Emotions in the debate on royalty payments for the use of standards

By Menno Treffers
October 10, 2016

The debate on royalty payments for standard essential patents has a surprisingly emotional, sometimes even hostile, undertone. Companies selling standards-based products have an obvious commercial interest in lower royalty rates, but for some participants in the debate the hostility goes deeper. Some people find the idea of having to pay royalties for the use of any standard objectionable and unreasonable.

Understanding the underlying assumptions about standards and standards development can help explain this hostile attitude.

Category 1: Confusing regulatory standards with voluntary interface specifications

Some people associate the word ‘standard’ with regulations that are made mandatory by the government – product safety regulations, for example, or rules for the use of electro-magnetic spectrum. These regulations are based on technical specifications, developed by Standards Development Organizations such as ISO, IEC, ITU, ANSI, NEMA, ETSI, etc. In Europe, the use of these technical specifications is then mandated by linking them to the certification requirements for the CE mark.ce-mark-copy

In China it is the CCC markccc-mark-copyOther parts of the world have similar methods to enforce the use of regulations.

How would you feel about paying royalties for patents on a government-mandated standard? It does seem a bit awkward. Many people tend to see these regulatory
standards as a common good, jointly developed and owned by the general public.

Fortunately, it is very unusual for regulatory standards to specify a technical method. Safety regulations, for example, will specify how a product must be tested, but not how to implement the product. Product manufacturers are free to choose any method that makes the product pass the safety test. Such a standard
does not have essential patents.

Interface standards are not made mandatory by governments

The use of interface standards such as Wi-Fi (802.11 a/b/g/n/ac), DVD, Blu-ray Disc, GSM, and LTE is not required by any government or regulation. These are ‘voluntary interface specifications’. Manufacturers decide whether or not to support LTE in their product. A mobile phone with LTE will fetch a higher price, and that creates pressure to make products that use this standard, but is not illegal to sell a phone without LTE.

When a standard is widely adopted, market pressure can make it impossible in practice to avoid a standard. For example, selling a mobile phone that does not support Wi-Fi has become almost impossible. But that is market pressure, created by the success of the standard. That pressure must not be confused with a government mandate.

The voluntary nature of these interface standards is best observed in the early days of their adoption. The first Wi-Fi specification was released in 1997 and took until 2002 before more than 10 million chipsets were sold. There was no market pressure or government pressure to adopt Wi-Fi at that time.

Exceptions: regulations with essential patents

There are exceptions. The EU and the Chinese government have mandated the support of micro-USB for charging mobile phones. The USB standard is an interface specification and may have essential patents. Nevertheless, royalty payments for this government mandated interface are unlikely because the USB Implementers Forum requires a royalty-free (RAND-RF) license promise from all implementers and contributors.

Another exception is the enforcement of copy protection. An old example is Macrovision’s APS technique, used to prevent analog copying to a VHS recorder. The use of APS is mandatory on all analog video interfaces. When manufacturers must implement the copy protection technology or risk being sued by rights holders, or by the government, the use of the copy protection patents become unavoidable. This mandatory use of technology should not be confused with market pressure because products that support copy protection do not fetch a higher price. On the contrary, consumers would probably pay more for a product that does not support copy protection, if it were available.

Category 2: Standards that are guaranteed to be successful, independent of the technical choices

Some people believe that Standard Development Organizations create standards by arbitrarily selecting one technology from a list of equivalent alternatives. In that view, the SDO makes the technology successful, and it is not the technology that makes the SDO successful. And if that is true, it can be argued that the inventor of the technology need not share in the value created by the success of the standard, and collecting royalties on standard essential patents will be viewed as ‘unreasonable’.

When the stakeholders in an SDO believes that the SDO will make an arbitrary selected technology successful, they should require that every person and company that contributes to the development of the standard commits to license the contributed essential patents on royalty-free (RAND-RF) terms.

Most interface standards for mass market electronics products are developed with RAND license conditions that allow essential patent owners to collect royalties. The mobile phone standards GSM, 3G, and LTE. The Wi-Fi standards. The CD, DVD, Blu-ray Disc family of standards. And more recently, the wireless power standard Qi.

These SDOs have chosen to allow the owners of essential patents to collect reasonable royalties because the technologies needed for their standards will not be developed when the inventors are not compensated for their investments. The option to create their standard by arbitrarily selecting pre-existing technologies is simply not available for these SDOs.

Inventions make an interface standards competitive

Interface standards often face competition. The VHS vs Betamax battle is a famous example. Blu-ray Disc vs HD-DVD another one. Three different wireless power standards are battling right now for dominance.  When standards compete it is clearly not the SDO that picks the winning technology. The consumers vote with their wallets and pick the winning standard by buying the superior product. Inventions are needed to make an interface standard superior. Working with patent-free, or royalty-free, pre-existing technologies is not going to make the standard competitive.

Category 3: people who reject the patent system

Some of the arguments against royalty collection on standard essential patents are about perceived failures of the patent system itself. Challenging, for example, that patents are a property right that can be sold, or arguing that patents can only be enforced by companies that use the patent themselves.

These arguments are not specifically against the licensing of standard essential patents, but rather just against patents in general. Some people dislike patents, some even hate patents, and therefore challenge standard essential patents to promote their overall anti-patent agenda.

People with a generic anti-patent agenda contribute significantly to the emotions in the patent debate. Beyond recognizing their motivations and philosophical predisposition against a patent system in general, further discussion does little good. Much has been written about these sentiments, which can be hard to understand and even more difficult to explain for those who support the merits of a patent system.

Conclusion

There are different types of standards (regulations and interface specifications). There are different types of Standard Development Organizations. People who have not been involved in standards battles or in the early stages of developing interface standards may not understand how inventions are a necessary part of making interface standards work. When the discussion becomes emotional it helps to make the underlying assumptions explicit, talk about these differences, and debunk some of the myths about standard essential patents.

The Author

Menno Treffers

Menno Treffers has lead standards development organizations and created patent license programs. He is chairman of the Wireless Power Consortium, an industry group that developed the Qi standard for wireless charging of mobile phones. As founder of Treffers Alliance Management, he helps clients predict the effect of intellectual property license terms on distribution channels and on the competition between products. Prior to founding Treffers Alliance Management, Menno worked with Koninklijke Philips and with One-Red LLC, where he was responsible for new business development and the DVD video disc patent license program. At Koninklijke Philips he developed the VEEZA patent license program for CD-R discs and contributed to the creation of various industry standards, such as Super Audio CD, Blu-ray Disc, and the Zhaga standards for LED light engines. Menno Treffers has a PhD in physics from Leiden University in The Netherlands.

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Discuss this

There are currently 4 Comments comments.

  1. Night Writer October 10, 2016 8:20 am

    Standards just magically appear. Let’s create a new tax to create new standards. I am sure they will stay cutting edge. Or maybe, we can contract out all new standards to Google. They can create a corporate division for standards.

  2. zoobab October 10, 2016 10:55 am

    You forgot the fact that software developers can’t afford to pay those patent cartels, to be able to read formats that are “standardized”.

  3. Anon October 10, 2016 11:07 am

    …cartels…

    The presence of “emotional” buzzwords is an indicator of when someone with an anti-patent bias is present.

    Don’t like it? Invent a better way.

  4. Anon2 October 12, 2016 1:38 pm

    Excellent article.