[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
       STANDARDS DEVELOPMENT ORGANIZATION ADVANCEMENT ACT OF 2003

=======================================================================



                                HEARING

                               BEFORE THE

                        TASK FORCE ON ANTITRUST

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 1086

                               __________

                             APRIL 9, 2003

                               __________

                              Serial No. 6

                               __________

         Printed for the use of the Committee on the Judiciary


    Available via the World Wide Web: http://www.house.gov/judiciary






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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
CHRIS CANNON, Utah                   SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama              MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana          MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin                WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania        TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona                  ANTHONY D. WEINER, New York
MIKE PENCE, Indiana                  ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia            LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee

             Philip G. Kiko, Chief of Staff-General Counsel
               Perry H. Apelbaum, Minority Chief Counsel



----------
    Note: The Task Force on Antitrust was established on March 26, 2003 
and consists of all the Members of the full Judiciary Committee.


















                            C O N T E N T S

                              ----------                              

                             APRIL 9, 2003

                           OPENING STATEMENT

                                                                   Page
The Honorable J. Randy Forbes, a Representative in Congress From 
  the State of Virginia..........................................     1
The Honorable William D. Delahunt, a Representative in Congress 
  From the State of Massachusetts................................     2
The Honorable Martin T. Meehan, a Representative in Congress From 
  the State of Massachusetts.....................................     3
The Honorable Howard Coble, a Representative in Congress From the 
  State of North Carolina........................................     3
The Honorable Steve Chabot, a Representative in Congress From the 
  State of Ohio..................................................     3

                               WITNESSES

Honorable James M. Shannon, President and Chief Executive 
  Officer, National Fire Protection Association
  Oral Testimony.................................................     4
  Prepared Statement.............................................     7
Mr. David Karmol, Vice President of Public Policy and Government 
  Affairs, American National Standards Institute
  Oral Testimony.................................................     9
  Prepared Statement.............................................    11
Mr. Earl Everett, Director, Department of Labor, Division of 
  Safety Engineering, State of Georgia
  Oral Testimony.................................................    14
  Prepared Statement.............................................    15

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress From the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    23
Letter in support of H.R. 1086 submitted on behalf of The 
  International Code Council.....................................    24
















       STANDARDS DEVELOPMENT ORGANIZATION ADVANCEMENT ACT OF 2003

                              ----------                              


                        WEDNESDAY, APRIL 9, 2003

                  House of Representatives,
                           Task Force on Antitrust,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Task Force on Antitrust met, pursuant to call, at 9 
a.m., in Room 2141, Rayburn House Office Building, Hon. J. 
Randy Forbes [Chairman of the Task Force on Antitrust] 
presiding.
    Mr. Forbes. The Task Force will come to order. Today's 
meeting marks the inaugural hearing of the House Committee on 
the Judiciary Antitrust Task Force. We convene today to conduct 
a legislative hearing on H.R. 1086, the ``Standards Development 
Organization Advancement Act of 2003.''
    This legislation would foster the critical role of standard 
development organizations while strongly reaffirming the 
central role of our Nation's antitrust statutes in preserving 
and promoting free market competition.
    Standard development organizations play a pivotal role in 
promoting free market competition. Technical standards form the 
basis of product competition by ensuring a common interface 
between technically suitable substitutable products. Standards 
development in the United States is conducted largely by 
private not-for-profit standard development organizations which 
are best suited to keep pace with rapid technological change. 
The standard setting process is governed by principles of 
openness, balance transparency, consensus and due process in a 
nonexclusionary manner that permits the views of all interested 
parties to be fully considered.
    In 1996, Congress passed legislation requiring the use of 
voluntary consensus standards in Federal procurement and 
regulatory activities. While this legislation has encouraged 
Government use of privately developed standards, it has also 
increased the vulnerability of private standards developers to 
antitrust litigation. The frequency in which standards 
developing organizations are named in lawsuits hampers their 
effectiveness and efficiency. H.R. 1086 remedies this problem. 
It must be stressed that H.R. 1086 does not immunize standard 
development organizations from scrutiny under the antitrust 
laws; rather, it limits recovery against these organizations to 
actual economic damages while codifying the rule of reason for 
antitrust scrutiny of these activities.
    To further address the potential for anticompetitive 
misconduct, H.R. 1086 requires standard development 
organizations to disclose the nature and scope of their 
activities to the Department of Justice and to the Federal 
Trade Commission in order to come within the protections of the 
legislation.
    I am pleased that this legislation has attracted the 
cosponsorship of the Chairman and Ranking Member of this 
Committee as well as 12 of its Members. In this respect, H.R. 
1086 continues this Committee's bipartisan tradition of 
striking the proper balance between procompetitive activity 
while ensuring the active role of Federal antitrust agencies in 
the preservation and promotion of competition in our market 
economy.
    I look forward to the testimony of our distinguished panel 
and now yield to Congressman Delahunt for his opening remarks.
    Mr. Delahunt. I thank the Chair and I am pleased to be 
here. I also want to commend the Chairman of the full 
Committee, and the Ranking Member for agreeing to the creation 
of this particular Task Force. It certainly makes good sense 
and I am confident that it will be productive.
    Like you, Mr. Forbes, I look forward to the testimony of 
our witnesses and I especially want to welcome my friend, the 
former Attorney General of Massachusetts, Jim Shannon, who also 
served with great distinction in this House, many years ago 
now, I understand. He certainly has been an eloquent champion 
of this bill and I want to say how good it is to have him here, 
and I know that I echo the sentiments of his other dear friend 
on this Committee, Mr. Meehan.
    Nearly 20 years ago Congress passed legislation known as 
the National Cooperative Research Act, which permitted certain 
cooperative ventures to reduce their exposure to treble damages 
under the antitrust laws by making advanced disclosures of 
their activities. The bill before us would provide similar 
relief to nonprofit organizations that develop voluntary 
technical standards known as standard development organizations 
or SDOs. The standards developed by these organizations play an 
essential role in enhancing public safety, facilitating market 
access and promoting trade and innovation. Yet despite these 
procompetitive effects, SDOs can find themselves named as 
defendants in suits between business competitors alleging 
violations of the antitrust laws. Once they are sued, these 
organizations are forced to expend considerable resources on 
protracted discovery proceedings before they are finally able 
to prevail on motions to dismiss.
    The bill, like the NCRA before it, takes a moderate 
approach toward addressing this problem. It does not create a 
statutory exemption, as Mr. Forbes indicated, or defer immunity 
from the operation of the antitrust laws. It merely detrebles, 
if you will, antitrust damages in cases where accurate 
predisclosure of collaborative activities has been made to the 
Department of Justice. I would submit that this is the right 
approach. Congress should allow the antitrust laws to operate 
as they were meant to without creating special exemptions and 
carveouts for particular industries.
    This bill does not create an exemption for SDOs; instead, 
it grants them limited relief in the same type and same manner 
as the relief provided by the NCRA to certain cooperative joint 
ventures. It is a moderate approach. It has worked well.
    And again, Mr. Chairman, I thank you for holding this 
hearing and I look forward to the testimony of our witnesses. I 
would like to at this point in time introduce, to my left, to 
the panel, Congresswoman Zoe Lofgren from California. And I 
would also, with the indulgence of the Chair, would inquire 
from Mr. Meehan if he also wishes to join me in welcoming Mr. 
Shannon, in particular, to this hearing.
    Mr. Meehan. I thank my colleague. I would like to welcome 
Jim Shannon to the Judiciary Committee. Jim Shannon actually 
gave me my first job in the Congress as a congressional 
staffer. And I would point out to my colleague from 
Massachusetts, it wasn't that long ago. In fact, it was 1979.
    Just for a little bit of history, in the 96th Congress in 
1979, Jim Shannon was the youngest Member of Congress at 26 
years old. And Jim also served with distinction as the Attorney 
General of the Commonwealth, and during his tenure he took a 
leadership role on antitrust issues. He was the Chairman of the 
Antitrust Committee of the National Association of Attorneys 
General.
    So I am delighted to have Mr. Shannon here and look forward 
to the testimony.
    Mr. Forbes. Any other Members wish to make any other 
opening remarks? The Chair recognizes the distinguished Member 
from North Carolina, Mr. Coble.
    Mr. Coble. Mr. Chairman, I will be very brief. This hearing 
has the trappings of a Massachusetts conspiracy. Mr. Shannon, 
you sent two good men here in Mr. Delahunt and Mr. Meehan. And 
Mr. Chairman, I regret that I have two other hearings 
simultaneously being conducted, so I may have to come and go. 
But I agree with Mr. Delahunt, I appreciate you and the 
Chairman of the full Committee for having formulated this 
hearing. I look forward to hearing it while I can be here. 
Thank you.
    Mr. Forbes. We will take you when we can get you and we 
know that it is quality and not quantity. We appreciate the 
minutes that we have.
    Any other Member? The distinguished Member, from Ohio, Mr. 
Chabot.
    Mr. Chabot. Mr. Chairman, I wish we had one of our 
Republican House Members from Massachusetts who could also 
extend our greetings here, but of the 13 Members--I think it is 
still 13, they are all Democrats, but at least as one 
Republican, my dad was from Massachusetts. He was the one 
Republican in his family and he moved out of the State. So we 
all welcome you here and look forward to what you have to say.
    Mr. Forbes. Any other Members wish to make any other 
opening remarks?
    Before we begin, I would like to briefly introduce today's 
distinguished panel of witnesses. Our first witness is Mr. 
James Shannon, the President and Chief Executive Officer of the 
National Fire Protection Association. Before assuming this 
position, Mr. Shannon was Senior Vice President and General 
Counsel for the Association. The National Fire Protection 
Association is an international organization which develops 
fire safety codes and standards which are adopted by State and 
local jurisdictions throughout the United States by the Federal 
Government and by governments around the world.
    Prior to joining the National Fire Protection Association, 
Mr. Shannon served as Attorney General of the Commonwealth of 
Massachusetts where he argued several antitrust cases and 
testified before this Committee on antitrust legislation.
    Mr. Shannon began his political career with his election to 
the United States House of Representatives in 1978. He was the 
youngest Member of the 96th Congress and served in the House 
until 1985. Mr. Shannon received his BA from Johns Hopkins 
University and his JD from George Washington University. Mr. 
Shannon, thank you for appearing today.
    Our second witness is David Karmol who serves as Vice 
President for Public Policy and Government Affairs at the 
American National Standards Institute, ANSI. In this position, 
Mr. Karmol is responsible for advocacy and outreach programs 
designed to better educate Federal, State and local government 
officials on the role of standard developing organizations and 
promoting the competiveness of U.S. Businesses and enhancing 
public health and safety. ANSI is a nonprofit organization that 
has administered and coordinated the U.S. private sector 
voluntary standardization system for more than 80 years.
    Prior to joining ANSI, Mr. Karmol spent 10 years as General 
Counsel and Director of Public Affairs at the National Spa and 
Pool Institute. Mr. Karmol is no stranger to this setting, 
having served as counsel to the Judiciary Committee from 1979 
to 1983. Mr. Karmol also served in the Ohio House of 
Representatives. Mr. Karmol received his BA from Miami 
University of Ohio and his JD from the Ohio State University 
College of law. Mr. Karmol, welcome back to the Committee.
    Our final witness is Earl Everett, the Director of Safety 
Engineering for the Georgia State Department of Labor. In his 
present capacity, Mr. Everett oversees the enforcement of a 
variety of codes and standards that promote public health and 
safety.
    Prior to joining the Georgia Department of Labor, Mr. 
Everett was the Assistant Regional Manager in the Southeast for 
Hartford Steam Boiler Inspection and Insurance Company. Mr. 
Everett holds a business administration degree from Orlando 
College in Florida, and served in the United States Navy from 
1962 until 1974. Mr. Everett, thank you for appearing before 
the Committee to provide a State perspective upon this 
legislation.
    And before recognizing our first witness, I don't believe 
there are any other Members that have joined us. Any other 
Members wish to make any opening remarks?
    Mr. Forbes. If not, we will turn to our first witness, Mr. 
Shannon and we look forward to your remarks.

  STATEMENT OF THE HONORABLE JAMES M. SHANNON, PRESIDENT AND 
 CHIEF EXECUTIVE OFFICER, NATIONAL FIRE PROTECTION ASSOCIATION

    Mr. Shannon. I am honored to appear before this Committee 
again. I am Jim Shannon. I am President and Chief Executive 
Officer of NFPA. NFPA is an international organization that 
develops voluntary consensus codes and standards that are 
adopted by State and local jurisdictions throughout the United 
States and are widely used by the Federal Government and other 
governments around the world. As you indicated, before joining 
NFPA, I served as Attorney General of the Commonwealth of 
Massachusetts and was involved in antitrust matters with the 
National Association of Attorneys General where I had the honor 
to testify before this Committee on antitrust matters, and I 
served in the House of Representatives for three terms prior to 
that. As a public official, I sought to understand and improve 
and enforce the antitrust laws to further the goals of enhanced 
competition.
    And the bill I am here to support today, the Standards 
Development Organization Advancement Act of 2003, will help 
standards developers continue their important work on behalf of 
all of our citizens while reaffirming the central role of our 
antitrust statutes in a free market economy.
    Let me take a minute if I might to describe NFPA, to give 
you a sense of the organizations that are covered by this 
proposal and why it is in the public interest to adopt the 
legislation. NFPA was founded over 100 years ago and has as its 
mission the protection of lives and property from fire and 
related hazards. This mission is accomplished principally 
through the development of nearly 300 codes and standards in a 
consensus process under rules sanctioned by the American 
National Standards Institute. These codes include the National 
Electrical Code, which is used in just about every jurisdiction 
in America; the National Fire Codes; and the Life Safety Code, 
which under law must be used in health care facilities that 
receive Medicare and Medicaid reimbursement.
    Our rules require that standards be developed using 
procedures that ensure due process, openness, fairness and the 
participation of materially affected interests. Our technical 
committees that draft and update our codes are balanced to 
ensure that no single group of interested persons can dominate 
the process. Decisions are reached by consensus after 
consideration of all of the technical arguments. And in our 
system, any party who disagrees with a decision may file an 
appeal and receive a hearing before a standard or code is 
issued.
    The wide acceptance of NFPA codes and standards and codes 
and standards of similar nonprofit organizations is testament 
to the benefits provided by these activities. The legislation 
before you today is necessary, because standards development by 
its nature places competitors or potential competitors in a 
position where they may carry their competition into a 
standards development process. If one of these actors believes 
that its position in the market has been unfairly hindered by a 
particular standards decision, it may sue its competitor who 
has advocated that decision, alleging violations of the 
antitrust laws, and in many cases will sue the standard 
development organization. This happens even though the standard 
development organization is a nonprofit organization with no 
profit or other motive to violate the antitrust laws.
    Because of the complexity of the antitrust laws and the 
continuing uncertainty of their potential application to 
standard development organizations, the prospect is that 
standards developers will continue to be named as pattern 
defendants in antitrust cases alleging anticompetitive conduct 
of business competitors carried out in the standard development 
context.
    NFPA, for example, has been named in several antitrust 
suits that have arisen in this way. When we met with 
individuals from the Justice Department, there was one person 
who had been there for some length of time and he said, gee, in 
all my years, you are the first organization that has come 
looking for relief from the antitrust laws who has actually 
been sued--which I thought was a signal honor for us. It has 
never been found, however, liable for any antitrust violation.
    These suits, however, are very costly and disruptive to 
defend, even when the court dismisses the standard development 
organization's defendant. And merely the threat of substantial 
treble damages severely restrains the operations of nonprofit 
organizations that develop codes and standards.
    Now, while I believe that a compelling case can be made for 
full antitrust immunity for nonprofit standard development 
organizations, the relief that we are seeking today is far more 
moderate and similar to an approach adopted by this Committee 
when it wrote the 1984 National Cooperative Research Act and 
amended that act in 1993. In those instances, the Committee 
adopted an approach whereby procompetitive joint venture 
activity could be predisclosed to antitrust agencies. In return 
for such disclosure, the parties received not immunity but 
detrebled actual damages, provided that their subsequent 
conduct stays within the bounds of their disclosure to the 
Department of Justice.
    The NCRA, I think, has been a great success, allowing 
cooperation to bring about technical innovation without 
sacrificing the procompetitive protection of antitrust law. 
This proposed legislation would simply amend the existing 
statute to allow SDOs to use the very same predisclosure system 
that is now used for R&D ventures and production joint 
ventures. Thus the bill would leave the statutory scheme in 
place and simply include properly disclosed standards 
development activity as being eligible for the protections 
established by the NCRA.
    As in 1984 and again in 1993, the proposed bill would 
ensure that the definition of standard setting would never 
include any of the per se offenses like price fixing, boycott, 
or dividing territories. In order to qualify for this 
treatment, the SDO would have to follow the open, voluntary, 
and nonexclusionary principles embodied in the OMB circular. 
And the protections provided in the act would apply only to 
activities that had been disclosed in advance to the Department 
of Justice and not to other activities of the standard 
development organizations.
    These changes in the law would not mean that standard 
development organizations could never be joined as a defendant 
in an antitrust suit involving standard development activities. 
These changes would mean the potential antitrust plaintiffs 
would be on notice that to the extent that a standard 
development organization stayed within the bounds of its 
predisclosure to the antitrust reviewing agency, it would be 
subject only to actual and not treble damages.
    Mr. Chairman, Members of this Committee, in summary, the 
Standards Development Organization Advancement Act of 2003 is 
an act that alleviates what has become a significant problem 
for the nonprofit organizations that develop codes and 
standards that provide protection for the health and safety of 
American workers and our whole citizenry. The procedures 
embodied in the act have proven to be very successful with 
regard to cooperation, research, and development as allowed in 
the NCRA. Just as with that act, this legislation will remove a 
growing obstacle to activity that is clearly in the public 
interest, while leaving intact the important protection 
provided by strong antitrust laws, laws that I have long fought 
to protect. Thank you.
    Mr. Forbes. Thank you for your testimony.
    [The prepared statement of Mr. Shannon follows:]
          Prepared Statement of the Honorable James M. Shannon
    Mr. Chairman, ranking Member Conyers and Members of the Committee, 
I am honored to appear before this Committee again. I am James M. 
Shannon and I am President and Chief Executive Officer of NFPA (the 
National Fire Protection Association). NFPA is an international 
organization that develops voluntary consensus codes and standards that 
are adopted by state and local jurisdictions throughout the United 
States and are widely used by the federal government and other 
governments around the world. Before joining NFPA I served as Attorney 
General of the Commonwealth of Massachusetts from 1987 to 1991 and I 
was Chairman of the Antitrust Committee of the National Association of 
Attorneys General. In that capacity, I appeared before this committee 
to testify on antitrust matters. Before that I had the great honor of 
representing the Fifth Congressional District of Massachusetts as a 
member of this body from 1979 to 1985 and served on the Ways and Means 
Committee.
    As a public official I sought to understand, improve, and enforce 
the antitrust laws to further the goals of enhanced competition. The 
bill that I am here to support today, the Standards Development 
Organization Advancement Act of 2003, will help standards developers 
continue their important work on behalf of all of our citizens while 
reaffirming the central role of our competition statutes in a free-
market economy.
    Let me take a minute to describe NFPA to give you a sense of the 
organizations that are covered by this proposal and why it is in the 
public interest to adopt this legislation.
    NFPA was founded over one hundred years ago and has as its mission 
the protection of lives and property from fire and related hazards. 
This mission is accomplished principally through the development of 
nearly 300 codes and standards in a consensus process under rules 
sanctioned by the American National Standards Institute. These codes 
include the National Electrical Code, which is used in just about every 
jurisdiction in America, the National Fire Codes and the Life Safety 
Code which, under law, must be used in healthcare facilities that 
receive Medicare and Medicaid reimbursement.
    Our rules require that standards be developed using procedures that 
ensure due process, openness, fairness and the participation of all 
materially affected interests. Our technical committees that draft and 
update our codes are balanced to ensure that no single group of 
interested persons can dominate the process. Decisions are reached by 
consensus after consideration of all the technical arguments. In our 
system, any party who disagrees with a decision may file an appeal and 
receive a hearing before a standard or code is issued. The wide 
acceptance of NFPA codes and standards and codes and standards of 
similar nonprofit organizations is testament to the benefits provided 
by these activities.
    What is unique about the United States standardization process is 
that these activities, so vital to our citizens, are conducted by 
private organizations, not governmental agencies, but with broad 
participation, acceptance and support by public authorities. In fact, 
it has been federal policy since at least the Reagan Administration 
both through OMB Circular A-119 and more recently (in 1996) with the 
adoption of the National Technology Transfer and Advancement Act 
(NTTAA) to require the use of voluntary consensus standards to the 
extent possible in all procurement and regulatory activities.
    The legislation before you today is necessary because standards 
development, by its nature, places competitors or potential competitors 
in a position where they may carry their competition into a standards 
development process. If one of these actors believes that its position 
in the market has been unfairly hindered by a particular standards 
decision, it may sue its competitor who has advocated that decision, 
alleging violations of the antitrust laws and in many cases will sue 
the standards development organization as well. This happens even 
though the standards development organization is a nonprofit 
organization with no profit or other motive to violate the antitrust 
laws. Because of the complexity of the antitrust laws and the 
continuing uncertainty of their potential application to standards 
development organizations, the prospect is that standards developers 
will continue to be named as pattern defendants in antitrust cases 
alleging anticompetitive conduct of business competitors carried out in 
the standards development context.
    NFPA, for example, has been named in several antitrust suits that 
have arisen in this way. It has never been found liable for any 
antitrust violation. These suits, however, are very costly and 
disruptive to defend even when the court dismisses the standards 
development organization defendant, and, merely the threat of 
substantial treble damages severely restrains the operations of a 
nonprofit organization that develops codes and standards.
    While I believe that a compelling case can be made for full 
antitrust immunity for nonprofit standards development organizations, 
the relief we are seeking today is far more moderate and similar to an 
approach adopted by this committee when it wrote the 1984 National 
Cooperative Research Act (NCRA) and amended that act in 1993. In those 
instances, this committee adopted an approach whereby procompetitive 
joint venture activity could be predisclosed to the antitrust agencies. 
In return for such disclosure, the parties receive not immunity but 
``detrebled'' damages (actual damages), provided that their subsequent 
conduct stays within the bounds of their disclosure to the Department 
of Justice.
    The NCRA has been a great success allowing cooperation to bring 
about technical innovation without sacrificing the procompetitive 
protection of antitrust law. With regard to the R&D activities covered 
by that Act, a balanced approach of not granting immunity but 
establishing a voluntary and transparent predisclosure process in 
return for reduced liability was in the best interests of both 
innovation and safeguarding competition. The same approach for 
standards development will provide similar benefits for the public.
    The proposed legislation would simply amend the existing statute to 
allow SDO's to use the very same predisclosure system as now used for 
R&D joint ventures and production joint ventures. Thus, the bill would 
leave the statutory scheme in place and simply include properly 
disclosed standards development activity as being eligible for the 
protections established by the NCRA. As in 1984 and again in 1993, the 
proposed bill would ensure that the definition of ``standards setting'' 
would never include any of the per se offenses, like price fixing, 
boycott or dividing territories. In order to qualify for this treatment 
the SDO would have to follow the open, voluntary and non-exclusionary 
principles embodied in the OMB circular. The protections provided in 
the Act would apply only to activities that had been disclosed in 
advance to the Department of Justice, and not to other activities of 
the standards development organizations.
    These changes in law would not mean that standards development 
organizations could never be joined as a defendant in an antitrust suit 
involving standards development activities. These changes would mean 
that potential antitrust plaintiffs would be on notice that, to the 
extent that a standards developing organization stayed within the 
bounds of its pre-disclosure to the antitrust reviewing agency, it 
would be subject only to actual, not treble damage. In addition, under 
the proposed legislation, joinder of an SDO in an antitrust suit along 
with the actual business competitors could no longer be done lightly. 
As with the National Cooperative Research Act, this legislation 
provides for court awarded costs and attorneys fees where an Act-
compliant SDO is sued unreasonably or in bad faith.
    Mr. Chairman and Members of the Committee, in summary, the 
Standards Development Organization Advancement Act of 2003, is an act 
that alleviates what has become a significant problem for the nonprofit 
organizations that develop the codes and standards that provide 
protection for the health and safety of American workers and our whole 
citizenry. The procedures embodied in the Act have proven to be very 
successful with regard to cooperation in research and development as 
allowed in the National Cooperative Research Act. Just as with that Act 
this legislation will remove a growing obstacle to activity that is 
clearly in the public interest while leaving intact the important 
protection provided by strong antitrust laws.
    Thank you.

    Mr. Forbes. And Mr. Karmol, we look forward to your 
comments.

STATEMENT OF DAVID KARMOL, VICE PRESIDENT OF PUBLIC POLICY AND 
   GOVERNMENT AFFAIRS, AMERICAN NATIONAL STANDARDS INSTITUTE

    Mr. Karmol. Thank you, Mr. Chairman, Members of the 
Committee. My name is Dave Karmol. I am the Vice President of 
Public Policy and Government Affairs for the American National 
Standards Institute, also known as ANSI.
    I am honored to join the two gentlemen at the table this 
morning who represent two ANSI-accredited standards developers, 
NFPA and ASME. These two groups are respected around the world, 
and the work they do is a large part of the reason this Nation 
is as safe a place as it is to live, work, and play.
    Voluntary consensus standards produced by the hundreds of 
groups this bill would benefit are documents intended to 
improve the utility and safety of products and services, 
stimulate competition for products by facilitating 
interchangeability and interoperability, and enhance 
international trade. Use of a standard offers a benchmark of 
basic product characteristics which allows buyers to compare 
products.
    The voluntary standardization system in the United States 
is the most effective and efficient in the world. For almost 
100 years, this system has been administered and coordinated by 
ANSI, a private 501(c)(3) organization with the cooperation of 
Federal, State and local governments. ANSI itself does not 
write standards, but accredits nearly 300 standard development 
organizations, SDOs, who have together developed over 11,000 
American national standards. ANSI determines whether the 
standards developed by these groups meet the criteria to be 
approved as American national standards. ANSI's approval of 
these standards verifies that the principles of openness and 
due process have been followed. American national standards 
provide dimensions, ratings, terminology and symbols, test 
methods, interoperability criteria and performance and safety 
requirements for everything from children's toys to nuclear 
reactor vessels.
    Today, standards development continues in such critical 
areas as health care, the environment, and homeland security. 
In the conformity assessment area--that is, measuring 
compliance with standards--ANSI accredits 36 organizations that 
certify products meet standards. ANSI is also involved in the 
process of accrediting organizations that register quality 
systems conforming to ISO 9000 and ISO 14000 series of 
standards.
    As you may know, ANSI was created in 1918 as a joint effort 
by the Departments of War, Navy, and Commerce and several 
standards developers. More recently, when Congress enacted the 
National Technology Transfer and Advancement Act of 1995, it 
specifically encouraged the participation of the Federal 
Government in the development of voluntary standards. It was 
the clear intent of Congress that Federal employees play an 
active role in the development of standards to be used in 
regulation, procurement, and trade.
    Other recent legislation gives evidence of the intent of 
Congress that Federal agencies should use voluntary standards 
whenever possible. That includes the Consumer Product Safety 
Act, the Health Insurance Portability and Accountability Act or 
HIPPA, the Telecommunications Reform Act of 1996, the FDA 
Modernization Act of 1997, and the National Defense 
Authorization Act of 2002.
    Today, the Department of Defense alone has adopted over 
9,000 voluntary standards for procurement purposes, and the use 
of these standards helps makes our military the best in the 
world. Replacing milspecs with voluntary standards has also 
saved taxpayers billions of dollars in procurement costs.
    The benefits and procompetitive effects of voluntary 
standards are not in dispute. Standards do everything from 
solving issues of product compatibility to addressing consumer 
safety and health concerns. They also are a fundamental 
building block for international trade. As a result of laws 
passed by Congress encouraging Government adoption and use of 
standards, our community is now performing some functions that 
were previously the exclusive province of Government agencies. 
As standards developers take on these roles, it makes sense 
that they should have some of the exemptions from liability 
that the Government has traditionally enjoyed, such as relief 
from potentially onerous antitrust liability.
    The National Cooperative Research and Production Act 
recognized the need to balance the interest and avoiding 
anticompetitive conduct with procompetitive results of 
cooperative ventures in the areas of research and production. 
The NCRPA eliminates the possiblity of treble damages when 
participants file their intent with the Justice Department and 
the FTC.
    H.R. 1086 creates an explicit filing opportunity for SDOs 
that mirrors the requirements and restrictions currently placed 
on companies filing under existing law. H.R. 1086 recognizes 
the new functions SDOs have taken on and recognizes the need 
for a filing method that is clearly available to these SDOs.
    SDOs and the experts that populate these groups serve an 
important public service function in devising voluntary 
consensus standards. The entire voluntary consensus standard 
system will be hindered in its ability to continue its work if 
SDOs are subject to possible antitrust claims and the legal 
expenses that such claims entail.
    We ask you favorably to consider H.R. 1086. And by acting 
on this, Congress will take a step to offer some protection to 
the SDOs on which the Government depends for assistance in 
devising reasonable regulations and procurement standards that 
fulfill Government needs.
    ANSI shares this Committee's desire to see that the 
antitrust laws protect American citizens and businesses from 
illegal practices while at the same time not unduly restricting 
the ability of American firms to work together to address the 
challenges they face in the global marketplace. We also believe 
that along with the responsibilities that have been assumed by 
the hundreds of organizations that sponsor the development of 
standards, there is a need for some protection from the high 
costs of defending against this type of litigation.
    This legislation strikes a good balance and provides some 
recognition of the contribution that standards developing 
organizations make to American society and our economy and 
increasingly as partners with the Federal Government.
    We thank you for the opportunity to testify. And I would be 
very happy to answer questions.
    Mr. Forbes. Thank you, Mr. Karmol.
    [The prepared statement of Mr. Karmol follows:]
                 Prepared Statement of David L. Karmol
    Good morning, Mr. Chairman and members of the Committee. My name is 
David Karmol and I am the Vice President of Public Policy and 
Government Affairs at the American National Standards Institute, 
usually referred to as ANSI.
    It is with great pleasure that I appear before you today to discuss 
the merits of H.R. 1086, a bill ``to encourage the development and 
promulgation of voluntary consensus standards . . . by providing relief 
under the antitrust laws to standards development organizations'' 
(SDOs). Voluntary consensus standards are documents intended to improve 
the utility and safety of products and services, stimulate competition 
for products by facilitating interchangeability and interoperability, 
and enhancing international trade. Standards that are approved as 
American National Standards are created by accredited organizations 
that focus on reaching consensus among all affected stakeholder groups 
that may include industry, government, organizations, consumers/labor 
interests, and other experts. These standards provide technical 
guidance on the production and operation of a wide array of materials, 
products, and services across a multitude of industry sectors.
    Beyond their use as a means of enhancing consumer safety, standards 
provide a method for creating products that are interoperable in spite 
of being manufactured by different corporations. Wide acceptance of a 
standard offers a benchmark of basic product characteristics, which 
allows consumers to compare products. This not only benefits large 
corporations, but also small businesses that are able to market 
products that can be independently certified as having equivalent 
functionality, safety characteristics or other common factors.
                              ansi's role
    The voluntary standardization system in the United States is the 
most effective and efficient in the world. For almost 100 years, this 
system has been administered and coordinated by the private sector 
through ANSI, with the cooperation of federal, state and local 
governments. ANSI does not write standards; it serves as a catalyst for 
standards development by its diverse membership. The Institute is a 
unique partnership of industry; professional, technical, trade, labor, 
academic and consumer organizations; and some 30 government agencies. 
These members of the ANSI federation actually develop standards or 
otherwise participate in their development, contributing their time and 
expertise in order to make the system work.
    ANSI accredits various standards developers to develop American 
National Standards. Thousands of individuals from companies, 
organizations (such as labor, consumer and industrial groups), 
academia, and government agencies voluntarily participate and 
contribute their knowledge, talent and efforts to the standards 
development process.
    ANSI determines whether standards developed by ANSI-accredited 
standards developers meet the necessary criteria to be approved as 
American National Standards. ANSI's approval of these standards is 
intended to verify that the principles of openness and due process have 
been followed and that a consensus of all interested parties has been 
reached. In addition, ANSI considers any evidence that the proposed 
American National Standard is contrary to the public interest, contains 
unfair provisions or is unsuitable for national use.
    The voluntary consensus standards development process has proven 
its effectiveness across a diverse set of industries and in federal, 
state and local government processes. These industries include 
telecommunications, safety and health, information technology, 
petroleum, banking and household appliances. There are now 
approximately 11,000 ANSI-approved American National Standards that 
provide dimensions, ratings, terminology and symbols, test methods, 
interoperability criteria, and performance and safety requirements. 
These efforts continue today and are being applied to new critical 
areas such as the environment and healthcare.
    ANSI also is the United States representative to the two major, 
non-treaty international standards organizations: The International 
Organization for Standardization (ISO) and, through the United States 
National Committee, the International Electrotechnical Commission 
(IEC). In the conformity assessment area, ANSI accredits organizations 
that certify that products meet certain standards. In addition, through 
a joint program, ANSI and the Registrar Accreditation Board (RAB) 
accredit organizations that register quality systems conforming to the 
ISO 9000 and ISO 14000 series of standards.
    In fulfilling its roles and responsibilities, ANSI continues to 
pursue its mission to ``[e]nhance both the global competitiveness of 
U.S. business and the U.S. quality of life by promoting and 
facilitating voluntary consensus standards and conformity assessment 
systems and safeguarding their integrity.'' In summary, ANSI ensures 
the integrity of the U.S. voluntary consensus standardization system by 
serving as (1) an open, national forum for standards-related policy 
issues, (2) the only accreditor of standards developers, ISO Technical 
Advisory Groups (TAGs) and certain certification programs, and (3) a 
primary source of information and education on standards and conformity 
assessment issues.
                   ansi processes and procedures \1\
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    \1\ The ANSI procedural requirements for accrediting standards 
developers and for designating American National Standards are 
available on ANSI Online at 
---------------------------------------------------------------------------
    As the only accreditor of U.S. standards developing organizations, 
ANSI ensures the integrity of the voluntary consensus standards 
development process and determines whether standards meet the necessary 
criteria to be approved as American National Standards. The goal of the 
ANSI process is to obtain a document that a balanced consensus of 
materially affected interest groups believes is an appropriate 
standard. Due process is critical when it comes to determining if that 
consensus has been fairly achieved. Accordingly, ANSI requires that a 
draft proposed standard be appropriately circulated (both to the 
consensus body and the public at large) and that an attempt is made to 
resolve all negative comments. There must be an appeals process. If a 
balanced consensus body then votes on and approves the proposed 
document after reviewing all unresolved negative comments and any 
substantive changes to the text, consensus has been achieved and due 
process has been satisfied. This basic formula has been the hallmark of 
the ANSI process for decades, and it has earned widespread respect and 
acceptance.
    If a standard is developed according to ANSI requirements, there 
should be sufficient evidence that the standard has a substantive 
reasonable basis for its existence and that it meets the needs of 
producers, users and other interest groups. If a vote on a standard was 
or is somehow perceived as having been subtlety manipulated, any person 
or entity who is materially affected by or otherwise interested in the 
standard--whether a voting member of the consensus body or a public 
commentator--can appeal the decision. The grounds for an appeal to ANSI 
include issues such as lack of balance on the consensus body, dominance 
by any person or entity, inadequate response to a negative comment 
(again whether from a voting member of the committee or a public 
commentator), and improper restraint of trade concerns. The appeals 
process, and the requirement that all consensus bodies seek to have 
representatives from a balanced group of stakeholder interests, assures 
that no one interest can manipulate the process unfairly. The ANSI 
system is designed so that contrary evidence proffered by opponents of 
the standard must be properly addressed and responded to or else the 
standard will fail to achieve ultimate approval.
    In addition, proper procedures are of little value if they are not 
followed in practice. As a result, in addition to the review ANSI 
undertakes when a standard is submitted to it for approval as an 
American National Standard, the Institute also has implemented a 
mandatory standards developer audit program. The program is designed 
both to verify an accredited developer's compliance with current ANSI 
requirements and to provide guidance on more efficient or effective 
ways to address various aspects of the standards development process.
    While all American National Standards must be developed in 
accordance with these basic hallmarks of the ANSI process, accredited 
developers may satisfy these requirements in innovative ways and rely 
extensively on electronic communications. If there is a ready consensus 
by the interested parties on a proposed standard, the standard can meet 
the procedural requirements for, and be approved as, an American 
National Standard in a matter of months.
    ANSI recognizes that there are many ways to develop standards, and 
that in many instances other methods and the resulting standards are 
entirely appropriate for the targeted user community. ANSI has no 
objection whatsoever to the existence of organizations that develop 
standards outside the so-called ``formal'' process used within the ANSI 
community. ANSI has never had--nor has it ever sought--exclusivity in 
promulgating a standards development process.
                     the public-private partnership
    While the term ``public-private partnership'' has been in vogue in 
Washington in recent years, it has been a reality for ANSI since our 
creation. In fact, ANSI was founded in 1918 by a group of private 
sector organizations and government agencies that recognized the need 
to have a forum in which they could address common concerns. As a 
private sector organization with many government members, ANSI has a 
strong tradition of working cooperatively with government as well as 
industry, organizations, and consumer interests.
    ANSI is a private sector organization in which many government 
representatives are active at all levels, from our Board of Directors 
to the committees that promulgate, maintain and implement the 
procedures pursuant to which standards developers are accredited and 
American National Standards are developed and approved. Government 
representatives participate in ANSI delegations addressing 
international standardization issues, thereby strengthening the U.S. 
voice in international standardization negotiations.
    When Congress enacted the National Technology Transfer and 
Advancement Act of 1995 (NTTAA),\2\ it specifically and strongly 
encouraged the participation of the U.S. government in the development 
of voluntary consensus standards. It was the clear intent of Congress 
that federal employees play an active role in the development of 
standards that will be used in regulation, procurement, and trade. This 
action by the Congress confirmed a basic principle of the U.S. 
standardization system--that standards-setting is a partnership process 
in which government and the private sector are equal partners. The 
importance of the private-public partnership was reaffirmed in a series 
of laws enacted by Congress in recent years, including these:
---------------------------------------------------------------------------
    \2\ Op.cit.

---------------------------------------------------------------------------
          Consumer Product Safety Improvement Act of 1990

          The National Technology Transfer and Advancement Act 
        of 1995 (P.L. 104-113)

          Health Insurance Portability and Accountability Act 
        of 1995

          Telecommunications Reform Act of 1996

          FDA Modernization Act of 1997

    Each of these laws reinforced the principle that the Federal 
government should rely heavily upon private sector standards, and that 
the government should participate actively in the development of those 
standards.
    The U.S. is an example to the rest of the world on how the public 
and private sectors can work cooperatively. Using voluntary standards 
allows the government to achieve economies of scale and have access to 
the most modern technologies and a wide range of technical experts. If 
federal participation in standards development were curtailed, over 
time these benefits might be lost to the federal government-costs would 
go up and the advantages of government use of products meeting 
consensus standards would be lost. While the private sector would 
suffer the loss of the expertise of often uniquely knowledgeable 
government experts, the government would lose the benefit of critical, 
timely access to private sector expertise and standards.
    In an era of constant technological change, we cannot afford to 
sacrifice our economic advantage because of laws that stifle 
development of standards that provide many pro-competitive benefits.
     the standards developing organization act and the u.s. economy
    The benefits and pro-competitive effects of voluntary standards are 
not in dispute. Standards do everything from solving issues of product 
compatibility to addressing consumer safety and health concerns. 
Standards also allow for the systemic elimination of non-value-added 
product differences (thereby increasing a user's ability to compare 
competing products), provide for interoperability, improve quality, 
reduce costs and often simplify product development. They also are a 
fundamental building block for international trade. As the U.S. Court 
of Appeals for the First Circuit explained:

        The joint specification, development, promulgation, and 
        adoption efforts would seem less expensive than having each 
        member of CISPI [a trade association] make duplicative efforts. 
        On its face, the joint development and promulgation of the 
        specification would seem to save money by providing information 
        to makers and to buyers less expensively and more effectively 
        than without the standard. It may also help to assure product 
        quality. If such activity, in and of itself, were to hurt 
        Clamp-All by making it more difficult for Clamp-All to compete, 
        Clamp-All would suffer injury only as result of the defendants' 
        joint efforts having lowered information costs or created a 
        better product. . . . And, that kind of harm is not 
        ``unreasonably anticompetitive.'' It brings about the very 
        benefits that the antitrust laws seek to promote.\3\
---------------------------------------------------------------------------
    \3\ Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478, 
487 (1st Cir. 1988) (Breyer, C.J.) (citation omitted; emphasis in 
original), cert. denied, 488 U.S. 1007 (1989).

    As a result of the increasing number of laws passed by the Congress 
since the early 1990's mandating government adoption and use of 
standards, and participation in private standards development, the 
standards community actually is performing some critical development 
functions that were previously the exclusive province of government 
agencies. As standards developers take on the role of government in 
formulating consensus standards, they arguably deserve some of the 
exemptions from liability that the government has traditionally 
enjoyed, such as relief from potentially onerous antitrust liability 
exposure.
    The National Cooperative Research and Production Act of 1993 
recognized the need to balance the governmental interest in avoiding 
anti-competitive conduct with the efficiency and pro-competitive 
results of certain types of cooperative ventures in the areas of 
research and production. H.R. 1086 creates an explicit filing 
opportunity for SDOs which mirrors the requirements and restrictions 
currently placed on organizations and companies filing under the 
existing law.
    SDOs--and the experts that populate these groups--serve an 
important public interest function in devising voluntary consensus 
standards. The public interest is both served and protected if the 
standards developer is adhering to the hallmarks of the ANSI process: 
Openness, balance, consensus, public notice and review, opportunity to 
appeal, and other due process safeguards. The entire voluntary 
consensus standards system will be severely hindered in its ability to 
continue its valuable work if SDOs are subjected to possible antitrust 
claims and forced to incur substantial legal and other costs in their 
defense.
    We ask that you favorably consider H.R. 1086, by which Congress 
will take a step to offer some protection to the SDOs on which the 
government depends for assistance in devising reasonable regulations 
and procurement standards that fulfill government needs.
                               conclusion
    ANSI shares this Committee's desire to see that the antitrust laws 
continue to protect American citizens and businesses from harmful anti-
competitive practices, while at the same time not unduly restricting 
the ability of American firms to work together to address the common 
challenges they face in the global marketplace. We also believe that 
along with the responsibilities that have been assumed by the hundreds 
of organizations that sponsor the development of standards, there is a 
need for some protection from the high costs of defending against 
litigation. This legislation strikes a good balance, and provides some 
recognition of the contribution that standards developing organizations 
make to the American society and economy, and increasingly, as partners 
with the Federal Government.
    We want to work with you to promote the development of quality 
standards that serve all our citizens.
    Thank you for this opportunity to testify. I would be very happy to 
answer any questions you might have.

    Mr. Forbes. Mr. Everett, looking forward to your comments.

   STATEMENT OF EARL EVERETT, DIRECTOR, DEPARTMENT OF LABOR, 
        DIVISION OF SAFETY ENGINEERING, STATE OF GEORGIA

    Mr. Everett. Thank you, Mr. Chairman, and Members of the 
Committee. Thanks for allowing me to be here with you today. My 
name is Earl Everett, and as Director of the Safety Engineering 
Division within the Georgia Department of Labor, I have 
responsibility for administration and enforcement of various 
codes and standards accepted by the State of Georgia. Some of 
the most notable standards are those developed by the American 
Society of Mechanical Engineers, National Fire Protection 
Association, American Society of Testing Materials, American 
Society of Safety Engineer, and the National Board Inspection 
Code.
    Codes of these standard developing organizations are 
generally accepted as proper and effective guidelines in 
determining safety and quality of various products. For 
example, the ASME Boiler and Pressure Vessel Code and the 
National Board Inspection Code have been proven to be effective 
in ensuring the safety of our citizens. And since their 
inception in the early 1900's, these standards have been 
adopted by 49 States. They are developed by over 800 volunteer 
members, representing all segments of the boiler and pressure 
vessel industry, including manufacturers, users, and 
enforcement authorities. These codes are continuously reviewed 
to ensure that the latest materials and technology are 
incorporated. And without the consensus standards being 
available for State and local governments, there would be no 
uniformity or reciprocity among the States. Products 
manufactured in one State may not meet the standards of another 
State. If State and local governments tried to develop and 
promulgate independent standard, there would be so many outside 
influences it would be virtually impossible to arrive at an 
acceptable consensus. State and local governments also do not 
have the expertise or the resources to expend the development 
of any standards.
    The importance of these standards and the volunteers who 
develop them cannot be overstated. They touch our lives and the 
lives of our family and friends and everything that we do. We 
are so dependent on standards that we are able to take safety, 
convenience, comfort, and longevity for granted. Somewhere 
right now, some highly trained and experienced person is 
volunteering his or her time to make this a better and safer 
place for all to live.
    Mr. Chairman, I appreciate the opportunity to be of service 
and would welcome any questions.
    Mr. Forbes. Thank you, Mr. Everett.
    [The prepared statement of Mr. Everett follows:]
                   Prepared Statement of Earl Everett
    GOOD MORNING MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE. MY NAME IS 
EARL EVERETT. AS DIRECTOR OF SAFETY ENGINEERING WITHIN THE GEORGIA 
DEPARTMENT OF LABOR, I HAVE RESPONSIBILITY FOR ADMINISTRATION AND 
ENFORCEMENT OF VARIOUS CODES AND STANDARDS ACCEPTED BY THE STATE OF 
GEORGIA. SOME OF THE MOST NOTABLE STANDARDS ARE THOSE DEVELOPED BY THE 
AMERICAN SOCIETY OF MECHANICAL ENGINEERS (ASME), NATIONAL FIRE 
PROTECTION ASSOCIATION (NFPA), AMERICAN SOCIETY OF TESTING MATERIALS 
(ASTM), AMERICAN SOCIETY OF SAFETY ENGINEERS (ASSE) AND THE NATIONAL 
BOARD INSPECTION CODE (NBIC). CODES OF THESE STANDARD-DEVELOPING 
ORGANIZATIONS ARE GENERALLY ACCEPTED AS PROPER AND EFFECTIVE GUIDELINES 
IN DETERMINING SAFETY AND QUALITY OF VARIOUS PRODUCTS. FOR EXAMPLE: THE 
ASME BOILER AND PRESSURE VESSEL CODE AND THE NBIC, HAVE BEEN PROVEN TO 
BE EFFECTIVE IN ASSURING THE SAFETY OF OUR CITIZENS. SINCE THEIR 
INCEPTION IN THE EARLY 1900'S, THESE STANDARDS HAVE BEEN ADOPTED BY 49 
STATES. THEY ARE DEVELOPED BY OVER 800 VOLUNTEER MEMBERS REPRESENTING 
ALL SEGMENTS OF THE BOILER AND PRESSURE VESSEL INDUSTRY, INCLUDING 
MANUFACTURERS, USERS AND ENFORCEMENT AUTHORITIES. THESE CODES ARE 
CONTINUOUSLY REVIEWED TO ENSURE THAT THE LATEST MATERIALS AND 
TECHNOLOGY ARE INCORPORATED. WITHOUT THE CONSENSUS STANDARDS BEING 
AVAILABLE FOR STATE AND LOCAL GOVERNMENTS, THERE WOULD BE NO UNIFORMITY 
OR RECIPROCITY AMONG THE STATES. PRODUCTS MANUFACTURED IN ONE STATE MAY 
NOT MEET THE STANDARDS OF ANOTHER STATE. IF STATE AND LOCAL GOVERNMENTS 
TRIED TO DEVELOP AND PROMULGATE INDEPENDENT STANDARDS, THERE WOULD BE 
SO MANY OUTSIDE INFLUENCES, IT WOULD BE VIRTUALLY IMPOSSIBLE TO ARRIVE 
AT AN ACCEPTABLE CONSENSUS. STATE AND LOCAL GOVERNMENTS DO NOT HAVE THE 
EXPERTISE OR RESOURCES TO EXPEND IN DEVELOPMENT OF ANY STANDARDS.
    THE IMPORTANCE OF THESE STANDARDS AND THE VOLUNTEERS WHO DEVELOPED 
THEM CANNOT BE OVERSTATED. THEY TOUCH OUR LIVES AND THE LIVES OF OUR 
FAMILIES AND FRIENDS IN EVERYTHING WE DO. WE ARE SO DEPENDENT ON 
STANDARDS THAT WE ARE ABLE TO TAKE SAFETY, CONVENIENCE, COMFORT AND 
LONGEVITY FOR GRANTED. SOMEWHERE, RIGHT NOW, SOME HIGHLY TRAINED AND 
EXPERIENCED PERSON IS VOLUNTEERING HIS OR HER TIME TO MAKE THIS A 
BETTER AND SAFER PLACE FOR US ALL TO LIVE.
    MR. CHAIRMAN, I APPRECIATE THE OPPORTUNITY TO BE OF SERVICE AND 
WELCOME ANY QUESTIONS.

    Mr. Forbes. And I would like to recognize myself for 5 
minutes for a couple of questions.
    First of all, Mr. Shannon, I know you have had a lot of 
experience with antitrust laws. And two things if you could 
elaborate on for clarification for the Committee. First of all, 
you mentioned in your written testimony the concept of pattern 
defendants. Could you just describe for us what a pattern 
defendant is, and, along with that, if you could describe for 
us the rule of reason standards so we are clear on that.
    Mr. Shannon. Mr. Chairman, thank you. I appreciate those 
questions because I think that some people--I think some people 
have some difficulty understanding why this is of concern to 
us. But I got to tell you it is a real concern to us because 
there has been over the last generation some movement toward--
in the standards area toward trying to broaden and bring in 
more standards developers whenever antitrust litigation is 
contemplated.
    We operate under the theory in private standards 
development that the best standards that protect the public are 
going to be developed if we have the people who are the most 
familiar with the topic at the table. And so with NFPA, for 
instance, while we operate under the ANSI rules that require 
balance with regard to our standards development activities, we 
want to have anybody who has got an interest, including an 
economic interest. That means if we are developing a fire 
standard, we want to have the fire service people there, we 
want representatives of firefighters, the fire chiefs and 
enforcement agencies. But if it is an area that involves 
sprinklers, for instance, or it involves some other type of 
fire equipment, we want to have the manufacturers there, we 
want to have the installers there. And we think by getting all 
of those people around the table that we are going to have the 
best decisions made.
    And the rules that ANSI requires us to follow require that 
no group can dominate. And so we operate under that philosophy. 
I think it is a philosophy that the Federal and State 
governments have recognized for a long time that produces 
quality standards. It does bring competitors to the same table. 
And as I said in my testimony, from time to time, we will have 
somebody who will say, well, the way you wrote that standard 
kept us out of the marketplace, and they will sue one of their 
competitors who might be involved in the standards development, 
a manufacturer for instance. When they bring that lawsuit 
alleging antitrust activity, they oftentimes now will, just as 
a matter of course, throw in as a defendant the standard 
development organization, which is a nonprofit organization, 
which has no interest in the marketplace.
    We are not a market actor at all. We have no economic 
incentive to assist in antitrust--to assist in any kind of 
antitrust conspiracy, and yet we get thrown in just because as 
part of the litigation they try to throw in everybody.
    Sometimes ANSI will be named as a defendant in the lawsuit 
as well. We write 300 standards and we have 7,000 people 
sitting on our technical committees. We do a pretty good job of 
policing that system. But unfortunately, we do get named in 
these suits and we almost always get dismissed pretty early. 
But before we get dismissed, we have expended hundreds of 
thousands of dollars, and it is extremely disruptive to our 
process. And that is what I mean by that.
    And so we are looking for some level of protection against 
the threat of excessive damages. And the reason we get thrown 
in, of course, is because of treble damages. The plaintiffs 
will take a shot of naming us just on the theory that the 
treble damages are so high that maybe we will throw money into 
a settlement. We don't do that.
    This activity is accelerating and it is continuing. We are 
looking for no protection if there is, in fact, an antitrust 
violation, if we in fact assist in one of the per se 
violations. But against the normal type of threat we face and 
the disruption we face, I think this would provide us a good 
deal of relief while denying nobody who has a legitimate claim 
the right to make those claims.
    Mr. Forbes. Mr. Karmol, has ANSI ever been sued in one of 
these cases?
    Mr. Karmol. I don't believe we have been named in an 
antitrust action. We have been named in several tort liability 
type actions.
    Mr. Forbes. Yet you are obviously concerned about this. Can 
you tell us why, and also give us an idea of the cost of 
defending this litigation? Mr. Shannon suggested several 
hundred thousand dollars.
    Mr. Karmol. I guess I am probably not the right person to 
answer that question because I am not our general counsel. I do 
know that we have expended well into the hundreds of thousands 
of dollars defending litigation just over the past year. And 
certainly the concern is that as these--as standards developers 
are named, the same situation ensues that Mr. Shannon referred 
to. When the attorneys look to name all possible parties, if an 
organization is using the ANSI process and is accredited by 
ANSI, there is the possibility that they will name ANSI as 
well, even though we are another step removed from the process 
that Mr. Shannon described. In fact, obviously we accredit 
these organizations. We look at their process to make sure it 
meets due process requirements, and then we audit their process 
at least once every 5 years to make sure that they are in fact 
doing what they say they are doing, to make sure that there is 
balance, openness, transparency and due process. That really is 
our only role. We are not involved in the substance of the 
creation of the standard, just maintaining the process.
    But there is still the possibility that as attorneys look 
for additional pockets to get at, they name ANSI; and that has 
happened and we are definitely concerned that it will, because 
we have 300 developers like ASME and NFPA that accredit with 
some 11,000 American national standards out there.
    Mr. Forbes. My time has expired and now I recognize the 
gentleman from Massachusetts, Mr. Delahunt for 5 minutes.
    Mr. Delahunt. Thank you, Mr. Forbes. Before I--and I just 
have a single question. But before I pose that, I would ask 
unanimous consent that the statement of the Ranking Member, Mr. 
Conyers be included in the record.
    Mr. Forbes. Without objection that will be included in the 
record.
    Mr. Delahunt. Jim, I think what you said should be repeated 
in terms of SDOs. There is no anticompetitive motive here. It 
just simply doesn't exist. I think for me that really is the 
bottom line. But I would also ask if you could give us a real-
life example in terms of litigation where you have been named 
in an antitrust suit and allude, if you can, if you know, what 
the costs were and what it did in terms of draining the 
resources of your particular organization.
    Mr. Shannon. Thank you, Mr. Delahunt. If I could, because I 
served as general counsel at NFPA prior to becoming president, 
we face the threat of it all the time. We get letters from 
counsel of people who participate in our process who say if you 
don't give us the result we are looking for, we are going to 
sue you. That is notwithstanding the fact that we have a 
system, and ANSI systems are generally replete with 
opportunities to appeal a decision within our process. So if 
you are not happy with the technical committee, you take it to 
the members' meeting, you take it to our Standards Council, you 
can appeal all the way up to our board of directors. If you are 
not happy with that, you can appeal it to ANSI. There are lots 
of opportunities for people to be heard.
    A few years ago, and it is probably maybe 10 years ago now, 
one day we were served with a complaint charging that NFPA had 
involved itself in an antitrust violation. I had never heard of 
the complaint before. Nobody in our system had ever heard of 
the complaint before, but there was an individual, I think in 
the Atlanta area if I remember correctly, who said he made a 
proposal on one of our very technical standards that a method 
of calculation that he had developed and, I think, developed 
some software for, should be used--having to deal with 
hydraulics, and it was a very technical thing. He had never 
availed himself of any of the appeals processes within our 
system. He had never carried it any further than submitting a 
proposal. The committee looked at the proposal and did not 
accept the proposal. The next we heard was a couple of years 
later when he filed--when he filed an antitrust suit against us 
and against the members of the technical committee who he said 
had kept him out of the market. We engaged in some discussions 
with his attorney in the Atlanta area.
    I went down for the discussions. He was present, and I said 
to this antitrust plaintiff who had sued our organization, 
``What do you think we have done wrong here?'' And he said, 
``You have done nothing wrong here.'' Of course, his lawyer 
almost strangled him for saying that. He said, ``I think your 
organization is terrific. You haven't done anything wrong.''
    And so what are we doing here? What we were doing here, the 
lawyer said, we have to find somebody with some deep pockets. 
And if we can push this thing far enough, and maybe this 
organization has some insurance, of course you can't get 
insurance for antitrust damages, but maybe they would be 
willing to throw some money into the pot to get rid of this 
thing. It was a basic nuisance suit.
    He decided to dismiss us because he realized that he had a 
client who wasn't going to want to pursue this against us. I 
can tell you that just going that far and bringing that through 
some discovery and dismissal cost us over $200,000, not 
counting the time of our in-house staff.
    Mr. Delahunt. That would have been considerable dollars.
    Mr. Shannon. But it is very disruptive. It is very costly. 
And if there were any basis for that type of litigation, I 
wouldn't be here. And that is what we are trying to avoid, the 
nuisance situation which is becoming a really big threat, a 
much bigger threat in recent years.
    Mr. Delahunt. Hopefully this Committee can address that. 
But I would be remiss in not asking you where is your 
organization located?
    Mr. Shannon. Happily, we are located in Quincy, 
Massachusetts. We moved there from Boston, and we were seeking 
greener pastures, a few years ago.
    Mr. Delahunt. And you are aware, of course, two Presidents 
of the United States were born in Quincy, MA.
    Mr. Shannon. And we are very pleased with the distinguished 
representation we have had in Congress for a long period of 
time, going back to John Quincy Adams.
    Mr. Delahunt. To the current day. With that, I yield back.
    Mr. Forbes. Gentleman yields back. The gentleman from 
Virginia, Mr. Goodlatte, is recognized for 5 minutes.
    Mr. Goodlatte. Mr. Chairman, thank you very much for 
holding this hearing. I find it very important and useful, but 
I don't have any questions.
    Mr. Forbes. The gentleman from Massachusetts, Mr. Meehan, 
is recognized for 5 minutes to put in a further plug for the 
Commonwealth of Massachusetts.
    Mr. Meehan. Mr. Chairman, I was going to ask Mr. Shannon is 
there no office space available in Lawrence or Lowell or the 
other areas in some of the other districts that he so ably 
represented.
    This is a great piece of legislation and I think there has 
been a lot of bipartisan work that has been done on this, and I 
think it is a bill that this Committee will move on and the 
House will move on relatively quickly. I am curious to ask Mr. 
Shannon, through his position with the National Fire Protection 
Association, what have we learned--it is a little off the 
subject--what have we learned in terms of standards from the 
attack on the World Trade Towers and even to the extent that 
you want to touch on it, the recent fire in Rhode Island.
    Mr. Shannon. Thank you for that question, because I think 
one of the things of standards development that is somewhat 
frustrating for all of us is I don't think a lot of people, and 
the public generally, and even, frankly, some public officials 
don't understand the important role of private standards 
development when it comes to protecting safety.
    You know, one of the great stories on the darkest day in 
American history, September 11, 2001, one of the great stories 
that I think hasn't been focused on enough is the evacuation 
that took place at the World Trade Center and the fact that 
virtually every person who was in those towers below the floors 
of impact got out. Now, there are a lot of reasons for that. 
But one of the reasons is after the first attack in 1993, NFPA 
and other organizations got together and worked--to work on the 
evacuation of those very buildings. And I would recommend to 
you and I will provide for you, if you like, because I think it 
is instructive, photographs of the exits in that building prior 
to the 1993 blast and after the 1993 blast, which were all 
determined by safety officials working with private 
organizations like NFPA--and we are very proud to have been 
involved in that. And, they changed the lighting, the backup 
power for the lighting, the railing, and the exits in the World 
Trade Center, and that is just one example of what private 
organizations like ours do to help promote life safety.
    And we are so glad that the Federal Government has adopted 
a policy of saying to Federal agencies, you know, use private 
standards. Don't develop yourselves. Use private standards 
because the process we have to develop them really brings all 
of the people to the table.
    The same is true with the West Warwick Rhode Island fire, a 
horrible, horrible tragedy. And I think the greatest part of 
that tragedy from my perspective, when you have a horrible loss 
of life, that if the codes that had been adopted had been 
enforced there, that never would have happened. The fire would 
have never taken place and you wouldn't have had that kind of 
loss of life.
    I think the development of codes and standards is hugely 
important. And you have to have implementation and enforcement, 
and those are the pieces we are working on as well.
    And I also want to say we are very, very proud to be 
working with the Department of Homeland Security on questions 
that might come up in light of the current threat that we are 
facing. We write dozens of standards that are important to our 
homeland security. NFPA last year, for instance, after the 
anthrax scare, was pleased to make available to every fire 
department in the country our protective clothing standards for 
fire departments or hazardous materials standards. And we are 
working on that and we are working on building evacuation 
questions.
    We just did a study for FEMA on the capabilities of first 
responders and the needs of first responders, given the 
terrorist threat we are going to be facing, and I am glad we 
have got this partnership with the governmental agencies. And I 
think I speak for everybody in the private standards 
development world in saying that we think we have a big role to 
play and we look forward to playing it and we appreciate your 
assistance in making that possible for us.
    Mr. Meehan. Thank you very much, Mr. Shannon.
    Mr. Forbes. Let me thank all of the Members of the panel 
for taking time to be here today for your testimony, for your 
written statements, and also for the work you are doing in this 
area. I want to remind everybody that the legislative record to 
submit additional materials for the hearing record will be open 
for 7 days.
    I also want to thank the staff on both sides of the aisle 
for the hard work that they have done on this legislation and 
also on the hearing. If there is nothing else, then the hearing 
is adjourned.
    [Whereupon, at 10:50 am., the task force was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress From the State of Michigan
    I am pleased to be a co-sponsor of this legislation offered by Mr. 
Sensenbrenner and I am glad that after several years of work on this 
bill, we are now holding a hearing and will hopefully be moving this 
bill through committee soon. We have worked hard, along with a number 
of standard development organizations, technology companies and other 
private interests to craft a bill that will provide some protections to 
encourage non-profit standard development organizations, or SDOs, to 
continue their important work of collaborating to set pro-competitive 
standards in their industries.
    This bill provides a common sense safe harbor for standard 
development organizations. Those that voluntarily disclose their 
activities to federal antitrust authorities will only be subject to 
single damages should a lawsuit later arise. Those who refuse to 
disclose their activities, or those who take actions beyond their 
disclosure, will still be subject to treble damages under the antitrust 
statutes. This bill does not exempt anyone from the antitrust laws, but 
it does apply the rule of reason to SDOs--so pro- and anti-competitive 
market effects of an action will be considered before a violation is 
found. Organizations that commit per se violations--making agreements 
or standards about price, market share or territory division, for 
example, would still be fully liable for their actions.
    This policy has worked well for research and joint ventures under 
the National Cooperative Research and Production Act of 1993. An 
expansion of this policy to standard development organizations will 
allow them to improve their innovative efforts, involve a wider range 
of industries and technical entities, and improve product safety and 
development.
    I look forward to hearing from our witnesses today and I hope you 
can elaborate on how this legislation will assist standards development 
across a broad range of industries and products.
         Letter in support of H.R. 1086 submitted on behalf of 
                     The International Code Council



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