The general counsel for Cisco Systems explains why he and other tech industry giants support the recent changes in the IEEE's patent policy on standards.
The IEEE Standards Association’s recent update to its patent policy is a strong positive step for the vast majority of companies that participate in standards development and for consumers around the world. Those updates are strongly supported by law, by common-sense, and participants in standards development, including a super-majority of the people who run the IEEE’s standards development function. Nevertheless, they have been subject to aggressive and misleading attacks by a few who stand to lose the ability to leverage the standards system to “super-monetize” their patents.
Cisco and other companies who support these changes -- including Apple, Broadcom, Dell, Hewlett Packard, Intel, Marvell, Microsoft, Samsung, and Verizon and many others -- are innovators.
At Cisco alone we spend billions of dollars a year on research and development. The fruits of that innovation include a strong patent portfolio in networking. That portfolio includes numerous patents required to implement standards created by the IEEE and other leading standards development organizations. We contribute those patented inventions for use by implementers of standards like Wi-Fi, Ethernet, and the routing standards that make the Internet possible.
What brought all these successful, innovative companies together is a simple belief that the commitment to license patents on reasonable and non-discriminatory (RAND) terms ought to mean something. One of the things it should mean is that a patentee that participates in standards development can’t gain leverage in licensing negotiations by threatening to prevent the implementer of a standard from selling products.
If the implementer is willing to have a neutral judge or arbitrator set a licensing rate for a patent required to implement the Wi-Fi standard, then a patent-owner can’t get a court or an agency to stop sales of access points or baseband processors that implement Wi-Fi. The updated IEEE patent policy makes that even clearer than it already was.
A RAND licensing commitment should also mean that a patent-owner gets a royalty based on the value its patent adds to a standard, not the value of the entire standard. That’s what the updated IEEE policy does. It also identifies additional optional factors that courts and arbitrators can use in determining what rates are reasonable.
One of those factors addresses the stacking of multiple royalties sought by multiple patent-owners, each of which claims to own patents that are required to implement a standard like Wi-Fi or Ethernet. The cumulative royalties charged by dozens or hundreds of patent owners – a court recently identified 3,000 patents required to implement a version of Wi-Fi – can create a real barrier to the implementation of standards in consumer electronics, sensors, and other low-cost, high volume devices. By focusing courts on royalty-stacking the updated IEEE patent policy will provide the companies that make those devices with greater certainty that the products they sell today will make money in the long run.
The updates to the IEEE policy also give companies at all levels of the supply chain the assurance that they can license patents required to implement IEEE standards. For years, participants in IEEE standards development have been required to commit to license patents to “an unrestricted number of applicants.” Despite what those words clearly mean, patent-owners have refused to license chip-makers, preferring to license “where the money is” by going after makers of mobile phones, Wi-Fi access points, and other devices.
One patent monetizing company boldly stated in a presentation that licensing to only device makers has “one big advantage…royalty income will be higher since we calculate the royalty on the more expensive product.”royalty income will be higher since we calculate the royalty on the more expensive product.” The updates respond by making it even clearer that if a component maker like Broadcom or Intel, for example, makes a baseband processor that implements a portion of a standard, it gets a license to the patented inventions it implements.
It’s easy enough to understand why some patent owners oppose the IEEE patent updates in general: those who monetize patents aggressively as part of their business model stand to lose out if the standards process can’t be leveraged to enhance the value of their patents beyond what they would be worth absent the standard. But the standards process exists not to enrich a few patent holders, but rather to simplify product introduction and interoperability for consumers around the world.
The monetizers’ views were made very clear in InterDigital CEO Bill Merritt’s article in EE Times last week. It’s worth reviewing and rebutting the arguments he makes
- Mr. Merritt claims the changes were supported by “a handful of device manufacturers.” In fact, a supermajority of companies participating at IEEE has supported these changes for years.
- Mr. Merritt claims the changes were the result of “closed door meetings.” In fact, IEEE’s consideration of the updates involved multiple public discussions and an open commenting process. The comments and responses are available here.
- Mr. Merritt claims the red-herring antitrust objections raised by the aggressive patent monetizers was rejected by “people at the Department of Justice who have never worked in this industry and are basing their thinking based on economic theory rather than real world practices.” In fact, before issuing its February Business Letter Review approving the updates, lawyers and economists at the Justice Department spent months hearing the real-world views of a wide range of interested parties, including, we believe, InterDigital itself.
Ultimately, the Justice Department and the vast majority of industry participants recognized, that the updates to the IEEE patent policy will help promote innovation and competition by preventing implementers of standards from being held up by patent owners and by giving participants in licensing negotiations a better sense of what patents required to implement standards are worth. Cisco and the other tech industry leaders that supported the updates agree: what the IEEE has done benefits tech industry innovation and the customers Cisco and other tech industry leaders serve.
-- Mark Chandler is senior vice president and general counsel at Cisco Systems. Co-author Gil Ohana is Cisco’s senior director for antitrust and competition.