Patent pools: Come on in, the water's lovely

Intellectual property is an age old thorn in the technology industry's side. After the bitter rows over Qualcomm's royalties on UMTS kit, simmering conflicts look set to dog the path towards 4G and other new technologies.

But there are those that believe patent pooling, where a number of parties agree to cross licence their patents on a technology, can offer a sufficient reduction in risk and collectively benefit an otherwise competitive industry.

Telecoms.com recently met with Roberto Dini, patent consultant and founder of Sisvel, an Italian company appointed to represent the patent holders behind the DVB-H mobile TV platform.

Sisvel is the second company that has attempted to create a DVB-H patent pool, after US-based MPEG-LA failed to agree licensing terms with patent holders. Although DVB-H has the backing of the European Commission, which is attempting to stimulate its adoption over fears that Europe is falling behind, a successful patent pool is one of the crucial keys to launching any new technology.

Dini is under no illusions about how difficult a task that is, but with regards to DVB-H, he reckons his consortium has about 99 per cent of the patents for the technology covered.

"Five years ago, the industry was in a patent heaven and there was room for everyone. But this heaven was disrupted by the arrival of the Chinese producers, who made the market more competitive," Dini said. "Patent pooling is now a necessity as technology has become more complicated. But the difficulty is always in convincing the parties involved to compromise.

"Of course certain technologies are always going to be pushed by different partners and you can't have a patent from everyone," he said, but when you consider the members of something like 3GPP, which incorporates Nokia, Ericsson and Qualcomm, it becomes obvious that getting those players to agree caps on standard rates is going to be difficult. "Cross licensing can be used to solve the problem but those with larger patent portfolios often demand more money," Dini added.

The point is that royalties are a reward for the disclosure of patents, and patent pooling is one way of getting the technology into the market so those royalties can be collected. If this reward for innovation is not available to the industry, it would likely lead to less of an incentive for companies to invest in R and D, ultimately slowing down innovation. But the patent holders have to be on the ball, "We're essentially creating a patent train and some companies may miss the call to declare patents," said Dini.

It seems to be a solution that is working. Finnish handset giant Nokia recently introduced a licensing and multisourcing model for its chipset strategy, discontinuing parts of its own chipset development operations and increasing its reliance on third parties. At the time, Niklas Savander, executive vice president for Nokia Technology Platforms, said: "This is a pragmatic move in the face of an increasingly complex technology environment. Companies in this industry need to focus on areas where they can add value and partner with others where it makes sense. We believe that our renewed strategy will allow us to concentrate on developing core chipset technologies, while increasing our R&D efficiencies and improving our agility in a fast-moving marketplace."

Given that all the cost goes into the development of a product, not into the production, Dini argues that patent pooling is about compromising in order to give monopoly to a product, for the benefit of the various patent holders. However, these consortia still have to be smart when it comes down to agreeing on licensing terms, which is why some organisations have commitments to FRAND (fair and reasonable non-discriminatory terms) licensing. Although the problem here is that there is no real legal definition for FRAND, so terms largely depend on what the companies themselves think is 'fair'.

"Intellectual Property is related to the success of a product, so royalties need to be attractive and licensed on friendly terms to everyone," Dini told telecoms.com. "The patent pool is created after standardisation, but patent owners need to declare essential patents during standardisation on FRAND conditions," he said, arguing that the potential revenues for any given market are not actually realised until the success of a certain product is proven.

But as technologies converge, the diversity of patent holders increases, so Dini, like many, believes that it is essential for patent holders to work closely with the standards bodies, although he is quick to point out that it is not the job of authorities like ETSI to determine whether an essential patent is in fact, essential. "Standardisation bodies cannot deal with Intellectual Property issues, as the patents in a product are often not yet granted, so there is no way of knowing whether their 'baby' is good," said Dini.

Disputes should be left to the courts, which are already seeing plenty of action from high profile players such as Research In Motion, Nokia, Vonage, Verizon, and of course, Qualcomm - significantly, players with the financial clout to chase their patents. "The cost of patent litigation in the US is about $10m per patent," said Dini, but he is critical of the US system, which he said, has seen a reduced level of patent protection, leading to the creation of so called 'patent trolls'. "Who to blame for the business model if the benefit from a patent right is so expensive that external support is required to effectively enforce this right? Why should the holder of the rights be blamed and not the system itself?" he said. This, Dini says, is the reason Germany is fast becoming a hotbed of patent litigation as it offers more protection to patent holders, and is recently the location where Qualcomm and Nokia have take their own patent spats too.

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