Scaremongering about SEPs

A post by Stefano Barazza on the IPKat weblog on 11 March caught the attention of Keith Mallinson (WiseHarbor), a regular contributor to IP Finance and a man who has taken a particular interest in the impact of standards and FRAND licensing on the ability of businesses in the telecom sector to compete with one another and in the extent to which voluntarily arrangements between competing businesses facilitate or chill investment.  This is what Keith writes:

Scaremongering about SEPs 

A recent article in the CPI Antitrust Chronicle entitled “Standard Setting Organizations Can Help Solve the Standard Essential Patents Licensing Problem”, that was reviewed by The IPKat, asserts that  

“specific circumstances affecting some industries like the information and communication technology (“ICT”) sector may limit the effectiveness of intellectual property rights” to “stimulate innovation, and to benefit consumers”. The authors (Kai-Uwe Kühn, Chief Economist, DG Competition, European Commission; Fiona Scott Morton, former Chief Economist, Antitrust Division, US Department of Justice (2011-12); Howard Shelanski, Director, Bureau of Economics, Federal Trade Commission) provide no evidence for such harm and mention only one example with “UMTS, or 3G.”

Widespread success and benefits in SEPs

Facts and figures show there is no such problem. On the contrary, the IPR licensing system is thriving with widespread benefits beyond patentees, in 3G and many other technologies. Standard-Setting Organizations can make adjustments to their rules and procedures where and when necessary; patent and contract disputes can continue to be dealt with by the courts.

In marked contrast, my analysis in the 16 articles I have published in IP Finance over the last couple of years has shown how very well (Fair) Reasonable and Non-Discriminatory Licensing is working for patented technologies used in ICT standards.  Major successes include cellular communications with GSM, WCDMA (UMTS) and LTE, and video encoding and compression with AVC/H.264 among many other flourishing standards. 

Despite the fact that all the above technologies are subject to thousands of Standard-Essential Patents, any of which can–according to detractors–block or “hold-up” standards entirely, these cellular and video standards are used by most of the world’s population every day. Sales of products implementing them, including mobile phones and other consumer electronic devices exceed two billion units per year worldwide. 

These standards-based technologies are as innovative as one could possibly expect or want. Furthermore, developments are highly collaborative. Hundreds of companies have declared in the ETSI IPR Database that 124,000 of their patents are possibly essential to these 3GPP cellular standards. Improvements continue apace to 2020 and beyond. Patent pool licensing for AVC/H.264 includes most of the standard’s patents with 30 licensors, 2,600 patents and 1,200 licensees at a royalty rate of no more than 20 cents per device. HD video is being enhanced in the H.265 standard with higher definition and increased compression for reduced communication bandwidth demands.

Consumers have more and more product choice with plunging prices, additional device features and increasing processing power literally in their hands. The first cell phones and color TVs cost thousands of dollars. Mobile phones sold without subsidy or service contract commitments were available for as little as $20 by the mid 2000s.  Similarly, smartphones that can stream TV shows among many other capabilities are also now available for less than $100.   Such low-cost devices will soon have the performance of handsets that cost several hundred dollars today.

Standards make technology more widely available because SSOs demand open disclosures, help make various technologies compatible and require members to offer patent licenses through (F)RAND declarations.  But what about the alleged harm to technology implementers such as device manufacturers from Patent Assertion Entities, or patent trolls as they are also disparagingly called?   These have mostly asserted non-SEPs and they have not fared particularly well when they have litigated, including SEPs. Furthermore, the courts are very reluctant or unwilling to issue injunctions when patent disputes are clearly about the price for licensing SEPs.

The CPI Antitrust Chronicle article represents personal views–not official agency positions–by these antitrust economists. In fact, some statements may contradict case law or agency policy. If and when the purported issues and problems appear, they can be and are effectively handled –without, for example, the proposed interventions on seeking injunctions and setting cash prices –in the normal course of business by SSOs and their participants, or through the courts when there are patent or contract disputes.  

SSOs are not monopolists or monopsonists and nobody is forced to join any SSOs. These voluntary organizations compete with each other on many fronts including rules of participation for members.  It is therefore fair and reasonable to let members decide among themselves what obligations, restrictions and other rules they want. In the absence of proven harm, there is no reason to fix a system that isn’t broken.