Referencing ICT standards in public procurement: How to deal with patents and licensing regimes? Is royalty free always the best choice?

Public demand on ICT solutions has drastically increased during the last decades. The public is one of the most important customers for private technology producers. Public Authorities list standards on which products and services have to be compliant. The public choice of standards is thus a crucial factor for private firms to control and influence markets. A recent workshop organized by the EU Commission, WIPO and the EPO discussed how Public Authorities deal with ICT standards that incorporate essential IPR. The main question was if licensing regimes should be considered when public authorities choose standards to be listed as an official reference standard. Is a royalty free solution always the best? Or do we have to consider different technologies, different markets and business models when choosing the right standard?

Open Standard are the key expression when discussing public procurement and ICT standards. But what is open and how do we define open? While there are different views on openness the main factors are seen to be: -Open participation in the standardization processes, meaning all stakeholders have the same possibility of contributing to the development of the standards. -Transparent government and processes. -Open access to information for any stakeholder. -No barriers to implementation. Paricipants of the conference discussed the question of openness and public choice of standards. Find below the different views of public authorities and private companies:

How should public authorities deal with standards when they incorporate essential IPR?

Most authorities agree that patent owners should be free to choose their business models due to their exclusive licensing rights. But the question remains if standards might be adopted when companies demand royalty fees? The goal of the public body is to improve the adoption of mature and usable open standards. Therefore they prefer standards to be as open as possible in terms of: documentation, IPR, open participation, independence of the SSO and organized version management. When asking the question of IPR essential to a standard the answer is: No, the first choice is royalty free/no essential IP, because standards are infrastructure on which companies should compete: Public authorities prefer related IPR to essential IPR. Furthermore public authorities believe ex ante disclosure is necessary. However different industries have different profit and R&D intensity levels which have to be considered.

In comparison private companies owning essential IPR have a different perspective on the issue. In their perspective the question should rather be which standards to choose from in terms of costs. It’s not about the question whether or not the IPR is royalty free, it’s the total cost of ownership like related services etc.. Another issue is to get innovation into standards. In telecommunications R&D investment is extremely expensive. Patents are an outcome if innovation and therefore also essential patents need to be rewarded. But there is also innovation of implementation on top of standardization that needs to be considered. Standards should be favored with its highest benefit for society and highest R&D incentives to the market. These could also include patents that are licensed out.

Should different licensing regimes be applied for different technologies?

When for example comparing the standardization of GSM and the internet: Should software be handled differently to hardware? Most companies agree that there should be different licensing regimes for different technologies:Internet/Platform is where you make a business on top. It is about different income models. In GSM you need return on investment with your patents. However, royalty fees should not be the mandated by the governments: such as ex ante licenses etc. Some require rewarding schemes (Telcom) some not (Internet)! Procurement should thus only in some cases prefer RF over royalties.Other argued that it is more complex than only differentiating between hardware and software: Internet as a network and GSM as a network is the only comparable domain. On the network level there is not a big difference. The application layer is different. It’s a mash up of sometimes unrelated technologies which you have to put together.

Most companies believed that there is no authority to differentiate between hardware and software so why should we have different regimes? Outcomes are different because the incentives are different but not the framework: All technologies are converging, it is hard to differentiate. It is sometimes not easy to say this is a pure software standard. And there is a lot of innovation going on without IPR. Companies just have different business models. Some of these business models compete, which is good for competition. And therefore also proprietary and open soucre business models compete too! We need to keep that on level.

Is it important to define F/RAND?

Does F/RAND even have concrete substance? Do we give enough information or does it remain vague? But does the definition help and solve the problem? Or is it rather on the agreement of the participation! Most of the companies see F/RAND to be a framework but not a defined regime.

Should consortia standards be considered?

Especially software companies do not understand why it is limited to de jure standardization. They welcome the efforts to incorporate the informal standards into the system. But the criteria for fora and consortia have to be the same.

Can we include Open Source Software in F/RAND regimes?

Companies believe that it is perfectly possible to adopt OSS in standardization and even include the F/RAND mode. They believe there is total interoperability between the OSS world and F/RAND. The big question is when to choose on standards? Should we choose Open Cloud standard just now? Or wait and see how markets develop?

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About timpohlmann

Tim Pohlmann is a post-doctoral researcher in economics at Mines ParisTech and Berlin Institute of Technology. He specializes in the economic analysis of markets for technology. He earned his doctoral degree with the highest distinctions in August 2012 from the Berlin Institute of Technology with a dissertation on patenting and coordination in ICT standardization. Tim’s research covers the empirical analysis of the trade of patents, patent trolls, standardization consortia and patent pools. He has presented his work at a large number of international conferences. Tim has been actively involved in preparing studies for the European Commission and the German Federal Government on the role of patents in technological standardization and business models in Open Source Software. Doctoral Thesis SSRN author page
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