Government at the Standard Bazaar

66 Pages Posted: 30 Jul 2010

See all articles by Stacy A. Baird

Stacy A. Baird

affiliation not provided to SSRN

Date Written: April 17, 2007


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.

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

Suggested Citation

Baird, Stacy A., Government at the Standard Bazaar (April 17, 2007). STanford Law & Policy Review, Vol. 18, No. 35, 2007, Available at SSRN:

Stacy A. Baird (Contact Author)

affiliation not provided to SSRN

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