Copyright and Artificial Intelligence. Free Webinar 7th of December 2023. 3 p.m. GMT = 4 p.m. CET

 

Join For a Free Webinar 7th December 2023, 15:00GMT register Here: https://oxfirst.com/copyright-ai/

 

Copyright & AI Artificial intelligence is an increasingly present force in everyday life and one that is currently attracting the attention of regulatory bodies around the world. The US Copyright Office, the Canadian Government and others have all launched consultations this year to examine the issues. Equally Sweden is starting to take an interest in this topic.  In this panel discussion, we are joined by Swedish authorities and copyright experts who will highlight some of the opportunities and risks associated with the incorporation of AI into creative industries, as well as consider implications for makers, users and the broader copyright system. This promises to be a timely and enlightening discussion.

 

About the Speakers

 

Prof. Dr. Martin Senftleben, Professor of Intellectual Property Law, Amsterdam Law School  Martin Senftleben is Professor of Intellectual Property Law and Director, Institute for Information Law (IViR), University of Amsterdam. His activities focus on the reconciliation of private intellectual property rights with competing public interests of a social, cultural or economic nature. Amongst his current research topics are AI training and text and data mining; machine substitution of human creative labour and author remuneration; data property and internet of things; open science and digital sovereignty of researchers; platform and digital ecosystem regulation. Professor Senftleben studied law at the University of Heidelberg and worked as a researcher at IViR and the Max Planck Institute for Innovation and Competition in Munich. In 2004, he was awarded a Ph.D. by the University of Amsterdam. Professor Senftleben previously worked at WIPO in Geneva and was was Professor of Intellectual Property at the Vrije Universiteit Amsterdam for 13 years.

 

Sofie Grettve von Rosen, Supervisory Officer for Collective Management of Copyright of the Swedish Intellectual Property Office (PRV) Sofie Grettve von Rosen has a law degree from London School of Economics with a specialisation in EU law. After working within contentious litigation in London, Mrs. Grettve von Rosen spent a few years in New York and Paris working within the arts’ sector. Following the completion of a Masters in Cultural Heritage Policy, Mrs. Grettve von Rosen joined the Swedish Artists’ Association as General Counsel and also worked with the implementation of the Resale Right Directive. She joined the Swedish Intellectual Property Office in 2021 where she has primarily worked with building up the office’s function as a Supervisory Authority. Parallel to her legal work, Mrs. Grettve von Rosen has been involved in several research projects relating to the organisation of control structures. She has a particular interest in governance and the use of soft law as a regulatory tool.

 

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IP Valuation for Licensing

 

Join  For a Free Webinar                     Register here:  https://oxfirst.com/ip-valuation-for-licensing

 

IP Valuation for Licensing 27th November 2023, 11:00GMT Licensing is crucial to intellectual property commercialization and effective licensing programs can underpin corporate success. IP valuation is an essential tool for developing effective licensing strategies, providing an empirical basis from which decision-makers can chart the right course. In this panel, we discuss how IP valuation can be best tailored to, and utilized in, licensing strategies. Our excellent panel share decades of experience and bridge industry, law, and economics to bring a unique and invaluable perspective to this discussion.

 

About the Speakers

 

Mitsuaki Matsumura, Head of IP Licensing, APAC and EMEA at IBM Mitsuaki Matsumura is Head of IP Licensing for APAC & EMEA at IBM. He leads the team of professionals that handle all IBM’s patent licensing and assignment opportunities in APAC and EMEA. Prior to joining IBM, Dr. Matsumura worked as a Senior Counsel at NTT DOCOMO, where he was in charge of SEP licensing, technology alliances, and cross border M&As. He holds a PhD (Kyoto University) in law and an LL.M. in Law, Science, and Technology from Stanford University.

 

Greg Novak, Partner at Novak Druce Caroll LLP Greg Novak is a partner at Novak Druce Carroll, where he counsels a number of publicly traded global corporations on intellectual property matters. Greg has acted as lead counsel for both plaintiffs and defendants in more than 60 intellectual property cases, and has advised in more than 300 post-grant proceedings. Greg obtained his MBA from the Saïd Business School, University of Oxford, where he also co-founded the Centre for Professional Service Firms.

 

Anri Nakamoto, Senior Associate, Orrick Anri Nakamoto is a senior associate at Orrick, based in the Tokyo office. Anri’s practice focusses on representing clients in patent litigation, trade secret litigation and other intellectual property disputes as well as licensing matters. Prior to joining Orrick, Anri worked for more than a decade at Hitachi Ltd., Panasonic Corporation and IP Bridge, Inc.

 

Dr. Roya Ghafele, Managing Director at OxFirst Dr. Roya Ghafele is the founder and Managing Director of OxFirst, an award-winning law and economics consultancy. Much of its work is with tech companies as well as advising on public policymaking in the area of technology transfer. Dr. Ghafele is a visiting Professor at Brunel University, London as well as being an accredited expert witness to courts in England and Wales. Prior to founding OxFirst, Dr. Ghafele held an Assistant Professorship with the University of Edinburgh, a Departmental Lectureship with Oxford University and a Research Fellowship with the Haas School of Business, University of California at Berkeley. She also worked for the OECD and WIPO as an economist. IP Valuation for Licensing - OxFirst

US leadership through promoting what works best for International Standards

The United States Government National Standards Strategy for Critical and Emerging Technology calls for a whole of government approach to reinvigorate its rules-based and private sector-led approach to standards development. The strategy seeks to prioritize efforts for standards development that are essential for US competitiveness and national security including communication and networking technologies, semiconductors and microelectronics, artificial intelligence and machine learning, biotechnologies, clean energy, and quantum information technologies.[1] 

The International Trade Administration (ITA), The National Institute of Standards and Technology (NIST) and The United States Patent and Trademark Office (USPTO) have asked a dozen questions in their request for public comments on the strategy. I responded with my in-depth submission which can be downloaded, here. 

In this, my focus is on technical standards providing interoperability in communications and networking technologies. These have been most significant technically, economically and in improving consumer welfare in the US and globally over several decades. Purely national or geographically limited technical standards might make sense in limited cases for reasons of national security, but there is broad consensus that standardizing globally is most effective and efficient due to economies of scale and the universal interoperability provided. Various “International Standards” have also flourished because, in accordance with World Trade Organisation (WTO) Technical Barriers to Trade (TBT) requirements, these also foster various competing business models. Some industry participants are dependent on generating licensing royalties, others move fast and succeed in downstream product markets by licensing-in standard-essential technologies and incorporating semiconductor chips and other components that already include them. Many other companies have hybrid business models that operate in both ways concurrently.[2]

My responses explain that what is good for International Standard development with Fair, Reasonable and Non-Discriminatory (FRAND) licensing of Standard-Essential Patents (SEPs) is also good for America. The US is the world leader in various advanced technologies — as a technology developer, and as an implementer. For market leaders, more can usually be gained by growing the pie than by simply taking share from others.

The US should promote predictability with legal certainty in institutions and open market processes that have proven successful in the development of International Standards by private sector companies. Intellectual property rights (IPR) policies and legal rulings in foreign jurisdictions are threatening US leadership and development of International Standards overall by eroding and potentially severely undermining the value of patented standard-essential technologies. While these actions might provide some short-term advantage to certain implementers; for example in Asia where the overwhelming majority of consumer electronics products implementing Standard Essential Patents (SEPs) are manufactured, in the medium and long term these policies and rulings impede technical and market developments across the entire ecosystem, and in turn harm consumer welfare.

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[1] United States Government National Standards Strategy for Critical and Emerging Technology, May 4, 2023.

[2] These important distinctions are explicitly recognized by competition authorities; for example, in the EU’s 2023 Horizontal Guidelines, paragraph 440.

Five Eyes on China: 60 Minutes

Members of the Five Eyes recently provided a brief overview of the threat of technology theft concerning China on the U.S. 60 Minutes show.  The interview includes brief mention of academic security as well as election influence.  The interview can be found, here. 

IP Valuation for Investment - Free Webinar 25th October 2023, 15:00BST

                                         IP Valuation for Investment

Attracting investment is vital for sustaining and growing innovative businesses. Intellectual property is often crucial in attracting capital, and so proper valuation and management of IP is essential to the success of the business. This panel discussion considers the best way to approach using IP valuation to attract investment, drawing on the diverse and extensive experiences of our excellent panelists.

About the Speakers

Olivia Tsai, Assistant General Counsel & Head of IP at Cruise

Olivia Tsai is Assistant General Counsel and Head of IP at Cruise, a position she has held for the last six years. In this role, Olivia draws on her extensive experience in intellectual property and a background in electrical engineering. Cruise is a $30 billion autonomous all electric vehicle company in founded in 2013 and based in San Fransisco, and its driverless cars can also be found in Austin and Phoenix. 

Cara Wessel Wells, Founder & CEO of EmGenisys

Cara Wessels Wells, PhD is the founder and CEO of EmGenisys. Based in Texas, Cara has a background in Animal Sciences and Reproductive Physiology. EmGenisys provides comprehensive health evaluations of embryos using machine learning models to non-invasively analyze changes and improve pregnancy rates by up to 20% in both livestock species and clinical human IVF. Cara brings an invaluable startup perspective to this discussion.

Tracy W. Druce, Partner at Novak Druce Carroll

Tracy Druce has 25 years of experience in intellectual property and is a founding partner at Novak Druce Carroll LLP. Tracy counsels companies of all sizes on intellectual property creation, management and exploitation, and these companies are frequently in industries where the technology is fast moving. Tracy works to establish monetizable intellectual property portfolios through a thorough understanding of the relevant market and close collaboration with his clients. Tracy will chair this webinar.

 

Dr. Roya Ghafele, Managing Director at OxFirst

Dr. Roya Ghafele is the founder and Managing Director of OxFirst, an award-winning law and economics consultancy. Much of its work is with tech companies as well as advising on public policymaking in the area of technology transfer. Dr. Ghafele is a visiting Professor at Brunel University, London as well as being an accredited expert witness to courts in England and Wales. Prior to founding OxFirst, Dr. Ghafele held an Assistant Professorship with the University of Edinburgh, a Departmental Lectureship with Oxford University and a Research Fellowship with the Haas School of Business, University of California at Berkeley. She also worked for the OECD and WIPO as an economist.

                                                             How to Join

Register in advance for this webinar:

https://oxfirst.com/ip-valuation-for-investment/

 After registering, you will receive a confirmation email containing information about joining the webinar.

 

Attention, please sign up with your professional email account. We don’t accept registrations from personal email addresses. Participation is limited at 100 participants. We reserve the right to eliminate participants. By joining the webinar you agree to our Privacy Policy and to receive forthcoming information on our webinars, newsletters and events. The views in this talk are the speaker’s own and do not represent those of the organizers, its employees or consultants.

UK Rejoins Horizon Europe - Implications for patent value

 

Earlier this month, Prime Minister Rishi Sunak announced that the UK will associate to Horizon Europe and the Copernicus Earth observation programme. This association and future membership is good news for British innovators who can once more now lead collaborations with their European colleagues and obtain the necessary funding to make the next generation of scientific breakthroughs.

Horizon Europe is the ninth European Union (EU) framework programme funding research, technological development and innovation and runs between 2021 and 2027. Although a product of the EU, Horizon also includes several members outside of the Union: Israel, New Zealand and Ukraine also participate. Copernicus is an Earth observation programme managed by the European Commission (EC).  

Researchers in the UK are now able to apply for grants and bid to lead projects under the Horizon programme. Almost €100 billion is available under the programme over its lifetime, and under the previous framework – Horizon 2020 – UK researchers received about 14% of the available grants.

The UK has a particularly strong research sector, and that will only be further supported through renewed access to the Horizon programme. Private sector research and development (R&D) is worth £43 billion to the UK each year and many companies spin out of UK universities each year on the back of a great innovation; Oxford alone has generated 205 spinouts since 2011.

As UK R&D resumes its cooperation with European partners in a leadership role, careful attention should be paid to intellectual property (IP) from the outset. Translating the innovations of the lab to the marketplace where their life-changing effect can be felt requires well-informed IP strategy and an acute awareness of how IP functions as an economic asset.  

In a previous article, we discussed how IP can be utilised throughout a company’s lifecycle to raise capital (which you can read there here) but at each phase proper valuation of a company’s IP is crucial. Raising capital through IP is likely to be most important for startups and spinouts, where other assets might be limited and a financial injection is required to bring the latest breakthrough to the market. OxFirst has previously assisted a young Software as a Service (SaaS) access over £25 million in funding through a patent valuation. This patent valuation enabled the company’s value proposition to be effectively communicated to investors, persuading them to invest.

Outside of raising capital, proper management of IP is also vital for effective commercialisation of IP. Patent filings have grown at roughly 10% year on year, but evidence shows that only a fraction of that IP can be linked to commercial activity. Bridging the gap between law and economics, is important for developing an effective IP strategy that will support business growth and ensure proper IP utilisation.

A first important step is knowing where you stand: innovative companies benefit from understanding the patent landscape in which they find themselves. Patent landscape reports combine IP data with a comprehensive market understanding to generate actionable insights. These reports can assist in identifying potential partners and competitors, as well as broader trends within the landscape that can inform how the company should most effectively manage its IP.

Once opportunities have been identified, the next step for decisionmakers is to consider how their IP assets might be most effectively commercialised. One approach is licensing, and IP valuation are an important instrument to support companies commercialise their IP assets in this way. Selling IP might also be an attractive option, and IP valuations helped determine the patent prize in a patent sale.  

Knowing what and how IP can be most effectively commercialised is fundamental to a successful IP strategy, and it is only by understanding in detail the economic implications of IP management approaches that this can be realised. Whether it is raising capital, commercialisation through licensing, IP sales or IP intelligence, bringing economic evaluation to the management of IP and achieving success for innovators.

 

 

 

 

 

 

ITA-NIST-USPTO Collaboration Requests Comments on Standards

 

The United States Patent and Trademark Office (USPTO) has recently announced a collaboration with the International Trade Administration (ITA) and the National Institute of Standards and Technology (NIST) on standards in intellectual property (IP) and is requesting comments. It develops on the National Standards Strategy for Critical and Emerging Technologies released in May this year. That strategy called for a strengthening of US engagement in standards for such technologies, which includes communication and networking, semiconductors, artificial intelligence/machine learning, clean energy and quantum technologies.

This request invites respondents to answer 12 questions concerning a range of issues including fair, reasonable and non-discriminatory (FRAND) licensing practices, licensing rates and negotiations of them, the merits of a database of FRAND licensing rates (judicially determined or voluntarily publicised), and dispute resolution processes including alternative dispute resolution. The request is therefore wide-ranging, as expected with such an early stage of policy formation, but must be read in light of – and perhaps as a response to – the recent proposal by the European commission on the regulation of standard essential patents (SEPs) (which I have already covered and you can read about here and here).

The US has developed fairly substantial guidance on methods for FRAND valuation through the Courts, but at present there is no government position. This collaboration could take a number of forms, one of which may be a centrally determined valuation approach for FRAND licensing, similar to that likely under the EC’s SEP proposal. Should this be the direction taken by the ITA-NIST-USPTO, a range of FRAND valuation approaches are open to them.

We profile three of these: the top-down, comparable licenses, and incremental ex-ante approaches, but it is worth noting that many approaches exist. These three have been selected to illustrate the range of factors which may need to be considered when establishing FRAND royalty rates and why economic expertise is vital when establishing the value of SEPs and commensurate FRAND rates.

 

The top-down approach

The top-down approach determines a FRAND royalty rate for the standard as a whole and then distributes that value among the various patents that read on the standard. The method then seeks to split the cumulative royalty rate among all SEPs deemed essential to the standard. This approach conventionally begins with calculating the total aggregate royalty burden for all patents reading on a particular standard. As such, it caps the total royalty burden a licensee may have to pay. In such a scenario, the number of entities holding and asserting SEPs becomes irrelevant as the maximum royalty burden has been determined in advance.

The comparable licenses approach

The comparable license approach aims to determine a FRAND royalty rate with reference to extant, similarly situated licensing transactions. As a method, its approach to identify the worth of a licensing rate with reference to other known rates is quite intuitive. When identifying comparable licenses, particular attention must be paid to how one establishes comparability and what one qualifies as a comparable licensing rate. The courts are just one repository of the guidance. From an economic perspective, it is important the comparable license is transparent and can be read as a whole; the licensing package needs to be understood as a whole, and not just the licensing rate. Careful econometric analysis is therefore employed to derive a FRAND licensing rate from the licenses deemed comparable.

The incremental ex-ante approach

The incremental ex ante approach is concerned with differentiating the value that the patents bring to the product, as compared to the value that the patents derive from the act of setting a standard, which naturally imparts a value onto the SEP. This approach allows a determination of what a willing licensor and licensee would have paid for the patent(s) before it was recognized as being essential to a standard. Since royalties are often determined after the standard setting process is concluded, the patent holder’s bargaining position at the time of royalty negotiation (ex-post) can be very different from what it would have been before the standard was set and when alternatives were still available (ex-ante). This is what this approach seeks to encapsulate.

It is also worthwhile noting that elements of different approaches may be combined according to the circumstances of each case, and establishing FRAND licensing rates with a high degree of confidence often requires utilisation of more than one approach. For this reason, economic expertise in the valuation of SEPs for FRAND licensing is essential.

European policies for competition and growth in ICT through regulation of Big Tech, network operators and standard-essential technology licensing

 Big Tech companies have profited greatly from dominant market positions while riding largely for free over the top of fixed and mobile telecom networks and devices. The entire Information and Communications Technologies (ICT) ecosystem is enabled by a variety of interoperability technologies including 5G cellular, WiFi and HEVC/H.265 video compression that are openly available in published standards and embedded in components and end-products. How much, if anything, should beneficiaries pay for the capabilities upon which their standard-based implementations are built?

There are great expectations that technology and market developments will provide yet more stellar economic growth and improved consumer welfare in ICT with new innovations in Artificial Intelligence (AI), the metaverse (e.g. Augmented Reality (AR) and Virtual Reality (VR)) and the Internet of Things (IoT). This is a high stakes game with some players having fared rather better than others as computing, communications, applications and Internet-based services have advanced over the last couple of decades. Big Tech companies continue growing handsomely to command a large and ever-increasing proportion of total ecosystem revenues, as I have noted here before.

European policies to regulate ICT markets in various ways that will redistribute rewards and costs are being formulated following various public consultations and extensive lobbying. Regulation is unquestionably required in data protection, child protection and cyber security, as it is in health and safety.  Measures to preserve national security are also required, but excessive restrictions there can be a dubious pretext for over-reach with anti-competitive protectionism. Regulating competition in other ways is also questionable and should only be contemplated where there is clear evidence of market failure or harm to consumers. Reformers should also tread carefully to ensure that remedies don’t do more harm than good through unintended consequences.

Three proposed interventions to guide the invisible hand

In unregulated or lightly regulated markets, competition and growth can develop most dynamically among different players, technologies and business models. Nevertheless, significant interventions are being pursued in ICT where there have been many successes with enormous and widespread market growth and benefit to consumers. A firm’s market dominance, abnormally high growth and profits might or might not result from anticompetitive abuse. Making a determination on that — one way or the other — requires extensive investigations and ties up lots of limited public agency resources. We should be wary of those accused of such abuse when they seek to distract regulators from that contention by claiming it is those in other markets who are causing market failure or harm to competition.

Two major EU interventions have been conceived to reign-in the dominance of Big Tech companies over others with whom they compete or depend.  A third intervention—with the pretext of protecting Small and Medium-sized Enterprises (SMEs) from abusive patent licensing—will perversely have the opposite effect.  It bolsters Big Tech and major industrial firms such as car manufacturers against the major value generators in the ICT ecosystem that create the standardized technologies that everyone benefits from using. 

Gatekeepers and other Core Platform Service competitors

America’s Big Tech companies—Alphabet, Amazon, Apple, Meta and Microsoft—are deemed to be so big and powerful that they have been identified as “gatekeepers” by  the European Commission under its Digital Markets Act, as has China’s ByteDance. Gatekeeper designations reflect positions in search, browsers, operating systems and video sharing among other Core Platform Services.  The success of these companies is illustrated by those American companies’ combined market value increasing by a half to $9 trillion this year. Prospective regulation could limit the extent to which they own and how they offer and operate complementary services, such as in bundling. Similarly, in the US, Alphabet is being sued by the Department of Justice for abusing its dominant position in search to distort the market, for example, by making Google the default on most smartphones and browsers.

It remains to be seen whether regulating gatekeepers will foster more competition, innovation or economic value overall versus other Core Platform Service providers. Figuring out what kinds of structures and behaviors are anti-competitive is difficult in markets where prices are zero for consumers who pay in-kind by being targeted for advertising and who like the simplicity of bundled and integrated offerings.  What’s not to like about also getting free deliveries when one subscribes to Amazon Prime Video? A recent article in the Economist heralds Garmin in fitness trackers, Dropbox in cloud storage and Mercado-Libre in Latin American e-commerce  as examples of companies that have succeeded in growing revenues in competition with the Big Tech firms. Market failure and harm is difficult to prove because counterfactuals—in the but for world— cannot be observed.  Attempts to block acquisitions by Big Tech companies, manipulate their offerings or even break them up will surely be met with extensive and vigorous legal challenges.

Network cost sharing

Telco industry groups GSMA and European Telecommunications Network Operators’ Association (ETNO) have demanded that companies such as those above they depict as Large Traffic Generators (LTGs), and that are sometimes called Large Traffic Originators (LTOs), should pay their “fair share” of the costs to provide broadband Internet access. The sender-pays principle is based on a long-standing grievance of large telecom operators that Big Tech companies generate the majority of traffic and reap most of the benefits of the Internet economy while not chipping in with the costs.  The European Parliament concurred in a June 2023 resolution:

“that the economic sustainability of telecom networks is essential to achieving the 2030 Digital Compass connectivity targets and high-performance connectivity for all citizens within the EU without jeopardizing competition rules; urges the commission to address and mitigate persistent asymmetries in bargaining power as set out by the European Declaration on Digital Rights and Principles for the Digital Decade; calls for the establishment of a policy framework where large traffic generators contribute fairly to the adequate funding of telecom networks without prejudice to net neutrality.”

Most network traffic is video and this proportion continues to increase. Alphabet’s YouTube, Amazon’s Prime Video and ByteDance’s TikTok among others are evidently major originators of network traffic. 

There is a clear need to keep increasing network capacity to accommodate data traffic growth. According Ericsson’s Mobility Reports, mobile network traffic has doubled every couple of years over the last decade or so. Fixed network traffic has also surged in multiples over recent years. A WIK-Consult study for the Commission found that €174-200 billion is needed to achieve Europe’s 2030 Connectivity Targets, including 5G coverage of all populated areas and gigabit-speed fiber.  As reported by Compass Lexecon, ETNO estimates previous investments of €36-40 billion per year, of which roughly half are traffic related and could have been saved absent the largest content providers’ traffic. According to HSBC, the average return on invested capital for major listed European telcos fell from around 8% in 2012 to around 5% in 2020, with many not achieving their cost of capital. 

There is disagreement about those investment figures. Opposing interests argue that the correct figures show there is no investment gap, and so subsidization by tech would result in excess profits for big telcos. However, the validity of the sub-par return on invested capital figure above does not appear to have been challenged. Big Tech companies have much higher rates of return.

A Compass Lexecon research paper concludes there is market failure. Its economic analysis shows that, where data usage is unlimited for a fixed price per month, there will be under-investment in access networks. Network operators do not have the incentive to maximize investment where incremental traffic generates no additional revenue. While LTOs invest in infrastructure such as content delivery networks, they have no incentive to increase their own costs by investing in access networks to the benefit their direct competitors. Perversely, Europe’s Open Internet Regulation (i.e. net neutrality requirements) only exacerbates this shortcoming because it prohibits allowing a traffic generator to make payments to prioritize or improve its services versus competitors’.  

Incremental capacity investments need to generate incremental revenues to provide a return on such investments. There is a very clear and direct causal relationship between the amount of traffic generated and the network capacity required to carry it. For example, 1 Gbps connections that can reliably carry 1 Tbytes per month will be required as video streaming almost entirely displaces multichannel terrestrial, satellite and cable distribution, eventually. The Big Tech firms can afford to contribute because they derive incremental revenues as the traffic they originate (e.g. as requested by customers) or generate themselves (e.g. advertising) increases.  If charges on them are even-handed versus their direct competitors they will all benefit, as will end users and the network operators. There is precedent elsewhere for cost sharing. In Korea, SKBroadband and SKTelecom have ended their dispute with Netflix and instead forged a partnership in which Netflix service is purchased in a subscription that presumably enables some of the network operator’s costs to be covered. 

Transparency and predictability in SEP licensing

While the Commission’s own studies have found no market failure in Standard-Essential Patent (SEP) licensing, proposed legislation requires licensors to register their patents and have some of them checked for essentiality. Proposals also include the setting of aggregate royalties, and mandatory but non-binding conciliation in the determination of Fair, Reasonable and Non-Discriminatory (FRAND) royalty rates.

Purported objectives for “improving the SEP licensing system” include providing transparency and predictability—for example, to SMEs with little or no expertise in licensing. However, licensors claim the associated costs and delays will weaken their positions and devalue their SEPs. 

Some MNOs lobbied to lower royalties as handset costs increased with the introduction of 3G and then 4G in the 2000s. Mobile phones were significantly morphing from mere voice and text devices to smartphones back then. Today’s Big Tech companies showed little interest in mobile SEP licensing until the introduction of the iPhone in 2007 and of Android in 2008.  Many Original Equipment Manufacturers (OEMs) subsequently entered the smartphone market without ownership of SEPs.

Comments favoring the Commission’s proposals to regulate royalty rates and licensing are significantly by Apple, automotive manufacturers  and trade groups representing implementers and in some cases funded by the above. The current Spanish Presidency of the Council of the EU is also a fan. The proposed new ministry of patent counting that will also be responsible for setting royalty rates will be at the EU Intellectual Property Office (EUIPO) in Alicante. Major SEP owners and licensors are largely against the proposals. Among the 78 responses to the Commission’s request for feedback on its proposed SEP legislation, the only response from a network operator was from Japan’s NTT DoCoMo, which is also an SEP owner. It also notes that “Regulation imposes excessive tasks and costs on SEP holders, even though it is unclear whether SEP holders will receive a fair and adequate return for their efforts.”  It seems Europe’s network operators are prioritizing their more pressing concerns about network costs, as indicated above, over getting involved too deeply in the public debate on SEP licensing.

Europe has enormous existing assets and potential in development and exploitation of new ICT including 5G Advanced, 6G, IoT and AI. For example, Ericsson and Nokia are global leaders in innovation and standards development for communications and video compression technologies. This needs to be nurtured not undermined. They have each invested around one billion dollars in R&D annually over many years. SEP licensing growth to support further innovation in standards should be fostered not attenuated by regulation. Licensing growth with bilateral and multilateral programs to increase licensing in verticals will encourage development of valuable standard-essential technologies that focus on those verticals. For example, SEP licensing in cars by Avanci has encouraged development of C-V2X technologies in 4G and 5G.  Licensing charges at a maximum of $20 for 4G and $32 for 5G per car are small in comparison to the existential threat posed to incumbent OEMs by them being marginalized in provision of value-added ICT services by Big Tech platforms or by being entirely displaced by new-entrant OEMs in Electric Vehicles (EVs), with alternative distribution and customer relationship models, such as Tesla and BYD. 

Harms, litigation and cures

It is abundantly clear that Big Tech platforms are commanding the lion’s share of any economic surplus in consumer ICT markets. Network operators, standard-essential technology developers and many implementers are much less profitable or rated far more modestly for expected growth. 

While I doubt examples of growth by Garmin, Dropbox and Mercardo-Libre will be sufficient to placate the European authorities, market failure and harm to other Core Platform Services providers will be difficult to prove. Vigorous legal challenges to any proposed interventions are inevitable.

Elsewhere, intervention is warranted in dysfunctional markets where some companies are flourishing while others upon whom they depend are unable to make the investment and returns required to provide what consumers want and need. Society will benefit socially and economically  from ubiquitous fixed and mobile gigabit per second and gigabyte per month broadband. 

However, the EU’s proposed regulation in SEPs will diminish SEP licensing costs to the detriment of the licensors who invest in developing the standard-essential technologies that are openly employed by numerous others. No good will come from biting off the hands that feed the entire ecosystem with new and useful standard-based technologies. There is no sign of harm from the SEP licensing business model. On the contrary, this has substantially enabled the very success that America’s Big Tech companies and the predominantly Asian smartphone OEMs have enjoyed from cellular and video standards with an increasingly mobile-first approach in the provision of many ICT services. In most cases these companies contribute little to the cellular and video technology standards development processes. In technology standards development it is a relatively small number of companies that own and license the vast majority of patents declared standard essential, in comparison to the many more firms that implement them.

This article was originally published by RCR Wireless on 27th September 2023.