Uncertainty over royalty payments is a bugbear of all the technology industries. Once standards are set and start to appear in commercial products, patent holders often emerge from the woodwork to claim their fee, leading to complex cross-licensing negotiations and sometimes lawsuits and hefty royalty fees.
Many bodies, particularly the European standards agency ETSI, have been trying to get patent holders to declare their holdings in a would-be standard upfront, and the European Union is now offering a powerful incentive to turn this into best practice. The EU says companies that provide technology that could be adopted in industry standards could be exempted from strict European antitrust laws if they set out, from the start, the maximum fees they would charge for their patents.
This proposal is part of a new set of draft rules on intellectual property and is particularly relevant in the wake of some recent European disputes, notably the complaint brought by Ericsson, Nokia and others against Qualcomm, over its royalties, licensing terms and business practices. This was dropped last November, but raised significant issues around IPR.
“Experience shows that disputes may arise as to the exact level of FRAND (fair, reasonable and non-discriminatory) terms,” the EU’s executive body, the European Commission, said in a statement. “It has been suggested that unilateral ex ante disclosures of the maximum terms that a company would charge if its technology were incorporated in a standard would be one way of avoiding disputes.”
According to the Reuters news agency, the draft rules contain benchmarks to assess the level of FRAND licensing fees. The Commission said companies would need to disclose their intellectual property rights before their patents were included in standards. “No or unclear disclosure obligations may furthermore give incentives to ‘patent ambushes’, that is companies hiding patents until industry is locked in and thereafter refusing to license or request exorbitant fees,” the statement said.
The draft rules are part of the EU review of existing guidelines which exempt agreements between competing companies from EU antitrust rules as long as they comply with certain conditions. The guidelines expire at the end of the year.
The continuing uncertainty around technology IPR matters was clear when the EU decided not to pursue Qualcomm last November, when the Commission said it had to ‘focus its priorities elsewhere’. It initiated its probe in 2007 after the six firms brought complaints that Qualcomm broke agreements among patent holders to keep costs at reasonable levels, and was abusing a monopoly position in 3G IPR. Two factors made it less likely that it would pursue the investigations to trial ‘ Qualcomm’s truces with two of the complainants, Nokia and Broadcom; and the departure of competition commissioner Nellie Kroes, who had taken a very hardline approach to technology antitrust.
However, an EC spokesperson said the body was ‘still concerned’ about how 3G technology was priced but could not commit the time or resources to “complex” assessments. “Any antitrust enforcer has to be careful about overturning commercial agreements,” it said in a statement. “The Commission does not consider it appropriate to invest further resources in this case.” Following the EC news, Ericsson and NEC formally announced that they were withdrawing their own complaints after four years of dispute. Ericsson echoed some of the EC’s somewhat ambivalent statements, saying in its statement that it would ‘however, continue its ongoing dialog with competition authorities around the world in relation to Qualcomm’s licensing practices’.
Also in Europe, ETSI has been the frontrunner in seeking changes to IPR norms in standards, and has been supported by the GSM Association. Four years ago, ETSI began to make significant changes to its policy and procedures, requesting that any IPR claims are made in advance of a standard being finalized. It also declared that it would no longer be mandatory for the organization to select technologies purely on the basis of their technical merits and regardless of other considerations.