This is a stick-up!

One fear, the fear of a hold-up, hangs over all cooperative enterprises. In it’s rawest form you invite a couple folks over for a pleasant potluck dinner and in the midst of the meal one of them pulls out a gun and threats to commit mayhem if everybody fails to turn over their wallets. In fact you could argue that this fear infects any gathering.

In industrial standards bodies the fear is that you will invite a number of experts together to set standards that enable your industry to grow faster and one of them will quietly slip a patented bit-o-technology into the standard. Later after everybody has adopted the standard he will then demand license payments. At worse he may ask a court to grant an injunction to prevent certain parties from using the standard if they don’t pay up.

Of course you can get held-up by folks you didn’t invite to the party. Burglars can climb in the window. Third parties can have patent rights that read upon any standard. The current situation with the Eolas patent is a fine example of a hold-up.

The primary reason we engage in cooperative activities is that they generate positive externalities for the participants and their communities. What is offensive about a hold-up is how the criminal can arrange to steals the value that was collectively created. In the patent examples it is entirely possible that the patent would have been close to valueless if the standard had failed to become widely adopted.

Consider a simple scenario. We want to design a standard electrical plug. Obviously, there are thousands of possible designs. So, we just pick one. Now a few years pass and millions and millions of plugs and sockets are now deployed worldwide. This standard is a success.

Because that installed base would be nearly impossible to switch (see immovable installed base) to some alternate plug design it is fun to imagine that you just happen to own a patent on the pattern used for that plug.  That would make you rich!  Particularly if the courts can’t see that a) the patent was valueless prior to the success of the standard and b) that standard’s success owes little, if anything, to the particular pattern selected or that even if it does the community would have designed around it to avoid the risk of hold-up given the least chance.

Of course, teasing out the value of the standard’s wide adoption, and what portion, if any, of that value arose from the patented bit is an extremely difficult the puzzle. Doing so in the face of dozens of claims is even harder. Such claims arise not just from the patented bits but from the many other elements contributed to the standard making process.

All modern industrial standards bodies include a clause that attempts to clarifies the terms that participants will have to accept before they participant. A common clause states that they will offer to license any IP rights under reasonable terms. And of course there have been court cases to argue if these “reasonable terms” are defined before or after the standard succeeds.

The hold-up problem is found in all cooperative activites. For example organizations, foundations, and web sites that aggregate the contributions of numerous volunteers such as FSF, Apache, eBay, Epinions, LinkedIn, etc all have this issue lurking in the background. The participants believe, at some level, they are at a potluck. The fear that some party will abuse the gathering and engage in mayham, even if that mayham is limited to a few pop-up ads, hangs over the party.

Solving these problems isn’t as simple as demanding that everybody be fair and reasonable.

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