Today’s consumers enjoy an incredible range of products that deliver enhanced convenience, safety, entertainment, and many other benefits. Many of these products are built upon technologies developed by companies that don’t actually manufacture the products. While these manufacturers are quite happy to harvest the profits delivered by technology owned by others, they’re often reluctant to pay a fair share back to the companies that invented the technologies upon which they are based. This has caused a crisis that threatens to throttle the innovation that delivers the new products that consumers love to buy and own. Levelling the playing field to ensure that innovators get a fair reward for their investments in technological progress and implementers continue to convey the benefits of these innovations to society remains a critical goal.
Some of the recent legal developments and discussions surrounding this fundamental issue were tackled by the article, Restoring Balance and Clarity in the Innovation Ecosystem, which appeared in the September issue of The Licensing Journal. It’s authored by an all-star cast of intellectual property professionals, including Roberto Dini, Founder of Sisvel, Sir Robin Jacob, Sir Hugh Laddie Chair of Intellectual Property Law at UCL, Eeva K. Hakoranta, EVP, Chief Licensing Officer at InterDigital, Gustav Brismark Founder and CEO at Kazehara & Former Chief IP Offers at Ericsson, and Richard Vary, Partner at Bird&Bird. By way of background, the article was inspired by a webinar session of the same name produced in May 2021 for the LES International Annual Conference.
The article first puts in context the Anti-Suit Injunction (ASI) phenomenon by briefly reflecting on the history of SEP-based patent litigation, and thereafter addresses three topics: how to support the standards-based innovation ecosystem, factors to consider when setting FRAND rates, and the benefits of arbitration to resolve patent-related disputes.
The article will be highly useful to all IP professionals, particularly those charged with setting or enforcing IP-related policies.
To set the stage, the authors review the case law surrounding the licensing of standard-essential patents (SEPs) like those involved in communications technologies like cellular and Wi-Fi where standards are necessary to ensure broad-based compatibility between systems and devices. Since many products are sold in multiple jurisdictions, the issue of setting a global royalty rate is paramount. In Unwired Planet v. Huawei, the UK Supreme Court found that a national judge could set a global royalty rate. However, the Court preserved the sovereignty of other jurisdictions by presenting the technology implementor with a choice; either accept the global rate or receive an injunction from selling products in the UK which was the country of the patent infringement lawsuit.
The author’s point out that this decision has been misconstrued by other courts, particularly those in China, which have proceeded to set a global rate in the absence of an underlying patent infringement lawsuit and with no measure to preserve the sovereignty of other jurisdictions. In fact, in multiple instances, Chinese courts have set global rates and issued anti-suit injunctions (ASIs) to stop lawsuits in other jurisdictions, which positions the ASI “as a tool...to defend the interests of their local industries.”
Supporting the Standards-Based Innovation Ecosystem
The authors posit that “the European Commission, competition authorities, SSOs and courts have a fundamental role to support the standards-based innovation ecosystems, avoiding market distortions.” A partial list of priorities include:
The authors conclude this section by highlighting the importance of rewarding research that will deliver new and improved products stating that “Failing to recognize this essential driver of technological progress may discourage innovators from investing in new research. Alternatively, they may decide to avoid participation in the standardization process and revert to proprietary, closed solutions, or trade secrets.”
The authors next shifted their focus to factors to consider when setting a FRAND royalty rate, observing that standards must benefit innovators as well as implementors and consumers. To do so, “a FRAND royalty rate should reflect the value of patented functionalities included in any product; the higher the value generated, the higher the royalty rate” (emphasis supplied).
One particular focus was a call to reject “component-level licensing”, which bases the royalty calculation on the price of the component rather than the value the technology brings to the end product. Under this theory, car manufacturers have argued that royalties for cellular connectivity should be based upon the value of the mobile chip rather than the value that cellular technologies deliver to the end product. This, of course, ignores the fact that few, if any, consumers would buy an $80,000 car that lacked cellular capabilities.
The last subject tackled in the article was a call to arbitration to resolve royalty disputes. Recognizing that royalty negotiations involve complex issues on both sides, the authors ask the question, “When the negotiation fails, is litigation the only tool available?” No, they conclude, finding arbitration faster, cheaper, and a more complete solution than expensive litigation in multiple jurisdictions.
To promote arbitration, the authors make several suggestions, including that standard-setting organizations should encourage arbitration among their members and that competition authorities should imply a fair obligation for “both patentees and implementers to arbitrate.” Finally, the authors call for national judges to advocate for arbitration, and find that “if a party refuses to enter arbitration, this should be considered evidence of being an unwilling licensee” addressed by injunction or additional damages.
Overall the article highlights the importance of delivering value back to innovators and stopping the “efficient infringement" which threatens to discourage investment in new research to deliver the next generation of products that consumers want and our economies need. To avoid this, authorities should provide a clear guidance in SEP licensing negotiations, dissuade parties from procedural litigation like ASIs, and foster arbitration.
For more insights, please have also a look to the following excerpts from the panel “Restoring Balance and Clarity in the Innovation Ecosystem” produced in May 2021 for the LES International Annual Conference.
Gustav Brismark – ROI to the Innovators is EssentialOn May 27, 2020, Sisvel announced that Mitsubishi Electric Corporation and Spain-based Tremmen Tecnologica S.L. have entered into patent licensing agreements for Sisvel’s VP9 and AV1 Licensing Programs. The companies are the first two licensees of the pools, where were announced in March 2019 with the patent lists published in March 2020.
The VP9 program includes twelve patent owners and the AV1 program has fourteen. The initial lists of patents included more than 650 for VP9 and over 1,050 for AV1. Once the evaluation process for the patents identified to-date is complete, Sisvel expects to reach a total portfolio offered for license of around 1000 patents for VP9 and nearly 2000 for AV1. The current lists of patents are available at this link.
More information on the patent pools is available at this link. You can view the press release by clicking here.
On May 2018, Sisvel announced new conditions to the DVB-T2 Licensing Program for Professional Products, the most advanced standard for broadcasting digital television on terrestrial networks.
Any sale, purchase and manufacturing of unlicensed DVB-T2 Professional Products before January 1st, 2017 is not taken into account for royalties to be paid.
In addition, Early Bird conditions have been set for companies who sign the DVB-T2 license agreement for professional products within 6 months of notification letter (in any case, no later than December 31st, 2018).
On April 2020, Sisvel announced the launch of a joint patent licensing effort for the MIOTY technology.
Sisvel’s MIOTY licensing platform currently includes patents owned, or controlled, by Fraunhofer IIS and Diehl, which are cooperating in the field of wireless technology for low power wide area networks (“LPWAN”). The platform remains open and additional patent owners with relevant patents to the protocol family TS-UNB of the ETSI standard TS 103 357 can contact Sisvel for an essentiality evaluation.
On April 2019, Sisvel launched the JPEG-XT Joint Licensing Program, with patents owned, or controlled, by Dolby International AB and Trellis Europe S.r.l.
JPEG-XT technology overcomes conventional JPEG limitation. Among its main benefits are backward compatibility, interoperability, preservation of the whole picture information (colours, luminance) and non-destructive edits, offering a true high-dynamic-range (HDR) quality, but much smaller than raw file in size.
Previously managed by S2 Licensing, on April 2020 the DVB-S2 patent pool joined the family of DVB programs licensed by Sisvel. It offers a FRAND license to patents owned by AT&T Intellectual Property, LLC, RAI – Radiotelevisione Italiana S.p.A. and The European Space Agency (ESA).
By administering DVB-S2 together with the DVB-S2X pool, Sisvel can now act as the reference point for this technology, making patents under these standards more easily accessible to the market for the benefit of both patentees and licensees.
On December 2019, Sisvel and Spotify signed a confidential patent license agreement that resolves previous litigations and welcomes Spotify as a new licensee of Sisvel’s Recommendation Engine licensing program.
Spotify joins a growing number of companies that have access to a portfolio of over 350 patents related to the Recommendation System Technology managed by Sisvel.
On March 10, Sisvel re-launched the AV1 and VP9 patent pools, adding nine new members and releasing initial patent lists for both pools. You can access the press release here. This blog post lists the news coverage relating to this announcement, with quotes and comments about each article.
Ms. Decker is the patent reporter for Bloomberg News in Washington. As the headline suggests, Ms. Decker initially focused on the new members and reported that the pool brought “together hundreds of patents owned by a dozen companies as a “one-stop-shop” for companies that use the VP9 and AV1 video coding formats” citing Sisvel sources.
In a nod to the contributions of non-practicing entities, Ms. Decker also noted that “The pool members, which also include Dolby Laboratories Inc. and InterDigital Inc., are tech companies that have been contributing to the growth of the streaming industry but have no other way to recoup their investments than royalties on patents because they don’t make money directly from products.” Ms. Decker did note that “the new pool could face pushback from the companies that developed the two formats, including Alphabet Inc.’s Google.”
Mr. Pennington is a freelance writer who has written about AV1 and the Sisvel previously at IBC.org (login required). His overview positions the pool, which he reported should “reach a total portfolio offered for license of around 1,000 patents for VP9 and nearly 2,000 for AV1,” against AOMedia, which is “supported by companies either controlling huge ecosystems or developing chips that are used by hundreds of millions of customers worldwide.”
Quoting Sisvel CEO Mattia Fogliacco, Mr. Pennington also concisely frames the business and legal issue as follows: “AOMedia member companies have a good reason to offer their technology in AV1 for free,” Fogliacco argues. “They sell chips, video cards, or devices so they make money to finance their R&D techniques in other ways. “The people we represent don’t have that outlet for their contribution to video coding technology and are seeking to obtain in the form of a licence and royalty.
“It boils down to the fact that many patent holders for VP9 and AV1 are not members of AOMedia and so did not make any pledge to make this technology royalty free.”
The article also delineates Sisvel’s position on what is licenseable, stating, “Sisvel will not seek royalties for encoded content and currently only hardware implementations are being licenced – but this could change.”
Mr. Shankland is a senior reporter for CNET who has written about AV1 and other codec-related stories. Essentially, Mr. Shankland positioned the debate as between “Open vs. Proprietary,” reporting that, “Fans of open sharing — such as those in the now dominant open-source software movement — benefit from cooperative development and free use of the resulting products. The proprietary realm, where technology only may be used after fulfilling copyright and patent license agreements, is more restrictive.”
As a result, the article has a narrow focus and doesn’t cover several essential goals and aspects of the VP9 and AV1 pools. It has been pray of misinterpretations in blogs, where AOMedia company members have been presented as virtuous do-gooders who want video to be free, and pool members as those who “think there needs to be a new toll on the streaming video road.” This characterization ignores the fact that Google and AOMedia, who are the only one designing VP9 and AV1, choose to use technology protected by the patents in the Sisvel pools without consultation or authorization, and unfairly presents Sisvel and the patent owners as the bad guys in this story.
No design choices made to include third parties IP, no infringement, no patent pool; if AV1 and VP9 infringe upon the patents in the pools, the patent owners have every right to charge royalties.
Mr. Wild is Editor-in-Chief of IAM, which the magazine presents as the world’s leading IP business media platform. He starts by concisely detailing the announcement, writing, “Dolby, ETRI, Ericsson, GE, InterDigital, IP Bridge, NTT Docomo, SK Telecom and Xylene have joined forces with JVCKENWOOD, NTT, Orange, Philips and Toshiba Business Expert Corporation, which were already members of the platform that launched in March 2019 and which comprises two licensing programmes: one for over 650 patents relevant to the VP9 coding format and the other for more than 1,050 rights covering AV1.”
Citing Mr. Fogliacco, Mr. Wild succinctly describes the opposing stances taken by the AOMedia and the patent owners in the Sisvel pools. “Businesses invest in R&D for many reasons, Fogliacco states. Members of the Alliance for Open Media, he argues, believe that their best route to monetisation is to build products and services that use the AV1 codec and then to charge for items such as operating systems, CPUs, graphics chips and SoCs, and computers and mobile devices, as well as services and content. On the other hand: “The members of the Sisvel pool believe the best way to monetise their deep investments is through licensing.”
Also citing Sisvel’s CEO, Wild details the due diligence supporting the patents included in the pools. “Two levels of technical due diligence were performed on the patents, he says: one was done by technical experts in Sisvel, who have many years’ experience of participating in video coding standardisation efforts; while the other was undertaken by independent, third party, professionally accredited evaluators. This was to guarantee a very strong level of scrutiny of the patents included in the programmes.”
Rory O’Neill is a journalist with WIPR who covers intellectual-property related matters. His story largely focused on the timing of Sisvel’s licensing efforts. On this, O’Neill reported that “Sisvel’s CEO Mattia Fogliacco says the platform will look to begin licensing negotiations with manufacturers in the next month…Fogliacco said he is confident that their offer is fair and accessible to the market. ‘I am sure that whoever looks at the licence offer we are putting on the table will see that it is intended to endorse adoption of the technology.’”
O’Neill, accurately reported that it was Google’s and AOMedia’s actions that resulted in the patent pools being formed, not Sisvel. “One of the worries I had, when we launched the platform, was that patent owners and Sisvel would be blamed for charging royalties,” Fogliacco told WIPR. “But we did not have any say in choosing which patented technologies are used in the VP9 and AV1 formats,” he added.
Another, more general article on codecs by Mr. Pennington, where he accurately summarizes how the pool announcement impacts Google and AOM, and how the pools can benefit the codec market. On the first point, Mr. Pennington reports, “Sisvel has published a list of additional patents – more than 650 for VP9 and 1,000 for AV1 – and expects to reach a total of around 1000 patents for VP9 and nearly 2000 for AV1. That means that the AOM either needs to concede licence terms with Sisvel or contest Sisvel’s pool claims – a process which at best could delay implementation of AV1 and at worst lead to huge legal expense and the internecine wranglings which beset HEVC.”
On the potential benefit to the market, Mr. Pennington shares, “Our goal with these pools is to reduce the friction in the market,” says Sisvel chief executive Mattia Fogliacco. “We believe pools create efficiency by enabling potential implementors to sign one agreement licensing multiple patent portfolios in one transaction at a reasonable and transparent cost.”
The end of 2020 saw the German Federal Supreme Court’s (BGH) final decision in Sisvel vs. Haier. To us at Sisvel, this was a monumental decision which we asserted, “radically redefined the obligations of SEP implementors in patent negotiations as well as the remedies and damages available to patent owners when implementors deploy hold-out strategies and other delaying tactics.”
Well, we weren’t the only ones who considered the decisions significant; when several IP publications summarized their key rulings for 2020, Sisvel vs. Haier was frequently mentioned.
For example, in IPWatchDog’s article, The Year in Patents: Ten Developments We’ll Remember From 2020, authors Gene Quinn and Rebecca Tapscott stated, "The German Court in Sisvel v. Haier agreed with what had become a growing body of law in lower courts across Europe, namely in the Netherlands in Philips v. Asus and in the United Kingdom in Unwired Planet v. Huawei, that there is no prohibition against an injunction simply because a patent in question is standard-essential. Furthermore, the Sisvel court held that an SEP holder can offer different rates to different licensees and also explained that the SEP holder is only required to make a FRAND offer if the SEP holder has received an adequate declaration of a willingness to license.
Subsequently, at the end of August, the much-anticipated decision of the Supreme Court of the United Kingdom in Unwired Planet v. Huawei held that it is appropriate for UK courts to set worldwide FRAND rates. Furthermore, the UK Supreme Court, in agreement with lower tribunals and the German Federal Court of Justice in Sisvel, similarly ruled that SEP holders are allowed to offer different FRAND rates to different licensees. The Unwired Planet court also explained that an SEP hold does not abuse power as long as there is a showing of a willingness to license."
In another IPWatchdog article entitled, What Mattered in 2020? Industry Experts Have Their Say on This Year’s Biggest Moments in IP, two of the contributors mentioned Sisvel vs. Haier. First, Nathan Mutter from Holland & Hart stated, “The German Federal Court of Justice (FCJ) clarified in Sisvel v. Haier that implementers of SEPs defending against an injunction should express an unconditional willingness to take a license on FRAND terms without employing negotiation delay tactics or waiting for a judgment of patent validity or infringement.”
Then Gene Quinn reiterated some comments from the Ten Developments article, stating: "Then, on the heels of Unwired Planet, the German Federal Court of Justice agreed in Sisvel v. Haier that an SEP holder can offer different rates to different licensees. The Sisvel court also explained that the SEP holder is only required to make a FRAND offer if the SEP holder has received an adequate declaration of a willingness to license. All of this together with the U.S. Department of Justice issuing Avanci a positive business review letter (BRL) regarding its proposed patent pool, and Avanci also prevailing in antitrust litigation regarding licensing of SEPs, 2020 was a big year for SEP owners."
In the article Top trends in European patent law 2020, Juve Patent Co-editor Mathieu Klos wrote, "However, it was the German Federal Court of Justice that made the first big splash of the year in European FRAND case law. In May, the court ruled that Haier is infringing an SEP of NPE Sisvel. The court also ruled that Haier is acting as an unwilling licensee in FRAND negotiations. This significantly raised the bar on FRAND rules for implementers."
Sisvel vs. Haier was also mentioned in AEONLaw’s article, Who decides what patent licensing terms are “fair”?, where author Adam Philipp wrote: "Courts in different countries may have different views on what’s “fair.” For example, in the German case of Sisvel International v. Haier Deutschland GmbH, the court held that a royalty rate offered to a licensee that was much higher than a rate previously offered to a Chinese corporation wasn’t “discriminatory” because the earlier deal was made under pressure from the Chinese government."
To summarize, the ruling in Sisvel vs. Haier established four key findings that level the playing field between infringers and patent owners.
As the expert panel discussed in this webinar, these precedents impact not only Germany but the EU and the United States as well. If you register for the webinar you can watch the archived version.
When launching the Video Coding Licensing Platform (VCLP) and the two patent pools on VP9 and AV1 in March 2019, Sisvel and the founding members were strongly convinced about the value that this effort would be delivering to the video coding ecosystem: balancing and meeting the needs of both innovators and implementers.
Here we explain why Sisvel decided to dedicate a full year to fostering the inclusion of additional Patent Owners in VCLP before initiating any licensing operations.
At that time, Sisvel decided to dedicate a full year to fostering the inclusion of additional Patent Owners in VCLP before initiating any licensing operations, striving to create a true One-Stop-Shop for VP9 and AV1, which is the ultimate goal of every patent pool administrator.
In this past year, Sisvel has been humbled by the participation of many new Patent Owners alongside our founding members. The pools now see the active engagement of many key innovators in the video coding domain and we are happy to re-launch the two pools, having now 14 members contributing several hundred patents to the VCLP.
This impressive increase and participation proves that our decision to dedicate time to be as inclusive as possible has paid back, to the benefit of the ecosystem as a whole. Once it became clear that many unlicensed patents were reading on VP9 and AV1, creating an easy, efficient and transparent system to obtain licenses under those patents was important to foster the technology adoption. We believe that the creation of VCLP has achieved this goal, also thanks to the choices made by the Patent Owners and Sisvel, namely maintaining the royalty rates at the same level, notwithstanding the surprising growth of patents offered for license, and keeping content distribution royalty free under the pools are just some examples.
Strong investments have been made in carefully selecting those patents which are now part of the programs, with a two-pronged approach to the evaluation of patents: both seasoned technical domain experts in Sisvel as well as independent and professionally accredited third-party evaluators have been engaged. The validation of the patent portfolios participating to the license offers implied the use of a tremendous level of resources: the investments made to date by Sisvel and the Patent Owners will be key in supporting the market players when assessing Sisvel´s license offer and the necessity for a license. Sisvel will welcome requests of technical discussions to explain how patents offered for license are used when practicing VP9 or AV1.
Today, Sisvel and the VCLP Patent Owners are even more convinced about the value of our efforts: we believe that today is a positive day for the entire innovation ecosystem in the video coding domain.
For more information about the licensing terms, please visit: this link.
Innovation and technology are fundamental drivers of the world economy and intellectual property is a vital tool to protect and foster this ecosystem. By supporting innovation, we create incentives for R&D, providing firms with a new revenue stream for further economic development.
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