EU Consultation - Modernising ICT Standardisation in the EU

Concerning the role of patents, starting point for the White Paper is that ICT interoperability and especially software interoperability have become critical in an ever more interconnected world. As a result IPR has an important role in standardisation in order to respect proprietary rights covering technology solutions needed for interoperability. Then, the Paper carries on by stating that in general, the European standardisation policy allows proprietary technologies, protected by IPR, to be incorporated in standards. EU competition rules provide, however, that standard setting should not lead to a restriction of competition, and ought to be based on nondiscriminatory, open and transparent procedures. Standards that are available unconditionally and can be implemented by all interested parties allow for effective competition.

Standard setting organizations commonly have rules that govern the ownership of patent rights that cover the standards they adopt. One of the most common rules is that a patent covering the standard must be adopted on "reasonable and non-discriminatory terms" (RAND) or "fair, reasonable and non-discriminatory terms" (FRAND).

In general, the meaning of this concept is somewhat blurred, if not debated. One of the interpretations has the following main elements:

• Fair relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law; fair terms means terms which are not anticompetitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are; requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want (bundling), requiring licensees to license their own IP to the licensor for free (free grant backs) and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
• Reasonable refers mainly to the licensing rates. A reasonable licensing rate is a rate charged on licenses which would not be result in an unreasonable aggregate rate if all licensees charged a similar rate. Clearly aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.
• Non-Discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors, and to ensure the potential new entrants are free to enter the market on the same basis.

• The White Paper finds that stakeholders in the communication sub-sector of ICT seem to be generally content with the (F)RAND approach to the licensing of essential IP in standards. However even on that side, the increasing complexity of innovative services and applications can give rise to a multitude of essential patents resulting in a complex situation and a cumulative IPR burden in standards. Although the (F)RAND principles can be a means to provide a fair balance between the rights of licensees and licensors, many stakeholders feel that there is room for improvement to reduce complexity and improve predictability of the licensing process. Declaration ex-ante of the most restrictive licensing terms, possibly including the (maximum) royalty rates before adoption of a standard, may be a means of improving the effectiveness of (F)RAND licensing, since this can allow for competition on both technology and price.
• Again according to the White Paper, a majority of IT stakeholders on the other hand, especially in the software industry and among its users, are of the opinion that a more satisfactory level of interoperability can be achieved using IPR policies which could be perceived to differ from a (F)RAND approach. Several fora and consortia covering software standardisation have therefore adopted different approaches to IPR. Some, for example, require IPR in standards to be the subject of royalty free (RF) licensing.
• Finally, many SME stakeholders as well as consumer organisations support a royalty-free approach, often described as RF on (F)RAND, especially for standards which are to be referenced in legislation and policies.

In view of this situation, the EU Commission suggests that ICT standards developing organisations should, subject to competition law and respecting the owner’s IPR:

• implement clear, transparent and balanced IPR policies which do not discriminate and allow competition among different business models,
• ensure the effectiveness of procedures for IPR disclosures,
• consider a declaration of the most restrictive licensing terms, possibly including the (maximum) royalty rates before adoption of a standard as a potential route to providing more predictability and transparency.

The Commission furthermore suggests the establishment of a permanent, multistakeholder, ICT standardisation policy platform to advise the Commission on all matters related to the European ICT standardisation policy and its effective implementation and inviting the ESOs and other ICT standard developing organisations to review the function and composition of the current ICTSB to make it more efficient.

In publishing the White Paper, the Commission is inviting comments from all interested parties, especially on the suggestions made for further actions. As indicated in the White Paper, these suggestions focus on possible non-legislative measures and on measures which can be implemented by updating Council Decision 87/95/EEC.

In parallel, a broad review of the current European standardisation system has recently been initiated. The Commission has charged an independent Expert Panel to prepare strategic recommendations for the review of the overall European standardisation system by the end of 2009. The proposals in relation to the ICT standardisation policy outlined in the White Paper will be taken into account in the work of the Expert Panel.

In the light of the outcome of the ongoing general policy review and following the public consultation undertaken by the White Paper, the Commission envisages presenting in 2010, any necessary policy and legislative proposals.

The White Paper makes clear that the EU Commission is determined to steer standardisation processes to some minimum level of openness, consensus, balance, and transparency. However, as soon as the debate comes to IPR, the spat begins as even the various industries appear to have different political approaches towards the various possible flavours of (F)RAND including RF licencing. Except the consideration a declaration of the most restrictive licensing terms, possibly including the (maximum) royalty rates before adoption of a standard as a potential route to providing more predictability and transparency, the White Paper merely describes problems and procedural aspects of routes to potential solutions.

(Photo: (C) 2009 by Deutsche Bank AG via Flickr licenced under CC)