“That good news about 5G technology,” says Joe Siino, president of patent pool operator Via Licensing, “is that it’s going to transform every business and every industry, just as the Internet once did.”
Indeed, with wireless speeds up to 1000 times faster than today, 5G will enable consumers to download a high-definition movie in seconds rather than an hour or more. What’s more, 5G’s ultra-fast speed will enable businesses to unleash a cornucopia of amazing new products and services, from fully-autonomous vehicles to radical new advances in medicine, banking, industrial automation, personalized retailing, artificial intelligence, and more. Millions of new jobs will be created thanks to 5G.
But the bad news, warns Siino, is that the businesses that make all these amazing new ultra-fast wireless products and services are going to have to pay significant royalties to 5G equipment and software vendors for the right to use their patented 5G technology. And already, the competition among 5G rights holders for those royalty dollars is getting more ferocious by the day, as 5G starts getting deployed in a wide range of industries and applications.
The bottom line? “If you think the last patent war over smartphones was bad, just wait until 5G starts being deployed throughout the global economy,” declares Siino. “But it doesn’t have to go that way. We can stop the coming 5G patent war before it even begins and save businesses and consumers a great deal of money, litigation expense, and heartache.”
Siino knows what he’s talking about, having worked with and advised companies on both sides of the last patent war over smartphones a few years ago—patent owners and product makers alike. He’s also known for crafting several of the more significant global patent deals of recent years, including Yahoo’s $1 billion technology and intellectual property license deal with Chinese e-commerce giant Alibaba back in 2005, and more recently, the 2017 patent deal with Chinese smartphone maker Xiaomi that helped ease IP disputes between the U.S. and China
But those deals, says Siino, may be small potatoes compared to the exponentially higher stakes brewing in today’s new 5G wireless revolution. “5G technology players make no secret of the ambitious monetization targets they have for their patent portfolios,” observed Jim Beveridge of the Innovators Network in an industry trade magazine recently: “As the 5G digital data pipe becomes attached to different industry segments, so the royalty train follows it.”
Indeed, just figuring out who pays whom, and for precisely what piece of 5G technology, is a challenge all by itself. “Although the [technological] standards may be clearly defined, the management of the royalties isn’t,” said Beveridge. “It’s a mind-boggling, complex riddle to work out who to pay what, when, and to whom, while avoiding being sued. This is particularly taxing for the [smaller business] setting out to develop new products, applications and services.”
As if the threat of being sued or paying exorbitant 5G licensing fees wasn’t scary enough for businesses, there is also a major geopolitical threat to navigate. As The Wall Street Journal noted on February 6, “The U.S. is looking to encourage new corporate competitors into the 5G race, fearful that Chinese competitors could gain an insurmountable global lead in the years to come.”
Adds the New York Times: “American officials regard the technology as a national security issue and have moved aggressively to limit the role of Chinese companies.”
The combination of these competitive and geopolitical battles add up to the ultimate worst case scenario for businesses that make 5G-enabled products and services—a patent war wrapped in a trade war!
Think about it: 5G technology vendors from China, the U.S., and Europe all demanding you pay each of them varying percentages of every sale of your 5G-enabled product — or else get sued. The U.S. or China slapping tariffs or sanctions on the components you need for your products. Your legal costs soaring through the roof. Trade bureaucrats mucking up your supply chain. Geopolitics getting in the way of what ought to be simple business transactions to get your products to market.
And if you’re a small business, you could really be in trouble. As Jim Beveridge noted, “Small [firms] don’t have the corporate firepower required to manage royalty costs. The costs eat into the operational budget that could be used to develop new products and services.”
But there is a way for businesses to find shelter from these 5G technology storms, says Via’s Siino. “Patent pools are a proven, private market solution to the costs and risks of patent licensing,” he notes, “and they’ve been delivering exceptional results since the very first patent pool ended the sewing machine patent war of 1853. They’re even more valuable today, when patent risks and the economy itself have become globalized.”
So what’s a patent pool? Simply put, it’s a collaborative, multi-party licensing structure bringing technology innovators and product makers together into a one-stop shop that enables innovators to get compensated for their patented technology, and manufacturers to get the rights they need to use 5G in their products in a fair and transparent manner.
As examples, Mr. Siino cites the data compression protocols for transmitting high-density digital audio content that make up Via’s Advanced Audio Coding (AAC) patent pool. He also points to the 3G and 4G wireless patents that make up Via’s Multigenerational (MG) patent pool composed of technology vendors, service providers, and makers of mobile devices.
One major benefit of patent pools is that they enable manufacturers to overcome product roadblocks and get the rights to use the patented technology they need at a much-lower cost. How much less? In a landmark 2017 study, Robert Merges, professor of law and co-director of the Berkeley Center for Law and Technology at the University of California at Berkeley, and Michael Mattioli, associate professor of law at Indiana University’s Maurer School of Law, researched the economics of Via’s AAC audio patent pool.
They determined that the 800-plus product maker licensees in that pool saved over $600 million in costs compared to what they would have spent had they licensed all the separate audio patent rights bilaterally from their individual owners. That $600 million goes right to those businesses’ bottom lines — plus they get to avoid all the high-risk litigation expense that often accompanies adversarial bilateral patent licensing.
The global nature of patent pools is another plus, especially given today’s worsening trade frictions. They enable Chinese, European, and U.S. companies to license in or license out the rights to critical patented technology via a structure that does not belong to any one nation or another.
In fact, Via’s 4G LTE wireless pool includes Chinese licensors Lenovo and China Mobile, along with U.S. technology leaders Google, Verizon, and AT&T. Via’s LTE pool also includes Siemens of Germany, Telefonica of Spain, Telecom Italia of Italy, the Taiwanese manufacturers Mediatek and Innovative Sonic, SK Telecom of Korea, and the Japanese technology leaders NTT DOCOMO and KDDI.
As for Via’s AAC audio patent pool, that one includes more than 900 manufacturing licensees from every continent except Antarctica.
A third benefit of patent pools is much greater transparency compared to traditional patent licensing. “In traditional bilateral licensing,” says Siino, “prices are almost never published. You rarely know what someone else paid for the patent rights you seek — or even who the licensees are. You’re going into every negotiation essentially blind. And it’s a huge incentive for brinksmanship and litigation.”
But patent pools like those operated by Via, Avanci, and SISVEL, on the other hand, openly publish their royalty rates. “Via’s terms are fair, reasonable, and non-discriminatory for all licensees,” says Siino. “Licensees greatly appreciate the more transparent approach.”
In addition, some pools such as Via’s also offer discounted rates for low-volume manufacturers—a particular benefit to smaller businesses that enable them to grow with the program and pay more in royalties only as their sales expand.
Another advantage of patent pools is that licensees can be certain that the patents in the pool are truly essential—not simply because the patent owners claim they are, but because the pool works with independent neutral evaluators to vet the patents and attest to their essentiality.
As Ira Blumberg, Vice President of Litigation and Intellectual Property at smartphone maker Lenovo, observed about Via’s patent pools in an article last year in Chief Executive Magazine, “Few if any other patent owners offer such demonstrable assurance of patent quality, which is vitally important to product makers who don’t want to end up paying for the intellectual property equivalent of ‘fool’s gold.’”
In short, patent pools can offer businesses some immunity from the global technology and trade battles now brewing over 5G. This is the why the European Commission is actively exploring the use of patent pools, and has established an Expert Group to study the concept in detail and make recommendations for the implementation of a patent pool structure for licensing 5G and Internet of Things (IoT) rights in the years ahead.
As the EU commission stated: “[Patent pools] can address many of the SEP licensing challenges by offering better scrutiny on essentiality, more clarity on aggregate licensing fees, and one-stop shop solutions. For IoT industries, and particularly SMEs, pools for key standardized technologies should be encouraged.”
Marshall Phelps is the former head of intellectual property at both IBM and Microsoft.