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.
Table 1: USPTO Patents Granted in 2015
|2015 rank||2014 rank||Change||Assignee name||2015 grants||2014 grants|
|10||979||NEW||Microsoft Licensing Technology||1,956||1|
|40||25||-15||AT&T Intellectual Property||885||1,307|
|55||54||-1||Verizon Patent & Licensing||653||673|
|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.
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