BUILDING MARKETS: THE POLITICAL ECONOMY OF TECHNOLOGY STANDARDS A Dissertation Presented to The Academic Faculty by Michael Bruce Murphree In Partial Fulfillment of the Requirements for the Degree of International Affairs, Science, & Technology in the Sam Nunn School of International Affairs Georgia Institute of Technology May 2014 COPYRIGHT©2014 BY MICHAEL MURPHREE BUILDING MARKETS: THE POLITICAL ECONOMY OF TECHNOLOGY STANDARDS Approved by: Dr. Dan Breznitz, Advisor Dr. Stuart Graham School of International Affairs College of Business Georgia Institute of Technology Georgia Institute of Technology Dr. Zak Taylor Dr. Richard (Pete) Suttmeier School of International Affairs Department of Political Science Georgia Institute of Technology University of Oregon Dr. John Garver School of International Affairs Georgia Institute of Technology Date Approved: April 01, 2014 For Nana, who fills my life with joy ACKNOWLEDGEMENTS I wish to thank Dr. Dan Breznitz, Dr. Zak Taylor, Dr. John Garver, Dr. Stuart Graham and Dr. Pete Suttmeier for their direction, support, and strong guidance throughout this process. I would also like to thank my family for their support throughout this journey. Finally, special thanks is due to the National Science Foundation for their generous support under grant number SES-0964907. v TABLE OF CONTENTS Page ACKNOWLEDGEMENTS v LIST OF FIGURES ix LIST OF ABBREVIATIONS x SUMMARY xiv CHAPTER 1 THE THEORY OF POLITICS, STANDARDS AND MARKETS 1 Thought Game: A World without Standards 1 Why Standards Matter 3 Dissertation Goal and Significance 7 Argument and Theory 9 Approach and Cases 26 Defining the Terms: Markets, Institutions and Standards 29 Markets 29 Institutions 33 What are Technology Standards? 35 How Standards Shape Markets 39 The Role of Politics in Standards 43 Research Methodology 47 Plan of the Dissertation 51 2 STANDARDS AS MARKET SHAPING INSTITUTIONS 53 Historical Origins of Standards: the Importance of Metrology 55 Technology Standards 62 vi Definition of Technology Standards 63 Standardization and Markets 70 Process of Standardization and Market Impacts: Excess Momentum and Inertia 80 Categories of Technology Standards 84 Comparison of Different Categories of Standardization 94 Essential Patents and Standards 98 Defining a “Successful” Standard and the Role of the State 104 3 THE GLOBAL STANDARDS: THE US AND EUROPE 109 Historical Background 110 Major Actors 117 Position in the Global Economy 121 Technology Markets in the United States and European Union 123 Case Studies 126 Color Television Standards: NTSC vs. SECAM (and PAL) 126 Mobile Telephony: From 1G to 3G in the United States and Europe 135 Conclusion 143 4 HISTORY AND POSITION: TECHNOLOGY STANDARDS IN CHINA 145 China’s Statist Institutions of Standardization 148 History of Standardization in China and the Role of the State 149 State and Non-State Institutions of Standardization 154 China’s Position in the Global Economy: IP Taker/Aspiring IP Creator 167 General Condition of Technology Markets in China 171 Case Studies 174 Time Division-Synchronous Code Division Multiple Access (TD-SCDMA) 174 vii Wireless Authentication and Privacy Infrastructure (WAPI) 180 Intelligent Grouping and Resource Sharing (IGRS) 185 Audio-Video Standard (AVS) 190 Conclusion 196 5 CONCLUSION 198 Bringing it Together: the Cases of Japan and Korea 199 “The Wealth of Nations”: Why We Should Concern Ourselves with Standards 203 Contribution to the Literature 207 REFERENCES 209 viii LIST OF FIGURES Page Figure 1: Basic Model 10 Figure 2: The Impact of Historical Institutions and Position 20 Figure 3: Standardization Law of China 156 ix LIST OF ABBREVIATIONS 2G Second Generation Mobile Telephony 3C Content, Computers and Communications AFNOR French Standards Association AMPS Advanced Mobile Phone System ANSI American National Standards Institute AQSIQ State Administration of Quarantine and Inspection AVC Advanced Video Coding AVS Audio-Video Standard BSI British Standards Institute CAS Chinese Academy of Science CATT Chinese Academy of Telecommunication Technology CBS (Formerly) Columbia Broadcasting System CCIR Comité Consultatif International Pour la Radio CCSA China Communication Standards Association CDMA Code Division Multiple Access CEN European Committee for Standardization CENELEC European Committee for Electrotechnical Standardization CESI China Electronics Standards Institute CFT Compagnie France de Television CNIS China National Standards Institute CTI Color Television, Inc. D-AMPS Digital Advanced Mobile Phone System x DNI German Standards Institute DVD Digital Video Disc EC European Community ETSI European Telecommunications Standards Institute EU European Union FCC Federal Communications Commission FDD Frequency Division Duplex FRAND Fair, Reasonable and Non-Discriminatory GATT General Agreement on Tariffs and Trade GB China National Standard GSM Global System for Mobile Communications (Groupe Special Mobile) HD-DVD High Definition Digital Video Disc ICT Information and Communication Technology IEC International Electrotechnical Commission IEEE Institute of Electrical and Electronics Engineers IGRS Intelligent Grouping and Resource Sharing IP Intellectual Property ISO International Organization for Standardization ITU International Telecommunications Union JS Japan Standards JTC1 Joint Technical Committee 1 LAN Local Area Network MII Ministry of Information Industry MIIT Ministry of Industry and Information Technology MNC Multinational Corporation xi MOST Ministry of Science and Technology MoU Memorandum of Understanding MPEG Moving Pictures Expert Group MPEG-LA Moving Pictures Expert Group – Licensing Authority NIST National Institute of Standards and Technology NTSC National Television System Committee ORTF Organisation de Radiodiffusion et Television Francaise OSI Open Systems Interconnection PAL Phase Alternating Line R&D Research & Development RAND Reasonable and Non-Discriminatory RAND-RF Reasonable and Non-Discriminatory – Royalty Free RCA Radio Corporation of America RF Royalty Free SAC Standardization Administration of China SDO Standards Development Organization SECAM Sequential Color with Memory SEP Standards Essential Patent SIPO State Intellectual Property Office TBT Technical Barriers to Trade TDD Time Division Duplex TD-SCDMA Time Division-Synchronous Code Division Multiple Access USB Universal Serial Bus VHS Video Home System WAPI Wireless Authentication and Privacy Infrastructure xii WCDMA Wideband Code Division Multiple Access WIPO World Intellectual Property Organization WLAN Wireless Local Area Network WTO World Trade Organization xiii SUMMARY This dissertation explains the causes of national differences in markets for technology. Different national approaches to intellectual property protection and use, market openness and market scope are the result of the process of creating technology standards in different countries. Technology Standards, in turn, are the product of two causal variables: the historically determined institutions of standardization - particularly the role of the state in the standardization process, and the position of a country in the fragmented global production system. The institutions of standardization determine the relative influence of different actors over standardization and market position. The position within the global economy determines these actors’ perspectives on intellectual property and market scope. Using case studies of standardization and technology market creation in the United States, Europe and China, this dissertation reveals the mechanisms by which these two variables give rise to national differences in technology markets. xiv CHAPTER 1 THE THEORY OF POLITICS, STANDARDS AND MARKETS Thought Game: A World without Standards Imagine browsing the aisles of a grocery store in a world with no standards. While everything might appear unchanged, the world without standards is a very uncertain place. With no standards, it is impossible to know at what temperature or level of moisture fresh produce is and should be kept. How do the employees know how deeply to freeze ice cream? How can you as a customer determine the quantity of beans in a can? Do you compare the sizes of cans or how they feel in your hands? How certain can you be of the quality and safety of the foods you attempt to purchase? How do you know if a store has better or worse prices? There is no common basis to judge between one set of items and another set from a different store. Imagine building a house in this world with no standards. How thick will the slab need to be for a foundation built on given type of soil? How does the builder know the correct mix of aggregate and cement for the concrete in the foundation versus the cement for plastering walls or building driveways? How do the carpenters determine which screws to purchase or use for given types of joints? Finally, even if the team were able to put the home together, how do regulators determine if the structure is sound and habitable? Against what standard, literally, can your newly built home be compared? Given the complexities of navigating a grocery store or construction site without basic standards, imagine trying to build a cell phone, a task many times more complex given the need to integrate the hundreds of intricate components that make up a mobile phone. To make a mobile phone, at a minimum, a manufacturer needs to first ensure the phone is able to communicate with a set of towers and that these towers can interface 1 with a broader telephone network. The phone’s signal