The SEP Couch with Tim Pohlmann

Paul is Senior Vice President at Access Advance LLC where he is responsible for business development. He has been involved in multiple patent pools and licensing program during his 25+ years as an intellectual property attorney, including for MPEG 2, MPEG 4 Part 2, AVC, HDDVD, BluRay, HEAAC, HEVC and now VVC. Paul started his career to work for General Electric’s licensing department. He went on to work for General Instrument, first as the IP Portfolio Law Director, and then as the Broadband Sector IP Law Director (for Motorola after it purchased GI) managing the IP law department and IP related matters. After that Paul worked for Microsoft as a Business Division Patent Counsel to then work for Acacia Research Group identifying, valuing, and purchasing patent portfolios. Since 2015, Paul has worked for Access Advance, first as Senior VP of Licensing building their HEVC Advance licensing program, and now as Senior VP of Business Development developing, launching and now building their VVC Advance licensing program.

Paul believes that patent pools are important to facilitate standardized technologies such as HEVC or VVC. Paten pools reduce the transaction costs for all implementers. Havening more than just one patent pool (HEVC is subject to 3 patent pools, VVC currently has 2 patent pools set up), also will in his view not hamper standards adoption. Also, two or three patent pools still reduce the number of licensors. There has been criticism that HEVC was not as successful as AVC, where Paul argues that there is a lot of data tell a different story and that provides evidence of the success and wide adoption of HEVC. In his view the HEVC patent pool situation supported that success. Also, the recent litigation between Access Advance and Vestel was no setback for Access Advance, Paul argues. Here media did not tell the whole story. What is true due to a substantial number of overlapping patents in the HEVC Advance Patent Pool and MPEG LA’s HEVC patent pool to which Vestel was licensed to, the German court In Düsseldorf found the Access Advanced HEVC license not FRAND. Access Advanced in March 2022 therefore revised its policy responding to the Düsseldorf District Court’s December 21, 2021 ruling. Importantly, the court once again did not express concerns with any other facet of the HEVC Advance Patent Pool, including its royalty rates.

One reason why more than just one patent pool was formed for VVC is that not only the licensing rates and licensing models differ across the pool programs, but also the internal revenue sharing policies can be very different. At Access Advance Paul states that the pool considers the internal royalty sharing counting patents on a patent family basis so that there are no incentives for patent pool licensors to file e.g. multiple divisional patent applications that cover very minor inventions just to increase their share in the patent pool. The different rules and licensing rates therefore attract different SEP licensors to either join Access Advance or MPEG LA’s VVC patent pool.

"Avanci will later this year launch the 5G patent program with a predicted aggregate royalty for 2G, 3G, 4G and 5G in the low $20 numbers."
Matthias Schneider has been Chief Licensing Officer (patents) at Audi AG until end of 2021 and has held positions like Vice President for IPR at Siemens Communication Devices and BenQ Mobile, and Global Head of Defensive Licensing at Nokia Corp before that. Matthias knows both sides of the table working for telecommunication companies and for the automotive OEM Audi for several years. He joined Audi to negotiate important SEP licensing deals and was one of the first to negotiate a contract with the license program of Avanci for Audi where some provisions of this contract are still used across the whole automotive sector. However, the price will depend on having most of the major SEP holders join Avanci so that the coverage of 5G SEPs is high enough to justify the price.

Matthias believes the problem was that the automotive suppliers did take royalty payments for 2G, 3G and 4G SEPs into account when negotiating the supplier contract years ago, even signing indemnification clauses. Now OEM and the suppliers must negotiate who will pay the royalties and margins in the automotive supply chain are very low. Interestingly, in the past only the high-end brands have joined which may make sense given that royalties for a Fiat are at $15 the same as royalties for a Ferrari. The marginal costs of $15 are therefore much more relevant for certain automotive OEMs. Matthias however points out that it must depend on where in the car the patented technology, in this case the standard, creates value. Is the value higher for expensive cars compared to for cheaper cars? Matthias believes there is no reason why the $15 should not also be applicable to a small low-priced car such as a Fiat or Polo.

So where to license in the value chain? Well, Matthias points out that it is almost impossible to understand where the patented technology creates value when you go to the chipset manufacturer level. Here no one will know where the chip may end up because tracing chips through the supply chain is almost impossible and therefore the patent owner cannot verify if certain end products contain licensed chips. But as soon as you e.g. have (in the cellular communicate space) space an International Mobile Equipment Identifier (IMEI) number, the network access component and its license status become traceable. Therefore, licensing on the level of the manufacturer of a network access device (and afterward) is possible. A SEP license for tier 1 suppliers is thus possible and Matthias also sees increasing willingness from SEP holders to go up at least one level in the value chain with their SEP license offers.

Finally, Matthias comments on the challenge that local courts establish global portfolio FRAND rates even if they set lower rates for certain jurisdictions (e.g. China) compared to Europe and the US. Licensees often prefer to negotiate and potentially litigate on individual patents in single jurisdictions. He believes that courts such as the UK court set a global FRAND rate for SEP portfolios are stepping a bit out of their comfort zone and he would prefer a WIPO-based arbitration body for FRAND rates. How that is managed remains to be seen.

Matthias’ take on 5G and SEP licensing for the IoT is that this will have to work very differently as the royalty income per IoT device manufacturer is expected not as high as for smartphone manufacturers. Even the automotive market is far less lucrative than the handset market, because the number of cars sold globally is only around 7% of the number of smartphones. The main target market for SEP owners thus will remain the handset manufacturers.

“The litigation situation is not as bad as many people believe it is. 90% of deals are done without litigation and I am not worried that this will change.”

Patrick McCutcheon has been the Managing Director of IP Europe since July 2022. He previously worked for 17 years at the European Commission as a policy advisor, later senior expert on IP and competition law, in the European Commission's Research and Innovation. In these positions, he worked on a review of policies impacting incentives to invest in R&D and engage in open innovation including participation in standards and licensing of technology. He managed together with the Commission's JRC a project monitoring and analyzing industrial R&D investments which included the annual EU industrial R&D scoreboard. He was part of an intra-departmental team developing a policy framework on the licensing of SEPs and commissioned studies and expert groups on fostering patent aggregation and the impact of mergers on innovation in Pharma. His background is in business administration, he holds an MBA from Edinburgh Business School, and law he holds an LLB and LLM from the University of London with a specialization in IP and competition law.

Patrick explains in the podcast that IP Europe brings together innovative European organizations that recognize the value of intellectual property in driving growth and job creation. Its mission is to promote policies that support a collaborative European innovation ecosystem to ensure that all innovators can receive a fair return on their investments in developing new solutions, thereby encouraging further research and development.

In the podcast interview, Patrick explains that the question of essentiality was in most SEP licensing discussions, not the main issue. Most of the debate is about price and the value the technology adds to the end product. Claim charting each and every of the 70,000 declared patent families would add unreasonable costs to the licensing program. Even if AI tools help with that the question remains: How much do we know about the value of patented technology? Patrick further explains that a claim chart is also only one opinion at one particular point in time about a certain implementation of the standard. Patrick says it’s still not clear if more claim charts and increased transparency about essentiality would after all facilitate licensing. Patents are probabilistic regarding if they are valid, essential, and of value.

Patrick also states that people should not forget that in most cases agreement is reached. This is because there is an agreement in the industry about what a reasonable price is. Currently, about 90% of the SEP licensing revenue is about cellular technology. But of course, SEPs are also relevant to other standards e.g. Wi-Fi or video codec. In general, Patrick also feels that litigation for most of these technologies and SEPs has not really been increasing. The challenge now is licensing technologies in new verticals like IoT but even here comparable licenses in other industries can be used as a benchmark to start negotiations.

“We would see much more deals and less friction with SEPs and FRAND if people were to do things with more rigorousness and transparency!”

Johanna Dwyer is the founder and CEO of QipWorks, a global IP consultancy business that partners with companies, innovators and investors to build, manage and utilize IP portfolios. Before QipWorks Johanna spent 12 years at BlackBerry, originally designing radios as a cellular wireless engineer and later participating and then leading a global radio standards team active among others, in 3GPP and the IEEE. She worked closely with licensing teams developing processes for identifying, evaluating, managing, validating, and monetizing investments in intellectual property.

Johanna and her QipWorks team provide extensive expertise in IP strategy and patent portfolio development and management as well as litigation support and standardization advice. Johanna realized that many small and medium-sized businesses yet do not treat patents as their core assets. Such assets must be explainable and have a purpose for the business. QipWorks helps with developing patent portfolios and here in particular for companies that conduct research and development close to the development of standards such as 4G/5G or Wi-Fi technologies.

Johanna was part of the team that developed the BlackBerry patent portfolio that was just in January 2022 sold for $600M to Catapult IP Innovations Inc.. The BlackBerry patent portfolio includes many SEPs for standards such as 2G, 3G, 4G, 5G, Wi-Fi, AVC/HEVC/VVC and others.

Patents that read on a standard are of high value as SEPs can be used to join or create SEP licensing programs or as bargaining chips in FRAND cross-licensing negotiations. In any case, owning SEPs ensures the owner a seat at the table when the next generation of connectivity is developed. But filing patents that later become standard-essential is a challenging process. R&D teams, IP patent boards, and prosecution teams must closely work together. Here claims must be compared to the current standard versions early on, which is challenging as standards evolve and claims change in the prosecution process before they are granted. Johanna and her team make sure that such patents are not only essential but also valid and enforceable. Johanna says: “With SEPs a near miss is worthless. If your patent claims miss the final standard you may as well abandon those patents as they have no value”. Standards development and being able to contribute to technology is much more time and budget-consuming as many people think. An engineer that goes to standards meetings must prepare for the meeting, must be active at meetings but also be able to take the learnings from the meetings to again prepare the next one. That is a full-time job with the focus on submitting high-quality standard contributions that others agree and accept in the process. That engineer has no time to sit with patent attorneys. At Research in Motion (Blackberry) Johanna explains, they had so-called standards coaches whose job it was to “own” the patent in the prosecution process, aligning patent filing and standard development strategy. All that is very labor-intensive, and experts need to know both the technology and at the same time must have knowledge of the patent prosecution process.

But owning SEPs is just the beginning, one must also have the right strategy in place to sell, license, or further develop SEP portfolios in the market. Johanna believes that such a process can only be installed in companies that realize that patents are core assets and that patents must have value for the shareholder. Patent strategy therefore should be introduced and play a core role for board room decisions.

Laurie has over a decade of experience working with patent owners and product developers, spanning licensing transactions, patent acquisitions and divestitures, portfolio strategy and valuation, and patent litigation. A regular conference speaker, Laurie features in the IAM Strategy 300 list of leading IP professionals and World IP Review’s Most Influential Women in IP. At Avanci Vehicle, Laurie has driven the platform's expansion to cover more than 80 automotive brands and licensors responsible for most 3G/4G cellular SEPs. She is responsible for all aspects of Avanci Vehicle operations and is currently working to build its latest program to cover the next generation of connected vehicles. Prior to Avanci, Laurie led its affiliate Teletry, licensing BlackBerry’s extensive patent portfolio to smartphone and telecom infrastructure manufacturers.

In the podcast, Tim and Laurie enter a wide-ranging conversation about the latest 5G Vehicle SEP Program that Avanci has recently launched. With the 5G Connected Vehicle Licensing Program, Avanci announced the first licensee: Mercedes. A month later, the second licensee, BMW, joined, and Laurie promised that we should stay tuned for further announcements of new licensees to join. The program came with some delays but an impressive list of SEP licensors. Laurie elaborates on the complexities of the negotiations both with SEP licensors and the automotive OEMs. Here, the focus was to ensure that the new program was only launched when a critical mass of SEP licensors was confirmed. With Samsung and Huawei joining compared to the 4G program, everyone finally felt it was time to launch this.

Laurie went back and explained that Avanci had come a long way from the time during the 4G program when Avanci only had 11 SEP licensors, and BMW was the only automotive OEM who signed. Back then, the second automotive OEM joined only 16 months later, and it took Avanci a lot of convincing during that time. Today, presenting a total of 58 SEP licensors at launch, and as to the IPlytics estimation of a 3G, 4G, and 5G multimode SEP coverage of 80-85%, the Avanci offer looks much more convincing, and the second licensee, BMW already joined four weeks after launch when Mercedes joined. If OEMs join within the next six months (or before they ship their first 5G vehicle, whichever is later), they will get access to all members’ cellular SEPs for a discounted rate of $29 per vehicle. After the 6 months, the rate increases to $32 per vehicle for late joiners. The new royalty rates may be discussed with at least some controversy, however. Compared to the initial $15 for the 4G program, the new $29-$32 rates for 5G may seem like a stretch. Laurie, however, argues that they started off with $15 with only 11 SEP licensors and, as to the IPlytics estimation, only a share of about 30% of all SEPs back then. Considering the increasing number of Avanci members, SEP coverage, and adding 5G, a much more advanced technology to the program, the $29-$32 price looks more reasonable. Laurie further elaborates that the price is the outcome of her team’s negotiation with SEP owners and automotive OEMs over the past years. Again, critical voices say that such a rate is only reasonable for premium brands like Mercedes or BMW, who now also signed up first. Laurie, however, argues it’s only fair that everyone pays the same, we create a level playing field, and car makers with low-priced cars can always only select some of the low-priced options starting at 3$ for only eCall.

Joining the program early has not only the advantage Laurie says to guarantee the low rate at $29, but it also ensures to be protected early on as the Avanci license is sticky. Once you sign up with Avanci and the Avanci members sell their patents e.g. to Patent Assertion Entities (PAEs), these patents can not be asserted to anyone who was a member of Avanci when the patents were yet owned by one of the Avanci.