The decision of whether your company should join a standards-setting organization (SSO), and if so, which one and on what terms, can have significant implications for your company's future. If you are not already familiar with the business and legal ramifications of SSOs, you should take another look.
Consider the following scenario: Late one afternoon, you receive a frantic call from one of your company's engineers. He or she wants to join a SSO so your company can align its upcoming product launches with what appears to be an emerging industry standard. The problem is that the engineer needs you to sign the Membership Application today because the SSO's next meeting is tomorrow morning. The engineer e-mails you a link to the Application, which is, thankfully, only a few paragraphs long. It looks pretty straightforward so you e-mail the engineer telling him to go ahead and sign up for membership in the SSO. With this matter "resolved", you turn back to other business, unaware that you may have just given up your company's right to control some of its most lucrative proprietary technology.
In this scenario, the way that SSOs function and the specifics of their membership terms can have a profound effect on your company's business. If you're not sure how SSOs could effect your company, this article is intended to provide you with some basic information on SSOs.
What are "Standards" and "SSOs?"
Technology standards promote greater interoperability and compatibility among technologies and products, which in
turn increase the likelihood of industry acceptance for a given technology or
product. While standards-setting organizations ("SSOs") are sometimes sponsored by governments (a model common in the European Union), private SSOs are becoming more prevalent, particularly in the USA. A private SSO is an industry group that develops and publishes technology specifications (also called "standards") in the interest of facilitating interoperability and compatibility. Some of these SSOs also establish compliance programs to certify that a particular product or process
is compliant with the specification. Private SSOs can be formed relatively quickly in response to perceived needs for common standards within a given industry.
Industry sectors that have seen recent and rapid growth in the number of SSOs include computer hardware and software, the Internet, wireless/telecommunications, semiconductors, electronic funds transfer/finance, cable and advanced television and even medical devices. Without common standards developed by SSOs, companies in these industries might promote incompatible technologies, which could harm the companies as well as consumers. The interoperability pursued by SSOs is becoming increasingly important as technologies converge, requiring an ever greater level of compatibility between products and services.
Benefits of Participating in SSOs
Though SSOs are often promoted by major technology companies, membership can be a benefit to mid- and smaller-sized companies because participation in an SSO can give these companies a voice in the development of standards that might impact their industry for years to come. At this point, you might be thinking that joining an SSO is probably a no-brainer for your business. And you might be right. There are many potential benefits to participating
in an SSO, including the possibility of increased market acceptance of your product, the ability to help create new markets that would not exist absent broad industry agreement on a new standard (e.g., next-generation wireless) and the ability to spread substantial research and development costs across multiple SSO members.
There are, however, potential pitfalls to joining an SSO-or the wrong SSO-which could prove to be detrimental to your business. Generally, these pitfalls fall into two categories: business and legal risks.
If your company joins an SSO that promotes an "old" or "losing" standard, there is a possibility that your market share will decline, perhaps precipitously. Trying to play "catch up" in such a situation (if catching up is even possible) can prove to be prohibitively expensive. New product development can be substantially delayed while standards issues are being worked out, and existing products can rapidly approach obsolescence as competing standards evolve and flourish. To avoid these negative business effects of failing to join the right SSO, it is critical for you to ensure that your business evaluates competing SSOs in an
attempt to discover which standards have the potential to become winners by achieving broad industry acceptance and which SSOs have goals and purposes in accord with your company's business plan. Moreover, it is important to examine the organizational structure and governance of any SSO you are thinking of joining because these elements will determine the extent and nature of your company's participation in the SSO's activities and its obligations as a member.
Among the most significant legal risks posed by indiscriminately joining an SSO is the possibility that your company will have inadvertently relinquished some of its most crucial intellectual-property rights without even realizing it. It is not uncommon for SSOs to have membership applications or agreements available on their Web sites, some of which can be "executed" online. These agreements can often be short, sometimes incorporating other documents by reference. Signing one of these agreements can result in your company being bound by all of the SSO's policies and rules, which could include duties to: (i) disclose confidential patents and other intellectual property; (ii) license certain company patents and other intellectual property, sometimes royalty-free, to other SSO members and adopters seeking
to implement the specification; and (iii) share, or even surrender, ownership of
your company's contribution to the specifications developed by the SSO. Thus,
it is essential for a company to carefully review all documents related to SSO membership in light of the legal consequences related to your company's invaluable intellectual property rights. Further legal risks associated with SSO membership include the possibility of antitrust liability to the extent that activities of the SSO and its member companies are deemed anticompetitive with respect to companies that cannot or are not permitted to use the SSO's standard.
SSOs will increase in importance in a wide range of technology-oriented industries as companies, often competitors, see the benefits of finding greater interoperability and compatibility of technology. SSO membership is already a necessary part of doing business for many technology companies. While SSO membership may help catapult your company toward success, the decision to join a particular SSO is fraught with complexity and should not be undertaken lightly. The attorneys at Jennings, Strouss & Salmon, have developed considerable experience in helping clients with these critical issues.