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Neelie Kroes: "Choosing open standards is a very smart business decision"
Tuesday, June 10 2008 @ 10:31 AM EDT

Neelie Kroes just gave a speech at OpenForum Europe today on standards, "Being open about standards". I put it in News Picks, but I wanted to be sure you didn't miss it, so I am putting it here also. In the OOXML context, the most important sentence, I'd say, is this one:
If voting in the standard-setting context is influenced less by the technical merits of the technology but rather by side agreements, inducements, package deals, reciprocal agreements, or commercial pressure ... then these risk falling foul of the competition rules.

Here's the second most important thing she said in the OOXML context:

Standards bodies do important work in difficult circumstances. But like all of us their rules need to keep pace with the changing commercial environment. If they need help in tightening up their rules to avoid being manipulated by narrow commercial interests, or to design the right ex ante rules, then they have my support. My door is always open.

Well, in the case of ISO, just formulating some required rules would be nice. You know, rules that can't change in the middle of the game. In my schoolyard, we called that cheating. I have a suggestion. How about a rule that a vendor proposing a standard can't stack committees trying to decide whether or not to approve it? No? Too simple?

She also said that choosing open standards is "a very smart business decision." Overall, it's a very encouraging speech. I see one area of concern. I don't think, for example, that she yet sees the significance of software patents and their anticompetitive effect on FOSS. I hope she will read Red Hat's amicus brief in In Re Bilski for a perspective on that. We have it as PDF and as plain text here. It explains very clearly how software patents clash with the Open Source development model, something I hope she will consider.

That reminds me, if you recall the Bilski oral arguments on May 8 were recorded, but the recording we had back then cut off in the middle. I wrote to the court about it, and I just heard back that you can now successfully listen to the entire recording, now split in two parts, by going here and searching by keyword Bilski.

But getting back to the Kroes speech, the bottom line, to me, is that she says governments should not force citizens to use a proprietary product if there is an open alternative:

As purchasers, we need to be smart when we buy technology. We need to be aware of the long term costs of lock-in: you are often locked-in to subsequent generations of that technology. There can also be spill-over effects where you get locked in to other products and services provided by that vendor.

That is just bad purchasing.

The Commission must do its part. It must not rely on one vendor, it must not accept closed standards, and it must refuse to become locked into a particular technology -- jeopardizing maintenance of full control over the information in its possession.

This view is born from a hard headed understanding of how markets work -- it is not a call for revolution, but for an intelligent and achievable evolution.

But there is more to this than ensuring our commercial decisions are taken in full knowledge of their long term effects. There is a democratic issue as well.

When open alternatives are available, no citizen or company should be forced or encouraged to use a particular company's technology to access government information.

No citizen or company should be forced or encouraged to choose a closed technology over an open one, through a government having made that choice first.

These democratic principles are important. And an argument is particularly compelling when it is supported both by democratic principles and by sound economics.

I know a smart business decision when I see one - choosing open standards is a very smart business decision indeed.

I see some elements in the speech that worry me, including a section that mirrors what Microsoft was pushing to the French in the OOXML saga, namely that proprietary de facto standards can be fine too, but the concluding section at least gives hope:

Standards are the foundation of interoperability.

Standards may, of course, be proprietary or non-proprietary. Much excellent technical development has been driven by non-proprietary standards -- the internet is awash with acronyms for non-proprietary standards: HTTP, HTML and XML.

Many standards bodies express a preference for non-proprietary standards. Non-proprietary standards avoid the need for licence agreements and royalties. They avoid the need to ask permission if you want to use or develop the technology -- follow-on innovation may be easier. They avoid subjecting the future development of the standard and the technology to the commercial interests of the technology's originator.

Of course, proprietary technology development is vital to reward R&D investment and innovation that would otherwise not be made. The patent system is a tremendously effective mechanism to create incentives to innovate, and reward successful innovation.

Proprietary technology is at the heart of Europe's success in second and third generation mobile technologies, for example. Intellectual property protection for technology will always be necessary to give just rewards for investment in R&D. There will always be an important place for proprietary technology and formal proprietary standards.

Standards may also emerge, de facto, from markets: a particular operating system for example, or a particular document format.

Standards emerging from the market can be a good thing if they emerge as a response to consumers' expressed preferences. But they may also be problematic, having none of the safeguards of disclosure that standards bodies typically require.

Why is she lauding software patents when Europe doesn't for the most part recognize them? And in software, there is no "emerge from markets" because Microsoft owns the market, and not necessarily because it's the best choice or even *a* choice. Just try to buy a computer without Windows.

This is essentially one of the argument that Microsoft made to France, when it looked like the standards body there was going to choose ODF exclusively when it was an ISO standard and OOXML wasn't yet "approved". It's been reported that Microsoft not only got a delay on the ODF decision until after OOXML was also "approved" in the ISO process, it used the argument that de facto proprietary standards should not be excluded. Let the public decide what they want. Go with what most people use. Interoperability shouldn't be required as an end in itself. Those were the arguments at the time, prior to ISO "approval" of OOXML. It worries me to see similar language in her speech. Now, after the "approval" of OOXML (although it's now stalled by appeals and hence not yet officially approved), Microsoft will argue that OOXML, if it ever is finalized, is "open" and documented and "rights free", so where's the beef?

Well, for starters, I don't agree that OOXML is rights free. Commercial GPL vendors don't get any patent promise. The Software Freedom Law Center has published an analysis that concluded that Microsoft's OSP provides no assurance to FOSS developers and, significantly, that it is incompatible with the GPL. Linux is Microsoft's principal competition, so it's an exclusion that ought to matter to any regulatory body concerned with encouraging competition, I would think. Nor do I view an "open" standard as open, if it allows proprietary extensions, as OOXML does.

And here's one last part that I noted:

Finally, if standards develop through customer preferences, most of the time, we should do nothing.

That stance may surprise you. But it is often wise to resist the impulse to regulate. If the proprietary technology initially appears to harm consumers more than it helps them, often the market will find a way out of the problem.

After so many years of Microsoft dominance, I doubt that will work out in our lifetime. Happily, she recognizes the principle:

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.

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.

In essence the competition authority has to recreate the conditions of competition that would have emerged from a properly carried out standardisation process.

There seem to me to be two possibilities and, depending on the case, either or both may be necessary.

First, the de facto standard could be subject to the same requirements as more formal standards:

  • ensuring the disclosure of necessary information allowing interoperability with the standard;
  • ensuring that other market participants get some assurance that the information is complete and accurate, and providing them with some means of redress if it is not;
  • ensuring that the rates charged for such information are fair, and are based on the inherent value of the interoperability information (rather than the information's value as a gatekeeper).

In addition, where equivalent open standards exist, we could also consider requiring the dominant company to support those too.

Better, much better, than trying to sort out these problems, is preventing them from arising. And we all have a responsibility to ensure that this type of perpetual lock-in does not happen, and, where it does happen, we have a responsibility to minimise the damage.

Overall, a very encouraging speech, don't you think?

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