October 24, 2024 14:30 PM- 15:30 PM British Standard Time = 15.30 PM CET = 9.30 a.m. Eastern Time
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"Where money issues meet IP rights". This weblog looks at financial issues for intellectual property rights: securitisation and collateral, IP valuation for acquisition and balance sheet purposes, tax and R&D breaks, film and product finance, calculating quantum of damages--anything that happens where IP meets money.
October 24, 2024 14:30 PM- 15:30 PM British Standard Time = 15.30 PM CET = 9.30 a.m. Eastern Time
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Senator Thom Tillis’ Patent Eligibility Restoration Act of 2023 is moving through the U.S. Senate. It appears to be a compromise to earlier patent eligibility reform legislation. Here are the main provisions of the act.
§ 101. Patent eligibility (a) IN GENERAL.—Whoever invents or
discovers any useful process, machine, manufacture, or composition of matter,
or any useful improvement thereof, may obtain a patent therefor, subject only
to the exclusions in sub section (b) and to the further conditions and
requirements of this title.
(b) ELIGIBILITY EXCLUSIONS.—
(1) IN GENERAL.—Subject to paragraph (2), a person may not obtain a
patent for any of the following, if claimed as such: (A) A mathematical
formula, apart from a useful invention or discovery. (B) A process that— (i) is a non-technological economic, financial, business, social, cultural,
or artistic process; (ii) is a mental process performed solely in the human
mind; or (iii) occurs in nature wholly independent of, and prior to, any
human activity. (C) An unmodified human gene, as that gene exists in the
human body. (D) An unmodified natural material, as that material exists in
nature.
(2) CONDITIONS.— (A) CERTAIN PROCESSES.—Notwithstanding paragraph
(1)(B)(i), a person may obtain a patent for a claimed invention that is a
process described in such provision if that process is embodied in a machine or
manufacture, unless that machine or manufacture is recited in a patent claim
without integrating, beyond merely storing and executing, the steps of the
process that the machine or manufacture perform. (B) HUMAN GENES AND NATURAL
MATERIALS.—For the purposes of subparagraphs (C) and (D) of paragraph (1), a
human gene or natural material that is isolated, purified, enriched, or
otherwise altered by human activity, or that is otherwise employed in a useful
invention or discovery, shall not be considered to be unmodified.
(c) ELIGIBILITY.— (1) IN
GENERAL.—In determining whether, under this section, a claimed invention is
eligible for a patent, eligibility shall be determined— (A) by considering the claimed invention as
a whole and without discounting or disregarding any claim element; and (B)
without regard to— (i) the manner in which the claimed invention was made; (ii) whether a claim element is known, conventional, routine, or naturally
occurring; (iii) the state of the
applicable art, as of the date on which the claimed invention is invented; or (iv) any other consideration in section 102, 103, or 112.
(2) INFRINGEMENT ACTION.— (A) IN GENERAL.—In an action brought for infringement under this title, the court, at any time, may determine whether an invention or discovery that is a subject of the action is eligible for a patent under this section, including on motion of a party when there are no genuine issues of material fact. (B) LIMITED DISCOVERY.—With respect to a determination described in subparagraph (A), the court may consider limited discovery relevant only to the eligibility described in that subparagraph before ruling on a motion described in that subparagraph.
Register Here: https://oxfirst.com/ec-amicus-brief-in-re-hmd-global-oy-vs-voiceage-evs/
OxFirst Free Webinar
September 17, 2024 15:00 PM- 16:00 PM British Standard Time = 16.00 PM CET = 10.00 a.m. Eastern Time
What this Talk is About
This is one of the first times the European Commission has issued an Amicus Brief, an instrument better known in US rather than European law. The European Commission has submitted an amicus curiae to the Higher Court of Munich, Germany, (Oberlandesgericht Muenchen) regarding an ongoing legal dispute between HMD Global Oy and VoiceAge EVS GmbH & Co KG, concerning the alleged use of standard-essential patents (SEPs). The European Commission emphasizes the need for a consistent interpretation of the Huawei vz ZTE Framework across European courts, highlighting differences in how the Munich and Mannheim courts have assessed similar cases. The brief does not take a position on the merits of the case but seeks to ensure uniform application of competition law. In this webinar we discuss the potential implications of the European Commission’s amicus brief and speculate the effect it may have on future judgments coming out of Munich.
About the Speakers
Alexander Haertel. Cluster Lead Patent at Deutsche Telekom
Alex is highly experienced in IP Litigation, especially in regard to patents. He has experience with all major German courts and also experience with invalidation proceedings like opposition or nullity proceedings before the Federal Patent Court/Federal Court of Justice.
Dr Andreas Kramer. Partner, Vossius & Brinkhof UPC Litigators
Andreas Kramer has extensive experience in patent infringement proceedings concerning standard-essential patents (SEPs) and FRAND defenses, in particular in the areas of mobile communication, audio and video codecs. He has been lead counsel in many SEP/FRAND litigations before the German courts and the Unified Patent Court (UPC).
Philipp Rastemborski, LL.M. (Edinburgh). Partner Eisenfuhr Speiser
Philipp Rastemborski represents clients in patent infringement and nullity proceedings, including related licensing matters. He has long-term experience in conducting and coordinating cross-border patent litigation proceedings before the German courts, in particular for US and other international clients. He has extensive experience in the enforcement and FRAND licensing of standard-essential patents (SEP) in the field of mobile communications and throughout the automotive value chain.
The Center for Strategic and International Studies has a helpful list titled, "Significant Cyber Incidents," in its strategic technologies program, which provides information on major data breaches. As cybersecurity attack campaigns tend to be wide ranging impacting numerous different companies and tactics are similar, the threat intelligence provided by the list is helpful in trying to predict future attacks. Some have reported that data exfiltration is on the rise which impacts intellectual property and competitive advantage.
Professor John Villasenor at UCLA has published an interesting and helpful article on AI and trade secrets. He identifies some issues regarding the protection of AI generated trade secrets. The Brookings Institution has published a summary of his article, here.
Keith Mallinson, founder of WiseHarbor, has more than 25 years of
experience in the telecommunications industry as a research analyst, consultant
and testifying expert witness.
This is the first in a pair of articles on standard-essential patent (SEP) royalties. It updates my previous publications on this topic over the last decade to show how royalty payments have trended including how rates compare against licensors’ touted maximums. The second article shows how these royalties would be massively reallocated to Chinese companies with the top-down approach in rate-fixing regulation proposed by the European Commission.
Aggregate royalties paid to major SEP licensors Ericsson, InterDigital,
Nokia and Qualcomm have declined by 28% in nominal terms since peaking in 2015
to 2023, as indicated in Exhibit
1. The aggregate “royalty
yield” (i.e. total royalties paid divided by handset sales revenues) for these
licensors has dropped even more steeply by 38% since 2015.
The value of
total royalty payments has eroded an additional 22% in real terms after
inflation over those last eight years.
Percentage royalty
yields have been diminished by royalty base caps and the switch to monetary
amount per unit royalty rates in some cases. While ad valorem percentage rates
charged hedge for inflationary increases in phone prices, caps and fixed
amounts per unit are not indexed.
The recent plunge in total royalties from 2022 to 2023 is largely
due to falling smartphones sales. However, increasing quarterly smartphone
sales figures in 2024 suggest there will also be a bounce in royalties this
year.
Exhibit
1: Cellular SEP royalties including percentage yields have generally decreased
Royalty yield is based on all indicated
royalty revenues, but on only handset sales revenues.
Apple agreed in April 2019 to make a
$4.7 billion one-off payment to settle its dispute with Qualcomm, following
non-payment of royalties for two years. Under a long-term agreement with
Huawei in July 2020, Qualcomm received $1.8 billion covering previously unpaid
licence fees.
Figures
have changed slightly from versions of this chart published in
previous years as I have now switched to using smartphone revenue figures
from Statista. The revealed trends and my conclusions are unaffected.
Cellular SEP licensors obtain significantly lower royalties than the maximum percentage rates and monetary rates per unit publicly headlined on their web sites. That’s only to be expected because licensees insist that royalties are capped on higher-priced smartphones. Some inevitable major discounts are explicit in program rate cards. Other reductions arise from various different relationships between licensing parties — such as cross-licensing to access each other’s technologies in some cases. Average royalties received are also diminished where licensing is delayed or never agreed.
Qualcomm remains the clear leader in SEP licensing. I also show in
this article that the royalty rates it obtains are much closer to its rate card
figures than other licensors achieve versus their rate card figures.
Fit for purpose in rebuttal
When I published my
seminal article on mobile handset aggregate royalties in 2015, my objective
was to disprove — with an approximate yet conservatively high estimate — the absurd assertion
from Intel and others that aggregate royalties paid to license a $400 smartphone
could be as high as $120 (i.e. 30%). I coined the term royalty yield (i.e.
royalties paid divided by product prices or revenues) to depict effective rates
paid as distinct from licensors’ notional maximum rates before caps, other
discounts and cross-licensing reductions. I concluded that the aggregate yield
was no more than around 5% of cellular handset prices or revenues. Others
validated my methodology and came up with similar (i.e. in my ball park versus
Intel’s), but even lower figures.
My cellular handset-focused methodology was for fit for purpose because
it conservatively somewhat overestimated rates paid. There are various
approximations in this kind of royalty yield analysis:
·
it includes licensing fees for
non-phone devices (numerator) but excludes device sales revenues for these
(denominator).
·
it includes licensing fees for base
station network equipment (numerator) but excludes the sales revenues for this
equipment (denominator).
·
It includes some non-cellular SEP
royalties such as for video codecs (numerator).
·
It includes some non-SEP royalties
(numerator) — for implementation technology patents and even brand licensing
royalties, such as to Nokia from handset manufacturer HMD.
Tracking overall royalty
trends
While I have been able to chart the individually fluctuating and overall declining royalties generated by those named major licensors since 2013, it has not been possible to accurately track the trends for royalties garnered by most other licensors since then. However, I was able to estimate — very approximately with conservatively large figures for the purpose of my rebuttal — the remaining share of royalties paid to other licensors back then. For example, I allocated up to $4 billion for 4G patent pool royalties at their rate card rates (by that I meant somewhere between zero and $4 billion). I expected those embryonic licensing programs to fail, but I wanted to conservatively give them the benefit of any doubts.
Those
named large licensors have continued to account for the majority of royalties
generated. The aggregate of their individual royalty yields each year has
remained as broadly representative of the entire licensing marketplace as it was
back then. Individual licensors’ royalties are more affected by their specifics:
for example, InterDigital significantly licenses video codec SEPs.
Grossing
up
Percentages and monetary
amounts per unit, maximum, headline and program rates
We can view royalty rates including yields as percentages or as
monetary amounts, but the lens chosen can make a huge difference to how costly
charges are perceived to be.
When 2G, 3G and 4G licensing rates were first offered or publicly disclosed, they were almost invariably stated as ad valorem percentages of handset selling prices. This was even though some licensing deals were for lump sum payments rather than running royalties and some licenses ended up including caps and floors to the monetary amounts paid. Percentage royalty yields, therefore, could be much lower than the headline percentage rates.
However, in more recent years and since the disclosure of royalties sought by licensors for 5G, in some cases royalty rates are stated to be monetary amounts per unit. Nokia’s rate is Euro 3.00 per handset, and Ericsson’s handset rate is $5.00, or as low as $2.50 in “exceptional circumstances.” With smartphones increasingly including functionality, manufacturing cost and value that is purportedly not dependent on cellular SEPs, it is commonly argued that this is a more appropriate than ad valorem percentage royalty rates. While OEMs such as Apple with relatively high iPhone selling prices averaging at around $1,000 are likely to agree, OEMs such as Transsion targeting developing nations with many of its smartphones selling for less than $100 tend to oppose paying the same amount per phone as OEMs selling smartphones at much higher prices. InterDigital and Qualcomm still headline rates as percentages, but they both apply royalty base caps that effectively convert those percentages into monetary amounts per unit for higher-priced devices such as premium smartphones.
There is significant ambiguity and scope for confusion as commentators
switch from depicting royalties as percentage rates to monetary amounts per
unit, and back again. The example of InterDigital’s rate card,
as published on its web site, illustrates this. This indicates a 4G handset
royalty rate of 0.5%. However, with an royalty base cap of $200 the royalty
cannot exceed $1.00 per unit. If the handset selling price is $1,000 then the
percentage royalty paid (i.e. the yield) will only be $1.00/$1,000 = 0.1%. That
qualifier is very transparent; it can make a huge difference to how its rates
are perceived. While 0.5% is the maximum, headline rate, that 0.1% rate is also
clearly without any deception, disguise or confidentially customized discounting.
However, royalty rate terminology is poorly defined and unstandardised. For example, are “program rates” the same thing as maximum rates, or can that 0.1% yield figure I calculated also legitimately be called a program rate?
Exhibit 2 shows how the yearly average royalty yields of the each major
SEP licensors have fluctuated. Nokia’s yields sharply increased for a few years
after it sold its handset business to Microsoft, concurrently captured a 10-year
licensing agreement with the firm and with relief from needing to cross-license
any handset sales with other licensors. A decline in InterDigital’s yields has been
reversed as new leadership there has signed up additional licensees in the last
couple of years.
Exhibit 2: SEP
royalty percentage rate yield trends for major licensors in the 4G licensing
era
|
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
Average |
Ericsson |
0.57% |
0.44% |
0.47% |
0.32% |
0.25% |
0.22% |
0.25% |
0.29% |
0.21% |
0.25% |
0.25% |
0.31% |
InterDigital |
0.09% |
0.12% |
0.12% |
0.18% |
0.14% |
0.07% |
0.08% |
0.09% |
0.09% |
0.11% |
0.13% |
0.11% |
Nokia |
0.28% |
0.28% |
0.33% |
0.32% |
0.48% |
0.43% |
0.41% |
0.42% |
0.40% |
0.40% |
0.29% |
0.37% |
Qualcomm |
2.77% |
2.42% |
2.21% |
2.09% |
2.00% |
1.94% |
1.76% |
1.47% |
1.41% |
1.52% |
1.29% |
1.85% |
Total |
3.72% |
3.26% |
3.14% |
2.90% |
2.86% |
2.67% |
2.50% |
2.27% |
2.11% |
2.27% |
1.96% |
2.64% |
Many factors affect the difference between the maximum royalty
rates and royalty yields (stated either as percentages or as monetary amounts
per unit). These include: royalty base caps, cross-licensing, volume discounts
(e.g. in up-front lump sum royalty agreements), and unlicensed handset sales. I’ve
also explained these mechanisms in detail in my other publications. As
indicated above, this article focuses on yield levels, trends for these since
2013 and the ratios of these versus licensors’ publicly disclosed maximum rates.
Qualcomm continues to obtain royalties that are much closer to stated
maximum rates than for other licensors. Exhibit 3 shows how percentage yields compare
to major licensors’ touted maximum rates over that 11-year period in which 4G
licensing has predominated. Other firms that disclosed 4G licensing terms by
2010 were acquired, sold off by their parents or did not pursue licensing
programs.
Exhibit 3: SEP percentage
royalty rate yields for major licensors in comparison to their maximum rates in
the 4G licensing era
|
Royalty yield* |
Maximum rate |
Ratio |
Rate disclosed for and by when |
|
Ericsson |
0.31% |
1.50% |
4.9 |
|
|
InterDigital |
0.11% |
0.50% |
4.4 |
|
|
Nokia^ |
0.37% |
1.50% |
4.0 |
|
|
Qualcomm+ |
1.85% |
3.25% |
1.8 |
|
|
Huawei |
0.13% |
1.50% |
11.2 |
|
|
Total |
2.78% |
|
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* Includes all royalties for all standards divided by total handset sales revenues 2013 to 2023. Huawei for 2022 only. ^ Disregards headline rates of 2% for Alcatel Lucent and 0.8% for Nokia Siemens Networks, as also merged into Nokia. + Changed in 2017 with disclosure of 3.25% 5G multimode rate. |
Where licensors are also heavily exposed as implementers, yields
are significantly depressed due to cross-licensing with charges being
significantly netted-off. Ericsson
and Nokia substantially reduced their need for cross-licensing by exiting the
handset business in 2012 and 2014, respectively. SEP owners Huawei and
Samsung remain OEMs significantly exposed as licensees.
Exhibit 4 shows how monetary amount per unit yields compare to
maximum rates disclosed over the last few years in which 5G has been introduced.
According to Statista figures, 5G
smartphone sales increased to 49% of all
units sold in 2023.
Exhibit 4: SEP dollar
per unit royalty yields for major licensors in comparison to their maximum rates
since 5G was introduced
|
Royalty yield* |
Rate per unit |
Ratio |
Rate disclosed for and by when |
|
Ericsson^ |
$0.75 |
$5.00 |
6.7 |
|
|
InterDigital~ |
$0.32 |
$1.20 |
3.7 |
|
|
Nokia+ |
$1.13 |
$3.21 |
2.9 |
|
|
Qualcomm~ |
$4.27 |
$13.00 |
3.0 |
|
|
Huawei |
$0.40 |
$2.50 |
6.2 |
|
|
Total |
$6.87 |
|
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* Includes all royalties for all standards divided by total handset sales revenues 2020 to 2023. Huawei for 2022 only. ^ Ericsson indicates its $5.00 rate might be reduced to as low as $2.50 in “exceptional circumstances.” ~ My dollar equivalent assumes a $200 selling price with that royalty base cap for InterDigital and a $400 selling price or cap for Qualcomm. + Assuming an exchange rate of Euro 1.00 = $1.07. | |||||
Royalty yields will always remain much lower than the maximum
royalty rates SEP licensors seek to charge before explicit caps and various other
discounts, with implementers such as Huawei cross-licensing their handsets for
use of others’ SEPs, and as some implementers hold out from paying royalties. However, the different ratios of these two figures
among licensors can provide an indicator for discussions about potential royalty
yield growth or preservation and of how effective licensors are in pursuing that.
Keith Mallinson, founder of WiseHarbor, has more than 25 years of
experience in the telecommunications industry as a research analyst, consultant
and testifying expert witness.