Closing time for open standards and patents consultation

The European Commission’s DG GROWTH (formerly DG Enterprise) is running a public consultation with the stated objective of gathering information and views on the interplay between standardisation and intellectual property rights such as patents. It was opened on 14 October 2014 to 15 February 2015 and is about to close. The initial deadline for comments of 31 January 2015 was extended by two weeks to 15 February.

Demands for change lack evidentiary support

Prior to this in 2013, DG GROWTH commissioned a fact-finding study on the issue of patents and standards upon which it has centred this consultation. Research presented in this is largely based on a small number of 37 interviews, many of which are outside the industry sectors where interoperability standards are most commonly used. 

The Report’s findings are very subjective and speculative. It makes the introductory statement that “[t]o ensure that Europe is well positioned in today’s global competitive environment, unnecessary barriers in the market for IPR licensing need thus to be removed." However, quantitative data from desk research such as that on the extent of patenting and disclosures neither measure any of the purported problems, such as allegedly excessive transaction costs, nor measure the effects they have in the marketplace, for example, on market entry costs or market shares. There is no overall empirically-based assessment of information costs, transaction costs or overall costs in licensing SEPs, or how these are actually trending in the market.

Unintended and undesirable consequences

DG GROWTH should be cautious when discussing and proposing changes to rules and practices, including disclosures and licensing for patented technologies in interoperability standards. Changing the dynamics of standardisation, participation in which remains voluntary, may impair innovation and reduce contributions to standards setting. This is particularly true if policy recommendations or changes undermine the evidently well-functioning aspects of standardisation processes.

As I have explained in several of my IP Finance blogs including my most recent on IEEE’s proposed patent policy changes, which has now been approved by the IEEE board of directors, alleged problems and harms in standard-essential patent (SEP) licensing remain unsupported with evidence. Nor have the impact of proposed “remedies” on R&D, investment or long-term innovation been assessed in any meaningful way. The danger of proposing reforms that do not address quantifiable harm is dire unintended consequences. Standard-setting Organization (SSOs) participation is voluntary with rules and procedures determined by members in accordance with the law. Imposing change could have adverse effects such as discouraging members to invest in R&D, contribute patented technologies to standards or outright departure from SSOs with reversion to more proprietary implementations.

Facts and figures show market is working well

The system of licensing interoperability standards is working remarkably well, as exemplified in mobile phones, to the benefit of consumers with vibrant competition which has resulted in extensive innovation, increasing product choice, falling prices and massive adoption with 7 billion connections worldwide. It has attracted large and increasing R&D expenditures which have grown 50 percent since 2008 to $42 billion in 2013. Licensing fees paid for mobile SEP royalties remain below 5 per cent ($19 billion) of Morgan Stanley’s estimated $377 billion in 2013 handset sales. And these figures are dwarfed by the $1.1 trillion in mobile operator service revenues which are also very dependent on mobile 2G, 3G and 4G technologies.

Submission to DG GROWTH

I have just submitted my lengthy consultation response to DG GROWTH. It is also available in pdf form here. You have two more days to get yours in!