Thursday, March 23, 2006

My comments to the WTO and the Chinese Ministry of Commerce on IPR issues

The Chinese Ministry of Commerce recently asked for a response back to a paper entitled "Background paper for Chinese Submission to WTO on Intellectual Property Right Issues in Standardization". I feel very strongly about this issue. The red text below is my response (mine alone and in no way reflects that of my employer or anybody else). As Joey Sh!thead Keithley from DOA once said "Talk - Action = Zero". J - hope this fits the attitude!! TEXT BELOW:

Draft Background paper for Chinese Submission to WTO on Intellectual Property Right Issues in Standardization


I. Incorporation of Intellectual Property Rights into Technical Standards is an Inevitable Outcome of the Development of Science, Technology and Economy.

Standards reflect technology evolution. Incorporating fruits of science advance and technology innovation in standards is one distinctive feature and a trend of contemporary standardization effort worldwide. Intellectual property rights(IPRs), especially patent, are technical solutions that embody such science advances and technology innovations. Consequently, the technical solutions incorporated in standards may well coincide with those in patented technologies.

2.Nowadays, it is common practices to protect corporate R&D results through IPR regime. Patented technologies almost reach every corner of all sectors, especially in high-tech ones such as information and telecommunication (ICT), where virtually all the key technologies of market significance are loaded with IPRs.

3.Implementation of all kinds of standards, be them descriptive/design or functional, may involve use of patented technologies. Even if a standard only defines the performance of a product rather than specific technical features, the implementation of the standard may still implicate IPRs, since the technical solutions to achieve the performance target can be covered by IPRs, i.e., IPRs can be indirectly included into standards that set requirements for product performance.

4.Because of the great difficulties and huge cost in retrieving, analyzing and comparing technical solution to determine its proprietary state, it’s impractical to avoid IPR in standard-setting.

5. Enterprises holding IPRs, especially essential IPRs, make significant input in worldwide standard setting activities. This is particularly true in high-tech sectors, where standardizations are often initiated and mainly advanced by those enterprises equipped with key and sophisticated proprietary technologies.

II.Issues Regarding Combination of IPR and Technical Standards and its Impact on International Trade.

6. WTO’s World Trade Report 2005 – Exploring the links between trade, standards and the WTO cited a research which “found a positive correlation between patent applications and new technical regulations, especially in innovative fields”. Based on a cross-country analysis, this research also found “that sectors with a higher propensity for standardization tend to be more patent-intensive and export intensive”. It is easy to foresee that there is an obvious trend of proprietary technology entering into standards.

7. Standard Development Organizations (SDO), at international, regional and national levels, including ISO, IEC, ITU, ETSI, ANSI, etc, have neither avoided, nor can they avoid, the inclusion of patented technologies. Therefore, on the issue of incorporation patented technologies into standards, they in principle have no objection against patented items. Duane: In principle, this assumption may be flawed. Some SDO’s do have IPR policies which address this. Each one has their own IPR policy and they are not consistent, as noted later in this paper. It is also notable that it is not always possible for the SDO to have objections or acquiesce if they are not aware of the patents. Sometimes, a company may not make a patent available to all employees and it is possible that one employee may participate in a standards development process and create something unaware that someone else in his own company invented the same thing independently earlier on. Many Patent processes do address this but they are usually typical to one region and not addressed to work with large Multi-national Corporations (MNC’s) that may have subsidiaries in different countries. IMO – a common set of guidelines might be a good idea that are applied consistently across all SDO’s. I am curious about how you see this this work developing. It is a worthy cause.

8. In 2005, List of IEC patent declarations received by IEC posted 27 patent-related information releases, where one release may cover a lot of patents. For instance, in the information release dated Nov. 14, 2005, Zebra Technology Company claimed 98 patents worldwide on ISO/IEC 18000-6 standard. By February 8th, 2006, ITU-T Patent Statement and Licensing Declaration Database contained 1494 patent declarations, among them 137 were received after the approvals of the Recommendations. Up to 1998, ETSI posted 72 patent releases in 16 standardization sectors. By the late 1990s, over 20 companies claimed to hold about 140 patents which they construed as ‘essential' to the GSM standard.
DN: Would you be so kind as to back this up with references? Several of the groups mentioned have alleged this may be inaccurate. If you could please provide specific references?

9. Combination of IPRs with standards may be problematic and bring about negative impact on standardization and international trade.

Duane: It may be so, however there are IPR policies in place that do protect those who work with the standards subsequently. It is dependent upon many factors including the inclusion of RAND or donation of IPR to the SDO. The industry is very self governing given the very existence of software companies is dependent upon understanding these issues.

10. With regard to IPR declaration, patent holders may hold back patent information in the process of standard setting in the hope for unfair interests. In this regard, Dell case is illustrative.

12. When IPR holders refuse to license their proprietary technologies on RAND terms, standardizing efforts will confront crises. In accordance with the prevailing patent policies of SDOs, if the identified patent holders refuse to license on RAND terms and conditions, the SDOs can alter the standard around the proprietary technology. Yet it should be noted that some essential technologies are hard to avoid. If that is the case, the standard at issue may have to be withdrawn. Standard setting works have suffered, are suffering and will continue to suffer such inefficiency. As a commentator put it, “One of the most difficult areas in standards development these days is that of intellectual property rights (IPR). Internet Engineering Task Force (IETF) has seen many cases of submarine patents and other attempts to subvert the standards process. This is not just a problem for the IETF; many other standards development organizations have also had problems in this area.”

DN: As per my comments on the previous pages, this may not always be intentional. The end result may be a combination of both internal process and size of organization.

13. In light of foregoing facts, inclusion IPR into standards may have serious impact on the international standards setting efforts and the corresponding implementations. As TBT Agreement aims at boosting production efficiency and facilitating international trade by encouraging the adoption of international standards, such objectives can be frustrated and therefore international trade retarded. According to WTO’s World Trade Report 2005, the patent dispute on 3G standard retarded the commercialization of 3G mobile phone, which only just started at the end of 2004 while ITU approved the International Mobile Telecommunication 2000(IMT-2000) in 2000. 3G standard patent dispute litigations are still active and in high profile. Disputes of this kind will cause negative impact on 3G standard implementation, commercialization and related international trade.

Duane:Possibly true, however common sense seems to dictate that it is better to have a widely adopted standard in place to mitigate these types of things given it creates a large base of common stakeholders who use the standard, collectively having more bargaining power than individuals. If the allegations as suggested are true and worrisome, I would rather be part of a large coalition with a common interest and a published IPR policy to work with rather than using a proprietary technology and being by myself.

III. The International Communities are Paying Much Attention to IPR Issues in Standardization.

14. The impacts of IPRs on economic and trade development and the urgency to address them had been widely recognized. Related actions have been taken or are being taken.

15. The international standardization setting bodies like ISO ΓΏ IEC and ITU-T have recognized the impact of IPR issues on standard setting and implementation., and have made great endeavor to solve problems related to IPR issues in standardization. They had formulated basic principles for patent disclosure and licensing arrangements, which are widely cited by other SDOs. These principles also constitute sound technical base and a roadmap for the discussion in WTO. It should also be highlighted that ISO, IEC and ITU-T have taken into consideration the development needs in their policies and activities. For example, ISO has established a specific committee (ISO/DEVCO) looking after developments dimension of international standardization activities. ITU-T has several Resolutions in place to bridge the standardization gap between developing and developed members.

16. Aside from the patent policies of international SDOs, United Nation Center for Trade Facilitation and Electronic Business (UNCEFACT) is also well aware of this issue in its standardization work and begins to formulate its patent policy for standards on electronic commerce. In some developed countries, these issues have captured the regulators’ attention.

DN: I agree. It is imperative that UN/CEFACT complete and publish its final IPR policy as soon as possible. This cannot wait any longer.

In Japan, the Guidelines for Patent and Know-how Licensing Agreements under the Antimonopoly Act implemented by Japan Fair Trade Commission, stipulated that the patent holders whose patents implicated by standards adopted by government agencies shall not use their patents to exclude or control other companies, including exclusion and/or control of commercial activities of the patent users. In U.S., the Federal Trade Commission (FTC) and Department of Justice (DOJ) had been conducting intense discussions on these issues, including the 2002 FTC/DOJ joint Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy. In EU, EC Communication on IPRs and Standardization recognized that IPR holders should “make best efforts to identify any IPR which they hold relevant to a standard under development and to confirm or refuse permission for its incorporation in the standard”; “Offer fair, reasonable and non-discriminatory monetary or non-monetary terms for the license to use IPR” ; and “Treat their eventual agreement for incorporating an IPR in a standard as irrevocable.” In September 2005, Mr. Ryutaro Matsumoto, Japanese Industrial Standards Committee (JISC) Secretary General and Director General of METI sent a letter to ISO and IEC urging ISO and IEC to establish the IPR as hoc group so that member countries can participate in the discussions on the IPR issues and to clarify the operation of their patent policies.

Duane: The expressed urgency coming from a member delegation from a government who has notified the World Intellectual Property Organization (WIPO) that certain special economic regions like Macau are not going to honor conditions of the Madrid protocol seems a bit hypocritical to me:

July 7, 2000:

“The Permanent Mission of the People's Republic of China to the United Nations Office in Geneva and other International Organizations in Switzerland presents its compliments to Dr. Kamil Idris, Director General of the World Intellectual Property Organization, and has the honor to inform the latter that, till further notice from the Chinese Government, the Patent Cooperation Treaty (PCT), the Madrid Agreement Concerning the International Registration of Marks, to which the People's Republic of China is a member State, are not applicable to the Macao Special Administrative Region of China.”

IV. To Strike Balance between IPR Holders and Standard Implementers for a

Win-Win Situation.

17. The discussion on IPR issues in Standardization does not mean that IPR holders will lose and the IPR users will gain. The real problem stands now is that there are no sufficient rules to respond to IPR issues in standardization within international community, including WTO framework. Without well-defined rule to follow, inefficiency arises and disputes result to the detriments of both IPR holders and IPR users, who come from both developing and developed Members. While it is important to protect the rights and interests of IPR holders, it’s equally significant that new international standards and advanced IPR technologies are applied as widely as possible in order to enhance efficient, high quality production and to facilitate world trade to the interests of consumers worldwide. If there is a rule of balance that sufficiently clear to follow, the application of new international standard and new advanced IPR technologies will be smooth, and benefits will accrue to IPR holders--more users, more profit.

DN: I would not agree with all these assertions. There are certainly documented processes for dealing with IPR issues pertaining to standards development. They are readily available from several websites of SDO’s. IMO – these are well defined and easy to administrate and have worked for some time in general. If there are specific things in these published processes you have issues with, the correct path might be to notify the correct SDO to illustrate the problem. Making wide sweeping remarks contrary to the status quo will not likely resolve concerns. I would not posture that all is perfect and I believe the best thing to move forward would be to have the concerned parties come forward with concrete suggestions to address the issues rather than vague claims it doesn’t work. In lack of a concrete solution, things may just remain as they are.

V. Legitimacy to Discuss IPR Issues in Standardization within WTO TBT


18. Article 2.4 of the TBT Agreement encourages WTO Members to adopt international standards as the basis of the standards and technical regulations. If Members are not clear of IPRs in the relevant international standard, whether all the IPRs have been disclosed, under what terms the IPRs are to be licensed by the IPR holders, all WTO Members will face difficulties when adopting international standards. In the case that the national technical regulations are adopted, the enterprises who are subject to implementation of the technical regulations will encounter great difficulties with relation to disclosure of IPRs in standards and hard and time-consuming negotiations with IPR holders on the terms of licensing. Either the IPR holders are domestic or foreign companies, every Member will have to face this problem, which actually is the problem between the IPR holders and IPR users. Standards developed by credible SDO’s with documented IPR policies should be easier to digest for end users.
Duane: You are also leaving out another piece of the puzzle which is the ISV (Independent Software vendor). ISV’s also have to concern themselves with IPR when they build products and solutions that implement the standards, as do open source foundations. End users can isolate and mitigate many of these problems by purchasing software from credible vendors or using open source software from organizations who have already done their IPR homework and will back it in their EULA. I think that the WTO should not tread on this area and simply leave it to the reputable standards bodies to create and manage standards with acceptable IPR policies. The WTO can assess the SDO products to ensure they meet the needs of the end users and make recommendations based on their findings.

19. From the governmental level, as well as the company level, there exists the kind of unwillingness of adopting international standards as the basis of their national standards and technical regulations if there is no common rule to regulate IPRs in standardization. Such a situation will bring negative impact on implementation of TBT Agreement with relation to adoption of international standards while this Committee encourages Members to adopt international standards to their maximum extent. With a view to facilitating the setting and implementation of international standards, therefore the smooth implementation of the TBT Agreement, IPR issues in standardization must be addressed properly.

Duane: There is a group called WIPO which China is a member of. I believe their work, including the PCT, Madrid Protocol, Paris convention and other works lays the foundational framework for global IPR issues. The mechanism itself belongs in the hands of WIPO and each SDO should strive to ensure full disclosure to the end users. Left the users decide.

20. China proposes that international standard setting bodies, as well as Members, provide the Committee with relevant information regarding practices and experience on their IPR policies in standardization for Members’ understanding and reference. Information exchange will be helpful and necessary to facilitate meaningful discussions.

Duane: I would concur with this point. It should be noted that many SDO’s have their IPR policies published or referenced at the bottom of each specification. The ones who do not need to ensure they can for the future.

21. The discussion on IPR issues in standardization is of great significance to the integrity of international standardization community and multilateral trade system. China is of the belief that this issue should be carried forward within WTO. China will continue to make her constructive contributions in this regard.

Duane: I would state that WIPO and SDO’s are the place where this belongs. They can collectively make recommendations for WTO to support the articles of the DOHA accord that require technical standards to enable. Along with a fully disclosed IPR policy, the WTO should provide guidelines to the SDO’s such as UN/CEFACT that they wish to have in the final products and let the technical SDO’s perform the tactical work to support the WTO.

Electronic version of this Background paper is available at request.
Comments and suggestions please be sent to:

Mr. AN Baisheng
Deputy Division Director
Department for WTO Affairs, MOFCOM, PRC
Tel: 8610 65197242, Fax: 8610 6512 8304

Ms. GUO Xueyan
First Secretary,
Permanent Mission to WTO of the People’s Republic of China
TeL: 4122 9097685, Fax: 4122 9097699

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