Mallinson: Innovation, competition and choice flourishing with mobile standard patents

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Keith Mallinson

Theories of harm arising from recent disputes with standards-essential patents (SEPs) are poorly substantiated and contradicted by market facts and figures. Pending smartphone patent litigation including Apple, Microsoft, Samsung Electronics, Motorola Mobility (acquired by Google) and others is causing a big stir; but previous settlements to high-profile litigation in this market sector have produced reassuringly benign results.

A press release announcing the ITU's Patent Roundtable for "talks to address rampant patent litigation" in Geneva on Oct. 10 was headlined "[i]nnovation-stifling use of intellectual property to be tackled" and it described "an unwelcome trend in today's marketplace to use standards-essential patents to block markets." This event came shortly after the a similar event held the previous week, the Symposium on Management of Intellectual Property in Standard-Setting Processes organised by the National Academies Board on Science, Technology, and Economic Policy in Washington, D.C., which I also attended, as a speaker.

However, there was no consensus on demands for major changes at these events. These included imposing a definition of "reasonable" in fair, reasonable and non-discriminatory (FRAND) licensing terms on voluntary participants in standard-setting organisations; and the elimination or significant curtailment of companies running to get injunctions on products based upon infringement of SEPs. Proposals to improve disclosures and transfer licensing obligations with patent ownership rights were less controversial.

Evidence shows that innovation from R&D is substantial and ongoing with many collaborators as licensors and licensees in standards-based ICT, for example, with video and audio codecs and in mobile communications. Effective competition is illustrated with major shifts in manufacturer market shares, for example, with the rise of Apple and Android-based devices at the expense of Nokia and Research In Motion since 2007. Consumers are benefitting from improved technical performance and increasing choice, and manufacturers are gaining from increasingly widespread adoption. SEP technologies in standard-setting, together with complementary and follow-on technology developments, product and service implementations in ICT are generally progressing very well, as illustrated by many highly-successful standards, including those for video "codecs" (e.g., ITU-T's H.264/MPEG-4 AVC) and in mobile communications (e.g., with 3GPP's 2G GSM, 3G UMTS and 4G LTE).

To break it down into more detail, here are some examples of how the respective markets have developed:

Video and audio codecs:

–Widely used in DVDs, TV and radio broadcast streams, PCs and smartphones
–29 voluntary licensors and 1,000 licensees for the H.264 patent pool
–2,600 patents (including majority of the standard's patents) deemed essential by H.264 pool examiners
–Proprietary and open source software (e.g., x.264) implementations
– Aggregate patent royalties of $0.20 maximum per device for H.264 through the patent pool; $3 average including multiple video and audio standards

Mobile Phones

–6 billion subscribers in a $1 trillion market, including handsets and services, in less than 30 years
–Phone prices as low as $20 (unsubsidised)
–Vibrant smartphone market revolution with increasing product choice
–Data speeds 1,000 times faster than 56kbps for GPRS a decade ago
–Hundreds of companies contribute to and implement 3GPP and 3GPP2 standards
–124,000 patents declared essential to 3GPP standards
–10 major standards releases by 3GPP and pace of innovation is relentless
–Aggregate royalty rates have declined

The highly-successful standards-setting and technology development processes should not be undermined by meddling with the mechanisms which have successfully provided the incentives to invest in R&D, innovate and compete. Collaboration with sequential and complementary technologies in standards has worked very well.

In some cases, litigation includes demands for substantial royalty payments, injunctions and exclusion orders that can deprive suppliers of sales and consumers of choice. However, previous high-profile litigation has resulted in settlements that appear to have been rather benign for the parties, and, in particular, for consumer interests in market competition, pricing, product choice and innovation. Examples securing patent peace in SEPs and other patents since 2008 include Nokia versus Apple, Nokia versus Qualcomm, and Broadcom versus Qualcomm. There is little or no evidence of significant actual harm, as alleged by detractors, from "patent thickets," "royalty stacking" and "hold up" to the standards processes by alleged unreasonable royalty payments being paid for SEPs in standards. Moreover, few mobile products with significant demand have been blocked from sale for very long.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor publishes an Extended Mobile Broadband Forecast. This includes network equipment, devices and carrier services to 2025. Further details are available at: http://www.wiseharbor.com/forecast.html. Find WiseHarbor on Twitter @WiseHarbor.