The Interplay between Patents and Standards: Empirical Evidence Prof. Dr. Knut Blind Technische Universität Berlin, Chair of Innovation Economics Rotterdam School of Management, Chair of Standardisation Fraunhofer Institute of Open Communication Systems INTERNATIONAL EXPERT WORKSHOP STANDARD ESSENTIAL PATENTS IN INFORMATION AND COMMUNICATION TECHNOLOGIES AND INNOVATION IN EUROPE 27 October 214, Institute for Prospective Technological Studies, Seville 1
ICT Standards SEPs and innovation Knowledge input #1 Application in sector #1 Knowledge input #2 Standard Application in sector #2 Knowledge input #3 Application in sector #3 Standards incorporate a variety of knowledge inputs: E.g. IEEE 82.11 (WiFI) radio communications modulation technology, security and cyphering technology, higher link packet technology, etc 1991: Initiated by the NCR Corporation narrow (niche) application area, the wireless interconnection of cash registers in large retail stores 2er: Various applications in public telecommunications (local loop, public hotspots) integrated in many consumer devices 2
ICT Standards SEPs and innovation ICT standards are indispensable for interoperability Innovative technology is protected by patents Strategic incentives to file patents referring to standards Fear of monopoly and lock-in situation 3
The Interplay of Patents & Standards SSOs and their rules Consensus Standard Setting Organizations (SSOs) Standards Developers (ISO, IEC, ITU, IEEE, ETSI) Major consortia (W3C, IETF) Special Interest Groups (Bluetooth SIG) SSOs face difficult IPR trade-off Want/need option to use patented technology but essential (i.e. blocking) patents could Produce unfair ex post division of benefits Impede diffusion of standard Most IPR policies have two components 1. Disclosure Rules Participants must declare possibly essential patents Generic vs. Specific IPR disclosure Disclosure timing 2. Licensing Commitments FRAND 4
The Interplay of Patents & Standards Antitrust Issues- Hold-Up Essential Patents and Patent-Hold-Up Patent ambush Participant allegedly knows it has a SEP and intentionally fails to disclose it (Dell, Rambus, Unocol FTC cases) Non-F/RAND licensing terms Participant discloses SEPs and makes F/RAND commitment, but later offering non-f/rand terms (Qualcomm/Broadcom case) Transfer of F/RAND commitments Are F/RAND commitments bound to the patent or holder? Vague IP Policies SEP owners state that they are prepared to grant a license or that they will enter license negotiations in good faith to offer FRAND terms (e.g. as to the ETSI IPR policy) 5
The Interplay of Patents & Standards Injunctive relief Injunctive relief and SEPs = Court order that requires a party to refrain from doing specific acts (selling infringed products e.g. Samsung Galaxy Tab) SEP holders should be allowed to impose injunctions if possible licensees are not willing to pay a reasonable license F/RAND commitment should be a constraint to injunctive relief (DoJ and DG Comp.). Someone who commits to license under F/RAND and then refuses to licenses just requests higher fees! The possibility to impose an injunction could increase royalties even in the absence of a court decision. These fees would then also be subject to an anticompetitive price. 6
Total Number of SEP Declarations per SSO as to 214 4. 5. 35. 3. 25. 2. 15. 1. 5. 4.5 4. 3.5 3. 2.5 2. 1.5 1. 5 Source: IPlytics 214 7
Cumulative SEP Declarations per SSO over time 14. 12. 1. 8. 6. 4. 2. ATIS Broadband Forum TIA IEC ITUR IETF ITU ANSI IEEE ISO ITUT 4. 35. 3. 25. 2. 15. 1. 5. ETSI Source: IPlytics 214 8
Cumulative Declaration Statements per SSO over time 8 7 6 5 4 3 2 1 Broadband Forum ATIS TIA ANSI IETF ITU ITUR IEC IEEE ISO ITUT ETSI Source: IPlytics 214 9
Cumulative Blanked Declaration Statements per SSO over time 4 Broadband Forum 35 ATIS 3 25 2 15 1 5 TIA ANSI IETF ITU ITUR IEC IEEE ISO ITUT ETSI Source: IPlytics 214 1
Total Number of SEP Declarations per Patent Office as of 214 (Top 15) 6. 5. 4. 3. 2. 1. US JP CN EP WO KR DE AU CA AT ES BR HK TW Source: IPlytics 214 11
Cumulative SEP Declarations per Patent Office 5. 45. 4. 35. 3. 25. 2. 15. 1. 5. 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 TW HK BR ES AT CA AU DE KR WO EP CN JP US 35. 3. 25. 2. 15. 1. 5. 199 1991 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 TW HK BR ES AT CA AU DE KR WO EP CN JP US Source: IPlytics 214 12
Total Number of SEP Declarations per Company as of 214 (top 25) 1. 9. 8. 7. 6. 5. 4. 3. 2. 1. Source: IPlytics 214 13
Total Number of SEP Declarations per IPC (first digit) as of 214 16. 14. 12. 1. 8. 6. 4. 2. ELECTRICITY PHYSICS PERFORMING OPERATIONS; TRANSPORTING HUMAN NECESSITIES CHEMISTRY; METALLURGY MECHANICAL ENGINEERING; LIGHTING; HEATING; WEAPONS; BLASTING ENGINES OR PUMPS FIXED TEXTILES; PAPER CONSTRUCTIONS H G B A C F E D Source: IPlytics 214 14
Total Number of SEP Declarations per IPC (4 digit) as of 214 8. 7. 6. 5. 4. 3. 2. 1. STEREOPHONIC SYSTEMS PREPARATIONS FOR MEDICAL RADIO DIRECTION-FINDING; RADIO NAVIGATION TELEPHONIC COMMUNICATION ELECTRICAL DIGITAL DATA PROCESSING CODING; DECODING; CODE CONVERSION IN GENERAL MULTIPLEX COMMUNICATION SPEECH ANALYSIS INFORMATION STORAGE PICTORIAL COMMUNICATION, e.g. TELEVISION TRANSMISSION TRANSMISSION OF DIGITAL INFORMATION, e.g. TELEGRAPHIC COMMUNICATION WIRELESS COMMUNICATIONS NETWORKS H4W H4L H4B H4N G11B G1L H4J H3M G6F H4M G1S A61K H4Q Source: IPlytics 214 15
SEP declarations Evolution 16 14 Declaration date of claimed essential patents by largest standards (on basis of declaration statements) UMTS, 3GPP 12 1 3GPP, UMTS, GSM 3GPP, GPRS, UMTS 8 LTE, UMTS 6 4 2 1992 1993 1994 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 Source: Blind et al. 211 16
2. SEPs & litigation Evolution 2-Year Cumulative Litigation Hazard Declared Essential Patent 15.9% Vintage / class baseline 2.9% Source: Bekkers et al. 212 17
2. SEPs & transfer of ownership Sales of patents in the IT industry Patent transfer 1997-29 12 1 8 6 4 2 1997 1999 21 23 25 27 29 Source: Pohlmann et al. 213 18
2. SEPs & transfer of ownership Sales of SEPs SEP transfer 1997-29 18 16 14 12 1 8 6 Bare Acquisition 4 2 1997 2 23 26 29 Source: Pohlmann et al. 213 19
2. SEPs & transfer of ownership Sales of SEPs SEP transfer timing ETSI (54 SEPs) After release After declaration Others (19 SEPs) % 1% 2% 3% 4% 5% 6% 7% 8% 9% Source: Pohlmann et al. 213 2
3. SEPs & Licensing Cumulative Patent License Common aggregate royalty rates for mobile telecommunications devices. % 5 % 1 % 15 % 2 % 25 % GSM, no cross licensing Typical 8% GSM, cross licensing Typical 4% GSM/UMTS, no cross licensing Typical 12% GSM/UMTS, cross licensing Typical 9% TLE (only), no cross licensing TLE (only), cross licensing Typical 11%? Source: Blind et al. 211 21
3. SEPs & Licensing Cumulative Patent License Patent Pool Patent Pool: an agreement between two or more patent owners to license one or more of their patents to one another or third parties. (USPTO) Single license contract for a bundle of patents one-stop shopping Pools may reduce multiple marginalization and transaction costs and facilitate patent enforcement Patent pools are designed to mitigate patent thicket problems (Shapiro, 21; Bekkers, Iversen, Blind 212); help to enforce rights (Delcamp, 213) 22
3. SEPs & Licensing Cumulative Patent License Patent Pool Patent Pool Launches and Success Source: Pohlmann et al. 213 23
3. SEPs & Licensing Cumulative Patent License Patent Pool Source: Pohlmann et al. 213 24
4. Policy Recommendations Private vs. Policy governance Do nothing let the courts sort it out Private governance Clarify (F)RAND policies Policy objectives, injunctions, damages, disclosure timing Alternative IPR rules Ex ante royalty caps, royalty-free IPR, NAASTy Alternative SSO structures Integrated collective licensing (Bluetooth, DVB, HDMI) Unilateral commitments Apple/MS/Cisco/Moto-Google: Rate, Base, Scope, Transfer and Injunctions Government policy Patent policy reforms (Office-SSO cooperation, Remedies Law) Antitrust safe-harbors for SSOs Procurement preferences (e.g. OMB A-119) 25
4. Policy Recommendations Intermediate problems and solutions Problems No transparency which patents are standard essential and need to be licensed Especially new market entrants find it difficult to oversee which patents to license Legal uncertainty may lead inefficiencies and a competitive disadvantage Solution Most firms try to stay under the radar! Small firms are not surveiled by bigger players Litigation is expensive and usually aims to fight big market players Upfront know how about the extent of IPRs Patents and Standard Platform 26
Thanks for your attention! Any Questions / Ideas / Thoughts? 27