Feathers Ruffled By IEEE Patent License Changes

Standards are essential for any market to grow. Products that are completely proprietary tend to serve small niche markets whereas those based on standards can grow through collaborations, independent content creation, and many other ways. Just think about where we would be if there were no communications standards – no WiFi, no cellular standards. You would be locked into buying all of your equipment from the same manufacturer and yes that would include the infrastructure, the cell towers and the phones. There would be no opportunity for an Apple to create something like the iPhone. They all utilize a standard and build a product around it.

But before we get too enthused by this motherhood and apple pie (pun intended), we have to consider the messy side of some of these standards. Who did the research and development that enabled them and how do they get paid for that work? In many cases, they have large patent portfolios protecting their investment, but they have to give up some of their rights to become a standard and then hope what they lose on each license sale they can make up for in volume. This is the crux of Fair, Reasonable and Non Discriminatory (FRAND) pricing discussions. How much should someone pay to be able to integrate these standards into their product? And this is where the gloves come off.

Companies know and probably expect that they need to pay to use these standards, but the question is how much and what can they do to reduce their costs? The first question that has to be answered is: Is the use of the patent essential to the implementation of the standard? Or, put another way, is there any way to implement the standard and to not be in violation of the patent? When this is the case, the patent is declared a standard-essential patent and royalties must be paid. But who gets to decide that and how much is it worth? Also, if you can patent something that wasn’t thought of by the first company, then perhaps you can also declare that you have a patent on a piece of the technology and maybe that your technology is essential, as well. Now it has to be decided if one is more important than the other, and the “price” to attach to each. Plus, licensing does not say that everyone has to be charged the same. Is it fair that a maker of a basic feature phone should pay the same as a top of the line smartphone? They both rely on the same technology and the same patents. You can see how this would very quickly become messy.

Nobody defines what reasonable means and it is not decided up front. This is why lawyers get rich. A new round of these discussions currently is being pursued through the court system between Apple and Ericsson.

For EDA, most of our standards eventually become IEEE standards. There have been a few cases where a company has had a patent on technology that found its way into a standard. For that reason, the IEEE and Accellera, which is the incubator for many standards, require an upfront declaration from any participating company if they have or know of any patents that relate to discussions being held in committees. The IEEE goes further in that they have policies put in place in 2007 that seek a declaration for the maximum terms of a license. Unfortunately this was not mandatory, and few companies took them up on the option.

For the past couple of years the IEEE has been working on a new set of rules that were approved by their board in December 2014 and have just been released. This basically changes the optional into mandatory, defines that royalties are based only on the smallest saleable implementation, and attempts to reduce the notion of reasonable to be a fraction of the average royalties today. This is ruffling quite a few feathers and not all companies, or indeed all parts of the IEEE, are happy with the proposed changes. Some companies, mainly those that are the creators of technology, and even groups within the IEEE, feel that the F (fair) is being taken out of the equation. They are even threatening to abandon the IEEE. They feel that the IEEE has become dominated by companies that use the technology rather than those who invest in it, and thus the new terms are not fair and equitable.

The IEEE asked the U.S. Department of Justice’s Antitrust Division for a ruling on their proposed changes and that ruling was received on Feb. 4. It was favorable, which cleared the way for the IEEE to release their new bylaws.