Testimony by Amy A. Marasco
Vice President and General Counsel,
American National Standards Institute
before the Federal Trade Commission
December 1, 1995
Good morning. My name is Amy Marasco and I am the Vice-President and General Counsel of the American National Standards Institute, Inc., which usually is referred to by its acronym, ANSI. The voluntary standardization system in the United States is the most effective and efficient in the world. For more than 75 years, this system has been administered and coordinated by the private sector through ANSI. (1)
I will focus my comments today on two general issues:
- How should enforcement agencies and the courts approach the voluntary consensus standards development process to determine whether impermissible anti- competitive conduct is present? In addressing this issue, I will in part comment on some of the points articulated in J. Anton & D. Yao, Standard-Setting Consortia, Antitrust, and High-Technology Industries, 64 Antitrust L. J. 247 (Fall 1995) (hereinafter cited as “Standard-Setting”).(2)
- What is or should be the process by which patented technology is incorporated into standards? Could the proposed consent decree in FTC v. Dell Computer Corp. engender significant negative effects on the global competitiveness of U.S. industry?
1. How to Analyze the Competitive Effects of the Voluntary Standards Development Process?
The benefits and procompetitive effects of voluntary standards are not in dispute. Standards do everything from solving issues of product compatibility to addressing consumer safety and health concerns. Standards also allow for the systemic elimination of non-value-added product differences (thereby increasing a user’s ability to compare competing products), reduce costs and often simplify product development. They also are a fundamental building block for international trade. As the Court of Appeals for the First Circuit explained:
The joint specification development, promulgation, and adoption efforts would seem less expensive than having each member of CISPI [a trade association] make duplicative efforts. On its face, the joint development and promulgation of the specification would seem to save money by providing information to makers and to buyers less expensively and more effectively than without the standard. It may also help to assure product quality. If such activity, in and of itself, were to hurt Clamp-All by making it more difficult for Clamp-All to compete, Clamp-All would suffer injury only as result of the defendants’ joint efforts having lowered information costs or created a better product.... And, that kind of harm is not “unreasonably anticompetitive.” It brings about the very benefits that the antitrust laws seek to promote.
Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478, 487 (1st Cir. 1988) (Breyer, C.J.) (citation omitted; emphasis in original).
Therefore, the analysis of any possible anti-competitive effects a standard may have must, under the “rule of reason”, be weighed against its procompetitive and positive effects. This, however, is somewhat easier said than done.
One of the principle difficulties confronted by enforcement agencies and the courts when applying the “rule of reason” to standardization activities is that any cost- benefit analysis or consideration of possible alternative standards requires a technical expertise that these bodies normally admittedly lack. The obvious alternative is to leave the resolution of technical issues to the experts who participated in the standards development process and focus instead on the process itself. As pointed out in the Standard-Setting article, focusing on the standards development process has the benefit of (1) being easier for courts and enforcement agencies to analyze, (2) providing clear guidance to the business community and (3) being designed (and if necessary modified) to reduce if not eliminate the possibility of anti-competitive activity. Standard-Setting at 256.
This has been ANSI’s approach, and it has been effective. In its role as the accreditor of U.S. standards developing organizations (SDOs), ANSI seeks to further the integrity of the standards development process and to determine whether candidate standards meet the necessary criteria to be approved as American National Standards. ANSI’s approval of these standards is intended to verify that the principles of openness and due process have been followed and that a consensus of all interested parties has been reached. These requirements ensure that the playing field for standards development is a level one. In addition, ANSI considers any evidence that the proposed American National Standard is contrary to the public interest, contains unfair provisions or is unsuitable for national use.(3)
While acknowledging that proper procedures have a direct, positive effect on reducing antitrust-related concerns, the Standard-Setting article asserts that an exclusive focus on the standard development process is too “lax” an approach. Standard-Setting at 256. The article proposes that enforcement agencies and the courts should not only analyze the process by which a particular standard was developed, but also the “substantive reasonable basis” for the standard:
A reasonable basis approach involves an examination of whether the decision can be reasonably supported on the merits (e.g., based on information at the time that would be credible to experts, and which does not ignore contrary evidence proffered by opponents of the standard).... Using the reasonable-basis approach, a standard would be supportable even if conclusions leading to a different standard might be drawn, as long as the evidence reasonably supports the actual standard.
Id. at 248, 252-53.
I agree in principle with the proposed “substantive reasonable basis” test. I also believe, however, that it is possible for enforcement agencies and the courts to rely on ANSI-accredited procedures as a means to implement the “substantive reasonable basis” test and evaluate its results.
The article’s main concerns regarding the standards development process are (1) the fact that consensus-based balloted decisions are not immune from improper manipulation and therefore “good” decision-making processes can be manipulated through “fair” means and (2) that enforcement agencies’ reliance on procedural issues alone will induce the formation of standards-setting groups whose intent is to misuse the process for their own anti-competitive ends. Standard-Setting at 256-57, 265.
I would note, however, that the ANSI process addresses both of these concerns. First, the standard ultimately is voted upon by the consensus body (usually a committee) whose members are representatives from directly and materially affected interest groups, including manufacturers, users, consumers and regulators. The standard also is subjected to a public review period. Any unresolved negative comments from public commentators or members of the consensus body are distributed to the consensus body for its review and response.
If a vote on a standard was or is somehow perceived as having been subtlely manipulated, any person or entity who is materially affected by or otherwise interested in the standard -- whether a voting member of the consensus body or a public commentator - - can appeal the decision. The grounds for an appeal to ANSI include issues such as lack of balance on the consensus body, dominance by any person or entity, inadequate response to a negative comment (again whether from a voting member of the committee or a public commentator), and improper restraint of trade concerns. The appeals process, and the requirement that all consensus bodies have representatives from a balanced group of interested parties, assures that no one interest can manipulate the process unfairly.(4)
For these reasons, I believe that, using ANSI procedures, the “substantive reasonable basis” test could be satisfied solely by a meaningful review of the development process for a particular standard. The process is designed so that contrary evidence proffered by opponents of the standard must be properly addressed and responded to or else the standard will fail to achieve ultimate approval. Standards are market-driven. If a standard is developed according to ANSI requirements, there should be sufficient evidence that the standard has a substantive reasonable basis for its existence and that it meets the needs of producers, users and other interest groups.
Is the ANSI system absolutely foolproof? The answer is “no”. But it offers several advantages to other methods of evaluating whether anti-competitive activity is present in the standards development process.
First, it only requires a procedural and process-based review and not a dissection of the technical merits of the standard. We agree that due process in and of itself is not and can never be a complete defense to an antitrust claim. However, the value of an open system and due process-based procedures derives from the fact that they are designed in large measure to cause antitrust-related issues to surface as early in the process as possible. Many of the current procedural requirements were fashioned in response to court decisions which highlighted where the process previously lent itself to the possibility of improper manipulation.
In addition, we realize that proper procedures are of little value if they are not followed in practice. As a result, in addition to the review ANSI undertakes when a standard is submitted to it for approval as an American National Standard, ANSI also has implemented a mandatory standards developer audit program. The program is designed both to verify compliance with ANSI requirements and to provide guidance on more efficient or effective ways to address various aspects of the standards development process.
The ANSI system has a long-standing history of effective self-policing. To the extent that the ANSI process has not detected and deterred all potential antitrust-related problems, the problems were addressed by the private sector in a handful of private action lawsuits. There are now approximately 13,000 ANSI-approved American National Standards that provide dimensions, ratings, terminology and symbols, test methods, performance and safety requirements. The voluntary standards development process has proven its effectiveness across a diverse set of industries and in federal, state and local government processes. These industries include telecommunications, safety and health, information technology, petroleum, banking and household appliances.
In conclusion, in large measure the government has implicitly relied on the safeguards built into the ANSI process for the last 76 years. We welcome any input or comments the FTC may have regarding ANSI’s procedures or requirements, and we thank the FTC for this opportunity to provide our comments.
2. What is or Should be the Process by Which Patented Technology is Incorporated Into Standards?
First I will describe ANSI’s patent policy. Then I will address the FTC v. Dell Computer Corp. proposed consent agreement and the possible effect on U.S. industry’s global competitiveness if the agreement’s application was extended beyond intentional misconduct.
ANSI has long recognized that the incorporation of patented technology into a standard without certain safeguards could produce an unacceptable anti-competitive effect. Hence ANSI developed and implemented a patent policy consistent with the patent policy of ISO and IEC. Compliance (or non-compliance) with the ANSI patent policy is one of the criteria considered by ANSI in determining whether to approve or withdraw approval of a standard as an American National Standard.
The ANSI patent policy provides that the patent holder must supply ANSI with either:
- A general disclaimer to the effect that the patent holder does not hold and does not anticipate holding any invention the use of which would be required for compliance with the proposed standard, or
- A written assurance that either:
a) a license will be made available to applicants desiring to utilize the license for the purpose of implementing the standard without compensation to the patent holder, or
b) a license will be made available to applicants under reasonable terms and conditions that are demonstrably free of unfair discrimination.
This policy has proven over time to be an effective means of policing the incorporation of patented technology into standards when the patent holder discloses its rights prior to the finalization of the standard.
What happens if the patent holder fails to identify and disclose its patent rights prior to the completion of the standard? Under ANSI’s patent policy, the patent holder is then required to provide the same assurances to ANSI that are required in situations where patents are known to exist prior to the standard’s approval. If those assurances are not forthcoming or if potential users can show that the policy is not being followed, the standard may be withdrawn through the appeals process.
This latter situation, where the patent holder fails to disclose prior to standard’s issuance, is the situation in FTC v. Dell Computer Corp. In summary, the FTC filed a complaint against Dell because a Dell engineer participated on a VESA (Video Electronics Standards Association) standards development committee (which is not ANSI-accredited and as to whose procedures ANSI takes no position) and, when asked, stated that he had no knowledge of any Dell patents that would be implicated by the standard under development. After the standard was finalized and in widespread use, Dell began asserting patent rights against users of the standard.
The FTC voted 4-1 to accept the proposed consent agreement with Dell pursuant to which, among other things, Dell would agree not to seek royalties. In essence, the consent agreement could set a precedent to the effect that corporate representatives, participating in the development of a standard, are under an affirmative duty to disclose their company’s patent rights before the standard is finalized or be required to license their technology for free.
ANSI agrees with the Dell consent agreement to the extent it applies to situations when a participant in the standards development process intentionally and deliberately fails to disclose that his or her organization holds a patent relating to the standard in question in an attempt to gain an unfair competitive advantage. Both the ANSI patent policy, and the ISO/IEC patent policy that applies to the development of all ISO and/or IEC international standards, encourage the early disclosure of related patents in the standards development process.
If the Dell consent agreement were interpreted to (1) address also an unintentional failure to disclose a patent interest or (2) impose an affirmative obligation on companies to research exhaustively their patent portfolios or risk losing their right to seek royalties, then we would want to convey some of our concerns.
First, as a practical matter, some companies would find this affirmative duty to identify all applicable patents virtually impossible to fulfill. Many U.S. participants, at any given moment, have literally hundreds of employees participating in as many standards development activities and in excess of 10,000 patents in their intellectual property portfolio. In addition, it is virtually impossible for a company’s representative to have knowledge of the patents applied for by his or her company. Often the implication of a specific patent in connection with a standard is not easy to determine or evaluate. Should these companies, which have invested billions in research and development in order to develop this portfolio, be required to either assume an enormous research burden each time they participate in a standards development process or effectively be denied the opportunity to participate in that process for fear of rendering their intellectual property a public good?
Second, there are incentives built into the system to prevent a company from keeping silent until the standard is finalized and then, after the standard becomes a de facto marketplace standard, announce its patent rights. The risks are that (1) the approval of the standard is subject to withdrawal, often rendering the company’s innovation relatively useless, (2) competitors can avail themselves of their legal rights in court and (3) in the case of deliberate misconduct, the FTC can intervene. In addition, a company engaging in such conduct likely would lose some of its stature in the standards development community.
Third, the burden that an overextended view of the consent agreement would impose on U.S. businesses is reminiscent of similar burdens that other countries have pursued and which have been repeatedly and successfully prevented from becoming a requirement in the international standards arena.
For example, a few years ago the European Telecommunications Standards Institute (“ETSI”) proposed an intellectual property policy that many U.S. businesses believed to be coercive, and it became the subject of a trade dispute between the European Union and the United States. As a practical matter, the ETSI policy required compulsory as opposed to voluntary licensing. Any company that refused to sign the policy would be excluded from ETSI membership, and yet that membership was a practical requirement for participating in the European telecommunications market. The plan was that ETSI would announce a one-page “work programme” when it undertook a new standards development project, and if a member did not quickly disclose its patent rights, then the patent would be deemed automatically licensed on terms that were, in effect, acceptable to ETSI. The U.S. Government, working together with ANSI and U.S. industry, were successful in preventing the ETSI policy from becoming a reality.
At present, the ISO/IEC patent policy governing ISO and/or IEC international standards is virtually identical to ANSI’s, and ANSI, as the U.S. member to ISO and (through the United States National Committee) IEC, has opposed efforts to change the ISO/IEC and other international patent policies in an effort to protect U.S. industry’s rights in connection with its technology. In the global market, there have been (and continue to be) efforts such as ETSI’s to establish a process to facilitate what some would call a “technology grab” of U.S. intellectual property in an effort to reduce or eliminate any competitive advantage the U.S. enjoys as a result of its collective intellectual property portfolio. ANSI would caution the FTC from enunciating any intellectual property rights duty or policy that competitors in other nations could attempt to bootstrap into an unacceptable condition for participating in the global marketplace.
ANSI would agree with some of the FTC’s observations that sorting out intellectual property rights may complicate the standards development process.(5) The process certainly would be more efficient if patent holders were not given a choice whether to license their technology and if patent holders and users would not have to determine whether the licensing terms were reasonable and non-discriminatory. However, it is important not to lose sight of the reasons why patent protection exists -- to encourage innovation and the development of new technologies -- and the positive and even procompetitive benefits of incorporating intellectual property in standards. When proprietary technology is incorporated into a standard, it is available to all competing companies. This spurs the rate of the technology’s implementation and enhances U.S. competitiveness.
Thank you. I very much appreciate this opportunity to comment on these issues, and I am very willing to provide additional information upon request and/or receive any input from the FTC on what we at ANSI can do to address anti-competitive concerns or issues as they relate to the voluntary, consensus standards development process.
(1) 1 ANSI does not write standards; it serves as a catalyst for standards development by its diverse membership. The Institute is a unique partnership of approximately 1,300 companies, 260 professional, technical, trade, labor, academic and consumer organizations and some 40 government agencies. ANSI also is the United States representative to the two major, non-treaty international standards organizations: The International Organization for Standardization (ISO) and, through the United States National Committee, the International Electrotechnical Commission (IEC).
(2) 2 In my view, Standard-Setting is an important and informative article on the subject of standards, anti-competitive conduct and technology-based industry sectors. While there is much in the article with which we can agree, we would like to focus on those areas where perhaps we can provide a somewhat different perspective.
(3) 3 The U.S. consensus standardization system is effective in developing standards that meet industry’s needs and adequately address public interest concerns. Government regulatory agencies have continued to increase their participation in the private sector standards development process and adopt or refer to the resulting standards as an alternative to regulatory rule-making. For example, the U.S. Department of Defense has adopted in excess of 5,750 voluntary standards and has a major program underway to join with industry in the development of voluntary standards to replace military specifications.
(4) 4 The Standard-Setting article also asserts that “[c]hoosing a standard has a bargaining component and, consequently, reaching a consensus will sometimes interfere with the goal of making an efficient standard (or “antitrust preferable”) choice. Standard-Setting at 251 n.15. I would note that while consensus can at times result in some degree of compromise, any compromise is more likely to contribute to a “level playing field” among competitors than selecting a result that favors one company to the disadvantage of all others.
(5) 5 The FTC’s concerns were that (1) industry acceptance on the VL-bus design standard was hindered because some computer manufacturers delayed their use until the patent issue was clarified, (2) systems utilizing the VL-bus design standard were avoided to concerns that patent issues would affect the VL-bus’ success as an industry design standard, (3) the uncertainty concerning the acceptance of the VL-bus design standard raised the costs of implementing it (and developing competing designs) and (4) willingness to participate in industry standards-setting efforts have been chilled.
ANSI believes that it is necessary to balance the right associated with patents (in some respects a government-granted monopoly) and the likely benefits that result from the incorporation of the patented technology in a standard. These benefits include licensing the intellectual property to all who wish to compete on reasonable terms and the resulting benefits to consumers who have a greater selection of products that incorporate a standardized technology. This is perhaps particularly true when the standard is aimed at increasing compatibility between different systems or products. It is important to avoid chilling the willingness of the patent holders to participate in industry standards-setting activities in addition to other industry members.