Antisuit follow-up: deference to foreign jurisdictions ranges from 'never' to 'always'; and what role could standard-setting organizations play?

Having received some initial feedback to yesterday's post that outlined seven hypothetical approaches to the current multi-antisuit mayhem, I've identified a couple of aspects of this complex topic that I should address.

First, for the sake of completeness I must point out that the German zero-deference doctrine (sanctity of patents beats everything and warrants self-defense) and the multifactorial analysis performed by U.S. and Chinese courts are not the only two frameworks. There's a spectrum, and the longer it takes to resolve the current antisuit crisis, the more variants we will see.

The extent to which courts in one country defer to injunctions or ongoing SEP-related proceedings in another can range from 0% to 100%. I'll use four words without any intent to allude to a movie title:

• "Never": Munich Higher Regional Court in Nokia v. Continental (while this regional appeals court didn't rule out that some foreign antisuit injuncions may be tolerable, the impact that an antisuit injunction preventing the enforcement of a potential SEP injunction has on the relevant German case is deemed unacceptable as it's a property right, period)

• "Rarely": UK Supreme Court in Unwired Planet v. Huawei (that was not an antisuit injunction case, but the top British court took the extreme position that even a defendant who generates only 1% of its worldwide sales in the UK could be forced by a British court into a global portfolio license agreement; while the British standard for antisuit injunctions is structurally similar to the U.S. Gallo/Unterweser framework, such as by requiring that the enjoined foreign action by "vexatious and oppressive," the UK judiciary appears to consider its own country the proper venue for pretty much any SEP litigation, making it hard to imagine that an antisuit injunction obtained by Huawei against Unwired Planet in China would have been deemed acceptable by the judges in the UK)

• "Sometimes": the U.S. and Chinese approach; comity does play a role, limiting but by no means precluding the grant of antisuit injunctions; while Judge Robart's Microsoft v. Motorola antisuit injunction was affirmed without the slightest concern, a subsequent Samsung v. Huawei antisuit injunction by Judge William Orrick might have been overturned (based on how the appellate hearing went and in light of a question the court asked post-hearing) had the parties not settled

• "Always": European Court of Justice in Turner v. Grovit (courts of EU member states cannot order antisuit injunctions interfering with the jurisdiction of other member states' courts; the principle of "mutual trust" between EU member states rules this out "even where [the non-moving] party is acting in bad faith with a view to frustrating the existing proceedings")

In Germany it's now an all-or-nothing proposition: "never" with a view to other EU member states because of EU law, and "always" if the goal is to combat an antisuit injunction that has been or may be obtained in a non-EU member state. If someone brings a vexatious and oppressive case in a court of a relatively poor EU member state that normally doesn't get many patent cases, courts in other EU countries must have "trust"--but not if the other case is pending in the Northern District of California?

The EU should do something about Turner v. Grovit because sooner or later that carte blanche will be abused with terrible consequences. In that case, which didn't involve SEPs, the top EU court thought it would be OK to live with contradictory rulings. But what if courts in two (or more) EU member states set different royalty rates between the same parties for the same global SEP portfolio? Or possibly not just different royalty rates, but also other material terms? Then you get inconsistent rulings that could make it impossible for a party to comply with all those orders. On the other end of the range, German courts should further develop their case law and not rule out that a foreign court may make the right decision by prohibiting the enforcement of a German SEP injunction during a rate-setting proceeding that may legitimately resolve the entire global dispute.

As for a way out of the current mess, a loyal reader with a strong professional interest in this subject wrote me that the industry could "potentially" solve the problem at the level of standard-setting bodies. With a strong emphasis on "potentially" I would agree, given how hard it is to build consensus within standard-setting organizations, and only with respect to future standardization processes. The enforcement of whatever patents have been pledged under older FRAND policies would not be affected. Furthermore, implementers are merely third-party beneficiaries, so except in cross-licensing situations (reciprocity), the SEP licensing policies of SSOs could not prevent implementers from seeking antisuit injunctions. They could just deprive implementers of some of their rights if they did so, or authorize certain kinds of retaliation by SEP holders.

Antisuit and especially multi-antisuit injunctions are presumably an interesting topic for standard-development organizations to discuss, and they could, for example, require SEP holders to litigate country by country if they wanted. If.

There'll be more on that front this year. There's Samsung's pending Federal Circuit appeal of Ericsson's anti-antisuit injunction from Texas. Maybe Xiaomi will appeal, or has appealed, Interdigital's German A4SI to the Munich Higher Regional Court. And I would expect a lot of additional antisuit and anti-antisuit filings throughout this year, presumably too many that I could comment on every single one of them, but I'll try to keep an eye on those that could really make a difference.

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Lawmakers, regulators, standardization bodies address abuse of standard-essential patents

In June 2012, European Commission Vice President Joaquín Almunia said that, in addition to regulatory efforts to counter the abuse of FRAND-pledged standard-essential patents (SEPs), courts and standard-setting organizations (SSOs) also need to contribute to solutions. More than a year later, there is indeed momentum on multiple fronts behind efforts to hold companies to their FRAND promises and to ensure that industry can rely on FRAND pledges. This post is an update on positive developments in politics, antitrust enforcement and standardization.

Chairman Goodlatte's draft patent bill contains SEP-specific pleading requirement

Earlier this week the Chairman of the Judiciary Committee of the United States House of Representatives, Bob Goodlate (R-Va.), released his second patent reform discussion draft. Unsurprsingly, there are lobby groups for whose purposes the bill doesn't go far enough.

Patently-O published the proposal. On page 5 of that document, starting on line 9, there's a proposal for an additional pleading requirement (the Goodlatte draft proposes a number of new requirements) concerning SEPs:

"(10) [Identify] [f]or each patent[-in-suit], whether such patent is subject to any licensing term or pricing commitments through any agency or standard-setting body."

While this requirement per se doesn't prevent abuse and is, at first sight, nonjudgmental, I still consider it helpful. If this was ultimately adopted, it would presumably be the first time that the patent law of any country in the world recognizes the fact that SEPs raise specific issues in enforcement. It doesn't say what those issues are; it doesn't say how to deal with them. But the existence of a pleading requirement would, in and of itself, support the position that SEPs are a special category of patents from an enforcement point of view.

At the recent Federal Circuit hearing in the "Posner appeal", Apple's lead counsel, Orrick's Joshua Rosenkranz, told the appeals court that pple and Motorola "occupy completely opposite ends": on the one hand, there are the "distinctive" patented features with which Apple "revolutionized" wireless devices and Apple's "exclusivity"-centric approach of not licensing those patents "in general" to anyone, much less competitors, and on the other hand, Motorola's patents-in-suit, which relate to standards and which it promised to "license universally to everyone". While this distinction is accurate and appropriate, it's based on contract law, antitrust rules, business logic and principles of innovation policy, but statutory patent law does not make or recognize this distinction at present. If Chairman Goodlatte's proposal was adopted, then there would also be at least a strong indication in statutory patent law that SEPs must be treated differently from non-SEPs.

SEP-specific questions raised by FTC inquiry into patent troll industry

Three months ago I already expressed skepticism concerning the FTC's Section 6(b) investigation of patent assertion entities (PAEs). So far there's no indication, much less evidence, that there are actually antitrust issues in that area. Not all bad stuff that happens in business is a violation of antitrust laws.

This week the FTC formally launched its inquiry and published a request for public comment on proposed information requests to PAEs. For the reason I gave in the previous section, I like the fact that special attention is given to SEP assertions. On page 4 of the document, the term "Standard-Setting Organization" (or "SSO") is defined as "any organization, group, joint venture or consortia that develops standards for the design, performance or other characteristics of products or technologies". On page 5, subsection o specifies SEP-specific information on PAE patents that the FTC plans to request:

o. whether the Patent (or any claims therein) is subject to a licensing commitment made to a Standard-Setting Organization and specify:

(1) all Standard-Setting Organizations to which a licensing commitment has been made;

(2) all standards to which such a licensing commitment applies;

(3) the Person(s) who made the licensing commitment;

(4) the date(s) on which the licensing commitment was made;

(5) all encumbrances, including, but not limited to, all commitments to license the Patent or any of its claims on reasonable and non-discriminatory (RAND), fair, reasonable, and non-discriminatory (FRAND), or royalty-free (RF) terms[.]

I don't like at all what certain non-practicing entities are doing with FRAND-pledged SEPs. For example, I'm a long-standing critic of certain aspects of InterDigital's demands and enforcement strategies.

But SEP-wielding NPEs ultimately just want to get paid. Some of them demand way too much money, and they seek unfair leverage to force others to accede to their demands. Still, they are sincere in their desire to conclude a license deal. That's more than operating companies that act as SEP trolls can say. Those make purely prohibitive demands for a SEP license because their real objective is a comprehensive cross-licensing involving non-SEPs. In my view, that should be a higher antitrust enforcement priority than SEP-owning NPEs.

The European Commission is focused on abusive conduct by large players, though I wouldn't be surprised to see EU investigations of certain SEP-holding NPEs at some point as well. An antitrust hearing in the EU investigation of Google's (Motorola Mobility's) SEP assertions against Apple in Germany will, according to what I was told on Twitter, be held on Monday, September 30. I did a fair amount of work in Brussels over many years and have some good contacts there. I'll try to find out more about this.

On Friday Vice President Almunia gave a speech at Fordham's Competition Law Institute Annual Conference in New York and mentioned that "Samsung has sent [the Commission] a set of commitments seeking to address [its] concerns" and announced a market test: "We will formally market test these proposed commitments with other market participants in the coming weeks." (That's what the Commission has to do unless it settles cases without formal remedies.)

Proposed IEEE Standards Board Bylaws would provide far greater clarity than previous SSO FRAND policies and pledges

The IEEE (Institute of Electrical and Electronics Engineers) told the Federal Circuit last year that courts should not rely on standards bodies to "take a direct role in enforcing patent commitments". But SSOs can play a role in preventing abuse relating to future standards, and the IEEE appears to be making a very serious effort in that regard.

This webpage contains to links to an August 2013 IEEE-SA Standards Board Bylaws draft and to comments from key companies involved with the process (two different documents; the difference is just in the sorting order, not in the content). Under the U.S. eBay standard, it would be extremely difficult to obtain injunctions if the following sentence (lines 126-128 of the draft bylaws) was adopted:

"A Submitter of an Accepted [Letter of Assurance] who has committed to license Essential Patent Claims on reasonable terms and conditions that are demonstrably free of any unfair discrimination has implicitly acknowledged that a royalty is sufficient compensation for a license to use those Essential Patent Claims."

This is a rather clear way of putting the debate over "(in)adequacy of monetary relief" to rest with respect to future IEEE standards. I discussed this less than two weeks ago in connection with Commissioner Wright's antitrust-minimalist position on SEP-related matters. In my view, the adequacy of monetary relief can be determined the way Judge Posner did even without FRAND pledges containing an explicit admission to that effect. But the clearer, the better (obviously, it could be stated even more clearly than the IEEE draft proposes).

For a round-up post like this there's far too much in the draft bylaws and in the comments for me to cover comprehensively right here and now. The draft bylaws would limit the pursuit of injunctive relief to only certain circumstances (which could be defined more narrowly, but at least there isn't the vague notion of an "(un)willing licensee").

The document containing comments from industry players (with many of the usual suspects being particularly active) is worth reading. Maybe I'll do a separate post on the IEEE debate at some point.

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Ericsson allowed to pursue hard-to-prove claim of inequitable conduct against Samsung at ITC trial

The week before Christmas Samsung brought an ITC complaint against Ericsson as the first part of its retaliation for Ericsson's previous patent assertions. There has since been some further escalation in this dispute.

In its February 2013 response to Samsung's ITC complaint, Ericsson asserted (as usual) multiple affirmative defenses, one of which is inequitable conduct by Samsung and its patent attorneys during the examination of the relevant patents-in-suit. Ericsson alleges that some of the named inventors of various Samsung patents had participated in standard-setting discussions where they saw technical documents that constitute relevant and eligible prior art but weren't disclosed to the patent office in connection with the patent applications. The withholding of prior art an inventor is aware of can constitute inequitable conduct. This is, however, hard to prove, and I wish to clarify that I will give Samsung the benefit of the doubt until it's proven guilty. I've previously said in other contexts that I don't agree with some of the ways in which Samsung asserts standard-essential patents (SEPs), but I don't believe Samsung has been engaging for many years in abusive conduct relating to standards and standard-setting.

Still, inequitable conduct of the alleged kind is an important issue because participants in standard-setting shouldn't simply file patents on what they see in the relevant discussions, or on modified concepts that don't represent significant technological progress over what others have already created and presented.

Inequitable conduct is hard to prove. I've seen statistics according to which such defenses succeed, on average, in only one of 250 cases. Not only is this defense difficult to prevail on but it's also subject to a heightened pleading standard in U.S. federal court, where allegations of fraudulent behavior must be laid out with greater particularity than other defenses.

In early April Samsung sought to benefit from a high pleading standard and brought a motion to strike Ericsson's inequitable conduct defense. In late April Administrative Law Judge (ALJ) E. James Gildea denied Samsung's motion. A public redacted version of his order became available yesterday (after the parties had the chance to request redactions).

Judge Gildea notes in his order that "inequitable conduct defenses may only rarely be successful on the merits" (clarifying immediately in a footnote that he "takes no position at this time with respect to the inequitable conduct defenses asserted in this Investigation"). But "it is up to the parties to determine where they would prefer to focus their time and effort". In other words, if Ericsson wants to try what is statistically a long shot, it's free to do so -- it simply has to know whether this is an exceptional case in which this kind of defense can succeed.

Judge Gildea's order takes note of the heightened pleading standard in federal court and of how other ALJs at the ITC have held defendants to a rather high standard, but he decided the way he deems appropriate. This means some clarification of the standard is needed, and maybe Samsung will ask the Commission, the six-member decision-making body at the top of the U.S. trade agency, to review Judge Gildea's ruling. It's a denial "without prejudice to Samsung's ability to raise the issue in another manner after discovery on the issue has moved forward".

The role of standardization documents (technical proposals etc.) in patent examination is increasingly important. Some patent offices appear to make certain efforts to cooperate more closely with standard-setting organizations, or at least they are giving consideration to this possibility. Recently a Samsung SEP case against Apple in Mannheim, Germany, was stayed because of doubts that the patent-in-suit was valid, and a standardization-related document was the key prior art reference at the trial, at which the presiding judge indicated he'd like patent offices to pay closer attention to standard-setting documents when examining patent applications related to cellular standards.

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Study on the worldwide use of FRAND-committed patents

Many of my consulting projects over the last few years have related to FRAND (fair, reasonable and non-discriminatory) licensing obligations. The purpose of FRAND licensing commitments is to ensure access to intellectual property. It also protects third parties against overcharging and other abusive behavior.

I've written about FRAND issues before. In July I explained the basics of FRAND.

Call for input for a new study

I am working on a study on the worldwide use of FRAND-pledged standards-essential patents in litigation and licensing. In particular, I am looking into

• the injunctive and/or monetary relief requested based on the alleged infringement of FRAND standard patents,

• indications of the demands patent holders made in pre-lawsuit negotiations,

• attempts to leverage such patents in order to receive licenses to unencumbered patents by insisting on a cross-license or by demanding unreasonably high royalty rates for a one-way license,

• the time it takes until patent holders make an offer of FRAND terms when requested,

• court rulings and reasonings (including early-stage decisions, for example, on motions to dismiss), and

• antitrust complaints and investigations triggered by suspicions of FRAND abuse.

If you have information that may be pertinent to this research effort, please contact me via this form. I won't mention you to anyone or share your contact data.

I have been able to track down the most important U.S. lawsuits (and ITC investigations) relating to FRAND-committed patents and EU antitrust investigations involving such patents. I have also found out details about Samsung's assertions against Apple in Australia and the Netherlands. However, in most jurisdictions it's very difficult to get access to pleadings and decisions. That's why I would appreciate help from this blog's global audience (while 50% of my readers are residents of North America, 32% are in Europe and 11% in Asia).

Microsoft has commissioned this study. I will present my findings next year in a published report.

The industry at large relies and depends on FRAND commitments. So does Microsoft, which owns a significant number of standards-essential patents but licenses many more of them from other right holders. Given the strength of Microsoft's patent portfolio and the large scale of its inbound and outbound licensing activities, I am proud that they are interested in my analysis of, and perspective on, the related issues.

Microsoft and I agree on some issues and disagree on others. We were on opposing sides of the debate over a European patent bill years ago. We still have different positions on patent-eligible subject matter. But we do see eye to eye on the post-grant use of patents, i.e., how patents are and should be used after they have been issued, and on some related matters. I like the fact that Microsoft appreciates and respects a diversity of opinions, a fact that has enabled us to work together not only on this FRAND research project but also on a couple of other recent issues facing the industry.

Focus on FRAND

FRAND is one of my specialty areas. Prior to this project, 17 different companies in the financial services industry have hired me for advice in connection with transactions involving FRAND-committed patents to some degree. My work in that field was recently mentioned in the Wall Street Journal. I wish I could name all of my clients because they include some well-known investment banks. For an example, I had a conference call on September 9, 2011 with a large number of clients of a major European bank with a strong global presence. But in that particular industry, confidentiality comes first, and I respect that.

Not all of my clients ask me about FRAND. For instance, I recently contributed to a study on global patent strategies. And my first FRAND-related project ever had nothing to do with patents: on behalf of soccer club Real Madrid, I authored a 42-page paper on the obligation of sports bodies to grant FRAND licenses to teams participating in their tournaments and its relevance to broadcasting and other commercial rights.

"Freemium" business model

Most of the time I keep my consulting work separate from this blog, but in this case I felt that this is the right platform for a call for input.

I basically have a "freemium" ("free" + "premium") business model. If you read my blog, access is free. If you read statements I give to the media (proactively or in interviews), they are free to them, too. The premium part comes into play whenever I deal with professionals who ask for highly individualized explanations and for analysis that goes into greater depth.

I was involved in different roles with MySQL AB, an open source database company, from 2001 until its sale to Sun Microsystems in 2008. They were happy with converting one out of 1,000 non-paying MySQL users into a paying customer. Freemium worked for them then. It works for me now.

Prior to this blog, I also had consulting engagements. To give three examples, I helped MySQL founder Monty Widenius oppose Oracle's acquisition of MySQL as part of Sun in late 2009 and early 2010. I mentioned my work for a soccer club. I also received support from various companies for a campaign against software patents. But in between those projects I worked on other endeavors and "disappeared" from public debates. My blog provides me with a continuous presence, and I now have a much broader client base.

Projects range from short consultations on one topic to more extensive, or repeated, engagements.

All those clients are independent from each other, and I have enough of them to be independent from them. Each of them can expect honest answers and independent, relentless analysis from me. None of them controls my blogging and my public statements: my blog is my personal platform on which I express, exclusively, my own heartfelt convictions.

I now look forward to this FRAND-related research project and thank everyone in advance for their input.

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Royalty-free MPEG video coding standard ups the ante for Google's WebM/VP8

Amid all the debate about whether Google's WebM video codec VP8 is truly patent-unencumbered and a valid alternative to the market-leading video codec (AVC/H.264), a very interesting project nearly went unnoticed: the development of a royalty-free MPEG video coding standard.

At a recent meeting of the Motion Picture Experts Group (MPEG), the decision was taken to issue a call for proposals (which will formally happen in March 2011) on video compression technology "that is expected to lead to a standard falling under ISO/IEC 'Type-1' licensing, i.e. intended to be 'royalty free'." The announcement also states the following:

"In recognition of the growing importance that the Internet plays in the generation and consumption of video content, MPEG intends to develop a new video compression standard in line with the expected usage models of the Internet. The new standard is intended to achieve substantially better compression performance than that offered by MPEG-2 and possibly comparable to that offered by the AVC Baseline Profile."

It's important to note the difference between MPEG, the standardization body, and MPEG LA, the licensing agency. MPEG defines standards, and those can be royalty-free or royalty-bearing, depending on what the owners of the essential patents agree upon in each case. MPEG LA manages patent pools related to royalty-bearing standards, serving right holders and licensees as a one-stop solution by way of aggregation.

Rob Glidden, a former Sun executive and digital TV expert, made me aware of MPEG's royalty-free codec plans via Twitter (thanks for that!). I found several interesting posts on his blog, such as this recent one arguing for a royalty-free video codec standard. Just like me, Rob appears to be somewhat skeptical of claims that WebM/VP8 is truly patent-free.

Three formidable hurdles for WebM/VP8

Google and its WebM allies (primarily Mozilla, Opera and the Free Software Foundation) wanted to pose a direct challenge to AVC/H.264, the incumbent and ubiquitous video codec. Their strategy was to seek adoption of WebM/VP8 as an Internet standard, claiming that it was the only format of its kind to be available on royalty-free, open-source-like terms. They thought they were already challenging the champion in the final match, but not so fast: MPEG LA may soon start collect royalties from VP8 adopters, and if MPEG's own royalty-free codec initiative succeeds, VP8 will have to beat it -- or be forgotten.

Using that tournament analogy again, VP8 is only in the quarter finals. MPEG LA's formation of a VP8 patent pool and MPEG's call for proposals on a royalty-free video codec are such important developments that the results they produce will have to be awaited before standardization on VP8 will even be seriously considered by the W3C or IETF. There is no rush because everyone can demonstrably watch Internet videos for the time being even though HTML 5's video tag is currently codec-agnostic.

I have drawn up a simple graphic that shows the three hurdles VP8 is facing:

If MPEG LA's patent pool for VP8 disproves claims that Google's codec is truly free of charge, it loses its intended unique characteristic and is out of the game. At that stage, even the Free Software Foundation may feel forced to withdraw its support. It wouldn't be possible for the FSF to advocate a royalty-bearing format.

Should VP8 overcome that hurdle, it would play a semifinal match against MPEG's royalty-free standard. I'll explain further below why this one is also going to be a tough challenge.

Only if VP8 survives that round as well, it will get to challenge AVC/H.264. To dethrone the reasonably-priced market leader, VP8 would have to deliver high quality, not just royalty-free availability.

The odds are long against WebM/VP8

Surmounting three significant hurdles in a row -- since failure at any of them means "game over" -- is really difficult. Even if one assumed a 60% chance in each case, the aggregate likelihood of success would just be slightly above 20%. In my opinion, VP8's chances are less than that. Let me explain my view on each of the three challenges.

1. MPEG LA patent pool for VP8

MPEG LA requests submissions of patents essential to VP8 until March 18, 2011. That's less than six weeks from the announcement. I presume MPEG LA already knows of a variety of relevant patents, and has discussed this with its membership. The first time MPEG LA CEO Larry Horn mentioned the possibility of such a pool was in an interview with AllThingsD in May 2010.

After the submissions deadline, MPEG LA's patent evaluators will make a determination as to which patents are truly essential to VP8. Obviously, whatever they conclude isn't the same as a judicial declaration of infringement. But MPEG LA is trusted by industry, and the moment it specifies the patents it believes read on VP8, Google and its allies will either have to invalidate those patents (which is unlikely to work for a reasonably long list) or prove that there isn't an infringement.

There could also be patents which VP8 infringes but which aren't submitted to MPEG LA in that process. I didn't mention that before, just to keep things simple at the time. When assessing the likelihood of VP8 truly being patent-unencumbered, this additional risk must, however, be taken into account.

2. Royalty-free MPEG video coding standard

It's plausible that MPEG can pull off a royalty-free coding standard. It will be able to draw from three types of patents for that purpose:

• patents that have already expired

• patents approaching expiration (which limits their commercial value)

• patents whose owners are willing to forgo short-term revenue opportunities in favor of longer-term objectives, or who consider it a prudent strategy to support a royalty-free standard for web purposes and monetize related (but other) patents in other fields of use such as digital cameras and digital television

Codec development was already reasonably advanced in the early to mid 1990s, and US patents of that kind have a maximum term of validity of 20 years. Therefore, the first two groups of patents may already be sufficient to produce a codec at a level with, or even significantly superior over, VP8.

In order to compete successfully with a royalty-free MPEG standard, VP8 would have to be clearly better just to be considered. That's because MPEG has the backing of many vendors and offers an open and inclusive process. Under MPEG's stewardship, such a standard can continue to be developed (as new patents expire, approach expiration or are made available by their owners for other reasons) in a balanced, consensus-based way, while WebM is dependent upon Google, a company with specific strategic interests.

The argument that the availability of a WebM reference implementation on open source terms ensures vendor independence isn't sufficent. Theoretically, it's true that anyone could take it in a different direction. Practically, such forking would result in fragmentation, and it's doubtful that anyone would ever put significant resources behind such an effort.

3. Incumbent AVC/H.264 standard

Should VP8 really overcome the challenges previously described, it would still have to garner broadbased industry support. It wouldn't be in the interest of standardization bodies like the W3C and the IETF to formally declare a "standard" that fails to be adopted widely. Such failures can undermine the credibility and diminish the influence of those organizations.

AVC/H.264 isn't royalty-free, but its terms appear to be acceptable to a majority of industry players. In order to take any sizable part this incumbent's market share away, VP8 would have to be at least technically comparable. Degradations wouldn't be acceptable to consumers. However, my own impression and that of most of the opinions I read is that there's still a noticeable gap.

One of the challenges for VP8 is the limited number of hardware products supporting it. For hardware companies it's particularly important to be careful about patent-related risks. A software company may be able to just change its code. Hardware companies would be hit hard by injunctions or ITC import bans. VP8 faces a chicken-and-egg problem with the hardware industry, and the two new initiatives I described before will also have an effect in that area.

Google and its WebM allies won't give up. They are determined to turn this into a new edition of the "videotape format war" of the late 1970s and early 1980s. Looking at the drawing that shows the three hurdles and considering the facts, I have my doubts that they will get very far. However, even if the odds appear to be long against VP8, it may have a positive effect on the willingness of patent holders to support MPEG's royalty-free codec standard.

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Brussels conference on "Tensions between intellectual property rights and standardization: reasons and remedies"

Last week I mentioned a European Commission and European Patent Office conference on "tensions between intellectual property rights and standards". The conference took place in Brussels on Monday (22 November 2010), and I attended it.

Different speakers pointed out that an increasing number of patents read on today's high-tech products. The European Patent Office has already received 4% more patent applications this year than during all of last year, and there is still about a month to go. While some view this trend as a key indicator of innovation and of awareness for the importance of intellectual property rights, others complain about increasing complexity and a growing risk of disputes.

Most industry standards are FRAND-based and some panelists stated that they don't see a need for a fundamental departure from the current system, which allows companies to opt for alternative models. Others, however, made proposals and demands that would in different ways weaken the rights of patent holders and discourage innovators with IP-centric business models from participating in standard-setting processes.

Major European stakeholders favor FRAND

The European Commission plans to take decisions on two standards-related initiatives before the end of the year. Other legislative initiatives on standardization will continue through 2011. Against that background, it didn't surprise me that some of the speakers made political statements and demands directed at the EU officials in the audience. But the loudest voices weren't the most convincing ones.

Before I address some of what was said, I'd like to share an observation. Speakers from US corporations (Oracle and HP) attacked FRAND from different angles and received support for this from the FSFE, a lobby group whose primary partners are IBM, Oracle, Google and Red Hat. However, there were key European stakeholders on the panels who clearly disagreed with them. Ericsson contradicted Oracle; SAP posed questions (to HP and FSFE) regarding the "openness" of open source software, the different business models that successfully leverage FOSS for financial gain, and the need to balance the rights of IPR holders and licensees.

Ericsson stressed that "the FRAND IPR regime has served the industry very well in the wireless communications area." Its vice president of patent strategies and portfolio management, Gustav Brismark, pointed to the fact that over the years there have been "numerous new entrants", which he views as an indication that the system is pro-competitive. In his experience, SMEs who make themselves knowledgeable about the patent licensing landscape can conclude the necessary license agreements with right holders and participate in the market.

SAP placed the emphasis on choices that are made by right holders on a case-by-case basis. For example, the standards developed by the World Wide Web Consortium (W3C) must be patent-unencumbered or patent rights must be available on a royalty-free basis (with possible restrictions set out in the organization's patent policy). Many of the companies participating in the W3C are, however, simultaneously involved with FRAND-based standard-setting processes.

From SAP's point of view, "market dynamics have worked very well so far", not only because there are different kinds of standard-developing organizations competing but also because certain SDOs such as OASIS create standards on the basis of FRAND as well as under other regimes.

There's nothing wrong with US corporations -- especially if they have significant European operations and partner networks -- participating in European policymaking debates. However, it's a legitimate question to ask who (and how credible and independent) the local entities on their side are. In addition to promoting continuity, which means the burden of proof is on the other side, the proponents of FRAND have the home team advantage: they can point to broad-based support for this approach among European politicians and regulators and a long list of impressive allies among European companies.

I mentioned the panelists from SAP and Ericsson. Some others of this nature and stature, such as Philips, Siemens and Alcatel Lucent, apparently weren't invited to make presentations. But the European Commission is aware of where they stand.

If US companies make demands in Europe that are different from the status quo in the US, one may ask what really dictates a different approach on this side of the pond. Oracle and HP didn't have any specifically European reason for what they proposed -- such as market characteristics. It looks to me like they are just trying to advocate here what they are unable to achieve at home.

Oracle's extrapolation and Java

I thought Oracle's Don Deutsch would comment on the Java situation. Instead of addressing it directly, he referred to Oracle's involvement with over 100 standard-setting organizations and 500 Oracle engineers participating in 600 working groups. But one thing he said raises interesting questions concerning Java.

He claimed that disagreement over FRAND (more specifically, over which terms a right holder is or is not allowed to seek after having made a FRAND commitment) resulted in "many complaints filed alleging abuses in the area." I talk about many patent-related disputes on this blog but I don't see "many complaints" of that kind. They are few and far between. Don Deutsch probably knew that many in the audience were aware of that fact, so he preemptively added that there are "probably many more complaints than we know about because they are almost always handled in a bilateral way, not discussed publicly."

That makes me wonder what all of this means for Java. There are two high-profile disputes at the moment: Oracle is suing Google and a refusal to grant a Java TCK license to the Apache Software Foundation on the terms to which the ASF believes to be entitled.

If it's true that public disputes are the exception and secret "complaints" are the norm, then the number of unreported Java disputes would have to be a lot bigger than the two conflicts that are out in the open. It would be very interesting to hear from Oracle how high that number is. Are we talking about a handful of unknown Java conflicts? A dozen? More?

If that's not the case, then Oracle shouldn't blow those controversies over FRAND out of proportion.

ICT convergence and software-specific rules

Oracle's Don Deutsch was on a panel on "ex-ante disclosures" of essential patents and most restrictive terms, an approach that doesn't rule out royalty obligations. Right holders seeking royalty payments would just have to state beforehand the maximum amount of license fees they will charge later. FRAND could still serve as a set of rules governing which terms and conditions are acceptable. Some of those demanding an ex-ante disclosure regime may, however, view it as a first step away from FRAND and toward the elimination of different restrictions (or of all of them in the long run).

In his closing statement, Don Deutsch limited his support for ex-ante to "certain market segments". He said that "it particularly fits the IT industry" and added: "We've certainly heard that the telecoms industry has a different history. The industry segments have different characteristics and therefore they have different requirements."

There appears to be little support from the broader ICT industry for proposals to depart from FRAND. That is probably the reason why Don Deutsch and some of his allies limit their demands to only a segment of the ICT field.

But Oracle did feel forced to acknowledge (without using that particular term) the convergence that is taking place. That fact, of course, is one of the reasons for which software-specific rules would not be sound policy in this particular area.

HP presented an unsuitable categorization

The panel on "open source, freely available software and standardization" was the one I was primarily interested in.

Scott K. Peterson, a Hewlett-Packard open source lawyer, started his "FOSS license analysis" with a reference to fragmentation ("it seems daunting to have to analyze open source licenses because they are so numerous, hundreds of them possibly"). But he believed that a categorization into "permissive" and "copyleft" licenses would provide clarity in connection with the impact of patent-encumbered standards on open source.

In some other contexts, the distinction between permissive and copyleft licenses is key. In this case, it misses the point.

Open source licenses are predominantly copyright licenses. A few of them have patent clauses; others don't. Copyleft can indirectly affect patent issues, but in connection with standards, the key distinction is between "patent-agnostic" licenses and those that have certain kinds of patent provisions.

To the founder of the movement, Richard Stallman, they are so different that he calls on everyone not to "lump them together" under the term of intellectual property. HP's Scott Peterson blurred that distinction completely with his unsuitable categorization.

This resulted in some errors, and one of them was particularly embarrassing in front of an EU audience: he listed the EUPL as a copyleft license and, therefore, as one that faces a particular challenge with patented standards. However, the official EUPL blog already agreed with me last month that it is possible to obtain licenses on patented standards in connection with software distributed under the EUPL. That is the case because the EUPL doesn't contain any patent provision prohibiting such inbound licensing in any way.

FSFE's reality distortion field still active

The president of the FSFE (Free Software Foundation Europe), Karsten Gerloff, spoke after HP's Scott Peterson and credited him for a "masterful introduction" to the "thorny issue of FRAND licenses, restriction-free licenses, and copyleft."

At least there's a little bit of progress related to terminology. Karsten said "restriction-free". I previously criticized the "royalty-free" movement for narrowing the issue down to only one kind of condition patent holders may impose. So it's more accurate and more honest to admit that "restriction-free" is the goal the FSFE pursues. But this means that patent holders would have to waive the entirety of their rights, and whether or not one supports the patentability of software, it's understandable that right holders will oppose such ideas.

On the question of whether free and open source software licenses can handle patent-encumbered standards, the FSFE still doesn't specify its concerns about FRAND. It still wants to make people believe that all FRAND is irreconcilable with FOSS and especially the GPL -- even though the most important GPL'd software is Linux and all of the three leading Linux distributors (Red Hat, Novell and Canonical) have licensed patents. To ignore fact, one has to operate inside a powerful reality distortion field.

HP and the FSFE were trying to advocate the same concept but gave inconsistent portrayals of the legal situation. Scott Peterson did not support the FSFE's claim that the GPL is "incompatible with FRAND licenses". Instead, he said that "even though the text of the license is not the problem", one would not get a certain "set of permissions" that is key to FOSS dynamics. He previously outlined three key "FOSS characteristics": free redistribution, ability to modify source code, redistribution of modified software on FOSS terms.

By admitting that "the text of the license is not the problem" (which he didn't say about the GPL per se, but the GPL was part of a list of licenses he discussed), Scott Peterson probably made some people in the audience wonder whether the FSFE is a reliable source of information or makes up problems only to gain a political advantage.

But even the "dynamics" HP described aren't fundamentally at odds with inbound patent licensing. Scott Peterson once again failed to distinguish between copyright and patents. The program code shared under a FOSS license can have all those benefits regardless of a need to obtain patent licenses.

The combination of HP and FSFE was interesting to watch: two speakers demonstrating two different ways to reach the same false conclusion. But they were happy that they agreed on the same anti-FRAND result. No matter why and how they arrived there.

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Torn between a lobby and a FRAND

Ahead of a European Commission and European Patent Office conference on intellectual property rights and standardization taking place in Brussels on Monday (22 November 2010), some of the most vocal advocates of openness have determined that FRAND is not a foe of "free" and that both concepts are legitimate in their own right.

I don't just mean the actual business practices of the companies behind the royalty-free/restriction-free lobby. Meanwhile we can even hear it straight from the horse's mouth:

Oracle provides TCK [the official testing kit for compliance with the Java standard] licenses under fair, reasonable, and non-discriminatory terms consistent with its obligations under the JSPA [the Java standard-setting agreement].

Don Deutsch, [Oracle Corp.] Vice President of Standards and Architecture

The above quote is from a statement with which Oracle -- a driving force behind ECIS and OpenForum Europe and an "open standards" lobbying partner of the FSFE -- just responded to the Apache Software Foundation (ASF), one of the two or three most important open source organizations in the world.

The context: compatibility of FRAND with FOSS; field-of-use restrictions

The statement quoted above speaks for itself, but the context makes it even more relevant: the board of the ASF had complained that Oracle "imposes additional terms and conditions [on Java licensees] that are not compatible with open source or Free software licenses." The ASF contends that "Oracle is violating their contractual obligation as set forth under the rules of the JCP [the Java standard-setting process]". It reiterated this view in a succinct reply to Oracle's FRAND statement: "The ball is in your court. Honor the agreement."

The open letter to which the word "agreement" points is more than three years old. At the time, Java belonged to Sun; Oracle acquired Sun last January. Therefore, the letter was directed to Sun, and it stated the following:

[...] The JCK license Sun is offering imposes IP rights restrictions through limits on the "field of use" available to users of our software.

These restrictions are totally unacceptable to us. As I explain below, these restrictions are contrary to the terms of the Java Specification Participation Agreement (JSPA) - the governing rules of the JCP [Java standard-setting process] - to which Sun is contractually bound to comply as a signatory. The ASF has a proud history of support for open software ecosystems in which commercial software can flourish.

However, Sun's JCK license protects portions of Sun's commercial Java business at the expense of ASF's open software. It prevents our users from using Apache software in certain fields of use.

[...] limitations on field of use for our users is contrary to the basic principles of open source licensing, and therefore these limitations would prevent distribution under any open source license, including our own. [...]

There you have the argument I addressed in this recent post ("FOSS can implemented patented standards"). The FSFE also listed the Apache license among FOSS licenses that it falsely claims to be incompatible with FRAND-based licensing. (You can read the truth about patent licensing under the Apache license here).

Oracle contradicts itself and its lobbying fronts ECIS, OpenForum Europe and FSFE

It appears to be a common pattern that open source foundations don't want to become "frandations", so they claim legal incompatibility even though their problem is a philosophical one. But what's really interesting is that Oracle uses two contradictory definitions of "open standards":

In front of policy-makers, Oracle (interestingly, Don Deutsch himself) gives talks such as this recent one in Brussels about all the good that open standards do. Oracle co-authors, finances and lends its name to statements such as this one that argue against FRAND-based licensing because it would allegedly "exclude a broad segment of the industry -- mostly open source software developers -- from implementing that specification in their products." ECIS, which issued that one, is run by Thomas Vinje, Oracle's outside counsel on EU antitrust matters. Oracle is one of its most influential members. Similarly, Oracle is a member of the OpenForum Europe (where Don Deutsch gave that talk), and it uses the FSFE for its purposes.

But when one of the most important open source organizations tells Oracle that FRAND terms "are not compatible with open source or Free software licenses", the answer is just that all Apache will get is FRAND -- take it or leave it. The Register also interprets it as saying "this is Oracle's stance on the matter and it's not changing."

As Apache's aforementioned succinct reply shows, the organization insists that this attitude constitutes a breach of the Java standard-setting agreement and, most of all, its section 5.C.III. You can find that agreement here, and this is a wording the ASF interprets in its favor:/p>

"[...] the [licensor] agrees not to impose any contractual condition or covenant that would limit or restrict the right of any licensee to create or distribute such Independent Implementations."

Apparently the ASF believes that this means its open source implementation of Java (the Apache Harmony project) must not be restricted. However, as I've already shown, Oracle says that FRAND licensing is "consistent with its obligations under the [standard-setting agreement]."

IBM -- the largest member of ECIS and OFE and financier of the FSF/FSFE -- supports Oracle

So Oracle believes FOSS can be reconciled with FRAND. And guess where IBM -- the other large company supporting the same European lobbying entities (ECIS, OFE and FSFE) -- stands: firmly on Oracle's side.

For a long time Big Blue supported not only the ASF in general but also its Java implementation, Harmony, in particular. Last month, however, it defected and now supports Oracle's OpenJDK, a GPL-based Java implementation.

IBM's open source VP Bob Sutor wrote on his blog that this switch of allegiance "will help unify open source Java efforts" and that "customers will benefit by having first class Java open standards developed collaboratively and constructively".

The Guardian's technology blog, however, calls this move "as much divisive as unifying."

The decisions and positions taken by those companies completely undermine the efforts of their "open standards" lobbyists in Europe such as IBM's Jochen Friedrich, who advocates extreme positions, and Oracle's Trond Undheim, who (as I mentioned in a recent post) referred to a group of EU officials as "rats" transmitting the "RAND disease" (RAND is synonymous with FRAND).

Upcoming Brussels conference on intellectual property rights and standardization

This endorsement of FRAND's compatibility with open source by Oracle and IBM has interesting implications to the debate taking place in Europe over open standards. Like I said at the beginning, the European Commission and the European Patent Office are going to host next week a conference on "Tensions between intellectual property rights and standardisation: reasons and remedies".

Some of the players I mentioned will speak there. Oracle's friend of FRAND, Don Deutsch, is on a panel on "ex-ante commitments to licensing terms". Thomas Vinje, counsel to Oracle as well as ECIS, will talk about the "certainty of availability and continuity of essential IP rights for licensing". An IBM patent attorney, Nicolas Schifano, is also on that panel. Finally, the FSFE's Karsten Gerloff will give a speech on "open source, freely available software and standardization".

I believe Don Deutsch won't be able to avoid discussing the Java situation. That one is important in and of itself, but it also plays a role in the patent infringement suit Oracle filed against Google and which draws more attention right now than any other patent suit in the industry (although there are so many going on, especially concerning mobile devices).

In its answer to Oracle's complaint, Google references the ASF's criticism and Oracle's obligations under the Java standard-setting agreement to allow independent implementations. Oracle claims seven of its Java patents are infringed by Dalvik, the virtual machine for Google's Android mobile operating system. Dalvik is derived from a part of the Apache Harmony code. So Oracle's denial of a different license has ramifications way beyond the ASF's desire.

The field-of-use restriction Apache complains about relates to mobile devices. Oracle allows independent Java implementations, but it draws a line in the sand where smartphones and tablets are concerned, for commercial reasons. This is a perfect example of a restriction that has nothing to do with royalties. Those who oppose FRAND often try to narrow the issue down to license fees while I advocate a more comprehensive approach.

Political debate and mixed-source reality

The conference "is part of an open dialogue process that the Commission is undertaking with key stakeholders [...] The EPO and the Commission hope to organise further events and meetings on issues relevant to IPR and ICT standards, with the objective of improving transparency and predictability in this crucial field."

While several of the speakers have a propensity for politicizing this topic, the conference program also lists panelists who operate on a day-to-day basis in the mixed-source reality of the IT industry. For instance, SAP is a markedly Linux-friendly vendor of proprietary software and should be able to tell us about how to cross the span. I also see major telecommunications equipment companies on the list. Nokia co-founded the MeeGo project, an open source mobile operating system based on Linux. But Nokia instigated patent litigation against Apple and is having an argument over FRAND licensing. This seems to me a perfect example of a company that cares about open source as well as its intellectual property.

In terms of an additional type of stakeholder that would have been great to have on one of the panels, I wish there were some SMEs (rather than just an association claiming to speak on their behalf) with mixed-source expertise and a complete focus on meeting customer needs by combining the best of both worlds. There are many of them out there.

That said, I really look forward to attending the conference next week and will report on it here (in compliance with applicable house rules, of course).

If you'd like to be updated on patent issues affecting free software and open source, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents.