Innovation, Intellectual Property, and Industry Standards

Congressional research reportMay 29, 2003

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Innovation, Intellectual Property,

and Industry Standards

May 29, 2003

nam e redacted

Visiting Scholar in Entrepreneurship and Economic Growth

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Innovation, Intellectual Property, and Industry

Standards

Summary

An “industry standard” is a set of technical specifications that provides a

common design for a product or process. Relating to products ranging from

typewriter keyboards to high technology computer protocols, standards are pervasive

in the modern economy. Standards sometimes arise through government action or

through the operation of the marketplace. However, private industry groups called

standards bodies have long been active in promulgating standards.

Standards bodies and their members have encountered a growing number of

claims that a privately held “intellectual property right” — such as a copyright or

patent — covers an industry standard. Most of these assertions have involved

patents. If the patent is valid and enforceable, it is possible that the standard cannot

be employed without infringing that patent.

Striking a balance between open industry standards, on one hand, and exclusive

intellectual property rights, on the other, is an important component of contemporary

industrial policy. Industry standards potentially bring economic benefits ranging

from a broad range of interoperable products to more robust, competitive markets.

In turn, intellectual property rights may promote innovation, the disclosure of new

inventions and technology transfer. Conflicts between industry standards and

intellectual property rights require a careful weighing of these competing interests.

Aware of potential conflicts between industry standards and intellectual property

rights, many standards bodies have enacted intellectual property polices. Although

these policies vary, they generally require that members of the standards body (1)

disclose intellectual property that is pertinent to a proposed standard and (2) license

the intellectual property to others, often on “reasonable and nondiscriminatory”

terms. Past litigation and governmental agency actions have involved cases where

a member of a standards body allegedly did not abide by these obligations. Various

legal doctrines, including contract law, fraud, equitable estoppel and antitrust law,

have been employed to compel the observance of disclosure and licensing

commitments. However, some uncertainty surrounds the enforceability of the

intellectual property polices of standards bodies, particularly against individuals and

firms that were not members of the group that promulgated the standard.

Should Congress have an interest in this area, several options present

themselves. No action need be taken if the current relationship between industry

standards and intellectual property is deemed satisfactory, particularly as standards

bodies become increasingly aware of intellectual property and as the growing number

of judicial precedents may make the legal situation clearer. Congress might also

encourage the development of model intellectual property disclosure and licensing

obligations for use by standards bodies; assist standards bodies in identifying

intellectual property that pertains to a proposed standard; and, as a possible more farreaching legal reform, encourage proprietors to disclose intellectual properties that

bear upon proposed industry standards.

Contents

Fundamentals of Standards and Standards Bodies . . . . . . . . . . . . . . . . . . . . . . . . 3

The Impact of Standardization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

The Formation of Industry Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Fundamentals of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Patent Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Patent Acquisition and Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Potential Conflicts Between Industry Standards

and Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The VL-Bus Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The Gasoline Formulation Patent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Electronic Commerce Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

The Current Legal Environment Concerning Industry Standards

and Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Standards Bodies Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Enforceability of Standards Bodies Policies . . . . . . . . . . . . . . . . . . . . . 16

Legislative Issues and Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Innovation, Intellectual Property, and

Industry Standards

Virtually every participant in the modern economy is familiar with the concept

of an industry standard: a set of technical specifications that provides a common

design for a product or process.1 For example, electrical plugs and outlets ordinarily

conform to a standard voltage, impedance and plug shape. In the absence of such

specifications, consumers might face significant difficulties in obtaining safe and

functional products. The contemporary marketplace provides countless other

examples of standardized products, ranging from typewriter keyboards, to automobile

transmissions, to Internet connection protocols. Commentator James Surowiecki has

concluded that standards are so significant that “without standardization there

wouldn’t be a modern economy.”2

Standards come into existence through a number of mechanisms, including the

operation of the marketplace and government regulation.3 Another principal vehicle

for standard formation is the activity of a standards body. A standards body —

sometimes termed a “standards setting organization” or “standards developing

organization”4 — is a private industry group that sets standards for its members.5 As

the U.S. economy becomes more oriented towards networked information

technologies, the number of standards bodies has increased in recent years.6 Many

large high technology firms are members of dozens of standards bodies.7

Standards bodies and their members have increasingly encountered claims that

an intellectual property right — such as a patent or copyright — covers an industry

Mark A. Lemley, “Intellectual Property Rights and Standard-Setting Organizations,” 90

California Law Review (2002), 1889.

James Surowiecki, “Turn of the Century,” Wired (Jan. 2002), 85.

David M. Schenck, “Setting the Standard: Problems Presented to Patent Holders

Participating in the Creation of Industry Uniformity Standards,” 20 Hastings

Communications & Entertainment Law Journal (1998), 641.

Maurits Dolmans, “Standards for Standards,” 26 Fordham International Law Journal

(2002), 163.

Janice M. Mueller, “Patent Misuse Through the Capture of Industry Standards,” 17

Berkeley Technology Law Journal (2002), 623.

Timothy Baumann, “As Standards Proliferate, So Too a Rise in Defendants Asserting

‘Standards Abuse’,” 2 Patent Strategy & Management (June 2001), 1.

Lemley, supra note 1, at 1907.

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standard.8 For example, a telecommunications standards body might develop a

standard relating to cellular telephones while under the impression that no intellectual

property rights cover that standard. When a patent owner later informs members of

the telecommunications industry that their phones use a proprietary technology, a

potential conflict arises. If an intellectual property right is valid and enforceable, its

owner may possess the ability to prevent others from employing the standard

altogether.9 On the other hand, because license fees are often paid to owners of

intellectual property that is incorporated into a standard, standards may provide

significant incentives for firms to innovate and to permit the use of a patented

invention within a standard.10

The intersection of industry standards and intellectual property is of particular

significance to entrepreneurs and small firms. On one hand, these entities may be

especially reliant upon intellectual property rights in order to capture the benefits of

their innovations.11 On the other, industry standards may particularly advantage

individuals and small companies. Standards can ensure that new products are

compatible with established ones, allowing small entities to access a larger user base

than they might otherwise enjoy.12 More generally, the interaction between industry

standards and intellectual property is an important consideration in the modern

economy, determining whether members of the public are free to use the standard or

not; whether products can be built to the standard when multiple intellectual property

rights apply; and whether a climate favorable to innovation is preserved.13

This report considers the impact of industry standards and intellectual property

law upon innovation. This report first introduces the fundamentals of industry

standards, standards bodies, and the intellectual property laws. It then explains

potential conflicts between industry standards and proprietary intellectual property

rights and explores legal responses to these conflicts. This report closes with an

overview of legislative issues and options for addressing intellectual property rights

and industry standards.

See Baumann, supra note 6.

See infra notes 66-69 and accompanying text.

National Research Council, National Academy of Sciences, Standards, Conformity

Assessment and Trade: Into the 21st Century (National Academy Press, Washington, DC

1995), 32-33.

Sally Wyatt & Gilles Y. Bertin, “Multinationals and Intellectual Property” (Harvester

1988), 139.

Joseph Farrell, “Standardization and Intellectual Property,” 30 Jurimetrics Journal (1989),

35.

Lemley, supra note 1.

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Fundamentals of Standards and

Standards Bodies

The Impact of Standardization

Standards are ubiquitous in the modern U.S. economy.14 For example, products

ranging from soda cans to light bulbs to batteries come in standard sizes; consumers

routinely fax documents to each other using fax machines from different

manufacturers; and typists easily switch from one QWERTY keyboard to another.

Standards are so prevalent in the current U.S. marketplace that the absence of

standardization sometimes surprises consumers. Computer users who transfer files

between “Word” and “Word Perfect,” for example, may unexpectedly discover the

lack of interoperability between data storage protocols of these competing word

processing software packages

Many benefits may result from the use of standards. Standards may convey

information about the product, regulate quality, ensure compatibility and enhance

competition.15 For example, foods labeled “low sodium” communicate the fact that

their sodium content is below certain standards set by the federal government. Other

sorts of standards, such as professional licensing requirements or safety codes, can

improve public health and safety. One example is building codes, which guard

against construction companies from fabricating dangerous housing.16 A standard that

allows interoperability also facilitates the manufacturing and sale of new products by

increasing both the likelihood of sufficient volume of business for manufacturers, and

of a sufficient range of interoperable products for consumers. Standards can also

lead to a robust, competitive market for replacement parts or product maintenance.17

The benefit of standards is most noticeable in markets that exhibit network

effects.18 In such markets, the value of a product is a function of how many other

consumers use a compatible product.19 A classic example is the telephone system,

where the worth of the system may be measured by the total number of subscribers.20

Suppose, for example, that two mutually exclusive telephone networks serve a

Margaret Jane Radin, “Online Standardization and the Integration of Text and Machine,”

70 Fordham Law Review (2002), 1125.

Sean P. Gates, “Standards, Innovation, and Antitrust: Integrating Innovation Concerns Into

the Analysis of Collaborative Standard Setting,” 47 Emory Law Journal (1998), 583.

Robert W. Hamilton, “Prospects for the Nongovernmental Development of Regulatory

Standards,” 32 American University Law Review (1983), 455.

Lemley, supra note 1.

Mark A. Lemley & David McGowan, “Legal Implications of Network Economic Effects,”

86 California Law Review (1998), 479.

Gregory J. Werden, “Network Effects and Conditions of Entry: Lessons from the

Microsoft Case,” 69 Antitrust Law Journal 87 (2001).

Michael A. Carrier, “Unraveling the Patent-Antitrust Paradox,” 150 University of

Pennsylvania Law Review (2002), 761.

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particular town. New residents to the town must choose one telephone network or

the other. A rational newcomer will ordinarily subscribe to the network with the

larger subscriber base, so that he may call the greatest number of businesses and

persons. As one network grows larger than the other over time, it is unlikely that

both market entrants will survive. The market may eventually “tip” in favor of the

larger network, likely resulting in a single “winner-take-all” telephone network in

that town.21 Carol Shapiro and Hal Varian, economists at the University of California

at Berkeley, cite the video recorder market (VHS vs. Beta) and personal computer

operating markets (Apple vs. Windows) as examples of markets that eventually

tipped in favor of a single, dominant entrant.22

In markets driven by network effects, the availability of standards can support

competition policy. Without a standard, a single firm would likely be the sole

provider of a dominant network technology. Standards instead allow multiple firms

to supply services and equipment, which may lower prices and lead to greater

consumer choices.23

Standards may also lead to negative economic consequences, however.

Standardization can reduce competition by diminishing the ability of competitors to

differentiate their products.24 The specifications of a particular standard may make

it harder for one firm to make a product better or cheaper, for example. Some

standards may also increase circumstances of consumer “lock-in.”25 Lock-in occurs

when a consumer faces significant costs in switching from one technology to another.

It is easy enough for a consumer to switch from a Ford to a Chevrolet automobile, for

example, but changing computers from a Macintosh to a Windows-based machine

may entail certain costs. The purchase of a different computer may require a

consumer to purchase new software, buy a new printer and other hardware peripheral

devices, convert text and other files, and in general become familiar with the new

machine.26 Standardized products may lead to such significant lock-in effects that

consumers may be strongly discouraged from changing products, even where the new

product is superior.

Similarly, standardization may also retard innovation.27 Once a particular

market achieves standardization, one firm may find that the introduction of an

entirely new “system” is economically prohibitive. That firm might prefer to

Michael L. Katz & Carl Shapiro, “Network Externalities, Competition, and Compatibility,”

75 American Economic Review (1985), 424.

Carl Shapiro & Hal Varian, Information Rules (Harvard Business School Press 1999), 17379.

Robert Pitofsky, “Antitrust and Intellectual Property: Unresolved Issues at the Heart of the

New Economy,” 16 Berkeley Technology Law Journal (2001), 535.

13 Herbert Hovencamp, Antitrust Law ¶ 2136 (1999).

Renato Mariotti, “Rethinking Software Tying,” 17 Yale Journal of Regulation (2000), 367.

Jay Dratler, Jr., “Microsoft as an Antitrust Target: IBM in Software?,” 25 Southwestern

University Law Review (1996), 671.

Farrell, supra note 12, at 37.

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introduce a better complementary component to an existing system, allowing it to

take advantage of an established user base. As a result, standards could create an

environment more receptive to incremental rather than pioneering innovation.28

The Formation of Industry Standards

Product standardization can occur through three principal mechanisms: the

operation of the marketplace, government intervention and private standards bodies.29

First, consumers may gravitate toward one product and reject its competitors,

resulting in a de facto standard.30 As noted previously, de facto standardization is

most common in markets that exhibit strong network effects, where there are large

benefits from using the same product that everyone else does.31 Given the dominant

market share of the Windows operating system, for example, consumers that opt for

this system both gain access to an extensive array of compatible hardware and

software, and find it easy to share information with others.

Second, the government sometimes sets obligatory standards.32 For example,

the Federal Communications Commission dictates various standards for the

electronic equipment used in the telecommunications and broadcasting industry. As

a result of these standards, it is possible to receive signals broadcast by multiple

television stations with the same television equipment across the country.33

The third possibility is that members of industry agree on a standard through the

auspices of a standards body.34 A large number of standards bodies are active in the

United States, featuring diverse organization structures. Some are standing entities,

while others are formed on an ad hoc basis for the purpose of promulgating a single

standard. Membership in some standards bodies is restricted, while other standards

bodies are open to any interested party.

Although standards bodies employ varying procedures, in broad outline most

standard bodies employ the following process. First, a proponent of a standard

develops a technical specification that details the key points of a technology and

preliminarily defines the scope of the intended standard. This specification is subject

to commentary from members of the standards body and sometimes members of the

Joseph Farrell & Garth Saloner, “Competition, Compatibility, and Standards: The

Economics of Horses, Penguins & Lemmings,” in Product Compatibility as a Competitive

Strategy (Gabel & Landis, ed., Amsterdam: North-Holland 1987), 1.

Lemley, supra note 1.

Mark R. Patterson, “Inventions, Industry standards, and Intellectual Property,” 17 Berkeley

Technology Law Journal (2002), 1043.

See supra notes 18-25 and accompanying text.

Lemley, supra note 1.

Gates, supra note 15.

Michael G. Cowie & Joseph P. Lavelle, “Patents Covering Industry standards: The Risks

to Enforceability Due to Conduct Before Standard-Setting Organizations,” 30 American

Intellectual Property Law Association Quarterly Journal (2002), 95.

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public, often resulting in revisions to the proposed standard. Finally, an elected or

appointed board gives final approval to the specification, raising it to the level of a

standard.35

No single entity, public or private, controls the U.S. standards development

system. The private, nonprofit American National Standards Institute (“ANSI”)

coordinates the efforts of many standards bodies, however. ANSI is an organization

of firms, trade associations, technological societies, consumer organizations, and

government agencies.36 ANSI oversees the process of setting voluntary standards and

ensures that an appropriate degree of consensus is reached with regard to the

proposed standard. ANSI also ensures that access to the standards process, including

an appeals mechanism, is made available to anyone directly or materially affected by

a standard that is under development. ANSI further promotes the use of U.S.

standards internationally, advocates U.S. policy and technical positions in

international and regional standards organizations, and encourages the adoption of

international standards as national standards where they meet the needs of the user

community.37

The National Institute of Standards and Technology (“NIST”) also promotes

voluntary standard-setting in the United States.38 NIST is a non-regulatory federal

laboratory within the Technology Administration of the U.S. Department of

Commerce. Serving as a technical contributor to the nation’s standards

infrastructure, NIST laboratories develop more accurate ways to measure length,

time, mass, temperature, and other physical quantities that are fundamental to

standard-setting. NIST further supports voluntary standardization efforts by providing

technical expertise and facilitating private sector agreement. NIST also coordinates

the use of voluntary standards by federal agencies.39

Fundamentals of Intellectual Property

The term “intellectual property” identifies a number of legal instruments,

including copyrights, patents and trademarks, that provide innovators with

proprietary interests in their intangible creations.40 Copyright provides authors with

exclusive rights in their writings, visual works and other works of authorship; patents

protect inventors of products, processes and other useful inventions; while trademark

eWeek Magazine, “Path to Approval,”

0,3662,s=702&iid=20053,00.asp].

[http://www.eweek.com/image_popup/

American National Standards Institute, “About ANSI” at [http://www.ansi.org/

public/about.html].

Ibid.

CRS Report 95-30, The National Institute of Standards and Technology: An Overview, by

(name #r edacted).

Ibid.

Roger E. Schechter & (nam e# redacted), “Intellectual Property: The Law of Copyrights,

Patents and Trademarks” (Thomson-West Group, St. Paul, Minnesota 2003), 1-2.

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law concerns the identifying symbols used by merchants to identify their goods and

services.41 Although industry standards potentially impact each of these legal

disciplines, past controversies and current debate have focused upon patents.42 As

a result, this report too will focus upon the patent law, although its broader discussion

of the relationship between industry standards and intellectual property is applicable

to copyrights, trademarks and other similar proprietary interests.

Patent Policy

By providing individuals with exclusive rights to their inventive products and

processes, the patent law allows innovators to appropriate the economic benefits of

their discoveries. Absent a patent system, competitors might readily be able to

appropriate the benefits of an innovator’s research and development efforts. Aware

of these potential “free riders,” firms might devote few, if any resources towards

innovation. The patent law solves this market failure problem by providing

economic incentives for individuals and institutions to engage in research and

development.43

The patent system is also said to encourage the disclosure of new technologies.44

Each issued patent must include a description sufficient to enable skilled artisans to

practice the patented invention.45 Issued patents may also encourage others to “invent

around” the patentee’s proprietary interest. Others can build upon the patentee’s

disclosure to produce their own technologies that fall outside the exclusive rights

associated with the patent.46

Patent rights may also facilitate technology transfer.47 Absent patent rights, an

inventor may have no tangible asset to sell or license. In addition, an inventor might

otherwise be unable to police the conduct of a contracting party. Any technology or

know-how that has been disclosed to a prospective buyer might be appropriated

without compensation to the inventor. The availability of patent protection decreases

the ability of contracting parties to engage in opportunistic behavior. By lowering

Gordon U. Sanford, III, “An Intellectual Property Roadmap: The Business Lawyer’s Role

in the Realm of Intellectual Property,” 19 Mississippi College Law Review (1998), 177.

Lemley, supra note 1.

Simone Rose, “Patent ‘Monopolyphobia’: A Means of Extinguishing the Fountainhead?,”

49 Case W. Res. L. Rev. 509 (1999).

Keith E. Maskus, “The Role of Intellectual Property Rights in Encouraging Foreign Direct

Investment and Technology Transfer,” 9 Duke Journal of Comparative and International

Law (1998), 10.

35 U.S.C. § 112 (2000).

Rebecca S. Eisenberg, “Patents and the Progress of Science: Exclusive Rights and

Experimental Use,” 56 University of Chicago Law Review (1989), 1017.

Jonathan Eaton & Samuel J. Kortum, “Trade in Ideas: Patenting and Productivity in the

OECD,” 40 Journal of International Economics (1996), 251.

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such transaction costs, the patent system may make technology-based transactions

more feasible.48

The patent system may also provide a more socially desirable outcome than its

chief legal alternative, trade secret protection. Trade secrecy guards against the

improper appropriation of valuable, commercially useful information that is the

subject of reasonable measures to preserve its secrecy.49 Taking the steps necessary

to maintain secrecy, such as implementing physical security measures, imposes costs

that may ultimately be unproductive for society.50 Also, while the patent law obliges

inventors to disclose their inventions to the public,51 trade secret protection requires

firms to hold their protections in secret. The disclosure obligations of the patent

system may better serve the goals of encouraging the diffusion of advanced

technological knowledge.

The patent system has long been subject to criticism, however. Some observers

believe that the patent system encourages industry concentration and presents a

barrier to entry in some markets.52 Others believe that the patent system too

frequently attracts speculators who prefer to acquire and enforce patents rather than

engage in socially productive activity.53 Still other commentators suggest that the

patent system often converts pioneering inventors into technological suppressors,

who use their patents to block subsequent improvements and thereby impede

technical progress.54

When analyzing these contending views, it is important to note the lack of

rigorous analytical methods available for analyzing the effect of the patent law upon

the U.S. economy as a whole. The relationship between innovation and patent rights

remains poorly understood. Concerned observers simply do not know what market

impacts would result from changing patent term from its current twenty-year period,

for example.55 Consequently, current economic and policy tools do not allow us to

calibrate the patent system precisely in order to produce an optimal level of

investment in innovation.

Robert P. Merges, “Intellectual Property and the Costs of Commercial Exchange: A

Review Essay,” 93 Michigan Law Review (1995), 1570.

American Law Institute, Restatement of Unfair Competition Third § 39 (1995).

David D. Friedman et al., “Some Economics of Trade Secret Law,” 5 Journal of Economic

Perspectives (1991), 61.

35 U.S.C. § 112 (2000).

(nam e# redacted), “Collusion and Collective Action in the Patent System: A Proposal for

Patent Bounties,” University of Illinois Law Review (2001), 305.

Ibid.

See Robert P. Merges & Richard R. Nelson, “On the Complex Economics of Patent

Scope,” 90 Columbia Law Review (1990), 839.

See F. Scott Kieff, “Property Rights and Property Rules for Commercializing Inventions,”

85 Minnesota Law Review (2001), 697.

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Patent Acquisition and Enforcement

Patent rights do not arise automatically. Inventors must prepare and submit

applications to the U.S. Patent and Trademark Office (“USPTO”) if they wish to

obtain patent protection.56 USPTO officials known as examiners then assess whether

the application merits the award of a patent.57

In deciding whether to approve a patent application, a USPTO examiner will

consider whether the submitted application fully discloses and distinctly claims the

invention.58 In addition, the application must disclose the “best mode,” or preferred

way, that the applicant knows to practice the invention.59 The examiner will also

determine whether the invention itself fulfills certain substantive standards set by the

patent statute. To be patentable, an invention must be useful, novel and nonobvious.

The requirement of usefulness, or utility, is satisfied if the invention is operable and

provides a tangible benefit.60 To be judged novel, the invention must not be fully

anticipated by a prior patent, publication or other knowledge within the public

domain.61 A nonobvious invention must not have been readily within the ordinary

skills of a competent artisan at the time the invention was made.62

The USPTO publishes most pending patent applications approximately 18

months after they are filed.63 For example, if an inventor filed a patent application

on August 1, 2003, then the USPTO will make that application available to the public

on or after February 1, 2005. Pre-grant publication of patent applications potentially

alerts interested parties of the possibility that patent might later issue.64 However, if

the inventor has abandoned the application, or has certified that no patent

applications on the same technology will be sought outside the United States, then

the USPTO will not publish the pending application.65

If the USPTO allows the patent to issue, the patent proprietor obtains the right

to exclude others from making, using, selling, offering to sell or importing into the

United States the patented invention.66 The maximum term of patent protection is

35 U.S.C. § 111 (2000).

35 U.S.C. § 131 (2000).

35 U.S.C. § 112 (2000).

Ibid.

35 U.S.C. § 101. (2000).

35 U.S.C. § 102 (2000).

35 U.S.C. § 103 (2000).

35 U.S.C. § 122(b) (2000).

See Joseph M. Barich, “Pre-Issuance Publication of Pending Patent Applications: Not So

Secret Any More,” Journal of Law, Technology and Policy (Fall 2001), 415.

35 U.S.C. § 122(b) (2000).

35 U.S.C. § 271(a) (2000).

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ordinarily set at 20 years from the date the application is filed.67 The patent applicant

gains no enforceable rights until such time as the application is approved for issuance

as a granted patent, however. Once the patent expires, others may employ the

patented invention without compensation to the patentee.

Patent rights do not enforce themselves. A patentee bears responsibility for

monitoring its competitors to determine whether they are using the patented invention

or not. Patent proprietors who wish to compel others to observe their intellectual

property rights must usually commence litigation in the federal district courts. The

U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) possesses exclusive

national jurisdiction over all patent appeals from the district courts.68 In turn, the

U.S. Supreme Court possesses discretionary authority to review cases decided by the

Federal Circuit.69

Potential Conflicts Between Industry Standards

and Intellectual Property

Conflicts potentially arise between industry standards and intellectual property

rights.70 When one firm has manufactured products or performed processes that

comply with an industry standard, sometimes another entity has asserted that those

products or processes infringe an intellectual property right. The possibility of

license fees and royalties may provide a significant incentive for firms to innovate

and to permit the incorporation of a proprietary technology into a standard.71 On the

other hand, the intellectual property holder may possibly prevent others from using

the standard altogether for a set period of time.72 Past disputes in this area have

generally involved patent rights. A review of three well-publicized examples

illustrates the potential tension between industry standards and intellectual property

rights.

The VL-Bus Patent

In 1992, the Video Electronics Standards Association (VESA), a non-profit

SSO, established a standard relating to the so-called VL-Bus. This standard provided

mechanisms for transferring instructions between a computer’s central processing

unit and its peripherals, such as a disk drive or video display. Subsequently, Dell

35 U.S.C. § 154(a)(2) (2000). Although patent term is based upon the filing date, the

patentee gains no enforceable legal rights until the USPTO allows the application to issue

as a granted patent. A number of Patent Act provisions may modify the basic 20-year term,

considering examination delays at the USPTO and delays in obtaining marketing approval

for the patented invention from other federal agencies.

28 U.S.C. § 1295(a)(1) (2000).

28 U.S.C. §1254(1) (2000).

See Mueller, supra note 5.

National Research Council, supra note 9.

See supra notes 64-69 and accompanying text.

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Computer Corporation (“Dell”), a leading U.S. manufacturer of personal computers,

alerted several firms that their use of the VL-Bus standard infringed a patent that Dell

had obtained in 1992. The Dell announcement provoked considerable controversy

because Dell itself was a member of VESA. According to some commentators, Dell

had voted in favor of the VESA standard.73 Further, during this process a Dell

representative had allegedly certified to VESA that “to the best of his knowledge,”

he knew of no patent, copyright or trademark that the VL-Bus design would violate.74

The Federal Trade Commission (FTC) subsequently brought an administrative

complaint against Dell. The FTC complaint asserted that Dell’s actions were unfair

and that they unreasonably restrained competition in the computer industry. On

November 5, 1995, Dell agreed to a consent decree under which it agreed not to

enforce its patents relating to the VL-Bus.75 Dell further agreed not to enforce any

patent rights that were intentionally not disclosed upon the request of any standards

body, and to provide information that would assist the FTC in ensuring Dell’s

compliance. According to William J. Baer, Director of the FTC’s Bureau of

Competition, the FTC’s action concerning the VL-Bus standard marked the first time

federal law enforcement authorities took action against a company regarding

intellectual property rights and industry standards.76

The Gasoline Formulation Patent

A patent dispute between the Unocal Corporation and other firms operating in

the oil industry has raised issues concerning intellectual property and industry

standards.77 In 1990, Unocal engineers developed specially formulated gasolines that

result in cleaner automobile emissions. Unocal promptly filed patent applications

claiming these inventions at the USPTO. Contemporaneously, representatives of

Unocal, along with those of other oil companies and members of the automobile

industry, met with California state air-pollution regulators. Some of Unocal’s

competitors reportedly believe that during lengthy discussions with state regulators,

Unocal did not disclose it had filed patent applications, while at the same time

advocating adoption of clean-fuel requirements consistent with the proprietary rights

it sought to obtain.

California ultimately adopted stricter emissions rules in November 1991 that

became effective in 1996. As well, in February 1994, the USPTO issued the first of

several patents Unocal has obtained on its gasoline technology. According to some

observers, a comparison of the California regulations with the Unocal patents reveals

“Dell Tells the FTC It Won’t Press Claim For Computer Patent,” Wall Street Journal B13

(Nov. 3, 1995).

Ibid.

Federal Trade Commission, “Dell Computer

[http://www.ftc.gov/opa/1995/9511/dell.htm].

Settles

FTC

Charges,”

Ibid.

Alexei Barrionuevo, “Exhausting Feud: A Patent Fracas Pits Unocal Corp. Against Big

U.S. Oil Producers,” The Wall Street Journal (Aug. 17, 2000).

CRS-12

it would be difficult and expensive to produce conforming fuels without infringing

the Unocal patents.78

In 1995, Unocal announced that it expected its competitors to pay royalties to

produce gasoline consistent with the California standard. Several oil companies soon

filed suit against Unocal in U.S. district court, asserting that one of Unocal’s patents

was invalid. A 1997 trial resulted in a verdict that upheld the Unocal patent and

found that the patent was infringed by several of Unocal’s competitors. The court

also awarded Unocal damages of $69 million, based upon infringing sales of lowemission gasoline during a five-month period in 1996.79 The U.S. Court of Appeals

for the Federal Circuit upheld this judgment on appeal.80

Competing views exist concerning the Unocal gasoline formulation patents.

The Attorney General of the State of California filed a brief with the U.S. Supreme

Court, joined by 33 states and the District of Columbia, arguing that Unocal has tried

to “hijack and distort” the state regulatory process.81 Some commentators have

expressed concern that the Unocal patent will cause consumers to pay higher gasoline

prices.82 Still others have associated the Unocal patent with sharp increases in

gasoline prices experienced in some parts of the United States during 2000.83 In

contrast, Unocal’s chief executive, Roger Beach, reportedly stated: “Inventions that

result from independent research enhance the rule-making process.”84 Unocal

management also reportedly asserts that it was not required to disclose its patent

applications during the regulatory process, and that it has a right to profit from its

intellectual property.85

In the meantime, legal scrutiny of the Unocal patents continues. On March 4,

2003, the Federal Trade Commission issued an administrative complaint alleging that

Unocal gained monopoly power by defrauding California authorities and industry

groups during the emissions rulemaking process.86 Initial hearings concerning this

complaint are scheduled for June 2003.

Ibid.

34 F. Supp. 2d 1208, 1222 (C.D. Cal. 1998).

208 F.3d 989 (Fed. Cir. 2000).

State of California, Department of Justice, Office of the Attorney General, “Attorney

General Bill Lockyer Files “Friend of Court” Brief Over Unocal Gasoline Patent” (Sept. 14,

2000) (available at [http://caag.state.ca.us/newsalerts/2000/00-122.htm]).

See Alexei Barrionuevo, “FTC May Seek to Stop Unocal From Enforcing Gasoline

Patents,” The Wall Street Journal (Jan. 8, 2003), D6.

See Cliston Brown, “Unocal Scores Another Win in Gas Patent Case: Five Refiners Seek

Supreme Court Ruling,” 10 Corporate Legal Times (Oct. 2000), 94.

Barrionuevo, supra note 77.

Ibid.

Federal Trade Commission, Complaint, In the Matter of Union Oil Company of California,

Docket No. 9305 (March 4, 2003) (available at [http://www.ftc.gov

/os/2003/03/unocalcmp.htm].)

CRS-13

The Electronic Commerce Patents

Controversy has also arisen over patents held by the IBM and Microsoft

Corporations concerning proposed standards for negotiating electronic commerce

transactions. Much of this discussion concerns the “Simple Object Access Protocol”

(SOAP) and the “electronic business using eXtensible Markup Language” (ebXML).

SOAP is a protocol that allows for the exchange of information in a decentralized,

distributed environment.87 ebXML provides firms with a standard method to

exchange business messages, conduct trading relationships, communicate in common

terms and define business processes on the Internet.88 Some observers forecast that

these two proposed standards “will one day be as important as the standard protocols

(such as TCP/IP and HTTP) on which the Internet is based today.”89

IBM, Microsoft, and possibly other firms have reportedly obtained several

patents that cover SOAP and ebXML, as well as patents on complementary

extensions of these standards that allow for data encryption and provide other useful

features.90 Some firms that lack these patent portfolios, as well as certain standards

body representatives, are concerned that intellectual property rights holders will be

in a position to charge tolls over a large amount of Internet traffic. For example,

members of the World Wide Web Consortium (W3C), the standards body that is

overseeing development of the SOAP specification, are said to have expressed

concerns about the propriety of charging royalties for patent licenses for standardized

computer technologies.91

Some commentators are critical of these electronic commerce patents.

Journalist David Berlind cautions: “If the protocols do become standards, either by

virtue of an independent standards organization’s imprimatur or by attaining a de

facto status, IBM and Microsoft — or any other company that maintains the

intellectual property rights to them — could legally impose royalties on that

[Internet] traffic.”92 However, IBM, Microsoft and other propriety rights holders

have reportedly agreed to license some applicable patents on a royalty-free basis, and

to license others on reasonable and nondiscriminatory terms.93 As SOAP, ebXML

See Simple Obj ect Access

[http://www.w3.org/TR/SOAP]).

Protocol

(SOAP)

1.1

(available

See General Information About ebXML (available at [http://www.ebXML.org]).

David Berlind, “IBM, Microsoft plot Net takeover,” Enterprise from ZDWire (April 11,

2002).

Paul Krill, “W3C Close to Ratifying SOAP 1.2,” InfoWorld Daily News (Nov. 1, 2002);

Micheal Meehan, “IBM Claim to ebXML Patent Sparks Furor: Critics See Hold on Trading

Partner Portion of Spec as Big Blow to Open Standards,” Computerworld (April 22, 2002),

Paul Krill, “W3C Promotes Royalty-Free Web Services Standards,” InfoWorld Daily

News (Nov. 14, 2002).

Berlind, supra note 89.

Matt Migliore, “IBM Patents for ebXML Raise Red Flag on Royalties for Standards,”

(continued...)

CRS-14

and other proposed electronic commerce standards continue to evolve, more

information about the role of intellectual property may become available.

The Current Legal Environment Concerning

Industry Standards and Intellectual Property

As these examples demonstrate, standards and intellectual property rights may

potentially conflict. Some standards bodies have attempted to preempt these disputes

by establishing policies concerning intellectual property rights.94 These polices often

require members to disclose relevant patents prior to the formation of the standard,

or to license these patents to other members of the standards body either on

reasonable and nondiscriminatory terms, or on a royalty-free basis.95 However, some

uncertainty persists as to the extent to which these rules are enforceable, both with

respect to members of that standard body, and in particular against nonmembers.

Standards Bodies Policies

The policies of standards bodies towards intellectual property vary considerably.

A recent survey by Mark Lemley, a member of the law faculty of the University of

California, Berkeley, revealed a number of differences among standards bodies

policies.96 Some standards bodies have no intellectual property policy at all,97 an

approach that presumably allows members a considerable degree of flexibility

regarding intellectual property acquisition and enforcement. At the other extreme,

some standards bodies reportedly prohibit their members from owning intellectual

property relating to the standard.98 The intellectual property policies of many other

standards bodies fall somewhere between these extremes.

Many standards bodies impose some sort of disclosure obligation regarding the

intellectual properties of their members. These disclosure obligations vary among

standards bodies. Some standards bodies require their members to disclose issued

patents.99 Others further oblige the disclosure of patent applications that have been

(...continued)

Enterprise System Journal (July 1, 2002), at 20.

Jennifer L. Gray, “Internet Standards Bodies: Antitrust Guidelines,” 637 Practising Law

Institute Patents, Copyrights, Trademarks and Literary Property Course Handbook Series

(February-March 2001), 529.

Ibid.

Lemley, supra note 1.

Ibid.

Professor Lemley reports that OMG, the Object Management Group, imposes this

requirement. Ibid. See also Object Management Group, “About the Object Management

Group” (available at [http://www.omg.org/gettingstarted/gettingstartedindex.htm]).

See World Wide Web Consortium, “Current Patent Practice” (January 24, 2002) (available

(continued...)

CRS-15

filed, but have not yet issued as granted patents.100 Some standards bodies further

require the disclosure of published patent applications, but not those that were

unpublished.101

Standards body policies often address circumstances where a member owns a

patent relating to an adopted standard. Some standards bodies require that such

patents be licensed on a royalty-free basis to other members.102 This arrangement

apparently contemplates that the patent could be enforced against firms that are not

members of the standards body.

Other standards bodies instead require that the patent be licensed on “reasonable

and nondiscriminatory terms,” a standard commonly known as RAND licensing.103

Some policies do not specify whether this obligation applies to members and

nonmembers alike.104 According to Mr. Lemley, although the RAND standard is

commonly employed, it is not often further defined in terms of a specific royalty rate

and other clauses.105

Some standards bodies mandate that in circumstances where a patent covers a

proposed standard, it is more difficult to adopt that standard. For example, at least

one standards body requires a three-quarters majority to adopt a standard covered by

a patent.106 Other standards bodies make it easier to revoke a previously adopted

standard if it is later revealed that a patent covers that standard.107

In sum, the intellectual property policies of standards bodies vary considerably.

One implication of this diversity of rules is that intellectual property owners may face

difficulty in knowing the particular rules that will govern a particular intellectual

property right. This difficulty may be especially pronounced with regard to market

segments, such as the Internet, that are governed by multiple standards bodies with

(...continued)

at [http://www.w3.org/TR/2002/NOTE-patent-practice-20020124#sec-Disclosure]).

100

See, e.g., JEDEC Solid State Technology Association, “JEDEC Patent Policy” (available

at [http://www.jedec.org/Home/manuals/JEDEC_Patent_Policy_Stmt.pdf]).

101

The ATM Forum, ATM Standards, §3.3.1 (“Intellectual Property Rights”) (available at

[http://www.atmforum.com/standards/policies.html]).

102

RosettaNet, RosettaNet Intellectual Property Policy (June 11, 2002) (available at

rosettanet.org).

103

See, e.g., The Internet Engineering Task Force, “IETF Page of Intellectual Property Rights

Notices” (available at [http://www.ietf.org/IESG/Section10.txt]).

104

See, e.g., ECMA International, “Code of Conduct in Patent Matters” (available at

[http://www.ecma-international.org]).

105

Lemley, supra note 1.

106

See The ATM Forum, “Patent Policy” (available at [http://www.atmforum.com

/standards/policies.html]).

107

See European Telecommunications Standards Institute, “ETSI IPR Policy” (November

22, 2000) (available at [http://www.etsi.org/aboutetsi/home.htm]).

CRS-16

overlapping subject matter concerns.108 Mr. Lemley comments that “many

technology companies today face a hodgepodge of rules and obligations of which

they are only dimly aware.”109

The Enforceability of Standards Bodies Policies

Although many standards bodies have promulgated intellectual property

policies, some uncertainty surrounds their enforceability.110 Suppose that a member

of a standards body asserts a patent that it did not disclose during the standard-setting

process, for example, or refuses to license a disclosed patent in keeping with

standards body policies. As well, a firm that is not a member of the standards body

may assert a patent against a competitor that sells products compliant with the

standard. In such circumstances, the standards body or its members may wish to

continue to employ its standard free of the intellectual property right. Past disputes

of this kind have largely been based upon contract law, the doctrines of fraud and

equitable estoppel, as well as the antitrust law.111 This report reviews these doctrines

in turn.

The intellectual property policy of a standards body amounts to an agreement

between members to comply with certain rules regarding their intellectual

properties.112 The failure of one member of the standards body to comply with these

rules could be considered a breach of a binding contract. The contract law would

therefore appear to be a principal mechanism for enforcing one member’s promises

regarding intellectual property.

Several difficulties attend the use of contract law in this context, however. First,

the intellectual property policy of a standards body can only bind members of that

group.113 Nonmembers are not parties to the contract and cannot be held to have

agreed to it.

Second, the intellectual property policies of standards bodies sometimes employ

vague language. For example, some standards bodies require only that intellectual

property rights be licensed on “reasonable and nondiscriminatory terms.”114 Given

that the term “reasonable” is susceptible to varying interpretations, it is possible that

108

Lemley, supra note 1.

109

Ibid.

110

Cowie & Lavelle, supra note 34, at 98 (describing patent and competition law principles

concerning standards bodies as “far from settled”).

111

Ibid.

112

Lemley, supra note 1.

113

III E. Alan Farnsworth, Farnsworth on Contracts § 10.1 (Aspen Publishers, Inc., New

York, New York 1998) (observing basic principle that contracts may be enforced only by

the contracting parties).

114

See supra notes 103-05 and accompanying text.

CRS-17

a court may find this provision unenforceable.115 On the other hand, the court may

be willing to determine whether a royalty is reasonable based upon the treatment of

patents of similar scope in related industries.116

In addition, contracts without a specified term may ordinarily be terminated at

will by any contracting party, so long as appropriate notice is given to the other

party.117 An example of this general rule is the familiar “employee-at-will” doctrine,

where employees may resign from their position, or be fired, at any time provided

that reasonable notice is given.118 This principle leaves open the possibility that a

member of a standards body may simply withdraw from the group after a standard

has been formed. In such cases, that firm may no longer be subject to the group’s

intellectual property policy.

Contract law does provide one approach for ameliorating this difficulty:

standards bodies bylaws could provide that members must disclose or license patents

that cover any standard adopted or under consideration while the member was a

member of the standards body. This promise should be enforceable even after a

member has resigned from the standards body.119 The number of standards bodies

that have actually adopted this policy is uncertain, however.

The doctrine of fraud provides another mechanism for policing behavior during

the standards-setting process. The legal system generally defines fraud to include the

following elements: “1) a false representation (or omission in the face of a duty to

disclose), 2) of a material fact, 3) made intentionally and knowingly, 4) with the

intent to mislead, 5) with reasonable reliance by the misled party, and 6) resulting in

damages to the misled party.”120 If a member of a standards body knowingly failed

to disclose the existence of an intellectual property right, then an accused infringer

may be able to assert the existence of all six elements of fraud.121

An assertion of fraud presents some difficulties when used to enforce standards

bodies rules, however. Notably, the proponent of a fraud defense may find it difficult

to prove that the intellectual property owner possessed a specific intent to defraud

other members of the standards body.122 Additionally, the doctrine of fraud is

premised upon the existence of a duty of honesty between the intellectual property

115

11 Richard A. Lord, A Treatise on the Law of Contracts § 30:3 (West Group, St. Paul,

Minnesota 1999).

116

Lemley, supra note 1.

117

Farnsworth, supra note 110, at § 2.14.

118

See California Labor Code § 2922 (2003).

119

Lemley, supra note 1.

120

Rambus Inc. v. Infineon Technologies AG, (Fed. Cir. 2003).

121

Cowie & Lavelle, supra note 34, at 129.

122

Ibid.

CRS-18

owner and the entity that relied upon the false representation.123 As with a breach of

contract argument, fraud is unlikely to be successfully employed by entities that were

not members of the standards body, including other market actors and consumers.124

An additional legal mechanism for ensuring compliance with intellectual

property polices is termed “equitable estoppel.” Equitable estoppel applies when “a

patentee, through misleading conduct, leads the alleged infringer to reasonably infer

that the patentee does not intend to enforce its patent against the alleged infringer.

Conduct may include specific statements, action, inaction, or silence where there was

an obligation to speak.”125 Equitable estoppel serves as a defense to a charge of

patent infringement. The accused infringer must show that it relied upon the

misleading conduct and that it will be materially prejudiced if the patent is

enforced.126

Courts have applied the equitable estoppel doctrine in cases where a member of

a standards body fails to disclose its intellectual property rights during the standardsetting process.127 In one case, Stambler v. Diebold, Inc.,128 an individual was

estopped from enforcing his patent even though the standards body did not have an

intellectual property policy at all. In that case, Stambler invented a new card

validation system for use with automatic teller machines. He later sat on an ANSI

standards committee that ultimately developed an industry standard that Stambler

believed infringed his patent. Stambler subsequently left the committee without

informing it of his patent. Later, Stambler brought suit against an automatic teller

machine manufacturer that employed the industry standard. The U.S. District Court

for the Eastern District of New York held that the doctrine of equitable estoppel

applied, concluding:

Plaintiff had a duty to speak out and his silence was affirmatively misleading.

Plaintiff could not remain silent while an entire industry implemented the

proposed standard and then when the standards were adopted assert that his

patent covered what manufacturers believed to be an open and available

standard. Furthermore, plaintiff’s silence could reasonably be interpreted as an

indication that plaintiff had abandoned its patent claims.129

The estoppel doctrine provides one mechanism for enforcing implied or express

promises to disclose intellectual property that bears upon a proposed industry

123

Lemley, supra note 1.

124

Ibid.

125

A.C. Auckerman Co. v. R.L. Chaides Construction Co., 960 F.2d 1020, 1028 (Fed. Cir.

1992) (en banc).

126

Schechter & Thomas, supra note 40.

127

Cowie & Lavelle, supra note 34, at 103-13.

128

11 U.S.P.Q.2d (BNA) 1709, 1714-15 (E.D. Va.), aff’d, 878 F.2d 1445 (Fed. Cir. 1989).

129

11 U.S.P.Q.2d at 1715.

CRS-19

standard.130 In particular, the doctrine of equitable estoppel may be more readily

applied than fraud because it lacks a specific intent element.131 Again, however,

estoppel does not appear to operate against intellectual property owners that were not

members of the standards body. Estoppel also does not appear to relate well to other

obligations imposed by standards policies, such as the duty to license intellectual

property on reasonable and nondiscriminatory terms.132

Another cause of action that has been employed in this context is based upon the

antitrust law.133 Antitrust law aims to protect the integrity of market competition

against attempts to raise prices or reduce output, either by a single firm that

dominates the market and excludes competition, or by a group of firms that act

collectively to coordinate their price and output decisions.134 In the context of

standards, an antitrust plaintiff could contend that a firm attempted to obtain market

dominance by abusing the standard-setting process, perhaps by failing to disclose

pertinent intellectual property or by failing to license it under the terms established

by a standards body’s intellectual property policy.

To date, most antitrust causes of action involving standards have involved

claims of attempted monopolization.135 To prove a claim of attempted

monopolization, the proponent must show: (1) a specific intent to monopolize; (2)

anticompetitive conduct in furtherance of that intent; and (3) a dangerous probability

of successful monopolization.136 As applied to standards bodies, the proponent of

this claim must prove that the intellectual property owner’s misrepresentations

manipulated the standard-setting process in such a way that the intellectual property

owner gained market power.137

Unlike fraud and equitable estoppel, which are defenses raised against a charge

of intellectual property infringement, attempted monopolization constitutes an

affirmative cause of action that may be asserted by any interested party.138 However,

a claim of attempted monopolization may be difficult to prove. At least in the

context of standards bodies, courts have generally imposed high standards of proof

130

David M. Schneck, “Setting the Standard: Problems Presented to Patent Holders

Participating in the Creation of Industry Standards,” 20 Hastings Communications &

Entertainment Law Journal (1998), 641.

131

Ibid.

132

See supra notes 103-05 and accompanying text.

133

Cowie & Lavelle, supra note 34.

134

CRS Report RL31026, General Overview of United States Antitrust Law, by (name# re

dacted).

135

15 U.S.C. § 2 (2000) (commonly known as “Section 2 of the Sherman Act”).

136

Spectrum Sports v. McQuillen, 506 U.S. 447, 456 (1993).

137

Mueller, supra note 5.

138

Kevin J. Arquit et al., “Antitrust, Intellectual Property, Standards and Interoperability,”

524 Practising Law Institute Patents, Copyrights, Trademarks and Literary Property

Handbook Series (June 1998), 157.

CRS-20

on attempted monopolization claims.139 As a result, antitrust claims will likely be

limited to cases where an intellectual property owner’s actions lead to significant

anticompetitive consequences.140

In sum, standards bodies and their members have relied upon a number of legal

theories in order to enforce disclosure and licensing obligations, each with their own

advantages and shortcomings. Mr. Lemley concludes that “[t]aken together, these

legal rules do a fair job of ensuring that [intellectual property] owners do what they

promised to do.”141 However, there appear to be no mechanisms in place that will

enforce an industry standard against individuals and firms that were not themselves

members of the group that promulgated the standard.

Legislative Issues and Approaches

Given the wide recognition that intellectual property and industry standards are

of growing importance to the modern economy, the relationship between these fields

is the subject of increasing attention.142 Should Congress have an interest in this area,

a variety of approaches are available. If the current interface between intellectual

property rights and industry standards is considered satisfactory, then no action need

be taken. Indeed, growing awareness that intellectual property and industry standards

can sometimes conflict may lead to more sophisticated treatment of intellectual

property by standards bodies, as well as continued refinement of the governing law

in the courts.

Another approach is to encourage the technology community to develop model

intellectual property disclosure and licensing obligations for members of standards

bodies. Standards bodies would then be in a position to follow these guidelines when

developing their own intellectual property policies. This proposal might potentially

lead to more uniform treatment of intellectual properties by standards bodies. Given

the present diversity of intellectual property polices among standards bodies,

development of “best practices” for intellectual property may be welcome. It should

be noted, however, that these voluntary guidelines would not necessarily bind all

patent owners. Firms might still be subject to suit by patentees that have not joined

the relevant standards body, for example.

The government could also assist standards bodies in identifying intellectual

properties that might bear upon a proposed industry standard. For example, the

United States Patent and Trademark Office could, upon request by a standard body,

conduct a search of pending patent applications and issued patents in order to

determine whether these patents might bear upon a proposed standard. This

capability would allow standards bodies to become more fully informed of

intellectual property rights during the standard-setting process. It should be noted,

139

Lemley, supra note 1.

140

Ibid.

141

Ibid.

142

Mueller, supra note 5.

CRS-21

however, that a number of patent research firms already exist that could conduct such

a search for a fee, at least with respect to issued patents and published patent

applications.143

More extreme possible legal reforms are also possible. For example, legislation

could call for public notice of approved industry standards. Proprietors would be

required to identify intellectual properties that are pertinent to the standard within a

set period of time. Failure to so identify applicable intellectual property to the

standards body might result in some limitation upon infringement remedies against

firms that practice the standard. One possibility is to grant a compulsory license in

favor of use of the industry standard, perhaps limited to a set period of time so that

the industry might develop a standard not subject to an intellectual property. Another

is that the patentee be unable to enforce the intellectual property against individuals

practicing that industry standard for a period of time, or perhaps altogether.144

Any possible legal reform would be well-advised to recognize that the U.S. high

technology industry is increasingly characterized both by rapid innovation and a high

degree of interconnectedness. The desire to capture the benefits of research and

development leads innovators to procure patents. Yet firms also desire to create

compatible products and secure greater aggregate sales, resulting in the development

of nonproprietary uniform standards. These two trends have sometimes led to

conflicts between exclusive intellectual property rights and open industry

standards.145 Striking a balance between promoting innovation, on one hand, and

maintaining the integrity of the standard-setting process, on the other, forms an

important component of contemporary industrial policy.

143

Steve D. Beyer, “Searching — The Art Behind An Opinion,” 667 Practising Law Institute

Patents, Copyrights, Trademarks and Literary Property Course Handbook Series (Nov. 1,

2001), 45.

144

See Mark A. Lemley, “Standardizing Government Standard-Setting Policy for Electronic

Commerce,” 14 Berkeley Technology Law Journal (1999), 745.

145

Schenck, supra note 3.

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