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
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
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.
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
The C urrent Legal Environment C oncerning Industry S tandards
StandardsBodies Policies ......................................14
The Enforceability of Standards Bodies Policies .....................16
LegislativeIssues andApproaches ...................................20
Innovation, Intellectual Property, and
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
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
11Sally Wyatt & Gilles Y . B e r t i n , “Multinationals and Intellectual Property” (Harvester
12J oseph Farrell, “Standardization and Intellectual Property,” 30 Jurimetrics J ournal (1989),
13Leml ey, supra note 1.
Fundamentals of S tandards a nd
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,”
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,”
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,”
22Carl Shapiro & Hal V arian, Information Rules (Harva rd Business School Press 1999), 173-
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
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
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/
36American National Standards Institute , “ About ANSI” at [http:// www.ansi.org/
38CRS Report 95-30, The National Institute of Standards and Technology: An Overview,by
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.
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
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?,”
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
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
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.
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,”
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).
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
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
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] .
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.
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,
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.
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
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,
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,”
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 bodies96 97
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
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.
96Leml ey, supra note 1.
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
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
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
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
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
107See European Telecommunications St andards Institute, “ET SI IPR Policy” ( N o ve mber
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
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
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.
110Cowi e & Lavelle, supra note 34, at 98 (describing patent and competition l aw principles
concerning standards bodies as “far from s ettled”).
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,
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.
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
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
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.
125A.C. Auckerma n Co. v. R.L. Chaides Cons truction Co., 960 F.2d 1020, 1028 (Fed. Cir.
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.
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.
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
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.
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
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 ,
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.