• Standard Essential Patents (SEPs)
• Automotive
• Alternative Dispute Resolution (ADR). 

Organized and facilitated by licensing industry experts, the Program want to lead and inform on intellectual property policy and the tactical use of IP assets.

Out of the webinar “An Overview of Standard Essential Patents” held on October 25, 2022, with the participation of:

• Gustav Brismark (moderator), Owner, Kazehara AB, previously Chief Intellectual Property Officer at Ericsson.
• Mattia Fogliacco, President, Sisvel International
• Carter Eltzroth, Legal Director, DVB Project, and Managing Director, Helikon.net.
• Matteo Sabattini, Director IP Policy, Ericsson, and LES USA & Canada SVP for Standards.
• Richard Vary, Partner Bird & Bird, previously Vice President and Head of litigation at Nokia.

the following article published on the March ed. of LES Nouvelles was co-authored by all the speakers.

The main take-away points discussed in the article are:

• A Standard Essential Patent, when subject to a FRAND commitment, does not create a dominant position
• The IPR Policy of the SDO (together with the SEP holder’s declaration) establishes the FRAND obligation
• Licensing of Standard Essential Patents can be subjected to drawn-out negotiation, gamesmanship, and litigation
• Licensing of SEPs through a Patent Pool offers significant procompetitive efficiencies
• SDOs recognise the value of Pools covering their Standards: the experience of DVB
• Over time, Courts have clarified the scope of good faith negotiations; the nature of FRAND royalty promise; the availability of enforcement
• This framework applies even at a time of growing complexity through convergence of new industries

The full video of the webinar is available at the following link.

Setting the royalty is one critical and obviously necessary issue addressed during the patent pool formation process is. Since this is one of the most fiercely contested issues during the licensing phase, we’ll address it in this separate article both when standard-essential patents are involved, and when they are not.

The previous two articles in this series detailed what a patent pool is and how they are formed. This article will describe the startup phase and patent verification activities.

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.

From Preserving Sovereignty to Anti-Suit Injunctions

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:

• Recognizing that some countries, particularly China, have tilted the playing field to benefit their own industries, including by subsidizing industries so they can support lower pricing, and by rendering legal decisions that support their industries even if they contradict other decisions generally considered to be legally correct.
• Recognizing that “unwilling” licensees that unnecessarily delay entering into a licensing agreement should be subject to additional damages beyond FRAND royalties.
• Clarifying the duties owed by licensees to prevent hold-out behaviour and other market distortions by implementers who exploit this lack of clarity.
• Considering ways to efficiently resolve the problem of “nonpayers,” because it is unfair and anti-competitive when some implementers pay, and others, either singly or through concerted practice, act as free riders.

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.”

Factors to Consider When Setting a FRAND Royalty Rate

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.

Arbitration Solution

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 Essential
Roberto Dini – So-called Efficient Infringement Discourages Innovators
Eeva Hakoranta – We Can’t Afford Hold Out Behavior
Richard Vary – Licensing Rules Tailored for the Auto Industry will Destroy Other Successful Markets
Sir Robin Jacob – Arbitration is the Best Solution

Mr. Vary explains that we need to be careful about writing rules which are specific to the automotive industry but may destroy an establish licensing practice in the mobile industry which is orders of magnitude bigger. 

Mr. Dini highlights that the so-called efficient infringement can no longer be accepted as it discourages innovators.

Sir Robin Jacob highlights that the European Commission shouldn't get involved in deciding whether something is FRAND or not FRAND; they should force parties into arbitration.

On 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.

On March 2020, Sisvel launched a new patent pool related to the DVB-SIS standard, which allows for terrestrial retransmission of signals addressing DTH satellite receivers program.

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.

Patent pools are widely considered an efficient mechanism to acquire rights to patented technologies, but few researchers have estimated the value of that efficiency. Here we show the results of a research published in a 2017 law journal article, by two law professors.

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.

Bloomberg, Susan Decker, March 10, 2020 (subscription may be required)

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.”

Streaming Media Magazine, Adrian Pennington, March 10, 2020

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.”

C|Net, Stephen Shankland, March 10, 2020

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.

IAM, Joff Wild, March 10, 2020 (subscription required)

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.”

World Intellectual Property Review Rory O’Neill, March 11, 2020 (login required)

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.

ibc.org, Adrian Pennington, March 10, 2020

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.”

A recent series of BGH decisions has 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. Sisvel is hosting a free webinar on December 15 at 5:30 CET (11:30 AM EST) to discuss the cases and their implications.

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.

IPWatchdog

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."

Juve Patent

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."

AEONLaw

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."

Key Findings

To summarize, the ruling in Sisvel vs. Haier established four key findings that level the playing field between infringers and patent owners.

• The infringer “must clearly and unequivocally declare his willingness to conclude a license agreement with the patent holder on reasonable and non-discriminatory terms and must also subsequently participate actively in the license agreement negotiations in a target-oriented manner.” Failure to do so provides exposure to injunctive relief; Factors include, for example, whether the infringer continuously asks for additional technical information, particularly information that is otherwise available.Potential licensees shall also, for example, retain external experts to analyze the license offer.
• Defenses based on regional license counteroffers to globally based license offers do not pass muster.
• The definition of FRAND does not necessarily require the same rate for all licensees.
• An infringer who refuses to meet his FRAND obligations loses the ability to rely on FRAND to import license terms.

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.

All patent pools launch with high aspirations and lofty goals. Most achieve modest success, while some fail outright. Others achieve spectacularly.

This case study presents the history of Sisvel’s slow starting but ultimately very successful DVB-T2 pool. Along the way, we explore how to measure a pool’s success and the factors that patent pool administrators and licensees within a pool can control that will help promote the pool’s success.

Let’s start with some background information about what DVB is and how patent pools operate.


ABOUT DVB

DVB stands for Digital Video Broadcasting, and in general, DVB defines a set of standards involved in distributing digital television via satellite, cable, and terrestrial broadcasting over the blue geographic regions shown in Figure 1. Collaborative development towards the DVB standards began in 1991 with the first standard released in 1994, with separate specifications for DVB-T (terrestrial), DVB-S (satellite), DVB-C (cable), and other elements.
 
Figure 1. DVB is the relevant standard for digital broadcasting in all blue areas on the map above.


ABOUT PATENT POOLS

As the name suggests, patent pools are groups of patent holders that own patents relating to a particular technology or standard, like DVB-T or DVB-S. These owners collectively agree to license their patents to companies that want to build products that utilize these technologies. Owners work with a patent pool administrator like Sisvel to set royalties and other business terms, and the patent pool administrator handles all licensing operations.

At their best, patent pools benefit both patent owners and implementors. Implementors gain the ability to enter a market without the time and expense of foundational R&D (as opposed to product-related R&D) and can acquire patent rights from multiple parties through one efficient agreement.

Patent owners get royalties for the use of their technologies, which typically funds new innovations that enable future generations of the standard and related products, benefitting society as a whole. They also get to leverage the manufacturing and distribution expertise of licensees to expand the market much further than possible had the patent owner group been the sole implementors. For more on patent pools, see here and here.

Patent pools typically exist through the effective life of the covered patents. At times, patent owners decide to leave the pool and offer their patents directly to implementors. While licensing terms are almost always set when the pool is launched, sometimes the patent owners and administrators change the terms to improve performance or welcome new patent owners.


GAUGING POOL PERFORMANCE

Patent pool administrators seldom, if ever, disclose licensing revenue or other direct measures of pool performance. However, one can gauge pool performance via publicly available data such as:

The performance of the underlying technology - Simply stated, the pool exists to support the success of the underlying technology. If that technology doesn’t achieve significant penetration in relevant markets, it’s challenging to call the pool a success.

The percentage of implementors that are licensees - No pool licenses all implementors; companies enter and leave markets all the time, and implementors can number in the hundreds or even thousands. But the higher the percentage of licensed implementors, particularly the larger implementors with the greater market share, the greater the revenue back to the patent owners.

Higher penetration also means a more level playing field for licensees, who are, in effect, sharing the cost of the foundational R&D, which adds to their costs of goods. The playing field isn’t level if some implementors pay royalties and others do not. A higher percentage of licensed implementors also speaks to the overall fairness of the licensing terms, and the success of the pool administrator’s licensing and enforcement efforts.

The percentage of truly essential patents that are represented in the pool and that are otherwise actively licensed. This is both an indicator of performance and a contributor to performance. In general, when a pool includes a higher percentage of the truly essential patents that are actively licensed by patent owners and that cover the technology, it means that the proposed licensing and other terms make strong economic sense to the patent owners who have joined the pool. It also means that the pool provides greater benefits to implementors by reducing administrative and often overall royalty costs, which makes the licensing agreement more palatable and easier to consummate.

By contrast, the lower the share of truly essential and actively licensed patents in the pool, the greater the likelihood that there are other patent holders or pools with more patent rights that implementors will choose to deal with first. This delays revenue, increases licensing costs, and can force costly litigation.

Retention of pool members. When patent owners leave a pool, it signals their dissatisfaction with pool performance, and that they believe that they can achieve a better return by licensing directly. Conversely, if a pool member returns to a pool, it means that the grass wasn’t, in fact, greener on the other side of the fence.

With this as background, let’s explore the history of Sisvel’s DVB-T2 and related pools.


SISVEL and DVB-T/DVB-T2

The first DVB-T pool was founded by MPEG LA in July 2001 and transferred to Sisvel in August 2008, which quickly allowed for a stronger penetration and an uptake in royalty revenues. At the time of the transfer, there were four pool members, France Télécom (now Orange), TDF SAS, Matsushita Electric Industrial Co., Ltd (now Panasonic Corporation), and Victor Company of Japan, Limited (JVC), with KPN joining the pool in January 2008.

As a technology, DVB-T was very successful. In the covered geographic regions, DVB-T was the first digital technology that succeeded analog TV and ultimately become the “most widely used digital television standard in use around the globe for terrestrial television transmissions.”

The success of DVB-T led to DVB-T2, which was standardized in June 2008 and first commercially deployed in 2009. Sisvel announced the DVB-T2 pool on September 9, 2010. At the launch, the pool had six members, including users like the BBC, Orange (formerly French Telecom), and Nokia. LG joined the pool soon thereafter. Initial pricing is shown in Table 1.

SLOW GOING

As the first terrestrial digital broadcasting technology, DVB-T proved remarkably enduring and the transition to DVB-T2 proved slower than expected, and patent owners Nokia and LGE left the pool. In late 2017, Sisvel proposed important changes to its terms and conditions that it felt would accelerate the program. The remaining patent owners supported the new terms, which were announced in May 2018. Relevant changes included:

• A reduced royalty for consumer products with either an encoder or decoder, but not both (€ 0.75). The rate for a product with both encoder and decoder remained at € 1.00.
• Introduction of royalties rates for professional products with encoders (€ 18.00), decoders (€ 18.00), or both (€ 24.00)
• A reduced royalty for compliant licensees (20% discount for consumer products and 17% discount for professional products).

To encourage rapid adoption, Sisvel included “Early Bird conditions” that further reduced the licensing cost for companies signing a DVB-T2 license agreement for professional products within six months of receiving a notification letter from Sisvel and no later than Dec 31, 2018.

Please refer to the Sisvel website for current pricing.

Along with the new pricing was a strategic vision to target large implementors with patent portfolios, both as licensees and to join the pool as licensors. The key message to these implementors was that by adding their patents to the pool, they would simplify the licensing picture for new implementors, generate a return on their innovation, reduce administrative and royalty costs for implementors entering the market, and greatly accelerate the market development of the DVB-T2 technology.


AN OVERNIGHT SUCCESS - 8 Years Later

The market responded. Over a span of 5 months, Sisvel signed agreements with major manufacturers like Samsung, LG Electronics, and Sony, both as licensees of the pool, and licensors within the pool. In fact, Sisvel added all the remaining companies that contributed technology to the DVB-T2 standard. This totaled more than 1.700 essential patents from over 60 countries owned by ten patent owners, including the BBC, DTVG Licensing, ETRI, Fraunhofer, IMT Atlantique (formerly Telecom Bretagne), LG Electronics, RAI, Samsung, Sony, and TDF. This makes the pool a true one-stop-shop for all patents necessary to implement a product incorporating DVB-T2 technology.
 

Figure 2. Samsung joins the Sisvel DVB-T2 pool as licensee and licensor.

Without question, these patents added very significantly to the overall value delivered to pool licensees. However, acting upon Sisvel’s strong recommendation, the patent owners decided to focus on accelerating market development and not to increase the pool licensing cost.

The impact was dramatic. To date, more than 195 companies have been licensed. This includes top TV manufacturers like LGE, Sony, Panasonic, Samsung, TPV, and Vestel, and set-top box manufacturers like Arcadyan, Netgem, Sagemcom, Strong, Technicolor, Technisat, Telestar, Telesystem. Negotiations with other companies are also at an advanced stage. Most importantly, as shown in Figure 4, DVB-T2 overtook DVB-T as the dominant terrestrial technology, accelerating the patent owner's return on investment.
 

Figure 3. DVB-T2 overtakes DVB-T as the dominant terrestrial technology (from here).


THE WORK CONTINUES

It’s unfortunately difficult to tell a story about a patent pool without mentioning litigation. Despite the worldwide recognition of the pool’s validity, there are some implementers that refused to take a license. For this reason, some members of the Sisvel’s DVB-T2 patent pool filed litigation - inter alia - in Germany enforcing some patents of the pool against Hisense and TCL Technology, two Chinese multinational electronics companies. Those cases came to settlement before being adjudicated, confirming once more the strength of the DVB-T2 pool. More actions against other unwilling companies are also under preparation.

To create a level playing field, when negotiation fails or is constantly delayed by “hold-out” tactics, litigation remains the only tool available against companies engaged in any kind of efficient infringement. Litigation is not only in the best interest of patent owners, who need to monetize their IP assets to recoup the huge investments made in R&D but also of all the willing licensees who honestly took a license.


A SUCCESS BY ANY MEASURE

By any measure, the DVB-T2 pool has been a resounding success. DVB-T2 became the dominant terrestrial technology, the pool signed a dominant majority of implementors of DVB-T2 technology, and the pool now represents 100% of DVB-T2 related patents. And, yes, LG Electronics rejoined the pool, as did the DVB-T2-related patents of Nokia, which were acquired by Samsung and added to the pool with Samsung’s other related patents.

Not surprisingly given this success, Sisvel’s participation with DVB expanded to cover most licensing programs offered by the European standards body as shown in Figure 4. This makes a lot of sense, of course, since many of both the patent holders and implementors are the same for multiple pools.

 
Figure 4. Sisvel is the patent administrator for most DVB licensing programs (from here) including DVB-SIS.


KEY TAKEAWAYS

What are the key takeaways from this? What lessons can patent pool administrators and patent owners take from this story? There are many, but here are some key ones.

A Critical Mass of Patents is Fundamental to Pool Success

It’s not always possible to accumulate 100% of the truly essential patents for any covered technology; in fact, this is the exception, not the rule. That said, when key implementors join the pool, it helps legitimize the license offering and accelerate licensing of other large and smaller players.

Many technology standards are dominated by a small number of major patent owners that license directly, and then a number of companies that own good essential patent portfolios and that are willing to offer the market the efficiencies stemming from the creation of pools. A single pool comprised of these companies offers a strong value proposition and a critical mass that can’t be ignored.

Depending on the market and the concrete conditions, what constitutes critical mass varies: in particular, if there are several patent owners who do not actively license their patents or are not willing to enforce rights to maintain a level playing field, critical mass can be represented by those patent owners who are willing to defend the rights of licensors and licensees.

Multiple pools in the same technology, however, not only offer less value but also generate a negative dynamic where implementors cannot chose one or the other, ignore them both or worst, use the existence of the other pools to hold-out. The risk is not merely theoretical, it is very much a real-life issue: this has been demonstrated in the licensing of standard essential patents in video coding and in particular in H.265. It took time and litigation to clarify the situation and see substantial endorsement of one pool.

Licensing Terms Must Focus on Long Term Market Success

If the technology doesn’t succeed or underachieves in the marketplace, the patent owners' return on their R&D investments may not be fully realized. For this reason, licensing terms should accelerate widespread technology adoption rather than the hope of short-term revenue gains.

Licensing terms are not a “one-size-fits-all” operation; even from one technology generation to the next, terms may need to be customized to maximize success. In addition, some flexibility should be built into licensing terms to facilitate negotiations.

Experience Matters

When choosing a patent pool administrator, familiarity with the market and key implementors and recent successes are absolutely critical to crafting the optimal business terms (and pivoting when necessary). In particular, an administrator with previous success in signing licensing agreements with key implementors will have a relationship that will accelerate all phases of the licensing workflow.




Image courtesy of DVB