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With FRANDs Like These, Smartphone Manufacturers Don't Need Enemies


How standards organizations make industry rivals play nice.

MINYANVILLE ORIGINAL With great market share, one might say, comes great responsibility. Though iPhone (AAPL) and Android (GOOG) are in a league of their own in terms of market share, they still have to play in the same digital sandbox as products from Microsoft (MSFT), Nokia (NOK), and, at least for another year or so, Research In Motion (RIMM). Each of these companies has a large enough portion of the smartphone market that their fates are somewhat entangled. Whether you use an iOS, Windows, or Symbian product, you need to be able to communicate with owners of every other device in order to get the most out of your own.

The implication of this is that if one firm develops and patents a new communication protocol, it's in the interest of every consumer that the developer and its competitors can agree to a licensing deal. If smartphone technology becomes too isolated and compartmentalized, inter-brand communications begin to deteriorate. This principle is not unique to the mobile market, of course, or even to telecommunications in general. Every industry where private firms must share infrastructure to produce optimal results - energy, education, transportation, and hundreds of others - is overseen by one or more standards-setting organizations, or SSOs. In the case of telecommunications, the industry is overseen by the International Telecommunications Industry (or ITU).

A standard describes some shared form or system, such as the shape of plugs and sockets used by all appliance manufacturers in a particular region. Standards are of particular interest in the telecom sector because of how often they change. In other words, the depth of study necessary to obtain a bachelor's degree has fluctuated little in the past hundred years, but standards of digital communication are being developed every month. Furthermore, these new norms often draw on the work of multiple private innovators. When approving new standards, the ITU must ensure that every contributor agrees to license out any of its patents essential to the standard in a manner that is "fair, reasonable, and non-discriminatory," better known as FRAND.

Less a coherent legal code than a broad philosophy, the FRAND doctrine prioritizes the health of the consumer market and the viability of competition over the strict preservation of intellectual property ownership rights. In other words, even if a company feels such a decision would be in its best financial interest, it does not have the option to refuse to lend out, or charge exorbitant fees for any of its standard-setting patents, regardless of how it is using the technology itself. The alternative to a FRAND policy would be permitting firms to conceal ownership of intellectual property until it had been incorporated into a standard adopted by their competitors, at which point it would reveal the "ambush patent" and rake in a the profits from infringement lawsuits. Imagine if a group of trucking firms pooled funds to build a new highway, and after completion one company decided the project violated its patent on dotted yellow lines.

Try as it might, however, the ITU cannot completely preclude IP suits, even on core innovations. Participant companies will still disagree on whether a given technology is standards-essential, what constitutes infringement, and how many zeros one can leave to the left of the decimal before a fee stops being "reasonable."

(See also: Microsoft and Motorola Call Timeout on Rival Patent Infringement Cases.)
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