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


Written by William Merritt
Posted: February 6, 2014 @ 2:59 pm
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William Merritt, CEO of InterDigital

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.


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11 comments
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  1. Well said. Inventions need to be well protected. Otherwise, we will go back to the time of only trade secrets.

  2. Great article explaining all the work and resources that go into the standard setting process. Without the ability to monetize this type of research through IP, proprietary solutions become the norm. That means you’ll either get a monopoly when when company’s solution is widely adopted, or a couple players with no interoperability. Standards allow devices to communicate

    Further, standards allow research companies to develop the tech, while more suited manufacturers can implement the research. Let the companies specialize at what they are good at.

  3. Much of the media has been misleading the public about companies like InterDigital by name calling (e.g., patent troll). These unjustified acts are thwarting innovation, hurting the future of this country. Hopefully, this article will undo some of the misconceptions.

  4. Very good article.

  5. Standards are defined as a set of technical specifications that multiple competitors all agree to use to facilitate interoperability (e.g. the CD-ROM shall be circular, 4.75 inches in diameter, store 700 megabytes of data. Everyone agrees on the specications so everyone can read each other’s CDs).

    The purpose of patents is “to promote the progress of science and useful arts.” I fail to understand how progress is promoted if InterDigital believes they should be allowed to patent standards. I call that creating a barrier for entry to new competitors. “I can’t develop a product that will work with existing products (follow a standard) without paying a vig to InterDigital.”

    Besides, standards are usually codified by nonprofit organizations that serve the industry in question – like the IEEE developing standards after the major players weigh in during the “Request For Comment” period (RFC).

    For InterDigital to claim that they are somehow benefiting the progress of science and art by suing people who are trying to develop and use standards is a rather oxymoronic position IMO. Fail.

    -Jimbo

  6. Jim-

    The reason you fail to understand is that you are unfamiliar with how standards are set. Companies enter into an agreement and they lay open the technologies they have, the patents they have and the patent applications they have pending. Then the standards are set. You seem to think that someone can patent a standard after the fact, which is simply not how it works.

    As far as standards being set by non-profit organizations, that is simply not how things are done. Standard setting organizations are made up of for profit companies that work together.

    The only fail here is your knowledge of what you choose to comment about. I suggest you familiarize yourself with standard setting, patent law and the role incentives play with respect to encouraging innovation and disclosure, which clearly facilitates the progress of science and the useful arts. I also suggest you look all over the world for the countries with either no economies or weak economies. Then notice that they either don’t have a patent system or have very weak patent rights. On the contrary, where patent rights are strongest the economies are the strongest, median income is the highest and innovation is the greatest.

    -Gene

  7. Gene,

    I see how my mistake in typing might have incorrectly conveyed that I believe you can patent a standard. I meant *patenting a technology* used in standards. This idea of enforced patents within standards is a bad idea, as it creates a barrier to entry and discourages the use of the standard.

    How do standards come about? Most of us know home wireless networks, also known as WiFi, but also called 802.11b/g/n. Is “802.11″ a patent number? No, it is the non-profit IEEE’s numerical designation of the *standard* for wireless communication on the 2.4ghz spectrum. Various for profit companies like Cisco and HP contributed ideas and technology during the RFC period to help create the 802.11 standard(s). Why did they contribute? They contributed so my HP laptop can talk to my Cisco wireless router. How would it benefit the consumer if InterDigital claimed they had a patent on some aspect of the technical specifications in the 802.11 standard? Higher costs and fewer competitors is the answer.

    Why do companies voluntarily contribute manpower and money towards standards? Because they realize they will sell more products if their product plays well with others (consider Sony’s memory stick, now dropped in favor of the SD memory card, developed by the non-profit SD Association, whose members include Canon, HP, Sandisk, Kingston, and other competitors in the memory card space).

    Companies like InterDigital that create *no* product have no interest in interoperability…but every interest in extracting a vig for something they managed to get a patent before someone else filed the patent. Even better, if they can get that technology included in a standard where everyone is forced to use technology to interoperate, they get to pick every competitor’s pocket as they try to make a useful product. This isn’t innovation as much as it is a racket. That’s why you’re see companies who historically are sworn enemies joining forces to say enough is enough.

    Don’t try to sell us that InterDigital is doing us a service by working on standards; quite the opposite – they are slowing the progress of science and useful arts.

    -Jimbo

  8. Jim,

    I can see where you are coming from, but I am not sure it accurately reflects how the standards process actually works. I do not want to suppose at all your level of experience working within standards and perhaps you are far more experienced than myself, but I would like to raise some questions for your thoughtful consideration.

    In truth, when I finished the first draft of my questions, it was 3 pages long. So in an attempt to focus down, I’ve selected the 3 points I think are most revealing to ask you about. But before that, can we agree that setting a standard is not about getting together for a few days and hashing out some agreements? Standards such as the ones you reference take years, millions of engineering hours across scores of companies representing (in salaries of those engineers) millions to billions of dollars invested to get a standard that specifies something that actually works. It is not the case that everything already just works, and the standards are there to hammer out the agreements on what to call some variable so that they work together. Standards solve serious engineering problems and require serious engineers to solve those problems for the standard. IEEE, ETSI, IETF, etc. may be the non-profits that facilitate the process, but the members are for-profit companies and their employees. That membership is dominated by product-based companies but also includes R&D companies that make no products. They hyper-simplified process goes something like (1) identify a problem, (2) go back and spend months in your respective labs inventing solutions, (3) propose those solutions while also declaring and disclosing all intellectual property held in those solutions, (4) vote on which solution will become part of the standard. Repeat about a zillion times to get something as fantastically complicated as GSM/LTE to actually work.

    My first question-set is based on your comment “Various for profit companies like Cisco and HP contributed ideas and technology . . . so my HP laptop can talk to my Cisco wireless router,” which will “sell more products.” All very true. However it implies that you think that’s the end of it, that Cisco and HP are happy selling laptops and routers. Do you think that if you started to sell laptops and/or routers that HP and/or Cisco would not seek a “vig” as you called it on the products you are selling? If so, why is that good for the consumer and for the adoption of the standard, while the R&D companies’ “vigs” (or to use less trollish language, “royalty”) are evil?

    Next question-set: As mentioned above, all contributors disclose their IP and their intent to license. If a contributor is an R&D company who does not make products, discloses that their proposals are covered by patents, and declares their intention to license those technologies to the companies who adopt the standard to enable their products, why would those very same companies who have more votes than the R&D companies vote in such technologies? Further, why would they even let such R&D companies join the standard? Further, why would they, the voting members of that IEEE committee, specify that the contributors to the standards will have the full right and ability to seek royalties for their contributed IP?

    Last question set: Do you assume that IEEE (who deliberately allows royalty-seeking) has some kind of government enforced monopoly on the 2.4 ghz spectrum or ownership of the right to specify a standard of interoperability? Let’s take the analogous copyright/Microsoft example: given enough time and effort any college educated computer science major could write DOS or Windows right? So we should be allowed to just make copies of Windows, since we could have made it ourselves right? I mean, MSFT wrote Windows so they could sell Office and 100s of other applications right, they don’t actually mean to charge people for Windows itself right? Obviously the answer is no, they have every right to demand whatever price they want for their technologies and you have no right to merely install their software without license. However, what you do have every right to do is start an open source project and make a royalty free windows-like operating system. There are amazing open source, free software packages for almost anything, all royalty free. So instead of trying to dictate the price structure on IEEE’s behalf and the contributing members who invented the countless technologies core to the functioning of these standards, why not go and start your own royalty free standard for wireless communication on the 2.4 ghz spectrum? GSM thrives in the same world CDMA does. Linux (and its 200 flavors) thrives in the same world as MacOS and Windows (and their several flavors). There is no reason to say another standard is impossible, and every reason to say if you do not like IEEE’s policy of standards that leverage royalty bearing technologies, then you should start a better alternative. If that alternative is truly better, it will at least survive and thrive, if not eclipse the existing standards.

    -Derek

  9. Jimbo, your argument is a little weak, it’s too limiting. Sure product companies contribute so their stuff can work, but that can’t be their main incentive. The effect of standards is that they let anyone enter an industry. If you HAD to help develop standards to have a product in the space, then that would be an insurmountable barrier to entry: companies with a plan to get into a space would have to spend 5-7 years in development prior to entering the market. But the market doesn’t work that way: anyone can build products, once standards have been defined. A company like Apple can go from having zero phone business in 2007 to being a leading phone company in 2008. Same with any other standards-based technology.

    So obviously making sure your stuff can work with others can’t be the reason for companies doing standards dev, since you can make products that work great without doing any standards development whatsoever. The only incentive that makes sense then is that the standards development work has to be economically viable on its own, has to make sense as an investment and turn a profit. That becomes the incentive for everyone.

    In the mobile phone business, this is especially true since companies like Ericsson or ALU, who sell network equipment, address a very different market, a much smaller one, than handset companies like Samsung or Apple. So if selling product was the only reason to do standards, it would stand to argue that they would do a lot less. The opposite is true.

    I say all this with no offense, you’ve obviously thought about your position a decent amount, but not enough. I see that a lot on the side of people on the anti-patent-troll side of the debate, they know they don’t like lawsuits but they don’t see how the supposedly “simple solutions” end up affecting the entire industry.

  10. Jim-

    Frankly, you have no idea what you are talking about. You vilify research and development as if it is a bad thing unless the party doing the research and development then makes and sells a product. Of course, with that myopic view you must also vilify Thomas Edison as well. Further, you have to vilify all of Silicon Valley because none of those companies “create” a product either. The creation is all outsourced to China a elsewhere. So if you want to be intellectually honest in your myopic view of technology and innovation then you need to vilify Apple and all the others that have the audacity to research, develop and not create a product themselves. Otherwise you are splitting hairs, making a distinction without a difference.

    As far as your weasel way out of your erroneous previous comments… You say you mistakenly said that you didn’t understand how the patenting of standards by InterDigital could promote the progress. You can hold this view only because you know nothing about patents, innovation or how standards are set. You continue to cling to the provably false statement that standards are generally set by non-profit organizations. NO! Standards are set by the industry coming together, and whether you like it or not research and development companies are most innovative companies and they are a big part of the industry and standard setting organizations.

    How anyone could claim to know anything about the topic and not understand the basic and fundamental truth underlying the incentive to innovate offered by the patent system is breath taking.

    Finally, in terms of your truly ignorant final comment about companies like InterDigital slowing progress. Please read your history, which conclusively proves you are wrong. There really is no debate on the matter. Patents foster innovation, and presumably you are worried about patent thickets, but somehow not concerned with patents acquired by the Silicon Valley elite who outsource jobs and don’t make anything at all. Set aside the self-serving and intellectual dishonesty in that position for a moment. The factual reality is that patent thickets have ALWAYS lead to enormous leaps forward in technology and innovation. Please inform yourself on this point.

    Finally, only someone who is blinded by an agenda could even for a minute believe that patents on wireless technologies has slowed innovation. Perhaps you need a reality check. Look around at the leaps that have been make in all things wireless and mobile over the last 1, 2, 5 and 10 years. There is ABSOLUTELY NO evidence of any impedance in the progress of science and technology.

    Facts matter!

    -Gene

  11. Please correct me if I’m wrong, but:

    1. The standard setting bodies (ETSI, for example) are non-profit organizations, but the participants can be either for-profit or non-profit.

    2. An organization cannot license technology they contribute to the standard setting body unless it is protected by a patent, copyright, or trademark. An organization cannot license technology it does not own the rights to. Most, if not all, contributors to a standard such as LTE patent their technology and declare it to the standard setting body. See for example the ETSI IPR database and IPR Policy here: http://www.etsi.org/about/iprs-in-etsi

    3. The issue related to the standards bodies is NOT the patents – the issue is the the ROYALTY RATE that a contributor to the standard requests for that license:
    3.a. “Manufacturers”* can cross-license and therefore minimize any “out-of-pocket” (read cash) expense for one side of the negotiations or the other.
    3.b. Research Companies, such as Interdigital – who do not pay others to manufacture a product for them – do not have the ability to cross-license and therefore cannot reduce the “cash” license fee by cross licensing. This is where the problem lies in my opinion.

    4. Companies like Interdigital that are lean and focused on research and development can develop ground-breaking technology much more efficiently than the individual R&D departments of large corporations. This is especially true when it comes to for-profit organizations such as Apple, Samsung and Google, who must:
    a. minimize expenses to maximize their profit , and
    b. in addition to R&D, focus on manufacturing, marketing, supply chain management, etc., etc., etc.

    5. So companies such as Interdigital can be looked at as more efficient R&D department for the manufactures: in other words they should be looked at as a single common, shared, efficient R&D department for ALL the “manufacturers.” They reduce the overall cost of ALL the “manufactures” R&D expenses.

    * Note: I put “manufacturers” in quotes because most of the for-profit organizations such as Apple, Samsung and Google do not manufacture product; they pay others to manufacture a product, usually in a country other than where the corporation is located, so as to minimize expenses (and maximize profit).