FOSS Patents

The European Commission just adopted and published its communication "Towards interoperability for European public services". It consists of several documents, and the part of it that I'm going to comment on now is the new revision (version 2) of the European Interoperability Framework, a set of interoperability-related procurement guidelines for "public administrations establishing new European public services". That document is available here.

The EIFv2 gave rise to quite a bit of controversy in recent months, with lobby groups claiming that the intiative wouldn't create a level playing field for open source software. I blogged about the debate on several occasions.

Looking at the final document now, I am delighted to see that the Commission adopted a pragmatic and inclusive definition of open standards. That part of the document was the primary bone of contention, and the compromise that has ultimately been found is absolutely consistent with the middle ground I outlined two months ago -- in this post.

When I discussed my thinking, I was concerned about a communication breakdown. There was a certain camp claiming -- falsely, in my opinion -- that FRAND (fair, reasonable and non-discriminatory) licensing wouldn't be compatible with open source licenses. They said only royalty-free, or generally restriction-free, licenses would work for open source. Others said that FRAND licensing -- an approach favored by the EU in some vey important contexts -- should be fully recognized as an element of open standards. That camp mostly consisted of patent holders who don't want to check in their intellectual property rights at the door when doing business with governments, and who were concerned about FRAND potentially appearing to be a second-class citizen in the world of standardization. Those concerns related to some organizations' demands to declare FRAND licensing less open than royalty-free terms.

The two camps appeared irreconcilable, but I believe the Commission has solved the conundrum.

5.2.1 Specifications, openness and reuse

The level of openness of a formalised specification is an important element in determining the possibility of sharing and reusing software components implementing that specification. This also applies when such components are used for the establishment of new European public services.

If the openness principle is applied in full:

• All stakeholders have the same possibility of contributing to the development of the specification and public review is part of the decision-making process;

• The specification is available for everybody to study;

• Intellectual property rights related to the specification are licensed on FRAND terms or on a royalty-free basis in a way that allows implementation in both proprietary and open source software.

Note that the above definition describes a state of "openness [...] in full". Everything included in the definition -- FRAND as well as royalty-free licensing -- is, therefore, recognized as fully open. In my view, that makes sense. One can grant a royalty-free license on a non-open standard, and one can charge FRAND royalties (and/or impose other FRAND terms) on an open standard without "closing" it that way.

The key part is that the Commission wants that any intellectual property relevant to standard be licensed -- whether on a FRAND or royalty-free basis -- "in a way that allows implementation in both proprietary and open source software." In a Q&A document, the Commission states the intention behind this requirement:

In this way, companies working under various business models can compete on an equal footing when providing solutions to public administrations while administrations that implement the standard in their own software (software that they own) can share such software with others under an open source licence if they so decide.

That's a clear reference to some people's demands for a "level playing field". I mentioned that some claimed only royalty-free licenses would provide open source and proprietary software with equal opportunities. But that's not true: open source companies can also license patents and other intellectual property from right holders if necessary. What's key is to ensure that FRAND license terms for open standards can work for companies distribution software under open source licenses.

The compromise roadmap I published in October called on both camps to meet each other half way. I said that some FRAND terms don't work for open source while others do, and open source-compatible FRAND appeared to me to be the logical compromise. Quite apparently, the Commission took the same approach in its effort to support the open source model without favoring it over proprietary software. There are major right holders in Europe who hold patents on standards, and the EU always has to balance its love of open source with its responsibility for economic growth. It's all about balance as opposed to playing favorites the way some lobbyists self-servingly demanded.

The aforementioned principle of inclusiveness and a level playing field also appears to govern the Commission's approach to competition between different open source license. I just quoted the Q&A document's reference to "shar[ing] such software with others under an open source licence". Note that the Commission says "an open source license". Yes, "an". One of many.

It doesn't favor any particular license such as the GPL over the Apache Software License or the BSD License over the Mozilla license: that's a fight for different camps of the FOSS community, but for policy makers it's better to stay out of it.

The EIF doesn't even promote the EU's own EUPL in connection with open specifications, although the EUPL is generally the recommended open source license for public administrations in Europe.

The Commission is clearly neutral on the choice of an open source license. It doesn't define open standards in a way that meets the extreme requirements of licenses that were purposely designed to be incompatible with intellectual property licensing. There's no shortage of licenses out there that can deal with FRAND-based standards, provided that the relevant FRAND licensing terms are compatible with free and open source software.

The Commission even recognizes that in some situations it may make sense to choose a standard that may not be fully consistent with its definition of open specifications:

However, public administrations may decide to use less open specifications, if open specifications do not exist or do not meet functional interoperability needs.

In all cases, specifications should be mature and sufficiently supported by the market, except if used in the context of creating innovative solutions.

Once again, the Commission shows it's above the fray. It wants to leave as much as possible to market dynamics. The Commission contents itself with requiring open specifications -- whether FRAND-based or royalty-free -- to be compatible with open source licensing, enabling competition between the models as well as competition between different open source licenses. The best is the enemy of the good. Public administrations need solutions regardless of ideology. That's the focus of the EIF the way I see it. A beacon of pragmatism, and exactly the approach I hoped for two months ago.

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Last week I proposed a roadmap to a compromise for the revised European Interoperability Framework (EIFv2): free and open source software (FOSS) should meet FRAND (fair, reasonable and non-discriminatory) licensing half way. In my opinion, FRAND is a valid concept and suggestions that all FRAND is evil are unfounded.

There are still some who falsely claim that FOSS and FRAND are irreconcilable concepts. Those believe that the EU's love of open source is going to be greater than its belief in FRAND as a viable solution. They want to make FRAND a second-class citizen.

Meanwhile, my assessment that FOSS and FRAND can coexist has been supported by the official EUPL (EU Public License) community blog. The EUPL is the logical choice for open source projects of European public administrations, and it does not prevent the implementation and distribution of patented standards and inbound patent licensing.

Since the argument that only royalty-free standards are truly "open" is unfounded, there's no way that the EIFv2 could be adopted without fully recognizing FRAND licensing as a path to interoperability. FRAND has many friends in Europe, including a solid majority of the European Parliament and European Commission vice-president and Digital Agenda commissioner Neelie Kroes. Now is a good time to look at some of the EU's ringing endorsements of FRAND in connection with interoperability.

European Parliament resolution on the future of standardization

On Thursday, the European Parliament adopted a resolution on the future of standardization. Through that non-legislative resolution, the chamber indicates to the European Commission some of its positions ahead of the Commission's development of new standardization guidelines.

Item 66 of the resolution contains the following passage:

[The European Parliament] stresses the need to ensure that licences for any essential IPRs [intellectual property rights] contained in standards are provided on fair, reasonable and non-discriminatory [FRAND] conditions;

So the same decision-making body that voted down a proposal on software patents five years ago and supported open source on numerous occasions has made it clear that FRAND is a good framework for the commercial terms on which standards-related patents are licensed.

The European Parliament doesn't consider FRAND to run counter to the concept of open standards. In fact, items 7, 16 and 68 of the resolution call for "openness", and item 67 for "open, transparent and consensus-based development processes".

Draft guidelines on horizontal cooperation agreements

The Parliament's aforementioned resolution primarily relates to the Commission's draft guidelines on the applicability of EU cartel rules to horizontal cooperation agreements. A standard-setting organization supported by major industry players can be viewed as a cartel, and the Commission's guidelines are meant to facilitate the process of standards development by laying out how a standards body can steer clear of violating EU competition law.

The draft guidelines contain multiple endorsements of FRAND licensing. The most important one of them is found in item 277:

Where participation in standard-setting, as well as the procedure for adopting the standard in question, is unrestricted and transparent, standardisation agreements which set no obligation to comply with the standard and provide access to the standard on fair, reasonable and non-discriminatory terms do not restrict competition within the meaning of Article 101(1).

The above paragraph is very relevant to the EIFv2 debate. It makes it clear that FRAND terms are not anticompetitive, and even more importantly, the openness of a standard is defined by "unrestricted and transparent" participation and procedures as opposed to royalties.

Focus on transparency in Neelie Kroes address at OpenForum Europe 2010 Summit

In June I listened to Neelie Kroes's speech at the OpenForum Europe 2010 Summit. Speaking to the "royalty-free" lobby, she urged "all stakeholders to focus on the content of the package rather than the wrapping" as far as the term "open standards" is concerned.

Talking about conditions that patent holders may impose, Mrs. Kroes stated her preference clearly: "the fewer constraints the better." But she also made it clear that she would let the market decide. In my opinion, that's the right approach because FOSS can implemented patented standards, and FOSS can compete successfully. All major Linux vendors have agreed to pay royalties for patents, a fact that hasn't made Linux any less eligible from the perspective of public administrations.

This sentence in her OpenForum Europe address is particularly important:

I have nothing against intellectual property being brought to the standard-setting table, but it must be disclosed.

That quote shows an approach that is very similar to the European Parliament's resolution on the future of standardization: openness in the sense of transparency is key, and FRAND is perfectly compatible with those overarching goals.

Mrs. Kroes said in the same speech that "reasonable people often disagree" when trying to set FRAND license fees. That's a challenge, not a knock-out criterion. FRAND isn't a mathematical formula that arrives at a simple result. FRAND is a framework, and the way it's interpreted is subject to the specific circumstances of a license agreement. Of course it's simpler to determine that all license fees should be zero. But the simplest solution isn't necessarily the best one; it's rarely appropriate in contexts of a certain complexity.

Endorsement of FRAND standards such as MP3 and 3G

I recently saw a blog posting by Trond Undheim, EU "open standards" lobbyist of Oracle, in which he described the EIF process as a "tragedy" only because some disagree with him. He vented his frustration by referring to a group of EU officials as "rats" transmitting the "RAND disease" (RAND is synonymous with FRAND). After using that word half a dozen times he then added a spurious disclaimer concerning what "rats" referred to. Later he deleted all mentionings of that word, and finally disabled that embarrassing article as a whole. (I have kept a local copy. and as I write these lines, the edited version of the post can be accessed here.)

The ones who pursue this kind of divisive strategy also tend to portray Mrs. Kroes as an unconditional supporter of royalty-free/restriction-free standards and make other members of the European Commission, or certain DGs (directorates-general), out to be on the side of proprietary software companies.

The positions Mrs. Kroes takes in her public speeches are actually much more balanced and inclusive. In this speech delivered in 2008, she used MP3 as a positive example. MP3 certainly comes with restrictions and with obligations to pay royalties.

in late September, when she talked about "common open technology platforms", her example was the 3G mobile communications standard, which is a patented standard licensed on FRAND terms -- just like MP3.

FRAND's role in antitrust law

The European Commission is also an antitrust authority, and in that role considers FRAND a perfectly acceptable approach -- and FRAND-based royalties compatible with open source rules.

In October 2007, the Commission announced an agreement with Microsoft on how to meet its obligations under the 2004 Commission decision to the regulator's satisfaction. At the time, Mrs. Kroes was in charge of competition enforcement. She said that the licensing terms agreed upon would "allow every recipient of the resulting software to copy, modify and redistribute it in accordance with the open source business model" and was pleased with Microsoft's related business practices "in particular towards open source software developers".

Those open-source-friendly arrangements, however, involved payments: a one-time fee for access to some documentation, and a percentage of revenues for a patent license.

When the Commission accepted commitments from Rambus in a case involving patents on microchip technologies, Mrs. Kroes talked not only about that particular antitrust matter but also. more generally, about "lessons learned for standardization":

This is why many standards organisations require not only disclosure of potentially relevant intellectual property rights, but also a commitment to license those intellectual property rights on fair, reasonable and non-discriminatory - in other words FRAND - terms. These conditions precisely aim to prevent one company unlawfully capturing a standard and overcharging for its technology.

So FRAND is fully acceptable from an EU competition point of view, and there's no reason why it should be treated any differently by the EIFv2.

In another antitrust case, IPCom, the Commission issued a press release with the following headline:

Antitrust: Commission welcomes IPCom's public FRAND declaration

That statement described FRAND as pro-competitive:

The unrestricted access to the underlying proprietary technology on FRAND terms for all third parties safeguards the pro-competitive economic effects of standard setting.

Against that backdrop, I venture to predict that the Commission is going to be consistent with its multiple past endorsements of FRAND and its accurate distinction between openness and royalties.

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ZDNet UK couldn't have chosen a more appropriate context than its "Communication Breakdown" blog to report on the state of the European Interoperability Framework debate. Looking at that article, other media reports and some Twitter messages, there are strong indications that this process has hit a snag, or even an impasse.

What I mostly see in the public debate is a blame game: some free software advocates and anti-patent activists teaming up with open hypocrites attacking the Business Software Alliance (BSA) over its support of fair, reasonable and non-discriminatory (FRAND) patent licenses.

I have my own views and I don't fully support the demands of either side so far. On both sides I see a number of companies and entities (such as the BSA) against which I had to fight when I fought against a proposed EU software patent law. Meanwhile, those on the "open standards" side who also opposed that bill (FSFE, FFII etc.) now seem to care more about their alliances with companies like IBM and Oracle in the "open standards" context, so they turn a blind eye to those organizations' wrongdoings in connection with software patents and interoperability. Worse than that, they claim that FRAND-based standards are inherently incompatible with free and open source software, which is incorrect.

The EU wants a new EIF and I think it would be desirable to work things out, but in order to get there, the debate has to move on from overgeneralizations (such as the one I just mentioned about FRAND and FOSS) to a more specific description of the issues and of possible solutions. As long as some say that only "royalty-free", or more generally, "restriction-free" patent licenses allow "open standards", this won't work, I'm afraid.

Today I had a Twitter conversation with two FOSS lawyers -- Carlo Piana (FSFE Counsel) and Andrew Katz (FSFE Fellow) -- and a FOSS-specialized journalist -- Glyn Moody -- over the EIF, and the discussion demonstrated both the obstacles and a possible path to a solution.

In that Twittersation, three things became absolutely clear to me:

1. Only certain -- but not all -- FRAND patent license terms are incompatible with FOSS licenses (the unpragmatic and irrelevant GPLv3 aside).

2. It's wrong to focus on "royalties" as the sole knock-out criterion because royalty payments can be made to work for FOSS, and field-of-use and other restrictions are also part of the equation.

3. The process could still be concluded with an outcome that would be satisfactory to all stakeholders -- public administrations (for whom the EIF is supposed to be a useful set of procurement guidelines), patent holders and open source -- if the "royalty-free standards" camp could describe exactly which FRAND license terms don't work for FOSS and propose realistic, targeted solutions that address those concerns within a FRAND framework.
   
   That would, of course, also require the BSA and other representatives of patent holders to agree to a FOSS-compatible FRAND solution. I don't know if the BSA ever claimed that all FRAND works for FOSS, but at any rate it should recognize that item #1 needs to be addressed.

I'm in the middle between the two camps because I'm pro-FOSS and against the patentability of software, but I also know that FRAND is a good concept in principle. Those who dismiss it (such as by claiming that it's not as simple as "royalty-free") appear to underrate it dramatically. Sometimes you don't know what you've got till it's gone. I've experienced situations in which a FRAND commitment would have prevented problems from arising, in IT (such as this EU antitrust case, which wouldn't be necessary if IBM promised to make whatever required intellectual property available on FRAND terms) and elsewhere (commercial exploitation and governance of professional sports).

In the following I would like to provide some more specific thoughts on the foregoing. Again, I'm not in the position to speak on anyone else's behalf: I just outline my own independent thinking. I don't have a complete compromise proposal at hand, but I have suggestions for how to get there:

Don't insist on "royalty-free"

Much of the EIFv2 debate has so far been centered around the question of whether royalty-free access to the relevant patents is an indispensable requirement for a standard to be considered open. That claim has been made by FSFE, ECIS, OpenForum Europe, and others. It runs counter to how the ICT sector has defined open standards for a long time. The main argument of the aforementioned lobby groups is that they say only royalty-free standards work for open source.

I wonder why anyone in the EU takes that claim seriously in any way. There's overwhelming evidence to the contrary. In another blog post I have already mentioned several examples of GPLv2-based patent license deals involving royalty payments. The first one of those was done and announced back in 2006. So if patent royalties don't work for GPLv2'd software at all, a host of companies would be in breach of the GPL now for distributing Linux. The Free Software Foundation has the Linux copyrights assigned and it is the creator and guardian of the GPL. It wouldn't refrain from enforcing the GPLv2 for such a protracted period of time. Therefore, it's clear that such deals are possible under GPLv2. They would even have been possible under the early drafts of GPLv3 as Richard Stallman admitted.

Red Hat is probably the most dishonest one of the proponents of that "royalty-free" dogma. It entered into at least one -- more likely two and possibly even more than two -- patent licensing deals under which it paid royalties to patent holders, still distributes the related software under GPLv2.

A European Red Hat lobbyist has repeatedly made the claim that his company doesn't implement certain patented standards such as MP3 because it "can't". If Red Hat can pay royalties to other patent holders, I can't see why it can't do a license deal with MPEG LA. In fact, a European competitor of Red Hat, Canonical, ships its Linux distribution called Ubuntu with MP3 and several other proprietary formats. It also became the first Linux company to license MPEG LA's AVS/H.264 video codec.

With baseless red herrings (red hats, in particular) of this kind, any political process can get derailed...

Don't narrow the issue down to royalties -- address all patent-related restrictions

I explained in the foregoing that royalties can actually be made to work for FOSS. It doesn't make sense to narrow the debate to an aspect that's actually a non-issue.

There are serious people who point out that the question of patents in connection with standards is a broader one. If those say "RF", they mean totally "restriction-free" access to patents, not just "royalty-free". Glyn Moody always refers to RF as restriction-free and I've seen him correct others on Twitter when they used the narrower term. Simon Phipps, a board member of the Open Source Initiative and formerly chief open source executive at Sun Microsystems, just tweeted the following sentence, which I consider accurate:

Explanations which hinge on royalties distract from the real issue, which is both fiscal & non-fiscal restrictions.

There are other terms than royalties that patent holders can impose. Sometimes those non-monetary ones are even more important. For instance, the Java patent license is royalty-free, but it's very restrictive. Oracle is suing Google over Java patents despite that license being available on a royalty-free basis to those complying with its various terms and conditions.

The only explanation I have for people narrowing the debate and some of the proposed language to "royalty-free" is that they hope to get some language into the final document that they will then try to interpret as "restriction-free" even though they only demand "royalty-free" at this stage. Those kinds of tactics are common in politics, but those pursuing them shouldn't be surprised that they meet stiff resistance: patent holders might as well stop paying renewal fees to the patent office if they're required to waive the entirety of their rights. It's not that the EIF would require them to do so, but I can understand if they're concerned about anything that someone might try to interpret that way later.

In the "royalty-free" context, I wonder how the FSFE can pursue those tactics even though it usually always emphasizes the importance of the "four freedoms" (some of which are unrelated to royalties) and the meaning of "free as in speech", not just "free as in beer". Richard Stallman himself would always stress this holistic approach. His European affiliate organization, which is just a lobby group but didn't play any role in the creation of the movement, is unfortunately less faithful to his principles.

Specify all restrictions and requirements that might be considered FRAND but don't work for FOSS

In my Twittersation with the three European FOSS advocates I mentioned, it became clear pretty quickly that they have concerns about certain terms of FRAND licenses that they say don't work for FOSS.

One example that was mentioned is that one can't impose patent royalties on downstream users. So if an open source developer publishes a piece of software under a FOSS license, the developer can't keep track of every copy of the software that gets distributed (since anyone downloading or in some other way receiving the software can pass it on to others, and so forth). That creates a problem for per-unit patent royalties.

But that doesn't mean that no royalties can be paid at all. Per-unit royalties are a question of responsibility, accountability, and collection/refinancing. For example, MPEG LA has an annual royalty cap for its AVS/H.264 video codec license. A company paying that fixed amount never has to worry about the number of downloads. Chances are that Red Hat also negotiated fixed amounts with the patent holders from which it has obtained licenses. And there must have been ways -- maybe other ways -- in which this problem was solved for all the other companies in the industry who pay patent royalties on GPLv2-based software.

Another question is field-of-use restrictions. It's understandable that patent holders will grant licenses on a restricted basis (I actually mentioned Oracle's Java license before). The MPEG LA license is also restricted, but that doesn't mean that software can't be published on open source terms. It's just that if anyone utilizes that software in fields of use for which the patents haven't been licensed, the patent holders may approach the non-compliant user. Maybe they'll work this out with an additional payment (that's what would happen in MPEG LA's case). It's just important to make sure that someone publishing software under a FOSS license won't be held responsible for actions of others that are beyond control. I'm sure this has also already been resolved in some patent license agreements involving open source (since there are so many of them in place).

Two quotes from Andrew Katz in today's Twittersation show that FOSS doesn't have a problem with all FRAND terms -- only with some. Firstly he said:

my personal view is that RAND is against all freedom in spirit, and against some licences in word (e.g. GPL)

RAND is a shorter version for FRAND; in EU competition law the preferred term is FRAND, but if someone in the US says RAND, this means the same. Andrew correctly made the distinction between FOSS philosophy and the legal meaning of FOSS licenses. I also distinguish all the time between my dislike for software patents and the fact that solutions must be found to deal with them.

When I pointed Andrew to the fact that Richard Stallman admitted even the early drafts of GPLv3 wouldn't have blocked the patent license deal between Microsoft and Novell, he said something very important:

it depends on what you mean by Rand licences. It is possible to draft a compatible licence. Most aren't

That's the whole point I'm trying to make here: FRAND can be made to work with FOSS, including the GPLv2. A FOSS-specialized lawyer and FSFE Fellow -- who also blogs about open source law for ComputerworldUK -- just confirmed it.

So the best next step is for the FSFE and others to identify which kinds of FRAND terms don't work, and to make constructive proposals for criteria that make FRAND licenses compatible with FOSS. By "constructive" I obviously don't mean "royalty-free", as I explained. But without a doubt, FRAND license agreements that prohibit the use of patents in FOSS, explicitly or as a consequence, wouldn't work. I don't think the EIF would necessarily go into too much detail, but it could provide some guidance for FOSS-compatible FRAND licenses, which would be a pragmatic solution and obvious compromise.

Don't claim discrimination against FOSS when closed-source proprietary software is also affected

In connection with all of this, it's also important not to claim "discrimination" where there isn't any.

A few weeks ago Glyn Moody wrote that FRAND licensing isn't non-discriminatory because, as he said, it discriminates against FOSS. This was also part of today's Twittersation. After the point on per-unit royalties was made, I asked him why he then (instead of continuing to oppose FRAND as a whole) doesn't just demand that there must be a possibility for "FRAND lump sums". Glyn replied:

because that would allow companies to demand huge lump sums that were impossible to pay, citing millions of downstream users

He immediately added:

it would also be impossible for projects that had no company behind them, leading to a two-class system

This is a perfect example of calling something "discriminatory" that actually isn't. Glyn is right that licensing patents is much more difficult for smaller companies, let alone projects without companies behind them, than for larger ones. But that isn't open-source-specific. A small company writing closed-source proprietary software and distributing it free of charge (as part of a "free" or "freemium" business strategy) would face the same issue. Discrimination as a term only applies if a group is uniquely disadvantaged. The advantages of large, deep-pocket companies over smaller, sparsely-funded ones, or of any kind of company over non-company software development projects, are manifold. Patent licensing is just one area in which large organizations benefit from size, and again, you don't have to be open source to face those challenges. It's just that you're small, or that you're not a company.

Don't betray the EU's FOSS-friendly attitude

EU politicians have a concern for FOSS, and that's a good thing. What I'm afraid of is that some may try to capitalize on the EU's love of open source for the purpose of a short-term tactical advantage in a political process and ultimately hurt the cause.

By the foregoing, I don't mean Glyn Moody; he's a journalist, not a lobbyist, not an attorney. I mean the ones who have now been trying for a long time to claim that FRAND is the antithesis of FOSS. Some of them have been doing this even though in their daily legal work they know very well how to solve those problems all the time -- and they know that almost all patent license deals involve royalties, including deals involving open source.

I'm more than sympathetic to their philosophy, but I don't think software freedom is an end that justifies any means. If we don't like something, we have to say we don't like it -- not that it isn't legally possible even though it is.

From my personal point of view, the best outcome would be a compromise where the FOSS world accepts a FOSS-compatible denomination of FRAND and where major patent holders recognize that FRAND must be made to work for FOSS to solve such problems as accounting for per-unit royalties.

Like I said further above: sometimes you don't know what you've got till it's gone.

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