Robert Pocknell is a Director at N&M Consultancy, a UK company that advises on the licensing of standards-essential patents. Pocknell is also chairman of the Fair Standards Alliance (www.fair-standards.org), which is a group of small, medium-sized and large companies in many 5G and IoT industries that want to see FRAND licensing made available to all companies in the supply chain.
To help open ran succeed, we need to tread a path between incentivising companies to develop innovative new technologies, rewarding them for their work, and opening the market to allow it to grow.
This is not a new problem in the mobile industry, or indeed in many regulated industries. Companies that participate in the standards-setting process commit to the licensing of their patents through a process known as FRAND, or fair, reasonable and non-discriminatory licensing. This ensures that standards-essential patents, or SEPs, are available to competing companies and to any company that wants a licence.
The 5G standard is defined by the industry standards-setting organisation the European Standards Telecommunications Institute, known as ETSI.
Industry representatives and other interested parties meet at 3GPP working groups to discuss the technological solutions that should be incorporated into a particular standard. During that process, representatives may propose to include certain technologies in the standard. The proposed technology may be covered by a patent or pending patent application that is held by the representative’s company. It’s a heavily academic process that is intended to find the best possible solutions; but some representatives have vested interests. They lobby for ETSI to choose options that may or may not be optimal, but which use their patents. If the proposed technology is adopted into the standard and it is covered by a patent, that patent is said to be “essential” to the use of the standard.
The owner of that SEP can require all companies that make or sell products that meet the standard to take out licences. This dynamic gives the owner of an SEP significant monopoly leverage over a potential licensee, as the patent owner can threaten to obtain an injunction to prevent the sale of any product that uses the standard if the licensee does not agree to the owner’s terms. To avoid unfair exploitation of this leverage by an SEP owner to demand excessive royalties or to exclude standards-compliant products, many standards-setting organisations, including 3GPP, require the owners of such patents to commit to license it on FRAND terms to third parties. This FRAND commitment is supposed to eliminate the chance for horizontal competitors to agree unlawfully on a single standardised set of technical solutions, rather than competing.
Standards-setting organisations, however, do not have the resources to check whether SEPs declared to be essential to a standard are actually essential (or whether they are valid and otherwise enforceable; indeed, only a court could make authoritative determinations on these points). Nor do standards-setters take steps to require companies to comply with their intellectual property rights policy.
Not necessarily needed
Many SEPs have been declared “essential” that are not. According to a variety of evidentiary studies, between 70 and 90 per cent of SEPs have been found to be non-essential, invalid, or not infringed when they have been tested in court.
Open RAN may create opportunities for UK companies to participate in the development of 5G, but that can only happen if SEPs are available to be licensed on FRAND terms to any company in the supply chain that wants a licence.
Some SEP holders, however, refuse to grant SEP licences to certain companies in the supply chain. Thus, they are discriminating against those companies and industries and engaging in conduct that is contrary to the FRAND commitment they made voluntarily to 3GPP as a condition of inclusion of their patented technology in the 5G standard. Unless this issue is addressed urgently, SEP holders may refuse to license their SEPs to companies that are developing products and services for use in the Open RAN industry.
The 5G Diversification Strategy Report observes that, following the government’s decision to exclude Huawei from the UK’s 5G networks by 2027, two companies – Nokia and Ericsson – dominate the 5G equipment supply chain and they exercise great influence over single sign-ons (SSOs) that enables them to set an SSO “technological roadmap in line with their own R&D priorities and product development” (section 2.13). Influence over standards development enables incumbents to fortify their SEP positions, which pushes up other companies’ costs of supplying 5G network equipment as they must pay higher licence fees to the incumbents.
Threat to innovation
The duopoly of Nokia and Ericsson not only dominates the network supply chain, but these companies also hold large SEP portfolios (Nokia currently has nine per cent and Ericsson has four per cent of 5G SEPs). Huawei has 15 per cent of 5G SEPs.
Nokia and Ericsson are part of a consortium of companies that are refusing to grant SEP licences to suppliers of components for the car industry, so they may do the same for Open RAN and 5G. Meanwhile, imagine what Huawei management might think about whether or not to grant SEP licences to companies that are going to be competing in the UK infrastructure market from which it has been ejected; it is already suing Verizon (a US network operator) for SEP infringement in networks.
If any of these companies (or other SEP holders) refuse to grant licences for SEPs, or charge excessive licensing fees, then that might be the end of the government’s 5G diversification strategy and of Open RAN in the UK and elsewhere!
A key thrust of the government’s strategy is to allow innovative UK companies to bring new products and services to market.
Ensuring that any UK company that wants to license an SEP is permitted to obtain one is critical to enabling companies to innovate and become leaders in their fields. SEP holders that refuse to issue licences are discriminating against such companies and harming innovation.
Because tens of thousands of patents are declared to be essential to 5G standards (in part due to over-declaration), it is prohibitively costly for new entrants, particularly small and medium-sized businesses, to navigate the thicket of declared SEPs. They may be faced with countless demands for significant royalties, with little ability to determine whether the patents asserted against them are actually SEPs or what the FRAND royalty rates should be. Therefore, there must be transparency regarding what rates are being charged for SEPs in Open RAN and 5G.
SEP holders should not threaten or seek injunctions to pressure companies to pay non-FRAND royalties for use of such SEPs, and companies should not be forced to pay for global portfolios of patents as a condition of making their innovative products available in the UK market.
The UK government is aware of some of these issues. In the second 2021 report of the House of Commons select committee on science and technology, which related to 5G market diversification and wider lessons for critical and emerging technologies, the committee identified intellectual property rights as an issue:
15. The Government identified the concentration of intellectual property rights in the hands of established vendors as a barrier to market entry. It commits in its diversification strategy to working with industry bodies to address this, although the proposed work is not described in great detail. In its response to this Report, the Government should provide more details on how it intends to address the barriers brought about by intellectual property rights, and update us on early progress made against this goal. (Paragraph 60 of the HC Select Committee Report)
The UK government response in March 2021 was as follows:
Intellectual property rights, and in particular Standard Essential Patents, play a key role in the design and development of telecoms radio equipment. As set out in the Diversification Strategy, in the context of 5G the commercial behaviour around both intellectual property rights and standard essential patents represents a potentially significant barrier to diversification.
This was also noted by the Diversification Taskforce, which highlighted in its final report that the consolidation of intellectual property rights and standard essential patents among market leading suppliers has “the potential to serve as considerable barriers to diversification as technology suppliers staunchly protect their investment and designs”.
The government’s view is that appropriate measures need to be considered to reduce these potential barriers to ensure that revenue from intellectual property rights is fair for suppliers and users of intellectual property rights: greater transparency in their essentiality and pricing could be beneficial for both licensees and licensors.
The Government is considering options for monitoring the essentiality of patents and considering how to approach this issue, including in discussions with international partners and with industry.
There is an urgent need for a government-funded organisation to monitor the challenges posed by SEPs. This should include ensuring that a database is set up to store all the 5G RAN SEPs, along with links to each patent, contact details of the licence holder and the FRAND terms under which it is licensed.
In order to create a diverse supply chain, all companies that want licences for SEPs must be able to obtain them on FRAND terms, and there should be a public price-list for FRANDs. The FRAND system can be made to work well, but for Open RAN it is going to need urgent help.