UK: PPNs, FRAND & EiFv2 - HMG's Open Source Procurement Jumble

Last Updated: 9 August 2011
Article by Richard Kemp and Susannah G. F. Sheppard

Open standards and the role and value of intellectual property in ICT products and services continues to be a point of contention, in spite of the acknowledgement in the main EU and international standards bodies that there is a need to value IP and recognise its place in open standards on FRAND terms.

The January 2011 UK PPN on the Use of Open Standards when Specifying ICT Requirements

In January the UK Cabinet Office published an internal policy guideline 'Public Policy Note on the Use of Open Standards when specifying ICT requirements. Action Note 3.11 of 31 January 2011'1 ("The PPN"). The note applies to all government departments, their agencies and non-departmental bodies and any other bodies for which they are responsible.

The note is addressed to ICT procurers and its principal purpose is that:

"When purchasing software, ICT infrastructure, ICT security and other ICT goods and services, Cabinet Office recommends that Government departments should wherever possible deploy open standards in their procurement specifications."

All of that sounds perfectly logical and sensible, it's entirely in keeping with the procurement and standardisation issues that have been hotly debated and settled in a number of different areas of EU law and policy to date. However, unusually, the PPN goes on to take a radically different approach to that agreed as recently as December 2010 in Europe and expressed in the European Interoperability Framework, version 2 ("EIFv2") which was adopted on 16 December as part of the EU's wider European Interoperability Strategy.2

Paragraph 6 of the PPN states:

"Government defines "open standards" as standards which:

  • result from and are maintained through an open, independent process;
  • are approved by a recognised specification or standardisation organisation, for example W3C or ISO or equivalent (N.B. The specification/standardisation must be compliant with Regulation 9 of the Public Contracts regulations 2006. This regulation makes it clear that technical specifications/standards cannot simply be national standards but must also include/recognise European standards);
  • are thoroughly documented and publicly available at zero or low cost;
  • have intellectual property made irrevocably available on a royalty free basis; and
  • as a whole can be implemented and shared under different development approaches and on a number of platforms"

(emphasis added)

The PPN is at odds with the December 2010 European Interoperability Framework, version 2

This can be contrasted with how open standards are defined at EU level in the EIFv2, at paragraph 5.1.2 which covers the way in which the term 'openness' should be defined in the context of ICT procurement specifications and states that:

"If the openness principle is applied in full:

  • all stakeholders have the same possibility of contributing to the development of the specification and public review is part of the decision-making process;
  • the specification is available for everybody to study;
  • intellectual property rights related to the specification are licensed on FRAND(FN1) terms or on a royalty free basis in a way that allows implementation in both proprietary and open source software (FN2).

FN1: FRAND: Fair, reasonable and non-discriminatory.

FN2: This fosters competition since providers working under various business models may compete to deliver products, technologies and services based on such specifications."

(emphasis added)

So the PPN, only one month after the EIFv2 was adopted takes the entirely opposite approach to open standards than that of its European counterpart. It's difficult to see how this accords with other areas of EU law.

The PPN is at odds with the January 2011 EU Horizontal Guidance

The use of IP in standards potentially raises EU competition law issues. The application of EU competition law to this question has been widely debated and the latest policy on the point is encapsulated in the recently adopted Horizontal Guidance issued by the European Commission 3 ("The EU Horizontal Guidance") which inter alia addresses the competition law issues applicable to the creation and implementation of standards.

While the guidelines acknowledge that the use of proprietary technology in a standard can cause a barrier to entry, it also accepts that the use of IP in standards on FRAND terms (which is the policy of many formal standards bodies, most notably ETSI) is not incompatible with competition law and indeed, must be left open as a possibility, otherwise companies whose business models rely principally on revenues from innovation will be unfairly excluded.

Consequently, by preventing a public authority in any circumstance from referring to a 'standard' specification which includes a particular technology, (or even more than one standard specification, of which at least one refers to a particular patented technology) such a policy may potentially be distorting of competition as it might unnecessarily exclude from the market the innovative businesses that are referred to in The EU Horizontal Guidance in paragraph 267:

"267. In the context of standards involving intellectual property rights ("IPR") [104], three main groups of companies with different interests in standard-setting can be distinguished in the abstract [105]. First, there are upstream-only companies that solely develop and market technologies. Their only source of income is licensing revenue and their incentive is to maximise their royalties. Secondly, there are downstream-only companies that solely manufacture products or offer services based on technologies developed by others and do not hold relevant IPR. Royalties represent a cost for them, and not a source of revenue, and their incentive is to reduce or avoid royalties. Finally, there are vertically integrated companies that both develop technology and sell products. They have mixed incentives. On the one hand, they can draw licensing revenue from their IPR. On the other hand, they may have to pay royalties to other companies holding IPR essential to the standard. They might therefore cross-license their own essential IPR in exchange for essential IPR held by other companies."

The difficulty presented by the EIFv1's approach to procurement standards is that as a matter of principle, it excludes specifications which involve solutions created by the first type of company, the upstream-only companies for which licensing revenue is their only source of income. That being the case, if the purchasing authority specifically requires a specification which does not include FRAND licensed technology, then it will mean that, in effect, only a performance based approach or a free open source solution will be capable of being specified in response to the tender. If it doesn't mean this and the cabinet does not wish to exclude proprietary solutions even when they may provide the best value for the tax payer, this ought to be made clear.

The PPN is at odds with the March 2004 Public Procurement Directive

Given that it is accepted within the mainstream standards bodies that IP can be included in standards on a FRAND basis, the approach adopted in the PPN also appears at odds with EU procurement law. Article 23 (2) and (3) of Directive 2004/18/EC of the European Parliament and Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public services contracts ("The Public Procurement Directive") which covers the use of technical specifications in standards provides as follows:

  1. Technical specifications shall afford equal access for tenderers and not have the effect of creating unjustified obstacles to the opening up of public procurement to competition.
  2. Without prejudice to the mandatory technical rules, to the extent that they are compatible with Community law, the technical specifications shall be formulated:
(a) either by reference to technical specifications defined in Annex VI, in order of preference, to national standards transposing European standards, European technical approvals, common technical specifications, international standards, other technical reference systems established by European standardisation bodies or- when these do not exist – to national standards, national technical approvals or national technical specifications relating to design, calculation and execution of the works and the use of the products. Each reference shall be accompanied by the words "or equivalent";
(b) or in terms of performance, or functional requirements; the latter may include environmental characteristics. However, such parameters must be sufficiently precise to allow tenderers to determine the subject matter of the contract and to allow contracting authorities to award the contract;
(c) or by referring to the specifications mentioned in subparagraph (b) with reference to the specifications mentioned in subparagraph (a) as a means of presuming conformity with such performance or functional standards.

In other words, the use of European standards is one of the preferred mechanisms for complying with the provisions of openness required by Article 23. So, if the most appropriate European standard for a particular ICT need were to contain IPR licensed on FRAND terms, the PPN recommendation that the UK Government Body should not use it, on the basis that it is not 'open' appears to be out of step with this provision.

It's difficult to understand the rationale for this policy unless the UK Cabinet Office believes, contrary to the accepted wisdom underlying these other policy areas, that by stipulating the use of royalty free licensing it will always result in a saving for the public purchaser.

How the Netherlands Resolved the Same Issue - the 2002 Policy and the March 2011 Dutch Court of Audit Report

A similar policy was adopted in the Netherlands in 2002 and had been promoted within central government Ministries by various governments resulting in a policy of "comply or explain and commit" in 2008. However, like the UK Cabinet Office policy there was no objective research which underpinned the benefits of promotion of open source solutions over proprietary alternatives. Therefore the Dutch Court of Auditors was commissioned to undertake a study the result of which was published in March this year 4 to assess whether, in fact, a switch to open source software by Dutch Government Departments would result in substantial benefits. The Court of Auditors in accepting the research project made it clear that it did not:

"a priori have an opinion regarding the use of open technology".

Far from unambiguously supporting open source the report concluded (in line with the logic of public procurement law and the EU's EIFv2) that the position was far more nuanced and each case had to be analysed on its facts to see if indeed an open source solution would create advantages for the public sector purchaser.

Importantly the research looked into a number of oft cited benefits of open source, which were used by policy makers to justify preferring open source over other alternative, these were its:

  • Quality: the process for creating open standards increases the chance of all relevant matters being incorporated;
  • Cost savings: open standards may be used without any licence fees;
  • Supplier independence: with open standards, it is easier to migrate to another manufacturer and software product;
  • Sustainability: the use of open standards means that it is more likely that the data will also be usable in the future.

The Report concluded that there was no evidence to support any of these assumptions.

Moreover, the report also found that in users' experience, the total costs of an open source solution are often high due to the costs incurred for the installation, transition, documentation, implementation, support and management of the software. It was concluded that software licence fees were only about 4% of the total ITC cost, so the advantages of having no charge for this small element of the overall cost was generally marginal and did not necessarily mean that the open source software is less expensive in total as the other costs such as maintenance or integration may be higher than for the alternative closed versions of the software.

In essence, the report supported the position of EIFv2 and debunked the notion that Open Source, as a matter of principle is always advantageous. It also made a number of interesting points on the subject of the use of public procurement as a tool for market intervention. It concluded that, absent clear cost savings or other advantages to the procuring authority a policy of promoting open source is a form of 'market organisation' and that a clear distinction should be made between this policy objective and the need to improve operational management of government bodies through IT procurement.

This last issue of the need to separate policy objectives is an interesting point and can be demonstrated by considering the following question: If open source solutions are not necessarily advantageous then why would the Dutch and UK government both adopt policies that favour them at the expense of proprietary solutions when to do so would not the most efficient or cost effective solution?

One possible explanation for such as stance is that the policy is ideological or based on a desire to use the purchasing power of the public sector to tip software markets in favour of royalty free solutions. This explanation would fit with a policy that is adopted uniquely for the ICT sector particularly if it does not conform to the basic principles of procurement law. If this is the case it would mean that procurement activities were being used for the purposes of sectoral industrial policy, market regulation or intervention. If so, it is unlikely that such an approach would be a legitimate application of procurement policy or law.

While the PPN may have been adopted somewhat hastily and without any obvious public consultation, since its adoption, the Cabinet Office has undertaken an on-line survey on the use of open standards, perhaps in recognition of a number of the problems raised in this article . It will be interesting to see whether the Cabinet Office stays out of sync with the EU on this issue or moves forward in a way which balances the need to recognise proprietary rights with open standards.

Footnotes

1 http://www.cabinetoffice.gov.uk/resource-library/procurement-policy-note-ppn-use-open-standards-when-specifying-ict-requirements

2 Brussels 16.12.2010 (COM 92010 744) Final

3 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011XC0114(04):EN:NOT

4 The Dutch House of Representatives: Court of Audit Dutch Parliament, March 2011: "Open standards and open source software in central government"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.