One of the most important components of the recent WiFi 6 pool announcement was the Licensing Incentive Framework for Technologies (LIFT) royalty payment structure. Several participants in our recent Wi-Fi 6 webinar described the rationale behind LIFT and how it operates. This post assembles their comments to deliver a 360-degree view of LIFT, including comments from Sisvel (as patent pool administrator), an economist, two founding patent owners of the pool, and an important pool licensee/licensor.

The Administrator’s View

Let’s start with comments from Andrea Rombolà, Program Manager for the Wi-Fi 6 pool, who described Sisvel’s motivation for creating LIFT. “LIFT was born out of our vision at Sisvel to create licensing programs that accelerate technology adoption and increase the size of the pie for patent owners and implementers. One problem in licensing negotiations is the competitive disadvantage perceived by early licenses, which claim, among others, that they need to factor in a bigger cost in the bill of material, the cost of the license, than their competitors, which have not taken a license yet.”

“After years of interaction with patent holders and implementers of several technologies, we realized that in certain areas like Wi-Fi, this problem could be mitigated. We came up with LIFT, which has been over two years in the making and it has been fine-tuned with the help of the founding members of this pool. All of them liked the concept behind it and very enthusiastically engaged in discussions with us.”

The Economist's View

Bowman Heiden, the Executive Director at The Tusher Center, University of California, Berkeley, and the Co-Director at the Gothenburg Center for Intellectual Property, presented the economist’s view. Heiden started by describing the “prisoner’s dilemma,” a classic game theory construct by which two suspects are questioned separately by the police. “The best outcome would be for both suspects to stay quiet. However, if one suspect talks, the consequences are worse for the suspect that stays quiet. Thus, while the suspects would be better off protecting one another, each of them is incentivized to act in their own self-interest, which produces a worse result than cooperating.”

The corollary in patent licensing is that the best long term result occurs when both parties cooperate and implementors pay a fair royalty to patent owners. However, early implementors may perceive themselves at a disadvantage because royalties add to their cost structure but not to the cost structure of competitors that refuse to take a license.

According to Heiden, “Sisvel developed the LIFT model...to remove the asymmetry between early adopters and reluctant licensees. LIFT incentivizes licensees by providing a partial immediate payment that's based on the license penetration. And then there's a deferred amount of remaining liability that they pay later on, as the penetration goes up–and they pay this at a discount so that the early adopters are not at a disadvantage against later adopters.”


 
Heiden’s diagram illustrates the theory. Early licensees “Pay less in the beginning. It ramps up as participation grows. They carry this liability as a deferred royalty, and that only is paid if the participation gets to a certain level”

Heiden concludes, “The overall goal of LIFT is to increase efficiency and reduce friction within the SEP market. So when you create a platform that incentivizes a large proportion of licensors and licensees to participate, it benefits all the parties involved. So one way to say this is a rising wave lifts all ships.”

The Patent Owner’s View

Ultimately, it’s the patent owners that set pool royalty terms, and the founding members of the Wi-Fi 6 pool had to approve the LIFT payment structure before it went into place. They did so because they share Sisvel’s vision, as expressed by Rombolá, for “licensing programs that accelerate technology adoption and increase the size of the pie for patent owners and implementers.”
For example, Jin Sam Kwak, Chief Executive Officer, and Founder at WILUS Inc, a founding member of the Wi-Fi pool, describes LIFT as “an alternative scheme for sponsoring the adoption of new technology for implementers. Adjusting the royalty payments based on the global market penetration of the Wi-Fi 6 technologies can incentivize the new standard adoptions. With LIFT, since the Wi-Fi 6 pool is made more flexible and attractive to potential licensees, they can join the pool as quickly as possible.”

This holistic view was echoed by Jako Eleveld, Head of IP Licensing, and VP at Philips, which is both a patent owner and pool licensee. During the webinar, Eleveld commented that “LIFT prevents the problem that we usually have in patent pools that nobody wants to jump in first because paying full royalties from the start may be a competitive disadvantage. By paying only a fraction from the start and more later, when other implementors sign up as well, we have alleviated that problem. So, that is good for implementers, and what is good for implementers is also good for the pool and hence for patent holders. We believe that this avoids holdout in the market, and more implementers will sign up earlier, which is beneficial.”

The Implementor’s View

Huawei has been a Wi-Fi implementor for almost 20 years. Huawei’s view of LIFT was expressed by Zhiyong (Alan) Fan, Vice President, Head of IPR Department at Huawei Technologies, who commented, “LIFT is a very creative way to do licensing. It encourages early adoption of new technologies, and it helps the new licensees to maintain their competitiveness against the companies who have yet to take the license.” Huawei is also a patent owner and licensee of Sisvel’s Wi-Fi 6 Pool.

As you’ve heard from all involved, by protecting the competitiveness of early pool licensees, LIFT encourages early technology adoption of Wi-Fi 6, helping the market expansion, pool participation and ultimately the consumers, that can buy their innovative new products. Royalties paid to patent owners fund future innovations that deliver technology enhancements for Wi-Fi 7 and beyond, perpetuating the innovation cycle.

This makes LIFT look good from any angle.



Photo by Shad0wfall from Pixabay

On February 8, 2015, the Institute of Electrical and Electronics Engineers (“IEEE”) approved changes to the IEEE Intellectual Property Rights (IPR) policies that defined Reasonable Rates for royalties relating to/in respect of future IEEE standards and restricted the availability of injunctive relief.  This is the first in a series of articles that will explore the 2015 policy and its impact on standards-essential patents licensing.

This article will provide some background and detail what the new policies say and do. The next articles will discuss other relevant aspects of these new policies.


About The IEEE and SEPs

By way of background, the IEEE is a standard-setting organization that has set multiple standards for technologies like Wi-Fi, Ethernet, and many others. During the formation of such standards, IEEE participants submit technical contributions that accomplish the particular technical goals of the standard. If these contributions are included in the standard, any patents that cover them are designated Standard Essential Patents or SEPs. We give an overview of how the standardization process works in this article.

Recognizing that patents provide a right to exclude, organizations like the IEEE request SEP Owners to commit to making available licenses on Reasonable and Non-Discriminatory, or RAND, terms—“FRAND” (Fair, Reasonable and Non-Discriminatory) is a more European version of the term (while RAND is mainly used in the US), but the two are essentially synonyms and often used interchangeably. Worldwide case law also provides guidance on what RAND entails. What’s unique about the 2015 IEEE IPR changes, which are available here, is that for the first time for any standards-setting organization, the IEEE defined what a “Reasonable Rate” computation should consider (see page 2 of this redlined version). The IEEE also limited the availability of injunctions (see page 4, line 146).


IEEE requests Licensing Assurances from patent holders

In terms of operation, the new policy kicks in when “the IEEE receives notice that a [Proposed] IEEE Standard may require the use of a potential Essential Patent Claim.” Once received, “the IEEE shall request licensing assurance, on the IEEE-SA Standards Board approved Letter of Assurance (LOA) form, from the patent holder or patent applicant.”

So, if a standard includes a potential essential patent claim, the IEEE can request licensing assurance. Once this request is received, the patent holder has four options:

• Deny awareness of Essential Patent Claim
• Submit LOA committing to
  • License Essential Patent Claim on royalty-free terms, or
  • License Essential Patent Claim with reasonable royalty, or
  • Refrain from enforcing Essential Patent Claim
• Submit “negative LOA,” declining to give any assurance as to licensing intentions
• Not respond

Now let’s explore the definitions of “reasonable rates” and restrictions against injunctive relief.


How the 2015 IPR Policy defines Reasonable Rates

According to the updated IPR policy,

“[D]etermination of such Reasonable Rates should include, but need not be limited to, the consideration of:
• The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
• The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
• Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.
Restrictions against Injunctions in the 2105 IPR Policy

This provision reads as follows;

“The Submitter of an Accepted LOA who has committed to make available a license for one or more Essential Patent Claims agrees that it shall neither seek nor seek to enforce a Prohibitive Order based on such Essential Patent Claim(s) in a jurisdiction unless:  the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review, if sought by any party within applicable deadlines, in that jurisdiction...”
Future articles will analyze this provision in more detail. For now, one prevalent view is that “Because the revisions place strict limitations on an SEP holder’s ability to enforce its patent rights against infringers, they truncate the upper range of the distribution of bilaterally negotiated RAND royalties and thus unambiguously reduce the compensation that the SEP holder may obtain for its technological contributions to the IEEE standards”. Also, most authorities agree that “This proposed IEEE IPR policy appears contrary to case law and administrative actions that have considered the availability of injunctive relief for standard essential patents and universally agree that injunctive relief should be available against unwilling licensees.”


Letters of Assurance

Once the patent owner receives the request for licensing assurance, it has the four options detailed above, which include not responding. If they choose to respond, the Letter of Assurance Template is available here. Here are the key options in the document.


Section 1 of the IEEE Letter of Assurance Template.

Here’s a quick summary of the four options, a - d.

a.    The patent owner agrees to license without compensation, with the option to require a reciprocal agreement from the licensee.
b.    The patent owner agrees to license according to the new definition of Reasonable Rates as discussed above, with the other options shown.
c.    The patent owner agrees not to enforce the patent claim for Compliant Implementations of the technology.
d.    The patent owner is unwilling to grant licenses under a or b, or to agree to c. This is called a Negative Letter of Assurance.

In its September 10, 2020 letter to the IEEE, the US Department of Justice noted that "Since the Policy went into effect, reports show that negative assurances—those in which a technology contributor declines to give a RAND assurance—have increased significantly, comprising 77% of the total Wi-Fi Letters of Assurance at IEEE between January 2016 and June 2019. As a result, in 2019, the American National Standards Institute—a leading nongovernmental body that accredits US standards—declined to approve two proposed IEEE standards amending the 802.11 Wi-Fi standard." This development indicates that the changes to the IPR policy in 2015 did not find consensus among members of IEEE. Rather, probably as a consequence of the composition of the IEEE SA Board (the IEEE’s governing body responsible for modifications to the IEEE-SA Standards Board Bylaws which contain the IPR policy) back at the time, the changes were approved despite internal criticism.



Foto di aymane jdidi da Pixabay

• The reaction to the pool’s launch has been enthusiastic. After the first phase, when public announcements were made to present the pool itself and LIFT, we contacted dozens of Wi-Fi 6 implementers (more than 200 as of today, but many more are to come as the technology gets increasingly adopted), offering a license.
• An astonishingly high percentage of them engaged with us, welcoming the valid alternative this pool was offering. It may seem too optimistic, but facts confirm our perception: the pool can already count several licensees, including the founding members, that decided to adopt LIFT in their license agreement. They clearly wanted to be the first!

• First of all, the reputation of the patent owners and their contribution to the development of the technology is a tremendous asset. Other factors are the quality of the pool’s patents – which the ongoing technical discussions are unveiling as we proceed with them – the competitiveness of the license offer, the LIFT payment scheme, and the potential to resolve the patent owners’ ongoing litigations through a pool license. All of this makes this pool very attractive to both patent owners and implementers: an effect that we perceive daily in our licensing discussions.

• A lot has been written about it: in short, it is a new royalty payment scheme, where payments are made according to the license penetration. It eliminates the competitive disadvantage that might be caused by being one of the first companies to license a new technology, incentivising early adoption.
• Under LIFT, royalty payments are adjusted based on the percentage of the market that is licensed. LIFT is not a discount scheme though: if only a small portion of the market is licensed, most of the liability is deferred (not waived) until competitors actually pay. What isn’t paid immediately is added to a basket of unpaid liability which is also paid in accordance with the market penetration and is discounted and depreciated over time. You can read more about it here and here. 

• We explain LIFT several times a week; people want to know how it works and the concrete benefits it delivers. It would be a lie to say that explaining LIFT is effortless: to provide a balance between the needs of implementers and innovators, the mechanisms of LIFT needs many elements that drive some complexity, but its benefits are real, and the perception of tangible advantages by implementers is helping us overcome the challenges.
• We continuously provide explanations, some of them high-level and some more detailed, Excel models, flow charts, …. We are doing everything we can to help people understand it and interiorize it. And, little by little, we are winning potential licensees over!

• We are, yes. Several patent owners contacted us starting from the day after the launch. There are few leads that we are confident we will be able to conclude in the next few months, which is great. More patent owners increase the reputation of the pool, and benefit all technology implementers: taking this pool license means getting a set of rights which is ever expanding, and those who already signed up for this license are enjoying this benefit.

• The latest big step has been the publication of the first version of the patent list on our website, which just happened. As we explained at the launch, it took time for the evaluation process to achieve an acceptable level of completion. The list now includes over 200 patent families and 1400 patents.
• Naturally, this list will keep increasing due to new evaluations identifying new list members, and we will periodically update it to reflect this. The publication of the patent list was the last missing brick to make this pool’s license offer truly and fully transparent: our licensing operations can now continue moving additional steps forward. We expect to see many licensing deals concluded in the coming months.

Photo from g. p. by Pixabay