Of Standards and Software Patents

Xiph.org has an interesting name and the following forthright self-description: Xiph.Org is a collection of open source, multimedia-related projects. The most aggressive effort works to put the foundation standards of Internet audio and video...

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Xiph.org has an interesting name and the following forthright self-description:

Xiph.Org is a collection of open source, multimedia-related projects. The most aggressive effort works to put the foundation standards of Internet audio and video into the public domain, where all Internet standards belong." ...and that last bit is where the passion comes in.

That's a great approach – seeing open source as a means of establishing completely open standards. So perhaps it's no surprise that Xiph.org has submitted a response to the Federal Trade Commission's Request for Comments and Announcement of Workshop on Standard-Setting Issues, Project No. P111204, noting:

The document's intended audience is law and policy wonks. As such it uses technical legal language that may not be immediately accessible to a wide audience. If in doubt, please consult a patent attorney before posting long rants to Reddit or Slashdot.

Here's the nub of its argument:

Patents affect standards in a fundamentally different way from any other context. Competition normally limits the value of a patent, with that value determined by the advantage of the patented technique over the next best option. However, patents essential to the implementation of a standard gain their value from network effects. The innovation often plays no role. This gives the holder of such a patent the ability to hinder or eliminate entire markets which would compete with their own offerings.

Participants in Standards Setting Organizations (SSOs) cannot be certain that patent claims will not arise after the standard has been set. This handicaps the standards setting process, stifling the adoption of innovative technologies. The problem is particularly acute for royalty-free standards, where the incentives for patent holders to cooperate are lower and the costs of failure are higher.

To help reduce these negative effects, The Xiph.Org Foundation recommends that the FTC work to require specific, ex ante disclosure of patents or patent applications that would read on standards under development, that failure to disclose exhaust the patent, and assertion of such a patent ex post be deemed anti-competitive. This should apply not only to standards development activities that the patent holder participates in or knows about, but those it should have known about. Furthermore, vague infringement allegations or activities designed to avoid an SSO's disclosure requirements or undermine the standards process should also be deemed anti-competitive.

This is basically to avoid the problem of what are sometimes called patent ambushes:

when a member of a standard-setting organization withholds information, during participation in development and setting a standard, about a patent that the member or the member's company owns, has pending, or intends to file, which is relevant to the standard, and subsequently the company asserts that a patent is infringed by use of the standard as adopted.

"Ex ante disclosure of patents or patent applications that would read on standards under development" sounds an eminently sensible approach; but beyond this proposal I was particularly impressed with the submission's larger analysis of this whole area of standards and software patents, which is well worth reading.

For example, here are some thoughts on FRAND and RF licensing of standards:

Traditionally, Reasonable And Non-Discriminatory (RAND) licensing has been the goal of government attempts to ensure fairness in the role of patents in standards-setting. However, RAND is generally believed to be neither reasonable nor non-discriminatory, and in a royalty-free environment this is especially true. There are now many business models that would be destroyed by any per-unit licensing cost.

Multi-billion dollar companies such as Microsoft (market cap $204 billion), Google (market cap $164 billion), and Skype (recently acquired by Microsoft for $8.5 billion) give away end-user software such as web browsers or VoIP applications at no cost, creating a potentially unlimited liability. Smaller companies would be harmed even by the legal requirement to count how many copies are distributed. Mozilla, for example, distributes the vast majority of its software over a large network of volunteer mirrors and Content Distribution Networks (CDNs) over which they have no direct control. There are also numerous third-party download sites which provide an enormous array of software downloads for free, funded by advertising revenue. This business scales precisely because they do not have to ask permission or negotiate a relationship for providing accurate download statistics to each vendor whose software they distribute.

Readers of this blog will recall a number of posts from me that have made similar points, notably in the context of the recent European Interoperability Framework v2.

Xiph.org has more to say on patents and their effect on standards:

the point of having standards is to set aside competition in areas where interoperability is more valuable than innovation. Products that implement standards, particularly communications standards, may still compete on quality, efficiency, robustness, and security. There is still room for innovation in these areas, as well as in the products built on top of these standards. However, innovation in the technology essential to the standard itself would break compatibility and destroy the value of the standard. All the competition over that technology happens during the formation of the standard itself.

When patents are disclosed ex ante, during the standardization process, many courses of action are available. If the patents are owned by small and medium enterprises, or individual inventors, it may be feasible to acquire them directly, as Google did with On2 and GIPS, rewarding the inventors exactly as intended. When held by entrenched interests who refuse to offer a license on suitable terms, they can be designed around, limiting their value to the innovation they provide, again exactly as intended.

This really is a key point. Standards allow competition and innovation to move elsewhere – indeed make that essential. At the same time, they offer huge benefits for users, for obvious reasons.

Finally, there are these important thoughts on something that caused a big stir at the time, but which has probably faded from the memory of most:

Patentees will frequently avoid participation in working groups in order to avoid triggering disclosure requirements. They need not have actual patents that read on the competing standard. The mere uncertainty created by their non-participation is sufficient to cast doubt on the ability of the SSO's disclosure policy to prevent hold-up. Worse, they can make claims in other venues, without being bound by rules requiring them to identify the patent owners or the specific patent or application numbers.

This was a common tactic during the debate over the inclusion of Theora in HTML5, most famously with the claim by Larry Horn, CEO of the MPEG-LA, that, "Virtually all codecs are based on patented technology," and "No one in the market should be under the misimpression that other codecs such as Theora are patent-free." These non-specific claims are carefully constructed to give the impression that Theora must be encumbered with royalty-bearing patents without ever explicitly saying so. Others, such as Steve Jobs, were more explicit: "All video codecs are covered by patents. A patent pool is being assembled to go after Theora and other 'open source' codecs now." The intent in both cases is clear: to discourage adoption. No specific claims against Theora were ever made by the MPEG-LA or any of its member organizations, and no patent pool around Theora ever surfaced.

Remember those claims, and the dire warnings that open source projects were doomed as a result? Seems to have gone rather quiet on that front, no? This episode emphasises Xiph.org's other important role, alongside writing great codecs: standing up to attempts to cow the free software world with vague threats of software patent Armageddon. Long may it continue to do so.

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