Publications

That the availability of injunctions or even seeking them should be an antitrust issue is quite perverse. The European Commission’s antitrust agency is striking a compromise by dictating under what circumstances injunctions may be sought for patent infringements where patentees have agreed to license patents, they have declared as potentially essential to the UMTS (WCDMA) standards, on FRAND terms.

“Reasonable and non-discriminatory” fees set for H.264 video and 802.11 WiFi by Judge Robart in the case between Microsoft and Motorola and by Judge Holdermann in the Innovatio case are defectively based and unreasonably low.

In the IPO Facto blog review of UK IPO report entitled A Study of Patent Thickets draws the correct conclusion that UK firms are not negatively affected by so-called “patent thickets”, and that the “forest” is, in fact, “thicket-free”. However, the IPO’s report and the blogger’s other comments about it are not so benign.

The case for competition authority intervention in SEP licensing lacks adequate support. Key issues under consideration by DG Comp include whether these defendant companies have the possibility to “hold-up” standards if they seek, obtain or even threaten injunctions for the infringement of standard-essential patents, and are thereby able extract unreasonable royalties.

Economic theories of negative effects including harm due to alleged royalty stacking with numerous patents essential to cellular standards can be debunked by assessing the development of these technologies, products and services, market entry, competition and prices over the last six years or so.

It is falsely asserted that “specific circumstances affecting some industries like the information and communication technology (“ICT”) sector may limit the effectiveness of intellectual property rights” to “stimulate innovation, and to benefit consumers” On the contrary, the IPR licensing system is thriving with widespread benefits beyond patentees, in 3G and many other technologies.

The latest IPO report lends only convoluted and qualified support to theories of harm from patent thickets. Empirical evidence shows that thousands of SMEs and many others are, instead, flourishing by virtue of—not despite—extensive IP developments, patenting and licensing of Standard-Essential Patents (SEP)s, and with Standard Setting Organizations (SSOs).

Extensive IP litigation between various smartphone ecosystem participants —- most notably between Apple and Android licensees Samsung and HTC -— reflects the ever-increasing importance of a business strategy based on first developing or acquiring IP, then licensing and defending it.

Mobile technologies, devices, networks and operator services are highly standards based with essential-IP licensing predominantly and successfully based on a system of (Fair), Reasonable and Non-Discriminatory terms. Extensive competition has resulted in new market entry, an effective and vibrant innovation ecosystem including Standards Setting Organisations such as 3GPP, and modest aggregate royalty charges for essential IP.

Whereas voluntary patent pooling is common in licensing standards-essential IP for digital audio and video, attempts to impose pooling is potentially anticompetitive. Mandatory patent pools seeking to limit licensing fees would distort competition by favouring downstream licensees at the expense of upstream licensors who depend on licensing fees to fund their R&D.

The graphics have disappeared from the blog posting. The full article including graphics can be accessed here: http://wiseharbor.wpenginepowered.com/wp-content/uploads/2019/05/Wiseharbor-for-IP-Finance-on-patent-pools-4July2011.pdf

FRAND licensing is a huge success in boosting technology and reducing prices in the mobile communications sector. IP licensing arrangements have promoted—not inhibited—superlative market developments in mobile communications.

Basic economic principles that underpin the IP system—such as being able to make a return on the capital, labour and time invested in what are typically risky developments of patented technologies—are as applicable with standards-based technologies as they are elsewhere.

DG Growth’s Roadmap on Standard Essential Patents for a European Digitalised Economy sets out how it believes increasing transparency on standard-essential patents and its other objectives with SEPs and FRAND licensing might be achieved. However, third-party assessments of patent portfolio essentiality are too subjective and unreliable to be imposed through intervention.

I recently wrote a paper for 4iP Council about the adverse effect of the Institute of Electrical and Electronics Engineers’ (IEEE) 2015 patent patent policy change on submissions of Letters of Assurance (LOAs) indicating whether patents are pledged to the new policy. In this, I have reviewed some third-party analysis on adoption of the new patent policy and LOAs. And, I have also included my own analysis of LOA data available from IEEE. The summary of my paper is reproduced in the IP Finance blog with some updated figures from one third-party analyst and with the addition of an IEEE logo. Research shows that a large proportion of technology contributors to IEEE standard is are unwilling to provide ‘positive’ LOAs to grant access to patented technology under the terms of the IEEE’s new patent policy. As a result, delays in adopting or implementing IEEE standards and litigation are foreseen, unless clarity and certainty around licensing terms are restored.

The new head of the US DoJ antitrust division is reinforcing a trend that shifts the balance between IP rights and antitrust restrictions. Patent owners should be allowed to decide how they want to exercise their property rights: “under the antitrust laws, a unilateral refusal to license a valid patent should be per se legal.” New European Commission guidelines on SEP licensing respect patent owners’ rights to benefit from “fair and adequate return” from “value added of patented technology.” The guidelines do not oblige SEP owners to license to anyone who asks for a license. But significant harm has already also been done internationally with contagion from prospective or actual policy positions that were previously more hostile or equivocal on IP owners’ rights.

At last, American authorities are beginning to do the right thing for owners of standard-essential patents. Under the previous administration of President Barack Obama, America’s agencies did the wrong thing by seriously undermining standard-essential patents in various ways. President Trump’s blocking of Broadcom’s attempted hostile acquisition of Qualcomm brought allegations of protectionism and some discontent among shareholders; but no such intervention would ever have been called for if Qualcomm’s licensing business model had not been so wantonly attacked at home and abroad by antitrust actions including large fines and by royalty payments being withheld by Apple.

5G is a new standard that significantly embodies cumulative technology developments from previous cellular standards including 3G UMTS and 4G LTE. Many more innovative new technologies will also be added to 5G over the next decade or so. The value of standard-essential technologies in these standards is largely a function of patent quality—particularly including seminal and foundational contributions—rather than of the raw numbers of patents filed, issued or declared essential to the standards.

While Ericsson is a leading contributor to mobile communications standards, a US District Court in California has significantly undervalued Ericsson’s standard-essential patents (SEPs) by relying heavily on flawed “top-down” valuation analysis that prorates royalties by company for 2G, 3G and 4G based on SEP counting. This analysis applies a series of inaccurate assumptions which whittle down royalty rates from an understated notional maximum in a succession of unreliable steps. The resulting rates derived are a lot lower than those found in a European court’s FRAND determination for the same company in the same year (2017) and for the same 2G, 3G, and 4G patent portfolios. The differences between these US and European determinations are irreconcilable.

In a major ruling that underscores judicial independence, federal judge Richard J. Leon has just unconditionally approved the merger between AT&T and Time Warner, rebuffing the US government’s effort to stop the $85.4 billion deal. Judge Leon made headlines during the trial when he questioned whether a key Justice Department theory, backed by a well-known testifying-expert economist, was a Rube Goldberg contraption: “a machine intentionally designed to perform a simple task in an indirect and over-complicated fashion.”  According the the judge’s Decision, evidence at trial showed that this expert’s model lacks both ‘reliability and factual credibility,’ and thus fails to generate probative predictions of future harm associated with the Government’s increased-leverage theory. This expert’s patent hold-up allegations have similar failings. Government agencies pursuing policy objectives must be more diligent in their deliberations. Academics and other experts should also be more principled when publishing academic articles and giving speeches.

While there is much uncertainty about the outlook for standard-essential patent royalty rates in court determinations, there are plenty of solid benchmarks in well-established comparable licenses (“comps”). The former rates are thin on the ground and have been made up based on some dubious and fiercely contested tenets as judges scrabble to set figures that are fair, reasonable and on-discriminatory. The latter rates have been agreed in droves through negotiation in licensing programs with dozens of licensors, hundreds of licensees and many thousands of patents.

Vacating the District Court Judge Selna’s bench trial decision in TCL v. Ericsson on appeal, the Federal Circuit has prescribed a retrial with a jury. This will recalibrate awards based on the subjective judgement of randomly selected non-experts. It will likely include consideration of bottom-up valuation methodologies reflecting consumers’ purchasing preferences, price sensitivities and the perceived value for smartphone features and performance improvements.

Following IEEE’s purported “clarification” and “update” of its Patent Policy in 2015, with a non-objecting Business Review Letter from the U.S. Department of Justice at that time, the Department has now “supplement[ed], update[d] and amend[ed]” its 2015 BRL with a new BRL.

The Department complains in its new BRL that its 2015 BRL was “frequently and incorrectly” cited as “an endorsement of the IEEE Policy.” The new BRL emphatically and with mettle renounces Standard Setting Organization patent policy changes that were proposed by the former head of the Department’s Antitrust Division, Assistant Attorney General, Renate Hesse, together with those that were detailed in IEEE’s 2015 Patent Policy.

This Patent Policy change was damaging to IP owners and their incentives to contribute to the standard setting and development process. Misinterpretation of the BRL, including by foreign authorities, has resulted in harmful policy developments and legal overreach in Standard-Essential Patent disputes.

Fair, reasonable and non-discriminatory (FRAND) royalty rates for licensing standard-essential patents (SEPs) are increasingly derived “top-down” by dividing a notional aggregate royalty percentage (e.g., 10% of a smartphone’s selling price for 4G LTE) among patent owners based on the proportions of patents they own that are deemed to be standard essential. Other rate-setting methods include use of comparable licenses and measuring value derived from SEPs. However, as stated by Justice Birss in Unwired Planet: “In assessing a FRAND rate counting patents is inevitable.”

Institutionalising use of patent counting—with or without sampling—is an under-researched and impetuous leap of faith. Different assessors come up with wildly different patent counts. Comparison of two separate assessors determining essentiality on the same sample of patents indicates that assessors tend to inflate true essentiality rates. This posting and my full research article hyperlinked there include extensive statistical analysis on essentiality determinations and patent counting.

President Biden’s administration is making a major mistake by its top trade advisor, Katherine Tai, advocating a waiver of patent rights for Covid-19 vaccines.

While all who are involved, or would like to be, should move heaven and earth to increase Covid-19 vaccine supply until everybody worldwide who wants to be vaccinated has been vaccinated, undermining patent rights will not help but only hinder achieving that objective.

As previously remarked in IP Finance, I recently submitted my individual comments, and commented along with other scholars of law, business and economics, among hundreds of consultation submissions in response to the US Department of Justice’s ‘Draft Policy Statement on Licensing Negotiations and Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Licensing Commitments’ (”DoJ Draft Revised Statement”).

Comments on the DoJ Draft Revised Statement by academics Christian Helmers and Brian Love misleadingly imply that many measures taken by a standard-essential patent holder in seeking to obtain a FRAND license are abusive. They state there that ’we present empirical evidence of “hold-up”—i.e., evidence of opportunistic behavior by SEP enforcers that is intended to unreasonably inflate royalties.’ However, elsewhere in a supposedly supporting research paper they co-authored and cite in their comments, they admit that their analysis of these behaviors does not constitute proof of holdup: ’while these behaviors have all been associated with holdup, we stress at the outset that many are not per se unlawful and none are, standing alone, conclusive proof of holdup.’ They ’do not claim that the presence of any of these behaviors constitutes, in itself, empirical proof of holdup.’

In case you missed it or were unable to access my paywalled article in IAM on 5th April 2023, here it is with my analysis of the draft Proposal for Regulation of the European Parliament and of the Council establishing a framework for transparent licensing of standard essential patents, including an associated Impact Assessment report (IA) that were leaked ahead of their anticipated public launch on 26 April.

DG GROW is proposing various ill-conceived interventions — processes that have not yet even been designed or properly budgeted, let alone tested. These will upset a standards development and patent licensing system that has been effective in enabling the world’s fastest growing and largest ever technology ecosystem serving more than five billion people and 16 billion connections with cellular worldwide.

I have feared but anticipated in my publications that the EC might try to build some kind of Ministry of Patent Counting with the purported aim of helping SEP implementers including SMEs in particular in Fair Reasonable and Non-Discriminatory (FRAND) licensing. DG GROW now proposes to do that in spades by building a large “competence centre” bureaucracy at the European Union Intellectual Property Office (EUIPO).

Among numerous legal, economic and commercial concerns about the European Commission’s proposed legislation for Standard Essential Patent (SEP) licensing, its plans for aggregate rate setting and mandatory Fair, Reasonable and Non-Discriminatory (FRAND) rate determinations in various technology standards raises all kinds of issues and alarms.

I have previously argued in general against the Commission’s apparent intention to abandon the established approach of using comparable licensing agreements directly as benchmarks in FRAND rate determinations, and instead apportion aggregate rates among SEP owners based on their respective shares of total SEPs using the top-down approach, with some critical analysis of patent counting methods. This article is complementary with focus its on aggregate rate setting.

The European Parliament (EP) voted in favour of the European Commission’s proposed legislation for Fair, Reasonable and Non-Discriminatory (FRAND) licensing of Standard-Essential Patents (SEPs) in February 2024. Stated objectives include increasing transparency and predictability while reducing transaction costs. Measures include (1) the setting up of a mandatory register for SEPs with essentiality checks of selected and representative random samples of SEPs, (2) a process for determining a non-binding aggregate royalty rate, and (3) a mandatory pre-litigation conciliation procedure for FRAND royalty determination, combined with (4) voluntary guidance on SEP licensing. A new competence centre within the European Intellectual Property Office (EUIPO) will be responsible for these tasks.

The US and Europe are heading in different directions on how to determine FRAND licensing charges for SEPs. While the US has shunned rate-setting regulation by withdrawing guidance from government agencies including the USPTO, NIST and DoJ and is diminishing proposed law-making, the Commission’s interventionist approach prescribes a valuation methodology which a Chinese court has recently used to drastically and defectively undercut established rates.

The European Commission’s scheme to regulate royalties by setting aggregate royalties and apportioning them with the top-down approach based on standard-essential patent counts would very disturbingly and harmfully effect SEP licensing. My analysis shows that apportioning current levels of aggregate royalties based on declared-essential patent counts would massively reallocate royalties received by US and European licensors to Chinese companies.

Aggregate royalties paid to major SEP licensors Ericsson, InterDigital, Nokia and Qualcomm have declined by 28% since peaking in 2015 to 2023. The aggregate “royalty yield” (i.e. total royalties paid divided by handset sales revenues) for these licensors has dropped even more steeply by 38% since 2015.

Percentage royalty yields have been diminished by royalty base caps and the switch to monetary amount per unit royalty rates in some cases. While ad valorem percentage rates charged hedge for inflationary increases in phone prices, caps and fixed amounts per unit are not indexed.

Cellular SEP licensors obtain significantly lower royalties than the maximum percentage rates and monetary rates per unit publicly headlined on their web sites. That’s only to be expected because licensees insist that royalties are capped on higher-priced smartphones.