PFF's Digital Europe web page, describing the activities we will be undertaking in Europe next month, went up this week. The events we will be co-hosting in Milan and Brussels will focus on Interoperability in the Digital World - a subject that encompasses a lot of issues. One idea that will be examined during the course of these conferences is the notion that open source software (OSS) is more conducive to "openness" and interoperability than proprietary software.

In fact, there are very strong incentives for firms in network industries generally, including the proprietary software industry, to maintain interoperability, as the economics literature demonstrates quite clearly. The reason is simple. Maintaining interoperability with complementary systems increases the value of a firm's product to its customers. There are some exceptions to this rule, but even these exceptions do not necessarily violate economic efficiency.

Software developers can pursue interoperability in a variety of ways--on their own or through voluntary industry standard-setting groups that develop common technical standards that can be used across industries in different products. This type of activity has been around for a very long time and is now being adapted to the information technology world.

Ironically, open source runs into trouble in the standard-setting process, precisely because it requires companies to share their intellectual property. Proprietary software developers are willing to share because they can receive royalties, frequently under "reasonable and non discriminatory" (RAND) terms. However, the charging of royalties is inconsistent with most OSS licenses--e.g., the GPL. Therefore, it would be difficult, if not impossible, to incorporate OSS technology in a consensus standard that also utilized proprietary technology that was subject to a royalty. Similarly, propriety software would not be shared in a standard with GPL software, if that (which it would) precluded charging royalties.