David McGowan *
Standards are vitally important to computer software markets, and there are two basic ways in which standards may be created and adopted. The first is by competition among proprietary standards. Under this model, the law creates property rights in technology and assigns them to the technology's creator, who therefore has the economic incentive to promote the technology as a standard. The owner of that technology takes responsibility for developing it to a marketable stage, persuading other firms and consumers to adopt it, and improving it over time. The standard is established through the purchasing decisions in a market, rather than through the choice of a standards-setting organization.
The second model is one of cooperation among persons or firms interested in the technology. The interested parties, generally through some sort of organization, will establish bureaucratic procedures to evaluate potential standards and to choose the one the organization will endorse. 1 All else being equal, organizations operating under this model would prefer not to adopt a standard in which a firm owned intellectual property rights for which it could charge firms implementing the standard. In many cases, however, it would not be realistic to expect to discover a standard in which no one claimed intellectual property rights. So organizations will typically require firms participating in standards-setting to disclose any intellectual property rights they claim in technology being proposed for a standard, and to agree to license their technology on reasonable, nondiscriminatory terms if the standard is adopted. 2
And, with apologies to many present governments, there is also, in theory, what one might call a third way Here a firm might seek to have an organization formally adopt, as a standard, technology over which the firm asserted intellectual property rights that the firm intended to retain and use to maintain some degree of control over the standard.
This description is, of course, simplified. Among other things, it assumes an unrealistic world in which the standards-setting process involves new standards that begin their competition in an equal position. That is not how the world works, however. Actual standardization strategies have to take into account the state of the markets in which firms will employ the standards. Firms that wish to see a particular standard adopted, rejected, or displaced will pursue standardization strategies that complement their competitive strategy as a whole.