In varied industries together with pharmaceuticals, where a product is typically protected by only a few patents, if mental property is licensed in any respect, licensing tends to be atomized: company-by firm for particular person patents or small portfolios, and nation-by-nation relatively than globally in lots of circumstances.

In marked distinction, patent pooling is more and more enticing for licensing mobile applied sciences with rising IoT together with 5G as a result of it will possibly present better transparency, predictability, and varied efficiencies comparable to decrease transaction prices at scale in standard-essential patent (SEP) licensing with a number of dimensions and complexities together with: 

  • Scores of patent jurisdictions, however with a handful of those most important by far;¹
  • A whole bunch of patent homeowners, whereas most SEPs are owned by a really small proportion of those;²
  • Hundreds of implementers, with the overwhelming majority of those in IoT, outdoors of the mobile business vertical;³ and
  • A whole bunch of hundreds of patents declared important to the mobile requirements, whereas massive proportions of those will not be truly important.⁴ 

Not more than a dozen or so patent homeowners have considerably or profitably operated their very own licensing packages to monetize SEPs in cellular⁵, and even fewer have in different applied sciences comparable to video codecs the place patent pooling has predominated for a few years.⁶

Whereas the variety of jurisdictions and patent homeowners has not elevated considerably for mobile SEPs in recent times, the variety of potential implementers is growing enormously, as is the variety of SEPs. Patent pooling permits these new implementers to be most successfully licensed by all SEP homeowners.

One dimension doesn’t match all implementers

Whereas mobile applied sciences have been as soon as all applied by a comparatively small variety of OEMs and in just a few various kinds of gadget, together with cellphones and PCs, in IoT there are a really vast and increasing array of purposes from sensors and humble merchandise comparable to meters to very advanced and dear equipment comparable to self-driving automobiles, surgical devices and industrial tools. Market verticals are additionally quite a few together with manufacturing, mining, agriculture, good grids, good cities and good houses. Licensing throughout all this variety requires vast distribution and vary in licensing packages, segmented to swimsuit totally different implementations, together with varied licensing worth factors reflecting the considerably totally different values derived from the SEPs by implementers and their prospects in some purposes versus others. 

Advantages for all licensors

The inherently bigger scale in patent pooling than in bilateral licensing makes this all more economical for each licensors and licensees in IoT. 

Some main mobile SEP homeowners— together with Ericsson, InterDigital, Nokia and Qualcomm—considerably monetize their patents by licensing mobile gadget OEMs instantly. Others who’re additionally main gadget implementers—together with Huawei, LG and Samsung—considerably cut back or get rid of their gadget licensing prices by way of cross-licensing, additionally instantly, with different mobile gadget OEMs. Many extra mobile SEP homeowners have too few SEPs to profitably assist their very own cash-royalty producing licensing packages. As a substitute, whereas some license their video-codec SEPs by way of patent pooling, others’ mobile SEPs have largely remained dormant, for “defensive” functions. 

For many years now, mobile patent swimming pools—together with these for 3G, administered by Via Licensing and SISVEL subsidiary 3G Licensing SA, and for 4G, administered by SISVEL and Via Licensingall failed to make any significant impact versus bilateral licensing, and, as I predicted in 2010, had no prospect of doing so

Nonetheless, the outlook for patent pooling in mobile applied sciences improved dramatically when Avanci entered the market in 2016 with its 2G/3G/4G licensing platform focused exclusively on IoT, with licensing and charges based on end-devices and the SEP value conferred to them. Whereas not one of the main mobile SEP homeowners—together with all the businesses named above—joined any swimming pools that have been looking for to license all sorts of gadget together with cell phones, all 4 of these vital SEP monetizers named above agreed to pool their cellular SEPs for IoT licensing through Avanci together with 35 different licensors. Whereas varied assessors disagreed about the relative positions of individual SEP owners, they broadly agreed that those four companies collectively accounted for most SEPs.

Patent pooling permits these firms with present packages additionally to succeed in a far bigger vary of licensees than beforehand with their very own licensing packages, and, for SEP homeowners with out licensing packages, it permits them to have the ability to monetize their patents in any respect. The smaller licensors notably profit from varied economies of scale and value efficiencies, together with distribution (i.e. in licensing “gross sales” and advertising), in operations and administration as a result of they’ve decrease licensing income potential.  For instance, assessing patent essentiality and relative value among SEP owners is expensive and can be contentious. Pricey litigation is extra possible required to make sure fee of royalties outdoors of pooling preparations.   

Eradicating roadblocks to environment friendly licensing

Pooling is logical, environment friendly, helpful to SEP homeowners and implementers, and broadly favored in some cases (i.e. for video codecs usually and for mobile in IoT). A latest business review letter (BRL) on the matter of Avanci’s proposed new 5G licensing platform for IoT, from the U.S. Division of Justice’s Antitrust Division, notes that the Division had ‘lengthy acknowledged that patent swimming pools can “present procompetitive advantages by integrating complementary applied sciences, decreasing transaction prices, clearing blocking positions, and avoiding pricey infringement litigation.”’

Nonetheless, there stay impediments to SEP licensing on the whole that threaten to stop patent homeowners reaping their simply rewards and that impair potential benefits in patent pooling. Whereas the next contentions will not be all totally resolved to remaining attraction in all main jurisdictions, obstructions to well-established licensing and valuation strategies are being eliminated and a few tendencies which can be hostile to SEP homeowners are reversing:

  • Finish-device licensing. Whereas SEP applied sciences are considerably applied in baseband modem chips, patented mobile capabilities attain extensively past these parts into modules and throughout complete gadgets. By licensing on the end-device stage, all patents may be included in a single settlement. Nonetheless, there’s vital dispute between many licensors who insist on licensing end-devices and a few implementers who need to license on the chip or module stage. Challenges to well-established and intensive end-product licensing practices have been made underneath antitrust legal guidelines, in addition to in contract and patent legal guidelines. In FTC v. Qualcomm, the US Ninth Circuit Court docket of Appeals has not too long ago rejected all antitrust-based claims together with unique dealing: “Qualcomm is underneath no antitrust responsibility to license rival chip suppliers.” The aforementioned BRL additionally acknowledges appreciable efficiencies in licensing automobiles and notes that the Division of Justice’s Antitrust Tips state that field-of-use restrictions, comparable to licensing on the end-product stage, may be procompetitive.⁷

 

  • Finish-device-based royalty fee willpower. Relatedly to the above, there has additionally been vital litigation to undermine the well-established and predominant methodology of basing royalty fees on the worth in finish merchandise, and, as a substitute, decide royalties based mostly on the, so-called, smallest-saleable patent practising unit. Nonetheless, the Ninth Circuit Court docket of Appeals has additionally dominated in FTC v. Qualcomm that that there isn’t any obligation for patent homeowners to calculate royalties on that different foundation, even when a chip may be deemed to be the SSPPU in any implementation. ‘No courtroom has held that the SSPPU idea is a per se rule for “cheap royalty” calculations; as a substitute, the idea is used as a instrument in jury circumstances to reduce potential jury confusion when the jury is weighing advanced professional testimony about patent damages.’ No jury was ever concerned in FTC v. Qualcomm litigation, neither is one ever concerned in figuring out royalties in regular enterprise operations outdoors of courtroom. The German Mannheim courtroom in Nokia v Daimler has discovered that Nokia’s [end-product-based] automotive licensing offer was fair, however that neither Daimler nor its supplier Continental “were seriously willing or prepared to conclude a license agreement with the applicant on [fair and reasonable]terms.” The Division of Justice additionally notes in its BRL of Avanci’s proposed 5G IoT licensing program that there are a selection of the way to worth the patented expertise and acknowledged that it believes events needs to be given flexibility to license in a fashion that finest rewards and encourages innovation.⁸

The worth delivered by these mobile SEP applied sciences considerably exceeds chip implementer design and fabrication prices in lots of circumstances. Licensing on the chip stage, and calculating royalties on this foundation would are likely to drive royalties all the way down to values in essentially the most fundamental implementations (e.g. a “related” lightbulb) and undervalue patents in excessive worth end-devices (e.g. related automobiles with cellular V2X capabilities). The outcome could be economically inefficient and dysfunctional with diminished incentives for SEP homeowners to contribute their applied sciences to the requirements.  Chip-based licensing would end in extra uniform charging which might be too pricey for low-value purposes or under-compensate for inclusion of SEPs in high-value purposes.

 

  • International licensing.  Whereas quite a few expertise merchandise, together with these containing mobile SEPs, are world with manufacturing and gross sales together with many countries, and with hundreds of world patent licenses agreed and underpinned by many billions of {dollars} of royalty funds remodeled a few years, some implementers have held out from taking such licenses by arguing that nationwide courts do not need extra-territorial jurisdiction. Nonetheless, The UK Supreme Court docket’s latest appeal judgment in Unwired Planet v Huawei  and Conversant v Huawei and ZTE guidelines that the English Court docket has energy to grant an injunction in respect of UK nationwide patents until the implementer enters a worldwide license of a multinational patent portfolio, and to find out the phrases of that license. The us acknowledges that nationwide courts decide validity and infringement of nationwide patents however the ETSI IPR coverage—as is relevant to mobile SEP licensing— empowers a nationwide courtroom to find out FRAND charges and phrases.  There was no UK lower-court willpower of validity or infringement for overseas patents. Implementers stay free to problem patents on the nationwide stage and search a discount in royalties ought to that achieve success for vital applied sciences. Worldwide licensing is the norm, is supported by the ETSI IPR FRAND settlement, and isn’t precluded by nationwide courts. There isn’t any worldwide discussion board for attraction, and so it is just nationwide courts that may cope with disputes about worldwide licensing.

Extending SEP licensing attain for IoT by way of patent pooling

The methods by which mobile SEPs are licensed are increasing as these applied sciences are more and more being applied in lots of extra gadgets than cellular handsets, tablets and PCs.  Whereas bilateral licensing just isn’t going away any time quickly, and can all the time stay an possibility because of antitrust issues that will come up if one and even a number of patent swimming pools have been the one technique of licensing, patent pooling or comparable platform-based licensing is more and more enticing in IoT together with 5G. It’s because the numbers of implementers and purposes is growing dramatically outdoors the mobile business vertical, and since the worth that IoT can present considerably varies from case to case, accordingly. Patent swimming pools have the size to have the ability to supply one-stop-shopping to implementers with most or all the SEPs they should license, and with royalty fees which can be proportionate to the worth they derive from the delicate mobile applied sciences they use, comparable to upcoming  ultra-reliable and low-latency communications in 5G

Whereas bilateral licensing is probably to proceed to predominate among the many expertise builders and implementers throughout the mobile business, the Avanci licensing platform —initially specializing in connected vehicles and smart meters with fees (e.g. as much as $15 per automobile for 3G & 4G) based mostly on worth in these gadgets and purposes—is thrashing a brand new path in mobile expertise licensing.  That is enticing in IoT, together with 5G, in a method that has already confirmed profitable for all gadgets in video codec customary expertise licensing.

Endnotes

¹While it isn’t value efficient or essential to patent in all jurisdictions, efficient IP safety for merchandise manufactured or offered in a number of or many countries additionally requires patenting in a number of jurisdictions together with US, China, Europe and Japan.

²Net of duplicates, I estimated 265 different companies had declared patents as important to 3GPP requirements within the ETSI IPR database by Might 2019. Whereas patent counting just isn’t an correct or dependable of methodology of evaluating SEPs amongst totally different patent homeowners, as illustrated by vast disparities in varied research’ patent essentiality evaluation outcomes, these research far much less controversially all present that almost all SEPs are owned by fewer than 10 firms.

³While, in accordance with Strategy Analytics, 37 OEMs accounted for 83% of mobile handset shipments in 2018, the GSM Suppliers Association had recognized, already by August 2020 (lower than 18 months from 5G’s inception), 93 distributors who had introduced 401 accessible or forthcoming 5G gadgets together with 18 totally different “type elements” amongst these. Whereas GSA’s figures embrace varied end-devices, in addition they embrace intermediate merchandise together with modules and automobile onboard models that are more and more being integrated in plethora of extra end-devices (e.g. automobiles) by many various OEMs serving their respective vertical markets. For instance, licensing platform Avanci, with 39 licensors, has licensed 14 vehicle manufacturers. There are additionally many OEMs in different verticals, together with healthcare, industrial automation and asset monitoring. For instance, 36,000 Bluetooth Special Interest Group members together with producers and others in quite a few vertical sectors all cross-licence their SEPs for the Bluetooth customary underneath a royalty-free pooling association.

⁴While 332,511 patents had been declared important to 3GPP requirements within the ETSI IPR database by September 2020, studies claim that many of these are not actually essential.

⁵A complete of 56 firms, together with patent swimming pools and patent-assertion entities, have been recognized as prospectively producing mobile SEP royalties, with 5 “Leaders” and 16 different public firms accounting for greater than 90% of those, in A New Dataset on Mobile Phone Patent License Royalties, by Haber, Galetovic and Zaretzki, 2H 2017.

⁶The overwhelming majority of video codec SEPs are licensed to hundreds of licensees by way of just a few patent swimming pools together with these administered by MPEG LA, HEVC Advance and Velos Media.

⁷The BRL states at web page 18: ‘Right here, the efficiencies from the proposed area of use look like appreciable and are prone to outweigh the potential aggressive hurt attributable to limiting the scope of the Customary [Patent Licensing Agreement] to related automobiles. The Antitrust Tips for the Licensing of Mental Property clarify that field-of-use restrictions may be procompetitive as a result of they permit the licensor “to use [its patents]as effectively and successfully as doable” and that they might “improve the licensor’s incentive to license.”’ (Citations omitted.)

⁸The BRL states at web page 20: ‘There are “quite a lot of methods” events may worth patented expertise, together with setting royalties based mostly on end-product income. The important mobile SEPs licensed listed below are topic to FRAND commitments. Avanci represents that its present charges for the 4G Platform are FRAND and replicate enter from each licensors and licensees, and that Avanci intends its 5G charges additionally to be FRAND. There isn’t any single appropriate strategy to calculate an inexpensive royalty within the FRAND context. Every standards-essential patent holder should resolve whether or not the Avanci Platform comports with its personal FRAND commitments. Requirements implementors can implement the commitments in contract proceedings if there are disputes. The Division believes events needs to be given flexibility to license in a fashion, according to these commitments, that finest rewards and encourages innovation.’ (Citations omitted.)