License fees on tech-standard patents can vary based on usage, draft EU policy paper says

Patent Keyboard

9 October 2017. By Lewis Crofts and Matthew Newman.

Owners of patents used in technology standards, such as Ericsson and Qualcomm, should be able to charge different rates for the use of patents depending on how they are deployed, a draft EU policy paper seen by MLex says. But companies wouldn't be able to pick and choose who gets a license to their intellectual property.

The draft "communication" is under discussion inside the European Commission as part of a move to address "wide uncertainty" in the licensing of standard-essential patents, or SEPs. Although the policy paper has little legal value, it will still shape fraught negotiations between patent owners and devicemakers as Europe gears up to roll out Internet-connected cars, refrigerators and other gadgets.

Patent owners such as Qualcomm, Ericsson and Nokia want to maximize their return on the billions of dollars they invest in new technology. They are butting heads with smartphone makers and other Internet-connected device manufacturers that want to cut the cost of licensing and implementing intellectual property.

The draft policy document has been subject to fierce lobbying for months and is likely to undergo further changes before its publication at year's end. Debate over the paper has exposed deep divisions within the commission.

On one side, officials in the industry department support patent policies that will make the roll-out of new mobile devices easier for small companies. On the other, officials responsible for digitial policy want to ensure that intellectual property rights aren't watered down.

The paper includes a crucial victory for SEP-owners, who want to vary the amount they charge for IP depending on how much it contributes to the final product: For example, a phone would derive more value from a patent enabling it to be constantly connected to a mobile network than would a smart water-meter that connected once a week.

Determining the license fee "should require taking into account the economic value the patented technology adds to the specific field of application," the draft reads.

"The valuation may therefore consider the degree of benefits and additional functionality or performance that the technology adds to a concrete application, how ancillary or central it is in view of its main function, and how dependent the application is on the new technology," it says.

The EU regulator says there are differences in the functions of Internet-connected devices. A WiFi-enabled USB key or a smartphone have full functionality, while a tablet, photo camera or game console clearly have other functions, the commission said.

Value chain

Companies owning SEPs are obliged to license them on fair, reasonable and non-discriminatory, or Frand, terms to prevent abuses of market power.

Makers of equipment that use SEPs — such as mobile chipset producers — insist that patent holders are discriminating against them when they conclude licensing agreements with only the end users in the value chain, such as Apple and Samsung. They also object to patent holders trying to determine a royalty based on how the technology will be used.

Patent holders should grant licenses to companies higher up the chain, such as the producers of wireless chips that incorporate their technology, they argue.

This suggestion seems to have been taken up by the commission, which says that SEP-owners can't handpick their licensees and exclude others.

"Right holders cannot unilaterally decide at what level to license and at what price," the paper says. "But technology users, for their part, should not force a licensing scheme that would lead to an erosion of the value of the patent."

The draft says both sides should "engage in good faith negotiations" to arrive at a Frand rate. They are much better placed to arrive at the right price, it says.

The commission appears to agree with devicemakers, saying that licensing at the level of "modular components" can be more efficient and relieve manufacturers of the need to take multiple patent licenses.

The paper also suggests setting up an expert group to study licensing practices, the valuation of intellectual property and how Frand rates are determined.

	Eliot Gao