Ericsson is right to embrace licensing transparency, but the company now has to make it work 18 Mar 17
Ericsson has revealed its standard essential patent (SEP) royalty fee price range for 5G mobile phone networks. In an interview published on Bloomberg yesterday, chief IP officer Gustav Brismark stated that charges would begin at $2.50 for lower-end handsets, rising to $5 for those at the top of the range. “We believe by setting a price that’s reasonable, it would serve as a reference to other patent holders and to other companies that need to take a license,” Brismark is quoted as saying.
The move comes at a time when FRAND and SEP licensing arrangements are under increasing scrutiny from regulatory authorities and courts around the world, and as licensees – actual and potential - are becoming far more willing to push back against what they perceive to be unreasonable demands.
No doubt there will be a lot of analysis of Ericsson’s decision to go public in this way, but here are a few initial thoughts:
Transparency is an SEP licensor’s best friend – licensing deals have traditionally been done behind closed doors, with only the companies involved and their lawyers having any clue of the details. It is becoming clear, though, that this is not sustainable. Regulatory authorities are focused on IP deal-making like never before against a backdrop of licensees making accusations of so-called royalty stacking, patent hold up and thickets being blocks on innovation. They are being heard because no-one knows otherwise. By stating clearly exactly what it is the company will be charging, Ericsson removes the mystery and a lot of the suspicion, so disarming critics. That can only be beneficial.
The China factor – Chinese manufacturers, the country’s marketplace and its regulatory authorities are going to be major players in the roll-out of 5G technology. The pricing flexibility that Ericsson has created seems to be a clear reflection of that. Speaking to IAM in January, Xiaomi’s VP of patent strategy, Pau Lin, argued that China and its mobile companies have to be treated as a special case – basically, it’s all about the margins – and explained why they absolutely require FRAND licensor transparency. Ericsson has to all intents and purposes accepted that there is merit in what Lin said.
Ericsson is not the first – while it is very unusual for licensors to make their rates public, others have previously taken the path that the Swedish company has set out on. Patent pools are one example: Dolby-backed Via Licensing, for instance, has made at least two announcements this year on pricing – one in January and another earlier this month – while as long ago as 2013 BT published a list of rates for a programme covering patents reading on VoIP technology (now unavailable, unfortunately).
Making a market – by coming out with its rates, Ericsson is helping to define the parameters of the 5G licensing market. Not only will its numbers be used as a benchmark by third parties during negotiations, in court cases and during investigations, but it will also put pressure on other licensors to go public too: if Ericsson can do it, so the argument will go, why can’t they? That, in turn, will make it even more important for such licensors to get their pricing right up-front – after all, there is less wriggle-room in negotiations when numbers are already out in the open. What’s more, licensors will have some explaining to do if their prices come out higher than those of the Swedish company. Ericsson may well find that first mover advantage brings it influence, but it is unlikely that the company's name will be praised in the boardrooms of companies such as Qualcomm and Nokia.
Pressure on licensees – A price of $5 a phone, let alone $2.50, is not a huge amount to pay to get Ericsson off your case. Companies that refuse to do deals on the back of such sums may well find it hard to win over not only courts and public opinion, but also – and perhaps most crucially – shareholders and other investors.
However – Ericsson is not be the only licensor that mobile phone manufacturers will have to pay. That means a significant percentage of the sales price of their products will be accounted for by royalty fees. Of course, the alternative to paying royalties is either stealing IP or investing huge sums and a large amount of time to develop your own technology. Neither is a great solution, while the resulting lack of interconnectivity would make mobile devices significantly less attractive. Licensing makes sense; but, politically, licensors are always an easy target - which takes us back to the importance of being transparent, of course.
And – finally, it is one thing saying how much something will cost, it is another thing entirely actually to get producers to sign on the dotted line. Ericsson will get excellent, shareholder-pleasing returns if it can do the deals it undoubtedly wants to do; but that is a big “if”. Patent licensing is never an easy game and in the current climate, it is harder than it has ever been before. Brismark and his new boss Börje Ekholm are to be applauded for the move they have made. They will now stand or fall on whether it is a success.
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