Summary: Software standards must be implementable in any software or business model, including those based on Free Software. When patents are included in software standards, they need to be licensed in a manner that doesn’t restrict their implementation in any way. Besides the absence of any other restriction, that means royalty-free licensing to any party implementing the standard.
Thank you, Chair, for the opportunity afforded to the Free Software Foundation Europe to speak on the very important topic of standards and patents. We would like to congratulate you on your skill in guiding this meeting in a productive and inclusive fashion.
Document SCP/13/2 provides a good starting point and correctly identifies the central role of standards in enabling economies of scale and competition on a level playing field. We would like to limit our comments to the area of software standards.
In November 2008, Mr Karsten Meinhold, chairman of the European Telecommunications Standards Institute IPR Special Committee highlighted that “IPRs and Standards serve different purposes: IPRs are destined for private exclusive use, Standards are intended for public, collective use“.
Before commenting on the document in detail, I would like to highlight very briefly why the topic deserves close scrutiny despite its highly technical nature.
According to the OECD, SMEs make up between 90 and 98 percent of companies in most economies. This reflects the situation in the software industry. In developing countries and countries in transition, the SME share of the economy tends to be even more pronounced.
Barriers to entry into the software business are quite low. Many of today’s software giants had their start in garages. The could grow rapidly because they were not hampered by their bigger rival’s patents, and often because they were able to implement existing Open Standards in innovative ways. Free Software, also known as open source, lowers those barriers to entry even further.
According to the consultancy Gartner, 100% of companies today use at least some Free Software in their systems. The Linux Foundation projects that in 2011, Free Software will underpin a 50 billion dollar economy.
Free Software also holds a unique opportunity for developing nations and countries in transition. When they import non-free software, they become dependent on the company that provided it to them. In contrast, when they use Free Software, they foster the growth of local companies. This helps to create a local knowledge base of technologically skilled experts, who go on to add value for the national economy.
This is an extremely condensed summary of the economic perspective on Free Software. It constitutes a necessary background to the debate on standards and patents which we are having here today.
Standards always imply wide public access, an openness in both the process of creating the standard as well as access to the standard. It is therefore important to realise that an Open Standard would necessarily have to meet higher standards of openness than those provided by article 41 of document SCP/13/2.
It is furthermore important to add that “de facto standards” are typically not standards, but vendor-specific proprietary formats that were strong enough to impose themselves on the market. It is for this imposition on the market that “de facto standards” are commonly used to describe monopolistic situations and corresponding absence of competition, which conflict with the basic purpose and function of standards.
This holds true in particular for the so-called RAND or FRAND approach. RAND stands for “Reasonable and Non-Discriminatory”. In truth, this model discriminates against Free Software. It requires anyone who distributes a program that implements the standard to pay a roylaties to the patent holder. In contrast, Free Software licenses do not allow for attaching royalty requirements when distributing a program.
It follows that patents included in software standards need to be licensed royalty-free. Any licensing model which requires running royalties to be paid is impossible to implement in Free Software.
Some argue that the inclusion of standards in patents on RAND terms is a necessary incentive for companies to innovate. Free Software Foundation Europe begs to differ. We join the Development Agenda Group in highlighting that the monopoly power conferred by a patent is exponentially increased when the patent is included in a standard.
If a company has been awarded a patent, it has already received a strong incentive to innovate, in the form of a 20-year monopoly on the use of the invention, to the exclusion of all others. Why should society incur a further, even more substantial cost by handing this patent holder a means to effectively control competition in the marketplace, by letting it control the price of a patent license?
Today’s software market is already rife with monopolies and dominant companies in several domains. It should be the goal of norm-setting efforts to reduce the obstacles to competition in the software market, rather than increasing them.
FSFE believes that it would be most useful for the SCP to analyse the various approaches on the grounds of their inclusiveness of the entire IT industry and all innovators, and identify the minimum requirements that are necessary to uphold standards as drivers of competition, innovation and economies of scale.
We also recommend that in its deliberations, this committee should be careful to distinguish between different areas for standardisation, as the requirements in each area are quite diverse.
At the beginning of the process to create a standard, standard-setting organisations should require disclosure of patents that are necessary to implement the standard, along with their licensing terms.
Standard-setting organisations should require that patents deemed essential to implement standardised software technologies should be made available royalty-free, in order to permit their implementation in Free Software (also known as open source), including software distributed under the GNU General Public License.
In particular, we recommend that member states push for a mandate for the SCP to create a cluster of experts to examine possible best practices or global norms with respect to certain issues regarding patents that are necessary to implement standardised technologies (so-called “essential patents”), including possible best practices or norms.