Last week the Technical University of Berlin and IPlytics GmbH invited worldwide industry experts to participate in the presentation of the 5G patent study results. The 5G study was commissioned by the German Federal Ministry for Economic Affairs and Energy (BMWi) with the goal to shed light on the patent situation for the 5G standard. The agenda of the event included the presentation of the fact-finding study as well as two discussion panels and a keynote speech. Over 120 high level patent experts from all major 5G patent owning companies such as Nokia, Ericsson, Huawei, Qualcomm, ZTE and Samsung were present as well as patent experts from the German industry such as Audi, Continental, Siemens, BMW, Volkswagen, Bosch, Deutsche Telekom and Fraunhofer to debate the future of 5G patent licensing.
Tim Pohlmann CEO from IPlytics started with presenting the results of the 5G patent study. The purpose of the study was to unbiasedly present the results, without making policy recommendations. The 5G patent data is based on publicly declared patents and submitted standards contributions that were identified for the 5G standard. Pohlmann started the presentation with a disclaimer that patent declarations cannot be interpreted as legally verified standard essential patents (SEPs). However, patent declaration data is the best source to identify all potential essential 5G patents. The data analysis of the study was conducted using IPlytics Platform a patent tool based on declarations submitted to the ETSI IPR database and standards contributions submitted at the 3GPP portal. Both, information on the patent data and the standards data were correlated to identify only 5G relevant information. Further the patent data was correlated to patent data from worldwide patent offices. The method of how to identify 5G patents and standards contributions was previously verified by a selected consortium of patent and standards industry experts that supported this study with their technical expertise.
The presented results of the study showed that the 5G standard is highly patented. In total 95,526 patents have been declared for 5G which breaks down to 21,571 unique patent families. Only 44% of these patent families have yet been granted. However, as most 5G patents are rather recently filed one will expect the rate of granted patents to further increase in the coming years. Most 5G patents were declared between 2017 and 2019 showing a sharp increase year by year. And as the 5G standard development is not yet completed further patent declarations are expected in the upcoming years. It is also worth mentioning that 24% of the patents declared for 5G have previously already been declared for 4G. This shows that some 4G technologies are still relevant for the new 5G specifications.
Figure: Number of declared 2G, 3G, 4G and 5G families
The share of Chinese market players has been increasing
The results of the study show that Huawei (CN), ZTE (CN), Samsung (KR), LG (KR), Nokia (FI), Ericsson (SE) and Qualcomm (US) are among the leaders of 5G patents. The study further identifies new market players that were not around for the 4G development. Here the Chinese companies Guangdong Oppo (CN), Vivo Mobile (CN), FG Innovation (CN), Spreadtrum Communications (CN) and the Taiwanese ASUSTeK Computer (TW) are new in the top 5G patent owner.
The study also investigated companies’ participation in the standards development, where technical contributions submitted to the 3GPP (3rd Generation Partnership Project) – the standard body that develops telecommunication standards such as 3G, 4G and 5G . The main 4G standard developers such as Huawei, Ericsson, Nokia, Qualcomm, ZTE and Samsung and LG are again strong players for the 5G development. Here again the data shows increasing participation from new and upcoming Chinese players.
Industry experts state: “The licensing of 5G patent will be complex”
After the presentation of the patent study results, industry experts were invited to discuss the future of 5G patent licensing. Panel participants included:
- Georg Kreuz, Chief IP Counsel, Huawei
- Mang Zhu, Chief IP Strategy officer, ZTE
- Mattias Hellman, VP IPR Strategy & Portfolio Management, Ericsson
- Kenneth S Korea, SVP Silicon Valley US IP Office, Samsung
- Fabian Gonell, SVP Licensing, Qualcomm
- Eeva Hakoranta, SVP IP, Nokia
- Mattia Fogliacco, CEO, Sisvel
- Matthias Schneider, Chief Licensing Officer, Audi
- Luke McLeroy, Senior Vice President, AVANCI
All panelist agreed that the licensing of 5G patents will be more complex compared to 4G. The 5G standard will have more modules and technologies that can be combined. Thus, companies will implement different 5G specifications depending on the specific 5G use cases. Here a car will use other 5G features than a refrigerator. As different 5G specifications are subject to different standard essential patents it will be difficult to define which patents will be needed by the 5G user. Here patent owners will have to find efficient ways to package 5G licensing programs for different uses cases. Also, the panelist argued that it will be important to price differentiate royalty rates for different uses cases.
Can patent pools solve the stickiness of standard essential patent licensing?
The first panel of the event discussed the role of patent pools for future 5G licensing. The main rationale for patent pools is to solve the stickiness problem of licensing e.g. by saving transaction costs for both licensors and licensees. Especially when 5G will be used across multiple industries by a much larger number of companies (compared to the smart phone industry) transaction costs will inevitably increase. Here the goal of patent pools is to simplify licensing e.g. by providing a single contract for all licensors and by eliminating the discussion about patent quality as all patent pool members will have to agree and commit on the pool’s terms and conditions. These terms and conditions for example define how the royalty will be shared among patent owners. When the industry agrees on these terms and conditions stickiness can be reduced. The success of a patent pool thus very much depends on the number and size of patent owners that join a patent pool. However, joining a patent pool maybe subject to a so called “chicken and egg problem” as companies might be hesitant to join a pool if, no one joined yet.
Some patent owners however felt that even with being a member of patent pools some sort of stickiness remains. Especially when licensors do not agree to the terms and conditions of the pool license yielding litigation in patent courts. Here being a member of a patent pool but, for example, not being involved in the ongoing litigation of other members, creates situations that are not always transparent and thus will not benefit the licensing strategy of the patent owners.
As of today, there is no 5G patent pool and all panelist agreed that there must be a critical mass of licensors and licensees to launch a successful pool. Very likely a 5G patent pool will have to create offerings for different 5G use cases and with a differentiation of pricing for 5G patents.
Panelist argued that there will likely be different models of aggregation on both sides of the table. Patent pools aggregate patent owners but on the other end there are also so-called defensive patent aggregators (e.g. such as RPX or the Allied Security Trust) that aggregate companies that need to license-in patented technologies.
Standard essential patents in the auto industry. A fresh new start or a clash of cultures?
AVANCI is the first patent pool with an offering that targets companies outside of the smartphone world: the automotive industry. When AVANCI started there were no licensing contracts in place and automotive manufacturers and standard essential patent owners were able to start from the very beginning to define how licensing contracts for the auto industry should be designed. This allowed a certain flexibility. In comparison the smartphone industry nowadays has a so called “moving train problem”. There are existing arrangements in place and existing contracts for the licensing of SEPs which need to be considered when setting up a new contract. Existing contracts create challenges and often limit the flexibility in defining new terms and conditions.
In the smart phone world typically the patent owners are licensors but often also act as licensees. Patent owners often compete downstream on the product market. In other words, licensing contracts are negotiated among competitors. In the case of licensing SEPs for the automotive industry the licensors are from the Telecommunication industry and do not compete with licensees from the auto industry. The panel stated that this made licensing negotiations easier as all licensors acted only as licensors and all licensees only acted as licensees.
However, looking at the Telecommunication industry and the auto industry, panelists felt that there is also still a clash of cultures when it comes to the licensing mechanisms.
In the Telecom industry:
- SEPs are licensed on the User Equipment level,
- consequently, licensing negotiations target the device manufacturer (OEM) and
- in some cases, royalties consider the net selling price of the final product
In the Auto industry:
- Patents are usually (cross –) licensed on vertical levels and
- suppliers may incorporate IP rights into their component supply contracts.
- Royalties are often based on a component selling price.
The panel participants as well as the audience (both experts from car manufacturers and experts from SEP owners) discussed back and forth why a component-based royalty, or why a product-based royalty approach is a reasonable solution. SEP owners claimed that the current AVANCI rate for 2G, 3G and 4G (and e-call) SEPs at 15 USD is very low and can be compared to the price of a onetime car wash or a 5-hour ticket in a parking lot. In comparison to a car wash or parking ticket, the 15 USD in AVANCI gives access to the majority of the 2G, 3G and 4G SEPs ensuring connectivity for the whole lifespan of a car. The auto industry however claimed that in comparison to the prices of the modules in a car that provide the connectivity, 15 USD is a very high price, especially given that prices have already been negotiated with suppliers for the upcoming years. The auto industry further made clear that such royalties for connectivity standards will need to be paid by the end consumer.
What are the challenges for future 5G licensing?
The panelist agreed that the first task for licensing of 5G patents is to find very simple licensing models, otherwise licensing will not be successful. The licensing of SEPs in the smartphone world is well understood, most panelists felt that the case of 5G will be comparable to the 3G or 4G licensing negotiations. However, licensing 5G patents outside of the smartphone industry will be a lot more challenging. As the application of 5G will be different from industry to industry, licensing mechanisms will need to be more flexible and there is no one-size fits all model that will work: E.g. connecting a refrigerator to other home appliance devices might be a much simpler application of 5G compared to 5G enabled security features in a car that are crucial to avoid car accidents. A uniform licensing model will not work. Likely the 5G royalties for the refrigerator will have to be lower compared to the auto use case. While such flexibility is needed, the industry at the same time needs to find mechanisms that allow to aggregate and package the licensing of 5G patents to avoid stickiness. For real IoT applications it is not feasible to discuss with each licensor individually. The panel agreed that there needs to be an aggregated solution, which could be a patent pool or another mechanism to join licensing efforts.
Another challenge is the long tail of the market. In other words, 5G will be implemented in, as an example, IoT applications and products produced and shipped by small revenue companies – e.g. the smart IoT startup from Berlin with a 10 million EUR revenue. Collecting royalties from tens of thousands of small companies will not be efficient if the royalty per company is too low. Patent owners will either have to bundle resources to chase all small 5G users or accept a certain rate of free riders that stay under the radar and use patented 5G technologies without paying royalties.
5G use cases and the competition of standards.
How 5G will be applied in the various IoT uses cases is something that no one can foresee today. End users will be the ones to decide where 5G will be used and if implementing 5G, for instance, in a car will be a value add especially when even today not even 3G or 4G base stations are available across all countries and regions. Someone who lives in a region where 5G will not be offered for the next 10 years may not need 5G connectivity in his or her car. A car that travels from place to places, however, may only make use of 5G technologies in larger cities and the car owner may still want connectivity even though access is limited to regions.
The discussion about the competing standards 802.11p and V2X 5G will depend on the connectivity use cases of a car. Both standards have advantages and it must be seen which one will be used more. Competition of standards will also mean competition on price and thus then on the royalties charged. Some panelists felt that the future car will be integrating both standards and use the technologies for different use cases.
As of now, 5G is a new standard and the licensing of 5G patents will be a topic for the future. The panelists argued that today might not be the right time to start licensing negotiations with the IoT device manufactures, but what should be started early on is how a license for IoT should be constructed. Very likely 5G will not be licensed alone but in combination with other standards subject to patents.