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Patents Prizefight Pending: Clash of the Tech TitansPatents Prizefight Pending: Clash of the Tech Titans

Cisco, Intel and Google are pushing for a reduction in royalty rates for standards-essential patents, while Ericsson, Nokia and Qualcomm are out to thwart them.

Iain Morris

December 13, 2016

9 Min Read
Patents Prizefight Pending: Clash of the Tech Titans

If research and development in the technology industry is a form of modern-day wizardry, then the patents that surround this innovation can sometimes look like the dark arts.

A number of players have controversially grown fat off the patent royalties they charge others. Patent trolls, as they are called, have been known to prey unforgivingly on companies using intellectual property of dubious actual value.

The case is far from clear-cut, however. Defenders of the patents system insist that it offers protection to organizations big and small, ensuring imitators cannot shamelessly rip off original innovation.

In the communications sector, a fight has broken out between some of the industry's power brokers. On one side stand network vendor Cisco Systems Inc. (Nasdaq: CSCO), search-engine behemoth Google (Nasdaq: GOOG) and chipmaker Intel Corp. (Nasdaq: INTC). Through a group called the FairStandards Alliance, those companies are lobbying hard for a reduction in the royalty rates for so-called "standards-essential" patents, says Patrick Donegan, a chief analyst at the Heavy Reading market research business.

Set up a year ago, the FairStandards Alliance says its aim is to "strengthen the voice … of companies which believe that the licensing of standards-essential patents must be done on a fair, reasonable and non-discriminatory basis." Other members include Telit and u-Blox AG , two European manufacturers of the modules used to support wireless connectivity, as well as some of the region's biggest carmakers.

Yet opposing the FairStandards Alliance is another lobby group with equally powerful supporters. IP Europe, as it is known, counts Ericsson AB (Nasdaq: ERIC), Nokia Corp. (NYSE: NOK) and Qualcomm Inc. (Nasdaq: QCOM) as key members. It similarly claims to be acting for the greater good, taking aim at "technology free-riders seeking to access inventions at low cost and relying on the R&D [research and development] efforts made by others."

For the companies in this group, much is at stake. Mobile phone chipmaker Qualcomm made $8.1 billion from licensing sales in its 2016 fiscal year. While that figure was down from $8.2 billion in 2015, Qualcomm's revenues from equipment and services are shrinking at a faster pace, dropping from $17.1 billion in 2015 to $15.5 billion in 2016. That decline is making intellectual property even more important to Qualcomm's business.

As for Nokia, one of the world's biggest makers of network equipment, its share price lost more than 17% of its value during the first week of February, after the terms of a new patents deal with Samsung Electronics Co. Ltd. (Korea: SEC) proved a disappointment to investors.

Could ongoing developments give one side in this patents dispute the upper hand?

FairStandards Alliance member Google and other web-scale Internet companies (or WICs) are certainly becoming bigger stakeholders in the patents system. Some were assigned a higher number of patents in 2015 than companies that have historically profited heavily from licensing, according to research carried out by Heavy Reading.

So while it rails against royalties, Google ranked fifth on the league table of companies granted the most patents by the US Patent and Trademark Office last year, coming just behind Qualcomm (but ahead of the chipmaker when a patents subsidiary called Google Technology Holdings is factored in). Amazon.com Inc. (Nasdaq: AMZN) rose from the number 50 spot in that table in 2014 to occupy the 26th place last year. "Firms are registering their own patents aggressively these days and striking cross-licensing deals with other WICs and with telecom players," says Donegan.

2015 rank 2014 rank Change Assignee name 2015 grants 2014 grants 1 1 0 IBM 7,355 7,534 2 2 0 Samsung Electronics 5,072 4,952 4 7 +3 Qualcomm 2,900 2,586 5 8 +3 Google 2,835 2,566 8 9 +1 LG Electronics 2,242 2,142 9 16 +7 Intel 2,048 1,578 10 979 NEW Microsoft Licensing Technology 1,956 1 11 11 0 Apple 1,938 2,003 14 12 -2 GE 1,757 1,859 20 18 -2 Ericsson 1,407 1,537 26 50 +24 Amazon 1,136 741 36 32 -4 Cisco 960 1,095 40 25 -15 AT&T Intellectual Property 885 1,307 44 48 +4 Huawei 800 775 51 52 +1 Alcatel-Lucent 710 700 55 54 -1 Verizon Patent & Licensing 653 673 78 5 -73 Microsoft 456 2,829 88 980 NEW Nokia Technologies 400 0 96 128 +32 Facebook 372 279 99 971 NEW Google Technology Holdings 360 9 Source: IFS Claims. This does not, of course, mean those WIC patents were in any way "standards-essential," relevant to the communications sector or of particular value. Moreover, while vendors canvassed by Heavy Reading expect WICs to have a big influence on 5G, a next-generation mobile communications technology, they do not believe Google et al will make detailed contributions to 5G standards. Even so, as WICs like Facebook and Microsoft Corp. (Nasdaq: MSFT) become increasingly active in the communications market, they seem likelier to side with the FairStandards Alliance than with IP Europe, reckons Donegan. "If they throw their weight behind it, the balance tips a lot," he said during a presentation at Light Reading's Executive Summit in Rome earlier this month. Next page: 5G fracas 5G fracas
That shift could have implications for the development of 5G, which vendors hope will spur the next wave of spending on telecom networks. The growing importance to 5G of open source technologies backed by the likes of Google and Facebook could be similarly influential (although Donegan points out that open source is a much more of a gray area, when it comes to the licensing of intellectual property, than people often realize). Both sides in the patents battle have a lot to gain and lose, however, as 5G technologies come to power the billions of devices that will form a part of the future Internet of Things (IoT). Getting a system in place that spurs IoT adoption, while ensuring innovators are justly rewarded, will be absolutely critical. That may not be straightforward when even supposed allies are pulling in opposite directions. Cisco, which is emerging as major software player in the IoT market, has joined the FairStandards Alliance in the hope of getting royalties reduced. Strategic partner Ericsson, meanwhile, is a member of IP Europe. Given Ericsson's reliance on intellectual property rights for a chunk of its sales, that is hardly a surprise. But it could make collaboration with Cisco all the more difficult. "How will they go about developing joint products when they don't have alignment on royalty revenue streams?" says Donegan. Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading. Light Reading put the same question to Cisco and Ericsson. "As part of our alliance with Ericsson, we have a broad patent cross-licensing agreement enabling unfettered joint innovation and certainty for customers of both organizations," was all Cisco would say in an emailed statement, while Ericsson had yet to provide any answer at the time of publication. Regardless of any dilemma facing "Ciscosson," the battle over patents seems in many respects to mirror the evolving struggle between traditional telecom players and their "over the top" challengers, offering similar potential for conflict and collaboration. Unlike that clash, though, it has so far attracted relatively little attention. "This is something many folk are not terribly opinionated about today," says Donegan. "They should be." — Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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