Standardization and Intellectual Property Rights

In today’s environment of rapidly evolving information and communication technologies (ICTs), technical standardization is said to be confronted by a “minefield” of intellectual property rights (IPRs). Patents and other industrial IPRs that might belong to individual developers of technology have the potential to undermine the collective pursuit of technical standardization that might serve the common interests of the sector or industry. This tension between the individual and the collective, between the development of technology and its diffusion, is however by no means new; it is an inherent feature of standard development as an institution of innovation. The fact that this tension has only recently been converted into conflict raises a host of interesting questions about standardization in the evolving environment of the ‘digital age’. In this chapter, we will address some of these. We are especially interested in the fundamental question concerning the roles of standard development organizations and IPRs in the “technology infrastructure” (Tassey, 1995) and how these roles are “co-evolving” (Nelson, 1995) with the rapidly developing ICT industry. The contention is that this process of coevolution is bringing what are initially complementary functions in the innovation process into increased confrontation. In this chapter such questions will be explored in terms of innovation-theory in which the role this ‘technology infrastructure’ plays is explicitly recognized. The discussion of this relationship moreover will be largely presented in terms of a case study, featuring the controversy that arose during the standardization of the now popular GSM system, produced by the European Telecommunication Standards Institute (ETSI).

Selected Intellectual Property Issues in Standardization

This chapter explores several issues related to intellectual property in the standardization process. Different intellectual property issues dominate in the three major phases in the life cycle of a standard. In development, where the content of the standard is created, there are issues related to the intellectual property codified in the standard. During distribution, where documentation on the standard is shared with the vendor and user community, there are issues related to the copyright of the document. In implementation, where products and processes based on the standard are brought to market, there are again issues pertaining to the intellectual property in the standard. Many of these issues have implications for policymakers and stakeholders. The implications are considered and the options available to policymakers and stakeholders are enumerated.

The Standardization Process in IT - Too Slow or Too Fast?

Information Technology is one of the most rapidly developing areas in the technological world. In fact, the classical information technology that has been based on computer technology is now very quickly converging with telecommunication. Wireless networking, especially mobile telecommunications, has been one of the leading areas in business and technology during the last five years. The state-of-the art in mobile telecommunication has reached a point, where new products are introduced within a cycle of one year. The next big step shall be the introduction of wireless multimedia services through next generation wireless networks. The standardization of wireless multimedia systems is a very difficult task, as the standards shall include the crucial points in the two domains, telecommunications and information technology. It is becoming more and more difficult to recruit enough expertise for the technical committees to produce high quality standards in the converging information technology and telecommunication market domain. In this chapter, we will be using this domain as an example for the standardization difficulties of future. The reasons have to be strong for initiating a standardization process, especially concerning industry, due to the fact that it is rather expensive to produce new and extensive standards. It has been estimated that the expenses of developing a single part of the Ethernet standards amount to approx. $10,000,000 (Spring & Weiss, 1994). The main development costs arise from the time, travel and salaries of the committee members. The standardization expenses are usually prohibitive for small and medium sized enterprises (SMEs). If the standardization organizations and committees can not guarantee that the investments done towards standardization are worthwhile we will have lots of problems in the future.

Standardizing Retail Payment Instruments

The business of payments and the provision of payment instruments have a rich history, which can be drawn upon in a discussion of standardization. In the middle-ages, for example, the mere existence of a wide variety of foreign and local coins led to a flourishing business of money exchange offices and cashiers in the Netherlands. Malpractices of some of these firms, mostly in the form of physical tampering with coins and alloy, resulted in government regulation on a municipal and province level. Yet, as these type of regulations where hard to enforce, the Amsterdam municipal government decided in 1609 to establish a municipal exchange bank, ‘de Amsterdamse Wisselbank’, originally as a government monopolist. The motivation for doing so was to prevent the regular price-increases of the good coins, to eliminate confusion to the public and to facilitate trade by providing good coins. Later on, in 1621, the regulations were adapted to the actual business practice and private cashiers were allowed – under certain conditions – to conduct business in the city of Amsterdam (van den Berge, 1939, p 34). The example shows us how a diversity of specifications and a diversity of payment instruments, will lead to the development of separate companies which make money by reducing the confusion for their consumers. It illustrates that the abuse of technological know-how and abilities for the sake of increased economic benefits by a few private companies may lead to government intervention for the sake of public interest. Furthermore it indicates that strong market powers may prevail, even in the case of restricted government regulation. As such the example contains all relevant issues with respect to IT-standardization: • can it be assumed that the market will standardize if necessary? • what role should governments play in this process? • does the end-user play a role in this process? In this chapter, I will examine the above standardization issues with respect to the retail payment instruments, developed and in use since the beginning of this century. In this time frame bank notes and coin have been widely available to the public as a basic (and standardized) payment instrument. I will however not include these instruments in this study and limit myself to a study of the standardization of noncash payment instruments that have been available to the consumer. These payment instruments can be seen as the technical means with which consumers effect money transfers to each other. Examples of payment instruments are the forms for credit transfers or in-payments, the debit- or credit cards or home-banking software. It is my opinion that, given the availability of cash an alternative payment instrument, the standardization processes of noncash payment instruments can be seen as the ‘pure’ result of market forces. The study of this process, applied to different types of instruments within one application and industry domain, will hopefully provide additional insight.

The Standardization Problem in Networks - A General Framework

Every interaction and all coordination in economic processes is based upon communication. The exchange of information necessarily requires both the sender and receiver of a message to use a mutual language or set of communications standards. Communications standards can be generally defined as rules which provide the basis for interaction between actors (man, as well as machine). These rules must be known or determined ex ante, i.e. before communication begins. If n actors bilaterally agree to a set of communications standards, then n•(n-1)/2 rules must be defined. Such a Babylonian cacophony of languages rarely leads to an efficient exchange of information, however. The uniqueness of communications standards lies in their solely bilateral functionality; they work only when both the sender and the receiver of a message use identical or at least compatible standards. This basic principle for the use of communications standards applies to natural languages as well as to EDI (Electronic Data Interchange) for the electronic transfer of business documents or to network protocols like TCP/IP, for example. Thus, the decision to implement a standard is necessarily tied to the standardization decision of the communications partners. The user’s benefit from a given standard generally increases with the number of other users. This phenomenon— the increase of utility derived from a good as the number of users increases—is known as a positive network effect, or demand-side economies of scale, in economic terms. See for example Katz & Shapiro (1985) or Farrell & Saloner (1988). Network effects lead to the interdependence of decisions regarding communications standards by otherwise completely independent actors. This interdependence results in coordination problems because actors, such as firms, do not know in advance when which standards will be implemented by other firms, if at all. Our research focuses on the examination of alternative forms of coordination and their impact on the selection of communications standards. We have developed two models for evaluating different coordination designs, differentiating between centralized and decentralized coordination of standardization decisions. These models can also be used to analyze and evaluate further cooperation forms between participants in communication networks. We based the economic parameters of the models and the discussion of their implications on empirical research. To gain information about the use of software standards in enterprises, we conducted a comprehensive empirical survey, both in Germany and the U.S.A. It focuses on the corporate adoption and use of various Information Technology (IT) standards, including Internet and electronic commerce standards, business software and EDI.

Standards, Strategy and Evaluation

The purpose of this chapter is to define the context of standards within an Information and Communications Technology (ICT) strategy and to suggest how the benefits arising from the use of standards might be evaluated. Within any organization, standards will be defined at a number of different levels, dependent upon the focus/span of operation. Classically, standards might be defined at three levels: • strategic: the standards that should be used for all systems across an organization, including for instance standards which apply across national boundaries; • tactical: standards which might apply for systems in a more limited context, such as a regional supplier; • local: standards chosen in restricted or exceptional circumstances to satisfy the needs in a specific location. This distinction is not always clear cut, and may be applied iteratively, dependent upon the context of use. For instance, a Business Unit will define its own strategic standards, or standards to support its ICT strategy. These ‘strategic standards’ will, of course, be defined in the context of the organization’s ‘strategic standards’. The local standards will ‘inherit’ characteristics of the strategic standards (which may be national or international in scope). It is our contention that in order to be successfully promoted, ICT standards need to be formulated within the context of an ICT strategy. (By ‘ICT strategy’, we mean the use and management of ICT by an organization to achieve its desired goals in a changing and competitive operational environment.) This theme forms the main basis for the discussion within this chapter on the benefits and evaluation of ICT standards.

Knowledge Age Standards

The diverse uses of “standards” define the goal of this work, namely, to develop a general framework of standards and to reflect on the process and outcome of the development of the framework. My intention is to devise a theoretical framework that may be translated into practice at some future point. The principle outcome is a framework of standards that includes five dimensions: Level, Purpose, Effect, Sponsor, and Stage, each of which contains five categories that together define the dimension. The dimensions show: • how standards can be produced and used by entities from different Levels (individual, organizational, associational, national, and multinational); • how they can have one or more Purposes (simplification, communication, harmonization, protection, and valuation); • how they can cause diverse Effects (constructive, positive, unknown, negative, and destructive); • how they can be developed by different Sponsors (devoid, nonsponsored, unisponsored, multisponsored, and mandated); and • how they can be in different Stages (missing, emerging, existing, declining, and dying). In presenting the framework, the chapter also touches on the roles of standards in the industrial age, their potential roles in the knowledge age, and the current turmoil in the standards community. It includes reflections on designing and judging the framework.

The European Computer Driving Licence

There is a recognized need to spread computer literacy across every level of society to generate an inclusive global information society, in which every citizen has an opportunity to participate (WRC, 1998; Dolan, 1997; European Commission, 1996; Green Paper, 1996). The visionary comments and actions of Commissioner Bangemann of the European Commission sparked off the recognition of the need for a computer literate population. He suggested that launching initiatives in areas of education, training and work organization was a basic requirement for supporting inclusion for the citizen in the information society. Establishing the European Computer Driving Licence (ECDL) as a basic standard of computing competence for every citizen underpins this objective. Computer literacy programs based on encouraging and motivating people to obtain an ECDL support the objective of including all citizens in the development of our information society. ECDL deployment programs have been launched to address the recognized need to increase computer literacy. Some of the issues raised in the European Commission reports were the following: • Greater efforts must be made in our schools, to prepare the next generation to participate and benefit fully; • Greater efforts must be made to stimulate European citizens to create content for new services whether education, entertainment or business; • Continued efforts must be made to keep Europe at the forefront of technology and infrastructure development and deployment for everyone; • Sustained efforts must be made to increase the public awareness of the benefits of active participation in the information society; • New collective efforts are needed to realize broader social benefits, particularly at local and community level. The European Computer Driving Licence addresses most of the above issues. The overall objectives of the ECDL dissemination program are: • To raise the level of computing competence for all European citizens, for those in the work force, seeking to join the work force, for those at home and for students. • To increase the productivity of all employees who need to use the computer in their work. • To enable better returns from investments in information and communications technology. • To ensure all computer users understand the “Best Practices” and advantages of using a computer. The European Computer Driving Licence (ECDL) is a certified standard of basic competence for the users of a personal computer (any brand of personal desktop or portable computer). The ECDL, discussed subsequently in detail in this Chapter, is a certificate awarded to a person who has achieved a basic standard of knowledge of the concepts of information and communications technology and has acquired a basic standard of competence using a personal computer. The objective of this chapter is to describe the ECDL standard. It gives the background to what has been done in Europe, with the European Computer Driving Licence (ECDL) initiative. It describes the ECDL standard in terms of content, procedures for certification and the organization around the deployment of the ECDL. It concludes by outlining the development plans for the ECDL and the aspiration to establish a ‘de facto’ standard through the general acceptance and worldwide take up of the ECDL concept.

Institutional Constraints in the Initial Deployment of Cellular Telephone Service on Three Continents

The influence of institutional pressures on standards and standardization are readily apparent in their most direct form. For example, in the mid-1990s, both the European Union and the United States issued new wireless communications licenses in the 1.8-2.0 GHz band: the EU countries mandated use of their decade-old communications standard, while the U.S. authorized three competing standards not yet widely used in the U.S. (Mehrotra, 1994). However, institutional pressures can also shape standardization efforts in a less direct fashion. For example, in a regulated industry such as telecommunications, existing economic and political institutions constrain the diffusion of a new technology. Such diffusion mediates the impact of product compatibility standards upon society. If producers adopt standards for their goods and services, and if users adopt the products that incorporate such standards, only then such standards can have an economic or social effect upon society at large. Therefore, it is important to understand the impact of institutional pressures on diffusion of the innovation that incorporates a standard if we wish to explain the eventual success or failure of such a standard. Here a particular standards-based innovation, analog cellular telephone service, provides an opportunity to contrast the effects of institutions on diffusion and thus standardization. Over a four year period, three independent design centers deployed mutually incompatible standards in three continents. While the technical solutions were similar, differences in institutional context between the regions influenced both the nature of the respective standards and their corresponding diffusion. In particular, the systems were deployed in a period of shifting telecommunications competition policies and priorities for radio frequency allocation. Prior research has examined the causal links between standards and institutions, both the institutional context of standards development (e.g., Besen, 1990) and also how established standards themselves function as institutions (Kindleberger, 1983). But rarely do we have the opportunity to examine the diffusion of the same innovation in differing institutional contexts. This paper will focus on the most complex institutional context for the deployment of cellular telephone service, the United States, which despite having invented cellular technology, was the third region to deploy cellular service due to regulatory delays. The experience of Japan and Northern Europe are offered as contrasts to highlight the importance of the institutional context in the adoption of both standards and standardized products.

A Standards-Based Common Operational Environment

NATO as an international organization consists of representatives from 19 nations and has to satisfy the political, operational and technical requirements of all members. In addition to the development of specific NATO information systems, it has to consider and support means for interoperability with national systems. Taking into account the life-cycle-cost aspects, it becomes clear that a standardization policy must consider the cost-effective maintenance, upgrade and replacement of system components and their interfaces. Standardization of NATO specific interfaces is a well-established process, which results in ‘Standardization Agreements’ (STANAGs). Those are specifications of proprietary standards or of adaptations of international (e.g. ITU, ISO) standards. STANAGs have two major disadvantages: First, the process to develop a new or to modify an existing standard is lengthy; the process to get the specification ratified by the relevant nations is even longer. This can result in STANAGs, which do not reflect the state-of-the-art of standards. Second, as STANAGs often specify standards that are different from international or commercial standards, there is very little market and product support. This leads naturally to increased development and procurement costs. In military terms a Command, Control and Information System (CCIS) is the equivalent to a Management Support and Information System (MSS/MIS) in the commercial domain.