As a part of my undergraduate studies, I took a course in business strategy, and one of the most memorable topics was technological lock-in. We were taught that there is explicit value in being a technological first-mover because such businesses can create switching costs for purchasers by establishing a proprietary standard in a new market. An example of this is where the purchaser of a word processing program has their data locked into the program’s file format – making it difficult to switch to another program.
While such lock-ins act as an incentive for the company that can procure them, it has the potential to harm the competitiveness of the marketplace by creating barriers to entry for newcomers and by causing complacency in the incumbent market leader. This leads to a fear that there may be a lack of innovation in that space.
As such, there has been a movement to establish open standards that level the playing field for the marketplace. These movements have played out in a variety of different ways, but perhaps the most pervasive illustration of standards today is those set by the World Wide Web Consortium (W3C) which aims to “allow any hardware and software used to access the Web to work together.” To the extent that standards is said to enable innovation, the existence of open and clear web standards is an exemplary example because it facilitated a vibrant marketplace for online innovation.
While it is generally recognized that open standards is increasingly necessary in our age of global cross-platform communications, how exactly this policy goal intersects with holders of patent rights is unclear. For example, what if the implementation of a standard is covered by a patent? Will this not create the possibility of exorbitant royalties and undermine the purpose of creating standards in the first place? These were the issues that formed the subject of a WIPO panel discussion.
The panelists had several suggestions to mitigate the potential impact of patents on standards: the involvement of government through implementing a requirement for disclosing relevant IP information on standards; modifying TRIPs so as to introduce an interoperability provision for standards, just as there is for public health; and using competition authorities to monitor the development of standards to ensure that anti-competitive practices are not employed.
It is the last of these which highlight a more general tension between intellectual property rights (IPRs) and competition law. Whereas IPRs provide a paper monopoly by means of a private right to exclude all others from utilizing an invention or work, such a concept is antithetical to competition law because it restricts otherwise capable parties from entering a market. Ultimately, the setting and implementation of standards is as much a competition concern as it is an innovation concern because the two are inextricably linked in the area of hi-tech. Nevertheless, one must not discount the effect of IPRs in providing an economic incentive for private parties to develop robust and useful standards.
As the dialogue around this issue continues to grow, it will be interesting to see how the policy initiative of achieving optimal innovation in society will be achieved while taking into account the tension in the two legal regimes.