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Patent holders on the ropes

Advocates of royalty-free policies in standards are slowly but surely turning the tide against intellectual property owners.

Read more about patents and standards
A sea change in the views on patented technologies is affecting a broad range of high-tech standards organizations, forcing caps, thresholds and outright bans on royalties.

The news in recent weeks and months has not been good for patent-holding members of standards groups, as one industry consortium after another has put the brakes on licensing plans.

"They're on the ropes," Carl Cargill, director of standards for Sun Microsystems, said of the patent holders. "But if you're willing to play in what we're calling the Web-based e-environment, it's pretty damn cool."

In aggregate, the news during the past year has put patent holders on the defensive as they fight to have their technologies adopted throughout the industry as a standard, while preserving the right to charge for the use of those technologies.

After 14 months of wrangling over a proposed exception to its royalty-free policy, the World Wide Web Consortium (W3C), the Web's most influential standards group, this month repudiated the use of royalty-encumbered technologies in its recommendations, which govern a wide array of key Web specifications including HTML (Hypertext Markup Language) and XML (Extensible Markup Language).

Also this month, two W3C member companies that had been pressing their patent claims on a new version of the Simple Object Access Protocol (SOAP) decided to back down.

These victories for advocates of royalty-free rules joined a series of qualified wins in which patent holders accepted caps on the amount of royalties they can collect from standardized technologies.

Patent holders organized under the MPEG LA group yielded to industry protest when they accepted both a $1 million cap on royalties and a threshold that exempts from audio and video royalties all licensees with fewer than 50,000 customers. Earlier in the year, the group sparked protests with proposed licensing terms that included neither a cap nor a threshold.

In the cell phone industry, a consortium of patent holders have hammered out a licensing model for the Wideband-Code Division Multiple Access (W-CDMA) standard that includes caps. But Qualcomm, which is a key player with about 20 percent of applicable patents, has so far declined to endorse the plan.

Patently absurd?
Patent holders have held the fort in at least one crucial standards body. In a straw poll last week, members of a key Internet Engineering Task Force (IETF) working group signaled their opposition to a royalty-free policy.

But one prominent patent opponent, Open Source Initiative co-founder Bruce Perens, said he plans to recruit enough free-software advocates to join the IETF working group to tip the balance away from patent holders.

Despite recent gains by patent opponents, patent holders still have the upper hand in hammering out licensing terms, even within the restrictions of standards consensus, Perens claimed.

"The royalty folks are winning," Perens said. "And the reason is there are just so many standards organizations and we've only scratched the surface."

Some view the current trend toward restricting patents in standards as a correction for past patent abuses. Before today's royalty-averse climate, high-tech companies would contribute to standards organizations, and only after a standard was hammered out would they disclose that their contribution had royalties attached.

That practice was most recently exposed when the Federal Trade Commission brought an antitrust suit against chipmaker Rambus, alleging that the company withheld its intellectual property claims from the JEDEC Solid State Technology Association.

The IETF began re-examining its patent policy with an eye toward clarifying the rules on disclosure. And some view the W3C's refusal to accept royalties partly as a repudiation of the patent surprise syndrome.

"The standards organizations are putting a stop to the games that patent holders were playing in the past, trying to get their technology adopted and then saying, 'Oh, by the way, we have a patent,'" said Eric Goldman, an assistant professor at Marquette University Law School in Milwaukee and former chief counsel for Epinions. "To the W3C's credit they said no to that system. You don't get to use the machinery of the W3C to get the industry to write you a check. The old trend is over, and now we have a new trend."

Patent opponents argued that simply having one's technology adopted as an industry standard conferred such a benefit on a company that to forgo its patent claims would be in its best interest.

"From a business point of view, you're risking a small amount of (intellectual property rights) for a tremendous market return," said Sun's Cargill. "If you're an expert in your technology, and everyone's using it as part of an industry standard, then you get to lead the market. You don't have to change your architecture or engineering, while others have to grow extra teeth and learn how to use it."

Some patent holders acknowledge this argument of contributor advantage, but say it applies to some types of companies more than to others.

"That's the point of view of a manufacturer," said Julien Signès, chief technology officer and co-founder of Envivio. "From the point of view of a service provider, it may be very different. When people are just offering the service using the standard and investing in the technology, they don't really benefit directly from their technology being used because they don't sell the devices. People are taking an academic point of view."

Envivio, which makes tools for MPEG-4 streaming and broadcast, is a spinoff of France Telecom and thus has access to that company's seven MPEG-4 patents. MPEG-4 is an audio and video standard for condensing large digital packages into small files that can be easily transmitted online.

The competitive edge
Patent holders defend the coexistence of royalties in standards as a necessary stimulus to competition.

"If the best efforts of the industry are going to be adopted and the standards are going to be competitive, they have to attract the companies that practice the technology at the state of the art," said Andrew Fischer, director of licensing business development at Dolby Laboratories' new Via Licensing subsidiary.

"Many of those companies spend a great deal of money and expect to be able to realize revenue from their inventions in the form of patent licensing," Fischer said. "To attract the type of participation that will yield the best and most competitive result, you have to reconcile yourself that the companies who make that investment will want to recoup it by licensing."

Dolby, a privately held San Francisco company specializing in audio technologies, contributes to nearly a dozen standards organizations, including MPEG, the DVD Forum, the International Telecommunication Union, the Advanced Television Systems Committee, and the International Organization for Standardization.

Fischer was at a loss, however, to explain why the W3C has succeeded in attracting its 446 dues-paying members despite its royalty-free policy.

Defenders of the patent status quo are similarly hard-pressed to explain the present momentum in favor of royalty-free policies. They argue that the current system is not broken and calls to fix it are misguided.

"My guess is that there was so much fun over there in the W3C that some people wanted to bring the fun over here," said Scott Bradner, a senior technical consultant at Harvard University and member of the IETF's influential Internet Engineering Steering Group. "That is a bit flip, but so far there seem to be more assertions of problems than proof of problems."

Bradner said the IETF had encountered few instances where royalty considerations had kept one of its standards from being adopted, and that comparatively few royalty-bound technologies had found their way into IETF standards in the first place. Since the IETF adopted its patent policy "RFC 1310" in 1992, patent holders have staked only 175 claims out of more than 2,000 IETF drafts.

Ultimately the patent battle pits a philosophical point of view--that patents and standards are incompatible--against the bottom line of companies for which licensing is a significant source of revenue.

"It's a very, very hard fight because companies do not want to give up the right to charge anywhere," Perens said. "Our point is that industry standards are the wrong place to make money from your patents. Standards should be something that everyone can implement without a royalty."