Identification of barriers created by SEPs and FRANDterms and the arguments related to selection of baseline(FRAND or Royalty Free)for open source licenses 2.1 Introduction:Standards:Formal standards are rules or guidelines approved and adopted by a standardizationbody that address permanent technical recurring problems. Standard creationcould be triggered by various factors like security reasons where a certainkind of standard needs to be developed for an elevator to ensure its safety forfor health reasons for certain medicines. Not only security and safety,standards can also be created when there is demand like the demand forstandardization of charging sockets for certain kinds of phones or devices etc.There are various organizations called the Standard Setting Organizations(SSOs)that creates the standards. Standards can be classified as:Measurements, Quality management, Food labelling, Pressure Equipment, CTand telecommunications (interoperability),IP Protocols, markup languages etc.

 Patents:A patent gives the inventor of an innovation the exclusive rights for aninnovation. Any other third party cannot produce, use or sell products underpatent until and unless the patent holder agrees to it. Patents in Europe aregoverned and granted by the European Patent Office. To become patented theinvention needs to be novel or non-obvious, involve an inventive step and besusceptible of industrial application.

The following are excluded from beingregarded as a patent (a) inventions the commercial exploitation of which wouldbe contrary to “ordre public” or morality (b) plant or animalvarieties or essentially biological processes to produce plants or animals (c)methods for treatment of the human or animal body by surgery or therapy anddiagnostic methods practiced on the human or animal body. Standard Essential Patents:     A patent that is vital to a standard is known as Standard Essential Patent.Patented technologies that cannot be substituted and for which an alternativesolution cannot be found are basically SEPs. For example, the Menu button inApple phone is patented but it not a SEP as other companies have created menubuttons in a different way. But patents related to GSM or 4G standards areessential for setup of these technologies in all smartphones and hence they areStandard Essential Patents. Standard EssentialPatents (SEPs) have been important in implementation of corporate policy decisionsin the technology sector from a long time.Problems with SEPsThousands of SEPs are implemented by variousSSOs over the years. Since these standards are essential for using one o theother technologies there are lots of litigation has come up.

Sinceonce a standard is adopted, for example, the owner of an SEP will have asuperior negotiating place that can be used to generate more profits based onthe value of the standard rather than the primary SEP. Likewise, astandard-setting organization (SSO) may be reluctant to adopt a standard in thefirst place if an SEP owner refuses to license it in advance because the SEP’svalue is a function of the standard’s level of adoption. To prevent these typesof licensing “holdups,” as well as ensure access to SEPs so that standards canbe widely adopted, SSOs created FRAND.Figure: Patent Litigation in Europe during the period2000-2008 (http://www.

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fabiangaessler.com/papers.html) Figure: Comparison of Litigation of SEPs in DE and UK.FRAND:Standard development organizations typically require their members tocommit to make their patents essential to the standard accessible on Fair,Reasonable and Non-Discriminatory terms and conditions (FRAND, in the US’RAND’, hereinafter ‘F/RAND’) and to disclose those patents that they believeare or may become essential to the standard. ‘Fair’ means that both the partieswill be treated equally in the licensing negotiation. ‘Reasonable’ means thatwith the help of set royalties companies can make profit without anydisadvantage to them.

‘Non-Discriminatory’ obligates to treat other similarcompanies in a similar manner. Terms of FRAND are decided between companiesbased on negotiations from both ends. Before adoption of any standard, SSO memberstypically are required to agree to license SEPs on FRAND terms to other SSOmembers and those who use the standard. This makes sure that no unfair meanswill be adopted by licensing company. Standards in Software:In the field of open source software, ascompared to telecommunication industry, here is a distinct absence of patent standards.

A large number of standard bodies have identified the fact that there is asignificant lack of number of patents in this field. Usually all the patentsrelated to software are licensed royalty free. ‘Object Management Group’, thatdevelops standards for a wide range of technologies for large number ofcompanies, is based on the policy that it allows either free licenses orreasonable and non-discriminatory licenses. OASIS (Organization for theAdvancement of Structured Information Standards) says that claims on standardsare permissible but they are usually published without initial restrictions onterms of use but also emphasis on the fact that it should be free and non-restricted.Even the British Standards Institute (BSI) said that the royalty claims allowedunder its (and International Standards Organization’s (ISO’s) rules are nearlynever used. Open Source Licensing:An open-source license is a type of license that allows the source code, blueprint ordesign to be used, modified and/or shared under defined terms and conditionswhich is usually free of charge.

 Every user can do modifications inthe source code according to their requirements and if needed also redistributecopies of it for commercial purposes.  SEPs as a barrier to software industry:There are various reasons why Patents are notpreferred in the Software Industry. Some of the reasons can be analyzed asbelow:Patents increases complexity of operation: Patentsin the open source industry provides various problems for standard setting organizations. They accelerates the complexity oftransactions taking place as well. W3C,IBC and IETF all discourages the use ofpatents and thus incorporates no claiming and patenting rules in their policies.Difficulty in examination of patents:It is most likely the case that the scope and coverage is not easy to bedetermined.

If the patent does not have proper quality, it effects theinnovation process and furthermore the business and market value. Moreover, thesoftware patents are unduly the subject of patent litigation, with most patentdefendants sued over a software patent, many of which are difficult to understandand mostly not valid.Barrier to increase networking: TheInternet has been globally embraced and is a vital platform for innovationbecause it was consciously built upon a network of non-proprietary,non-regulatory, transparent and open standards.

The architecture of theInternet and of the Web is designed in such a way that millions of users areconnected in one network. W3C’s initiative to adopt its standards worldwide, showsthat OSS, the Internet and the Web are broadly spread and continually buildingout across many development environments and users. SEPs and FRAND as barrier to Open SourceSoftware:As already discussed above, SEPs can belicensed in terms which are FRAND that helps in transfer of SEPs in a mannerthat is Fair , Non Discriminatory and Reasonable. FRAND as a solution in a generalpatenting scenario is very much appropriate but in the Open Source scenario itis not a good fit. Based on the following arguments we can do the analysis.

Confidentiality:FRANDterms are usually not made public. Only the parties involved knows what isterms and conditions are licensing and how much royalty is involved. FRAND seldom allows sublicensing to the thirdparties, in a way that requires no further action from the sublicensee toobtain the same rights to implement the standard. If such is a scenario in open source software then FRAND isdifficult to co-exist with open source as applying same terms and conditionsfor each distributed copy would mean to make those conditions public and toapply same for each distributed copy at each level which is not possible. RoyaltyTracking: Distributionof several copies of software makes it difficult to track the copies and obtainthe royalty per copy. This would also require additional terms and conditionsfor royalties as distribution on a more than second level basis would make itmore complex to decide who would receive the royalty, the original source codecreator or the one distributing the software.

Also the complexity of softwareand royalty calculation can never be exact and will always be complex. Redistribution:FRANDdoes not permit to redistribute the software to downward recipients by itself asit requires to keep track of royalties and to make sure that the terms arefollowed for each copies. This is practically impossible as there could bethousands of copies and infringements would be very difficult to keep trail of. Obstacleto Innovation:One ofthe most important principle of OSS is that it promotes innovation by implementingnovel ideas and developing solutions to more complex issues and problems.

A community of people that does not compete with eachother but just works together in creating new resources and opportunities forothers to benefit from these resources. Advantage to which is in depth analysisto the problems and varied applications. If there are legal and monetarybarriers to every contributor it has serious consequences to innovation.  Freedomto operate:Developersin Open Source communities are granted enough freedom to make use of free softwareand modify it based on their own ideas and needs. There is no regulation on howthe code can be modified and either used for personal or commercial purposes. FRANDwholly defuses the collaborative open modelbehind OSS, by limiting the use of freedoms granted by the latter.  Overhead to find the correct patent holder:One of the biggest issues in Open Source environment is tofind the correct holder of patent.

It is a big issue for researchers as well asthe developers. For example, researchers tried to find out about the licensingrequirements for the ISO’s TIFF/EP standard, for which 19 organisations werelisted in the ISO patent database. Once more, the researchers sent out lettersasking about licensing details, and of the 19 contacted, not a single onerepliedhttps://arstechnica.com/tech-policy/2016/05/eu-tech-standards-why-frand-not-compatible-with-open-source/. Complexity of relationships for patent holders: SEPsrequires each patentholder to create private relationships with community contributors. One opensource community can have several thousand of participants. It is simply notpracticable to have a relationship with each and every person in the community andit just conflicts with community based open innovation and teamwork approaches.  Threat ofdiscrimination:One ofthe basic requirements of FRAND is to contact the SEP holder for obtaininglicense.

In such a scenario to grant license totally depends on the holder of SEPin which there is a threat of discrimination as SEP holder cannot define whichindividual can be under similar category. Discriminationis neither compatible with OSS principles nor with FRAND itself. BlanketClaims:Lots of companies are famous for blanket claims, whichhappens when they declare that they own SEP without specifying any details ofsuch patents.

This possesses a grey area in accuracy of information related topatents and causes difficulties for any developer to use any patent that doesnot have a proper information available. Consequencesfor SMEs: Small andMedium sized enterprises specially the ones that are just starting to makeentry in the market rely on free and open source projects to start up. The don’tpossess huge capital to invest on buying patents. A major set back for SMEswould be to pay up for software. This will not only hinder the market entry ofsuch companies but also would set back the innovation and research capabilityon the technology. Threat tointeroperability:Thescience of Internet, Web and OSS is different from telecommunication sector. SEPholders in such a sector could prevent interoperability in order to reduce thecompetition and make utmost profits. Consider a scenario where your web browserworks only with certain web pages and not all.

If proper attention is not paidit would give monopoly to patent holders in the open source industry.  Threat offuture implications:For everyparticipant there is a threat from current and future owners of the patents. Incaseof an influential owner of the patent in the future , it could exert moremarket influence without even taking part in the project. This could lead toserious business implications for the participants and their future in themarket and industry.. Patentsand Open source software can never go together. The basic principles on whichopen source is developed is to provide anyone the ability to use the software ,modify , use it according to their will and redistribute it to anyone. SEPs andFRAND with their terms and conditions defies all this.

They originated from another sector and through traditionalSSOs, while software and web standards have advanced in a more cooperative way,i.e. through fora and consortiaMark Bohhanon, “Out of the Murky Lagoon and into… Is there a EmergingConsistent US Government Policy on Standard Essential Patents?”, 2014-08-08.FRAND cannot govern OSS.  FRAND or Royalty Free (RestrictionFree)? With allof barriers considered to OSS, there are still arguments on how licensing ofsoftware will take place. There are two approaches that are considered FRAND orRF. RF provides an assurance to the users of patents that the right to use ofthe patents will be without any restrictions or royalties.

But the implementationof FRAND in some cases can also be debated on.  Why FRAND?A scenariowhere an invention which is new and has never been made or thought of in thepast is the base technology and the inventor wishes to protect its inventionand obtain revenues for his efforts and research.Its substantial to reward theinnovators for their contribution of SEPs to standardization.

In such a caseFRAND is a dominant model. For example, Amazon One-Click Patent. The One-Click software lets internetshoppers avoid the online shopping cart. If the user has their payment,billing, and shipping information saved, they can buy something with a single clickhttp://patft.

uspto.gov/netacgi/nph-Parser?Sect1=PTO1=HITOFF=PALL=1=%2Fnetahtml%2FPTO%2Fsrchnum.htm=1=G=50=5960411.PN.=PN/5960411=PN/5960411.

Amazon saw increased sales and revenue after implementation of this innovationin their website. It also licensed the same to Apple to generate revenues.It can also besaid that when standardization involves more research-intensive and basetechnology, it is that a FRAND policy will have been selected to governavailability of SEPs. FRAND terms are often seen as mismatched with the termsand conditions of Open Source licenses, hence the fact that Royalty freepolicies allowing unencumbered implementation of open standards in Open Sourcewere established in the market in a number of leading global SDOs.