The word “open” has become increasingly misused in the world of technology standards. In policy and antitrust terms, an open standard is one developed through an open and transparent process, including through the use of voluntary fair, reasonable, and non-discriminatory (F/RAND) licensing commitments — allowing any company to participate in standards development and any implementer to use essential technologies on transparent, balanced terms. That framework ensures that collaboration fosters competition, not control, keeping markets dynamic and innovation flowing.
Some developers of proprietary standards may offer a standard that is marketed as “open” and “royalty free” but without any F/RAND commitments. This regrettably conflates “open” with “royalty-free.” Proprietary standards developed without F/RAND commitments raise many potential problems — and are not necessarily “open.”
As Deputy Assistant Attorney General (DAAG) Dina Kallay underscored in a recent keynote speech, “collaborative standards development assured by contractual F/RAND commitments has been enormously successful, generating great benefits for consumers.” On the other hand, the Department of Justice (DOJ) is “concerned about … a breakdown of the FRAND-assured standard development ecosystem.”
DAAG Kallay cites abuse of proprietary standards — that do not use F/RAND — as one such breakdown. As DAAG Kallay explained, if such a standard is developed by dominant market players, the requirement of “mandatory, royalty-free cross-licensing . . . allows a group of dominant implementers to fix the price of royalties at zero,” even if that is not what other innovators want. This approach effectively hijacks the standard-setting process to exclude innovators who rely on licensing their intellectual property. Such a standard is not truly “open” — it is effectively closed to entities who rely on licensing their technology to fund future research and development.
As DAAG Kallay stated, “[i]f adequate royalties reflecting the value of a technology cannot be earned, the incentives for companies to invest in R&D are diminished.” Consequently, “over time, successful proprietary standards may push out other truly open standards that would better support interoperability and innovation. Collaborative, F/RAND-assured processes promote openness and inclusion, while mandatory “royalty-free” schemes among dominant implementers can create closed systems that distort competition and weaken incentives to innovate.
These risks have been recognized for a long time. The DOJ and Federal Trade Commission’s (FTC) Antitrust Guidelines for the Licensing of Intellectual Property — first issued in 1995 — note that cross-licensing arrangements may harm competition when participation is limited or when members are required to license their technologies at minimal cost, reducing incentives for research and development.
The Alliance for Open Media (AOMedia) — a consortium led by Big Tech firms including Google, Amazon, and Microsoft — provides a recent example. Just a few days before DAAG Kallay’s keynote speech, it announced the upcoming launch of a new video-compression technology standard called AV2, which it billed as “royalty-free” and “open.”
It remains to be seen whether the “royalty free” claim will prove accurate, or whether outside firms own patents that will cover the standard — as happened with the previous version — potentially leaving implementers exposed to outside licensing costs, further calling into question this standard’s claims of being royalty-free and open. In any case, by attempting to eliminate royalties for the use of a new technology altogether, this approach can distort the market, discouraging innovation and disadvantaging smaller firms.
Below, we set the record straight:
| Claim: A “royalty-free” standard means companies can implement it at no cost. |
| In reality: That’s rarely the case, for several reasons. First, even if the patent owners do not charge a royalty, they may demand valuable non-monetary consideration. AOMedia, for example, requires users of the standard to agree to license back any applicable patents at a zero royalty. While this may not be a problem for users who do not own relevant intellectual property, it imposes a high cost on users who own valuable patents. This will be a strong disincentive for such a user to develop future iterations of that technology. Second, as the prior AOMedia standard demonstrates, the royalty-free commitment only applies to patent owners who participated in the development of that standard. Innovators who could not agree to the royalty-free commitment — and therefore did not participate in the development of that standard — have not made any commitments.
As DAAG Kallay explained in her keynote speech, those external rights create uncertainty for implementers who assume the technology is fully royalty-free. She further related that such “essential patent holders would be able to legitimately charge implementers whatever terms of conditions they deem fit or, worse yet, legitimately exclude implementers . . . from the marketplace through injunctions.” DAAG Kallay noted that this can lead to wasted development work and even deter companies from adopting the standard in the first place. The risk isn’t hypothetical: the previous version of AV2 left prospective implementers uncertain about potential infringement exposure and whether they could adopt the technology without securing additional licenses. |
| Claim: Mandatory “royalty-free” licensing promotes an open, competitive industry. |
| In reality: Not necessarily. When “royalty free” commitments are mandatory and not voluntary, neither the standards development process nor the use of the standard is truly open. Such commitments can effectively force developers and users to surrender returns on their own innovations. That structure can discourage participation by smaller innovators that rely on licensing revenue while reinforcing the position of large implementers with diversified income streams. As DAAG Kallay warned in her keynote speech, mandatory royalty-free cross-licensing among dominant implementers “allows a group … to fix the price of royalties at zero” — a dynamic that can operate as a collusive scheme promoting closed, proprietary standards. These dominant implementers frequently have other means to earn revenue from the widespread adoption of their standard, such as through sales of hardware or advertising. The DOJ–FTC Guidelines similarly caution that cross-licensing among firms with collective market power can harm competition when participation is limited or when members are required to license their technologies at minimal cost.
AOMedia’s “royalty-free” model reflects this broader pattern. Its licensing agreement requires members to grant reciprocal, royalty-free licenses for patents essential to AV1 and AV2 — waiving the right to enforce those patents against other members. For smaller innovators that rely on licensing revenue, that tradeoff makes participation economically unrealistic. The result is a structure that reinforces the dominance of major implementers while effectively locking smaller firms out of contributing to or using an allegedly “open” standard. |
| Claim: Eliminating royalties fosters innovation. |
| In reality: Patent royalties are what sustain long-term innovation by allowing inventors to recover R&D costs and reinvest in new technologies. When standards bodies eliminate royalties or require contributors to share improvements for free, they remove that incentive and risk slowing progress.
As DAAG Kallay emphasized in her keynote speech, if adequate royalties reflecting the value of a technology cannot be earned, the incentives to invest in R&D are diminished and market innovation suffers. The DOJ–FTC Guidelines describe a similar risk in their discussion of grantback provisions — arrangements requiring licensees to give improvements back to licensors — which can substantially reduce licensees’ incentives to engage in R&D and limit rivalry. AOMedia’s “royalty-free” approach to AV2 demonstrates the risk. By eliminating royalties and requiring members to cross-license their patents, the model benefits large firms that can absorb the loss of licensing revenue while disadvantaging smaller innovators that depend on it. Companies that join forfeit the ability to profit from their own breakthroughs, discouraging smaller firms from investing in new technologies and further consolidating market power among the Big Tech members that lead the consortium. |