Imagine that a group of disparate warriors needs to cross a field laden with land mines. If they can agree on an approach that keeps all of them intact, they all survive to seek their fortunes. But if one or more seeks its own path, explosions could threaten all.
Welcome to the future of Long Term Evolution technology, in which a group of players seeks to reassure the market and their prospective customers that they indeed are taking thoughtful baby steps to ensure a predictable approach to intellectual property rights on essential patents for various LTE-related products.
Already, differences are emerging that call into question whether a collective effort to avoid the IPR battles endemic to 3G technologies can be avoided.
The latest developments in the LTE IPR story reflect that a collective effort is underway, though critical details have yet to be worked out among the participants. And individual companies have signaled that differences subtle and not-so-subtle may still fracture the landscape.
Strength in numbers
A month ago, a group of seven industry players – including Nokia Corp., Nokia Siemens Networks, L.M. Ericsson, Alcatel-Lucent and others – declared they are “committed to a framework for establishing predictable and transparent maximum aggregate costs” for licensing IPR for LTE standards. Nokia Siemens followed the announcement with the declaration that its preliminary royalty rate for end-user devices will be “in the region of .8%” of the selling price. A spokesman stated further that Nokia Siemens’ initial view of its proportional IPR holdings is “10% to 15%” of the industry-wide aggregate.
Not so fast
Qualcomm Inc. immediately signaled that it would not likely be joining the chorus.
“This type of approach would have a negative impact on competition within the industry and consumer choice, as it would restrict innovations,” said Christine Trimble, Qualcomm’s director of corporate communications.
Nortel Networks Corp. – whose name did not appear among the signatories to the group initiative – followed a week ago with a statement similar in intent, with the critical qualifier that “innovators should be entitled to a reasonable return on their investment in R&D” and that “all patents are not created equal.”
Nortel’s Danny Locklear, director of wireless marketing, said last week that his company has worked with the group effort and is committed to transparency and predictability for all parties in the ecosystem. He doesn’t see “camps” emerging on the issue, he said. Nortel is not opposed to the group initiative’s focus on a cap for aggregate royalty rates, but wanted its individual view on the record as well. Total agreement, in an extreme example, could be construed as collusion, he added.
“We’re not a lone wolf,” Locklear said.
Fair return
But Locklear also repeated his company’s LTE mantra that individual companies retain the prerogative to recoup their investment in R&D and resulting patents.
Vendors are under “tremendous pressure” from operators who’ve said “We can’t afford battles like we had with 3G,” said Ginny Lee, analyst at Current Analysis. Lee referenced Vodafone Group plc’s Arun Sarin’s remarks on his desire to see LTE’s IPR issues resolved prior to major investments by the operator.
“Perhaps that explains the broad policy statements that are coming out,” Lee said.
The devil is in the details, however, the analyst said.
“I wonder who owns what patents and how the details will play out,” Lee said. “Many players have yet to step forward and many patents remain in the application phase.”
Open arms
A “spoiler” may yet come out of the wings, she added. From the operator/customer standpoint, the half-dozen members of the group initiative that surfaced in mid-April don’t necessarily hold all the IPR in next-generation standards.
Nokia Siemens’ Pertti Lukander, head of industry environment for the vendor, said of the group initiative’s effort that “the principle is more important than the actual figures” and acknowledged that more IPR holders would have to come forward to support the principle.
“We are inviting other parties to join this initiative,” Lukander said. “It’s too early to draw conclusions on the effort.”
Lukander emphasized that the group’s effort began by determining an aggregate level of IPR costs for customers. Subsequently, individual companies must address their share within that aggregate level to maintain a reasonable cost structure for customers.
“The aggregate must be reasonable or this technology will not fly,” Lukander said. “There’s a level the industry can sustain.”
Those proportions remain to be determined, but he said that Nokia Siemens has attempted to set an example by giving a preliminary estimate of its own holdings at about 10% to 15% of the aggregate.
Lukander said that the issue would remain complex because each company’s proportion of IPR will play into cross-licensing negotiations among the players to use each other’s essential patents. And he expects other companies will publish their own initial sense of their proportionate IPR holdings in the LTE standards for various products.
Then, presumably, some jockeying – friendly or fierce – will begin.
