Elisabetta Rotondo, Kemp Little LLP:
In its consultation on its proposals to require all public procurement contracts for “software interoperability, data and document formats in government IT” to be based on “open standards”, the government has expressed a preference that open standards are licensed on a royalty-free basis.
In this post, Elisabetta Rotondo of Kemp Little LLP argues that not only is this a mistake from a commercial perspective, but that it is also contrary to established EU policy and law. For a more detailed overview of the issues and arguments please see Elisabetta’s in-depth article on the government’s consultation.
The government’s proposals
In its ongoing consultation the government has proposed a definition of “open standards” as standards that among other things:
- Are publicly available at “zero or low cost”.
- Only include patents where the “owners of patents essential to implementation have agreed to licence these on a royalty-free and non-discriminatory basis for implementing the standard”.
This is by no means the only problem with a consultation document that mistakenly still tries to draw a distinction between mobile and PC technology/interoperability, but it is by far the most troubling.
Why is this an issue?
There are numerous reasons why an open standard should be able to include intellectual property rights (IPRs) that are licensed on fair, reasonable and non-discriminatory (FRAND) (that is, royalty-bearing) terms as opposed to just royalty-free terms:
- Commercial reality: the development of cutting edge technologies will often (although admittedly not always) demand a significant R&D spend. To refuse a developer the opportunity to recoup these costs (on a reasonable basis) will mean that much of this spend is never incurred - and therefore the government will be faced with having to accept solutions that are inferior to those that would have been available if a more realistic approach had been taken.
- EU policy: the European Commission (EC) has already been through this process. In the first version of the European Interoperability Framework (EIF), a similar approach to that now proposed by the government was followed. However, this was in 2004, version two of the EIF, launched in December 2010, has moved forward to make it clear that IPRs licensed on FRAND terms do have a role to play in standard-setting. A disqualification of IPRs licensed on a FRAND basis also flies in the face of the EC’s draft horizontal guidelines and its approach to competition law enforcement when dealing with companies that are using IPRs to abuse a dominant position.
- EU law: the government’s proposed approach will also potentially breach a number of aspects of EU law. Most significantly the UK will risk finding itself in breach of the (currently draft) Standardisation Regulation when it comes into force. Further, this stance would appear to advocate a clear breach of the requirements under Directive 2004/18/EC and the Public Contracts Regulations 2006 for technical specifications relating to public procurement opportunities to offer “equal access”.
What should the government do?
If the government considers that the latest EIF and EU policy on this matter do not deliver the right outcome, it needs to find a more appropriate forum for exploring these issues. The UK should avoid using its procurement policy as a vehicle to instigate industrial policy by the backdoor and instead use more appropriate policy areas to do this, such as competition law. A practical solution may be to involve other government departments who have a practical interest in a satisfactory outcome at an early stage.
Finally, it is submitted that the best way to avoid creating barriers to cross-border trade in services, and to guarantee maximum competition, technological innovation and interoperability (which is ultimately what both the UK government and the European institutions wish to achieve), is to allow equal access to procurement contracts to both open standards and royalty-bearing IPRs licensed on FRAND terms.