InterDigital’s Story: Fostering Industry Solutions and Profiting from its Growth

It’s no secret that the regulatory environment is challenging for companies that license patents – in our case, patents that are deemed essential to wireless standards and that our company, InterDigital, has developed in-house over the course of multiple decades, and continues to develop today. Some of the companies that dominate the wireless market today had little or nothing to do with the development of the standards that have contributed so much to their success, so they make every effort to devalue standards participation. And many in Washington lend them a willing ear, and take up arms to wage their battle for them.

One of the greatest frustrations for me is that so much of this rests on a bedrock of total miscomprehension of how standards are developed, the enormous cost and risk of investing in standards development, the value  that standards provide, and the kind of licensing practices that have made the market successful, benefitting everybody. Late last year in New York, I met with a reporter for one of the primary tech websites in the world, and he dismissed standards development. It became apparent he didn’t understand how the process worked at all. When we asked him how he thought these things got developed, he said that he “figured there must be an engineering organization somewhere that did it.” And this is from the legal correspondent of a major tech website, someone whose articles influence debate!

He didn’t realize that it was private sector companies – companies like ours – that committed significant engineering time and resources, and competed to develop the best solutions, and in so doing committed to licensing them fairly. So – for his benefit, should he read this, and for the benefit of anyone involved in the debate – I’ll describe our company’s story, and draw some conclusions about what should and shouldn’t be done to protect, foster and incent innovation that benefits everybody.

InterDigital is now more than 40 years old.  In the late 70’s, we started the company with the dream of building a mobile phone small and light enough to fit in your shirt pocket.  Like any company that is years ahead of its competition, we started by building products, which we delivered around the world to validate our technology.  As other, larger companies began to move into the space, we changed our strategy from full products to chips and technology, as others were far better equipped to get products into the market than we were – after all, we’re researchers.  Today, we leverage our 40 years of wireless experience developing highly advanced technology solutions, which we license to players in the wireless industry.

The one constant through all those years, from the very beginning, has been our ability to look far beyond what technology the market needs today, understand what challenges those choices would lead to in the future and begin developing solutions to those challenges.

If anything, that’s what has made us so effective in developing standards-based solutions in our industry: standards bodies define what will go into technologies roughly a decade prior to market adoption, and even before that process of definition begins there’s an industry conversation sustained by only the most forward-thinking engineers that takes place. That’s the conversation we foster, and sustain, and are sought out as experts in.

And we’re not alone: other companies are also in that conversation, committing engineering resources. We meet them at standards meetings. We collaborate with them to develop solutions. For the past two years, one of the companies that worked with us to demonstrate standards-based machine-to-machine technologies was Huawei, connecting their devices to our platforms during plugfests organized by ETSI, a European standards body – this while we were in a dispute with them about licensing fees which has finally been resolved by mutually agreeing to enter arbitration. Last year, ZTE, another company we’re currently in a licensing dispute with, asked one of our engineers – one of the world’s leading experts in a particular technology area – to guest edit one of the issues of a peer-reviewed journal they produce. Samsung, Nokia, Ericsson, and Alcatel-Lucent are all examples of companies we meet and work alongside at standards meetings. Our solutions don’t always get chosen but they do often enough and, because we’re so focused on it and not on product deadlines, we probably hit above our weight.

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Historically, success in standards has been very valuable to companies, and so it’s become very competitive – as it should be! All the companies involved, including our company, send our very best engineers – people who are operating many years ahead of the market. These folks have done amazing things.

Recently, some people have begun to argue that the contributions of any one company to a standard are superfluous, and that if one solution wasn’t adopted then another one would, with little effect. That argument is ridiculous: it’s like saying that neither Edison nor Westinghouse did anything remarkable since, had Westinghouse (actually Tesla) not invented AC electric service, Edison’s DC electric service would have sufficed – so neither invention is notable.  The opposite is true: both inventions substantially advanced the state of the art, and both were remarkable in their own right. And the competition between the two drove each to be better.

The same is true for the innovation that goes into standards.  The collection of inventions that drove the launch of the LTE standard, for example, are of remarkable value.  That collection of inventions, created through a highly competitive standards process, has enabled vast new services, greatly improved old services, and created a platform for an entirely new set of businesses.  The success has been nothing short of astounding.

We’re part of that competitive process.  We are also part of the licensing process that typically follows the development of a standard.  This is when companies whose intellectual property has been integrated into a standard license those patents to the manufacturers of the devices being built to the standard.  The purpose is to enable any company to enter the mobile market. It is a process that has played out very effectively over the last 20 years and helped the mobile industry attract an ever changing array of equipment producers.

The vast majority of those license discussions happen quietly, outside of the public eye.  Of course, sometimes the companies cannot agree so they end up in litigation. But the conflicts and lawsuits we sometimes see, as regrettable as they are, are not a sign that something is wrong; it is simply the way businesses work these things out, especially when the stakes are high.  Litigation can also drive conversation and negotiation, sometimes involving mediation, and eventually participants reach an understanding.

So, the process has been remarkably effective.  The technology moves ahead at a meteoric speed; participants in the standards process get appropriately rewarded for their contributions and, as a result, pour more money into research; and consumers benefit from remarkable new products.

Effective, of course, until Washington stepped in.  If anything, through its public statements, vetos of import bans and antitrust investigations, the sense that Washington is backing down from providing strong patent protection has amplified the conflicts rather than helping to resolve them.  The sense that the International Trade Commission (ITC) may have reduced the strike zone for patent owners to almost nothing, or that companies might get let off the hook even if  the ITC does find in favor of the patent owner, or that awards for infringement of standard essential patents are best measured in tenths of a cent despite the fact that this would never reimburse companies for their R&D investment, has emboldened some companies to resist constructive negotiation. I am convinced that, had the process been left to work itself out, with the judiciary simply calling balls and strikes on patents and adjudicating any defenses raised, most of the conflicts that have shaken our industry would be fully resolved by now.

Despite all this, some companies are beginning to find ways to resolve their differences. Nokia and Samsung announced they would enter binding arbitration. We announced a similar agreement with Huawei, on an expedited process. Some recent agreements have been signed by major players. It’s instructive that most of these companies are strong participants in the standards process: beyond our conflicts, I’m willing to bet that we all understand the value of the process that we engage in, and what it means to be a constructive participant.

Now if only that understanding can be shared more broadly. Going back to the “tech journalist” I referenced earlier, at one point in the interview he offered the example of Apple as a company that “innovates, and then patents the innovations, so their patents have value.” We wholeheartedly agreed… but then we made the point that if Apple ONLY used its own patented technologies, exclusively, then their products wouldn’t connect to anything. And that, without that connection, a $600 iPhone is really just a $200 iPod. He winced, massaging his temples with his fingers, and said “I wish all this stuff would just go away…”

There are few topics in America today that are as hungry for reasoned debate and discussion as the area of patents.  Unfortunately, in many corners innovators are vilified simply because they choose to license what they develop. This is problematic when you consider that research and development companies have developed many great innovations. I remain hopeful that a reasoned debate will prevail.

 

About the Author

William Merritt is President and CEO of InterDigital, a wireless R&D company with research offices in Greater Philadelphia, New York, San Diego, Montreal and London, UK. The company has been a significant contributor of technologies to various standards, including 3G cellular and 4G-LTE, and is currently working on a range of technology areas including 5G research. The company has a portfolio of more than 20,000 US and global patents and applications, and in 2005 was awarded the prestigious Licensing Executives Society Achievement Award – one of only 8 organizations, including IBM and Stanford University, ever recognized.