International Standards: Helping SMEs Punch Above Their Weight

Abstract

As part of a review of industrial and innovation strategies in recent years, a number of jurisdictions have reviewed policy positions on core aspects: Small and Medium-sized Enterprises (SMEs), research and development (R&D), technology standards, protection of intellectual property (IP), secure supply chains and climate being some key elements. The reviews have touched upon aspects of international trade, intellectual property, competition and the role of standards.

This paper examines the role of SMEs in a primary source of competitive advantage – that is, Information and Communications Technology (ICT)-based standards which enable international communication in and across multiple sectors (such as those relevant to the Internet of Things), as well as global trade. It then reviews the potential impact that proposed policy initiatives related to standard essential patents (SEPs) could have on them - both SMEs that contribute to the development of international technical standards (SEP Innovators), as well as those that are primarily users of those standards (SEP Users).

It is observed that, as a global value chain based on innovation, the standards ecosystem inherently offers SMEs the opportunity to integrate into the global economy, which in turn enables SMEs to punch above their weight. Indeed, empirical research has demonstrated that SMEs are important innovators and contributors to the development of the most important international standards development bodies in the field of telecommunications, especially in ETSI and the 3GPP. Further, 3GPP and other initiatives such as 5G PPP are extremely important channels through which valuable SME presence and influence in global ICT-based value chains can be amplified.

Data also supports a finding that SMEs are very seldom the subject of litigation relating to the use or infringement of SEPs. Specifically, empirical data shows that ETSI SME and Micro Enterprise (ME) members are hardly ever involved in litigation. If they are, the litigation generally does not concern standards developed by ETSI, ATIS or the 3GPP, but instead either involves other standards or it does not involve standardized technologies at all. Furthermore, to the extent that ETSI SME and ME members are involved in litigation, they have been more often plaintiffs (thus patent owners enforcing their patents against infringers) than defendants - at least with respect to standards developed by ETSI, ATIS, or through the 3GPP. Similar findings are made in relation to ATIS SME members. Further, no credible evidence supports a conclusion of systemic bad faith conduct or overcharging for use of SEPs in the market. SMEs and MEs have been able to enter markets using ICT-based standards or establish new markets using ICT-based standards.

In order to incentivize further and future participation, any new policy initiatives should be holistic and reflect the tenets of this important global value chain: WTO instruments, FRAND-based licensing, respect for intellectual property and the role of courts, and sustainable innovation. At present, however, regulators in some jurisdictions have a telescopic lens aimed at one element of the ecosystem: licensing practices related to SEPs. While having a particular focus on Europe, this paper also looks at recent policy reviews by the US, Japan and the UK.

This paper concludes that caution needs to be exercised when assessing policy-based measures that could either undermine innovation policy (such as removing or reducing IP rights) or trade policy (such as introducing disproportionate or prohibitive regulatory costs and burdens to participate in various levels of this global value chain). There are other, non-legislative initiatives which can be more effectively and efficiently adopted in support of industrial and innovation strategies: in Europe, this would be affirming and adopting initiatives consistent with the FRAND licensing framework confirmed in Huawei v ZTE, particularly in light of the strong persuasive influence this judgment has in other jurisdictions. Targeted programs for skill enhancement could also be financed or made available through various parts of the Commission, different levels of EU Member State government and other channels.

Keywords: Innovation, Trade, Policy, Standards, IP, SME, SEP, FRAND, EU, US, Japan, UK, IoT, ETSI, ATIS, 3GPP, WTO

JEL Classification: K