Qualcomm, ZTE, KPN, and InterDigital have joined the Ericsson-backed Avanci patent group, an initiative announced back in February that ostensibly aims to make patents essential to the wireless industry available to businesses looking to be movers and swingers in the IoT. Of course, for Ericsson, this is another lucrative revenue stream.
Avanci’s initial focus will be on the 2G, 3G, and 4G cellular patents surrounding connected cars and smart meters, before expanding into other IoT markets and verticals. Five of the seven leadership team members are former Ericsson staffers, and the companies involved are aiming for a revenue-share model. Currently, Avanci isn’t projecting any estimates of potential royalty levels, or what sort of revenue the pool might return to the IP holders.
Back in February, when Ericsson announced the as-then-unnamed patent project, Ericsson’s Kasim Alfalahi left his gig as Chief Intellectual Property Officer, and head of the IPR and Licensing Division, to lead Avanci. He declared that “we are initiating this market place following discussions with both wireless industry players and key players in industry verticals. This platform shows Ericsson’s and my personal commitment to provide a solution that works to the benefit of all parts of the ecosystem.”
So make no mistake – this is through-and-through an Ericsson initiative, and your opinion of Ericsson is largely going to determine your reaction to Avanci as a model. Ericsson, to its credit, isn’t being particularly coy about the purpose of Avanci, noting that “this will be an additional go to market model for Ericsson, continuing to build on its IPR and Licensing business strategy to secure a fair return on its R&D investment.”
The IPR division’s licensing accounted for SEK 14.4bn (around $1.68bn) in 2015 revenues, a fraction of Ericsson’s total net sales of SEK 246.9bn (around $28.8bn at today’s exchange rates, but nearer $30bn at the time) and its operating income of SEK 21.8bn ($2.54bn). Back in 2011, the IPR figure stood at SEK 6.2bn ($720m), and to effectively double IP revenue in four years sounds like an impressive feat.
In a world where it’s networking hardware and infrastructure business is being threatened by the likes of Huawei, and more broadly by the race to commoditzation of hardware, Ericsson knows it has to shift to a model in which it is still found at the top of the value chain.
Consequently, IPR, software, and services are what Ericsson will need to focus on in such a world, and using the likes of Avanci to ensure that its IP remains integral to IoT deployments will help guarantee revenues in a world that is rapidly changing (in enterprise terms, at least).
This week, the Avanci group has launched the first marketplace for licensing these essential patents, aiming to offer a single license solution to the legal-minefield that IP-licensing can often descend into.
With FRAND terms (fair, reasonable, and non-discriminatory), Avanci says that companies can expect a transparent flat-rate process, with fees based on what value the patents bring to the technology at hand – itself a rather notable point of contention that will likely inspire future law suits.
Notably, we can’t find any public documentation regarding how these decisions are processed, or what sort of fees are expected. A graph on the Avanci website indicates that the fee will be based on the benefits of connectivity, the increasing mobility, and the amount of use, the royalty rates have not been confirmed yet – and we aren’t overly confident that they will be publicly available. The group is also calling for IP-owners to get in touch regarding licensing opportunities, and it seems likely that membership will swell in the coming months.
The aforementioned Avanci CEO Alfalahi notes that “since we began in April, we have received an overwhelmingly positive response from both IoT devices manufacturers and patent owners to our streamlined licensing solution. With Avanci, something that would require time and resources to negotiate with many technology holders can now be done in one place, with one license.”
Back in February, Ericsson’s CEO at the time, Hans Vestberg sounded confident. He said that “under Kasim’s leadership, Ericsson has established a leading position in the IPR licensing market. As more and more industries embrace connectivity and the IoT, it is crucial that essential technology is accessible and that innovators continue to get fair returns on R&D investments. With his experience, Kasim is the right person to drive this exciting new opportunity to accelerate market development.”