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CONTACT: Patrick Ross or Amy Smorodin
August 2, 2005
(202) 289-8928
Standard-Setting: Best Left to Markets
DeLong Promotes Organizations Over Governments

WASHINGTON D.C. - Standard-setting in high-tech is best handled by the market itself, for example through standard-setting organizations (SSOs), and those SSOs should be willing to work with intellectual property owned by a particular firm. So argues Progress & Freedom Foundation Senior Fellow James DeLong in the Progress on Point "Reflections on Intellectual Property and Standards." DeLong, director of PFF's Center for the Study of Digital Property (IPcentral), sees parallels between 21st century high-tech standards-setting and the American West, not because of a sense of shared chaos, but rather a "spontaneous order" that has arisen in both without government prompting.

Two questions arise regarding SSOs, DeLong writes: Should an SSO embrace a standard owned by a particular firm, and if so, should it sometimes condition acceptance on the owner forfeiting some property rights? "The answers are 'yes,' SSOs should be willing to endorse 'owned' standards, and 'yes,' they should also be willing to make the endorsement conditional on the owner's willingness to renounce some of its property rights," he concludes.

Proprietary standards are welcome, DeLong says, because "intellectual property provides incentives for investment in the creation and maintenance of valuable intangibles." But an SSO can consider conditions to prevent market power abuse, require disclosure of interest in standard-setting procedures, avoid "take-backs" of standards that have been made interoperable, and protect ancillary investment made by users of the standard. Standard-setting organizations are working out new variations on property rights, and should be permitted to continue doing so.

Citing Terry Anderson and Peter Hill's The Not so Wild, Wild West: Property Rights on the Frontier, DeLong says "spontaneous order" occurs when people are confronted with novel conditions. Frontier miners generally didn't "wait for some authority to come along and hand down the rules under which they will operate," he writes. A different dynamic applies in such situations. "What happens is they develop their own rules, based on the culture's sense of fairness and on its needs for economic efficiency, that will be applied, often by explicit contract but sometimes through cultural norms." Ultimately these norms or contractual terms harden into legal rules, notes DeLong.

"The high-tech standard-setting processes, in all their incredible complexity, are the 21st century equivalent of the 19th century miners," says DeLong. "It would be an incredible error for governments, in the name of preconceived abstractions, to meddle in an extremely creative process."

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.



The Progress & Freedom Foundation