How to count and valuate standard-essential patents

Standardised technologies such as 3G, 4G and soon 5G will strongly contribute to the next technological revolution of the Internet of Things. In this regard, standard-essential patents are increasingly the subject of lively debate among market observers, policy makers and regulatory institutions. However, little is known about the overall number and value of standard-essential patents declared in the numerous worldwide standard-setting organisations.

Both patents and standards documents describe, define and codify technologies. However, the role and scope of patents and standard documents are significantly different. Patents describe new inventions and constitute a temporary legal right to exclude others from using novel and original practices and products. On the other hand, standards define commonly accepted techniques. Standards reflect an agreement between different individuals, firms or other entities to use a particular method, which may or may not be novel. Despite being significantly different in nature, patents and standards interact in several relevant ways. Most importantly, standards can prescribe methods which are protected by patents. If a standard cannot be implemented without practising a patented technology, this patent is called a ‘standard-essential patent’.

This report is dedicated to the analysis of all declared standard-essential patents for 2G (GSM), 3G (UMTS) and 4G (LTE) technologies to provide a more transparent understanding of the ownership and value of declared standard-essential patents. The report proposes several methods to count and valuate standard-essential patents in order to quantify ownership and the value of each standard-essential patent portfolio.

Identification
In order to identify standard-essential patents declared essential for 2G, 3G and 4G technologies we used the IPlytics Platform standard-essential patent database. We conducted a search for standard-essential patents directly declared to the projects GSM, UMTS or LTE as well as a search of precise numbers of technical specifications representing standard projects such as GSM, UMTS and LTE. A match of standard-essential patent declarations based on technical specification numbers is important since the project label of the declaration database is often missing or only broadly labeled as (for example) ‘3GPP’. The standard projects are defined as follows:

• GSM/GPRS standard – including GSM, HSCSD, GPRS, EDGE and updates and other evolutions promulgated by the European Telecommunications Standards Institute (ETSI) and 3GPP.
• UMTS standard – including UMTS, HSDPA and HSUPA (collectively known as ‘HSPA’) and updates and other evolutions promulgated by ETSI and 3GPP.
• LTE standard – LTE (including SAE) and updates and other evolutions promulgated by ETSI and 3GPP.

The analysis performed for counting declared standard-essential patents per standard project follows a sophisticated method that has been discussed and validated with some of the most prominent economists on the topic of patents and standards data (Mapping Standards to Patents using Databases of declared standard-essential patents (Baron and Pohlmann, 2015)). Standard-essential patent declarations allow information from patent documents to be connected with information from standards documents, as illustrated in Figure 1. This allows standard-essential patent declaration data to be connected with worldwide patent information – such as legal status, grant status, patent family or current ownership – as well as with the standards specification and standard project connected to it.

Figure 1. The IPlytics standard-essential patent database

We first ran a search counting all standard-essential patents declared either to one of the GSM, UMTS or LTE projects or to the corresponding technical specification numbers. Table 1 shows the top patent applicants sorted by the total number of declared standard-essential patents. The second column lists the number of patent families using the extended INPADOC family definition. Table 1 shows that Nokia Corporation declared the largest number of standard-essential patent families overall, followed by Ericsson and Qualcomm. To identify whether the declared standard-essential patents were still alive, we conducted a filter for expired patents, lapsed patents and revoked patents. Intel, ZTE and LG had the largest share of alive standard-essential patents. We also counted patent grant rates and found that Nokia, Panasonic and Siemens had the highest grant rates with regard to their standard-essential patent portfolios.

A combination of standard-essential patent family counts, legal status filters and grant status offers a more transparent understanding of the actual standard-essential patent portfolio size of each patent applicant. Other filters that we have yet to use include portfolio size by country of jurisdiction or by a technological separation of handset-related standard-essential patents and network-related standard-essential patents.

The share of transferred standard-essential patents and the share of litigated standard-essential patents in the last two columns reflect the activities of each patent applicant regarding the commercialisation and assertion of the standard-essential patent portfolio. Siemens, Nokia and Qualcomm had the highest standard-essential patent transfer rates, while Interdigital, Samsung and LG had the highest litigation rates. Allowedly, a reassigned standard-essential patent might be litigated after the patent transfer and thus may not involve the applicant listed in Table 1.

Relevance and value
In order to quantify the relation of declared standard-essential patent portfolios to standardised technologies we used three measures that reflect the relevance and value of the standard-essential patent to the GSM, UMTS and LTE standards:

• The first measure counted the percentage of standard-essential patents that were declared for multiple standard generations (eg, UMTS and LTE). This measure identifies whether the standard-essential patents are relevant for the core standards technology layers used for multiple generations of the standard.
• The second measure counted standard-related non-patent literature citations. This identifies whether a declared standard-essential patent cites at least one related standards specification as prior art. Only citations of standards that relate to the declaration were counted. This applies where a declared standard-essential patent either cites former versions of the standard or the same standard version as prior art.
• The third measure counted the number of prior art citations received from other declared standard-essential patents, while discounting self-citations.

Table 2 illustrates the share of patents with regard to the three relevance measures. The results showed that over 30% of all standard-essential patents declared by Nokia and Siemens related to at least two standards generations, followed by Nokia Siemens Networks and Qualcomm with a share of over 20%. Standard-essential patents which are relevant for multiple generations of standards are relevant for core layers of the standardised cellular technologies. The measure reflects the value of those standard-essential patents for the standards generations.

The results of the second measure showed that Huawei had the highest share of standard-essential patents citing the standard document or former versions as prior art, followed by Intel and Ericsson. Standard-related prior art citations indicate the close technical relationship of the declared standard-essential patent to the specific standard specification.

The third measure counted the number of standard-essential patents (forward citations) cited by other declared standard-essential patents (discounting self-citations), and reflected the interrelationship between the standard-essential patent portfolio and the patent portfolios of the other standard setters. Qualcomm, Nokia, InterDigital and Intel had the highest share of forward citations by other standard-essential patent portfolios. The higher the share, the more other standardising companies use the standard-essential patent portfolio for their standardised technology. The share reflects the technical relevance of the standard-essential patent portfolio for all other standard setters and thus the value to the standardised technology.

The analyses show that simply counting the number of standard-essential patents is insufficient because portfolios differ greatly in terms of family size, legal status and grant rate, but also in value and relevance to the standard. Standard-essential patent counts and relevance measures help quantify the size, magnitude and value of the declared standard-essential patent portfolios.

Comment
This report is an extract of an ongoing study around patent valuations of declared standard-essential patents. The analysis conducted by IPlytics intends to shed light on the actual number of active, granted and highly valuable standard-essential patent families. While these counts and measures will not replace essentiality checks, they increase the understanding of a more accurate number of actually essential patents. The high number of patent transfers shows that the actual ownership of standard-essential patent portfolios has changed dramatically in recent years. Further analyses should also analyse standard-essential patent portfolios as to the current ownership (current assignee).