IEEE's new standard on patents that lowers royalty fees is making some members angry.
The IEEE’s decision to approve a bitterly contested change to its patent policy, has, perhaps unsurprisingly, caused bitter divisions among its members. The revised rules would see the royalty fees large vendors have to pay reduced significantly, particularly in the wireless sector.
Compensation for a company’s IPR would now be based on a percentage of component price rather than the whole device, as is generally the norm.
Another consequence of the revised approach to royalties is a more realistic definition of what represents Fair, Reasonable and Non-Discriminatory (FRAND) when it comes to valuing a company’s standards-essential patents (SEP) such that the inventors get a fair return on sometimes huge investments into developing innovations, while at the same time not building barriers to entry for new products and new suppliers.
The IEEE-SA (Standards Association) also anticipates fewer high profile patent disputes as under the new rules, companies contributing patents to industry standards bodies would have to limit the types of demands that can be put on licensees, and to not seek court orders to block sales by recalcitrant companies.
Now that would represent a seismic shift.
The two opposing camps were quick to get in their retaliation or approval for the decision by the IEEE board of governors.
Chip supplier Qualcomm, representing the status-quo — and one of the companies most likely to suffer the financial consequences — threatened to reconsider its participation in the IEEE’s standardization efforts and said it would “not make licensing commitments under the new policy.”
Its hard line follows a letter to the IEEE by Irwin Jacobs, the company’s founding chairman and CEO Emeritus (and the recipient in 2013 of the Institute’s Medal of Honour) when the lobbying reached the bitterest stage, warning that “the proposed changes, and the process that has been followed, threaten the reputation and future of the IEEE as a developer of advanced technology standards.”
Jacobs said the revised rules would provide short term commercial benefits to their backers, but by lowering the fees, could in the longer term reduce the incentive for R&D, and suggested the changes were "pushed through despite the absence of any evidence of actual real-world problems with the existing patents policy" that he considers to be working "rather well."
Jacobs went on to query the way in which the decision was reached, suggesting the changes were “created by a close, ad-hoc group that consistently rejected the repeated and detailed objections, alternate suggestions, letters of complaint and appeals of some thirteen respected global technology companies.”
These companies are thought to include companies such as Ericsson, Nokia and InterDigital.
One of those in the ‘ad hoc ‘group, Cisco. Mark Chandler, general counsel of the networking gear giant, said the decision “is a significant victory for consumers and for those who want a reasonable and stable patent system that supports innovation,” and congratulated the IEEE-SA for “resisting pressure from the few who wanted to use the patent system to force unreasonable costs on makers and users of everyday products like smartphones and wireless routers.”
Others in the group are HP, Apple, Microsoft, and Intel.
The IEEE took exception to Jacobs’s stand, stressing in its note last week that the update is “designed to provide greater clarity and predictability for patent holders and implementer”, and that the changes resulted from a “rigorous process over the past two years that included extensive input from a broad range of stakeholders who may choose to develop standards within the IEEE-SA framework.”
Not surprisingly, US lawmakers from across the political divide, pressure groups, academics and patent law experts have waded in on both sides of the argument. The Innovation Alliance, for instance, has called on all its members to reverse the ‘misguided’ policy, a tough call since the IEEE said it would come into effect during the first quarter of the year.
The Alliance’s scathing commentary suggests the new policy would “arbitrarily reduce the level of protection given to Wi-Fi related patents, impose unconstitutional limits on patent rights, and end the traditional market-based negotiation process for these patents by imposing what amounts to de facto compulsory licensing.”
The note warns that the main impact of the new rules could encourage companies to refocus research to other wireless standards bodies when it comes to the development of technologies beyond Wi-Fi.
Indeed the European Commission may have spotted an opportunity, noting that the changes could have a ‘significant impact’ on the industry and, quietly adding it is running a public consultation on SEPs “to gather information and views on the interplay between standardisation and intellectual property rights (IPR).”
While by far the biggest majority of members of the IEEE are US companies, there is clearly an international dimension to all this. And it has not gone unnoticed that some of the proposed changes bear similarities to China’s anti-monopoly laws that are being increasingly used to lock out foreign competitors. Qualcomm knows about this more than others through its recently settled bruising spat in China — it too has been seeking royalties from smartphone makers based on a percentage of the whole sale price.
And while the IEEE is not directly involved in setting standards for cellular technology, there is more than likely to be a ripple effect into that closely protected and also increasingly litigious 3GPP IPR environment, where calls for injunctions have become widespread.
So, we are unlikely to see a seismic shift, but the IEEE’s ruling certainly adds another level of uncertainty in an area already complex and confusing enough.
—John Walko blogs about the semiconductor industry for EE Times.