Link – Nokia vs. Apple: the in-depth analysis
Engadget recently posted an interesting article that gives a lot of good background on patent issues in standards setting organizations.
Wireless standards like GSM are developed by a standards-setting body with the cooperation of its members -- in the case of GSM and UMTS, it's the European Telecommunications Standards Institute (ETSI), and with WiFi it's the familiar IEEE. These organizations aren't blind to the fact that its members invest billions into R&D and have lots of patents, but they also recognize the need to develop standards that everyone can use -- so while a standard like GSM is under development, member companies are supposed to declare if they own any patents they think are essential to the standard's operation. What Nokia doesn't say is that there's no independent verification of a patent's essentialness during the standards process -- in other words, the ETSI and the IEEE don't maintain some master list of patents that are actually essential. Instead, each company that participates in developing a standard is basically on the honor system, and they all agree to abide by FRAND principles when negotiating licenses. That means there's a tremendous incentive to declare as many patents as possible to be essential, since anyone who wants to use the spec might have to pay license fees on all those patents, and not declaring a patent essential can result in various other unpleasant consequences. (Legal nerds will remember the Rambus case as an example of this: the short and highly-simplified version is that Rambus didn't declare it had patents on certain types of RAM, and years of litigation ensued.)
Patent Licensing Assurances in Standards Organizations
From a patent licensing perspective, most standards organizations are based on RAND principals. In other words, members are required to make their patents that are required to implement a specification available on reasonable and non-discriminatory terms.
Most standard organizations permit patent holders to charge royalties for their patents. Some, like W3C, require that those required patents be made available under RAND terms without royalty. This is often referred to as RAND-z (RAND with zero royalty) or RAND-RF (RAND Royalty Free). Still other organizations allow members to choose whether or not they will charge a royalty, or if they are willing to license their patents at all.
For example, the international standards setting organizations ITU-T, ITU-R, ISO, and IEC have adopted a common patent policy. Under this policy, a patent holder has the option to make its required patents available under 1 of 3 options, which I've paraphrased below.
- Under the 1st option, a patent holder agrees to grant licenses for patents required to implement the standard on RAND-z terms. The patent holder may also select defensive options for a) reciprocity and b) reserving the right to offer royalty bearing RAND terms to third parties who are only willing to license their required patents on royalty bearing RAND terms.
- Under the second option, a patent holder agrees to offer RAND terms for its required patents, with the option to condition the license grant on reciprocity.
- Under the third option, a patent holder can declare it is unwilling to grant licenses under the first two options.
These options allow a patent holder to declare the general licensing scheme it will offer its required patents under, but the actual patent licensing terms are left for the patent holders and users of the patents to determine outside of the standards body itself (the reasons for this warrant their own post, but license negotiations within standards bodies carry antitrust risk).
This does not mean, however, the standard participants are unaware of the terms that will be included in the actual patent license. Before the standard is formally adopted, interested parties can contact the patent holders to inquire about licensing terms and cost. Patent holders may also make their terms available in a number of ways, before or after a standard is adopted. Patent terms can be established through bilateral negotiations, cross licensing arrangements, patent pools, or the patent holder publicly posting its terms.
Even when a patent holder declares a necessary patent to a standards organization, it does not mean that the patent holder will necessarily set up a licensing program around that patent. Patent licensing programs are expensive and complicated to develop and maintain. Licenses need to be drafted, negotiations may need to occur, and an infrastructure needs to be developed to maintain the program. Also, companies often maintain patent portfolios for reasons other than royalty-based licensing, such as for defensive purposes and cross licensing.
The reality is that an extremely large percentage of RAND based patent declarations to standards bodies do not result in the patent holder seeking to actually license those patents to implementers. To be fair, the percentage of RAND based patent programs can differ greatly depending on the types of standards involved. For example, it's more common to see royalty based patent licensing around telecom standards than for Internet related standards. The percentage of formal licensing programs by standards participants around RAND-z declarations and standards is even lower (probably closer to the very low single digits, if that high). In spite of this, it is important for patent holders to retain the rights to require licenses in order to control and protect the value of their patents. Keep in mind that although a company may be making a commitment to make a patent available on a royalty free basis for a particular standard, it may still be charging royalties (or not licensing at all) in other contexts.
In the RAND-z standards space, even the most permissive RAND-z commitment has at times created tension with implementers, especially in the open source community. Even though the patent may be available without royalty, the license itself may include other terms that some believe are incompatible with certain open source licenses.
In response to these concerns, several companies, including Microsoft, are using a different approach to making their patents available for certain RAND-z standards. Rather than requiring parties to come to the patent holder to get a license to use the required patents, that patent holder agrees not to assert its patents as long as certain conditions are met. Essentially, rather than having to go to a patent holder to get permission in the form of a license to use the patent, the patent user automatically has the ability to use the patents available under the grant. The idea is that parties will be able to make use of the patents while still respecting the rights of the patent holders.
I'll be looking at how these grants work in another post.
HD Photo Submitted for Standardization
Microsoft has started the process of standardizing HD Photo. Today, the Joint Photographic Expert Group (JPEG) announced a new work item around Microsoft’s HD Photo submission, which will tentatively be called JPEG XR.
It’s Microsoft’s intention to help ensure that, once standardized, JPEG XR will be widely adopted and deployed. To that end, Microsoft submitted HD Photo to JPEG for standardization with the commitment to make royalty free grants for its patents that are required to implement the standard.
DRM and Approaches to Interoperability
Steve Jobs made headlines recently with his "Thoughts on Music." While a great deal has been written about Jobs offering to embrace the distribution of DRM free music, I thought his comments on interoperability were interesting. In Jobs' view, interoperability is achieved through licensing Apple's FairPlay to 3rd party device manufacturers. Microsoft has taken a very different approach to DRM interoperability.
First, Microsoft licenses its WMDRM platform to third parties for implementation on a wide variety platforms and services. Contrary to Jobs' assertion that maintaining DRM security is "near impossible" when the technology is licensed to third parties, third party implementations of WMDRM have proven to be fairly robust and the ecosystem has responded quickly to the inevitable breaches.
In addition to licensing, DRM interoperability can also be accomplished by design. Today Microsoft introduced Microsoft PlayReady, its next generation of content protection technology. PlayReady is already interoperable with DTCP, CPRM, and Helix DRM as a result of agreements between Microsoft and the entities behind those content protection systems. Moreover, 3rd parties can nominate other DRM systems and content protection technologies and request that Microsoft provide a “mapping” into that system. Once the mapping is established, content services can determine whether to allow their content to flow into that 3rd party system.
This multi-tiered approach allows services and device manufacturers to decide whether or not they want to provide DRM interoperability, and if they do, how they want to enable that interoperability. For example, if Apple wanted FairPlay to interoperate with PlayReady, we've got a couple of options for them to pick from.
Patent Damages and Defensive Patents
During the recent controversy regarding Microsoft’s RSS related patent, there seemed to be a general disbelief that Microsoft was filing the patent primarily for defensive purposes. As an example of the patent litigation landscape today, Don Dodge posted about a patent suit against Google, Apple, and Napster. Even more illustrative of the dangers of patent actions, Bloomberg published an article yesterday about patent litigation damages. Bloomberg found that patent damages have steadily increased and that patent actions in U.S. resulted in $1 billion in patent damages last year, an amount almost triple the 2005 amount.
Bloomberg listed Microsoft as suffering the second largest patent damage award.
A Texas jury awarded his client $133 million, including $115 million from Redmond, Washington-based Microsoft. U.S. District Judge Leonard Davis added $25 million in damages against Microsoft, based on a jury finding of willful infringement. Microsoft, the world's largest software maker, has appealed.
What you don’t see on that list is any offensive patent claims by Microsoft. Given the size of a target that Microsoft presents for patent suits and the potential of incredibly high damages, it’s only prudent for Microsoft to take actions, including defensive patent applications, to protect itself.
The RSS Controversy
There's been a lot of blog posts in the last several days regarding Microsoft's filing of RSS related patents. Despite many negative posts, Don Dodge and Techdirt have provided a balancing perspective. While I am not a patent attorney and have no familiarity with these patents other than what I've read on other blogs, I am very familiar with Microsoft's approach to patents.
Microsoft, like many technology companies such as IBM and Sun, files a larger number of patents every year. Patents serve a number of purposes, including protecting valuable research, licensing to third parties, cross licensing, and defensive reasons. What is exceedingly uncommon, however, is for Microsoft to use its patents offensively. In fact, while I am not aware of any offensive patent action by Microsoft in recent memory, Microsoft itself is the constant target of patent claims.
While the general tone of many posts on this matter is distrust of Microsoft, I think it's important to look at how Microsoft actually makes its patents available. I've written about Microsoft's Open Specification Promise in the past, and I think it is a great example of how Microsoft is making it's patents for select standards available to the community at no charge.
In the RSS space, Microsoft has created the Simple Sharing Extensions for RSS and OPML. Microsoft made this RSS extension available under a Creative Commons License and agreed to license it's patents that are infringed by the specification, if any, under royalty free terms. This actually goes beyond the licensing terms of RSS itself, which provides a copyright license under a Creative Commons license but offers no patent assurances at all.
Overall, if you look at Microsoft's track record in the patent space, it simply does not support claims that Microsoft is going to use these patent claims offensively.
Sender ID added to Microsoft’s Open Specification Promise
Microsoft today announced that the four specifications that make up Sender ID are being made available under Microsoft's Open Specification Promise (OSP). Jason and Brent have comments on the announcement and how making Sender ID patents available under the OSP fits into Microsoft's approach to interoperability.
Standards usually don't make the front page of the Washington Post, but Sender ID did. For that reason alone, Sender ID is not your everyday standard. The hope behind Sender ID was to provide a widely deployed system to authenticate email. When Sender ID was brought to the IETF, Microsoft, in accordance with IETF polices, disclosed the existence of its pending patent claims. Microsoft also agreed to license its patent claims on the Sender ID specification on reasonable and nondiscriminatory terms without royalty.
It's important to point out that this disclosure went beyond IETF requirements, which require patents be disclosed but does not prohibit licensing on a royalty basis. Microsoft's intent was to foster the wide adoption of the Sender ID specification by offering its necessary patents to implementers at no charge or royalty. Microsoft's royalty free terms, however, were met with opposition primarily from the open source community. Despite this opposition, more than 5 million domain holders have adopted Sender ID.
The reason I bring up this history is to show how Microsoft's approach to standards licensing is evolving. When Microsoft offered to make its necessary patents available to Sender ID implementers on royalty free RAND terms, Microsoft was in fact making its patents available under one of its most permissive licensing approaches (and one that was never, to my knowledge, greeted with the kind of opposition it received at the IETF, home of many royalty based standards). To be clear, Microsoft's goal was to license its technology in a manner that would encourage adoption. Since that time, Microsoft has spent a great amount of effort refining its standards licensing approaches and working with the community to find new approaches to standards based licensing. One result of that process has been Microsoft's adoption of the OSP - an approach that was not available to Microsoft when Sender ID was brought to the IETF.
Although the application of the OSP to Sender ID has been warmly received (as has the OSP's application to certain WS specs and the Virtual Hard Disk Image Format Specification), a comment by Rich Jennings about Sender ID and the OSP caught my attention.
As far as I can tell, nothing has changed. There's no news here. Move along.
This promise seems to be exactly the same promise as was made by Microsoft in 2004. It's a promise that didn't prevent the MARID working group from failing to reach consensus -- mainly due to deadlock over the IP issue.
Although I've posted about the OSP before, I think it's important to emphasize that the OSP is in fact a different approach to standards licensing than royalty free RAND licensing. A royalty free RAND license, despite being free, does require implementers to actually obtain that license. The OSP does not require an implementer to come to Microsoft for that license. This also removes issues related to sublicensing, which is of concern to the open source community, since the OSP extends directly to each user of the spec. These are a few of the several reasons why the OSP has received the support of companies including Red Hat and SendMail. It's Microsoft's hope that the OSP's application to Sender ID will in fact resolve lingering IP licensing issues related to Sender ID.
The Role of the Patent Trolls
On Wednesday, the Financial Times published a piece by Alan Cane called Trolls control the rickety-rackety bridge of intellectual property. In the article, Mr. Cane points to the cost of patents in products and draws attention to patent trolls that "participate in or monitor standards-setting processes without revealing, until it is too late, that they hold patents essential to the standard." While he finds that these activities can be problematic, he concludes by saying that "[p]atents are property and can be bought and sold. There is nothing wrong with holding an asset from which you hope to profit."
Although patent trolls can pose problems within standards bodies, they are a far greater problem outside of a standards body than if they are a member. Most standards organizations are based on RAND concepts, but each has a different set of rules governing its operations. Those rules are generally designed for the particular standards context and the types of activities that the organization engages in.
For example, some standards organizations require that their members positively disclose any necessary patents they may have. Other organizations require members to only notify the organization of any necessary patents that they are unwilling to license on RAND terms. Without debating the merits of each approach here, the important point is that these obligations are imposed upon members of the standards organization. To go back to a point I made in an earlier post, standards members generally cannot refuse to grant a necessary patent license, and that license must be on reasonable and non-discriminatory terms. Even patent trolls that are standards organization members are bound by this obligation.
Although disputes can and do arise as to whether patent licensing terms are indeed reasonable and non-discriminatory, those disputes are exceedingly rare. There are hundreds of RAND based standards organizations, which publish thousands of standards, which are implemented in millions of products. Yet the number of cases brought each year over RAND licensing terms can usually be counted on your fingers.
It's also important to keep in mind that even in the standards context, patent licensors operate in the marketplace. If their patent royalties are too high, the market will not adopt the standard and the patent owners will not make money. That pressure tends to result in patents being reasonably valued. In the patent pool process, it's very common for the pools to lower their fees in response to market forces.
Despite a handful of high profile issues with patent holding standards members, the problems with patent trolls tend to arise outside, rather than inside, standards bodies.
My Welcome to the Blogosphere
In my first 24 hours in the Blogosphere I've received a warm welcome (thanks Jason) and, well, a not so warm welcome from Dana Blankenhorn over at the ZDNet Open Source Blog. Despite Dana's urging me to stay offline, I figured it might be more interesting to respond to his comments.
Dana first takes issue with my characterization of RAND licensing practices:
"First Rudin describes the controversial RAND (Reasonable And Non-Discriminatory) licensing schemes that some proprietary firms have been trying to force into the Internet standards, in order to make it a permanent toll road, as a universally-accepted concept. I think that's pulling a fast one, but I'll let it pass."
Though there are certainly those such as Dana that don't agree with RAND licensing, most standard organizations operate on a RAND basis. ECMA comes to immediately to mind. IEEE and OASIS allow licensing on RAND terms, with or without royalty. Even the W3C, which is responsible for a great number of Internet standards, operates on a royalty free RAND basis. No pulling a fast one here. The point is that whether or not a patent royalty is allowed for a given standard, most standard organizations operate on a RAND basis.
Dana then takes issue with me calling patents a property right. Fortunately, I can let the U.S. Patent Office speak for me on this one:
What Is a Patent?
A patent for an invention is the grant of a property right to the inventor, issued by the United States Patent and Trademark Office....
The right conferred by the patent grant is, in the language of the statute and of the grant itself, “the right to exclude others from making, using, offering for sale, or selling” the invention in the United States or “importing” the invention into the United States.
Dana then moves on to copyrights, a separate intellectual property right from patents. Unlike patents, which protect inventions, copyrights protect the expression of ideas. The reason I bring this up is that it's important to understand the roles of patents and copyrights in standards.
Standard organizations generally publish technical specifications for others to actually implement. Those specifications, being expressions of ideas, are protected by copyright. Standard organizations have the right distribute those specifications, sometimes for a fee and sometimes at no cost (running a standards body isn't cheap and they have expenses they need to cover).
Getting the specification on its own, however, does not necessarily give people the right to implement that specification. That's where patents come in. Under RAND policies, patent holders in those standard bodies agree to give up one of their primary patent rights - the right to exclude others from making use of that patent.
It's important to keep in mind that standards licensing is very different from commercial software licensing that most people are familiar with. When you license commercial software, you get the rights to use that software. Those rights include both copyright and patent rights. When you want to implement a standard, the standards organization can only grant copyright rights to the specification. Implementers are still required to get the necessary patent rights, if any, from patent holders. Sometimes this means getting the rights from the patent holder itself, other times it might mean getting the rights from a group of patent holders through a patent pool.
What Microsoft has done with its Open Specification Promise goes beyond its RAND licensing commitments. It say that implementers of the covered specifications don't need to come to Microsoft to get a license - we've already given you the rights to use our patents.