Government at the Standard Bazaar

Abstract:     
In recent years, there has been heightened interest in having government
intervene in what has become primarily a market activity to mandate
information technology standards. This article will provide an analytical
framework by which government can consider such actions. I premise my
proposal on the conclusion that government should be reluctant to intervene in
the setting of information technology standards (and particularly, to mandate a
particular standard that has not been developed and/or widely adopted by the
market) because: (1) the relevant industries are sophisticated in regard to
standards setting and have many well-developed types of standards, and forums
in which to develop standards; (2) the U. S. government has a strong preference
for market-developed information technology standards and promotes this
preference as a matter of both domestic law and policy and foreign trade
policy; (3) international trade agreements limit the degree to which
participating governments can mandate standards; and (4) in contrast to the
sophistication of the marketplace, government is rarely as informed,
sophisticated in its understanding of the market, or nimble enough to respond to
market conditions; therefore, the risk of government failure is significant, and
indeed greatest where the market is young and dynamic, as is the case with
regard to the current market affected by information technology standards.

Based on these premises, this article proposes the following test, which
appears as a flow chart in the Appendix. First, the government should identify
which of three categories describe the instant circumstances: (1) clear cases for
intervention, those where there is a government responsibility to meet a critical
public interest objective and the standard is essential for the government to
meet that objective; (2) "gray area" cases, where the standard is relevant to
either (a) meeting a public interest objective arising in the context of a noncritical
issue in the area of national security, defense, public safety, health or
welfare, or (b) providing an essential but non-critical government service; and
(3) cases that are clearly not circumstances for government intervention. As to
determining whether to intervene in a case arising within the first category,
where a critical public interest objective is at stake and a standard is essential to
meet the objective, the government should take all necessary measures to
address the objective. That said, pursuant to clear government policy, even in
these cases government should be predisposed to implement market-developed
standards and may apply the same test as described for "gray area" cases. In a
"gray area" case, there must be a significant and substantial market failure to
develop a standard to meet the important public interest objective before the
government should consider mandating a particular standard. "Significant and
substantial" means the market failure has proved to be a barrier to government
action to address the important public interest objective. The government
should further consider mitigating factors, such as whether the market has had a
reasonable time, relative to the circumstances, to develop, approve, and
implement the standard and whether there is cohesiveness among the
stakeholders (i.e., whether stakeholders have adequate forums in which to act in
the specific situation). The government and industry should support credible
and informed non-governmental public interest (e.g., consumer-oriented)
representation to potentially obviate the need for direct government action later
on.

Where a government decides to intervene, intervention should be
reasonably tailored to rectify the identified market failure and to achieve the
particular public interest objective. The government should limit the scope of
intervention and define objectives. In order to assure the most narrowly tailored
intervention, government should clearly articulate: (a) the specifics of the
important public interest objective in the establishment of a particular
information technology standard; (b) the purpose and scope of the government
intervention; and (c) defined objectives for government intervention to achieve.
The government should proceed incrementally with intervention. The first step
should be to encourage market behavior through incentives. As a second step,
the government should use its leverage as a major market participant and
potential regulator to influence market behavior; however, the government
should behave as a rational consumer, and it should consider not only the
public interest objective at issue, but also the general public good. At each
stage of intervention, the government should consider how best to mitigate the
risk of harm of "non-market failure." To this end, where the government does
intervene, intervention should reflect the market norms and market behaviors to
the greatest extent possible.

Number of Pages in PDF File: 66

Keywords: Technical standards, govenerment regulation, market failure, interoperability, information technology, technical convergence, intellectual property regulation, patents, copyright, consumer electronics, computing

JEL Classification: o3,014,o31,o32,o33,o34,o38,l1,l5,l51,l52,l82,l86,l96,l96,k2,k29,a13

Accepted Paper Series