A license to compete globally

5G networks will enable a broad range of applications and services such as the autonomously driven car.

By Sheetal Chopra

Mobile telecommunication technologies have transformed everyday life in virtually every field of human activity including work, entertainment, transportation, banking, agriculture and medicine. The third and fourth generations of wireless standards (3G and 4G) reached a user base of 3 billion in only 15 years, making them the fastest-adopted technologies in history. The number of mobile connections globally is expected to reach about 5.86 billion by 2025, with the Asia-Pacific gaining the largest share. Today, about 81% mobile users in India are on 4G phones. Despite the Covid-19-related uncertainty, the new wireless standard, 5G, is expected to surpass the adoption rate of 3G and 4G and bring about even more drastic improvements in the performance of mobile telecom networks. 5G networks will enable a broad range of applications and services such as the autonomously driven car.

The main reason behind this explosive development of mobile tech is collaboration and technology sharing between innovators that develop wireless standards and thousands of manufacturers of consumer electronics devices worldwide. The prevailing form of this cooperation is the licensing of patents that are technically essential to the implementation of wireless standards (standard-essential patents, or SEPs) on fair, reasonable and non-discriminatory (FRAND) terms and conditions. FRAND licences allow innovators to earn a fair return on their investment and manufacturers to access cutting-edge technologies on reasonable terms. To minimise the costs of SEP licensing and increase efficiency, SEP-holders and prospective licensees (technology users) typically negotiate a comprehensive licence to all essential patents (i.e. portfolio of SEPs owned globally) of a certain standard or standards for the duration of the agreement.

Global portfolio licences of SEPs are highly beneficial for both parties for several reasons:

Flexibility and efficiency: Worldwide portfolio licences allow the parties to shape the terms of the licence to fit their unique individual circumstances. Worldwide portfolio licences may include a variety of royalty-payment arrangements (e.g. lump-sum royalty payments, running royalties, or a combination thereof). This kind of agreement may also include provisions on global R&D collaboration, technical assistance in the implementation of the standard, and other forms of cooperation between licensors and licensees. A patent-by-patent approach, on the other hand, would lead to an inefficient SEP licensing in terms of time and costs.

Freedom to operate: Worldwide portfolio licences provide licensees with much-needed legal certainty and assurance that they will not be sued for patent infringement of the SEP portfolio in any jurisdiction where the licensor holds rights. Freedom to operate allows licensees to focus on their productive activities instead of dealing with legal disputes in faraway jurisdictions.

Scalability: With a worldwide portfolio licence, licensees can penetrate new markets, expand the scope of their activities and scale up faster. Under this licence, the licensee can safely expand its international presence and pursue its commercial strategy free from legal hurdles and without having to negotiate new licences each time it considers entering a new market. Moreover, the worldwide scope of the licence is flexible and economical: the licensee will pay FRAND royalties only for those markets where sales of standard-compliant products are made. This means that a local company will pay the agreed rates (within the global agreement) for the India market, and only start paying for other countries in the event it expands. Thus, he will be able to start sales anywhere in the world at any time during the term of the agreement without any risk of litigation.

Cutting-edge technologies: Worldwide portfolio licences allow licensors to earn a fair reward for their innovations and thus maintain their strong commitment to the development of innovative standards. Licensees, in turn, benefit from access, on FRAND terms, to the most innovative technologies currently on offer on the market.

The substantial efficiencies of worldwide portfolio licences explain why they have become the industry norm in mobile telecommunications and courts in several major jurisdictions have consistently recognised this reality. In Germany, the Federal Court of Justice, in its Sisvel v. Haier judgment, stressed the substantial benefits of global portfolio licences for both licensors and licensees and noted the inefficiency and wastefulness of a country-by-country and patent-by-patent licensing negotiation. In the UK, the Supreme Court, in Unwired Planet v. Huawei, affirmed the substantial gains from a worldwide portfolio licence. Specifically, the Court noted that the costs of bringing enforcement proceedings on a patent-by-patent, country-by-country basis would be ‘impossibly high’ such that implementers would be incentivised to continue infringing, distorting the balance in licensing negotiations. These concerns explain, according to the Court, why global portfolio licences are the industry norm. To summarise, worldwide SEP portfolio licences have become the industry norm in wireless telecommunications because they are highly beneficial to both licensees and licensors.

For licensees, worldwide SEP portfolio licences bring flexibility, legal certainty and freedom to operate, scalability and access to cutting-edge technologies on FRAND terms. For licensors, global portfolio licences allow a fair return on their investment and thus provide incentives for further investments in innovation and standards development. Because worldwide portfolio licences make obvious sense, from an economic standpoint, courts in several major jurisdictions have recognised their value, benefits and importance for a well-functioning marketplace.

The author is director, IPR Policy, Ericsson India. Views are personal