The Challenges and Rewards of Standardization in China
The business of Information and Communications Technologies (ICT) standards is different in China than it is in Europe or in Japan. While it started out as a centralized effort over the millennia (yes, you read me right), in the past twenty years it has been driven equally by local government, state-owned enterprises, and private enterprise either in standards organizations or trade associations. This has resulted in what meteorologists might call a turbulent situation. The current goals of standardization in China include: a push for quality and safety; encouraging home-grown innovation, whether regionally or nationally; influencing the direction of innovation internationally; and emphasizing market-driven approaches. Eventually China will be a formidable standards player. There is direct business value in helping Chinese companies master the art of participating in de jure and de facto standards bodies, in watching and analyzing their participation strategies, and in participating as a company or organization because innovation is increasingly being shaped by standards.
Standards in China: Brief historical overview
The time: About two hundred years after the Romans came up with the Laws of the Twelve Tables (450 BC), which set the width of a “via” or road to roughly 2.5 meters, literally paving the way to the rise of the Empire.
The place: On the other side of the world, in Xian, the administrative capital of the Qin Dynasty, where the Terracotta warriors were eventually to be found.
The scene: Emperor Qin Shi Huang, founder of the dynasty that gave its name to China, has just ended an incredibly bloody battle to unite the three kingdoms and sketched the outline of China as we know it. Over a period of 15 years, until his death in 206 BC—and we have these dates because the Chinese kept detailed annals that dwarf Livy’s History—he standardizes everything from currency to writing, higher learning, weights and measures for marketplace uses, the structure of the administration, and legal matters.
Chinese standardization has followed that ancient blueprint of a centralized push for order and harmony, much as it did in other countries with long bureaucratic traditions like France; but to conclude that standardization in China is a centralized, government-led affair would be to ignore the reality that standards driven by enterprise and local government outnumber national “regulatory” standards roughly seven to one. That one fact is what makes a read of China’s standardization policy so difficult: we are not dealing with one, monolithic China, but with diverse interest groups which are sometimes at odds with each other.
Standards for Public Safety
First, let’s see why there are standards in China and compare those reasons to those we witness in other areas. (While my focus is on ICT, I’ll mention other sectors at times for the purposes of discussion.) As in all counties with national standards bodies, standards are initially a way to ensure minimum product quality and public safety in critical areas like construction, food, transportation, and so on. China has in excess of 5,000 “public-serving” standards, a solid framework for regulation; but in a 1.3 billion people economy, enforcement is a serious challenge as became apparent in the wake of the tainted milk, lead-containing toys, and earthquake incidents. Prosecution and imprisonment or fining of company executives and incriminated officials has occurred, and the Chinese public seems eager to see more of this happening. The West periodically runs into the same exact issue: examples of contaminated meat-packing plants or salmonella, sub-par buildings, faulty infra-structure, and even deficient nuclear plants abound in the developed world despite stringent regulations and standards.
In the West as in China, government-issued standards serve the public, and the problem is less in the standards framework than in the ability to enforce it.
ICT: The new chinese policy of innovation through standards
In ICT, things are quite different. The basic goal of an ICT standard is to make either data or systems interoperable: if you travel with your cell phone, standards are what make it possible for you to call in a variety of countries and use the same communication tools; if you keep data in a database, other standards ensure that you can import or export to other formats. This outcome can result from regulation or self-imposed discipline or both. In China, the government is actively involved in ICT standardization via bodies like the Standards Advisory Council (SAC), China National Institute of Standardization (CNIS), and China Electronics Standardization Institute (CESI), whose remarkable representatives have taken it upon themselves to quickly study and master the rules of participation in the global arena.
Some of the standards produced by those bodies, such as the famous GB series (GuoBiao simply meaning, “national standard”), require absolute compliance from the vendors and cover everything from the Chinese ideograms’ coded character set for information interchange to Uighur and Mongolian extensions. Other standards are recommended, such as ISO 9000 for quality methodology or OASIS’s own ebXML series (co-published as ISO 15000).
Beyond features that support local character sets across technologies, the GB series in ICT also serves the purpose of fostering home-grown innovation.
Dieter Ernst, Senior Fellow and Professor at the East-West Center in Honolulu, recently published a report stating as a central tenet that China is acting on a unique technology blueprint, as part of its twelfth five-year plan, that relies on standardization as a tool for growth and home-grown as a tool for innovation, all while remaining fairly transparent and open. Professor Ernst describes the plan as a top-down, government-driven effort resting on three pillars:
- Participation in international, de jure standards organizations such as the International Organization for Standardization (ISO), International Electrotechnical Commission (IEC), and the International Telecommunication Union, Telecommunication Standardization Sector (ITU-T) to keep abreast of innovation and as standards participants. We have observed a considerable rise in official participation and increasingly sophisticated contributions.
- A deliberate policy to take leadership in those organizations and actually shape the future of standards; certainly in areas like SOA and Smart Grid, we’re seeing the Chinese delegations put forward new proposals and actively chair committees with a very deep understanding of the rules.
- A bid to change the rules for international standards-making in order to promote Chinese contributions.
- I would add a fourth, where top-down meets bottom-up via state enterprises. China is letting its state monopolies define a standards framework, either loosely or strictly based on international standards and soliciting some feedback from local vendors to incorporate home-grown innovation. This feedback is in turn distilled into proposals to de jure organizations.
Dieter Ernst then formulates what he sees as the core tension of such a policy: home-grown innovation can either conform with standards adopted by the world economy or will clash and create the perception of protectionism, or worse.
We could spend the rest of this piece discussing the insightful points Professor Ernst makes, but this discussion has mostly been covered in a special issue of Mattias Ganslandt’s TalkStandards series available at <http://www.talkstandards.com/indigenous-innovation-and-globalization/>. I recommend a thorough reading of Professor Ernst’s summary and of the ensuing discussion by experts in China and elsewhere.
Perhaps China’s standards policy is unique in its activism; the underlying question is whether such a top-down policy can work long-term, as it seems to have in promoting tremendous industrial growth in China. The purpose of this article is not to weigh in on that point, but rather to show that there is a fifth pillar of innovation through standards.
ICT Standards in China: The missing pillar
In a recent conversation with Vice-Minister Yang of MITI, we talked about a “two-fisted approach” to innovations through standards. The first fist is the government’s: its push in the international and national standards arena. The second fist is industry’s—and that thrust has not been quite so orderly.
I run a market-driven standards organization, one whose entire existence is predicated on the principle that market forces as a whole should shape standards: Not just government, in its role as a representative of the end-user and a custodian of rights, but industry as the engine of innovation. In North America, and increasingly in Europe, there is a deliberate policy to foster innovation by encouraging the work conducted in “de facto” standards-developing organizations (SDO) like the Organization for the Advancement of Structured Information Standards (OASIS). In the Smart Grid space for instance, the National Institute of Standards and Technology (NIST) consulted with private enterprise to fashion a Smart Grid roadmap which defined priority action plans (there are now 18 defined projects) and existing standards as a starting point. All stakeholders are represented, and the innovative standards activity is the work of industry experts, being conducted in existing standards bodies like OASIS, North American Energy Standards Board (NAESB), The Internet Engineering Task Force (IETF), American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE), and the Institute of Electrical and Electronics Engineers (IEEE).
Private enterprise understands the benefits of market-driven standards organizations full well: we are the trenches where the scrappy work of innovation gets done. OASIS’ relationship with ISO and IEC is quite telling in that regard. OASIS has held Publicly Available Specification (PAS) status since 2004, which allows us to submit OASIS standards to JTC1, a joint committee of ISO and IEC. If successful, our submissions become international, “de jure” standards, a status readily recognized around the globe, for which we are grateful, but we’re also proud of our marketplace lineage.
In China, several companies have grasped the upside of involvement in such standards organizations. In OASIS, Primeton Technologies, Founder Group, and Sursen, among others, have played the game as well or better than their Western counterparts, and derived significant business benefits from the effort, but all too few.
Here are some of the obstacles:
- Price: Many companies can’t justify the membership fee because they view the fee as a marketing rather than a strategic expense; membership in an SDO is both.
- Time zones and language: Because so many TCs are chaired by Westerners in Europe or the US, it can be difficult to synchronize global work. Korean and Japanese participants have solved this problem by creating their own native-language and time-zone friendly TCs. Internationally minded TCs have used special synchronization methods where regional participants are tasked with specific assignments; sub-groups then meet, compare notes, and harmonize the various pieces.
- Experience: Editing a specification to achieve a quality and truly interoperable result is difficult in the best of circumstances and requires a rare expertise. Chinese (and Western) companies often choose to hire experts to complete the task, adding to its complexity.
- Learning curve: Standards are a veritable culture, one that requires exposure and immersion, much like learning Mandarin. It requires a sustained time commitment, which in a start-up environment is rarely a priority.
- Intellectual Property issues: Understanding the complexities of patent disclosure and intellectual property policies in an SDO can be daunting.
I’ve done a lot of outreach in China on these topics, with government and private industry alike, and we are still very much at the initial stages of this effort. My contention, which I believe is shared by many in Chinese government is that, as long as Chinese private enterprise does not assume the same leadership in de facto organizations as Chinese delegations do in de jure bodies, Chinese standardization will remain an edifice in search of a missing pillar. My sense is that this is changing, and as Chinese companies reap global success, they will come quite naturally to the business of standards. Meanwhile, more education and harmonization are required.
Standards, China, and Intellectual Property
We touched on intellectual property rights (IPR) in the previous section. It’s not exactly a thrilling topic, and yet, efficient and fair IP protection is one of the most important ingredients in economic development.
The next four paragraphs will be somewhat technical and dry; skipping them will not impact the gist of this piece, but if you hang in there for a few words about patents, IP modes, and standards, you will be rewarded with a few insights into the business benefits and risks of standards participation.
In January 2010, CNIS, which works under the aegis of SAC, was commissioned by SAC to undertake a remarkable task: inventory the full IP implications of what it means to participate in standards work. Stakeholders from around the world were asked to provide comments on the result, entitled “Draft Disposal Rules For Patents in Standards.” The comments are being collected as we speak and may or may not be incorporated in the final draft. One of the frustrations I’ve experienced in my role as Executive Director of OASIS is the often-encountered focus on the royalty-permitting, Reasonable and Non-Discriminatory (“RAND”) mode whenever there is talk of IP in standards. This happens in Europe and even in the US more so than in China; one historical reason is that ICT standardization efforts in the West emerged from the telecom and computer hardware world, where patent-holders filed many early claims to seek compensation for their ingenuity; China’s IP history is more recent.
Let’s set aside for a moment the fact that courts of law find it very hard to give definitive meaning to the words “reasonable” and “non-discriminatory,” leaving such to the vagaries of jurisprudence. Let’s note instead that RAND, while perfectly acceptable and posited successfully in many standards arenas, is by no means the only IP mode available to standards organizations. In OASIS, every Technical Committee, as it embarks on the adventure that will lead to a new software standard, must declare what its IP mode is. It has four modes, not just one, to choose from: RAND; Royalty-Free on RAND (RF on RAND or FRAND in Europe); Royalty-free; and more recently, a Non-Assert Covenant. In the case of the Covenant, participants are saying that they will not assert any claims on the standard whatsoever, meaning that no user of the standard will ever incur licensing fees from implementing the standard. Better yet, we have very strict rules around essential claims. I won’t go into the legalese of claims; let’s simply say that a patent can cover several essential claims: “The bloffee-Maker can write a blog post, make wicked cappuccino, clean up after itself, and post your thoughts on the Internet simultaneously using a novel transport mechanism called Kaffino … and so on.” I can put forward several claims on my patented Bloffee-Maker, regarding Kaffino and the ability to simultaneously make the coffee and write the blog post. These claims are essential because, if I came up with these unprecedented ideas and was given a patent validating my notion that they are unprecedented—whether or not I actually made anything or was the first person to invent the idea—I can ask a licensing fee per claim from anyone who uses a similar mechanism. It doesn’t have to be identical. The essential claims in the patent are what make my patent essential.
OASIS requires participants to disclose essential claims in order to help avoid situations like the “Rambus” case, where participants in a standards activity found out the hard way, long after they had put time into a draft standard that it infringed on Rambus patents and required a license. Early and explicit disclosure helps preclude such unpleasantness. And I’m happy to report that the vast majority of standards done in OASIS are either royalty-free or non-assert, with the latter trending up.
The overarching point here is that participation in standards is only beneficial if the standard organization’s policy governing IPR is clear and well-designed. It certainly makes the adoption of the standard a lot more attractive, which Chinese stakeholders understand quite well: they have repeatedly complained that IP locked up and sometimes hidden in international standards they are asked to implement places an unfair financial burden on them. I would argue that this is true not only of Chinese industry, but of standards participants everywhere.
What, then, are the latest IP rules in China? For a very good analysis, please read this piece by George Willingmyre <http://www.ip-watch.org/weblog/2010/04/01/china%E2%80%99s-latest-draft-disposal-rules-for-patents-in-standards-a-step-forward/>.
In my experience, there is a real commitment in China to upholding the legal framework for IP and a realization that what protects foreign IP also protects home-grown thinking—even when it comes to software. Along the lines of Francis Fukuyama’s Trust: The Social Virtues and the Creation of Prosperity, there is definitely a new and strong sense in China that contracts and prosperity go hand in hand. Piracy and copyright violations are on the wane and actively prosecuted, although educating Chinese consumers to the new reality is an evolving challenge.
Let me acknowledge a debt of gratitude to the colleagues and friends who made this article possible: Dennis DingWei, who heads Intel’s standards activity in China; Mattias Ganslandt of TalkStandards; Wang Ping and Lin WenWen of CNIS; George Willingmyre of GTW Associates; Dieter Ernst of the Honolulu East-West Center—and many others.
Laurent Liscia, Ph.D., Executive Director at OASIS, provides leadership, operational oversight, and strategic vision for the consortium. He represents OASIS in the international arena, serving as an advocate for open standards in matters of policy and adoption. Laurent also develops new opportunities to extend the breadth and depth of future OASIS work. Prior to joining OASIS, he co-founded several Web-related companies, including Traackr and Webmotion. Laurent served as a Media Attaché for French Foreign Affairs and has worked in France, Canada, Italy, Ecuador, Morocco, and the United States. He holds a doctorate from the Sorbonne University and speaks English, French, Italian, and Spanish. Laurent is based in San Francisco.