The Standards Blog

26 Consortia Request Department of Commerce to Exempt Standards Development from Harsh Entity List Penalties

China

rsz_11024px-seal_of_the_united_states_department_of_commercesvg_0.pngSince May 16, 2019, standards setting organizations (SSOs) with Huawei or any of 68 named Huawei affiliates as a member have been in turmoil. That was the day the Bureau of Industry and Security (BIS) of the Department of Commerce put Huawei and those affiliates (collectively, “Huawei,” for convenience) on its “Entity List,” thereby subjecting any US person or entity that exports or otherwise discloses certain non-public technical information, software and materials to Huawei to penalties under the Export Administration Regulations (EAR). These penalties can potentially exceed $1 million and include imprisonment. 

Yesterday, 26 SSOs, including many of the most important standards developers in the world, came together to deliver a letter to the US Department of Commerce. That letter stresses the essential role that standards play in the modern world, and requests that the Department make “a clear statement that development of open enrollment, consensus-based standards or technical specifications as conducted by consortia” is exempt from the restrictions under the EAR that have led to the concern. The full text of that letter, and the signatories, appear at the end of this blog entry, and can also be found here.

The impact of the directive in question is severe, because Huawei participates in over 400 information and communications technology (ICT) SSOs, the very great majority of which are headquartered in the US. Huawei makes significant technical contributions to these SSOs, a fact that was recognized when the BIS also issued a 90-day Temporary General License specifically permitting engagement with Huawei as necessary for the development of 5G standards by a “duly recognized” SSO on a temporary basis, at least for now.

Only a handful of SSOs were mentioned by name, however, and Huawei participates in hundreds of non-5G SSOs. Moreover, the boundaries of what can or cannot be considered “5G” are also ill-defined, making it impossible for most SSOs that were not named to know for sure whether they, or which of their activities, are temporarily exempt. 

The applicability of EAR restrictions to any individual SSO is also difficult to ascertain because, at best, an SSO can try to analogize its operations to one of the five enumerated exceptions for “Published” technology or software. IEEE-SA, for example, concluded that Huawei could continue to participate in those technical activities the SSO hosts that are open to non-members as well as members.

The reasoning is explained in an IEEE-SA FAQ which can be found here. The vast majority of SSOs, however, require that participants become members before they can participate in technical working groups, making it more difficult for such organizations to conclude they are covered by an existing exception. Given the extremely harsh penalties that can apply, there is good reason for such judgments to be made conservatively.

In the wake of the May 16 announcement, hundreds of US-based SSOs have been faced with either the immediate or pending need to determine whether to expel, suspend, or restrict the participation of Huawei. Further details on that analysis can be found in this prior Standards Blog entry  Huawei has contested the necessity of such actions and has filed vigorous protests with many of the SSOs that have so acted.

Meanwhile, thousands of companies were placed in a similar position, as the penalties could apply to them whenever they disclose non-public information covered by the directive in the course of standards development where Huawei was also a participant.

In the long term, the potential consequences if Huawei is permanently barred could be dire. They include:

  • A decision by Huawei, and perhaps other non-US headquartered vendors, to create 5G standards that would compete directly with those already under development, thereby leading to a global standards war arising from political conflict rather than a market-driven, pro-consumer contest leading to the best technology prevailing. Such an outcome could leave vendors, carriers and consumers alike in an uncertain and inefficient situation that might take years to resolve. This risk is hardly theoretical; fifteen years ago, there was a standards war between IEEE-SA’s WiFi standard and a “homegrown” Chinese standard called WAPI. China also created its own 4G standard, called CDMA, which it used effectively as a bargaining tool for many years against western vendors seeking to gain access to the Chinese marketplace with products based on western standards.
  • Huawei, like most giant vendors, has a treasure trove of patents. When it participates in an SSO, it typically must either commit to license any patent claims it owns that would be “necessarily infringed” by the implementation of a standard it helps develop, or disclose them in timely fashion so the working group can try to draft the standard in such a way that infringement is avoided. This type of commitment is referred to as a “RAND” commitment, because the patent owner must not only grant a license to any vendor, but the license must be on “reasonable and non-discriminatory” terms, including as to price. If Huawei is excluded from an SSO that creates an essential standard, it could instead charge very high fees for a patent license. Worse, it could decide who it would license and who it would not, or even refuse to provide a license to anyone at all and threaten the global marketplace with litigation, perhaps waiting until the standard had become widely adopted.
  • Huawei might sue SSOs that expelled or suspended it, or restricted its ability to participate. As consortia typically have only meagre budgetary and personnel resources, this would put a severe strain on their effectiveness.
  • Non-US ICT companies may urge consortia to move abroad, and consent to only form new consortia offshore, in order to avoid the current directive and any new actions they fear may follow until current trade tensions lessen. Policy makers in Washington may be unaware of the fact that the great majority of consortia are formed in the US, usually with US company founders in the majority. They may also be unaware of  the enormous resulting benefit to US commerce of that comes from leadership in standards development.

On the opposite side of the ledger, all sources I have consulted believe that it would be close to impossible for Huawei to engage in any of the types of behavior upon which the EAR restrictions are premised, such as embedding “back doors” in products, or disclosing important proprietary information to the Chinese government. Standards, by their nature, are descriptive. They are not products, but specifications for discrete elements of products, such as those that permit one product to exchange information with another. Moreover, they become widely available as soon as they are completed. Any weakness that might have escaped the eyes of a working group would have a hard time eluding the notice of the global technical community.

What happens next is, unfortunately, anyone’s guess. The ICT community knows what it wants – the American National Standards Institute (ANSI) and the Information Technology Industry Council (ITI), a powerful industry advocacy group, have also delivered letters to the Department of Commerce asking that standards development not fall under the shadow of the EAR restrictions. But at the same time, the Trump administration has been very aggressive in its actions against Huawei and has been consistently averse to taking any action that could be seen as backing down. 

Hopefully, the Department of Commerce will be persuaded that there is much to be lost by allowing the current uncertainty to prevail, and far more to be gained by resolving that uncertainty in favor of unrestricted standards development in consortia. 

The letter which follows was drafted one week ago by attorneys from three law firms: Biddle Law PC (Brad Biddle), Schwabe, Williamson & Wyatt PC (Arnold Brown), and Gesmer Updegrove LLP (Russ Schlossbach and Andrew Updegrove). We are grateful to the many people at the 26 signatory SSOs who gave it their rapid attention, made helpful suggestions, and agreed to sign on.

Please note: The above post expresses the views of the author only, and has not been reviewed or approved by any of the signatories to the letter.

 

*  *  *

June 14, 2019
The Honorable Wilbur L. Ross
Secretary of Commerce
U.S. Department of Commerce
1401 Constitution Ave. NW
Washington, DC 20230

RE: Request for clarification from developers of standards and industry specifications concerning the addition of Huawei and its affiliates to the Entity List

Dear Secretary Ross:

The undersigned represent a sample of the many hundreds of U.S.-based technology consortia that today create the majority of standards and technical specifications that shape global technology ecosystems. The May 16, 2019 order adding Huawei and its affiliates to the Entity List has created a serious problem of uncertainty for standards-setting consortia, causing harm to the consortia system and the many major U.S. companies that rely on it. We write now to ask that you act to resolve this uncertainty. 

The information and communications technology industry (ICT) faces complex needs for interoperability between third party products and services, from the smallest component level up through globe-spanning communications networks. Over the past several decades the ICT industry has developed and honed a model for the formation and operation of private sector-led standards and specification development organizations that has enabled ICT product interoperability in a diverse array of technology areas. A very significant percentage of activity takes place in so-called “consortia.” These organizations adopt rules and procedures that are largely similar to those of entities that have chosen to seek accreditation by the American National Standards Institute (ANSI), but rarely seek such accreditation themselves, in part to emphasize their status as neutral platforms for international collaboration. 

Consortia almost invariably make their standards and technical specifications available for adoption by anyone, because universal adoption is the goal. Some require adopters to become members, but then welcome anyone to do so for a reasonable fee relative to the costs of maintaining standards development. The difficult question for organizations and their participating members as a result of the May 16, 2019 Entity List order has been whether this level of openness and public output sufficiently meets the criteria set forth in 15 CFR 734.7 (or other relevant exceptions) such that participants can continue to engage in typical consortia activities in organizations where Huawei is a member without violating the new Entity List order.

Due to the current uncertainty on this question, some consortia have taken the precaution of suspending Huawei and its non-U.S. affiliates from organization membership; others have restricted the participation of Huawei and its affiliates to non-technical activities. A key difficulty with this solution is that it ultimately undermines the effectiveness of the consortia-based development process, as well as the desirability, in the eyes of the global ICT community, of hosting such activities in U.S. based consortia at all. This creates a serious risk that specifications developed by U.S.-based consortia will fail to achieve the goal of adoption as formal or de facto international standards, and that future necessary standardization efforts will be led elsewhere. Further, if companies with large market presence are excluded from U.S.-based standards efforts, a possible result is the launch of competing standards, leading to lengthy and destructive “standards wars.”

Accordingly, we urgently request: please make a clear statement that development of open enrollment, consensus-based standards or technical specifications as conducted by consortia is exempt from the scope of the Entity List designation. 

We welcome clarification in whatever form you deem appropriate. For purposes of illustration we have attached (as Attachment A) an example of how the current Temporary General License language focused on standards could be adapted to address our concerns—although we emphasize that any clarification should be permanent, not temporary. We do not suggest that this proposed text is the only or best way to address our concerns, however. 

We respectfully request your prompt attention to this matter. We welcome the opportunity to provide additional information to your staff – please let us know how we can be of assistance.

Yours truly,

3D PDF Consortium    

Alliance for Open Media     

AXIe Consortium    

The Broadband Forum    

CCIX Consortium     

Consortium for On-Board Optics (COBO)    

Ethernet Alliance    

GlobalPlatform    

HDMI Forum    

IMS Global Learning Consortium    

Joint Development Foundation     

Khronos Group    

LXI Consortium    

MIPI Alliance

Mopria Alliance 

MulteFire Alliance

NFC Forum

NVM Express

Open Connectivity Foundation

Open Geospatial Consortium

Open Network Video Interface Forum 

Open Security & Safety Alliance

PDES

PXI Systems Alliance

SD Association

Video Electronics Standards Association (VESA)

Address for correspondence: consortia-bis-letter@giste.org*

cc:    Nazak Nikakhtar, acting Under Secretary for Industry and Security
        Walter G. Copan, Undersecretary for Standards and Technology