Thursday, April 13, 2006

Standards, Intellectual Property and International Affairs

I attended a talk last week by Brian Kahin at the Center for International Science and Technology Policy, It was titled: "Common and Uncommon Knowledge: Open Standards and Patents". A paper on which the talk was based is available online.


Standards include health and safety standards such as those imposed by regulatory agencies (e.g. food and drug standards maintained by FDA and the Department of Agriculture, water quality standards by EPA, air quality standards).

There are also standards of weights and measures, such as those provided by the National Institute of Standards and Technology. It is important that an inch in one factory is the same as an inch in another factory, or the entire American System of Manufacture fails to work. Note that the difference between the metric and British systems of measurements is important in international commerce, since it is much more efficient for a society to adopt one or the other rather than try to use both simultaneously. Thus trade is enhanced between nations using the same system of measurements, and complicated between nations using different systems.

In the field of information and communications technology (ICT), the Internet and World Wide Web are built on standards that allow networks to intercommunicate, and that allow many people to post and read content in a common format. Microsoft Windows creates a standard, allowing many different application programs to run on many different hardware platforms.

Standards are meant to be inclusive. The more people use a common standard, the more efficient the overall system can be. In the case of ICT, the standards appear to have unleashed a great deal of innovation.

Countries differ in their approaches to standards. Standards institutions are generally weaker in poor countries, and stronger in rich countries. European nations tend to have institutionalized standards organizations in the public sector. In the United States, in addition to NIST in the public sector, there is a strong tradition of private standards organizations such as the Underwriters Laboratory, or the standards programs of professional engineering societies. Kahin notes that in the ICT industries, there has often been a tendency for firms to collaboratively define standards, without going through a governmentally driven process.

Intellectual Property

Intellectual property rights (IPR) include copyright, trademarks, trade secrets, plant breeders rights, and patents on products and processes. Different institutions are involved in granting and adjudicating different forms of IPR.

Patent rights once required originality, and inventions were subjected to a test of non-obviousness. Changes in patent law however, have lowered this barrier. I suggest that in order to encourage the private sector to invest in research and development, legislators have changed IPR laws to allow almost all the fruits of industrial research and development (R&D) to be protected by IPR. The result is that firms can recoup R&D expenses by the revenue streams generated by their IPR.

Things not protected by IPR are in the public domain. Generally, governments or philanthropy finance R&D for results that are placed in the public domain.

In ICT, patent rights first were applied to devices and manufacturing processes, but have been extended to software and more recently to business processes. There are important differences among industrial sectors on the use of patent rights. In the ICT sector, large firms tend to hold thousands of patents, and Kahin points out that the firms may not be able to adequately describe to outsiders all the intellectual property that they own or the claims that their patents make. Products often involve many patented elements, and firms cross-license portfolio of patents. Indeed, it has been suggested that ICT firms may seek patents not to exploit them, but to own them to use a bargaining chips in negotiations with other firms.

IPR are exclusionary. Thus a patent does not necessarily allow the holder to manufacture a product, since other prior patents may be involved in the manufacturing process or the product itself; the patent holder has to negotiate with the other IPR holders, pay royaltees, etc. in order to commercialize the patent. The patent does allow the holder to exclude others from the use of the intellectual property, or to define the terms of that use.

(Open source software projects often hold IPR for the software in order to guarantee quality, but allow people to see source code, modify, or use the software without charge. Ownership of the right to exclude does not necessarily imply that the exclusion will take place.)

Kahin’s Observation

Kahin, as I understood him, suggests that both standards and IPR play important roles in promoting ICT innovation and development, but that there is a fundamental tension between the two. Important ICT standards involve systems with many patents. It is difficult even to know all of the patent rights that underlie a standard, and very difficult to come to an agreement that will ensure reasonable and non-discriminatory rights to all the intellectual property involved in implementing the standard.

He specifically noted that “trolls” have an economic incentive to keep IPR necessary to a standard hidden. The more others have invested in products utilizing the standard, the more the troll can realize when unveiling the patent and requiring repayment. Kahin notes that it is all but impossible because of the costs involved for those developing standards for complex systems to exhaustively explore all of the possible underlying IPR to identify possible trolls. Indeed, the lawyers working for large firms tend to resist blanket assignment of the firms rights to the standards group, for fear that they will give up an unfound “gold mine”.

There is consequently a complex public policy issue relating to the institutionalization of ICT standards and IPR. How does one construct legislation, regulation, and enforcement systems that simultaneously encourage innovation, stimulate and protect investment, and recognize natural rights of the innovator?

International Implications

There are several multilateral organizations involved in the fields described above. The World Intellectual Property Organization (WIPO) deals with patents and copyrights. The United Nations Educational, Scientific and Cultural Organization (UNESCO) too deals with copyrights. The International Organization for Standardization (ISO) deals with standards. The World Trade Organization (WTO) and the United Nations Conference on Trade and Development (UNCTAD) deal with international trade issues. There are no doubt other players, such as UNIDO and the ITU.

The United States, like other nations, also has an extensive system of bilateral agreements with other nations that involve and govern aspects of standards and IPR.

The U.S. Department of State is responsible for representing the nation in the multilateral organizations as well as for the negotiation of bilateral agreements. It draws on advisory committees in these roles, and is subject to the influence of industry, academia, and the legislature. Still it confronts a very complex intellectual issue in institutionalizing an international system of ICT standards and intellectual property, and does so with a staff of generalists.

One may question if, in the current situation, the policy staff of the State Department is not too prone to resort to an economic ideology rather than draw upon the best theoretical understanding of the issues. Indeed, one my wonder whether consumers interests are as well represented on such a complex issue as are those of the big ICT industries.

Standards and IPR are both important in international trade, and the ICT industry's exports are a critically important element of the U.S. balance of payments. European standards organizations are long experienced in the field of defending their national interests in the international trade arena, while one may question the ability of the decentralized U.S. standards system to hold its own in this sphere. I suspect that U.S. governmental intellectual property organizations are not well equiped to deal with the interplay of ICT standards and patents, especially in international negotiations. I would hate to think that the United States is at a disadvantage in negotiating appropriate global institutions critical to the promotion of our ICT interests, as we move toward a knowledge economy.

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