ConnectorSupplier.com - The Top 10 Industry Trends

Top 10 Industry Trends

Trend #4: Standardization

History
To say that the practice of standardization of connectors has changed dramatically since the 1980s is an understatement. In the ‘80s, there were only a few organizations involved in connector standardization. The IEC (International Electrotechnical Commission) was the primary standardization organization at the international level.

At the national level, the EIA (Electronic Industry Alliance) and the military (MIL Standards) were the major players. For the most part, the standards were for connectors for specific applications, such as printed board connectors, or by type, such as circular connectors. In addition to such “formal” standardization, some connector suppliers and some connector users released product specifications. These product specifications contained much of the same information as the standards and served a similar purpose, but without the “authority” of the formal standards. They were, however, available in a timelier manner than the formal standards.

The formal standardization process, specification drafting, and review/approval tended to be slow due to the consensus requirements used in their development.

Today
Contemporary connector standardization differs substantially in at least two major ways:

Connectors are now included in broader scope standards as system components.
Standards are produced in a more timely fashion.

There are several aspects to the first bullet. The number of organizations producing standards, including connector companies, has increased dramatically. Within the computer industry alone, VITA (VME Industry Trade Association), PCISIG (Peripheral Component Interconnect Special Interest Group), PICMIG (PCI Industrial Computer Manufacturers Group), and others are producing specifications, including connectors. All three of these organizations are consortiums, with hundreds of members representing all aspects of computer technology. The content of the specifications produced by these organizations is highly technical from the systems viewpoint, and specific, with respect to the requirements that must be satisfied by the “selected” connectors. The word “selected” includes the selection of existing connectors, when possible, and the definition of requirements for connectors to be developed for specific applications.

Greater Complexity
The fact that “these organizations are consortia with hundreds of members” means that there are more people participating in, and complicating, the consensus process at the heart of standardization. The fact that the technical content of standards is increasingly more complex means that the “standards guy” needs more technical support, often in real-time rather than off-line. The fact that the standard may involve the design-in of a set of requirements rather than a connector means that increased support from the product development department of the connector manufacturer may be necessary. The combination of these factors means more personnel and time are required for a connector manufacturer to effectively participate in the standardization process.

Timeliness
Despite all these factors, connector standards are being produced in a timelier manner. The driving force behind this success is the shorter product life cycles of many computer and electronic products. A three- or four-year standards development process is incompatible with a product lifetime/revision rate of one or two years. Three factors contribute to this reduced standardization time:

First, communications technology, teleconferencing, and email document transfer greatly enhance the standards development process.
Second, the quarterly or semi-annual standards meetings of old have been supplemented, if not replaced, by weekly or semimonthly teleconferences. Again, this means a greater time commitment by the participating personnel.
Third, the requirements for introducing a product for standardization have been updated to permit a requestor to begin with a proposed final draft at the introduction stage. Such a draft may have been prepared in advance, as the market to be served was seen to be emerging, and when well implemented by the requestor, can significantly reduce the drafts needed to arrive at a final draft specification.

Intellectual Property Issues
The successful accommodation of these systematic and procedural changes may be tested by a new development in the standardization arena. This broadened scope in products, technologies, and membership of many standards developing organizations have made the issue of patents or intellectual property rights (IP) more complex and difficult. Overlapping products and technologies make overlapping patents more likely and complicate both concerns for infringement and licensing, in some cases multiple licensing of IP. This complexity brings at least two issues to the foreground of standardization: essential patents and licensing terms and conditions. An essential patent is a patent that has at least one claim that is necessary to the implementation or practice of a standard. The owner of an essential patent may seek royalties or licensing fees as compensation for the use of the claimed invention. This means that a standards developing organization must be aware of any essential patents and potential royalty/licensing issues during the standards development process in order to estimate the impact of such costs on the market for the standard. Concerns about these issues have created significant problems for standards development in recent years, giving rise to an increasing amount of attention being paid to possible solutions or resolutions to these issues.

IP Solutions
One potential solution is to introduce ex ante disclosure procedures into the standardization process. Ex ante to economists and antitrust lawyers describes discussions of licensing terms that occur "beforehand" in the standard setting process, as compared to ex post, or “afterwards.” “Beforehand” refers to some point before the adoption of a standard. The point at which disclosure is expected and the content of the disclosure will be defined by the standards developing organization. The significance of ex ante disclosure is that the royalty or licensing cost information provided can be taken into account during the development of the standard to enable selection of the most cost-effective IP option.

Existing ex ante disclosure practices vary among standards developing organizations. Many “encourage” disclosure of essential patents; some “require” such disclosure. Licensing terms and conditions however, are generally not included in the disclosure except in terms of a FRAND (Fair Reasonable and Non-Discriminatory) framework, and are even prohibited by some organizations. This wariness, with respect to disclosure of licensing terms and conditions, is due to concerns about violating antitrust laws. Such wariness however, may also result in non-disclosure of essential patents and meaningful discussion of licensing terms and conditions during the standardization process. If essential patents are disclosed after the standard is released, along with a licensing requirement, such disclosure is termed “patent ambush.” In the absence of ex ante discussion, ex post licensing terms and conditions that prove onerous are referred to as “patent hold-up.” Finally, multiple patent licensing requirements, due to the increasing patent overlap in standards development, can also introduce unexpected costs to the standard. These IP issues have been a focus of concern and discussion among many standards-developing organizations, as well as within ANSI (American National Standards Institute), the accrediting organization for standards development activity in the United States.

Given this brief review of ex ante, we can look to recent events in the standards world that will directly impact connectors and connector technology. Just over a year ago, the IP playing field was dramatically altered by the introduction of explicit ex ante IP disclosure practices to the standardization policies of VITA, and later, by IEEE SA (Institute of Electrical and Electronic Engineers Standards Association). The new IEEE SA policy, in addition to clarifying legacy and affiliate issues, membership responsibilities, and disclosure requirements, provides an opportunity for discussion of FRAND (Fair Reasonable and Non-Discriminatory) terms by explicitly permitting patent holders to commit to specific, not-to-exceed licensing rates, as well as to define licensing terms. The new VITA IP policy not only requires disclosure of IP details, it also introduces policies with respect to the timing of such disclosures and consequences for failure to meet disclosure obligations. The implementation plan for VITA’s revised patent policy stipulates at least five points in the development process where IP disclosures are required, beginning with the initial submission of a specification for consideration, and ending with the distribution of the final draft specification for voting. Consequences for failure to disclose include the granting of a royalty-free license on IP essential to the specification, as well as other limitations in the VITA patent policy.

Anti-Trust Compliance
Given the previously mentioned antitrust concerns about detailed IP licensing disclosures, both VITA and IEEE solicited the Department of Justice (DOJ) for business review letters on their proposed policies. The Antitrust Department of DOJ analyzed the details of each proposal and examined the expected competitive benefits of the proposal against its potential to restrain competition. The DOJ response was to “not oppose” the proposals. While not an “endorsement” of the proposals, these business review letters, and subsequent comments from the Chair of the Federal Trade Commission, indicate the general sense of the DOJ/FTC position on ex ante as practiced in these two cases. The phrase “cautious optimism” comes to mind to describe this expression of the DOJ/FTC support for ex ante policies in standards developing.

Additional support comes from the fact that ANSI has re-accredited both IEEE and VITA subsequent to their incorporation of their new IP policies. The ANSI IP policy is less demanding than the new VITA policy, being basically the “disclose and agree to license” policy mentioned previously. In this light, the ANSI re-accreditation of VITA appears supportive of the VITA policy.

While a case can be made that the VITA approach to ex ante (early disclosure and consequences for non-disclosure) provides benefits to the standardization process by ensuring that the technology needed will be available by speeding up the development process and providing insight into potential costs of licensing, and therefore, to consumers, it does introduce at least three issues for those disclosing IP during the standardization process. First, a participating company may have a large number of patents, and the participating member for that company may not be aware of all company IP that could be interpreted as essential to the standard under development. Does such a lack of knowledge imply non-disclosure? IEEE raised this issue in its request to the DOJ for a Business Review Letter, due to the broad scope of standardization areas covered by IEEE. Second, disclosure of current product developments, within a company that are patentable and potentially essential to the subject standard, could compromise the patentability of the new product. Third, additional support from the Legal Department may be warranted due to the uncertainty connected with ex ante disclosures at this point. The first issue may be resolved by “due diligence” search criteria. In fact, the VITA implementation plan does include a section titled “Good Faith and Reasonable Inquiry Obligation.” The second issue, while certainly not new to the standardization process, is more problematic given disclosure requirements and consequences, and could influence participation in the standardization process or, after the standard issues, lead to claims of “patent ambush.”

The IEEE and VITA incorporation of strengthened ex ante policies, following DOJ/FTC review and ANSI reaccredidation, are significant steps forward along the road to more effective ex ante utilization in standards development. It is to be expected, however, that there will be challenges to ex ante requirements and to consequences for non-disclosure. The outcome of those challenges will lead to better definitions of the uses and limitations of ex ante.

Connector Industry Implications
Industry standardization is one of the major engines that drive the electronics industry and connector unit volume growth. Without a major standardization effort, the connector industry would be smaller and more “proprietary,” with numerous product niches and far less interoperability.

Regulatory Standards: Not addressed previously are regulatory standards, which have increased recently as a result of environmental and equipment disposal requirements being imposed by world-governing bodies. Among them, and undoubtedly the most significant, are the EU imposed RoHS hazardous substance/lead-free regulations, and EU's next initiative, REACH (Registration, Evaluation and Authorization of Chemicals). RoHS has had a significant impact on the connector industry, which is shifting from tin-lead to tin-plated leads on 75 to 80 percent of its connector products. This initiative does benefit the environment, but has cost the industry millions of dollars during the transition.

Electronic Equipment: The electronic equipment industry learned the benefits of standardization in the 1980s and 1990s. It gradually shifted from proprietary interfaces designed to keep competition out, to industry standards that brought competition in, and unleashed an unparalleled flood of new products, new companies, and as a result, greater industry volume (i.e., everyone benefited). Now, the competition is global, but experience has shown that volume growth is benefiting all.

One major early example of this open systems/standards process was the IBM defacto PC-AT initiative, which essentially designed personal computers around open card cage architecture. Later, Intel took charge and further perfected PC designs with a textbook standardization of motherboards, memory, buses, IO standards, and many connectors—some defacto, others industry standards. This drove industry volume, and not incidentally, resulted in hundreds of millions of Pentium processors and chip sets being sold. At the same time, Apple Computer chose to remain proprietary in hardware (not software). The result, until recently, was that Apple had lost its lead and became a niche player in the PC market. Now Apple’s move to Intel architecture and its pre-eminent industrial design have brought it back into the mainstream.

Connectors + Connector Balancing Act: Arguably, connector applications are a key physical embodiment of standardization, since the connector provides a multi-vendor device, board, subsystem, and system and network interconnection. Connector companies have, to some extent, resisted industry standardization for sound business reasons relating to their own IP and the bottom line, rather than to industry growth. Standardization to some equates to commoditization and a threat to their pricing power and profitability. Plus, there are still many niche applications in this extremely broad and diverse industry. Many connector companies thrive in these applications. Some would have a difficult time competing in a more open standardized world, and have been victims (or beneficiaries) of industry consolidation. Thus, from the connector industry perspective, there are pluses and minuses to this multi-industry, multi-faceted standardization process.

Application-specific connectors provide benefits and many companies thrive in these applications:

In many cases, the best customer solution is a custom or semi-custom connector design.
Specific designs involve specialized applications, ergonomics, electrical, and environmental considerations.
Often a specific design is best for OEM manufacturability and installed cost.
Industry standards = more competitors, less pricing power, and a globally competitive environment.
The trend to diminish IP can result in “the lowest common denominator” (i.e., “just good enough”).
Unquestionably drive volume growth and application expansion.
Industry standards are most appropriate in multi-vendor, multi-system equipment applications.
Industry standards make maintenance and repair easier and less costly.
Industry standards are best for the consuming public, greatly reducing interconnect complexity.

Examples of Connector Standardization:

IO Connectors: VGA, DVI, HDMI, USB, IEEE1394, IEEE802.3/RJ45, RCA Jacks, and DIN.
PC Card Connectors: PCMCIA/Cardbus.
Memory Card Connectors: SD/MMC, Transflash/Mini-SD, XD Card.
SIM Connectors: Subscriber Interface Module that drives GSM mobile phone interoperability.
Device IO connectors: IDE/PATA, Serial ATA, SCSI, FibreChannel, GBIC/SFP device interface.
Bus Connectors: PCI, PCIe, Infiniband, VME, Compact PCI/Eurocard.

Defacto Standards: AMD/Intel processor sockets, cross-licensed backplane connectors, and many other applications where it behooves the original inventor to cross-license its technology—either on its own initiative or at the insistence of customers.

Also, some industries are more, others less, enamored with the benefits of standardization. We think this is because certain industries have a few major leadership companies who have a vested interest in overall industry growth, or the applications have an undeniable need for interoperability. Some other industries are more fragmented, more protective, or have particular cultural application or reliability requirements that dictate more custom interconnect designs. Examples of more standardized connector markets include:

Computer and peripheral equipment.
Telecommunications equipment, customer premise, and handset I/O.
Consumer electronics (I/O connectors, not necessarily internal/PCB connectors).

Examples of less standardized connector markets include:

Automotive, except entertainment, plus some multi-vendor wire size standardization—more to come.
Industrial—PCI, VME bus, Ethernet are standard, but connector designs vary by vendor and application.
Medical electronics and medical device industry.
Military/Avionics—except as influenced by MIL-specs or COTS (commercial-off-the-shelf).
Regions, e.g. Japan and the EU, where culture, market niches, and types of applications promote specialization.

Other Connector Issues:

Costs of participation in standards development will increase—from increased personnel involvement to more technical and legal support.
Increasing customization of connector requirements in standards provides an opportunity for new product development in emerging markets.
Potential effects of ex ante are mixed. Licensing terms and conditions may become more competitive when more than one connector is being considered for a standard. This may be counterbalanced by enhanced communication to facilitate second sourcing decisions.
Potential effects of ex ante may become an important consideration in product development.
To be, or not to be a standards player—if yes, how much energy is devoted to an increasingly global and complex standards process? If no, how do you stay on the radar screen with your own special application connector products and customers?