Standard

Overview
A standard is “[a] rule, condition, or requirement: (1) Describing the following information for products, systems, services or practices: (i) Classification of components. (ii) Specification of materials, performance, or operations; or (iii) Delineation of procedures. . . .” A standard can be virtually any characteristic by which a class of objects is compared.

Standards can be established in several ways. Industry may agree on standards; government may impose them; or the market may determine them. Often a standard is established by the dominant producer of a new technology, but such de facto standards can take considerable time to emerge if several competitors offer different designs. Major consumers can also create de facto standards, as in the case of military standards and specifications on certain electronic assemblies.

Numerous committees have been established, with and without the help of government, to facilitate standards-setting. While technical considerations are important in standards-setting, social and political considerations often overwhelm them as companies attempt to impose the standards that best suit their own interests. Federal procurement policies also influence standards-setting.

The best results emerge from standards development processes that are consensus-based, in which all stakeholders – users, producers, and researchers – participate. In such approaches, each group of stakeholders contributes unique perspectives to the process: users understand their needs, producers understand the current state of technology, and researchers understand future trends. A standard must address user needs but must also be practical, since cost and technological limitations must be considered in building products to meet the standard. Additionally, a standard’s requirements must be verifiable.

Advantages of standards
Technical standards are particularly important in the development of new technologies because they help channel resources toward a limited number of designs. For suppliers, standards reduce the need in many instances to develop products to a particular purchaser's specifications. Because a single product or product line may be sold to multiple purchasers and distributed more widely, manufacturing volumes increase, and per unit costs decrease. Purchasers benefit from increased price competition among suppliers. Because a number of suppliers product standard-compliant products, switching suppliers typically does not require a substantial redesign of one's products or a substantial technical transfer to enable the new supplier to product compatible products. The lower "switching costs" intensifies competition among suppliers, leading to lower prices.

Disadvantages of standards
Technical standardization creates a "lock-in" effect and the risk of "patent hold-up." Although standards are the products of coordination and compromise among competitors, certain aspects of standards may be covered by patents. Without standardization, the royalty a patentee can earn from a patent license for its technology is constrained in part by the availability of alternative technical solutions. If a standard requires a designer to employ a particular patented technology, however, those other technical approaches are no longer available substitutes and will no longer constrain the patentee's ability to demand excessive royalties not warranted by the intrinsic value of the technology.

This problem is compounded because designers invest substantial resources in developing products that implement the technical standard. Even if there were an alternative technical solution &mdash; and many times there are none &mdash; the costs involved with switching might be prohibitively expensive. The designer who implements a standard thus becomes "locked-in" to the patented technology. Left unconstrained, owners of patents that cover certain features within the standard could take advantage of lock-in and demand exorbitant royalties from the designers, knowing that it would be less costly for the designer to pay the excessive royalty than to incur the cost of switching &mdash; known as "patent hold-up."

To avoid this problem, most standard-setting organizations have adopted intellectual property rights policies to address the problem of patent hold-up. These policies set forth requirements concerning:


 * (a) the disclosure of patents or patent applications that may cover any portion of the specifications of the standard in development; and
 * (b) whether and to what extent patentees holding such essential patents must commit to licensing these patents on F/RAND terms and conditions.

The U.S. Supreme Court repeatedly has recognized the pro-competitive potential of standard-setting activities. However, because a standard may displace the normal give and take of competition, the Court has not hesitated to impose antitrust liability on conduct that threatens to undermine the standard-setting process or to render it anticompetitive.

Internet standards
Standards are particularly important in networks, since many parties on the network must store and communicate information using compatible formats and procedures &mdash; called protocols. In small or closed networks, all the users can employ the same proprietary equipment and protocols, but in large and open networks this is impractical.

An important area of standards-setting is in the protocols used to send messages between computers. The Internet largely uses formats built upon the Transmission Control Protocol/Internet Protocol (TCP/IP). Other protocols include the Open Systems Interconnection (OSI) set.