MILAN, ITALY - Digital age companies recognize the advantages of interoperability and are seeking a middle ground between exclusive control and total openness, and free markets allow the best opportunities for that ground to be found, with governments playing their classic role of defining and enforcing property rights and protecting the integrity of the market. That was the emerging theme of "Interoperability in the Digital World: Open Standards, Open Source, Property Rights and Markets," a conference held here in Milan Friday co-hosted by The Progress & Freedom Foundation and Istituto Bruno Leoni.

The conference featured a number of government officials, executives and academics from both sides of the Atlantic. Details are on the PFF's special Digital Europe 2005 web site, including the conference theme, agenda, participant bios as well as blog entries from attendees at the event. Be sure to continue to check the blog section of Digital Europe 2005 throughout the week as more reaction pours in from the Milan event and PFF begins its second week in Brussels, meeting with European Parliament members and staff. The PFF speakers in Milan included President Ray Gifford and senior fellows Jim DeLong, Tom Lenard and Solveig Singleton.

"Standard-setting is hard," said Gifford, stating in simple terms the complexities faced by industries seeking interoperability. Standard-setting can range from a de facto single standard set by one company (Adobe's Acrobat) to a government-mandated de jure standard (DTV formats in many countries, GSM for wireless in Europe). In between are models such as joint ventures, patent pools and international standards bodies. These processes create a spectrum of options that vary from open to closed and proprietary to non-proprietary. "Public policy should not foreclose any of these options," Gifford said (see related blog entry).

The all-day conference featured some lively give-and-take with the audience, as participants discussed the ways open standards differ from open source software, among other things. Among the topics discussed:

• The role of patents in standard-setting, and how software should be patented (see blog).
• How intellectual property rights can form a baseline for discussion in standard-setting (see blog).
• How both proprietary and open source software can compete and thrive in a healthy market (see blog).
• How the European Union has approached standard-setting, software patents, influence through procurement policy, and open source software (see blog).

Both Europeans and Americans acknowledged strengths and weaknesses in their respective approaches of their governments and systems to interoperability and intellectual property rights. Many American participants, for example, were quick to agree that the U.S. patent system is in need of reform, and that there is the possibility of a software patent being issued that is not for an innovative step but rather may be designed to be predatory on other software developers. They were also quick to point out, however, that this can be addressed through reforms in the issuing of patents, not by abandoning the important role software patents play in the development of standards, in part as an instigator of progress.

There also was friendly criticism of steps Europe has taken over the years, in particular through the European Union, which could hinder market forces in achieving interoperability. For example:

• For some time the European Union argued that software was somehow a distinct entity that didn't deserve the same patent protection as other innovations. In seeking to adhere to TRIPs and for other reasons, the EU for years has been revising that policy to permit exceptions for some software patents, but the latest directive on the matter was postponed last month.
• While the EU maintains a position of technological neutrality, in its procurement process for e-government it has demonstrated a clear bias for open source software, but in particular has defined open source in a sweeping way that is not even reflective of how that software actually works. Some at the conference argued that government procurement policy can have a substantial impact on markets, and such favoritism could discourage the participation of proprietary software in the European market.

Standards are a desirable attribute in any market, but government should not preclude competition among standards. This was a message conveyed not only by PFF senior fellows but others speaking as well (see blog). It's a message that will be carried to the heart of the EU this week as PFF takes Digital Europe 2005 to Brussels.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.