4 Dec
2015

To truly facilitate innovation, standard-setting must benefit everyone, not just a few big implementers

Last month, this blog reported on a landmark victory for Italian patent licensing business Sisvel in a German suit relating to SEPs and FRAND it had brought against Chinese company Haier. In the decision, thought to be the first handed down by a German court in this area since the ECJ’s judgment in the Huawei v ZTE case, Sisvel was awarded an injunction against its Chinese opponent.

IAM subsequently contacted Matteo Sabattini and Mattia Fogliacco – the CTO and CNBO respectively of the Sisvel Group – to get their perspective on the decision and of the wider environment within which SEP owners now operate. They agreed and have produced a powerful defence not only of the rights of SEP owners to equality of treatment, but also of the standards setting process being as broadly-based and attractive as possible – to both innovators and implementers. They explain, too, why they are hopeful for the future. This is what they have to say:    

The 18th and 19th centuries were the era of labour and production, while the 20th century was the era of finance. The 21st century will be driven by the ability to foster the creation, dissemination and use of knowledge. We have entered a time of fast-paced global innovation based on an ecosystem developed in a legal and economic framework that rewarded innovators.

In the past few years, however, the promise of the “innovation economy” and its potential to continue shaping, shaking and benefitting society at all levels, has come under attack.  In particular, major policy changes that protect the interests of a few corporations threaten the standard based innovation ecosystem.

A new balance has to be found in this ecosystem between technology contributors and technology adopters.

Since the advent of the pan-European GSM telephony standard, the EU and its member states have been active proponents of an open platform to spur innovation and enhance participation by all stakeholders, especially in the ICT sector. The European Telecommunications Standards Institute (ETSI) have also been instrumental in the creation of a vibrant and effective innovation ecosystem based on open standards. The results and benefits to society of such efforts are there for all to see.

5G, which promises ubiquitous broadband access, and the Internet of Things (IoT) are expected to bring even more benefits to society and the world economy. Critical innovations such as 5G should always be facilitated by a standardisation effort, as standards allow different platforms, services and devices to interoperate, enable core and strategic services for the public and governments alike, avoid lock-ins into competing, proprietary solutions, and ensure a shorter time to market for new technologies.

Establishing baroque licensing regulations or restrictive IP policies in standard setting organisations (SSOs) will result in a potential lack of return on investment (ROI) that could lead many key stakeholders (including universities and R&D centres) to exit the standard-based framework, to the detriment of innovation. 5G can be the phenomenal innovative force that society is expecting with great anticipation if - and only if - the broadest participation is encouraged.

The current innovation framework based on open standards has guaranteed adequate rewards to innovators, making them accessible through licensing on FRAND terms. This framework has enabled all stakeholders, including universities, SMEs and R&D centres, to take an active role in the innovation and standardisation process. Universities and R&D centres, in particular, heavily rely on technology and IP licensing to finance their research activities. The open standard framework based on FRAND licensing terms enables a virtuous cycle that creates a strong set of incentives to participate in the standard-based innovation process, ultimately generating further innovation.

The recent decision of the European Court of Justice (ECJ) in Huawei Technology Co Ltd v ZTE Corp, ZTE Deutschland GmbH (Case C-170/13) confirms the importance of maintaining all remedies against unwilling licensees in the context of licensing standards essential patents (SEPs). In particular, the ECJ ruled that injunctive relief may be available if an alleged infringer fails to respond diligently and in good faith to a detailed written offer from an SEP holder. Moreover, if the alleged infringer rejects the SEP holder’s offer, then it also must promptly submit a specific written counter offer.

The ECJ confirmed that FRAND is a “two way street”: licensors accept a responsibility to license on FRAND terms – and that allows SSOs to include technologies developed by the broadest possible base of stakeholders –while at the same time implementers must accept taking a licence on those FRAND terms. The burden cannot be only on patent owners, especially because implementers are not forced to implement a standard. They do so if they see value the relevant standardised technologies, and that value needs to also provide for fair rewards to the innovation ecosystem that developed the standard. “One way streets” result in free riders.

As part of the decision, the awareness of so-called unwilling licensees clearly emerges. In other words, the ECJ recognises the existence of implementers who are exploiting all the benefits of implementing somebody else’s technology, but none of the burdens that are associated with such use. It is worth noting that, although no empirical evidence of hold-ups exists, and such evidence is only anecdotal at best, there is plenty of evidence of hold-outs. Unfortunately, there has been more than one attempt, even by representatives of reputable institutions like the US Department of Justice (DOJ), to suggest (support?) policy changes or even new regulation based on flawed economic analysis.

Recent policy and regulation proposals, set forth by a few players, would havw the practical effect of protecting free-riding behaviours under the noble goal of reducing abusive litigation. Using such excuse, countless attacks to the innovation ecosystem have been launched, including:

  • Opposition to secondary markets, with the suggestion that limitations on SEPs divestments should be enforced.

  • Promotion of the smallest saleable unit theory.

  • Support to per-SEP value determination based on the overall number of patents declared essential to a specific standard.

  • Restrictions to the attachment point for the licence.

  • Suggestion that injunctions are not appropriate tools for SEPs (de facto discriminating between SEPs and non-SEPs).

Such proposals would have harmed the entire standard-based innovation ecosystem to favour the bottom line of a few, turning a swinging pendulum into a wrecking ball. We welcome the ECJ decision, as it restores the appropriate balance and clarifies the requirements for both patent owners and implementers.

The ECJ decision provides clear guidance on the remedies available against “Standards Free Riders”. In particular, it restores a needed balance in the recent discussion about remedies available to innovators, especially in the context of SEPs. Enforcement and injunctions are a matter of justice, and excessive limitations to licensing will put the entire innovation ecosystem at risk. Furthermore, suggestions of specific limitations on SEPs licensing would create an illegitimate imbalance between SEPs and non-SEPs, ultimately having a detrimental impact on the open standard framework.

On 3rd November, the Düsseldorf Regional Court issued a first instance judgment in a case that saw Sisvel as a plaintiff against a Chinese manufacturer that failed to take a licence under FRAND conditions. The Düsseldorf Court granted Sisvel injunctive relief, based on the fact that the potential licensee refused to take such FRAND license after almost three years of licensing discussions and negotiations. This decision is one of the first indications – if not the first one – on how ECJ guidelines will be interpreted by national courts in the EU.

On top of this, efforts at policy making level are heading in the right direction: the European Union has been leading and vigorously supporting the innovation ecosystem with its digital agenda. The “Horizon 2020” framework is just one example of the commitment the EU has taken with respect to research and development. Moreover, special-purpose programmes have been established to support small and medium enterprises (SMEs). These aim at guaranteeing participation of, and contribution by, all stakeholders in the EU’s innovation agenda.

Proponents of drastic changes in SSO’s IP policy should carefully ponder the implications that such changes will have for the ecosystem and for society as a whole. Policies based on FRAND terms have guaranteed the broadest participation in standardisation efforts. By proposing boundaries or limits to FRAND within IP policies, we would be combining case law with policy, or, even worse, turning creative, hypothetical case law into patent policy. This would lead to a confusing tangle of separate concepts.

Good news for innovators and patent owners – and every entity that engages in R&D – has come out of the US as well. In a flagship decision (Case No. 14-cv-62), the US District Court for the Western District of Wisconsin ordered Apple to pay the Wisconsin Alumni Research Foundation (WARF) $243 million dollars for violating one single patent developed by the University of Wisconsin and used in Apple's A7, A8 and A8X processors, found in the iPhone 5s, 6 and 6 Plus, as well as several versions of the iPad. WARF had sued Intel in 2008 over the same patent, and later settled with the Santa Clara-based company for $110 million. WARF uses the income it generates from licensing to support research at the school, according to its website.

An editorial by the New York Times (available here: http://www.nytimes.com/2015/10/24/opinion/the-patent-troll-smokescreen.html) commenting on the WARF v Apple decision introduced the expression “efficient infringing” to describe the behaviour of some modern corporations, mainly in Silicon Valley: “That’s the relatively new practice of using a technology that infringes on someone’s patent, while ignoring the patent holder entirely. And when the patent holder discovers the infringement and seeks recompense, the infringer responds by challenging the patent’s validity.” The value-added of the technology is often demonstrated by the broad and repeated use of said technology by the infringer.

The WARF v Apple decision bring clarity and restores a needed balance in a debate that has lately become misleading. Too often legitimate non-practicing entities like universities, research centres and licensing companies have been accused of being patent trolls simply for enforcing their patents against infringers. As mentioned above, enforcement and injunctions are a matter of justice against those implementers that rely on others’ technologies but are unwilling to pay for them.

The pace of innovation and technological advance has been constantly accelerating, with faster deployment and broader coverage expanding worldwide at an unforeseen rate. It is almost impossible to imagine what the future will bring us, but services and applications that were unthinkable simply a few years ago will quickly become a reality: personalised medicine, intelligent transportation, drone delivery systems, intelligent cropping, crowdsourced microcredit, to cite just a few. Let us protect the ecosystem that will make all of this, and far more, possible.

The views, opinions and positions expressed by the author in this article are his alone, and do not necessarily reflect the views, opinions or positions of the Sisvel Group or any employee thereof.

Joff Wild

Author | Editor-in-chief

[email protected]

Joff Wild