Last week I proposed a roadmap to a compromise for the revised European Interoperability Framework (EIFv2): free and open source software (FOSS) should meet FRAND (fair, reasonable and non-discriminatory) licensing half way. In my opinion, FRAND is a valid concept and suggestions that all FRAND is evil are unfounded.
There are still some who falsely claim that FOSS and FRAND are irreconcilable concepts. Those believe that the EU's love of open source is going to be greater than its belief in FRAND as a viable solution. They want to make FRAND a second-class citizen.
Meanwhile, my assessment that FOSS and FRAND can coexist has been supported by the official EUPL (EU Public License) community blog. The EUPL is the logical choice for open source projects of European public administrations, and it does not prevent the implementation and distribution of patented standards and inbound patent licensing.
Since the argument that only royalty-free standards are truly "open" is unfounded, there's no way that the EIFv2 could be adopted without fully recognizing FRAND licensing as a path to interoperability. FRAND has many friends in Europe, including a solid majority of the European Parliament and European Commission vice-president and Digital Agenda commissioner Neelie Kroes. Now is a good time to look at some of the EU's ringing endorsements of FRAND in connection with interoperability.
On Thursday, the European Parliament adopted a resolution on the future of standardization. Through that non-legislative resolution, the chamber indicates to the European Commission some of its positions ahead of the Commission's development of new standardization guidelines.
Item 66 of the resolution contains the following passage:
[The European Parliament] stresses the need to ensure that licences for any essential IPRs [intellectual property rights] contained in standards are provided on fair, reasonable and non-discriminatory [FRAND] conditions;
So the same decision-making body that voted down a proposal on software patents five years ago and supported open source on numerous occasions has made it clear that FRAND is a good framework for the commercial terms on which standards-related patents are licensed.
The European Parliament doesn't consider FRAND to run counter to the concept of open standards. In fact, items 7, 16 and 68 of the resolution call for "openness", and item 67 for "open, transparent and consensus-based development processes".
The Parliament's aforementioned resolution primarily relates to the Commission's draft guidelines on the applicability of EU cartel rules to horizontal cooperation agreements. A standard-setting organization supported by major industry players can be viewed as a cartel, and the Commission's guidelines are meant to facilitate the process of standards development by laying out how a standards body can steer clear of violating EU competition law.
The draft guidelines contain multiple endorsements of FRAND licensing. The most important one of them is found in item 277:
Where participation in standard-setting, as well as the procedure for adopting the standard in question, is unrestricted and transparent, standardisation agreements which set no obligation to comply with the standard and provide access to the standard on fair, reasonable and non-discriminatory terms do not restrict competition within the meaning of Article 101(1).
The above paragraph is very relevant to the EIFv2 debate. It makes it clear that FRAND terms are not anticompetitive, and even more importantly, the openness of a standard is defined by "unrestricted and transparent" participation and procedures as opposed to royalties.
In June I listened to Neelie Kroes's speech at the OpenForum Europe 2010 Summit. Speaking to the "royalty-free" lobby, she urged "all stakeholders to focus on the content of the package rather than the wrapping" as far as the term "open standards" is concerned.
Talking about conditions that patent holders may impose, Mrs. Kroes stated her preference clearly: "the fewer constraints the better." But she also made it clear that she would let the market decide. In my opinion, that's the right approach because FOSS can implemented patented standards, and FOSS can compete successfully. All major Linux vendors have agreed to pay royalties for patents, a fact that hasn't made Linux any less eligible from the perspective of public administrations.
This sentence in her OpenForum Europe address is particularly important:
I have nothing against intellectual property being brought to the standard-setting table, but it must be disclosed.
That quote shows an approach that is very similar to the European Parliament's resolution on the future of standardization: openness in the sense of transparency is key, and FRAND is perfectly compatible with those overarching goals.
Mrs. Kroes said in the same speech that "reasonable people often disagree" when trying to set FRAND license fees. That's a challenge, not a knock-out criterion. FRAND isn't a mathematical formula that arrives at a simple result. FRAND is a framework, and the way it's interpreted is subject to the specific circumstances of a license agreement. Of course it's simpler to determine that all license fees should be zero. But the simplest solution isn't necessarily the best one; it's rarely appropriate in contexts of a certain complexity.
I recently saw a blog posting by Trond Undheim, EU "open standards" lobbyist of Oracle, in which he described the EIF process as a "tragedy" only because some disagree with him. He vented his frustration by referring to a group of EU officials as "rats" transmitting the "RAND disease" (RAND is synonymous with FRAND). After using that word half a dozen times he then added a spurious disclaimer concerning what "rats" referred to. Later he deleted all mentionings of that word, and finally disabled that embarrassing article as a whole. (I have kept a local copy. and as I write these lines, the edited version of the post can be accessed here.)
The ones who pursue this kind of divisive strategy also tend to portray Mrs. Kroes as an unconditional supporter of royalty-free/restriction-free standards and make other members of the European Commission, or certain DGs (directorates-general), out to be on the side of proprietary software companies.
The positions Mrs. Kroes takes in her public speeches are actually much more balanced and inclusive. In this speech delivered in 2008, she used MP3 as a positive example. MP3 certainly comes with restrictions and with obligations to pay royalties.
in late September, when she talked about "common open technology platforms", her example was the 3G mobile communications standard, which is a patented standard licensed on FRAND terms -- just like MP3.
The European Commission is also an antitrust authority, and in that role considers FRAND a perfectly acceptable approach -- and FRAND-based royalties compatible with open source rules.
In October 2007, the Commission announced an agreement with Microsoft on how to meet its obligations under the 2004 Commission decision to the regulator's satisfaction. At the time, Mrs. Kroes was in charge of competition enforcement. She said that the licensing terms agreed upon would "allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model" and was pleased with Microsoft's related business practices "in particular towards open source software developers".
Those open-source-friendly arrangements, however, involved payments: a one-time fee for access to some documentation, and a percentage of revenues for a patent license.
When the Commission accepted commitments from Rambus in a case involving patents on microchip technologies, Mrs. Kroes talked not only about that particular antitrust matter but also. more generally, about "lessons learned for standardization":
This is why many standards organisations require not only disclosure of potentially relevant intellectual property rights, but also a commitment to license those intellectual property rights on fair, reasonable and non-discriminatory - in other words FRAND - terms. These conditions precisely aim to prevent one company unlawfully capturing a standard and overcharging for its technology.
So FRAND is fully acceptable from an EU competition point of view, and there's no reason why it should be treated any differently by the EIFv2.
In another antitrust case, IPCom, the Commission issued a press release with the following headline:
Antitrust: Commission welcomes IPCom's public FRAND declaration
That statement described FRAND as pro-competitive:
The unrestricted access to the underlying proprietary technology on FRAND terms for all third parties safeguards the pro-competitive economic effects of standard setting.
Against that backdrop, I venture to predict that the Commission is going to be consistent with its multiple past endorsements of FRAND and its accurate distinction between openness and royalties.
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