TRACING THE EVOLUTION OF STANDARDS AND STANDARD-SETTING ORGANIZATIONS IN THE ICT ERA.

• Author: Singh, Manveen
• Position: Information and communication technologies

1. INTRODUCTION II. THE EVOLUTION OF STANDARDS A. Historical Background B. Types of Standards 1. De Jure Standards 2. De Facto Standards C. Benefits of Standardization 1. Greater Interoperability 2. Better Network Effects 3. Higher Rates of Innovation III. STANDARD-SETTING ORGANIZATIONS A. The Evolution of SSOs B. Structure and Legality 1. A Classic Corporation 2. A Limited Liability Corporation 3. A Semi-Autonomous Entity 4. A Non-Incorporated Entity IV. THE STANDARDS DEVELOPMENT PROCESS A. The IEEE Model B. The ETSI Model V. CHALLENGES ASSOCIATED WITH STANDARD-SETTING AND STANDARD SETTING ORGANIZATIONS A. Patent Hold-Up B. Patent Hold-Out C. Royalty Stacking D. Patent Ambush VI. CONCLUSION . I. INTRODUCTION

   Standards and standard-setting organizations (SSOs) have played a crucial role in shaping the innovation landscape for over three decades, especially in the information and communication technologies (ICT) sector. (1) The advancement in mobile telecommunication and the Internet has led to a fundamental change in the way individuals communicate with each other. (2) Devices such as smartphones, tablets, laptops, and smart watches bear complex mechanical and technological features (3) and perform multiple functionalities by connecting seamlessly. (4) However, in order for the interoperability of these devices and their functionalities to come through, there is a requirement of a common set of specifications and interfaces, in the form of standards. (5) Standards are widely acknowledged to be the mainstay of modern economy (6) and can lead to an increase in the value of consumer products, as well as increased rates of innovation. (7) The setting of standards and commercializing of innovation at large is facilitated by voluntary associations called SSOs. Competing firms come together under the auspices of SSOs (8) to collaboratively select and adopt uniform technical standards. (9) It is worth noting that the benefits brought about by these standards have a greater visibility in the ICT sector, primarily on account of two reasons. First, in order to make complex technologies work, there is a requirement of hundreds of thousands of patents. (10) Second, there is a strong need for devices and networks to interoperate in the ICT sector, which makes it absolutely necessary to develop common technical standards. (11)

   SSOs are further tasked with the responsibility of fostering a regime of rapid technological innovation (12) by balancing the interests of their members; their membership comprising of patent owners or standard essential patent (SEP) holders on one hand and implementers or licensees on the other. While the patent owners are involved in research and development (R&D) and look to maximize their earnings from licensing out their SEPs, the implementers look to seek licenses from SEP holders (13) on terms that are fair, reasonable, and non-discriminatory (FRAND), in order to use the patented technology in the manufacturing of standard-compliant, end-use products. There is yet, a third category of member companies that are vertically integrated and besides owning SEPs, also operate actively in the downstream market. (14) As members of SSOs, these firms compete in the market on both, horizontal and vertical levels, which gives rise to a possible likelihood of collusion albeit theoretically. (15) It is because of this aspect of standard-setting that the role of SSOs becomes extremely important.

   A pertinent question that arises then is, what are SSOs and how do they function? Furthermore, what is the legality of SSOs and how have they helped in the evolution of industry standards? In an attempt to answer the aforementioned questions, the focus of this paper shall center around standardization and SSOs, while tracing the evolution of standards and standard-setting activities in the ICT sector.

2. THE EVOLUTION OF STANDARDS

   It all began in 1864, when a man by the name William Sellers took up the cause of standardization. Sellers was fully aware of the end of the hand-tooled machine coming to an end, so he steered the manufacturing elite towards the mass production era. (16) This mass production was given effect to by standards and standardization, be it standard cloth sizes, measurements of the screw, environment, quality or safety standards. (17) But what exactly is a standard? "A standard can be defined as a set of technical specifications which seeks to provide a common design for a product or process." (18) According to the European Telecommunications Standards Institute (ETSI), "a standard is a document that provides rules or guidelines to achieve order in a given context." (19) Standards lie at the heart of digital economy (20) and are directly responsible for the existence of interoperability (21) between products originating from different manufacturers. (22) They have, over the course of history, provided effective and timely solutions to most technical problems. (23) How though have standards evolved? What were the first set of standards to have come into existence? In order to answer these questions, one needs to trace the origin of standards.

   1. Historical Background

      Standards have existed since early historical times, with the creation of a calendar being the one of the first examples of standardization, (24) followed by King Henry I of England's labelling of the length of his arm as the preferred unit of measurement, (25) back in 1120 AD. (26) Time-unit standards were for the first time put to use by ice age hunters around 20,000 years ago, (27) by carving out lines in caves (28) in order to keep a count of the days between different phases of the moon. (29) The primary aim of these early standards was to bring human activities in line with natural phenomenon, (30) and soon they became symbolic of individual empowerment. (31) That gave way to industrial revolution (32) towards the mid-nineteenth century and it was the French Revolution that played a crucial role in the evolution of standardization, with the state handing over the responsibility of standardization to its scientists. (33) The advent of industrial revolution resulted in the nation states becoming more powerful, which in turn led to the emergence of transnational trade. (34) But in order to give effect to decentralized trade, there was a need for a faster and more economic mode of transport (35) to carry goods from one nation to the other. This need was catered to by the standardization of the railroad gauge, which brought about uniformity in the distance between two rails on a track. (36) Prior to the rail gauge being standardized, (37) carriage of goods between countries and between cities, in some countries, required the goods to be unloaded and shifted to new trains since the rails were of different sizes. (38) It was in the mid-nineteenth century that the British Parliament through the Gauge Act of 1846, set the standard width of a rail gauge at 4 feet and 8.5 inches. (39) Although there was opposition from several quarters within Britain and outside, by 1886, it had also become the United States (U.S.) standard. (40) The standardization of a rail gauge set the wheels in motion in terms of harmonizing cross-country transportation (41) and paved way for further standardization to take place.

      The late nineteenth and early-twentieth centuries witnessed the emergence of voluntary organizations (42) and trade associations responsible for the development of standards. (43) These organizations, addressed as SSOs or standards- development organizations (SDOs), focused on improving national productivity through standardization, (44) by plugging specific gaps in standards. (45) Standard-setting efforts further facilitated economies of scale, (46) and led to the reduction in heterogeneity of products and processes, (47) and made it possible for interoperability to set in. Towards the second half of the twentieth century, the concept of open standards gained prominence and although there is no fixed definition for open standards, (48) they are usually defined as standards that are available for all to read and implement without any royalty or fee. (49) An Open Standard is "free from legal or technical clauses that limit its utilization by any party or in any business model" and is "managed and further developed independently of any single vendor in a process open to the equal participation of competitors and third parties." (50) The first major open standard emerged in the form of the IBM Personal Computer in 1981, with the ISA bus employed therein "easy to understand, easy to design and build to." (51) Open standards have come a long way since and play a fundamental role in fostering a level playing field vis- avis ICT technologies. (52) In addition to the existence of open standards, most of the standards development work today is being taken up by SSOs, with an estimated 840 SSOs (53) operating in the ICT sector, firmly establishing the sector's status as the backbone of modern innovation.

   2. Types of Standards

      Technical standards have, over the years, become a pervasive feature of high technology industries. (54) What has helped standards gain prominence is the welfare-enhancing aspect of standardization. (55) But all standards may not share the same fate, since the binding nature and enforceability of standards is dependent on their development. Industry standards may be developed through different processes, and depending on the process of their development, may be categorized as de facto or de jure standards.

      1. De Jure Standards

         De jure standards, also known as legal standards, are standards established by law (56) and are set either through governmental intervention (57) or through industry collaboration. (58) While governmental agencies are responsible for the development of health, safety and environmental standards, interoperability standards are usually developed under the aegis of voluntary associations called SSOs or...