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The Standards Conundrum

debate heats up over who should own them

The Law School's conference combined experts in antitrust, corporate law, administrative law, and intellectual property to deliver a broad range of perspectives on ownership of standards.

Standards make modern life possible. People buy gasoline with confidence that their cars will run properly. Businesses conduct commerce over the internet knowing that their computers will operate seamlessly with others all over the world. Consumers rely on the imposition of standards to ensure the safety of electrical devices, food, and homes.

In most cases, standards operate as a form of public property. You may need someone’s permission to make use of a private museum, but you don’t need permission to build a house that meets the local building code. This is a good thing. If standards exist to give society the benefits of uniformity, then charging people for conforming to standards dissipates that value.

Recently, however, the free public use of standards has begun to erode under the rise of modern intellectual property. The intuitive appeal is simple. If someone develops a standard, then she should own it in the same way that an author or inventor owns a book or device. Recognition of such intellectual property gives the owner the right to prevent others from using or duplicating the standard, a right which can be waived for an appropriate fee. For example, an inventor may be able to get a patent on a new, more efficient process for converting analog sounds into digital files. If others want to adopt the new standard in stereo equipment or other music players, they will have to pay the inventor for the privilege.

In some cases, the private ownership of standards makes sense. After all, the monetary rewards of licensing can serve as a powerful incentive for the production of beneficial standards. Moreover, private control of a standard can ensure the uniformity and improvement of a standard’s various embodiments. In other cases, however, these benefits may be overwhelmed by the costs of monopoly pricing and anti-competitive behavior by those who own standards.

On March 31, the Law School hosted a conference studying the question of owning standards. The conference, entitled “Owning Standards,” was unique in its cross disciplinary orientation. Earlier conferences generally examined the question of owning standards from a single perspective, such as intellectual property. By contrast, the Law School’s conference combined experts from antitrust, corporate law, administrative law, and intellectual property in a conversation that greatly broadened and enriched the understanding of standards.

Eight papers were presented by some of the country’s most distinguished scholars: Herbert Hovenkamp from the University of Iowa, Mark Lemley from Stanford University, William Bratton from Georgetown University, A. Michael Froomkin from the University of Miami, Scott Kieff from Washington University, Frank Partnoy from the University of San Diego, Greg Vetter from the University of Houston, and Pamela Samuelson from the University of California. Additional commentary and moderation was ably provided by Stacey Dogan from Northeastern University, Sidney Shapiro from Wake Forest University, Michael Carroll from Villanova University, and BC’s own Joseph Liu, Lawrence Cunningham, and myself, Alfred Yen.

One of the major themes underlying the conference was the question of who should promulgate standards? Ownership of standards becomes plausible because private actors do so, but is this desirable, particularly when government promulgation of standards obviates the case for owning standards? Responses to this question varied. Froomkin described how government promulgation of privacy standards could reap significant public benefits that would be unlikely to arise through private promulgation. Others, including Lemley and Vetter, worried that private promulgation of standards could fail because actors who owned technology relevant to the standard might hold out for compensation far in excess of the value their technology contributed to the standard. By contrast, Kieff and Bratton described how, in at least some cases, private standard setters took advantage of specialized expertise to create standards the government would have found difficult to surpass.

A second major theme was the danger of opportunistic, anti-competitive behavior in standard setting processes. As Vetter and Samuelson showed, individuals involved in standard setting have natural incentives to steer standards towards configurations that favor their own economic interests, even if those configurations are not in the public interest. Such opportunistic behavior can, but does not always, emerge in both public and private standard setting. The natural instinct of lawyers is, of course, to use law to curb such behavior. However, it is probably impossible to construct law that consistently stops such behavior without risking the undue interference into the individual initiative and collective discussion needed for successful standard setting.

A final major theme concerned the importance of ownership as an incentive to the promulgation of standards. Here, there was uniform recognition that doctrines creating property in standards bear a complicated relationship at best to the need for incentives. Sometimes, as in the case of computer operating systems, a corporation may design technology that becomes a standard in direct contemplation of sales to others for profit. In other cases, private organizations have reasons to create standards that are separate from the licensing fees that ownership might generate. For example, as Partnoy described, financial services firms create standards with no desire to license the standards to others. Instead, they intend to profit by conducting profitable business transactions based upon the standards, such as the trading of derivative instruments.

The conference ended with agreement that much scholarship about owning standards still needs to be written. To that end, the Boston College Law Review has agreed to publish a special symposium issue containing the papers from the conference. This issue promises to be a ground-breaking collection of thinking about a topic that will be of crucial importance to society for many years to come.

—Professor Alfred Yen


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