Should patents that set industry standards be licenced at the same rate across all different industries? This is an issue that European Union (EU) regulators are currently contemplating.
When a standards organisation, of which there are many across a wide gamut of different industries, defines a technical standard that helps manufacturers and service providers to work together to implement a new technology such that is delivered consistently to consumers, proprietors of patents that cover parts of the technology which are essential to implement the technical standard, are often requested to licence this technology on fair, reasonable and non-discriminatory (FRAND) terms. This enables other manufacturers and service providers to access the technology detailed in the patents so they may implement the new technology.
The technology may be in telecommunications, pharmaceuticals, mechanical engineering or consumer goods, etc., all of which have different characteristics and requirements. For example, telecommunications is fast moving with new products coming to market and being replaced every few years, whereas pharmaceuticals require lengthy testing, trials and marketing authorisation to bring new drugs to market. Therefore, should standards essential patents in one industry be subject to the same licence fees as those in a completely different industry? In other words, is what is FRAND in one industry not necessarily so in another industry?
This is the dilemma EU regulators are faced with and, not surprisingly, the main protagonists in the various markets (e.g. Qualcomm, Apple and Ericsson in the smartphone market which is worth trillions of dollars), are lobbying the EU to get the best deal possible for their respective companies. There is no particular model on how FRAND licences are calculated and so the EU are looking to draw up a uniform model.
Unsurprisingly, this has not gone down well with all parties. Qualcomm (supported by Ericsson), for example, base their licence model on how much value a particular technology adds to a product, but this is opposed by Apple, among others. The EU will have a tricky balancing act to perform to satisfy all involved in these various arenas. (Indeed the parties will fight tooth and nail to defend their corner, as evidenced by the recent case between Huawei and Unwired Planet over FRAND licence terms.) One could even argue whether it is necessary to implement such a uniform model that the EU strives for.
However, particularly with the development of the Internet of Things, in which all manner of devices can operate and communicate via the internet, industries that traditionally were not traditionally thought of as being part of or using telecommunications, e.g. those producing white goods, are being brought into the telecoms arena. A uniform licence structure would make the rules of the game transparent to all players involved in this and other technologies.
Trillions of dollars in sales are at stake as regulators ponder whether a fridge maker should pay a different rate for crucial patents than a carmaker, or whether a flat, fixed rate would be fairer.