Who needs a license to standard essential patents?

Having recently discussed some specific court cases and hot topics, I thought it might be time for a more generic post on licensing concepts and principles. Specifically, I'd like to talk about what I call the "licensing point" for patents in general and Standard Essential Patents (SEP) in particular. Simply put, I'll try to answer the question; "Who needs an SEP license"?

By "licensing point" I mean "the entity among several entities in a product value-chain that obtains a patent license for making or selling products". We know that in the case of mobile phones, the Original Equipment Manufacturer (OEM) - the entity that puts a ready-to-use end-product on the market with a brand name belonging or licensed to it - is the SEP licensing point. In this post I'll discuss why this so, and also whether it's likely to stay that way going forward. 

Generally speaking, the licensing point is ultimately selectable by the patent holder, and could be virtually any entity in the value chain whose product encompasses the inventions covered by the licensed patents. It could be the end-product OEM, a component manufacturer or an entity in-between those. It could even be a point downstream from the OEM, like a whole-seller or a high-street- or Internet retailer. The royalty parameters just need to be properly adjusted in every case to reflect the ultimate license value to the end-product. For sure there can be practical complications in implementing some of these licensing points, but they should be perfectly permissible per se.

But that's more of a theoretical observation, now let's look at specifics. As stated, the OEM happens to be the cellular SEP licensing point. But why is that exactly? As it turns out, there are several reasons. 

We can start with a simple historical reason. Up until the end of the 1990's, the only OEMs that existed on the mobile device market were all vertical OEMs. So in fact there was only one possible licensing point.

So that was easy. But as we know today, this market structure changed a lot since then, so an interesting question is why the licensing point did not change with it. 

Indeed, the mobile device industry went through a structural change during the first decade of this century. From consisting of only a handful of vertical OEMs, it became more diverse, including a value-chain of specialized entities. This change was initially led by Qualcomm on the chipset level and further downstream by Taiwanese "notebook ODMs". 

  

However, in spite of increased specialization, some vertical or near-vertical OEMs still remained and new ones even emerged. Today there are pure mobile device vertical OEMs (Samsung, LG), pure infrastructure vertical OEMs (Alcatel-Lucent, Ericsson, Nokia) and combined mobile device and infrastructure vertical OEMs (Huawei), all doing pretty well in the marketplace. These companies have substantial in-house knowledge and control of the chain from components or chip-sets all the way down to the manufactured finalized product. So to maintain that position there's a need for these OEMs to invest rather heavily in R&D and standardization, which in turn will also generate SEP portfolios.

Now, for all such SEP-holding OEMs, an interesting question arises; would it be appropriate for the mobile device SEP licensing point to move upstream from the OEM level to e.g. the chipset manufacturer level?

While such a move might seem plausible at first glance, it could lead to complications. To understand this, let's first look at a hypothetical example scenario, but using real-world entities for ease of explanation. Take a SEP-holding mobile device OEM like Samsung. Assume that Samsung would license its SEP portfolio at a point upstream from the OEM level, let's say to chipset maker Mediatek.
Now as long as another SEP-holding OEM, for example Huawei, located downstream from Mediatek would not assert its SEP portfolio against Samsung, this would be just fine. But if it would - and it likely would because Huawei would have a FRAND commitment as an SEP holder - then Samsung might have reasons for concern. In the example scenario, while Samsung needs an SEP license from Huawei, things are not as obvious regarding Huawei's need of an SEP license from Samsung. In many jurisdictions, Samsung's license to Mediatek can be seen as inherently providing certain rights to Huawei under Samsung's patents, for products that include Mediatek's chipsets. So in effect, Samsung's license to Mediatek could limit its own defenses against an SEP portfolio assertion by Huawei against Samsung's products.

However, if Samsung would instead continue to consistently license the last point in the chain -  in this example Huawei - then no such issue would occur. Then Samsung could procure a maximally efficient SEP portfolio cross-license with Huawei because it's 100% clear that Huawei needs a full license from Samsung, regardless of what chipsets happen to reside in its products. This so-called "grant-back" issue is one reason why the cellular SEP licensing point prevails at the OEM level also in today's more specialized world.

Now those particular companies were used only as examples, and I don't know the real licensing situations among them. But the example illustrates that at least as long as there remain SEP-holding mobile and/or infrastructure OEMs - which tend to be verticals - generally healthy and successful in the global marketplace, this will be a continuing factor that tends to keep the SEP licensing point for mobile devices at the OEM level.

But there are also other reasons for the OEM being the licensing point. Like the issue of "patent value apportionment". A license to an SEP portfolio needs to be priced based on the value the technical inventions therein bring to the end-product. In US law this has been made clear in e.g. the well-known CSIRO vs. Cisco and Ericsson vs. D-Link et. al. cases. And the easiest point to observe the value the inventions bring to the end-product is - not surprisingly - at the end-product level, i.e. the OEM level.

We can look at the illustrating example of the iPod Touch vs. the iPhone. These products are very much alike, with the difference largely being that one has cellular connectivity and the other one doesn't. The products have similar specs and both carry the "brand magic" of the OEM, Apple. Yet today's price difference between the two is around $250. 

As I mentioned in another post, the price difference not only illustrates the tremendous value of adding standardized cellular technology to an otherwise similar device. It also indicates the value of a license to the SEP portfolios covering it. Due to the way standards are created, the SEP portfolios covering a standard include those innovative technologies that won the competitive race to allow that particular standard to fulfil its specific requirements. Therefore the accumulation of SEP portfolios for a standard do in fact drive the value of the standard itself.

The market has established the accumulated SEP portfolio license value for a mobile device to be somewhere close to 10% of the OEM selling price of the end-product. This is a fraction of the value the standard itself brings to the end-product, but also more than the cost of a chipset. Clearly, when component suppliers don't account for SEP license costs, the component prices don't reflect the value of SEP portfolio licenses to the end-product at all. Another way of viewing this is that if the licensing point would hypothetically move to the chipset level, the chipset cost would have to increase many-fold. That may seem odd at first, but remember that this is accounting for the value to the end-product.

There are some recent and quite loud voices in the industry that - notably without rational or legal support - advocate that basing wireless SEP license royalties on end-product price is "non-FRAND", and that such royalties "must" be based on the chipset value. Actually, such calls are not always explicitly about moving the licensing point to the chipset level per se. Indeed, licensing point and royalty base are separate things. With the licensing point kept at the OEM level, a chipset value royalty base could still be possible in principle, by setting the royalty rate to some hundreds of percent. Ultimately, the royalty base is just a parameter in a certain calculation model, and what matters in the end is the value to the end-product. 

Another related factor driving the OEM licensing point is that the value of the standard may be different for different end-products. Since the value of licenses to the accumulation of SEP portfolios is proportional - but not equal - to the value of the standard, the license value can also vary between different end-products. For a mobile phone the value is very obviously large, but there are end-products for which the value might be considered smaller. For a vending machine or utility meter for example, the standardized cellular connectivity - and a license to all patented inventions therein - might for various reasons not necessarily be considered as tremendously valuable as for a mobile phone. Now if the licensing point would be moved to the chipset level, there'd be an issue with chipset tracability, or rather the lack of it. In fact, chipset manufacturers don't always know what type of end-product their chipsets ultimately end up in. Consequently it can be hard to determine the appropriate end-product license value at the chipset level. 

In this post, I've outlined some rational reasons for why SEP-holding OEMs conclude SEP portfolio licenses at the end-product OEM level. While it's certainly possible that this might change in the future, my guess is that some factors that make it rational to keep the licensing point at the OEM level will prevail for some time to come.

On the draft IEEE patent policy

IPR policies of telecoms Standardization Setting Organizations (SSOs) mainly define how patents that become part of the standard should be treated, typically through the principle of a (F)RAND ((Fair), Reasonable And Non-Discriminatory) licensing commitment. These policies have been in place for many years, decades even, but are quite naturally subject to reviews from time to time. In spite of such reviews and occasional calls for more regulatory content though, the policies are more often than not left largely unchanged.

This likely demonstrates that the original policies continue to serve the market rather well. Quite some wide-ranging thought and foresightedness have gone into them in order to carefully accommodate the diverse and complex interests of users and innovators of advanced communication technologies in the marketplace. And ultimately, to make the standards commercially successful in the long-term.

However, a radical IPR policy change is now underway within the Institute of Electrical and Electronics Engineers (IEEE), an SSO responsible for numerous standards including "WiFi", or IEEE 802.11 as it's formally known. Since last year, a proposal for an update of the patent policy of the IEEE Standards Board Bylaws is being worked on by the IEEE-SA (IEEE Standards Association), a body within the IEEE responsible for standards. Compared to previous IPR policies of telecoms SSOs, this proposal is very detailed and far-reaching. At least to me it also gives the impression of being aimed at significantly changing how wireless SEP licensing will work in the future. Let's take a detailed look.

To begin with, the policy states that the determination of a "reasonable rate" for a SEP "should" consider (emphasis added):

a) "the value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim" (emphasis added),

b) "the value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation" (emphasis added)

[and]

c) "existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license" (emphasis added).

Requirements a) and b) appear to mandate how the apportionment of the invention's value should be done. The phrase "smallest saleable compliant implementation" must reasonably mean a component or sub-assembly within the end-product, and in my mind the so-called "chip-set" might well be a likely candidate for this. The invention's value to such a component only is all that shall be considered. As I touched upon in my previous post on cellular FRAND royalty levels, this is actually not in line with how damages for patent infringement are, or should be, judged by courts. Indeed, as the US Federal Circuit recently clarified in the D-Link case, it's the value of the patented invention to the end-product that is the yardstick. In clarifying the "Entire Market Value Rule", it stated that according to the “substantive legal rule”, the “ultimate reasonable royalty award” – that is, the result of e.g. multiplying a royalty rate with a royalty base – ”must be based on the incremental value that the patented invention adds to the end product” (emphasis added). Thus, mandating SEP value apportionment to consider only a component within the end-product is not the law.

Requirement c) is even more remarkable. This is because ever since the patent system was created, all licenses - including (F)RAND SEP licenses - have by definition been obtained "under the explicit or implicit threat of a prohibitive order". I say "by definition" because this is quite simply the basic legal right of a patent holder, a right to exclude. And as I elaborated in an earlier post, (F)RAND doesn't change this per se. So in other words, c) simply says that none of the WiFi licenses in existence at the time of adoption of this new IPR policy may be used as a reference for any new WiFi licenses. This "purging" of the historical record of WiFi licenses seems intended to "cement" the component value apportionment mandated by a) and b). Presumably because the royalty considerations of those preexisting licenses may have been based on the value that the SEP portfolio brings to the end-product rather than to a component within. 

Interestingly, in the above-mentioned D-Link case, the defendant argued for disqualification of existing license evidence on those very grounds, but the Federal Circuit rejected this: "In short, where expert testimony explains to the jury the need to discount reliance on a given license to account only for the value attributed to the licensed technology, as it did here, the mere fact that licenses predicated on the value of a multi-component product are referenced in that analysis—and the district court exercises its discretion not to exclude such evidence—is not reversible error."  In fact, licenses "predicated on the value of a multi-component product" are perfectly normal in practical wireless SEP licensing. And incidentally, they're also in harmony with the law.

To me, a), b) and c) seem to be specifically designed to usher in a brand new era of very low royalty rates for WiFi. Clause c) makes all old licenses irrelevant as references. And clauses a) and b), while not necessitating it, certainly encourage a significant lowering of the absolute royalty rate by mandating consideration of the SEP's value to (at most) the chip-set only, thus creating a low-product-value bias with regards to the absolute royalty. I'm not sure how much support there will be for such a change, but it's not in line with what the US Federal Circuit has said about the law.  

However, there's more of interest in the proposed new IEEE patent policy, relating to prohibitive orders:

"An accepted ...[RAND licensing commitment] ... precludes seeking, or seeking to enforce, a prohibitive order except as provided in this policy." (emphasis added),

where "as provided in this policy" means:

"The submitter of ... [a RAND licensing commitment]... agrees that it shall neither seek nor seek to enforce a prohibitive order ...unless the implementer fails to participate in, or to comply with the outcome of an adjudication, including an affirming first-level appellate review, if sought by any party within applicable deadlines..." (emphasis added).

At first glance, this actually looks a bit similar to the process used e.g. in the US Federal Trade Commission's Consent Order in the Google/Motorola case. As a potential "softer" means to combat the very destructive"patent-holdout" behaviour, I myself saw that as a quite interesting path. However, when looking more in detail at the wording, it doesn't look like that's the purpose here. The phrase "an adjudication, including an affirming first-level appellate review" gives the distinct impression that an affirming first-level appellate review is actually a requirement. This makes it quite a different story from the quoted US FTC process. Unless I misunderstood the phrase, the whole thing looks like an attempt to in practice ban prohibitive orders altogether in SEP portfolio cases. Of course, also this is something that the Federal Circuit has clearly declared an error, as I mentioned in my earlier post on portfolio licensing and patent hold-out.

So overall I'd say that the patent policy changes proposed by IEEE-SA represent large steps in wrong, unmotivated and even unsupportable directions. What appears to be a ban on prohibitive orders is not in line with US Federal Circuit precedent and would only worsen the patent hold-out problem and put artificial downwards pressure on royalty rates. The mandating of value apportionment based on only a component and the explicit disqualification of old license agreements as references also don't align themselves with Federal Circuit precedent. When stripped down to its bare essentials, the proposal looks rather like a path-clearing for a drastic cut of the absolute SEP royalty level for WiFi.

But isn't that good? Well if it had been shown that there was a clear problem with royalties being too high, affecting the market in negative ways, then the IPR policy could definitely be in need of a review and as a consequence possibly even an update. But evidence of concrete problems to that effect yet remain to be demonstrated. We can again look at the D-Link case, a case that was specifically about SEP licensing for the IEEE standard 802.11 ("WiFi") and which involved several prominent implementers of that standard. The Federal Circuit confirmed that no evidence of royalty stacking or patent hold-up - two phenomena sometimes claimed to create 'too high' SEP royalties - was presented and that they should never be presumed to exist just because they are theoretical possibilities: "The district court need not instruct the jury on hold-up or stacking unless the accused infringer presents actual evidence of hold-up or stacking. Certainly something more than a general argument that these phenomena are possibilities is necessary. Indeed,“a court should not instruct on a proposition of law about which there is no competent evidence.""

There are others who have questioned the purpose of this new proposed policy. For example, the IEEE USA board (!) recently sent a letter to the IEEE board, straightforwardly asking for an explanation of exactly what's wrong with the existing patent policy and what concrete problems the new policy proposed by IEEE-SA is supposed to solve.

The SSO IPR policies set the delicate basis for achieving a long-term balance between incentive for innovation and incentive for implementation. This balance is for the common good of technological innovation, a healthy marketplace for implementers, and ultimately consumer choice. However, it seems to me that in the new draft patent policy for IEEE, shorter-term business interests of implementers may have been allowed to take on rather more weight than they should have. To my knowledge, no obvious market need has been demonstrated for any of the changes proposed. Nor is there any legal mandate for them and in fact, some changes even tend to run contrary with US Federal Circuit opinion.

To the extent that there's an actual need for an update of its patent policy, hopefully the IEEE will eventually come up with a more balanced proposal than the present one.

Clarifications from the Federal Circuit

On December 4, a much anticipated opinion was delivered by the US Court of Appeals for the Federal Circuit ("Federal Circuit") in the Ericsson vs. D-Link et. al. case, concerning a WiFi (IEEE 802.11) SEP portfolio license. I'm pleased to note that the Federal Circuit in several aspects aligned itself with what I've myself been expressing in recent posts under this blog.

Firstly, on the issue of "royalty stacking", the Federal Circuit rejected jury instructions on royalty stacking because the defendants failed to present evidence that there was a royalty stacking problem: “A jury, moreover, need not be instructed regarding royalty stacking unless there is actual evidence of stacking. The mere fact that thousands of patents are declared to be essential to a standard does not mean that a standard-compliant company will necessarily have to pay a royalty to each SEP holder. In this case, D-Link’s expert "never even attempted to determine the actual amount of royalties Defendants are currently paying for 802.11 patents."” This is what I opined in my earlier post on royalty stacking, i.e. damaging royalty stacking shouldn't be assumed to exist per se, but instead clear evidence to that effect needs to be presented in each case. Once again we need to remember that royalty stacking occurs per definition in wireless SEP portfolio licensing. That doesn't mean that it's automatically harmful to the market nor to any given OEM.

Secondly, on "Patent hold-up", again no evidence of such was presented: “Absent evidence that Ericsson used its SEPs to demand higher royalties from standard-compliant companies, we see no error in the district court’s refusal to instruct the jury on patent hold-up or to adjust the instructions expressly to take patent hold-up into account.” As I wrote in my post on portfolio licensing and patent hold-out, evidence of "patent hold-up" is hard to find in reality. But the key point from the Federal Circuit again being that clear evidence must be presented in each case, it should not simply be presumed to exist just because it's a theoretical possibility.

Thirdly, on the topic of "Royalty base", which I touched upon in my post on cellular FRAND royalty levels, the Federal Circuit made another good clarification. On apportionment and the "Entire Market Value Rule", it stated that according to the “substantive legal rule”, the “ultimate reasonable royalty award” – that is, the result of e.g. multiplying a royalty rate with a royalty base – ”must be based on the incremental value that the patented invention adds to the end product”. The Federal Circuit confirmed that to determine a (F)RAND royalty in the wireless industry, you are definitely not mandated to use the smallest salable component such as a chipset as a royalty base. There's nothing wrong with using the entire end-user product as royalty base, as long as reasonable apportionment of value of the patented invention to the end-user product is done.

The Federal Circuit's practical approach to SEP licensing and damages is encouraging. Hopefully other courts and agencies, including those in other jurisdictions, will follow suit and move away from theoretical calculations towards a focus on real world practices and evidence.

Royalty stacking

I'll begin by sharing some thoughts around the concept of “royalty stacking”. This term is generally “buzzing around” in patent licensing circles, and is sometimes brought up as being a problem for Standards Essential Patent (SEP) licensing in the mobile wireless communications sector. In this context, "royalty stacking" basically means that manufacturers/sellers of standards-compliant products (whom I will call “OEMs”, Original Equipment Manufacturers) need to obtain licenses from several SEP holders, and the aggregate royalty then becomes the sum of the individual royalties paid to the different SEP holders.

So why does an OEM need several licenses in the first place? Well, it's a consequence of how the wireless standards are created. Different entities from the industry come together to research and create a standard in a way that's simultaneously collaborative and competitive. By competing on technical merit for the various solutions within the standard, this quite ingenious process promotes the overall creation of a widely accepted, state-of-the-art and future-proof standard. As a result of this, SEPs will also be generated, and each individual SEP covers a specific part of the standard. In other words, all SEPs are complementary and an OEM must therefore by necessity obtain licenses to all SEP portfolios in order to be fully licensed.

So the first thing to note is that royalty stacking is not a problem in itself. Royalty stacking naturally occurs as a logical consequence of the wireless standardization process.

I guess that those who talk about royalty stacking as a “problem” actually refer to a potential consequence of royalty stacking; namely the cumulative SEP license royalty fee becoming too high for an OEM to bear while maintaining a reasonable profit margin. In these circumstances, references are sometimes made to royalty rates published by various (alleged) wireless SEP holders. And if those “published rates” are added up, the cumulative figure can indeed look rather unappealing. In a recent working paper by Intel and law firm Wilmer Hale, precisely this approach was taken, leading them to conclude a theoretical wireless SEP stack of more than US$100 for a smartphone (!). For sure, I for one do expect the authors to be aware that such a figure has very little to do with reality.

Potential negative consequences of royalty stacking are surely valid concerns, but as is often the case, it's advisable to also consider actualities before drawing conclusions based on theoretical analysis.

So how to assess whether royalty stacking has led to problems or not in the mobile wireless business? To begin with, I'd suggest looking at some aspects of the actual wireless device market and the SEP licensing situation.

During the last 25 years of 2G to 5G wireless cellular standardization, the SEP licensing technology sharing process has been governed by the well-known FRAND (Fair, Reasonable And Non-Discriminatory) regime. Also during this time, there's been an exponential increase of wireless device sales, to the extent that there are now close to a mind-boggling two billion new devices sold annually. So from a consumer point of view, it's not easy to detect any actual prohibitive pricing effects resulting from “too high” cumulative SEP royalties. Looking at the mobile device businesses too, evidence of problems from SEP royalty stacking is not exactly abundant. Consider that the vast majority of the top OEMs today were hardly even in the business only a decade or so earlier (e.g. Samsung, Apple, HTC). And conversely, many of those that were highly successful back then - also traditionally strong SEP holders - are all but gone from the device business today (e.g. Ericsson, Siemens, Alcatel1). Regarding WiFi, considering that it's a more recent wireless standard, the market has similarly exploded and perhaps even more spectacularly than cellular. There's now WiFi connectivity in virtually every device around us, including game consoles, cameras, TVs and vehicles. At the very least, these market developments suggest a low entry-barrier, and for sure I see no suggestion of the wireless SEP royalty stack being too high; this reality might even support the notion of a too low royalty stack (!).

From my own experience of wireless SEP patent licensing, I'd say that serious OEMs with few or no own SEPs are typically well aware - through their own license negotiations with various SEP holders - that the cumulative wireless SEP royalty rates are in general reasonable. And for sure that they're nowhere near e.g. the sum of all “published rates”. 

It's also somewhat interesting to look at e.g. the Apple vs. Motorola case, where Apple apparently refused to be bound by a potential judicial order of FRAND royalty payment, when such order presumably would have considered e.g. the actual payable cumulative royalty. It seems to me that Apple might have had the opportunity to demonstrate any real royalty stacking problems, but chose not to do so. This could perhaps suggest that any such problems may not have been that overwhelming.
 
It's true that some significant OEMs are said to operate on much lower profit margins than Apple, and sometimes royalty stacking problems are blamed for OEM's profit margins even being "too low". However, this is far from obvious, as there can be many different reasons for low profit margins. In fact, low profit margins may - ironically - be at least partly due to some competing OEMs not obtaining necessary IPR licenses in the first place. By being unlicensed for prolonged periods of time, such OEMs may in effect compete unfairly in the market, potentially forcing legitimate OEMs to reduce their profit margins. The truth of the matter is that some OEMs enter the market without including necessary SEP license costs as part of their original business case. It might be initially tempting to see this as being “good” for consumers due to potentially lower prices, but it's actually detrimental in the longer term. It skews the market in favour of infringers and globally undermines incentives for investments into technological innovation. 

So while evidence of problems from royalty stacking do need to be taken seriously, it's not clear that we've actually seen any in reality. However, if courts, agencies and lawmakers would simply assume that there are such problems where there are in fact none, there could actually be a potential risk of royalties being set unfairly low (!). This could unjustifiably harm the market and cause R&D “disincentivization”, which in the longer term can lead to limitations on consumer choice. Because of this risk, allegations of royalty stacking problems should in my view always be properly scrutinized, wherever they may turn up. So how good are courts and agencies at scrutinizing? Well, it's a mixed bag it seems.

In the Ericsson vs. D-Link et. al. case, defendants brought up royalty stacking as being a problem and at one point argued that the stack could amount up to “$23.30”. There was a lot of argumentation on this, but the defendants ultimately failed to convince the court of any real evidence of harmful stacking. As a result the court dismissed their arguments. In this particular case, sound skepticism to alleged stacking problems was apparently clearly expressed by the court. I understand that this case is currently on appeal, but this particular observation from the court has not been challenged.

Looking at the case of Motorola vs. Microsoft, the court in that case did appear less critical of allegations of royalty stacking problems, and made assumptions in view of that. Consequently, it e.g. essentially capped the cumulative rate at the selected rate of the Via Licensing WiFi patent pool, even though the patent holder's and others' patents were not part of the pool, and inspite of concluding that patent pools tend to produce lower rates and that a rate higher than a pool rate could still be FRAND. In the Innovatio case, again in apparent consideration of alleged royalty stacking problems but without real evidence of such, the court chose to determine the FRAND rate ultimately based on the profit margin of a chip manufacturer. Although this touches on another topic - the question of a relevant royalty base - this choice of reference is in my opinion actually quite arbitrary. In these two cases courts appear to have presumed cumulative rates being "too high" without any convincing evidence to that effect, while still ultimately determining royalty rates based on such presumtions.

While SEP royalty stacking can potentially cause market disruption, claims of such problems should be thoroughly scrutinized to determine if they are genuine. After all, in the last 25 years, the wireless device market has seen a virtually astronomical development in terms of cutting-edge technology and standards development, consumer choice and successful new businesses. Some companies complain about negative effects of royalty stacking, but have been unable or unwilling to demonstrate any actual problems. Others may blame royalty stacking for low profit margins while reasons may rather be found elsewhere, including unlicensed price-cutting competitors. One may in fact wonder if "royalty stacking problems” is sometimes used as an argument to avoid paying what would in fact be perfectly fair and reasonable royalties for wireless SEP licenses.

For sure, SEP FRAND determination cases are often complex, and courts, agencies and lawmakers mostly do a formidable job in trying to bring clarity and fairness to the situation at hand. Even with good intentions though, less well-founded assumptions and theoretical models ought to be minimized in favour of looking at real facts and requiring entities to substantiate claims of problems resulting from royalty stacking. Otherwise, SEPs and ultimately R&D investments actually run the risk of being devalued without addressing any real problem.


 1 “Alcatel”-branded phones seen on the market today are by Chinese company TCL under trademark license from Alcatel-Lucent.