GSMA ACC Europe Annual Conference, Munich. Michael Loch, Head of IP, GSMA

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1 2015 ACC Europe Annual Conference, Munich Michael Loch, Head of IP, GSMA

2 Who is the GSMA?: representing the mobile industry Who is the GSMA 800 mobile operators members and over 250 associated member companies from the broader mobile ecosystem, in more than 220 countries represen:ng 7.4 Billion mobile connec:ons and 3.6 Billion individual subscribers

3 Growth in Connected Devices 3

4 Importance of Standards Industry standards have been vital for the development of the telecoms networks, e.g.: (i) Watching a video - likely ITU/ISO/IEC H.264 (ii) Connected to a wireless network probably IEEE Many products are not marketable without implemen:ng standards (e.g. WiFi) Standards are developed in a collabora:ve process at standards- se[ng organiza:ons ( SSOs ). By their very nature, Standard Essen:al Patents ( SEPs ) confer market power. Standard se[ng organiza:ons ( SSOs ) usually require licensors to commit up front to only seek fair, reasonable, and non- discriminatory ( FRAND ) and not hold- up a poten:al licensee for a royal:es. 4

5 Guidelines on the applicability of Ar:cle 101 of the EU Treaty on the Func:oning of Horizontal Co- Opera:on Agreements In order to ensure effec.ve access to the standard, the IPR policy would need to require par.cipants wishing to have their IPR included in the standard to provide an irrevocable FRAND commitment (285) European Commission published this policy paper in June 2014: hdp:// ec.europa.eu/compe::on/publica:ons/cpb/2014/008_en.pdf SEPs can, however, confer significant market power on their holders. Once a standard has been agreed and industry players have invested heavily in standard- compliant products, the market is de facto locked into both the standard and the relevant SEPs. (Emphasis added.) This gives companies the poten.al to behave in an.- compe..ve ways, for example by holding up users aser the adop.on of the standard by excluding compe.tors from the market, extrac.ng excessive royalty fees, setng cross- licence terms which the licensee would not otherwise agree to, or forcing the licensee to give up their invalidity or non- infringement claims against SEPs. (Emphasis added.) 5

6 Mobile Network Operators caught between a Rock and a Hard Place

7 Dramatic Changes in Patent Licensing 10 years ago, the prime objec:ve of manufactures: Freedom to operate, i.e. the ability market products by seeking large porgolio cross- licenses. With diminishing compe:veness, incumbent manufacturers have seen patents as a tool for moving compe::on from the product market into the court room. New entrants have had three choices: (i) drama:cally cut profit margins and invest heavily in R&D; (ii) become a high- end, niche player; or (iii) take the badle to the courtroom in order to challenge validity of porgolios. This has lead to (i) Total break- down of Consensual Licensing Model ; (ii) Commodi:sa:on of Patents ; (iii) Gross infla:on in poor quality patents; (iv) drama:c increase in li:ga:on re. established patent porgolios; and (v) a rapid increase in secondary market in patents, including Patent Asser:on En::es ( PAEs ) and Privateering. 7

Component Costs: $120- $140 Licensing Cost almost equal the cost of the

8 Licensing Cost per $ 400 Handset There are an es:mated 250,000 patents relevant to a smartphone. Component Costs: $120- $140 Licensing Cost almost equal the cost of the components, i.e. around $120* Note cost implica:ons for next genera:on networks *Based on publically available informa:on

9 Patent Asser:on En::es represent a grave risk for the Telecoms Industry What are Patent Trolls? What is the risk to the industry? How are they impac:ng MNOs? Many names, Patent Asser:on En::es ( PAEs ), Non- Prac:sing En::es( NPEs ). Business model to own intellectual property and collect revenues from the licencing and enforcement of its IPR rather than manufacture Track record of extor:ng high licensing fees under the threat of injunc:ons In some cases. PAEs are used by some manufacturers as a compe::ve play Privateering In the US alone last 10 years 400% increase in PAE lawsuits in the high- tech industry 75% of all patent li:ga:on is in high- tech 90% of high impact patent li:ga:on is by plain:ffs who purchased the patents (i.e. PAEs) 97% of patent infringement suits are sedled before trial 90% of patents when challenged invalid (IPCOM Nokia: 70 of 71 patents par:ally or wholly revoked) Listed companies are losing up to $80bn per year, up to $1.8bn loss in shareholder value per claim MNOs are vulnerable to PAEs due to the mul:tude of patents that underwrite MNO businesses. PAEs ac:vely targe:ng MNOs and MNO service revenues. Whilst PAEs win under 10% of cases, each law suit costs an average of 1m AT&T and Verizon over 230 lawsuits from PAEs inthe past three years alone Examples of sedlements for over 100m (e.g. DT verses IPCom) In Europe, European- wide injunc:ons will affect all European MNOs

10 Today Patent Assertion Entities are active in Germany and UK The UPC with its bifurcated system may well become the next major badle ground for NPEs. 10

11 The UPC will spread the PAE problem across Europe Intellectual Ventures The UPC is designed to provide a one- stop shop for registering and protec:ng patents within the European Union. 11

12 Need for working together across Industries Due to Conversion / Internet of Things standardisa:on and PAEs in telecoms are not a problem exclusive to this industry. Investments in wireless infrastructure and ecosystem vastly exceed the costs of R&D. Without adequate protec:ons from unreasonable asser:ons, required investments are under threat. If we con:nue on the current pass, we will not be able to afford the next genera:on technology/networks necessary to sa:sfy consumer demands We require support across industries in order to create a fair, transparent and less adversarial licensing system to ensure that industry is capable of inves:ng and building future genera:on of networks, i.e. (i) Transparency on FRAND ; (ii) (ii) (iii) Higher quality patents; Clarity on Essen:ality and Refusal to licence ; and Effec:ve disputes resolu:on and clear restric:ons on injunc:ve relief in case of abusive behaviour 12

Standard-Essential Patents

Standard-Essential Patents Richard Gilbert University of California, Berkeley Symposium on Management of Intellectual Property in Standard-Setting Processes October 3-4, 2012 Washington, D.C. The Smartphone