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Mobile phone intellectual property rights (IPR) licensing significantly includes patents that are “essential” to implement various standards including GSM, CDMA, HSPA and LTE. Purported IPR valuations including those derived from essential patent ownership “determinations” are subject to great uncertainties, inaccuracies and biases.
The world is awash with ideology, theories and biases when it comes to conditioning industry opinion on valuations for licensing negotiations, litigation or proposed regulation. Different studies produce results with proportions of patents judged essential varying by more than a factor of ten. Nokia sponsored a 2010 study ranking patent-owning companies on the basis of families of patents declared and judged essential, by the Nokia-sponsored analysts, to the latest generation of mobile technology standards. This study and its methodology are introduced as follows (citations omitted):
Fairfield Resources has for more than six years, with support from Nokia and other wireless industry leaders, been studying the extent to which patents declared as essential to wireless standards actually are essential, as determined by a team of experienced wireless engineers.
The present report, using substantially the same team of experts as in our previous studies, extends our reviews to patents declared as essential to two fourth generation cellular technologies, LTE (the radio access interface) and SAE (the core network).
Nokia came out top, followed by Ericsson and Qualcomm, and with LG, for example, trailing at No. 6.
In marked contrast, a recently published financial research report by Jefferies & Co ranks Ericsson No. 11 in essential LTE patents with one twelfth the number of patents judged essential as for LG. The report describes its methodology:
In valuing the essential LTE patent portfolios of major players in the wireless space, we utilized outside industry experts that included physics Ph.D.s, wireless engineers, patent legal specialists and former patent office employees.
Our work began by first screening tens of thousands of patents and then determined a level of essentiality based on individually examining over 1,400 patents related to LTE.
For more than one year, Ericsson has promoted its concept of patent strength being proportional to the number of approved submissions to the Third Generation Partnership Project (3GPP) standards. Ericsson commissioned Signals Research to undertake research that shows Ericsson in the top position.
A simple combination of the Fairfield Resources International and Jefferies & Co. study rankings puts Qualcomm top, followed by Nokia, LG, InterDigital and Ericsson. It is not possible to include the Signals Research data in this because the study only identifies Ericsson.
Out for the count
Even assuming for simplicity that portfolio value can be evaluated on the basis of numeric patent proportionality, assessments of essential IPR ownership vary enormously between studies that use very similar methodologies. The Fairfield Resources International and Jefferies & Co. studies are in considerable disagreement, despite both purporting to “determine” essentiality and then count patents or patent families. The results of these two studies bear virtually no relationship whatsoever. There is probably a stronger correlation between levels of sunspot activity and Wimbledon Championship results for British tennis players. In other words, it is as if something completely unrelated was being measured by each of these studies.
I established this disparity by comparison with regression of the data sets from the two studies. I included nine companies while having to drop nine others including Motorola, Samsung, RIM and ZTE because they were only judged to be essential LTE patent owners in one of the two studies. Exhibit D plots the figures and a regression curve. The R squared correlation coefficient is the very low figure of 0.0008. This represents extremely weak correlation between the two sets of results. For example, whereas the Jefferies & Co. research report estimated Samsung had 9% of essential LTE patents, the Fairfield Resources International study credited it with none of the 105 Families with a patent judged essential or probably essential. Such widely different results do not inspire confidence in the competence or objectivity of the examiners or those managing these studies. At least one of these studies must be way off the mark.
Negotiate, don’t regulate
There is no definitive assessment IPR for essentiality or the value of patents in standards. Judgments always vary enormously among different parties, including their independent experts. Litigation rarely goes all the way to court judgments, but when it does, outcomes are far from predictable and are often overturned on appeal. In a free market, it should be negotiations – not regulation or rigid formulas – that determine IPR values.
This article is a much shortened version my latest contribution to the IP Finance blog –“Where money issues meet IPR rights.”
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. Keith has 25 years experience in the telecommunications industry, as research analyst, consultant and as a testifying expert witness. Complementing his industry focus, he has a broad skill set including technologies, market analysis, regulation, economics and finance. He has published numerous reports and speaks publicly at major industry events. Keith was head of Yankee Group’s global Wireless/Mobile research and consulting team as Executive Vice President, based in Boston, from 2000 to 2006.
