possible to avoid patent infringement with any standard-compliant product. But it is not possible to sell products if not standard-compliant. So, essential patents automatically confer market power. The challenge is how to ensure they are not over-priced. Conventional infringement analysis is not needed. Just checking the patent claims against the standard specification, not the products or services of the other party is all that is required. The patent applies to all products in the market place, not just one manufacturer. Essential patents are therefore often seen as the crown jewels.

Standards setting bodies and intellectual property policy

Intellectual property plays an important role in standardization, especially in the telecommunications and electronic communications sector. Intellectual property rights are very likely to be incorporated into standards and other deliverables, and in the preparation of those documents, intellectual property issues may arise. This tension between intellectual property (destined for private, exclusive use) and standards (intended for free, collective use) is minimized by the Standards’ intellectual property policy. In this context, it is important for all parties involved in the standards-making process to be aware of their responsibilities and that there is good co-operation between all parties. As an Institute, it may also owns certain intellectual property on behalf of its members. These intellectual property rights include the copyright of its standards, technical specifications etc., as well as certain marks. Finally, the Institute’s position as a recognized standardization body does not exempt it, nor its members or its activities from the application of competition law. As a consequence, it is important for the Institute and its members to strictly comply with all laws on antitrust that relate to the conduct of their activities.

The intellectual property challenge

The intellectual property challenge for interoperability standards bodies is to strike the right balance between the rights of the patent owner to enjoy the full benefits of the essential patent but not reap additional value merely because technology is adopted as mandatory, the rights of third parties to make and sell inter-operating products and ensure access to “essential” patents, and the public interest not to lock users into specific technology platforms or force consumers to pay too much due to high cumulative royalties. It is most important to recognize that society benefits from interoperability standards.                     

The intellectual property and patent policy approach of interoperability standards setting bodies tends to reply on a permissive patent law regime, some “external” checks & balances, notably competition law and self-regulation within the standards setting body themselves. It may be described as primarily a “light-touch” approach.

Standards bodies aim to minimise intellectual property rights risks in standards. Members commit to disclose essential patents early to prevent hold-up and “patent ambush”. Members also commit make licences available on fair, reasonable and non discriminatory “(F)RAND”  or royalty free “RF” terms. This is subject to reciprocity and ensures access to patented standards. The actual amount of reasonable royalties determined through bi-lateral negotiation or failing that, through national courts. FRAND commitment has essentially the same aims as Competition law.

Is self-regulation still fit for purpose and what are some of the potential pitfalls? Disclosure of essential patents is very much based on “self-certification”. No or late disclosure is seen as patent ambushing and anti-competitive. Over-disclosure distorts market perception of true ownership and license dues. Members can choose not to make a FRAND declaration and it does not bind non-members, who can still block the standard. Unwilling or unreasonable licensors have potential to hinder or block standards by claiming unreasonable or disproportionate royalties or by attempting to avoid their FRAND commitments.   

Case Law

There is already some Case Law on many of the issues discussed above. These may be divided into the following categories.

Essential patents not disclosed, i.e. “patent ambush”:

• Patents unenforceable:  Dell – FTC, 1995
• But SDO rules need to be clear: Rambus, April 2008, US CoA for D.C. circuit – overturning FTC
• LG v Philips in Europe (JPEG) – Hague District Court, June 2007 – suspended interim injunction

Disclosed patents aren’t actually essential:

• UK Courts will issue non-essentiality declarations. Nokia v. Interdigital …N.B. erga omnes infringement effect
•  SUN/ETSI European Commission ex-officio case 27926 GSM 03.19 & GSM 43.019.  2003-04
• Public “exposure” by independent studies

Essential patent transfer / acquisition:

• FRAND commitment stays with the patent – N-Data (ethernet patents acquired from National) – FTC, Jan 2008

Rates not FRAND (Fair, Reasonable and Non Discriminatory):

• N.B. No concrete guidance on  FRAND terms/rates
• FRAND should factor in cumulative rate. No infringement if non-FRAND. Siemens v Amoi – Dusseldorf, Feb 2007

Injunction denied for essential patents:

•  No infringement if patentee participated/approved standard – Chinese Supreme Court, July 2008 (construction engineering case)
• Injunctions discretionary, not automatic- eBay v MercExchange, US Supreme Court, 2006
• Injunction originally granted in CSIRO v Buffalo. E.D. of Texas, June 200.  Now remanded to District Court on appeal (obviousness).  Injunction issue left open.  Delaying WLAN standard (802.11a & g)
• FRAND commitment is a binding contract to license.  Nokia vs. Qualcomm, settled pre-trial – July 2008.

Final thoughts

Open interoperability standards tend not to be discussed in the traditional ‘Open Innovation’ literature which tends to focus on industry transformation by moving away from ‘Not Invented Here’. Open Standards is also much broader and more systemic in nature than perhaps working with specific actors, such as universities or suppliers or customers. However, in my opinion, it belongs here, as it clearly involves innovating together with externals, even competitors, and this formal of external innovation is well supported by intellectual property, especially patents.

[This post originally appeared at IP Insiders.]