The Starting Line: Will W3C mean dollar signs?

A new proposal that would allow companies to charge royalties on technologies used in standards may not necessarily bring them big bucks.

Margaret Kane Former Staff writer, CNET News
Margaret is a former news editor for CNET News, based in the Boston bureau.
Margaret Kane
5 min read
A new proposal that would let companies charge royalties on technologies used in standards may not necessarily bring them big bucks.

Internet developers have been in a frenzy over a new proposal from the World Wide Web Consortium (W3C) that would allow just such a policy.

The W3C is made up of technology companies, researchers, government organizations and others, who work to create standards for the Web. To date, either those standards have not been based on patented technology, or the holders of patents have chosen to not enforce patents in order that the standards be widely adopted.

But a new proposal would allow companies to enforce patents and charge royalties for technologies used in W3C standards, providing that they agree to certain rules and charge the fees in a "nondiscriminatory" manner.

Opponents to the policy--and there are many, judging by the criticism it has received on developer Web sites and the W3C's own posting board--argue that it puts too much power in the hands of large software companies that are heavily involved in creating standards, and would essentially set up a whole new revenue stream for them, even if the fees are "reasonable."

It sounds like a potential cash cow, but analysts say that setting up the fees may pose a challenge.

"Many companies will say, 'Oh, our patent is very valuable, and we're going to charge nondiscriminatory licenses--but for a large amount of money,'" said Rich Belgard, an independent consultant based in Saratoga, Calif. "I think it's important that any royalty rates be (decided) as part of the standards process. You can't do it after the fact, because these companies always think (patents are) worth more than (they) are."

Show me the money
So who does stand to profit? Not surprisingly, the bigger the company, the more likely it is to make money off the new policy, analysts say.

"Patenting and going through the effort of patenting software is a long process. It's costly and takes a lot of effort and time to do," said Kathy Harris, an analyst at Gartner. "The companies that would normally be able to do that are the ones that are larger companies and have more resources. It's not just money, but having the people to package (the deal) and carry it through."

Microsoft and IBM, both which were on the W3C working group that came up with the proposal, have worked closely with the consortium over the past several years on technologies being considered or used as standards, said William F. Zachmann, vice president at Meta Group, a consulting company.

Microsoft declined to comment on the proposal. Bob Sutor, director of e-business standards strategy at IBM, said that Big Blue does not plan to change its strategies regarding its own patents and standards as a result of the new proposal.

"In the past IBM has worked in both royalty-free and RAND (reasonable and nondiscriminatory) environments," Sutor said. "Depending on the particular technology involved, we'll evaluate the licensing terms involved."

Sutor said IBM does take issue with some aspects of the new proposal and, in fact, the company submitted a minority recommendation to the working group that addresses these concerns. The main issue, he said, is that the proposal is too complex.

"It needs to be simple--a page or two. It has to be something that when I send my technologist to go work on a technology specification, I don't also have to send them to law school," he said. "Things should be very straightforward." he said; if a company starts a project with one working group--be it royalty free or RAND--it should continue with that same working group.

Intellectual debate
But while companies do stand to profit if the new proposal is passed, Zachmann argued that the criticism surrounding the proposal is not so much about the revenue possibilities as it is about the importance of intellectual property rights. Much of the criticism of the new proposal stems from adherents of the free-software and open-source movements, who generally oppose any software patents.

"It isn't likely to be some huge amounts of money here really. It's less a matter of huge financial opportunity that somebody will capitalize on; it's more of an ideological issue than a financial issue," Zachmann said. "The people who are against it are against it because they're opposed in principle. But that's not necessarily a position that will have a lot of pragmatic clout in the industry," he said.

The proposal's authors include several major technology companies, including Microsoft, Apple Computer and Hewlett-Packard.

But while a few million dollars here or there may not be much to companies of their size, it's still important.

Gartner's Harris said, "I think if it were really about property rights, then copyright protection takes care of that. The money piece is probably the most important. Otherwise there (wouldn't be talk of a) charging as well as protecting."

A glimpse of what's to come
But even backing of major tech companies may not ensure smooth sailing for the proposal. Patents and standards have come into conflict before in the tech world--and not always with quick results.

The W3C itself faced just such a battle a few years ago with its Platform for Privacy Preferences (P3P) standard, which sets technical specifications so that Web browsers can communicate automatically with Web sites about privacy.

The proposed standard faced a patent challenge from Intermind, which argued that the standard violated a patent it held on "push" technology. At the time, the W3C claimed that companies would be deterred from supporting P3P if they were forced to pay a licensing fee to Intermind. The consortium asked its members to help search for evidence that the technology was not original so it could defeat the challenge, and it was eventually successful.

And even when standards bodies do allow patented technologies, it doesn't necessarily make things simpler, as most recently demonstrated by the fight over the patents of chip designer Rambus.

Rambus sued Infineon, Hitachi, Toshiba and other companies last year alleging violation of patents for synchronous dynamic RAM (SDRAM) and double-data rate SDRAM. Infineon argued in a countersuit that Rambus had secretly patented technologies developed with the Joint Electronic Device Engineering Council, which oversees standards and specifications for memory technology and is now called JEDEC Solid State Technology Association.

A judge recently ordered a new trial in that case, overturning a jury decision that found Rambus guilty of fraud.

And that's just the sort of fighting that could offset any benefit a business may get out of patenting technologies used in standards, experts said.

"People are looking for all kinds of ways to generate cash. As the economy gets lousy, people look around for ways to generate revenues, and patents are the easiest way to get them," Belgard said.

The working group discussing the issue will meet Oct. 15. A final decision is expected by February 2002.