India’s government has recently voted through a new directive on the application of open standards in e-Government. Barely a year after China’s SAC (Standardization Administration of China) drafted its proposal on a Standardization Policy (see our earlier blog: “China drafts all-out national standards IPR policy“) and defined what is meant by a FRAND-licensing approach concerning standard essential IPRs in their opinion (i.e. royalty free or at least marginal royalties for patents included in standards) also India jumps onto the openness-bandwagon by ruling that only such standards shall be used for administration which are totally free of licensing costs (royalty free or RF-Licensing). Although the India’s Policy only concerns a small sector of technology, namely software solutions for an interoperable public administration framework, while the SAC’s proposal claims its applicability to all standardization efforts especially those taking place in high-tech industries, it is worth to have a closer look.
First a brief review about the tension between patents (or Intellectual Property Rights at all) and standardization. In short there arises a conflict between the demands on universal validity and applicability of interoperability standards and the exclusive right of a patent owner whose technology is necessarily to be used in order to comply with the standard (so-called essential IPR/patent). Thus, standards applicants feel exposed to any royalty demand and not seldom overcharged. As a result, the standardized technology could remain underused what is also problematic from an economic point of view. To diminish the conflict most Standard Setting Organizations (SSOs) have installed so-called FRAND-Licensing Policies. Under these policies all holders of essential patents are committed to license their standard essential IPRs on fair, reasonable and non-discriminatory terms (FRAND-terms). Unfortunately, the FRAND-Licensing regime has evolved as hardly effective, last but not least since nobody knows what FRAND means in particular. Recently, the conflict seems to escalate even more, as it could be seen from the massive number of patent infringement claims stemming from yet unresolved licensing questions about essential patents between almost all big market players in high-tech industries (see our earlier blog Patents at War).
In this context there have early been proposals to give up licensing fees for standardized technology on the whole in order to resolve the conflict once and for all. It hardly needs mentioning that these proposals definitely lacks acceptance amongst most industry stakeholders the more so as the agents of these proposals has not given any answer to the immediately arising remuneration question. Nevertheless, in respect of India’s directive and the former SAC proposal the royalty free approach seems to gain most of sympathy even within the “young” economies of China and India. This is a worrisome situation for two main reasons. First, China and India represent nearby a third of the worldwide population and thus they are the (forthcoming) trendsetters also in respect of the patent system and its acceptance within the world-wide economy. Especially with regard to China, the – to be kind – already relaxed opinion about respecting intellectual property of others could become even more established. Second, in our opinion, the RF-Licensing demands are setting bad incentives for innovation.
Though a former draft of India’s directive has also FRAND-Licensing listed as fulfilling the demands for openness the now adopted version of the directive for open government standards formulates even more demands on standards than royalty free licensing. Especially the demand for a world-wide availability of the royalty free license appears very extensive. Thus the directive is not only acclaimed by the India’s Open Source Software community but also viewed with suspicion by India’s prospering software industries as it could reduce their future remuneration chances even world-wide. The basic idea behind the openness approach, namely securing India’s public administration’s ability to act and protecting it against unjustified royalty demands, is not unworthy but going this way the burden for India’s New Economy could turn out as too weighty. Considering India’s population any software solution for administration must be cutting edge technology. Therefore the question is not only whether RF-licensing is an appropriate means to solve the conflict between universal applicability of e-Government standards and the exclusive rights of a proprietor of an essential patent but rather which incentives for innovative software solutions could be set through it. By establishing a system which suggests that innovation could be get at no charge a big group of very innovative enterprises should back out of these standardization efforts.
Setting appropriate incentives for innovation has been also the background of the inclusion of FRAND-licensing into the new European Interoperability Framework (EIF 2) which also has the standardization of e-Government solution as its subject-matter. The EIF 2 leaves the door open for Open Source Software as well as propriety e-Government solution and hence the decision in favor of one of these solutions is stuck to the applicants where it belongs to.