Just as giant wireless patent holders like Nokia and Ericsson look to milk those assets more aggressively for revenue, governments and standards bodies are becoming more eager to reform the technology IPR licensing business. One catalyst is likely to come from the IEEE standards body, whose proposed changes to patent policies would slash the fees that vendors have to pay for WiFi features (and those based on other IEEE standards).
The body wants WiFi-related patent charges to be based on a percentage of component price, not whole device price, as has been the norm. This could save vendors billions of dollars between them, and would hit significant holders of WiFi IPR. It also have a ripple effect in other wireless technologies, including the lucrative and closely protected systems which govern cellular patents.
There has already been some move towards component-based royalty fees in cellular, spearheaded by Apple in particular, but the changes have generally been made in the secret, bilateral deals which govern the 3GPP IPR environment. A public policy from a standards body would greatly increase the impetus behind this way to calculate royalties, as well as extending it to WiFi.
The IEEE is set to approve the proposal this month, having obtained a ruling from the US Department of Justice (DoJ) that it does not violate antitrust laws but instead, “has the potential to benefit competition”. The IEEE-SA board of governors voted in December to approve the changes, provided they were approved by the DoJ and the IEEE board of directors.
As well as changing the basis of calculating fees, it wants to prevent patent holders from getting court injunctions against violating products “unless the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review”. Calls for injunctions have been a common feature of recent smartphone IPR wars, which can be exploited as a tactic to undermine a rival’s ability to compete.
When calculating a reasonable rate, the IEEE wants to exclude any benefits from “the inclusion of the technology of an essential patent claim in a standard of the IEEE”, and it would ensure that licensing agreements survive any transfer to other parties. It also believes companies should be able to license a subset of patents, rather than all those included in a standard – a rule which would, if extended to cellular, hit Qualcomm in particular, since it licenses its huge range of inventions on a portfolio basis.
Naturally, major IPR holders like Qualcomm have opposed the new policy, while licensees like Apple and Hewlett-Packard have been prominent supporters. Intel and Broadcom have also been strongly in favor, presumably because the changes would hurt their mutual rival Qualcomm. Although Intel is itself a major patent holder, and has IPR in WiFi, it has not made royalties a major part of its business model in the way that Qualcomm has, and has actively sought to introduce open and low cost licensing practices to the WiFi world.
Along with the new approach to royalties, the IEEE wants to go some way to clarifying the thorny issues of Frand, and how to value standards-essential patents (SEP), in order to reward their inventors while not building barriers to entry, in the form of high licensing fees, for smaller device makers. One of the problems which has led to a flurry of lawsuits over SEP fees in recent years is that, while standards bodies like ETSI and the IEEE insist on Frand terms for these patents, they have not defined what “fair and reasonable” means in cost terms. Apple and Microsoft, for instance, have argued that some WiFi patent owners are demanding unreasonably high fees for inventions which are just incremental enhancements, adding to a climbing cumulative total of payments which can kill the business case for developing a wireless device.
Executives from those giants, and other firms, signed a public letter in support of the IEEE proposals. One signatory, Cisco, said in a statement that a “21-member group of chipmakers, OEMs, former regulators, and law professors have written a letter to the IEEE to express their support for the proposed clarifications, and to urge them to stand strong in face of misleading arguments [from patent trolls].”
But IPR giants claim it would be counter-productive for them to charge too highly, and that vendors often hurt the market themselves by engaging in litigation and refusing to negotiate reasonably. Gustav Brismark, VP of patent strategy for Ericsson AB, told Bloomberg: “This is a two-way street. We can negotiate and come to an agreement in an amicable way. It’s only lately that we’ve seen the behavior of the licensee become much more in trying to delay and hold out and not really negotiate with the ambition to resolve the situation.”
Irwin Jacobs, Qualcomm’s founding chairman and CEO Emeritus, said the proposed changes would provide short term commercial benefits to their backers, but by lowering the fees, could in the longer term reduce the incentive for R&D. In a letter to the IEEE, he said the proposals “have been pushed through despite the absence of any evidence of actual real-world problems with the existing patent policy.”
Since the IEEE needed DoJ approval to make its proposals viable in the real world, US politicians have weighed in on the debate too. On the opposition side, Democratic Senator Chris Coons said this was an “unprecedented move by an international standards body to weaken the value and enforceability of patented technology.”
The IEEE’s changes are part of a broader rethink of wireless patent licensing, visible in a string of lawsuits, anti-troll alliances, and policy changes in bodies like ETSI. Trends which have spread from other sectors into the mobile world are changing the assumptions about royalties, especially as these become a bigger cost consideration in the highly price-sensitive smartphone sector.
Open source, patent pooling, royalty-free licences and stricter definitions of Frand (fair reasonable and non-discriminatory) terms for standards-essential IPR – all these are common in some of the industries, such as consumer electronics and the web, with which the mobile platform is converging. Add in the pressure from China, the largest mobile market, on outside vendors’ licensing fees, and it is clear that Qualcomm, Ericsson and the other mobile IPR giants will soon be kicked out of their cosy world of royalties.