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Software companies involved in setting technical standards should be forced to declare their intellectual property in the area and fix maximum fees for the standard's use of it before the standard is set, according to the European Commission.

Competition Commissioner Neelie Kroes told a Brussels forum that companies involved in negotiations to set standards should declare their interests and set maximum royalty rates so that others involved in the process can make informed decisions about which technologies to use.

This should happen as ex-ante disclosure, or before the standard is set, she said.

Standards are agreed technical specifications to ensure that technology from different manufacturers works together. The structure of European mobile phone systems, for example, is based on the GSM standard.

"If we are to include proprietary technology in a standard, then ex-ante disclosure may help those involved make a properly informed decision," said Kroes. "This will almost always entail ex-ante disclosure of the existence of essential patents. And it may increasingly entail ex-ante disclosure of maximum royalty rates."

Kroes said that this would enable those setting standards to make a decision based on predictable technology licensing costs. She also said that such co-operation should not fall foul of competition legislation which usually forbids industry collaboration on the setting of competitors' prices.

"Both [patent and maximum royalty disclosure] can increase the effectiveness of the standard setting process, lead to more competitive solutions and reduce the risk of later antitrust problems. Standards bodies could very often require disclosure without fear of competition law intervention," she said.

Kroes has battled with Microsoft over the degree to which its ubiquitous operating system conforms to industry standards and is interoperable with other technologies. Though she did not mention the company by name this week she did refer to the fines the European Commission has imposed on it in a series of long-running regulatory and legal battles.

She also outlined the problems that can occur when one company's technology is dominant.

"When a market develops in such a way that a particular proprietary technology becomes a de facto standard, then the owner of that technology may have such power over the market that it can lock-in its customers and exclude its competitors," she said.

"Where a technology owner exploits that power, then a competition authority or a regulator may need to intervene. It is far from an ideal situation, but that it is less than ideal does not absolve a competition authority of its obligations to protect the competitive process and consumers."

Kroes said that in such situations of market dominance, which most observers would agree to be likely to include Microsoft in the operating system market, the regulator must treat that technology as if it were a standard.

"The de facto standard could be subject to the same requirements as more formal standards," she said. "In addition, where equivalent open standards exist, we could also consider requiring the dominant company to support those too."

Kroes warned that the standards setting process was open to abuse, and that unscrupulous companies could attempt to have their technology included in a standard so that they could charge high licence fees to all the subsequent users. Competition law should be used to counter that behaviour, she said.

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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