Patent Issues
By far and away the most difficult IPR issues that SSOs must address involve patent claims. Unlike other types of IPR, patent claims can often only be designed around with great difficulty. Sometimes, patent claims can represent complete roadblocks to a solution, either because no alternative approach is technically possible, or economically feasible, to implement.
As a result, SSOs go to great lengths to avoid knowingly adopting specifications that infringe upon the patent claims of a member or third party that is not willing to cooperate. At worst, such a patent owner may be unwilling to provide a license to anyone that wishes to implement the standard, or may only be willing to provide a license to some, but not all would-be implementers. Almost as seriously, the patent owner may wish to charge a fee or impose other terms that would impede or preclude wide adoption.
Unfortunately, there are two reasons why it is impossible to totally avoid the potential for inadvertent patent infringement: first, conducting patent searches for every standard on a worldwide basis would be both prohibitively expensive, as well as ineffective in avoiding allegations of infringement, because patent owners will often have different opinions about the coverage of their patents than will third parties. Second, only a small percentage of the holders of affected patents will typically be members of a given SSO, or even implementers of its standards. Consequently, simply asking those members that are willing to act in good faith whether they have any patents of concern can reveal at best only some of the patents that may be infringed by any given standard. Even then, a response from an individual to the best of her knowledge regarding the reach of the patent portfolio of their multinational employer provides only minor comfort at best.
Nor can SSO members be required to conduct internal patent searches, since the companies that participate in the largest numbers of SSOs own thousands, and even tens of thousands, of patents. As already noted, no SSO would find itself politically able to impose such a requirement unless its membership included only those with few, or not, patents. Indeed, almost all IPR policies for this reason include a very specific term stating that no member shall ever be required to conduct a formal patent search by reason of its participation in the SSO.
Even if all of these problems could be resolved as to members under IPR policies and rules, non-member patent owners would still be free to act as they wished, and could therefore at best only be cajoled, rather than compelled, into providing license rights to all would-be implementers on RAND terms for any patent claims that might be infringed by a standard.
Despite this discouraging landscape, SSOs nevertheless do what they can to craft IPR policies intended to clear the field of problems involving at least member-owned patents, and in particular to prevent any game playing by members that might otherwise seek to "plant" patent claims in a standard in order to reap future economic rewards.
Achieving consensus on the rules underlying such policies can be a daunting challenge, however, due to the great value that most companies associate with their patents, and the variety of opinions that they hold on how best to protect that value in the context of standard setting. As a result, and absent special concerns, it is usually sensible for an SSO to adopt as mainstream a policy as possible, since the middle ground represented by such a policy will likely be the only feasible meeting point for conflicting viewpoints. Where an SSO strays from this middle ground, it sometimes finds that its mission may be hampered, or even defeated, due to its inability to attract a broad membership.
It is therefore essential that those who are tasked with drafting an IPR policy understand the positions that individual companies are likely to take on specific IPR policy terms, and the legal and practical concerns that underlie these positions. Sadly, after stating that all patent claims must be available on at least RAND terms, it becomes difficult to achieve consensus on almost everything else.
The issues that lead to this diversity of viewpoint may be usefully sorted and analyzed under the familiar headings of "Who", "What", "When", "Where" and "Why."
Who? Some SSO participants believe that it is sufficient to collect licensing commitments only from those members that directly participate in creating a standard, since these are the patent owners that are able to actively "game" the system, either passively, by failing to disclose their patent claims, or actively, by pushing the process towards adopting a standard which would entitle them to levy a royalty. This requirement to make a binding commitment to license, or to disclose the possibility that a RAND license might not be forthcoming, makes obvious sense from a practical perspective. However, other SSO members may believe that a licensing commitment should be required of every member of the SSO, whether or not it chooses to participate directly in a given process. The practical effect of such a requirement is that the circle of safety is expanded simply by requiring the commitments of more potential patent owners. More significantly, if non-participating members have access to specification drafts as they mature, those non-participating members could file patent applications that track the evolving standard. Unless required to disclose such patent applications, those members that were acting in good faith could later be taken by surprise.
Other SSO members believe that the rules should reach still farther, and insist that any implementer of a standard - whether a member or not - should grant all other implementers a cross license of its own patent claims to the extent necessary to avoid infringement. The impact of this position may impede implementation of a standard, however, since most standards need promotion before they become pervasively adopted, and many implementers may have very low motivations to adopt a standard at all. Where a cross license is required, such non-member companies may choose not to implement the standard at all.
Of course, such a mandatory cross license is not likely to capture someone that has truly bad intentions in any event, as such a patent owner may intend to reap a far higher return from taxing all implementers than through implementing the standard itself. As a result, a standard may be unlikely to receive much benefit - but can be severely impaired - by a broad cross license requirement. In the case of standards that are relevant to software, such a mandatory cross license term would violate the terms of many open source licenses as well, and thus any standard that was created under an IPR policy that permitted patent owners to require such a cross license would be unacceptable to the developers of the open source software.
For all of these reasons, the most common method of addressing this concern under IPR policies is to permit what has come to be called a "defensive suspension" term in licenses of essential patent claims. Under this licensing term, a patent claim owner that has agreed to provide a license to implementers of a standard on RAND terms is entitled to revoke the license of any implementer that asserts its own patent under non-RAND terms. This levels the playing field for further negotiation, and is considered to be consistent with a RAND licensing commitment.
Who (II)? A related issue briefly alluded to above is whether an assertion by a member representative that she has no patent claims to disclose should be limited to the knowledge of the individual alone, or should extend to the deemed knowledge of her corporate employer (the actual member) as well. For a large multinational company with perhaps thousands of engineers participating in hundreds of standards working groups, this prospect represents an IPR manager's nightmare, unless a decision has already been made by the corporate member that it is willing to make all patents available on RAND terms — assuming that RAND terms are all that the IPR policy requires (and not royalty-free licensing). On the other hand, an assertion to the personal knowledge of a single employee that she is unaware of any potential for infringement is useful only to the extent that it helps preclude conscious misbehavior. While that is an important result, it is less useful than an undertaking that a member will never assert a patent at all on other than on RAND terms.
As a result, many IPR policies acknowledge that disclosures are made only to the knowledge of the individual participant, but may still require the member to commit to a given course of action, if it later becomes aware of a patent claim that might be infringed. Regardless of which approach is taken with respect to eventual disclosure, a well thought through IPR policy (or the procedural document supporting that policy) will contain a term stating that the member will become irrevocably bound to make a disclosure and licensing statement at the end of the process once it has participated in a working group for some period of time (e.g., 60 days). Otherwise, a member could attend a working group in public, and file patent applications in private, until just before the requirement to put its IPR cards on the table matured, and then drop out, only to reveal its "submarine patents" after the standard had become widely adopted.
What? There is also a difference of opinion over what rights a patent holder must grant. Some believe that, in at least some situations, royalty free licenses should be required from every company that participates in the adoption process. The most fervent champions of free licensing would require every member of an SSO to agree to grant a license to whatever standards may be developed while they are a member (although most would permit a member to resign to avoid this result in a given situation). Not surprisingly, such a comprehensive rule would lead many technology companies to refuse to participate in an SSO with a broad development mission, unless participating in the work of that SSO was extremely important to their business.
While not uncommon, such a rule is found mostly in organizations with small memberships, comprising only companies that have much to gain by creating the standard. Unless the member companies control a large portion of the marketplace, however, the rule can be self-defeating, since other stakeholders that are needed to support the standard, but who have less to gain from its adoption, are often unwilling to agree to so strict a term.
When? While most SSOs require that licensing commitments be made towards the end of the standards development process, others require commitments to be given earlier in order to clear the way for smooth final approval of the standard under development. This is a sensitive issue, because many companies are not willing to commit to grant a license until they have had the opportunity to conduct some degree of internal investigation to discover what, if any, valuable technology rights may be involved. Also, they may wish to assess whether the resulting standard will be highly favorable to their business, and therefore whether any lost licensing opportunity will be outweighed by the benefits anticipated from broad adoption. If a commitment to license, and especially a commitment to license on a royalty free basis, must be made at the time of joining a working group (or soon after), the right to evaluate probable benefits thus becomes limited. Finally, companies often fear that if they make a licensing commitment in advance, they may be trapped by competitors that conspire to include valuable IPR owned by the first company in the resulting standard.
For companies with substantial patent portfolios and the desire to participate in many standard setting efforts, early decision making is therefore an issue of significance. Conversely, other companies (and particularly companies with small, easily searched patent portfolios) may be unwilling to spend months on helping develop a draft standard, only to learn at the time that a vote to adopt is taken that a participant has a blocking patent, and is unwilling to make rights under that patent available on acceptable terms. Companies that endorse this viewpoint have concluded that the standards that are developed are more important to them than maximizing the commercial return on their patent portfolios, so long as they can reserve the right to charge a royalty on any of their IPR that may eventually be found to be covered by a finally adopted standard.
Where? Once a standard has been adopted that requires a vendor to obtain one or more licenses as a precondition to implementation, the question arises where and how an implementer can obtain those rights. In an ideal world, all of those rights could be obtained at the Web site of the SSO that developed the standard, along with the SSO's permission relating to the standard itself. In fact, patent owners rarely permit an SSO to sublicense patent claims, and the SSO therefore may only grant rights in the copyright that it owns in the standard itself. This is typically accomplished using a short and simple "clickwrap" license, which exists principally to exclude any warranties of any type (e.g., as to ownership, non-infringement, and so on).
Where any member or third party has asserted the right to require a royalty and/or to precondition implementation upon other license terms (e.g., it may want a defensive suspension right), a would-be implementer most go direct to the patent owner to obtain the necessary rights. Typically, the standard setting body does not become directly involved with the terms of such licenses, and never takes a position as to whether an asserted patent claim is indeed essential, it will usually provide a list of those patent owners that claim that a license is required, together with contact information for such owners.
At times, there are so many patents that are asserted against a single standard (as can occur when a standard overlies one of the "patent thickets" referred to above), the owners of those patents will sometimes form a patent "pool." In such a case, an administrator is retained to manage the licensing and economic terms on behalf of all of the patent owners. This allows an implementer to pay a single fee, and sign a single license, in order to obtain all required rights relating to the underlying patents. The fees are then divided among the pool participants, according to a mutually agreed upon formula.
Regardless of the licensing arrangements that relate to patents underlying a standard, a license that forbids the implementer to sublicense can have an adverse impact under many open source software licenses. Such a restriction will not be problematic for an implementer that wishes to build an application for internal use only. But if it is a vendor that wishes to sell that application, then the terms of many open source license agreements would be violated if its customers were obligated to return to the patent owner for their own license (and even if that license could be obtained free of charge).
How? The great majority of IPR policies in existence today still rely upon RAND licensing commitments. A reasonable and important question, therefore, is what exactly does "RAND" mean, and what terms would be considered to be acceptable under a license intended to meet such a commitment? Perhaps surprisingly, SSOs almost never try to define exactly what either "reasonable" or "non-discriminatory" is intended to mean. Even more surprisingly, until recently there have been relatively few disputes litigated between patent owners and implementers over these terms. Most SSOs have shrunk from becoming involved in such disputes, since they lack the resources or the will to take an active part.
Despite this overall reluctance for any party involved to tackle the RAND definition issue, the popularity of the simple RAND rubric continues, giving rise not only to obvious questions (e.g., how high can a royalty be before it becomes "unreasonable?"), but to more subtle ones as well, such as whether it is discriminatory to charge a cross license partner nothing to implement a standard, while charging a royalty to the competitor of the partner with whom the patent owner does not have a patent license. If such a position does not represent discrimination, then the second company will be at a price disadvantage to the first.
Why? Another interesting question relates to why given companies take particular positions on certain issues. A simple explanation is that it is difficult for a company to step outside the realities of its familiar proprietary world and assume the mind-set necessary to give away something (i.e., valuable IPR underlying a standard) in order to gain something of greater commercial value. One often under-appreciated benefit is the luxury of making a safe strategic decision (e.g., for a manufacturer, knowing in advance that it is committing to what will prove to be the "VHS" rather than the "Betamax" standard). Thus enabled, it can compete with other SSO members in making better and more appealing products based on the adopted standard, and address a more swiftly and surely developing market for those products. Even long-term participants in the standards process can sometimes catch themselves taking a position that is inconsistent with consortium goals, simply out of habit. The most enlightened and successful participants in standard setting (in this author's opinion) are therefore those that most thoroughly "get" the fact that they have far more to gain from the success of a standard than they could expect to gain in patent royalties on any underlying patents.
Another cause of confusion and insistence on unnecessary and counterproductive positions is the superficial similarity between commercial joint ventures and SSOs. In the former, a small number of companies forms an alliance under a joint development agreement to create a product or other deliverable that the participants can then sell, or otherwise exploit. In this type of activity, it is typical for all participants to cross license all patent claims to each other that would be infringed by a joint created specification, and to permit each other to sublicense implementation rights to third parties as well. But the core cross-license rights are usually restricted to the small number of "by invitation only" participants, that wish to keep control of the design, as well as the most lucrative commercial benefits, to themselves.
In an SSO, however, the goal is to create a standard that is adopted and implemented by as many companies as possible. As a result, every implementer is given equal rights to every other implementer, as an incentive to participate in the ever widening pool of adopters.
While both types of efforts involve multiple competitors gathering to agree on technology solutions, there are several significant differences. First, the participants in a commercial joint venture are highly motivated to achieve a carefully defined and limited common goal, and are therefore willing to share all IPR needed to achieve that goal. Similarly, their partners are highly motivated to gain access to the same rights, and are therefore willing to enter into sublicenses and agree to payment terms. The legal vehicle employed by the joint venture participants - a contract - is appropriate, since few or no new members are expected to join, and the founding members are not expected to leave until the goal has been achieved. Finally, there is no need to create a pretense of "openness."
In sharp contrast, an SSO needs to allow members to join and leave, and needs to make it as easy and attractive as possible for non-members of many stripes to adopt and implement its standards. A key component in achieving this goal is to be structured and operate in as "open" a way as possible, to negate any appearance that one or more companies can unduly influence the eventual nature or availability of its standards, thus giving them a commercial advantage over other implementers.
Since most individuals who represent companies in SSO activities - and even those who are tasked with forming new consortia - have limited knowledge about the theory and practice of SSO formation and operation, it is easy for them to assume that whatever previous organization they have participated in represents the gold standard of structure and governance. One unfortunate outcome of this reality is the surprisingly large number of consortia that have been formed on the more restrictive commercial joint development model, even where the tight controls and high demands of that model were unnecessary. Where this has occurred, the result has usually been to hamper, rather than lead to, the success of the organization
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Posted in: PATENTS
