Despite many years of speculation and recently adjusted
claims, there is no empirical support for the theory of “patent holdup.” Various
eminent experts refute allegations of systemic “patent holdup.” It is
likely that “patent holdup” has not occurred in the context of standards and
licensing of standards essential patents (SEPs) because of the fair, reasonable
and non-discriminatory (FRAND) licensing contracts and available recourse to
the courts have ensured that licensees cannot be forced to pay “excessive”
licensing fees.
 |
| Free Riders Abound |
“Patent holdout,” which is also sometimes referred to
as “reverse holdup,“ rather than “patent holdup” may instead be a prevalent
problem; although calls for remedies have largely been in response to “patent holdup”
allegations. Beguiled courts, antitrust authorities, government policy makers
and even
a standards development organisation (SDO) are tipping the scales in favour
of “patent holdout” by infringing implementers of SEPs. This is destabilising the
equilibrium between the interests of the licensors and licensees forged by
consensus over decades in the IPR
policies of SDOs such as ETSI with Fair, Reasonable and Non-Discriminatory
licensing. As leading academics
note, “FRAND Implies Balance” and “FRAND [is not] a one-way street.” Whereas
alleged “patent holdup” supposedly results in excessive royalties, “patent holdout”
is undermining licensors attempts even to achieve FRAND terms or to complete any
licensing at all in many cases. Licensors are therefore losing their ability to
make a fair return on their investments in SEP technologies. This discourages
ongoing investments in standard-essential technologies, participation in SDOs and
contribution to the standards.
Free-riders who are not paying for the IP they use are
gaining an unfair advantage over other implementers who are paying FRAND
royalties as well as stealing property rights from technology developers. There
is significant evidence of some infringers flourishing while avoiding paying
patent licensing fees on their manufactures and product sales for many years. They
can, for example, typically challenge FRAND offers in lengthy litigation before
paying any royalties. In some jurisdictions, even the royalties ultimately
awarded can be derisorily low.[1]
In particular, various Asian OEMs accounting for a substantial proportion of
global smartphone sales remain significantly unlicensed for at least some of the
many SEPs they implement in the devices they manufacture or sell.
On the other hand, Alcatel-Lucent, Ericsson, Nokia and
Qualcomm have exited the mobile phone market over the last 15 years while
ramping-up R&D in 3G and 4G technologies. These and other
technology-development oriented companies can only sustain these risky R&D investments
if they can make direct returns on their patent portfolios through licensing. Former
network equipment market leader Ericsson
has recently ousted its CEO due to poor growth and weak profits despite cost reductions,
including in R&D.
“Patent holdup” is manifestly not a systemic problem. There is no empirical evidence of harm to markets or consumers, and such abundant proof of market
success—particularly for innovative smartphones and the extensive 3G and 4G
networks to which they are connected—including seven billion cellular
connections and modest
licensing costs totalling only around five percent of device prices.
Unmentionable claims
I came upon a paper entitled “Patent
Holdup: Myth or Reality?” by Carl Shapiro, dated 6th October
2015, which was circulated as a hard-copy and presented at an IEEE-SIIT conference
at the Intel-sponsored
key-note address. In this, the author concedes that there are “few
documented instances of actual holdups” and that they are “exceedingly
difficult for researchers to detect and reliably quantify.” He has backed off
from his previous
claims of prevalence of “patent holdup” where he stated “patentees regularly
settle with companies in the information technology industries for far more
money than their inventions are actually worth. These companies are paying
holdup money to avoid the threat of infringement.” Shapiro has retreated due to lack of empirical
support for these original claims which is because portfolio
licensing among many licensees on FRAND terms together with the courts ensure
that holdup royalties are rarely demanded and are never paid. However,
Shapiro takes another position where there is also no supporting evidence. He
now claims that the social costs caused by the alleged “patent holdup” problem
are in the actions taken to prevent holdup and in the opportunities forgone
under the threat of “patent holdup.”
His 2015 paper is labelled a preliminary draft that should
not be quoted, yet the verbatim thesis of this most outspoken author is evidently
being adopted elsewhere; including in a
speech by the US Department of Justice’s Chief Economist, Nancy Rose, at a George
Washington University conference on “Patents in Telecoms” in November 2015.
In this, she analogises that “patent holdup” is like dark matter in the
universe – something that cannot itself be detected but is present. She said that
the
existence of dark matter can be inferred from effects on visible matter.
With the passing of ten months since Shapiro presented his
paper at the IEEE event and with the DoJ’s name endorsing this latest development
in “patent holdup” theory, I believe it is high time to shine some light on the
flaws in arguments made by Shapiro and Rose by making their writings available
and by rebutting them here. I do not see why they should enjoy the privilege of
being heard and given the opportunity to persuade, while also indefinitely
being able to shield their postulations from scrutiny or criticism.
My full analysis on Shapiro's paper and Rose's presentation can be found in a pdf here.
[1]
For example, a Chinese court awarded InterDigital in patent litigation against
Huawei a mobile
SEP royalty rate of only 0.019 percent of device sales. This is extremely low given that InterDigital’s overall royalty yield (i.e. its total royalty
income divided by total device market sales revenues) including licensed and
unlicensed sales globally is five
times higher at around 0.10 percent.
No comments:
Post a Comment