Openness, Intellectual Property and Standardization in the European ICT Sector

Carl Mair

6/11/2014
(Original Publish Date: 5/23/2012)

This paper discusses some of the core issues around the intersection between intellectual property, technological standards and competition policy in the European Union. In particular, it examines the so-called trade-off between ‘openness’ and innovativeness. Traditional economic theory suggests that only exclusive ownership of intellectual property provides the necessary incentives for companies to invest in innovation. In a standards context where technological specifications should be as widely-promulgated as possible, the inclusion of exclusive IP rights can create access problems and may result in technological bottlenecks or consumer harm. This is especially the case with respect to open source software, which is sometimes legally incapable of including standards which include royalty-bearing IP. It is for these reasons that recently some EU governments, consumer groups and companies have demanded so-called ‘open standards’ whereby any IP included is licensed on a royalty-free basis. This push for ‘open standards’ has met with some strong opposition both from the private sector as well as from some formal standard-setting organizations, who argue that failure to reward IP owners for their investment will lead to inferior and less innovative standards in the long run. This essay applies pressure to this argument, by deploying arguments from the literature of network effects. However, it is also argued that royalty-free standard-setting may result in standards which are less open than royalty-bearing standards .This paradoxical result is due to open standards' increased vulnerability to attack by the increasing number of companies pursuing a pure IP business model, and who are discouraged from participating in royalty-free standard-setting. The essay suggests a number of legal and strategic tactics which could be used to prevent this outcome, but concludes that if standards are to be and remain truly open, stake-holders should be prepared to fight for them in terms of both IP management and by pushing for changes to the IP regime in general.