Time for sensible reforms on technology patents

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Recent abuses of patents that are included in technological standards threaten to undermine the industry growth they were designed to promote, writes Jonathan Zuck.

Jonathan Zuck is president of the Association for Competitive Technology (ACT), an international grassroots advocacy and education organisation representing more than 5,000 small and mid-size app developers and information technology firms.

Patents are an important incentive for innovation and critical to global economic growth. By separating the economic model of invention from production, patents promote research, innovation, and the sharing of ideas. Yet, recent abuses of patents that are included in technological standards threaten to undermine the industry growth they were designed to promote. The time is ripe for the International Telecommunication Union (ITU) to push forward with sensible reforms that preserve the value of a standard.

Patenting has long been a way for inventors to both protect and share technological advances. More recently, companies have been making inventions available to everyone, at the same price, through the creation of standards that are building blocks for modern life. Patents are included in the standards that allow our mobile phones to work, and make wi-fi at the local coffee shop connect regardless of manufacturer.

For companies spending millions on research and development, applying to have patented technology made part of standard represents a choice. The inventor must choose to forego exclusive use in exchange for wide use, including by competitors, so that the technology may gain wide adoption. When these patents are critical to how the standard works, we refer to them as "standards essential patents".

There are significant benefits that accrue when an entire industry relies on one company’s standards essential patent, but with those advantages come responsibilities. If the holder were able to charge excessive fees or deny access to competitors then the patent would be unsuitable as an industry standard. Accordingly, patent holders agree to make their technology available on reasonable and non-discriminatory terms when included in standards.

What absolutely cannot happen is for a patent to be voluntarily made part of a standard only to have the patent owner back out of the deal at the point where industry, and consumers, have come to depend upon it.

Unfortunately, some patent holders have been trying to have it both ways. They want the benefits of broad adoption while holding competing communications and technology companies hostage. Some patent holders have charged steep royalties. Others seek injunctive relief from the courts to block competitors from selling products using their standards essential patents or, alternatively, to raise the royalty rate. Beyond the harm to competing companies, these actions also penalise consumers, thwart innovation, and stunt economic growth.

Around the world, there is an emerging consensus that it should be harder for patent holders to renege on their commitment to standards bodies. The European Commission, and the US Federal Trade Commission and Department of Justice have signaled that there should be more limits on how and when companies use injunctive relief. In the last few years, courts and antitrust regulators in the EU and the US have upheld the responsibility of standards essential patent holders to meet their commitments.

The International Telecommunication Union (ITU) oversees global telecommunications and technology standards and has recommended sensible reforms to address this problem. Recent developments, however, threaten these positive steps. The ITU is currently facing pressure from certain governments that have been misled to believe that the technology industry would be better served if standards essential patent holders could freely break their commitments. If the ITU is persuaded to side against its proposed reforms, we will quickly face a marketplace without interoperability where one or a few companies can sink a whole industry.

The ITU is nearing a decision. Complaints about "process" made by some participants seek to obscure the emerging consensus surrounding the role of patents in standards and how best to serve consumers. It is a strategy that has been used since the dawn of time: “When you are wrong with the facts, argue the process.” In this case, the facts are clear and the underlying principles are sound. A single patent holder that commits to provide its technology as an industry standard cannot be allowed to hold an entire marketplace hostage: in short, he cannot have his cake and eat it too.

Those who reap the rewards for having their patent included in a standard must remember the bargain they made: a much bigger market in exchange for a commitment to share their patents on reasonable terms. It's one of those rare compromises benefiting everyone that we should all demand be upheld. Our economy depends on it.

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