It is the nature of debates these days to feature two polarised positions, with seemingly no middle ground. We see it in our daily lives, the public discourse loud with stances that represent outliers on either side while the vast run of humanity sees themselves somewhere in the middle, enjoying the benefits and accepting the compromises needed to make our way forward.
We see it in our industry too. Companies on one side argue that new mobile standards are impossible without their particular contributions, or that the value of their innovation is reflected in every small corner of mobile. Meanwhile, on the other side companies argue that these innovations – which have created businesses for them and transformed our world – are worth at best a small portion of the price of an inexpensively manufactured chip and should be afforded no basic rights.
The process is repeated on every issue we debate: the right to an injunction, acceptable licence structure, SEP-only v portfolio, suitability of arbitration. Each side has their attorneys, scholars, finely-tuned theoretical arguments. We even see the same companies argue both sides, depending on whether they’re a licensor or licensee in the discussion.
At InterDigital, we’ve always found ourselves somewhere in the middle on all these issues. As one of the leading contributors to standards for more than two decades now, our approach never favours either extreme. We think that you can charge a very fair price for a licence to mobile technology and, because the industry has become so large, still make core research and licensing a viable ongoing business. But we advocate adamantly for the rights of patent holders, which underpin the entire system. We believe that no standard is beholden to a single company, but we also understand that each company bringing their best in competition is what has fuelled our industry. We think licensors should license fairly. We think implementers should willingly take fair licences.
Last week, our company took the step of making more information about our rates and our large patent portfolio public. Some of this data was typically presented in the context of licensing discussions but now it’s available to a broader audience. We also provided some insight into our licensing philosophy.
We did this partly to contribute our point of view, openly and transparently, on these issues. But we also did it because critics of licensing seize upon the supposed lack of transparency of licensors to accuse the industry of unfair practices, inflated prices and bad behaviour.
The reality is that, like any business negotiation and agreement, licensing involves some measure of confidentiality for the benefit of both parties. That doesn’t mean anything untoward is going on.
I’d like to summarise some of the key points that our licensing transparency effort touches on, since I think they can be of value in charting a middle course that we think is right and moves the industry forward:
- What should be licensed: First, let’s be clear: the efforts by product manufacturers to shift licensing from the handset to the supposed smallest saleable patent practicing unit (like the chip) are simply arguments brought forth in an attempt to reduce the cost of licences by implementers of the standard, the result of which would be to undercompensate innovators and discourage innovation, thus causing significant harm to the consumer. InterDigital, and all others that we are aware of, license at the most efficient point of the value chain - a handset in saleable form - where all standards-compliant technologies are fully and finally implemented. This is also where the value of the wireless connection is realised. This approach to licensing has also made the pursuit of core research and the continued development of standards an investment-worthy activity, hugely benefiting the users of mobile devices.
- The value of a licence: In the context of complying with the commitment to license standards essential patents on fair, reasonable and non-discriminatory (FRAND) terms, licence rates for large SEP portfolios like InterDigital’s should be determined based on comparable licences, when available. InterDigital has over two decades of negotiating history with manufacturers large and small, and has signed dozens of licence agreements without resorting to litigation. We have also had our licensing practices and rates affirmed in arbitration and litigation. This long history of price discovery, conducted through arm's length negotiations with licensing professionals representing the financial interests of handset manufacturers throughout the world, is the absolute best measure of the market value of our SEPs. It should not be rejected in favour of a top-down analysis that starts with an arbitrary aggregate royalty, incorrectly assumes that all SEPs are of equal value and presents practical difficulties in adequately analysing all relevant patents.
- Portfolio licences: The entire purpose of cellular, Wi-Fi and video coding standards is to provide manufacturers with easy access to technology that enables them to address a global market. A leading wireless portfolio like ours includes thousands of patents and applications, and is implemented by companies that design, develop, manufacture, distribute and sell a range of products to markets around the world. The concept of valuing individual patents related to specific geographies is completely contrary to the original intent of standards and would result in an endless process that would never produce a licence. In addition, since research is ongoing, technology standards and our portfolio continuously evolve. A portfolio licence is the simplest way to ensure that a licensee has full coverage for any technology that might find its way into the standard over time.
- Licence structure: FRAND does not mean a single licence price and structure, and can take into account the individual needs and circumstances of a licensee. Different licensees may have different preferences and goals. Consequently, one licensee may choose a different licence structure to another licensee. These differing results do not constitute discrimination by the SEP owner against one or the other. FRAND should also be flexible in terms of whether parties prefer ad valorem running royalties, fixed per-unit royalties, use of floors and/or caps or fixed payments.
There are other points on our transparency website, which I encourage you to visit. I’ll close by making a plea that I’ve made before, in a variety of public forums. It is normal for companies to disagree on specific matters, including price. The simplest and most direct way of resolving those disagreements is to refer them to neutral arbitration. We believe the arbitration process is ideally suited to look at the totality of information related to the licensor’s portfolio and its licensing history, as well as all the information related to a licensee’s business, and then to determine fair rates.
A decade-plus of arguments, extreme positions, posturing and conflicting court rulings have not helped our industry progress. While research and mobile standards have become more global and more unified, the world of patent licensing that is its natural counterpart has become more parochial and more divided. I think it’s time for everyone to move towards a less dogmatic, more pragmatic, centre.