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LTE patent pools create licensing royalty rate lines in the sand

An eagle eyed reader of the IAM blog, who also happens to be a very big player in the IP marketplace, has got in contact with a link to the licence fees the new Via Licensing LTE patent pool – the membership of which currently comprises AT&T, Clearwire, DirecTV, Hewlett Packard, KDDI, NTT DoCoMo, SK Telecom, Telefonica and ZTE, with more expected to come – will be charging for access to its patents. They are:

General Terminal Products

Volume (per unit/annual reset)   Per Unit Fee

For the first 1 to 500,000 units   $3.00

For units 500,001 to 2,500,000   $2.55

For units 2,500,001 to 5,000,000   $2.40

For units 5,000,001 to 10,000,000   $2.25

For units 10,000,001 or more   $2.10

Data Terminal Products*

Volume (per unit/annual reset)   Per Unit Fee

For the first 1 to 250,000 units   $1.50

For units 250,001 to 500,000   $1.28

For units 500,001 to 1,000,000   $1.20

For units 1,000,001 to 5,000,000   $1.13

For units 5,000,001 or more   $1.05

Femtocell Products (Home eNodeB)

Volume (per unit/annual reset) Per Unit Fee

For the first 1 to 50,000 units   $2.00

For units 50,001 to 250,000   $1.90

For units 250,001 to 500,000   $1.80

For units 500,001 to 1,000,000   $1.70

For units 1,000,001 or more   $1.60

*Data Terminal Products are limited to a specific list of product categories (that include LTE products which provide only limited or special purpose functionality), as defined in the LTE Patent License Agreement. All other terminal products fall in the General Terminal Product category.

My contact has also provided a few comments:

We need to dig further to understand if these rates are aspirational between the pool members (notice that Apple, LG, Nokia and Samsung are absent by the way) or whether these are pre-agreed rates actually being deployed in negotiations.

To my mind, it’s a clear power-play by the carriers to determine a ceiling on what constitutes FRAND in LTE (given the Apple/Moto/Samsung controversy on what actually FRAND is). The interesting thing about this is that is being driven by the CARRIERS not Apple or Samsung or other terminal companies, so it should have much more weight and credence in the courts. However, if this pool starts suing people and asking for injunctive relief from infringers, given the semi-monopolistic state of the carriers in the USA in particular (80% of traffic is from AT&T and Verizon), then there may be serious anti-trust issues.

The point is that it’s a line in the sand drawn and for other pools and entities outside the pool, as many have found from standards licensing other standards like 3GPP, MPeG2, MPEG4, it sets a precedent that the judges cannot help but make comparisons to.

What would be really interesting is to find out is how many patents are in this pool because then it would be possible to calculate what the price/per essential patent will be, as this will definitely set the bar on a per-patent basis.

Whatever else, these rates are going to be very helpful in terms of benchmarking in LTE licensing negotiations generally - and there are bound to be quite a few of these in the coming years.

Over in Europe, meanwhile, Sisvel has announced the creation of another LTE patent pool. This includes patents transferred to Sisvel by Nokia at the beginning of this year, as well as others owned by Cassidian (which is an EADS company), the China Academy of Telecommunication Technology, the Electronics and Telecommunications Research Institute, France Telecom, TDF, and KPN. This pool is charging a flat per device fee of €0.99, which makes its rates a lot less than those being charged by the Via pool; although, the patents will obviously be different and may well read on different types of LTE-related technology, while the geographies covered may not be exactly the same as those covered by the Via patent pool. But whatever else, it is also more data for licensees, licensors, courts and others to compute. Many will welcome that. Some, of course, may not!

Joff Wild
IAM Magazine
05 November 2012

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RE: LTE patent pools create licensing royalty rate lines in the sand

I have managed to put some rough numbers to the number of (US) patents in the Sisvel and Via pools, based on a recent study by iRunway. There are full details on my blog (http://blog.patentology.com.au/2012/11/fragmented-patent-pools-will-not-end.html), but the short version is that the combined pools cover no more than about 5% of all LTE patents, and aside from the ETRI and former Nokia patents in the Sisvel pool (which is the cheaper of the two) there are very few high-value patents represented.

Samsung and Qualcomm together hold about 15% of all LTE patents, and about 25% of high-value patents. They are each individually far more significant than either of these pools, and currently therefore have no incentive to sign up to such an arrangement.

Furthermore, if the carriers are seeking to set a 'high water mark' for LTE patent royalties through the Via pool, they've got it wrong! At US$3.00 for a 'terminal' licence, based on mainly lesser LTE patents, I estimate that they are valuing the totality of the LTE standards-essential patents at something in excess of US$100 per device! (And that is, of course, before you start factoring in other patents that need to be licensed for a smartphone, tablet or the like, such as those covering video coding.)

Incidentally, pool operators generally cannot sue for patent infringement. The usual model is that the patent owners provide a nonexclusive licence to the pool operator, with sublicensing rights. The pool then manages the sublicenses on behalf of all members. Since the operator is generally neither a patent owner (Sisvel would be an exception here) nor an exclusive licensee, it has no standing to sue for patent infringement.

Additionally, to avoid competition law (i.e. antitrust) concerns, it is not generally possible to compel users of the patented technology to license through the pool -- they must continue to have the right to seek licences form the individual patent holders, should they choose to do so. Accordingly, a prospective licensee who refuses to take a pool licence cannot be sued for this reason alone. For any unlicenced user, it remains the responsibility of the patent owners to sue for infringement.

Once a party has signed up for a pool licence, however, the pool operator does have the right to sue for breach of contract if the licensee fails to comply with all of its terms (including reporting, payment and auditing requirements).

The formation of LTE pools is an encouraging sign, but there is along way to go before it will be any kind of answer to the current legal disputes plaguing the mobile communications industry.

Mark Summerfield, Watermark on 07 Nov 2012 @ 22:31

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