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The positive role of patents in standardisation

Standardisation is the act of a market agreeing to limit the range of available products by removing incompatible non-standard devices. This benefits the user by ensuring interoperability, and removing any user concerns that products will work. Examples of successful standards include Compact Discs (CDs), DVD, and USB interfaces – consumers making buying decisions just know any CD will play in any CD player; a DVD will play in a DVD player, and any USB peripheral will connect to a USB interface.

So, standards have a positive impact on society, but not just for the consumer, manufacturers and those involved in R&D also benefit:

  • In the case of high-tech products, the benefits that a consumer derives is greater the larger the network effects
  • The economies of scale on the demand side implies that the benefits to society are greater when standardisation allows for widely adopted compatibility
  • Standards also reduce manufacturing costs for compliant products; and further reduce marketing costs through simpler information diffusion.

The first challenge for Standards Setting Organisations (SSOs) is to open the standards setting process to attract the best technology from all organisations, including SMEs, technology providers, academia, as well as large vertical multi-nationals.

The second challenge for SSOs is open access to the standard – the concept that the standard, once agreed, should be open for all to practice – even by companies that were not part of the standards setting process.

A balanced solution

The vast complexity of modern standards, particularly in telecommunications, risks alienating small and medium size firms (SMEs) as only large verticals organisations have the capacity to exploit such global markets. Other Non-Practicing Entities (organisations that do not manufacture products, but may be involved in research and development of the technologies, and holds related patents) also face potential barriers to the adoption of their solutions.

Those large verticals that have the capacity to engage with the standards setting process, but do so at their own cost. Performing technical R&D, sending people to standards meetings, drafting reports etc, are significant investments.

There is a balance to be found: most SSOs limit their mandated to the identification of the best technical solution to meet the market needs; while maintaining policies which exclude activities that could be called into question as anti-competitive, such as negotiating the costs or licensing terms of those technologies.

A virtuous circle of innovation and reward

If the standards setting process is successful then the resulting technical specifications have the beneficial effect of lowering the barriers of entry for anyone to then become manufacturers of standards compliant products and to compete directly with those organisations that invested in the SSO process.

There must therefore be mechanisms to reward the investments made, and the risks taken in order to stimulate future investment; to encourage SSO members to drive the technology forward; and to attract new members to the SSO. Licensing of patents included in the standard is one such approach.

Patent licensing gives companies involved in R&D and standardisation some confidence for new investments. Patent licensing also maintains the balance, and ensures a virtuous circle of innovation and reward, where continuous innovation is maintained in a competitive market environment