The CEOs of Sisvel and RPX have gone into further depth about the January deal between the two that saw the San Francisco-based firm agree a licence giving its participating subscribers access to the 500 SEPs that make up Sisvel’s Wi-Fi Joint Licensing programme, as well as a further 200 non-standards essential rights.
It is, they agreed, a groundbreaking transaction that could pave the way for similar ones to occur in other technology areas, substantially reducing costs for implementers of technology while ensuring innovators get a fair reward. “We don’t think that anything like this transaction has been done before between a patent pool administrator acting on behalf of patent owners and a syndicator acting on behalf of product companies,” said RPX’s Dan McCurdy. “The unprecedented nature of this transaction removed a lot of constraints and proved to be a much more efficient way to deliver licences to SEPs.”
According to Sisvel’s Mattia Fogliacco, although the deal was relatively quick to do (talks began before McCurdy joined RPX on 1st October last year, but really accelerated after his arrival), that did not make it easy. “There were a lot of elements and it was a challenge to find the right balance between the needs of the innovators and those of the implementers in a framework able to de-conflict a very tense space in the market,” he said. However, it succeeded because both sides approached the process “with the right attitude and an innovative mindset”.
Part of that, Fogliacco continued, was making sure that everything was lined up before discussions began. On Sisvel’s side, that meant making sure the patent owners on whose behalf the firm was operating – including the likes of Orange, Fraunhofer IIS, KPN, Columbia University and Mitsubishi Electric Corp, as well as its own vehicles Hera Wireless, Enact IP and Aegis 11 – were happy to give the Sisvel team a broad operational scope. “To engage with RPX, we secured in advance a special mandate from our patent owners that enabled us to have the necessary agility to conclude the deal without having to re-align with each one of them at every turn of the negotiation,” Fogliacco explained. “This meant departing from the operational framework of a traditional patent pool model, in order to get a broader ability to represent the interests of our owners and, at the same time, meet the needs of a multitude of implementers.”
From McCurdy’s perspective, the approach certainly paid dividends: “We found Sisvel to be very open, which is why we were able to do the deal so rapidly. It often takes time during negotiations to understand everyone’s motivations, so it makes a huge difference when both sides are open and focus quickly on tackling the problems they’ve come together to solve.”
McCurdy acknowledged that for RPX members, the decision on whether to get involved in such negotiations is entirely pragmatic: “Deciding to take a licence at a given time and rate has implications that stretch across a company’s entire business. A patent licence – whether to a declared SEP or not -- is a product that few people actively seek to buy. Rather, companies make a calculated decision about whether it is a good business decision to take the licence or oppose it.”
Knowledge of the Sisvel approach was a persuasive factor, he stated: “If our members have no interest in a particular licensing opportunity, we will not pursue it. In this case, there were RPX members who knew of Sisvel’s model, knew that it is very disciplined about enforcement and had a very clear view of what the future would look like without our involvement.” It was a point that Fogliacco, too, emphasised: “Our mission is to generate a fair reward for innovators and, in doing so, we strive to achieve a level playing field: making sure everyone acts in good faith, protecting the interests of those who do recognise a fair reward to the innovators we represent and, as a last resort, to initiate enforcement activities when necessary.”
According to Fogliacco, the deal will build confidence that hold-out by implementers is not inevitable – even in a technology area like Wi-Fi that has long been considered extremely tough to do transactions in: “It is truly good news that that a large part of the market decided to choose resolution rather than conflict. This is the most efficient – and the only intelligent – way to operate in the markets for technology.”
From the implementer perspective, McCurdy provided an example of how he believes the type of deal agreed could drastically reduce costs associated with SEP licensing: “Assume that there are, say, eight companies with SEPs in a particular area and 100 companies with an interest in taking licences from each of those eight. Then assume each agreement causes $100,000 in internal and external costs to pursue negotiations, excluding the royalty payment. This would result in $80 million of negotiation costs alone! And it could easily be twice that.” This is why, he said, both sides see the transaction as a great leap forward. “It’s one instead of hundreds. And now we have the basic mechanics to do similar deals in other areas, for other technologies. Overall, we might be able to save the industry hundreds of millions – even billions – of dollars.”
Like the RPX CEO, Fogliacco clearly feels that this does not have to be a one-off kind of transaction. Instead, it may be setting a template for a new kind of deal-making: “Potentially this is a blueprint and we will be exploring it further. However, it was also a very complex exercise, so it is too early to say whether this is a form of intermediation that can be replicated. But we can say that we now have experience in creating the necessary framework with the patent owners and we developed a very good relationship with RPX: both are strong starting points for further discussions.”
During the interview, both Fogliacco and McCurdy confirmed that there has been contact not only from patent owners and others operating in a variety of sectors wanting to learn more about the mechanics of the deal, but that policy makers – including the European Commission – had also taken an interest. This is no great surprise. Putting together deals that keep both sides of the innovator/implementer divide happy is a significant achievement. For those in the market it represents a solution that does not involve third parties – whether courts, regulators or legislators – laying down the rules; and for those courts, regulators and legislators if offers proof of markets that are operating efficiently and to the benefit of everyone.
For me, the key factor here is incentivisation. The jobs that both Fogliacco and McCurdy do are dependent on their ability to secure deals. That’s how they are recognised and rewarded. This gives them every incentive not only to sit down with each other, but also to talk with their clients and members to persuade them of the merits of the agreement models they want to pursue.
Inside companies that create technology or which practise on it, there are almost always multiple competing interests, which means a deal can be stymied at any given point for any number of reasons. If you can take the negotiating away from such an environment and give it to skilled intermediaries who, while cognizant of the needs of the parties they represent, are relentlessly focused on securing successful outcomes you have much more chance of such outcomes coming to pass.