One of the biggest hidden challenges facing the software and technology world is the evolving conflict between old electronics vendors and the new software-defined universe. It’s arising because of patents embedded within international standards. We think it needs fixing because it especially affects, and may be harmful to, Open Source.
It may come as a surprise to find that some supposedly “open“ standards – including those ratified by standards development organizations (SDOs) like ISO, CEN and ETSI – can’t be implemented without going cap-in-hand to the world’s largest companies to buy a license. This includes European National Standards, as well as other international standards that are then incorporated into legally-mandated regulations. The reason that standards users must pay tribute is that both the SDOs and regulators allow so-called SEPs – “standard-essential patents” – to be tolerated due to the legacy approach of standards in hardware contexts.
This conflict is tolerated because of the sequence of standardization for hardware standards leading to high sunk costs for the participants. Because of these, it has seemed a proportionate compromise to permit patent monetization, especially because of the strong overlap of the participants in the standards process and the eventual licensees. The same appropriateness, proportionality and overlap are not necessarily present when software standards are involved, however, especially due to the non-rivalrous nature of the goods produced.
Conflicts of interest
As standards are being developed, both the SDOs and the regulators know that the corporations writing the specifications are patenting ideas embodied in the standard so they can tax implementations later. The vast majority of the citizens who have the time to participate in standards-drafting activities are the employees of corporations who benefit from the standardization activity.
Since this is such obviously conflicted behavior, it’s sugar-coated by getting the patent holders to agree they will only charge “reasonable” prices and they will not “discriminate” against any buyer – for example by charging more than other licensees or by denying them a license. This is described as using “Fair, Reasonable and Non-Discriminatory” (FRAND) terms.
Let’s skip for now the way this can create an effective cartel (since SEP-holders may choose to cross-license everything but new market entrants pay the full price). It turns out there have been accusations that some patent owners have been using the cover of NDA-ed secret-private-bilateral contracts with potential licensees to discriminate and charge unreasonable prices. Since this looks REALLY bad even for SEPs, the European Commission concluded a consultation was needed to possibly redefine “Reasonable” and “Non-Discriminatory” a little bit. Even though Open Source isn’t mentioned, OSI considered its scope with interest. The effects of unregulated FRAND licensing of SEPs affect more than the companies traditionally lobbying the Commission, and the opportunity to correct arrangements is rare. As a result, OSI feels the absence of Open Source from this consultation is a serious issue and may reflect a blind spot of which the Commission needs to be made aware.
Apart from the problems with potential conflict of interest, abuse of privilege, and price gouging everyone has with “FRAND licensed SEPs”, Open Source has another issue with this practice. FRAND terms imply that those wanting to enjoy software with SEPs implemented in it must engage in private negotiation to get a license to implement. That’s super-toxic to Open Source, whose mainspring is code owners giving advance, un-negotiated, equal permission to enjoy the software in any way – use, improve, share, monetise, all protected by a rights license reviewed and approved by OSI. Someone implementing a SEP-encumbered “standard” doesn’t have that freedom.
How to fix this
The fix, to the extent that Open Source software implements standards, is for rights-owners to agree to advance-license their SEPs unilaterally on restriction-free terms. That’s what the SDOs serving software such as OASIS and W3C offer their participants–the choice of a restriction-free licensing mode for new standards, where any SEPs are pre-licensed to all without negotiation. None of this is especially novel. Over 15 years ago OSI formalized the requirements for patent handling if the associated standard is to be implementable freely as Open Source in its Open Standards Requirement for Software (OSR). But today a collection of SEP mega-landlords is actively and expensively operating to dissuade the state-recognised (“de jure”) SDOs from implementing such an option.
The European economy gets a massive GDP boost from Open Source and the European Commission has a policy of promoting and supporting it. We think the complete absence of any recognition of the needs of Open Source in their SEP/FRAND consultation is a big problem. If Open Source matters to them, the Commission needs to tell the de jure SDOs to make space for SEP-free standards too. As with gardening, if you want the crop, you have to cultivate the conditions to grow it.
We just wrote them a letter saying so as did several other organizations. Let’s hope the Commission listens.