Innovation, Intellectual Property, and Industry Standards

Report for Congress
Received through t he CRS W e b
Innovation, Intellectual Propert y,
and Industry Standard s
May29,2003
JohnR.Thomas
Visiting Scholar in En trepreneurship and Economic Growth
Resources, Sc ience, and Industry Division

Congressional Research Service ˜ The Library of Congress

Innovation, Intellectual Property, and Industry
Standards
Summary
An “industry s tandard” i s a set o f t echnical specifications that provides a
common d esign for a p rodu c t o r p r ocess. Relating t o p roducts ranging from
typewriter k eyboards t o h igh t echnology computer protocols, standards are pervasive
in the m odern economy. Standards s ometimes arise through government action o r
through t he operation o f t he marketplace. However, private i ndustry groups called
standards bodies have long been ac tive i n promulgating s tandards.
Standa r d s bodies and t heir members h ave encountered a growing number o f
cl ai m s t h at a p ri vat el y hel d “i nt el l ect ual p ropert y ri g h t ” — such as a copyri gh t o r
patent — covers an industry s tandard. M ost of t hese asserti ons have i nvol ved
patents. If the p atent i s v alid and enforceable, i t i s possible t hat t he standard cannot
be employed without infringing t hat p atent.
Striking a b alance between open i ndustry s tandards, on one hand, and ex clusive
intellectual p roperty rights, on the o ther , i s an important component of contemporary
industrial policy. Industry s tandards potentially bring e c o n o mic benefits ranging
from a broad range of interoperable p roducts to more r o b ust, competitive m arkets.
In turn, i ntellectual p roperty rights m ay promote i nnovation, the d isc l o s u r e o f n ew
inv e ntions and t echnology t ransfer. Conflicts between industry s tandards and
intellectual p roperty rights require a careful weighing of these competing i nterests.
Aware of potential conflicts between industry standards and intellectual property
righ ts, m any s tandards bodies have enacted intellectual p roperty polices. Although
these policies v ary, they generally requi re that membe r s o f t he standards body (1)
disclose intellectual p roperty t hat i s p ertinent t o a proposed standard and (2) license
the i ntellectual p roperty t o o ther s, often o n “reasonable and nondiscriminat ory”
terms. Past litigation and governmental agency actions have involved cases where
a m ember o f a standards body allegedly d id not abide b y t hese obligations. Various
legal doctrines, i ncludi n g contract law, fraud, equitable estoppel and antitrust l aw,
h a v e been em pl oyed t o com p el t h e obs ervance o f d isclosure and licen s i n g
commitments. However, some uncert a i n t y surrounds the enforceability of the
intellectual p roperty polices of standards bodies, p articularly against i ndividuals and
firms t hat were not members o f t he group that promulgated t he standard.
Shou ld Congress have an interest in this area, several options present
th emselves. No action n eed be taken i f t he current relationship b etween industry
standards and intellectual p roperty i s d eemed satisfact ory, particularly as standards
bodies become increasingl y aware of intell ectual p roperty and as the growing number
of judici al precedents may m ake t he legal situation clearer. C ongress might al so
encourage t he development o f m odel i ntell ectual p roperty d isclosure and licensing
ob l i g a t ions for u se by standards bodies; assist standards bodies in identifyi ng
intellectual p roperty t hat p ertains t o a proposed standard; and, as a possible m ore far-
reachi n g l egal reform , encourage p ropri et o rs t o di scl o se i n t el l ect ual p ropert i es t hat
bear upon proposed industry s tandards.

Contents
Fundamentals o f S tandards and Standards Bodies ........................3
TheImpact ofStandardization ....................................3
The Formation o f Industry S tandards ..............................5
Fundamentals o f Intellectual P roperty ..................................6
Patent Policy .................................................7
Patent Acquisition and Enforcem ent ...............................9
Potential C onflicts Between Industry S tandards
andIntellectualProperty .......................................10
TheVL-BusPatent ............................................10
TheGasolineFormulationPatent ................................11
TheElectronicCommercePatents ................................13
The C urrent Legal Environment C oncerning Industry S tandards
andIntellectualProperty .......................................14
StandardsBodies Policies ......................................14
The Enforceability of Standards Bodies Policies .....................16
LegislativeIssues andApproaches ...................................20

Innovation, Intellectual Property, and
Industry Standards
Virtually every p articipant i n t he modern economy i s familiar with the concept
of an industry s tandard: a set o f t echnical s p ecifications that provides a common
design for a product o r p rocess.¹ Fo r ex ample, electrical plugs and outlets ordinarily
conform t o a standard voltage, impedance and p lug s hape. In t h e absence o f s uch
speci fications, consumers might face significant difficulties i n obtai ning safe and
functional p r o d u cts. The contemporary m arketplace provides countless other
ex amples of standardiz ed products, rangi ng from typewriter keyboards, to automobile
transmissions, t o Internet connection protocols. C ommentator J ames S urowiecki h as
concluded t hat s tandards are s o s i gnifican t t hat “without standardiz ation t here
wouldn’t b e a m odern economy. ”²
Standards come i nto ex i stence through a number o f m echanisms, i ncluding the
operation o f t he marketplace and government regu lation.³ Another p rincipal vehicle
for s tandard formation i s t he activit y o f a standards body. A standards body —
s o metimes t ermed a “s tandards s etting organization” or “s tandards devel o p i n g
organiz ation”⁴ — i s a private i ndustry group that sets standards for its members.⁵ As
the U.S. economy b ecomes m ore o riented t o w a rds networked i nformation
technologies, the number o f s tandard s bodies has i ncreased in recent years.⁶ Many
large h igh t echnology firms are m embers of doz ens o f s tandards bodies.⁷
Standards bodies and t heir members h av e i ncreasingl y encountered claims that
an intellectual p roperty right — s uch as a patent or copyrigh t — covers an industry

¹ Mark A. Le ml ey, “Intellectual Property Rights and St andard-Setting Organizations,” 90
California Law Review (2002), 1889.
² J a me s Surowiecki, “T urn of t he Century,” Wi r e d (J an. 2002), 85.
³ Da vi d M . Schenck, “Setting t he St andard: Problems Presented to Patent Holders
Participating i n t he Creatio n o f Industry Uniformity Standards,” 20 Hastings
Communications & Entertainment Law J ournal (1998), 641.
⁴ Maurits Dolmans, “Standards f or Standards,” 26 Fordha m I n t e r national Law J ournal
(2002),163.
⁵ J anice M. Mueller, “Patent M isuse T hrough t he Capture of Industry St a n d a rds,” 17
Berkeley Technology Law J ournal (2002), 623.
⁶ T i mothy Baumann, “As Standards Proliferate, So Too a Ri se in Defendants Asserting
‘Standards Abuse’,” 2 Patent Strategy & M anagement (J une 2001), 1.
⁷ Leml ey, supra note 1, a t 1907.

s t andard.⁸ Fo r ex ample, a telecommunications standards body might de v e l o p a
s t andard rel at i n g t o cel l u l ar t el ephones wh ile under the impres s i on t h at no i n t e l l ect ual
property rights cover t hat standard. W hen a patent owner l ater informs m embers of
the t elecommunications industry t hat t heir phones u se a p roprietary t e c h n o logy, a
pot ent i al confl i ct ari ses. If an i n t el l ect ual p ropert y ri ght i s val i d and enforceabl e, i t s
owner m ay possess the ability to prevent others fro m employi ng the s tandard
altogether.⁹ On t h e o t h er hand, because l i cense fees are o ft en pai d t o owners of
intellectual p roperty t hat i s i n c o r p o rat ed into a s tandard, s tandards m ay provide
sign ificant i n centives for firms to innovate and t o p ermit the u se of a p atented
invention within a s tandard.¹⁰
The i ntersection o f i ndustry s tandards and intellectual p roperty i s o f p articular
s i gnificance to entrepreneurs and smal l firms. On one hand, thes e entities m ay b e
especially reliant upon intellectual p roperty rights i n o rder to capture the b enefits of
their i nnovations.¹¹ On the o ther, i ndustry s tandards m ay particularly advantage
individu a l s a n d small companies. S tandards can ensure that new p roducts are
compatible with established ones, allowing small entities t o access a larger user base
than they might otherwise enjoy.¹² More generally, t he interaction b etween industry
standards and intellectual p roperty i s an important considerat i o n i n t he modern
economy, determining whether members o f t he public are free t o u se the s tandard or
not; whether products can be built to the s tandard when multiple intellectual p roperty
righ ts apply; and whether a climate favorable to innovation i s p reserved.¹³
This report considers t he impact of industry s tandards and intellectual p roperty
law upon innovation. This report first introduces the fundamentals o f i ndustry
standards, standards bodies, and the i ntellectual p roperty l a w s . It t h en ex plains
potential conflicts between indus try s tandards and proprietary intelle ctual p roperty
righ ts and ex p lores l egal responses to these conflicts. This report c l o s e s with an
overview of l egislative i ssues and options for addressing intellectual p roperty rights
and i ndustry s tandards.

⁸ See Bauma nn, supra note 6.
⁹ See i nfra notes 66-69 and a ccompanyi ng text.
¹⁰National Research Council, National Academy of Sciences, Standards, Conformity
Assessment and Trade: I nto t he 21^st Century (National Academy Pres s , W a s hington, DC

1995),32-33.

¹¹Sally Wyatt & Gilles Y . B e r t i n , “Multinationals and Intellectual Property” (Harvester

1988),139.

¹²J oseph Farrell, “Standardization and Intellectual Property,” 30 Jurimetrics J ournal (1989),

35.

¹³Leml ey, supra note 1.

Fundamentals of S tandards a nd
StandardsBodies
The I m pact of Standar di z ati on
Standards are ubiquitous in the m odern U.S. economy.¹⁴ Fo r ex ample, p roducts
ranging from s oda cans t o light bulbs to batteries come in standard siz es; consumers
rout i n el y fax docum ent s t o each ot her u si ng fax m achi n e s f r o m d i fferent
manufact urers; and t ypists eas ily switch from o n e QW ERTY keyboard to another.
S t andards are so preval ent i n t he current U.S . m a r k e t pl ace t h at t h e absence of
standardization s ometimes s urprises cons umers. Computer users who transfer files
between “W ord” and “W o rd Perfect,” for ex ample, m ay unex p ectedly discover t he
lack of interoperability between data s t o r age protocols of thes e competing word
processi ng soft ware packages
Many benefits m a y r e s ult from t he use o f s tandards. Standards m ay convey
informati o n about the p roduct, regu late quality, ensure compatibility and enhance¹⁵
competition. Fo r ex ample, foods labeled “low s odium” communicate t he fact that
t h ei r s odi um cont ent i s b el ow cert ai n st andards s et by t h e federal governm ent . Ot h er
sorts o f s tandards, such as professional licensing requirements o r s afety codes, can
improve pub l i c h eal t h and s afet y. One ex ample is building codes, which guard¹⁶
a g a i n s t c o n s t r u c t i o n c o m panies from fabricating d angerous hous i n g. A s tandard that
allows interoperability also facilitates t he manufacturing and sale of new p roducts by
increasing both t he likelihood of sufficient volume o f business for manufacturers, and
of a s ufficient range of interoperable products for consumers. Standards can also¹⁷
lead to a robust, competitive m arket for replacement p arts or product m aintenance.
The b enefi t of st andards i s m ost not i ceabl e i n m arket s t hat ex h i b i t net wo rk
effect s.¹⁸ In such markets, t h e v alue of a p roduct i s a function o f how many other¹⁹
consumers u se a compatible product. A classic ex ample is the t elephone system,
where t he worth o f t he system may b e m easured by the t otal number o f s ubscribers.²⁰
Suppos e , f o r ex ample, t hat t wo mutually ex clusive t elephone networks serve a

¹⁴Margaret J ane Radin, “Online Standardization and the Integration of T ext and Machine,”

70 Fordham Law Review (2002), 1125.

¹⁵Sean P. Gates, “Standards, Innovation, and Antitrust: Integr ating Innovation Concerns Into
the Analysis of Collaborative Standard Setting,” 47 Emory Law Journal (1998), 583.
¹⁶Robert W. Hamilton, “Prospects f or the Nongo ve r nmental Development of Regulatory
Standards,” 32 American University Law Review (1983), 455.
¹⁷Leml ey, supra note 1.
¹⁸Mark A. Leml ey & David McGowan, “Legal Implications of Network Economic Effects,”

86 California Law Review (1998), 479.

¹⁹Gr egory J . Werden, “Network Effects a nd Conditions of Entry: Lesson s from t he
Microsoft Case,” 69 Antitrust Law Journal 87 (2001).
²⁰Michael A. Carrier, “Unraveling t he Patent-Antitrust Paradox,” 150 University of
Pennsylvania Law Review (2002), 761.

particular town. New residents t o t he town must choose one telephone network o r
the o t her. A rational newcomer will ordinarily subscribe t o t he network with the
larger subscriber base, s o t hat h e m a y c a l l t h e greatest number o f businesses and
persons. As one network grows larger than the other over time, i t i s unlikel y t hat
both m arket entrants will survive. The m ar ket m ay eventually “tip” i n favor of the
l a rger network, likely resulting i n a single “winner-take-all” telephone network i n
that town.²¹ C arol S hapi ro and H al Vari an, econo mists at the University of California
at Berkel ey, ci t e t h e v i d eo recorder m arket (VHS vs. Bet a) a n d p e rsonal com put er
operating m arkets (Apple v s. W i ndows) as ex amples of mark e t s t h at eventually
tipped i n favor of a s ingl e, dominant entrant.²²
In markets d riven b y n etwork effects, the availability of standards can support
competition policy. Without a s tandard, a single firm would likely be t he sole
provider o f a dominant n etwork technology. Standards i nstead allow m ultiple firms
to supply s ervices and equipment, which m ay lowe r p rices and l ead to greater
consumer choices.²³
S t andard s m ay al so l ead t o negat i v e econom i c consequences, however.
Standardization can reduce competition by diminishing the ability of competitors to
differentiate their p roducts.²⁴ The s peci fi cat i ons of a p art i cul ar st andard m ay m ake
it harder for one f i r m t o make a p roduct b etter o r cheaper, for ex ample. Some
st andards m ay al so i n crease ci rcum s t ances of consum er “l ock-i n.”²⁵ Lo ck-i n o ccurs
when a consumer faces sign ificant costs in switching from one technology t o another.
It is easy enough for a consumer to switch from a Fo rd to a C hevrolet automobile, for
ex ample, but c h a n gi ng computers from a Macintosh t o a W i ndows-based m achine
m ay ent ai l ce r t ai n cost s. The purchas e o f a different computer may require a
consumer to purchase n ew software, buy a n ew printer and other h ardware p eripheral
devices, convert tex t and o ther files, an d i n g en eral become familiar with the n ew
m achi n e.²⁶ Sta n d a r d i z e d products may l ead to such sign ificant l ock-in effects t hat
c o n s u m e r s m a y b e s t r o n g l y d i s c o u r a g e d f r o m c h a n g i n g p r oducts, e v e n w h e r e t h e n e w
product i s s uperior.
Similarly, st an d a rdization m ay also retard innovation.²⁷ Once a p art i cul ar
m a r k e t a chieves standardiz ation, one firm may find t hat t he introduction o f a n
entirel y new “system” is eco n omically prohibitive. That firm might prefer to

²¹M i c h a e l L. K a t z & C a r l S h a p i r o , “ Ne t w o r k E x t e r n alities, Competition, and Comp a t i b ility,”

75 American Economic Review (1985), 424.

²²Carl Shapiro & Hal V arian, Information Rules (Harva rd Business School Press 1999), 173-

79.

²³Robert Pitofsky, “Antitrust and Intellectual Property: Unresolved Issues at the Heart of t he
New Economy, ” 1 6 Berkeley Technology Law J ournal (2001), 535.
²⁴13 He rbert Hovencamp, Antitrust Law ¶ 2136 (1999).
²⁵Renato Mariotti, “Rethinking Software T yi ng,” 17 Y ale Journal of Regulation (2000), 367.
²⁶J ay Dratler, J r ., “Microsoft as an Antitrust T arget: IBM i n Software?,” 25 Southwestern
University Law Review (1996), 671.
²⁷Farrell, supra note 12, at 37.

i n t roduce a b etter complementary component to an ex isting s ys tem, allowin g i t t o
take advantage o f an established u ser b as e. As a r esul t , st andards coul d creat e an
environment m ore receptive t o i ncremental rather than pioneering i nnovation.²⁸
The For mati on of I ndustr y S tandar ds
Product s tandardiz a t i o n can occur t hrough t hree principal m echanisms: t he
o p e r a t i o n o f t h e m a r k e t p l ace, governm ent i n t ervent i o n and pri v a t e s t a n d a r d s bodies.²⁹
Fi rst, consumers m ay gravitate toward one prod u c t and reject its competitors,
resulting i n a de fact o s tandard.³⁰ As noted previously, d e facto s tandardiz ati o n i s
m o st com m o n i n m arket s t h at ex hi bi t s t rong net work effect s, where t here are l arge
benefits from u sing the s ame product t hat everyone else does.³¹ Given t he dominant
market share o f t he W i ndows operating s ys tem, for ex ample, consumers t hat opt for
t h i s syst em bot h gai n access t o an ex t ensi ve array o f com pat i b l e hard w a r e and
software, and find it easy t o s hare information with others.
Second, the government sometimes s ets obligatory s tandards.³² For ex ample,
the Federal Communications Commission dictates various standa r d s for the
electronic equipment u sed i n t he teleco mmunications and b roadcasting i ndustry. As
a result o f t hese standards, it is possible t o receive sign a l s b r o adcast b y m ultiple
television stations with the s ame t el evision equipment across t he country.³³
The t hird possibility is that members o f i ndustry agree on a s tandard through t he
auspices of a s tandards body.³⁴ A l arge number o f s tandards bodies are active i n t he
United S tates, feat uring diverse organization s tructures. Some are s tanding entities,
while others are formed o n an ad hoc basis for the purpose of promulgating a single
standard. M embership i n s ome s tandards bodi es is restricted, while other s tandards
bodies are open t o any interested party.
Although s tandards bodies employ varying p rocedures, i n b ro ad outline m ost
standard bodi es employ the followi ng process. Fi rs t, a proponent of a s tandard
develops a t echnic a l s p ecification t hat d etails the k ey points o f a technology and
preliminarily defines t he scope of the i ntended s tandard. This s peci fication i s s ubject
to commentary from m embers of the s tandards body and s ometimes m embers of the

²⁸J oseph Farrell & Garth Salo n er, “Competition, Compatibility, and St andards: The
Economics of Horses, Penguins & Lemmi ngs,” i n Product Compatibility as a Competitive
Strategy (Gabel & Landis, ed., Amster dam: North-Holland 1987), 1.
²⁹Leml ey, supra note 1.
³⁰ Mark R. Patterson, “Inventions, Industry s ta ndards, and Intellectual Property,” 17 B e r k eley
Technology Law J ournal (2002), 1043.
³¹See s upra notes 18-25 and a ccompanyi ng text.
³²Leml ey, supra note 1.
³³Ga t e s , supra note 15.
³⁴Michael G. Cowie & J oseph P. Lave lle, “ Pate nts Covering Industry s tandards: T he Risks
to Enforceability Due t o Conduct Before Standard-Setting Organizations,” 30 American
Intellectual Property Law Association Quarterly J ournal (2002), 95.

public, o ften resulting i n revisions to the p roposed standard. Finally, an elected or
appointed board gi ves final approval t o t he specification, raising i t t o t he level o f a
standard.³⁵
No single entity, public or private, controls the U.S. s tandards d evelopment
system. The private, nonprofit American Nation a l S tandards Institute (“ANSI”)
coordinates t he efforts o f m any s tandards bodies, however. ANSI i s an o rganiz ation
of f i rms, trade associations, t echnological societies, consumer organiz ations, and
governm ent agenci es.³⁶ ANSI oversees the proces s of s etting voluntary standards and
ensures t hat an appropri at e degree of consensus i s reached wi t h regard t o t h e
proposed standard. ANS I also ensures that access t o t he standards p rocess, including
an appeal s m echani s m , i s m ade avai l abl e t o anyone di rect l y or m at eri al l y affect ed by
a s tandard that is under d evelopment. ANSI further p r o m o t e s the u se of U.S.
standards i nternationally, advocates U.S. policy a n d technical positions in
international and regi onal s tandards o rgan iz ations, an d e n courages the adoption o f
international s tandards as national s tandards w here t h ey m eet t h e n eeds o f t he user
community.³⁷
The National Institute of Standard s a nd Technology (“NIS T”) also p romotes
voluntary s tandard-setting i n t he Unit ed S t at es .³⁸ NIS T is a non-regu latory federal
laboratory within the Technology Adminis t r a tion of t he U.S. Department of
C o m m erce. S ervi n g as a t echni cal cont rib u t o r t o the n ation’s s tandards
i n frast ruct ure, NIS T l aborat ori es d eve l o p m o re accurat e ways t o m easure l engt h,
time, m ass, temperature, and o ther physical q u a n tities t hat are fundamental to
standard-setting. NIST further s upports voluntary stan d a r d i z at i o n e f f o r t s b y p r o v i d i ng
technical ex pertise and facilitating private sect or agreem ent. NIST al so coordinates
t h e u se of vol unt ary s t andards b y federal agenci es.³⁹
Fundamentals of I ntellectual P roperty
The t er m “intellect ual property” identifies a number of l egal instruments,
including copyrigh ts, p atents and t rademarks, t h at provide innovators with⁴⁰
proprietary interests i n t heir intangible creations. Copyright provides authors with
ex cl usive rights i n t heir writings , visual works and other works of authorship; pat ents
protect inventors o f p roducts, p rocesses and other u seful i nventions; while trademark

³⁵eWeek Magazi ne, “Path to Approval,” [http: / / www. e w e e k. c o m/ i mage_popup/

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

³⁶American National Standards Institute , “ About ANSI” at [http:// www.ansi.org/
public/about.html ].
³⁷Ibid.
³⁸CRS Report 95-30, The National Institute of Standards and Technology: An Overview,by
WendyH.Schacht.
³⁹Ibid.
⁴⁰Roge r E. Schechter & J ohn R. T homas, “ Intellectual Property: T he Law of Copyr i ghts,
Patents a nd T r ademarks ” ( T homson-West Group, St. Paul, Minnesota 2003), 1-2.

law concerns the i dentifyi ng symbols u sed b y m erchants to identify t heir goods and
servi ces.⁴¹ Although i ndustry s tandards pote n t i a lly impact each of these l egal
disciplines, p ast controversies and cu rrent debate have focused upon patents.⁴² As
a result, this report t oo will focus upon the patent l aw, although its broader d iscussion
of the relationship b etween industry s tandards and intellectual p roperty i s applicable
to copyrights, t rademarks and other s imilar proprietary interests.
PatentPolicy
By providing individuals with ex clusive rights t o t heir inventive products and
processes, the p atent l aw allows innovato rs to appropriate the economic benefits of
their discoveries. Absent a patent system, competitors might readily be able to
appropriate the b enefits of an innovator’s research and d evel opment efforts. Aware
of thes e potential “free riders,” firms migh t d e vote few, i f any resources towards
innovation. The p atent l aw solve s t h is market failure problem by providing
economic incentives fo r i n dividuals and i nstitutions to engage in research and
development.⁴³
The p atent s ys tem i s also s aid t o encourage t he disclosure of new t echnologies.⁴⁴
Each issued patent must incl ude a des cription s uffici ent t o enable s killed artisans t o
practice t he patented invention.⁴⁵ Issued patents m ay al so encourage o t h ers t o “i nvent
around” the p atentee’s p roprietary intere s t . Others can build upon the p atentee’s
disclosure to produce t h e i r o w n t echnologies t hat fall outside the ex clusive rights
associ at ed wi t h t h e p at ent .⁴⁶
Patent righ ts may also facilitate technology t ransfer.⁴⁷ Absent patent righ ts, an
inventor may h ave n o t angi ble asset t o s ell o r license. In addition, an inventor might
otherwise b e unable t o police t he conduct of a contracting p arty. Any technology o r
know-how that has b een disclosed t o a prospective buyer might b e a p p r o p riated
without compensation t o t he inventor. The availability of patent protection d ecreases
the ability of contracting p arties t o e n gage i n opportunis tic behavior. By l owering

⁴¹G o r d o n U . S a n f o r d , III, “ A n In t e l l e c t u a l P r o p e r t y R o a d m a p : T h e B u s i n e s s L a w y e r ’ s R o l e
in the Realm of Intellectual Property,” 19 Mississippi College Law Review (1998), 177.
⁴²Leml ey, supra note 1.
⁴³Simone Rose, “ Patent ‘Monopolyphobia’: A Mean s of Extinguishing the Fountainhead?,”

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

⁴⁴K eith E. Maskus, “T he Role of Intellectual Pr operty Rights i n Encouraging Foreign Direct
Inve stme nt and T echnology T ransfer,” 9 Duke Journal of Comparative and International
Law(1998),10.
⁴⁵35 U.S.C. § 112 (2000).
⁴⁶Re becca S. Eisenberg, “ Patents a nd the Progr ess of Science: E x c l u s i ve Rights and
Experime ntal Use,” 56 University of Chicago Law Review (1989), 1017.
⁴⁷J o n a t han Eaton & Samuel J . K ortum, “T r ade i n Ideas: Patenting and Productivity in the
OECD,” 40 Journal of International Economics (1996), 251.

s u ch transaction costs, t he patent syst em may m ake t echnology-based t rans a c t i o n s
more feas ible.⁴⁸
The p at ent s ys t em m ay al so provi de a m or e s ocially desirable outcome than its
chi ef l egal al t ernat i v e, t rade s ecret prot ect i on. Tra d e s e c r e cy guards agai n st t h e
improper appropriatio n o f v al uable, commercially useful information t hat i s t he
subj ect of reasonabl e m easures t o preserve i t s secrecy.⁴⁹ Taking the s teps necessary
to maintain secrecy, such as implementing physical security measures, imposes costs
that may u ltimately be unproductive for society.⁵⁰ Also, while the pat ent l aw obliges
inventors t o d isclose t heir inventions to the public,⁵¹ t rade s ecret prot ect i o n requi res
firms t o hold t heir protections in secret. The disclosure obligations of the p atent
system may b e t t e r s e r ve the goals of encouraging t he diffusion of advanced
technological knowledge.
The pat ent s ys tem has long been subject to criticism, however. S ome observers
believe that the p atent s ys tem encourage s industry concentration and presents a
barrier to entry i n s ome m arkets.⁵² O t h e rs believe that the pat ent system t oo
frequently attract s s pecu lators who p refer t o acquire and enforce patents rather t han
engage in s o c i a l l y productive activity.⁵³ Still other commentat ors suggest that the
patent system often converts p ioneering i nventors i nto t echnological suppressors,
who u se their p atents to block s ubsequen t i m p r o v ements and thereby impede
technical progress.⁵⁴
W h en analyz ing t hese contendin g v i ews, it is important to note t he lack of
rigo rous analytical methods available for analyz ing t he effect of the p atent l aw upon
the U.S. economy as a whole. The relations hip b etween innovation and patent righ ts
remains poorly understood. Concerned observers simply do not know what market
i m p act s woul d resul t from changi n g p at ent t erm from i t s current t went y-year peri od,
for ex ample.⁵⁵ Consequently, current economic and policy t ools do not allow us t o
cal i b r a te the patent s ys tem precisely in order t o p roduce an optimal l evel of
investment in innovation.

⁴⁸Robert P. Merges, “Intellectual Property and the Costs of Commerc i a l Exchange: A
R e vi e w E s s a y, ” 9 3 Michigan Law Review (1995), 1570.
⁴⁹American Law Institute, Restatement of Unfair Competition T hird § 39 ( 1995).
⁵⁰DavidD.Friedman et al., “ Some Economics of T rade Secret Law,” 5 Journal of Economic
Perspectives (1991), 61.
⁵¹35 U.S.C. § 112 (2000).
⁵²J ohn R. T homas, “ Collusion and Collective Action i n t he Patent System: A Proposal for
Patent Bounties,” University of Illinois Law Review (2001), 305.
⁵³Ibid.
⁵⁴See Robert P. Merges & Richard R. Nelson, “On t he Complex Economics o f P a t e n t
Scope,” 90 Columbia Law Review (1990), 839.
⁵⁵See F. Scott K ieff, “Property Rights and Property Rules for Commercializing Inventions,”

85 Minnesota Law Review (2001), 697.

Patent Ac qui si ti on and E nfor cement
Patent righ t s do not arise automatically. Inventors m ust p repare and s ubmit
appl i cat i ons t o t h e U .S . P at ent and Tradem ark O ffi ce (“US P T O”) i f t hey w i s h t o
obt ai n p at ent p rot ect i on.⁵⁶ USPTO o fficials known as ex aminers t hen assess whether
the application m erits the award of a pat ent.⁵⁷
In deciding whether t o app r ove a p atent application, a USPTO ex aminer will
consider whet her t he submitted application fully discloses and distinctly cl aims the
invention.⁵⁸ In addition, the application m ust disclose t he “best m ode,” or preferred
way, that the applicant knows t o p ractice t he invention.⁵⁹ The ex aminer will al so
determine whether the i nvention itsel f fulfills certain substantive s tandards s et by the
patent statute. To be patentable, an i nvention m ust b e u seful, novel and nonobvious.
The requirement of usefulness, or utility, i s s atisfied if the i nvention i s operable and
provides a tangible benefit.⁶⁰ To be j u d ge d n o vel, t he invention m ust not be fully
anticipated by a p rior patent, publica tion or other knowledge w ithin the public
domain.⁶¹ A nonobvious invention m ust not have been readily within the o rdinary
skills of a competent artisan at the time the i nvention was made.⁶²
The USPTO pub l i s hes m ost pending patent applications approx imately 18
months after t hey are filed.⁶³ For ex ample, i f an i nventor filed a patent application
on August 1, 2003, then the USPTO will make th at application available t o t he public
on or after February 1 , 2005. Pre-grant publication o f p atent applications potentially
al erts interested parties of t he possibility that patent might later i ssue.⁶⁴ However, if
the i nventor has abandoned t he ap p l i c a t i o n, or has certified t hat n o p atent
a p plications on the s ame t echnology will be sought outside the United S tates, the n
the USPTO will not publish t he pending application.⁶⁵
If the USPTO allows the pat ent t o i ssue, the pat ent proprietor obtai ns the right
to ex cl ude others from m aking, using, selling, offering to sell or importing i nto t he
United S tates t he patented invention.⁶⁶ The m ax i m u m t e r m o f p at ent p rot ect i o n i s

⁵⁶35 U.S.C. § 111 (2000).
⁵⁷35 U.S.C. § 131 (2000).
⁵⁸35 U.S.C. § 112 (2000).
⁵⁹Ibid.
⁶⁰35 U.S.C. § 101. (2000).
⁶¹35 U.S.C. § 102 (2000).
⁶²35 U.S.C. § 103 (2000).
⁶³35 U.S.C. § 122(b) (2000).
⁶⁴See J oseph M. Ba rich, “ Pre-Issuance Publica tion of Pending Patent Applications: Not So
Secret Any M ore,” Journal of Law, Technology and Policy (Fall 2001), 415.
⁶⁵35 U.S.C. § 122(b) (2000).
⁶⁶35 U.S.C. § 271(a) (2000).

ordinarily set at 20 years from t he date the application i s filed.⁶⁷ The p at ent appl i cant
gains n o enforceable righ ts until such time as the application i s approved for issuance
as a granted patent, however. Once t he patent ex pires, others may employ t he
patented invention without co mpensation t o t he patentee.
Patent righ ts do not enforce t hemsel ves. A p atentee b ears responsibility f o r
monitoring its competitors to determine whether they are using the patented invention
or not. P atent p roprietors who wish t o compel o t h ers t o o b s e r v e t h ei r i nt el l ect ual
property rights m ust usually commence litigation i n t he federal district courts. The
U.S . C ourt o f Appeal s for t h e Federal C i rcui t (“Federal C i rcui t ”) possesses ex cl u si ve
national j urisdiction over all patent appeals from t he district courts.⁶⁸ In t u r n , t h e
U.S. Supreme C ourt possesses d iscretionary aut hori t y t o revi ew cases deci ded b y t he
Federal C ircu it.⁶⁹
Potential C onflicts Betw een Industry S tandards
and I ntellectual P roperty
Conflicts potentially arise b etween industry s tandards and intellectual p roperty
rights.⁷⁰ W h en one firm has m anufactured products or performe d p rocesses t hat
comply with an industry s tandard, s ometimes another entity has asserted that those
products or proces s e s i n fringe an i ntellectual property right. The possibility of
license fees and royalties m ay provide a s ignificant i ncentive for firms t o i nnovate
and t o p ermit the i ncorporation o f a proprietary technology i nto a standard.⁷¹ On the
other h and, the i ntellectual p roperty hol der m ay possibly p revent others from u sing
the standard altogether for a set p eri od of time.⁷² Past disputes in this area have
generally involved p atent rights. A review o f t hr e e well-publiciz ed ex amples
illustrates t he potential t ension between indus try s tandards and intellectual p roperty
rights.
TheVL-BusPatent
In 1992, the Video Electroni c s S t andard s Association (VESA), a non-profit
SSO, established a standard relating t o t he so -called VL-Bus. This standard provided
m echanisms for t ransferring instructions between a computer’s central proces s i n g
unit and its peripherals, s uch as a disk drive o r v ideo display. Subsequently, Dell

⁶⁷35 U.S.C. § 154(a)(2) ( 2000). Although patent t erm i s based upon t h e f iling date, the
patentee gains no enforceable legal r ights until the USPT O allows the application t o i ssue
as a granted patent. A number of Patent Act provisions may modify the basic 20-year term,
considering e xami nation delays a t t he USPT O a nd delays in obtaining ma rketing a pproval
for t he patented invention from other federal agencies.
⁶⁸28 U.S.C. § 1295(a)(1) ( 2000).
⁶⁹28 U.S.C. §1254(1) (2000).
⁷⁰See Mueller, supra note 5.
⁷¹National Research Council, supra note 9.
⁷²See s upra notes 64-69 and a ccompanyi ng text.

C o m put er C o rporat i o n (“Del l ”), a l eadi n g U.S. m anufacturer of personal computers,
al ert ed s everal fi rm s t hat t hei r use o f t he VL-Bus st andard i n fri nged a p at ent t hat D el l
had obtained i n 1992. The Dell announcemen t p rovoked considerable controversy
because Del l i t s el f was a m em ber o f VES A. Accordi n g t o s om e com m ent at ors, Del l
had voted in favor of the VESA s tandard.⁷³ Fu rther, during t his p r o cess a Dell
representative h ad allegedly certified t o VESA t hat “to the b est o f h is knowledge,”
he knew of no pat ent, copyright or t rademark that the VL-Bus des ign would violate.⁷⁴
The Federal Trade C ommission (FTC) s ubsequently brought an administrative
complaint against Dell. The FTC complaint asserted that Dell’s actions were unfai r
and t hat t hey unreasonably rest r ained competition i n t he computer industry. On
November 5, 1995, De l l a g r e e d t o a consent d ecree under which it agreed not to
enforce its patents relating t o t he VL-Bus.⁷⁵ Dell further agreed not to enforce any
patent righ ts that were intentionally not di sclosed upon the request of any s tandards
body, and to provide information t hat would assist the FTC in ensuring Dell’s
compliance. According t o W illiam J . Baer, Direct or of the FTC ’s Bu reau of
Competition, the FTC’s action concerning the VL-Bus s tandard marked the first time
federal l aw en forcem en t authorities t ook action against a company regarding
intellectual p roperty rights and industry s tandards.⁷⁶
The Gasol i ne For mul a ti on Patent
A p at ent d i s put e b et ween t h e U nocal C o r poration and other firms operating i n
the o il industry h as raised issues conce r n i n g intellectual p roperty and industry
standards.⁷⁷ In 1990, Unocal engi neers d eveloped s p ecially formulated gasoli nes t hat
result in cl eaner automobile emissions. Unocal promptly filed pat ent application s
cl aiming t hes e i n ventions at the USPTO. Contem poraneously, representatives of
Unocal, along with those of o t h e r oil companies and m embers of the automobile
industry, met with Californi a s tate air-pollution regulators. Some of Unocal’s
competitors reportedly believe that during l engt hy discussions with stat e regulat ors,
Unocal did not disclose it h a d f i l ed patent applications, while at the sam e time
advocating adoption of clean-fuel requirements consistent with the proprietary rights
it sought to obtain.
California u ltimately adopted stricter emissions rules i n November 1991 that
became effective i n 1996. As well, in February 1994, the US P TO i ssued the first of
several p atents Unocal has obtained o n its gasoline t echnology. According t o s ome
observers, a comparison of the C alifornia regulations with the Unocal patents reveals

⁷³“Dell T ells the FT C It Won’t Press Cl aim For Computer Patent,” Wall Street J ournal B13
(Nov.3,1995).
⁷⁴Ibid.
⁷⁵ Federal T rade Commi s s i o n , “ D e l l C o mp u t e r Settles FTC Charges,”
[ h t t p : / / www.f t c.go v/ opa/ 1995/ 9511/ del l .ht m] .
⁷⁶Ibid.
⁷⁷Alexei Barrionuevo, “ Exhausting Feud: A Patent Fracas Pits Unocal Corp. Aga in s t B i g
U.S. Oi l P r oduc e r s , ” The Wall Street J ournal (Aug. 17, 2000).

it would be difficult and ex pensive to produce conforming fuels without infringing
the Unocal patents.⁷⁸
In 1995, Unocal announced that it ex pected its competitors to pay royalties t o
produce gasoline consistent with the C alifornia s tandard. S everal oil companies soon
filed s uit against Unocal in U.S. district court, asserting t hat one of Unocal’s patents
was i nvalid. A 1997 trial resulted i n a verd ict t hat u p h e l d t h e Unocal patent and
foun d t hat t he patent was i nfringed by several o f Unocal ’s co mpetitors. The court
al so awarded Unocal damages of $69 million, b a s e d u pon infringing s al es of low-
emission gasoline during a five-month period i n 1996.⁷⁹ The U.S. C ourt o f Appeals
for t he Federal C ircuit upheld this judgment on appeal.⁸⁰
Competing views ex i s t concerning the Unocal gasoline formulation pat ents.
The Attorney General of t he Stat e of C alifornia filed a brief with the U.S. S uprem e
C ourt , j o i n ed by 33 st at es and t he Di st ri ct of Columbia, arguing that Unocal has t ried
t o “hi j ack and d i s t o rt ” t he st at e regul a t o r y p rocess.⁸¹ S o m e com m ent at ors h ave
ex pressed concern t hat t he Unocal patent will cause consumers t o p ay high er gasoline
pri ces.⁸² Still others h a v e associ at ed the Unocal patent with sharp i ncreas es in
gasoline p rices ex perienced in some parts o f t he United S t a t e s during 2000.⁸³ In
cont rast , Unocal ’s chi ef ex ecut i v e, R o ger Beach, report edl y s t at ed: “Invent i ons t h at
result from i ndependent research enhance t he rule-making p rocess.”⁸⁴ Unocal
management also repor tedly asserts t hat i t was not required t o d isclose its patent
applications during t he regulato ry p r o cess, and t hat i t has a right to profit from its
intellect ual property.⁸⁵
In the m eantime, l egal scrutiny of t he Unocal patents continues. On March 4,
2003, the Federal Trade C ommission issued an administrative complaint allegi ng that
Unocal gained monopoly pow er by defraudi ng California authorities and industry
groups during t he emissions rulemaking process.⁸⁶ Initial hearings concerning this
complaint are scheduled for J une 2003.

⁷⁸Ibid.
⁷⁹34 F. Supp. 2d 1208, 1222 (C.D. Cal. 1998).
⁸⁰208 F.3d 989 (Fed. Cir. 2000).
⁸¹St ate of Calif o r n i a , Department of J ustice, Office of the Attorney General, “Attorney
General Bill Lockyer Files “Fr iend of Court” Br ief Over Unocal Gasoline Patent” (Sept. 14,

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

⁸²See Alexei Barrionuevo, “ FT C M ay Seek to Stop Unocal From Enforcing Gasoline
Patents,” The Wall Street Journal (J an. 8, 2003), D6.
⁸³See Cliston Brown, “Unocal Scores Another Win in Gas Patent Case: Five Refiners Seek
Supreme Court Ruling,” 10 Corporate Legal Times (Oct. 2000), 94.
⁸⁴Barrionuevo, supra note 77.
⁸⁵Ibid.
⁸⁶Federal T rade Commi ssion, Complaint, In the M atter of Union Oil Company of California,
Docket No. 9305 (March 4, 2003) (available at [ h ttp:// www.ftc.go v
/os/2003/03/unocalcmp.htm] .)

The El ectr oni c Commer c e P atents
Controve r s y h a s also arisen over p atents held by the IBM and M icrosoft
C o rporations concerning proposed standards for nego tiating electronic commer c e
t ransact i ons. M uch o f t hi s d i s cussi on concerns t h e “S i m p l e Obj ect Access P rot o col ”
(SOAP) and the “electronic business u sing eXtensible Markup Language” (ebXML).
S OAP i s a p rot o col t hat al l o ws for t he ex change of i n form at i o n i n a decent ra l i z ed,
distributed environment.⁸⁷ eb XML provides firms with a s tandard method to
ex change business m essages, conduct trading relationships, communicate in common
terms and define business p rocesses o n t he In ternet.⁸⁸ S o m e observers forecast t hat
these t wo proposed standards “will one day b e as important as the s tandard protocols
(such as TCP/IP and HTTP) o n which the Internet i s b ased today. ”⁸⁹
IB M , M i c rosoft, and possibly o ther fi rm s h ave report edl y obt ai ned s everal
patents t hat cover S OAP and e b X M L, as well as p atents on complementary
ex tensions of these s tandards t hat allow for data encryp tion and provide other u seful
feat ures.⁹⁰ S o m e fi rm s t hat l ack t h ese p at ent port fol i o s, as wel l as cert ai n st andards
body representatives, are concerned t hat i nt ellectual p roperty rights holders will be
in a position t o charge t olls o v e r a l a rge amount of In ternet traffic. Fo r ex ample,
members o f t he W o rld W ide W eb Consortium (W 3 C ) , t he standards body that is
overseeing development o f t he SOAP speci fi cat i on, are s ai d t o h ave ex p ressed
concerns about the p ropriety of chargi ng royalties for patent licen ses for standardized
computer technologies.⁹¹
S o m e com m ent at ors are cri t i cal of t h ese el ect roni c com m erce p at ent s .
J ournalist David Berlind cautions: “If the protocols do become standards, either by
virt u e o f an independent standards organization’s imprimatur or by attaining a de
facto s tatus, IBM and Microsoft — or any o th e r c o m p any t hat m aintains the
intellectual property rights to them — could legally impose royalties on that
[ Int ernet ] t raffi c.”⁹² However, IBM, M i c r osoft and ot her p ropriety righ ts holders
have reportedly agreed to license some applicable patents o n a royalty-free b asis, and
to license others on reasonab l e and nondiscriminatory t erms.⁹³ As S OAP , ebXML

⁸⁷See Simple Obj ect Access Protocol ( SOAP) 1.1 (available at
[ h t t p : / / www.w3.or g/ T R/ S OAP] ) .
⁸⁸See General Informa tion About ebX M L ( ava ilable at [ http:// www.ebX M L.org]).
⁸⁹Davi d Berlind, “IBM , M icrosoft plot Net t akeover,” Enterprise from ZDWi re (April 11,

2002).

⁹⁰Paul Krill, “W3C Cl ose t o Ratifyi ng SOAP 1.2,” InfoWorld Daily News (Nov. 1, 2002);
Micheal Meehan, “IBM Cl aim t o ebXML Patent Sparks Furor: Cr itics See Hold on Trading
Partner Portion of Spec a s Big Blow to Open Standards,” Comput e r wor l d (April 22, 2002),

⁹¹Paul Krill, “W3C Promotes Royalty-Free Web Services St andards, ” I nfoWorld Daily
Ne ws (Nov. 14, 2002).
⁹²Berlind, supra note 89.
⁹³Matt Migliore, “IBM Patents for ebXML Raise Red Fl ag on Royalties f o r St andards,”
(continued...)

and o ther proposed electronic commerc e s tandards cont i n u e to evolve, m ore
information about the role o f i ntellect ual p roperty m ay become available.
The Current Legal E nvironment C oncerning
Industry S tandards a nd Intellectual P roperty
As thes e ex amples dem onstrat e, standards and intellect ual property rights m ay
potentially conflict. Some standards bodies have attempted t o p reempt these d isputes
by establishing policies concerni ng intellectual p roperty rights.⁹⁴ These pol i ces oft en
requi re m em b ers t o d i s cl ose rel evant p at ent s pri o r t o t he form at i o n o f t he st andard,
or to license th e s e p a t ents to other m embers of the s tandards body either on
reasonable and nondiscriminatory t erms, o r o n a royalty-free b asis.⁹⁵ However, some
uncert ai n t y persi s t s as t o t h e ex t ent t o w hi ch t h ese rul es are enforceabl e, b o t h w i t h
respect to members o f t hat s tandard body, and in particular against nonmembers.
Standar ds Bodi es Pol i c i e s
The policies of standards bodies towards i nt ellectual p roperty v ary considerably.
A recent s urvey b y M ark Lem l ey, a m em ber o f t he l aw facul t y of t h e Uni versi t y of
California, Berkeley, revealed a numbe r o f d ifferences among standards bodies⁹⁶⁹⁷
policies. Some standards bodies have no intellectual p roperty policy a t a l l , an
approach that pres umably allows members a considerable degree of flex ibility
regarding i ntellect ual property acquisition and enforcem ent. At the other ex trem e,
some standards bodies reportedly p rohibit t heir members from o wning i nt e l l e c t ual⁹⁸
property relating t o t he standard. The i ntellectual p roperty policies o f m any o ther
standards bodies fall somewhere b etween these ex t remes.
Many standards bodies impose s ome s ort o f d isclosure obligation regarding the
intellect ual properties of t heir mem b ers . These d isclosure obligations vary among
standards bodies. S ome s tandards bodies re qu i r e t heir members t o d isclose i ssued⁹⁹
patents. Others further oblige t he disclosure of patent applications that have been

⁹³(...continued)
Enterprise System Journal (J uly 1, 2002), a t 20.
⁹⁴J ennifer L. Gray, “Internet Standards Bodies: Antitrust Guidelines,” 637 Pr actising Law
Institute Patents, Copyr i gh t s, T r ademarks and Literary Property Course Handbook Series
(February-March 2001), 529.
⁹⁵Ibid.
⁹⁶Leml ey, supra note 1.
⁹⁷Ibid.
⁹⁸Professor Lemley r eports that OMG, the Obj e c t M anagement Group, imposes this
requirement. Ibid. See also Obj ect Manage me nt Group, “About the Obj ect Manage me nt
Group” (ava ilable a t [ http://www.omg.org/ ge ttingstarted/gettingstartedindex.htm]).
⁹⁹See World Wide Web Consortium, “Current Patent Practice” (J anuary 24, 2002) (available
(continued...)

f i l e d , b u t h ave not yet i ssued as grant ed p at ent s .¹⁰⁰ Some standards bodies further
require the disclosure of published patent applications, but not those that were
unpublished.¹⁰¹
Standards body policies o ften addres s circumstances where a m ember o wns a
patent relating t o an adopted standard. S ome s tandards bodies require that such
patents b e licensed o n a royalty-free b asis to other m em bers.¹⁰² Thi s arrangem ent
apparent l y cont em pl at es t h at t h e p at ent coul d b e enforced agai nst fi rm s t h at are not
members o f t he standards body.
Other s tandards bodies instead require that the p atent b e licensed o n “reasonable
and nondiscriminatory t erms,” a s tandard commonly known as R AND licensing.¹⁰³
Some policies do not speci fy whet her t his obligation applies t o m em bers and
nonmembers a l i k e.¹⁰⁴ According t o M r. Lemley, although t he RAND standard is
commonly employed, it is not often further defined i n t erms of a s pecific royalty rate
and o t h er cl auses.¹⁰⁵
Some standards bodies mandate that in circumstances where a p atent covers a
proposed standard, i t i s m ore d ifficult to adopt that standard. For ex ample, at least
one standards body requires a three-quarters m ajority to adopt a s tandard covered b y
a p at ent .¹⁰⁶ Ot her s tandards bodies make it easier t o revoke a previousl y adopt ed
st andard i f i t i s l at er reveal ed t h at a p at ent covers t h at st andard.¹⁰⁷
In sum, the i ntellectual p roperty policies o f s tandards bodies vary considerably.
One implication of t his diversity of rules i s t hat i ntellect ual property owners m ay face
difficulty in knowing t he particular rules t hat will govern a p articular in t ellectual
property right. This d ifficulty may b e especially pronounced with regard to market
segm ents, s uch as t he In ternet, t hat are governed by multiple standards bodies with

⁹⁹(...continued)
at [ h t t p : / / www.w3.or g/ T R/ 2002/ NOT E-pat e nt -p r act i ce-20020124#sec-Di scl o sur e ] ) .
¹⁰⁰See, e.g., J EDEC Solid State T echnology Association, “J EDEC Patent Policy” (ava ilable
at [http:// www.j e dec.org/ Home /manuals/J EDEC_Patent_Policy_Stmt .pdf]).
¹⁰¹T he AT M Forum, AT M Standards, §3.3.1 (“Intellectual Property Rights”) ( available at
[ h t t p : / / www.a t mf or um.c om/ s t a nda r d s / pol i c i e s .ht ml ] ) .
¹⁰²RosettaNet, RosettaNet Intellectual Property Policy ( J une 1 1 , 2002) (available at
rosettanet.org) .
¹⁰³See, e.g., T he Internet Engineering T ask Force, “IET F Page of Intellectual Property Rights
Not i ces” ( avai l a bl e a t [ ht t p : / / www.i e t f .or g/ IESG/ Sect i on10.t xt ] ) .
¹⁰⁴See, e.g., ECMA International, “Code of Conduct i n Patent M atte r s ” ( available a t
[ h t t p : / / www.e c ma -i n t e r n a t i ona l .or g] ) .
¹⁰⁵Leml ey, supra note 1.
¹⁰⁶See T h e AT M Fo r u m, “ Pa t e n t Pol i c y” ( a va i l a bl e a t [ ht t p : / / www.a t mf or um.c om
/standards/policies.html ]).
¹⁰⁷See European Telecommunications St andards Institute, “ET SI IPR Policy” ( N o ve mber

22, 2000) (ava ilable a t [ h ttp:// www.etsi.org/ aboutetsi/home.htm]).

overlapping subject ma t t e r concerns.¹⁰⁸ Mr. Lemley comments t hat “many
technology companies today face a hodge podge o f rules and obligat i o n s o f which
they are only dimly aware.”¹⁰⁹
The Enforceability of Standards Bodi es Policies
A l though m any s tandards bodies have promulgated i ntellectual p roperty
policies, some uncertainty surrounds their enforceability.¹¹⁰ Suppose t hat a member
of a s tandards body asserts a patent that it did not disclose during t he standard-setting
process, for ex ample, or refuses to license a dis cl o s ed patent in keeping with
standards body policies. As well, a firm t hat i s not a m ember o f t he standards body
may a s s e r t a patent against a competitor t hat s ells products compliant with the
standard. In s uch circumstances, t he s t a n dards body or its members m ay wish to
continue to employ its standard free o f t he intellectual p roperty right. P ast d isputes
o f this kind have largely b een based upon contract law, the doctrines of f r a u d a n d
equitable estoppel, as well as the antitrust l aw.¹¹¹ This report rev iews thes e doctrines
inturn.
The i ntellectual p roperty policy o f a standards body amounts t o a n a greement
between members t o c omply with certain rules regarding thei r i ntellect ual
properties.¹¹² The failure of one member of the s tandards body to comply with these
rul es c o u l d b e consi d ered a b reach of a b i ndi ng cont ract . T he cont ract l aw woul d
t h erefore appear t o be a p ri nci p al m echani s m for enforci n g one m em b er’s prom i s es
regarding i ntellectual p roperty.
Several difficulties attend the use of contract law i n t his contex t, however. First,
the i ntellectual p roperty poli c y o f a s t andards body can only b ind m embers of that
group.¹¹³ N onmembers are not parties t o t he contract and cannot be held to have
agreedtoit.
Second, the intellectual p roperty policies o f s tandards bodies sometimes employ
vagu e l angu age. Fo r ex ample, s ome s tanda rds bodies require only t hat i ntellectual
property rights b e licensed o n “reasonable and nondiscriminatory t erms.”¹¹⁴ Given
that the t erm “reas onable” is susceptible to varying i nterpretations, i t i s possible t hat

¹⁰⁸Leml ey, supra note 1.
¹⁰⁹Ibid.
¹¹⁰Cowi e & Lavelle, supra note 34, at 98 (describing patent and competition l aw principles
concerning standards bodies as “far from s ettled”).
¹¹¹Ibid.
¹¹²Leml ey, supra note 1.
¹¹³III E. Al a n F a r n s w o r t h , Farnsworth on Contracts § 10.1 (Aspen Publishers, Inc., N e w
York, New York 1998) (observi ng basic principle that contracts may be enforced only by
the contracting parties).
¹¹⁴See s upra notes 103-05 and accompanyi ng text.

a court m ay fi nd t h i s provi si on unenforceabl e.¹¹⁵ On the o ther hand, the court m ay
be willing t o d etermine whether a royalty is reasonable b ased upon the t reatment of
patents o f s imilar s cope in related i ndustries.¹¹⁶
In addition, contracts without a s pecifi ed term may o rdinarily be terminated at
will by any contracting p arty, s o l ong as appropriate notice i s given to the other
party.¹¹⁷ An ex am ple of t his general rule is the familiar “em ployee-at -will” doctrine,
where employees may res ign from t h e i r p o s ition, or be fired, at any time provided
that reas o nable notice is given.¹¹⁸ This princi ple l eaves open t he possibility that a
member of a s tandards body ma y s i m p ly withdraw from t he group after a standard
has b een forme d . In s uch cases, t hat firm m ay no longer be subject to the group’s
intellect ual property policy.
Contract law does p rovi d e one approach for ameliorating t his difficulty:
standards bodies bylaws could p rovide that members m ust d isclose o r license patents
that cover any standard adopted or under c o n s i d e r a tion while the m ember was a
member of the s tandards body. This p romise s hould b e enforceable even after a
member has resigned from t he s t a ndards body.¹¹⁹ The number o f s tandards bodies
that have actually adopted this po licy i s uncertain, however.
The doctrine o f fraud provides another m echanism for policing behavior during
the s tandards-setting process. The l egal system generally defines fraud to incl ude the
fol l o wi ng el em ent s : “1) a fal se represen tation (or omission in the face of a duty t o
d i sclose), 2) of a m aterial fact, 3 ) m ade i ntentionally and knowingl y, 4) with the
intent to mislead, 5) with reas onable reliance by t he misled party, and 6) resulting i n
damages t o t he misled party.”¹²⁰ If a m ember o f a standards body knowingl y failed
t o di scl o se t h e ex i st ence of an i n t el l ect ual p ropert y ri ght , t hen an accused i nfri nger
m ay b e abl e t o assert t h e ex i st ence of al l s i x el em ent s of fraud.¹²¹
An assertion of fraud pres ents some difficulties when used t o enforce standards
bodies rules, however. Notably, t he proponent of a fraud defense m ay find it difficult
to prove that the i ntellectual p roperty o wner possessed a specific i ntent t o d efraud
other m embers of the s tandards body.¹²² Additionally, t h e d o c trine of fraud is
premised upon the ex i stence of a duty o f hone sty b etween th e i ntellectual p roperty

¹¹⁵11 Richard A. Lord, A Treatise on t he La w o f C ontracts § 30:3 ( West Group, St. Paul,
Minnesota1999).
¹¹⁶Leml ey, supra note 1.
¹¹⁷Farnsworth, supra note 110, at § 2.14.
¹¹⁸See California Labor Code § 2922 (2003).
¹¹⁹Leml ey, supra note 1.
¹²⁰Rambus Inc. v. Infineon Technologies AG, ( Fed. Cir. 2003).
¹²¹Cowi e & Lavelle, supra note 34, at 129.
¹²²Ibid.

owner and the entity that relied upon the false representation.¹²³ As wi t h a b reach of
contract argument, fraud is unlikel y t o be s uccessfully em ployed by entities t hat were
not members o f t he standards body, i ncludi ng other m arket actors and consumers.¹²⁴
An addi t i onal l egal m echani s m for ensuri ng com p l i a nce wi t h i n t el l ect ual
property polices is termed “equitable est oppel.” Equitable estoppel applies when “a
patentee, through misleading conduct, leads t he alleged i nfringer to reasonably i nfer
that the pat entee does not intend to enforce its patent agai nst t h e alleged i nfringer.
Conduct m ay include specific s tatements, action, inaction, or silence where there was
an obligation t o s peak.”¹²⁵ Equitable estoppel s erves as a defen s e t o a c h arge of
patent infringement. T h e a c cused infringer must show that it relied upon the
misleading conduct and that it will be materially preju d i c e d if the p atent i s
enforced.¹²⁶
Courts have applied t he equitable estoppel doctrine i n cases where a m ember o f
a s tandards body fails to disclose its intellectual p roperty rights during t he standard-
setting process.¹²⁷ In one case, Stambler v. Diebold, Inc. ,¹²⁸ an indivi d u a l w a s
estopped from enforcing his p atent even t hough t he standards body did not have an
i n t el l ect ual p rope r t y pol i cy at al l . In t h at case, S t am bl er i nvent ed a n ew card
validation system for use with automatic t e l l er m achines. He l at er sat on an ANSI
standards committee t hat ultimately developed an i ndustry s tandard that Stambler
believed i nfringed his p atent. Stam b l er s ubsequently left the committee without
informing i t of his patent. Lat er, S tambler brought suit agai nst an automatic teller
machine m anufacturer that employed the i ndustry s tandard. The U.S. District Court
f o r t he Eastern District o f New York held that the doctrine o f equitable estoppel
applied, concluding:
Pl aintiff had a duty t o speak out and his silence was affirmatively misleading.
Plaintiff could not remain silent w h i l e a n entire i ndustry i mplemented the
proposed standard and t hen when t he standards were a dopted asse r t that his
patent cove r ed what manufacturers believed t o be an open and available
standard. Furthermore, plaintiff’s silence could r easonably be i nterpreted as an¹²⁹
indication t hat plaintiff had abandoned its patent claims .
The estoppel doctrine p rovides one mech anism for enforcing implied o r ex p ress
promises t o disclose intellectual p r operty t hat b ears upon a p roposed industry

¹²³Leml ey, supra note 1.
¹²⁴Ibid.
¹²⁵A.C. Auckerma n Co. v. R.L. Chaides Cons truction Co., 960 F.2d 1020, 1028 (Fed. Cir.

1992)(enbanc).

¹²⁶Schechter & T homas, supra note 40.
¹²⁷Cowi e & Lavelle, supra note 34, at 103-13.
¹²⁸11 U.S.P.Q.2d (BNA) 1709, 1714-15 (E.D. V a.), aff’d, 878 F.2d 1445 (Fed. Cir. 1989).
¹²⁹11 U.S.P.Q.2d at 1715.

standard.¹³⁰ In pa r ticular, t he doctrine o f equitable estoppel m ay be more readily
appl i ed t han fraud because i t l acks a speci fi c i nt ent el em ent .¹³¹ A g ai n, however,
estoppel does not appear to operate against i ntellectual p roperty o wners t hat were not
members o f t he standards body. Estoppel also does not appear to relate well to other
obligations imposed by standards policies, such as the d u t y t o license intellect ual
property o n reasonable and nondiscriminatory t erms.¹³²
Another cause of action t hat h as been employed in this contex t i s b ased upon the
antitrust l aw.¹³³ Antitrust l aw aims to protect the i ntegrit y of market competition
agai nst attempts to raise prices or reduce output, either by a s ingl e firm t h a t
dominat es the m arket and ex cl udes competition, or by a group of fi rm s t h at act
col l ect i v el y t o coordi nat e t h ei r p ri ce and o u t p u t d eci si ons.¹³⁴ In the contex t o f
standards, an antitrust plaintiff could contend t hat a firm attempted t o obtai n m arket
dominance by abusing t he standard-setting process, perhaps b y f ailing t o discl ose
pertinent i ntellectual p roperty o r b y fa iling t o license it under t he terms established
by a s tandards body’s intell ectual p roperty policy.
To date, m ost antitrust causes o f ac tion i nvolving standards h ave i nvolved
claims of attempted m onopolization.¹³⁵ To prove a claim of attempted
monop o l i z a tion, the p roponent must show: (1) a s pecific i ntent t o m onopoliz e; (2)
anticompetitive conduct i n furtherance of that intent; and (3) a dangerous probability
of successful monopol i z a t i o n .¹³⁶ As applied t o s tandards bodies, t he proponent of
this cl ai m m ust prove that the i ntellect ual property owner’s misrepres entations
manipulat ed the s tandard-setting proces s i n s uch a way t hat t he intellect ual property
owner gained m arket power.¹³⁷
Unlike fraud and equitable estoppel, which are defenses raised against a charge
of intellectual p roperty i n f ringemen t, attempted m onopoliz ation constitutes an
affi rm at i v e cause of act i o n t hat m ay be assert ed by any i nt erest ed p art y.¹³⁸ However,
a claim of attempted m onopoliz ation m a y b e d i f ficult t o p rove. At l east i n t he
contex t o f s tandards bodies, courts have generally imposed high standards o f p roof

¹³⁰Davi d M . Schneck, “ Sett i n g t he Standard: Problems Presented to Patent Holders
Participating i n t he Creation of Industry Standards,” 20 Hastings Communicatio n s &
Entertainment Law Journal (1998), 641.
¹³¹Ibid.
¹³²See s upra notes 103-05 and accompanyi ng text.
¹³³Cowi e & Lavelle, supra note 34.
¹³⁴ C R S Report RL31026, General Overview of United States Antitrust Law,byJaniceE.
Rubin.
¹³⁵15U.S.C.§2(2000) (commonly known a s “ Section 2 of t he Sherma n Act”).
¹³⁶Spectrum Sports v. McQuillen, 506 U.S. 447, 456 (1993).
¹³⁷Mueller, supra note 5.
¹³⁸Kevi n J . Arquit et al., “Antitrust, Intellectual Property, St andards and Interoperability,”
524 Pr actising Law Institute Patents, Copyrights, Tr ademarks and Literary Pr o p e r t y
Handbook Series (J une 1998), 157.

o n a t t e m p t e d m onopoliz ation claims.¹³⁹ As a result, antitrust claims will likel y be
limited t o cas es where an i ntellect ual property o wner’s actions lead to significant
anticompetitive consequences .¹⁴⁰
In sum, standards bodies and t heir members h ave relied upon a number o f l egal
t h eori es i n order t o enforce di scl o sure and l i censi ng obl i gat i ons, each wi t h t h ei r o wn
advantages and s hortcomings . M r. Lemley c oncludes t hat “[ t ] aken t ogether, these
legal rules do a fair j ob of ensuring that [ i ntellectual p roperty] owners do what they
promised to do.”¹⁴¹ However, there appear to be no mechanisms i n p l ace t h at will
enforce an i ndustry s tandard against i ndivi duals and firms that were not themselves
members o f t he group that promulgated t he standard.
Legislative I ssues and Approaches
Given t he wide recogn ition t hat i ntellect ual p roperty and industry s tandards are
of growing importance t o t he modern economy, the relationship b etween these fields¹⁴²
is the subject of increasing attention. Should C ongress have an interest in this area,
a v ari e t y o f approaches are avai l abl e. If t h e current i n t erface bet w een i n t el l ect ual
property rights and industry s tandards i s considered satisfactory, then no action n eed
be taken. Indeed, growing awareness t hat i ntellectual p roperty and industry s tandards
can sometimes conflict m ay lead to more sop h i s t icat ed treatment of intellect ual
property b y s tandards bodies, as well as continued refinement o f t he governing l aw
inthecourts.
Another approach is to encourage t he technology community to develop m odel
intellectual p roperty d isclosure and licen sing obligations for m embers of standards
bodies. S tandards bodies would t hen b e i n a position t o follow t hese gu idelines when
developing their o wn intellectual p roperty policies. This proposal might potentially
lead to more uniform treatment of intellect ual p roperties b y s tandards bodies. Given
the p resent d i v e r s ity of intellectual p roperty polices among standards bodies,
development o f “best practices” for intellectual p roperty m ay be welcome. It should
be noted, however, t hat t hese voluntary guideline s w o u l d not necessarily bind all
patent owners. Firms might still be subject to suit by patentees that have not joined
the relevant s tandards body, for ex ample.
The government could also assist standards bodies in ident i f yi ng intellectual
properties t hat might bear upon a proposed industry s tandard. For ex am ple, the
United S tates P atent and Trademark Offi ce could, upon request by a s tandard body,
conduct a s e a r c h o f pending patent applications and i ssued patents i n o rder to
determine whether these p atents might bear upon a p roposed s t a n d a r d . This
capability would allow s tandards bodies to b ecome more fully informed of
intellectual p roperty rights during t he standard-setting p rocess. It should b e noted,

¹³⁹Leml ey, supra note 1.
¹⁴⁰Ibid.
¹⁴¹Ibid.
¹⁴²Mueller, supra note 5.

however, t hat a number o f p atent research fi rms already ex i st that could conduct s uch
a s earch for a fee, at l e a s t w i t h respect t o i ssued pat ent s and publ i s hed p at ent
applications.¹⁴³
More ex t rem e possi bl e l egal reform s are al so possi bl e. For ex am p l e, l egi s l at i o n
could call for public not i c e o f approved i ndustry s tandards. Proprietors would b e
required t o i dentify i ntellect ual p roperties t hat are pertinent t o t he standard within a
set period of time. Failure to so identify applicable intel l ect u a l property t o t he
standards body might result in some limitation upon infringement remedies against
firms t hat practice t he standard. One possibility is to grant a compulsory license in
favor of use o f t he industry s tandard, p erhaps limited t o a set p eriod o f time so that
the i ndustry might develop a standard not subj ect to an intellectual p roperty. Another
is that the pat entee be unable t o enforce the intellectual p roperty against individuals
practicing t hat i ndustry s tandard for a period of time, o r p erhaps altogether.¹⁴⁴
Any possible l egal reform would b e well-advised t o recogn iz e t hat t he U.S. high
technology i ndustry i s i ncreasingl y characteriz ed both b y rapid innovation and a h igh
degree of i n t erconnect e dness. The d esi re t o capt u re t h e b enefi t s of research and
development l eads i nnovators to procure p at ents. Yet f i rms also d esire t o create
compatible products and s ecure greater aggregate s ales, resulting i n t he development
of nonproprietary uniform standards. T h es e t wo trends have sometimes l ed to
conflicts between ex clusive i ntellect ual p roperty rights and open i ndustry
standards.¹⁴⁵ Striking a b alance between promoting i nnovation, on one hand, and
maintaining t he integrity of the s tandard-setting p rocess, on the other, forms an
important component of cont emporary i ndustrial policy.

¹⁴³Steve D. Beyer, “ Searching — T he Art Behind An Opinion,” 667 Practising Law Institute
Patents, Copyrights, Trademarks and Literary Property Course Handbook Series (Nov. 1 ,

2001),45.

¹⁴⁴See Mark A. Leml ey, “St andardizing Government Standard-Setting Policy f or El ectronic
C o mme r c e , ” 1 4 Berkeley Technology Law J ournal (1999), 745.
¹⁴⁵Schenck, supra note 3.