Mobile, IT Industries Form Patent Pool-Style Scheme 06/08/2007 by Tatum Anderson for Intellectual Property Watch Leave a Comment Share this:Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Facebook (Opens in new window)Click to email this to a friend (Opens in new window)Click to print (Opens in new window)By Tatum Anderson for Intellectual Property Watch Some of the biggest names in the mobile phone industry have joined forces to share intellectual property but have stopped short of establishing the mobile industry’s first patent cooperative, known as a patent pool. Intel, Ericsson, Motorola, Nokia and Qualcomm are among the manufacturers that have agreed to submit patents to a third-party clearinghouse that will analyse patents and decide which are essential to new wireless technology standards. One manufacturer, Motorola, last week admitted that it had already submitted a number of patents to Proskauer Rose, a New York law firm that manages one of the most well-established patent pools, called the MPEG Licencing Authority (MPEG LA). Proskauer Rose determined how important Motorola’s patents are to a technology standard called WiMAX. Jonathan P. Meyer, senior vice president for intellectual property law at Motorola, said, “We have followed the example of the patent pools – for more than a decade a law firm has become very skilled at looking at patents, looking at the words of that standard and making judgments about whether a particular patent is in fact a potential for that standard.” When manufacturers collaborate to create a basic standard, they file many different types of patents along the way. Some of these patents are more crucial to that basic standard than others, and are therefore labelled essential. Royalty fees are normally determined by how many essential patents a company has contributed to a standard. Motorola has refused to say how many patents it has submitted for analysis but says 14 have been declared essential. Focus on Disclosure The group scheme is primarily an exercise in disclosure. The clearinghouse is expected to add up the royalty fees from the essential patents from different manufacturers and present the figures to the companies who buy technology. Those companies, telecommunications operators such as Vodafone and Orange, then will be able to determine exactly how much one new technology will cost compared to another. Disclosure is seen as a positive move by the telecom industry. The cost of infrastructure has risen dramatically in recent years because several manufacturers will typically claim to have contributed essential patents to technology standards and each charge their own set of royalty fees for those patents. Operators say the costs have spiralled out of hand. They were not aware that 3G technology, now established worldwide, would be made so expensive by IP rights when they chose to install it. Motorola’s Meyer said: “Many patents claim to be essential, and it can be fairly intimidating to examine all those patents, figure out what they are really worth and negotiate those agreements. If we use third parties to vet those claims, then we can only claim our patents are essential if they have passed that patent review.” However, Motorola has distanced itself from the idea of creating a patent pool – where the group of companies that hold patents in a particular technology enforces its intellectual property rights as a collective. Here, the collective can decide to set an aggregate royalty price which must be paid by any company that wishes to develop products based on the technology developed by companies within the patent pool. The royalties are then split between members of the pool according to how essential their patents are to the standards. In the case of MPEG LA, which sells the digital encoding technology, a royalty of around $2.50 is paid for every DVD player sold around the world and split among members. Everyone into the Pool? There are two reasons for the reluctance of the mobile industry to follow MPEG LA. For one, getting lots of vendors to agree to share a set figure is extremely difficult. That is because many companies not want to limit its potential value by agreeing to such rates, said Robert Syputa, senior analyst at Maravedis and author of a report on IP rights in the wireless industry. “Companies tend to let their investors think their patents are very valuable, and [setting a price] works against the assumption that their IPR is very valuable,” he said. Standards bodies have talked about imposing single-digit fees over the last few years but have met with significant opposition. One body, the WiMAX forum, is pursuing trying to gather support for such a move. The second reason is legal. Patent pools are viewed as anti-competitive by some regulatory authorities because they entail groups of operators joining forces to set prices. This fear is particularly pronounced in Europe, where the European Commission takes a dim view of patent pools in general. Indeed, when the European Telecommunications Standards Institute (ETSI) last year discussed aggregate royalty fee caps on a new technology called LTE, the European Commission made it very clear that establishing such rules would be anti-competitive. In a June 2006 letter to the ETSI director general, the Commission’s division dedicated to upholding competition among member states stated its views on the model. “Whereas [some] models have the potential to bring the price down to the competitive level through competition on the basis of price, a collective royalty regime would appear precisely to preclude any such price competition from occurring, since the price of each essential patent is fixed in advance. In the light of the need for ETSI’s IPR rules to comply with the European Commission’s competition regime ETSI [is urged] to bear the considerations in mind.” Conversely, MPEG LA has flourished in Denver, Colorado under US law. Patent pools can be seen as anti-competitive because a small player has no choice but to licence IP on the terms agreed by a group of bigger, powerful vendors. Ilya Kazi, a lawyer at patent and trademark attorneys Mathys & Squire who represents members of MPEG LA, argues the opposite. “If they are acting as a group they are bound to be reasonable,” he said. “When you join the pool you agree to licence on the terms of the pool, you are giving up the right to be obnoxious with IP.” However, even the disclosure model championed by the mobile industry manufacturers might still run into problems, said Maravedis’ Syputa. For instance, it is unclear whether everyone will agree to use the same law firm as a clearinghouse. In addition, there is still little incentive to join the group for many vendors that might have lots of valuable IP rights. Samsung, for example, which has the largest portfolio of WiMAX patents in the world, is significant in its absence from the group. It would not comment on why it has not joined the group. And, it is unclear whether members must abide by the clearinghouse’s decision as to which patents are essential and which are not. If a company disagrees with the clearinghouse, there appears to be no mechanism to stop it from suing lots of other companies. If one manufacturer builds technology based on the standard, that company could argue that the disputed patents are essential to the standard and sue for patent infringement. “They have the cards and they will put the cards on the table, but what will they do with the hand?” he said. “There are no limits with what they can do with litigation.” Tatum Anderson may be reached at firstname.lastname@example.org. 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