Sunday, April 18, 2010

How SMART are Standards that Sacrifice Intellectual Property Rights?

How SMART are Standards

that Sacrifice Intellectual Property Rights?(c)

(Abridged Outline)

By: Lawrence A. Kogan, Esq.

President, The Institute for Trade, Standards and Sustainable Development, Inc.

Presented at

American National Standards Institute (ANSI) Intellectual Property Rights Policy Committee (IPRPC)

April 15, 2010

ITSSD © 2005-2010 Copyright

I. Introduction and Welcome

II. Overview of ITSSD ad hoc observer Work at the World Intellectual Property Organization (WIPO) Standing Committee on the Law of Patents (SCP) Concerning Patents and Standards

A. ITSSD Comments Concerning Document SCP/13/2 Standards and Patents (March 2009)

B. Supplement to ITSSD Comments Concerning the WIPO Report on Standards and Patents (SCP/13/2) (January 2010)

C. General Tenor of WIPO Report SCP 13/2 and ITSSD Findings Relating Thereto

1. Perceived Problem:

a. “Inherent tensions” exist between patents and standards that result in the impairment of technology standards development in the ICT, medical/health and clean/alternative energy technology sectors, at taxpayer and society’s expense. Member-based voluntary SDOs are incapable of resolving, and RAND/FRAND terms alone are inadequate to resolve, these tensions.

2. Recommended Solution:

a. Government-imposed solutions where voluntary initiatives deemed inadequate

b. Government creates a new ICT legislative/regulatory framework to address the perceived conflict between standards and patents

i. Defines ICT ‘Interoperability’ as a ‘Public Interest’

ii. Redefines ‘Open Standards’ consistent with Free & Open Source Software - as economically open – e.g., ‘Royalty-Free’

iii. Determines that ICT patents deemed ‘Essential’ to the functioning of ICT standards which are not ‘Royalty-Free’ limit/encumber ICT technology ‘Interoperability’, and thus, threaten the ‘Public Interest’

iv. Treats as legally unenforceable, ‘Essential Patents’ which limit/encumber technology ‘Interoperability’, impair standards development, and threaten the ‘Public Interest’

v. Encourages national and regional government procurement agencies sourcing eGovernment services to express a direct or indirect ‘Preference’ for ‘Open’, ‘Essential’ ‘Royalty-Free’ Patent-Embedded ICT Standards

vi. Incentivizes compliant companies generous government grants and public approbation

vii. ‘Takes’ private property (patents) for ‘public use’ without ‘full, adequate or fair compensation’.

c. Europe’s e-Health Action Plan promotes development of common interoperability approaches and standards for patient identifiers, medical data messaging, [and] electronic health records”, based on adoption of Open Source reference implementations for care services…taking inspiration from models such as the World Wide Web Consortium.

III. Does the Evidence Reflect that Stakeholder Groups are Calling for the Obama Administration Approach to ICT/Medical/Clean Energy Technology Sector Standardization for Government Procurement Purposes to Track the European Framework?

A. OMB Circular A-119 and the National Technology Transfer and Advancement Act of 1996 “require [US] Federal [government] agencies to use [already existing ‘open’ private commercial] voluntary consensus standards in their regulatory activities wherever possible and to avoid using ‘government-unique’ standards.

B. However: 2008 – IBM-sponsored Yale Information Society Project’s Standards on Standards Recommends Changes to OMB Circular A-119 (on Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities) Consistent With EU Approach

a. Views EU Commission as way ahead of U.S. in assessing standard policy, touts the EU Interoperable Delivery of European eGovernment Services (IDABC), recommends reformation of standard body IP policies revisions to OMB Circular A-119 concerning definition of ‘open’ standard and ‘essential’ patents.

C. However: 2008 – Legal Representatives to Standards Consortia and their Members Recommend Changes to OMB Circular A-119 and Other Government Changes to Reform US Standards Strategy Based on the EU Approach, Which Emphasizes the User & Consumer Rather than the Innovator Viewpoint

1. Employ 2002 eGovernment Act to promote administration’s ‘Open Government’ goals, ‘virtual Civil ICT Rights’, and incentivize change in electronic health and other standards.

2. Harness government procurement purchasing power to influence the standards that industry adopts.

3. Adopt a government-wide interoperability framework that ensures open (Civil IT) standards for document format and platform neutrality.

4. “[L]aunch[] a ‘Standards for Standards’ organization…to evaluate standards, or the SSOs that create them, for purposes of government procurement.

5. Revise OMB Circular A-119 to expressly give equal status to consortium-developed standards, and to require implementation of Civil ICT Standards certified by the Standards for Standards body.

6. Regulatory agencies should advise concerning the ex ante disclosure of patent licensing terms and employ enforcement measures to prevent patent ‘hold-ups’ that can derail the standards development process.

7. As part of patent reform, reduce the number of poor quality patents which, if widely adopted in a standard, can cause harmful vendor lock-in.

8. The EU’s consumer-centric Interoperable Delivery of European eGovernment Services to public Administration, Business and Citizens (IDABC) relies upon the use of ‘open’ standards, the IP of which is made irrevocably available on a royalty free basis, and/or allows all interested parties to implement the standards and to compete on quality and price.

9. Procurement officers must actively embrace and utilize the best software available in every case, especially that (increasingly FOSS) which fully implements open standards and better protects the procuring agency from vendor lock-in.”

D. However: 2009 – Computer and Communications Industry Association (CCIA) Recommends Changes to OMB Circular A-119 Consistent With EU Approach

1. Like the EU Commission, which has acknowledged the growing scope of user interests as well as the reality of consortia operating outside of the formal system, the Obama Administration’s Open Government Initiative must take a flexible and open approach to high-level standards that produces a more proactive and collaborative process than that contemplated by National Technology Transfer and Advancement Act of 1995 and OMB Circular A-119.

E. However: 2006 - The Standards Consortia OASIS Recommends Abandoning the RAND/FRAND Approach for Setting Patent Royalties in the Case of Public Standards

1. RAND licensing terms, especially if made operative in a standards setting, pose a potential threat to the health of an open, accessible Internet…RAND may be acceptable if the royalty fee is guaranteed to be zero, for eternity, and the patent holder agrees to a permanent, unconditional, irrevocable grant of freedom under the license.

F. However: 2009 – 50 Companies, Academic Institutions and Community Groups Formed the Nonprofit Organization Open Source America (OSA), the Mission of Which is to Promote ‘Open Source’ in the U.S. Federal Government Sector

1. [G]roups such as Google, RedHat, Novell, Linux, Mozilla, Sun Microsystems and the Electronic Frontiers Foundation are lobbying the US Federal government to consider using open-source software over proprietary code.

G. However: 2009 – Google Public Policy Blog Emphasizes that ‘Open Standards’ Are Those Unencumbered by Patents

1. ‘Open’ standards are unencumbered by patents.

H. However: 2009 – The Independent System Operator (ISO)/ Regional Transmission Organization (RTO) Council Recommends that NIST Adopt Royalty-Free ‘Open’ Standards

1. NIST should give preference to open standards that are royalty free and prohibit the use of vendor owned intellectual property within a Smart Grid standard, unless that property is provided on reasonable and non-discriminatory terms to the community.

I. However: 2009 – The National Energy Marketers Association and Intelligent Energy Recommend that FERC Develop and Adopt Only ‘Open’, Non-Discriminatory (Non-Proprietary) Standards to Facilitate the Smart Grid

1. The Federal Energy Regulatory Commission (FERC) should develop and implement truly ‘open’ (open standards) non discriminatory (non-proprietary) access to the new data pipelines (IT infrastructures).

J. However: 2008-2009 – Open Source Journalists Argue that the Obama Administration Should Not Waste Taxpayer Monies on Proprietary Technologies Susceptible to Vendor Lock-in

1. The government must avoid wasting billions of dollars and recreating the problems we now have in broadband by mandating that all new contracts have “open systems, open standards, full interoperability without royalty-bearing bottlenecks.”

2. The government’s money should not go to cement the current health technology in place.

3. The government should ensure that the providers of proprietary health IT systems do not have too much influence.

4. NIST stewardship of the government’s significant investment in the domestic smart grid market has been indispensable to keeping the market alive.

5. Although long term-minded utilities want open standards to prevent vendor lock-in, short-term profit-seeking vendors are endeavoring “to wedge their proprietary technology into the standards-making process.”

IV. Does the Evidence Reflect that the Obama Administration Approach to ICT/Medical/Clean Energy Technology Sector Standardization for Government Procurement Purposes Actually Tracks the European Framework?

A. The Obama Administration Approach to ICT/Medical/Clean Energy Technology Sector Standardization is Facilitated, in Part, by the American Recovery and Reinvestment Act (ARRA)

1. $4.3B ARRA stimulus (taxpayer) funding is provided for SMART Grid technologies through the US Department of Energy (DOE).

2. $20B ARRA Health Information Technology for Economic and Clinical Health Act (HITECH) Act stimulus (taxpayer) funding is provided for Healthcare IT, including electronic health records and comparative effectiveness research, through the US Department of Human Health and Services (HHS) and its Centers for Medicare and Medicaid Services (CMS).

3. $7.2B ARRA stimulus (taxpayer) funding for development of a national broadband plan by the US Federal Communications Commission (FCC), flowing through the Commerce Department’s National Telecommunications and Information Administration (NTIA) and the US Agriculture Department’s Rural Utilities Service (RUS) to ensure universal access to broadband and to improve broadband connections to increase health IT adoption.

a. NTIA and the FCC should increase coordination of Smart Grid use in appropriate federal bands, and require that any new broadband network built in the identified spectrum meet standards of interoperability…DOE and FCC should conduct a thorough study of the communications requirements (including Smart Grid) of electric utilities, and should collect data about utilities’ current and projected communications requirements, as well as the types of networks and communications services they use.”

4. 2007 Energy Independence and Security Act (EISA) funding, including for demonstration projects, and standards

B. The Obama Administration’s Approach to ICT/Medical/Clean Energy Technology Sector Standardization is Based on the US Prior Successful Broadband and Internet Experience

1. The National Broadband Plan can advance consumer welfare, civic participation, public safety and homeland security, community development, health care delivery, energy independence and efficiency, education, worker training, private sector investment, entrepreneurial activity, job creation and economic growth, by enabling the free and efficient exchange of information.

2. “The smart grid is an electricity Internet.”

3. NIST views Internet standards as a model for how the smart grid process should operate. A governing panel created last year specifically to focus on interoperability (the Smart Grid Interoperability Panel) will resemble the Internet architecture board. Rather than develop standards, it will develop the overall architecture and select which standards should be used’.

4. The US government must secure “an interoperable, ‘plug-and-play’ smart grid that avoids vendor lock-in.”

5. The FCC National Broadband Plan suggests amending the Copyright Act to ensure the adoption of a new voluntary permissive copyright license, administered by the government, to permit educational digital use.

6. Like the Internet, the Smart Grid is a system of systems that embraces diversity of technology, operators, and connection. The Smart Grid must enable new technologies and support new business models, just as the Internet generated new technologies and business models a decade ago.

C. ARRA and EISA Instruct Government to Play a Central Role in the Setting of ‘Open’ Standards that Will Enable the Build-out of an Interoperable Smart Grid

1. EISA directs the US Department of Energy (DOE) to monitor deployment of Smart Grid technologies, establish a Smart Grid Advisory Committee and a Smart Grid Task Force to assist with its implementation, measure implementation costs and benefits, conduct Smart Grid R&D, create a qualifying Smart Grid investment reimbursement and utility rate recovery program.

2. EISA directs NIST to establish protocols and standards to increase the flexibility of use for Smart Grid equipment and systems.

3. EISA directs the FERC to initiate rulemakings to adopt standards and protocols necessary to facilitate the functionality and interoperability of Smart Grid technology in the interstate transmission of electricity and in regional and wholesale electricity markets.

4. EISA specifies that the interoperability framework should be ‘flexible, uniform, and technology neutral.’, and that sound interoperability standards are needed to ensure that sizable public and private sector technology investments are not stranded.

5. NIST defines voluntary consensus standards, consistent with OMB Circular A-119, as requiring that the relevant IP owners have agreed to make IP “available on a nondiscriminatory, royalty-free, or reasonable royalty basis to all interested parties.”

6. NIST generally believes that Smart Grid interoperability standards should be open; i.e., developed and maintained through a collaborative, consensus-driven process that is open to participation by all relevant and materially affected parties.

7. FERC, under EISA, is authorized to incentivize utilities’ investment in smart grid technologies through base rate recovery. To secure rate recovery, a utility must show that it has minimized the possibility of stranded investment in smart grid equipment – i.e., that its “Smart Grid devices and equipment, including those used in a Smart Grid pilot program or demonstration project”, are “‘used and useful’ in providing service.” Furthermore, it must show how it has relied to the greatest extent practical on existing, widely adopted and ‘open’ interoperability standards – standards comprising an architecture that is other than vendor-specific and proprietary, and which does not block other vendors from adoption.

D. ARRA Instructs Government to Play a Central Role in the Setting of ‘Open’ Standards that Will Enable the Build-out of Interoperable Health IT Systems

1. Federal agencies shall utilize, where available, health information technology systems and products that meet…interoperability standards…recognized by the Secretary of Health and Human Services (the ‘Secretary’), in accordance with guidance developed by the Secretary.

2. The HITECH Act should improve both the capture of interoperable clinical data and consumer access to such data, which in turn, should allow better real-time health surveillance and improved response time to update care recommendations, allocate health resources and contain population-wide health threats. Currently, digital health data generally are held in proprietary ‘siloed’ systems that do not communicate with one another and therefore cannot be easily exchanged, aggregated or analyzed. The ‘meaningful use’ incentives for electronic health records will greatly increase the capture of interoperable clinical health information.

3. ARRA authorizes the Centers for Medicare & Medicaid Services (CMS) to provide reimbursement incentives for eligible professionals (EPs) and hospitals who are successful in becoming ‘meaningful users’ of certified electronic health record (EHR) technology.

a. On December 30, 2009, the CMS issued a proposed rule that would specify the initial criteria an EP and eligible hospital must meet in order to qualify for the incentive payment. Certified EHR technology must be part of or fall within a ‘service oriented architecture’ developed from open standards that provides the basis for interoperability between and among different systems and programming languages whether or not they may reside on different platforms.

b. Also, on December 30, 2009, the ONC/HHS issued an interim rule setting forth an initial approach to adopting standards, implementation specifications, and certification criteria to enhance the interoperability, functionality, utility, and security of health information technology and to support its meaningful use. The certification criteria adopted in this initial set establish the capabilities and related standards that certified electronic health record (EHR) technology will need to include in order to, at a minimum, support the achievement of the proposed ‘meaningful use’ Stage 1 (beginning in 2011) by eligible professionals and eligible hospitals under the Medicare and Medicaid EHR Incentive Programs. ONC anticipates increasing the level of specificity it provides related to standards, implementation specifications, and certification criteria. And, it anticipates that the requirements for meaningful use will become more demanding over time, and consequently that Certified EHR Technology will need to include greater capabilities as well as the ability to exchange electronic health information in a variety of circumstances with many different types of health information technology. ONC will adopt standards, implementation specifications, and certification criteria if, among other things, they promote interoperability and are specific enough about content exchange and vocabulary standards to enhance semantic interoperability. It will also seek input from the HIT Policy Committee and HIT Standards Committee, and utilize the NHIN [Nationwide Health Information Network].

i. Cost minimization is among the HIT Standards Committee’s key guiding principles for standards recommendations. To be adopted, a standard’s implementation cost must be as low as possible - any royalties or other expenses associated with the use of standards must be eliminated.

ii. The goal is to establish a more competitive marketplace and to allow those who adopt HIT to choose from a variety of offerings ranging from subscription services, to vendor-based products, to open source products.

E. Does the Evidence Reflect the Obama Administration’s Preference for Free and Open Source Software (FOSS) for Government Procurement Purposes Considering the Software Platforms Federal Agencies Have Thus Far Adopted Pursuant to OMB’s Open Government Directive?

1. “President Obama announced the government will use open source software to create a national electronic health records system for the military. By pursuing two open source options – the Department of Veterans Affairs’ VistA medical records system and Connect from Sun Microsystems -- proponents hope the Obama administration is sending a signal that open source software could become a vital part of national reform.”

2. The DOE’s Open Government Plan highlights flagship initiatives spearheaded by DOE including the launch of Open Energy Information (, a new open-source web platform that opens DOE resources and data to the public, which will make a range of DOE resources and open energy data widely available to the public.

3. During April 2009, the Office of the National Coordinator at HHS released for download and public use the “federally developed, free and open-source Connect software…created under the auspices of the Federal Health Architecture initiative”. It uses “an open technology platform using Sun's open source software… Sun’s GlassFish, the Java Composite Application Platform Suite (CAPS) SOA Platform, and the Sun Java Identity Management suite…to connect federal government agencies and health information exchanges.”

V. Conclusions?

A. “Many voices call for ‘open’ standards for the Smart Grid. They should be careful to distinguish between the necessary characteristic of universally availability and the much less important goal that all included technologies be royalty free.”

B. NIST finds itself in a quandary – it recognize[s] the need for innovative IPR policies in standards organizations and the use of open standards to build the Smart Grid, but it cannot accept the systematic giveaway of IP rights.

C. “[T]here is nothing “Smart” about implementing multiple, proprietary, non-compatible... standards across the country that raise the cost of doing business in different markets.”

D. Because of the White House’s smart-grid plans, US Commerce Secretary Gary Locke noted that, “‘Companies whose business model depends on customized proprietary interfaces to lock in customers will now have to find a new business model based on open standards.’”

1. This sounds eerily similar to the argument used in the March 2008 Dutch Government’s government procurement guidelines, which sought to justify the Dutch Government’s September 2007 government action plan expressing an explicit ‘preference for open-source software in the case of equal suitability’. The Dutch Government, in effect, sought to distinguish between discrimination among individual vendors, which is anticompetitive, and a preference within a particular tender towards a specific business model that meets specific procurement needs, which it claimed is generally accepted and widespread in several areas - such as when a preference is expressed for leasing or buying capital equipment in a call for tender.

a. Interestingly, the Dutch Government’s government action plan still incorporates the EU IDABC’s EIF v1.0, pursuant to which ‘open’ standards are defined as those where “the patents possibly present [in the standard or part of it are] made irrevocably available on a royalty free basis”.

A full version of this presentation is accessible online via the website at:

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