Earlier this month, the Brussels-based Fair Standards Alliance (FSA) announced (press release) a set of recommendations on standard-essential patent (SEP) pools (document). The primary conclusion is that patent pools can increase the efficiency of SEP licensing and, provided that the terms are FRAND (which, among other things, includes the availability of licenses to all levels of the supply chain), make a net-positive contribution to innovation, with a particular focus on the Internet of Things (IoT).
Let's start with terminology. The FSA's paper mostly uses the term "patent pool" and makes a few references, mostly when quoting other documents, to "licensing platforms." So what's the difference between a pool and a platform? A European Commission competition enforcement official explained how the 3G Patent Platform Partnership ("3G3P")--not to be confused for the 3G Project Partnership ("3GPP")--sets itself apart from a "patent pool":
the Platform [referring to 3G3P] is open to both licensors and licensees, whereas a patent pool consists only of licensors;
the licensors retain their freedom to license outside the Platform (non-exclusivity) and they do not assign patent rights to the Platform;
the patents are not bundled, i.e. no real pooling of patents occurs: instead licensees have the opportunity to pick and choose between patents and the licensing is carried out on a bilateral basis;
there is no single licence between a given licensee and the Platform, whereas in a patent pool a licensee typically has one licence agreement with the patent pool;
the Parties to a licence can choose between the Platform's Standard Licence and a negotiable individual licence.
The negotiability of individual licenses is presumably always a given unless a patent holder actually assigns (transfers) patents to a pool firm. Otherwise, companies would be reluctant to give up their right to enter into individual license agreements for various reasons, one of which is the ability to enter into full-portfolio cross-license agreements.
Avanci generally calls itself a platform, but on LinkedIn, Eric Stasik was surprised to see that even Avanci's lawyers, in the Continental v. Avanci et al. litigation in the Northern District of California, referred to their client as a "pool."
The FSA's paper on patent pools doesn't mention any particular pool, but the most controversial pool at the moment is Avanci: three of its contributors are suing Daimler in a total of 16 German patent infringement actions; Daimler and four suppliers have lodged antitrust compaints with the European Commission over Nokia's refusal to license component makers; Huawei is suing Nokia in Dusseldorf for the purpose of obtaining a component-level license; and Continental is doing the same in the Northern District of California.
Avanci arguably fails to meet the criteria the FSA summarized in its press release as follows:
"[patent pools must be FRAND and at the very least] not discriminate against any entity that practices the standard and seeks a license;
grant licenses on FRAND terms to those companies that want a license;
ensure that royalty rates:
take into account the value of SEPs in the patent pool’s portfolio as part of the entire SEP landscape relevant to the standard;
reflect the value of the patented inventions included in the pool – and not the added value of standardization or innovations and features not covered by the SEPs.
be transparent about license(s) offered by the pool ie publish information about the relevant SEPs and proposed licensing terms and conditions in a timely manner."
Avanci's license fees for cars ($15/unit) are supra-FRAND and that firm licenses only end-product makers (with some indirect effect of such a license on tier 1 suppliers, but not to the effect of actually licensing the suppliers on an exhaustive basis). While Avanci's agreements with its contributors apparently don't preclude them from entering into separate license agreements, Sharp apparently referred Daimler only to the availability of the Avanci pool license when bringing its German infringement actions.
At last week's Brussels conference, three small or medium-sized companies (AirTies, Kamstrup, and Nordic Semiconductor) explained their problems related to SEP licensing. Nordic's problem is that various SEP holders refuse to grant them exhaustive licenses, and AirTies and Kamstrup are companies that would benefit if they could either buy components that come with the SEP licenses they need or if they could--at least--obtain such a license from a pool.
The FSA's paper also says "[m]ultiple patent pools for a given standard may lead to duplicative royalty demands that do not take into account the aggregate royalty burden for a standard." The potential problem of royalty stacking is well-known (and even rampant). However, it may in some cases actually be better to have at least two types of pools--one with FRAND terms and one for the unreasonable ones among the licensors. Then competition enforcers--or parties that have the ability and the determination to challenge supra-FRAND demands--can focus on the unreasonable group. If there's only one pool for a standard, there is a risk of companies that would actually make more reasonable demands deciding to joina pool for convenience--even if it means they have to support license terms that go beyond what they would normally seek. Getting back to the Avanci example, it's not like all Avanci contributors are unreasonable licensors--but the convenience Avanci promises may have led some of them to join a pool that makes supra-FRAND demands.
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