The recent vote in the European Parliament on the standard-essential patents regulation was disappointing but, in some ways, not surprising.
As has regularly happened in debates on intellectual property policy around the world, the relatively few foundational innovators in standardised technologies, such as 5G, are routinely outnumbered by the many implementers who include these technologies in their devices.
But, as the legislative process continues to play out there is one crucial element that needs to be at the center of debates on this controversial policy – innovation.
Innovation is hard. It takes expertise, time, money, and many failures to advance a technology such as 5G or 6G wireless or the VVC video codec.
InterDigital is a thriving but still relatively small innovator compared with the giants of the wireless industry and the Big Tech behemoths.
We pride ourselves on the quality of our innovation and our status as among the very best in the development of wireless, video, and artificial intelligence (AI) technologies.
For three successive years we have been named as one of the world’s leading innovators in LexisNexis’s ‘Innovation Momentum 2024: The Global Top 100’ along with the likes of Qualcomm and Ericsson.
While we may be headquartered in the US, our largest research presence is in Rennes, France where many of our video engineers are based. They are among the world’s leading researchers in many areas of video technology including advanced video compression and, increasingly, the application of AI to video.
They are also pioneers in energy-aware media, helping to develop technology that can more efficiently manage the energy consumption of devices and services, such as the most advanced TVs.
Talk to them and be prepared to be transported to a world of new possibilities for technology that will transform how we connect and lead us to ever-more immersive experiences.
There is no guarantee that our engineers’ research will ultimately pay off, but IP protections and the IPR polices of standards development organizations, like the European Telecommunications Standards Institute, provide companies like us with the right incentives to keep investing in groundbreaking research.
As with some other innovators in wireless and video, we license our portfolio of more than 30,000 patents and applications, a significant number of which are declared standard-essential, to many of the world’s largest device manufacturers.
We then plow a large chunk of this licensing revenue back into our research, so that, for the last five years, we have re-invested about 50% of our recurring revenue into R&D and portfolio development.
Balance seeking
We do not expect governments to grease the wheel in our favour. But we do expect balanced IP protection and not a playing field that is tilted in favor of deep-pocketed implementers.
In a fiercely competitive global innovation market, Europe’s long-term economic success depends in large part on its ability to out-innovate rivals in Asia and North America. This depends on several factors, but it does not include weakening IP rights on the continent, particularly when those rights are linked to standard essential technologies.
A balanced IP environment that supports continuous investment and value creation can help European innovators to compete and ensure that they are not run over, roughshod, by implementers from Asia or the US who may enjoy the benefits of cheaper labour or deeper pools of investment capital.
Unfortunately, the way that the SEP debate has unfolded first with the European Commission and more recently in the European Parliament, highlights that this is not about innovation.
It is also, not about the interests of SMEs, or what fair, reasonable, and non-discriminatory (FRAND) means, or greater transparency around SEPs.
This is a push by a handful of Big Tech companies and large manufacturers, such as the leading car makers, to drive down what they pay for key patented innovation in their devices and vehicles.
To make matters worse for European consumers, many of the implementers who are likely to benefit from this regulation are not based on the continent, such as all of the leading smartphone makers who call Asia and the US home.
The commission’s own impact assessment found that the regulation, if enacted, would favor these implementers to the tune of €24.4 million ($26.4 million) per affected party compared with a net cost for innovating SEP owners of €28.9 million.
This policy is particularly misplaced not just because it will favor companies outside of Europe but also because it’s based on such flimsy evidence, that somehow the SEP licensing is broken or in need of an urgent fix.
Some push a narrative of a SEP ecosystem beset by litigation, but the vast majority of SEP licensing happens through bilateral amicable commercial negotiations.
In fact, the paper ‘Empirical Assessment of Potential Challenges in SEP Licensing,’ which was commissioned by the commission and published simultaneously with the draft regulation in 2023, found that litigation involving SEPs had declined in recent years in both Europe and the US.
This data reflects our own experience at InterDigital where we have signed more than 30 bilateral agreements since early 2021 with just two involving any litigation.
In another paper, one of the authors of the empirical assessment, Dr Justus Baron, a research director at Northwestern University’s Center on Law, Business and Economics, unpicked the rationale for a reasonable aggregate royalty which he described as “one-sided” and “unnecessary.”
As Baron wrote in the paper on the overall regulation: “The need for a dramatic overhaul is now even more dubious than before – the industry learned to make SEP licensing work. As a result, litigation is decreasing, whereas standardisation and innovation are thriving.”
And, on the eve of the parliament’s vote, the president of the EPO, António Campinos, urged lawmakers to press pause and questioned whether the regulation lived up to the commission’s own standards around legislation that is “evidence-based, and built on transparent consultation of all stakeholders and thorough impact assessments”.
Now, more than ever, we need to support Europe’s innovators, not weaken SEP rights.
Fortunately, amid this chorus of criticism, Europe still has time to act.
