The mobile industry has been speculating, if not encouraging, the development of a patent pool for LTE since 2009. As the pace quickens on the rollout of LTE it appears that like technologies before it, LTE’s Essential patent landscape will present complex challenges as the true patent ownership remains uncertain. The situation is only made worse by the drawn out process of establishing an LTE patent pool, currently being fought over by three potential administrators (Via Licensing, Sisvel and MPEG LA).
Patent pools are nothing new. Successful pools already exist in standard technologies such as MPEG, DVB and DVD. A patent pool, under which all the Essential patents are licensed as a single package, can in theory lead to lower royalty rates than would bilateral negotiation with all licensors. A one-stop shop can also reduce the transaction costs associated with gaining licenses.
Reasons for joining a patent pool
The decision to form or join a patent pool will depend on the overall size of the Essential patent landscape, the individual contribution of pool members, the relative value of patents and the acceptable aggregate royalty level that the industry can afford while sustaining the technology’s attractiveness. For licensors in LTE the key questions that need to be addressed are:
• Can I maximise shareholder value by joining a patent pool?
• Will the pool achieve critical mass attracting enough big players?
• Will the formation of an attractive patent pool reduce the risk of patent trolls?
Can I maximise shareholder value by joining a patent pool?
The key starting point for any discussion of patent pools is an understanding of the complete patent pie – the landscape (numbers and owners) and the number of patents owned by potential pool members. Both numbers are hard to determine.
Where to begin analysing the patent landscape…
The European Telecommunications Standards Institute (ETSI), the standards body responsible for LTE, requires its members to declare patents and applications believed to be potentially Essential - those patents built into the standard which are unavoidable by standards compliant products and can’t be engineered around. This information should be a good starting point to understand the LTE IPR landscape – however, it must be viewed with caution.
So far, around 30 organisations have made declarations to ETSI of patents and applications which they believe to be potentially Essential to LTE, with the total number of declarations now standing at just over 2,000 items. When compared to the over 13,000 declarations from 62 organisations for WCDMA, it is clear that the picture of ownership for LTE is far from complete.
PA’s evaluation of the declarations made to ETSI suggests that the quality of declarations is higher than that for 3GPP-FDD (WCDMA). In PA’s opinion, only 37% of patents declared as potentially Essential to WCDMA actually were. Companies appear to over-declare against the standards – inflating and complicating the landscape.
Identification of the patents within an organisation…
Identifying and evaluating the Essential patents and disregarding the others, in a moving landscape, is a huge task.
Evaluation of Essential patents requires knowledge of the patent and the standards. This requires interaction of patent attorneys and engineering staff – a resource that should probably be focusing on core business.
Applications can, and do, change through prosecution. Similarly, the technical specifications may also have been changed since the patent applications were declared to ETSI. The Essential patent landscape is therefore a moving target.
A slice of a pie - but what is it worth?
There is also the question of the Royalty Model. The challenge for pool administrators is to define a model of rewarding the pool contributors – and thus make joining the pool attractive to gain critical mass – while not diluting the license fee split received by pool members. This depends on the relative strengths of an individual’s portfolio compared to the overall landscape and proportion in the pool.
For an individual organisation the value of a patent pool also depends on the ownership of non-Essential patents, as it is critical that joining a pool does not adversely affect the licensor’s overall position.
Will the pool achieve critical mass attracting enough big players?
Joining a patent pool is more than outsourcing a business unit and notable big players with established licensing programmes such as Qualcomm and InterDigital are unlikely to join patent pools.
In April 2008, seven companies (Alcatel-Lucent, Ericsson, NEC, NextWave Wireless, Nokia, Nokia Siemens Networks and Sony Ericsson) made a statement about an expected aggregated royalty rate for LTE Essential IPR in handsets as a single-digit percentage of the sales price. This was seen by many as a positive sign for an LTE patent pool. However, the list of names misses some notable IP owners such as Samsung, NTT DoCoMo, LG Electronics, NEC, Broadcom, InterDigital and Texas Instruments. Likewise, since then major players such as Motorola and Nokia have announced bilateral licensing agreements outside potential patent pools.
PA believes that for an LTE patent pool to be attractive a critical mass of 30% to 40% of the patent landscape is necessary. Achieving more than 50% is unlikely, and it shouldn’t be seen as a failure of the pool if 50% is not achieved.
Will an attractive patent pool reduce the risk of trolls?
Criticism of patent trolls or Non-Practicing Entities (NPEs) comes from the fact that they are in a position to license technology but are not exposed to any downside risk of counter actions. Licensing of patents should be a mechanism to reward investment in R&D and stimulate further innovation. In pure economic terms, the actions of NPEs provide a liquidity mechanism for patentees to commercialise their rights. In practice, the actions of NPEs can act as a drain on the industry – breaking the virtuous circle of reward and innovation.
While patent pools may not be immediately attractive to trolls, they may act as a moderating influence where trolls seek to ‘do-the-right-thing’, such as making FRAND (Fair, Reasonable and Non-Discriminatory) commitments (see the recent commitments from IPcom, for example).
What does the future hold for LTE?
Ever since the days of GSM, intellectual property has been a hot topic, but one that is often misrepresented. High profile litigation cases between the big vendors grab media headlines and people get caught up with the sometimes aggressive behaviour of patent trolls.
But the reality is that relative to the size of the licensing market, big litigations don’t happen that often - the real issues of intellectual property are to do with innovation, technology and standardisation.
Royalties act as a mechanism to reward those organisations that innovate and are involved in the standardisation process. If patent pools are to be successful in LTE they need to recognise the needs of the entire eco-system, including IP owners and implementers.
The author can be contacted via telephone +44 (0)1763 267492 or by email email@example.com