Standard Setting & Patent Pools

“ Patent Pools and Standards Bodies: Connections and Disconnections Between How They Are

Supposed to Work and How They Actually Work ”

Roberto DiniSisvel’s Founder

Law Seminars International

October 2 & 3, 2008Hilton Arlington Hotel in Arlington, VA

Roberto DiniEuropean Patent and Trademark Attorney

inventor of 28 patentsfounder of Sisvel SpaCEO of Metroconsult srl

(Industrial and Intellectual Property Consultancy Firm)

The views expressed are my own and do not necessarily reflect the views of Sisvel

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Technology is becoming more and more sophisticated,

especially in the technical field of consumer electronics

Success for New Technologies Requires Interoperability

• Today significant investments and technically valuable technology do not guarantee success

• Case Study:

The VideoDisc program was a real “bloodbath” which cost RCA 600 million dollars back in 1986, equivalent to 1.3 billion dollars today

“ Machiavelli wrote "...there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.” (“Il Principe”

Chapter 6 paragraph 5)

“At RCA videodisc operations, I believe these words had special significance...”

Dr. Jay J. Brandinger, (Vice President, RCA SelectaVision Videodisc Operations,

June 27, 1986)•

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Interoperability needs Standardization

• The IEEE defines interoperability as: “the ability of two or more systems or components to exchange information and to use the information that has been exchanged.”

• According to ISO/IEC 2382-01, Information Technology Vocabulary, Fundamental Terms, interoperability is defined as follows: "The capability to communicate, execute programs, or transfer data among various functional units in a manner that requires the user to have little or no knowledge of the unique characteristics of those units".

• Standardization is a necessary for interoperability and is generally the result of efforts of different R&D centers, which means multiple owners of relevant patents.

Standardized Technologies Need Patent Pools

• Precise definition of royalty rate in advance of adoption of technology

• “One stop shopping” for acquiring necessary licenses

• Reduction of Transaction costs

• Reduction of duplication of investments necessary to “invent around”

Governments and political institutions have become aware that IP rights are

very important.“ With a world market estimated at being 11.4 billion euro in 2009, mobile TV offers Europe the possibility of combining its strengths in the mobile communications sector with the wealth and differences that characterize the European audiovisual sector.”

I am prepared to give strong support to European standardised solutions, such as DVB-H, on the condition that they provide certainty about technology licensing terms and conditions. Without this certainty and predictability, it will be impossible to invest with confidence in new innovative technologies. Industry should therefore foster work in this direction.”

Viviane Reding

(Telecommunications European Commissioner)

Elements for Patent Pools to be Successful (1/2)

• Completeness – need to incorporate the maximum number of essential patents into the Patent Pool (e.g. patent calls)

• Credibility – need to obtain credible independent essentiality evaluation in all relevant countries (e.g. USA, EU, JP, KR)

• Harmony – need to reach a balance between Patent Owners that are both licensees and licensors and Patent Owners that are strictly licensors

Elements for Patent Pools to be Successful (2/2)

• Reliability – Mechanism to properly allocate royalties between the Patent Owners and the Pool Administrator

• Legality – Respect competition Antitrust Issues – For example, avoid bundling essential patents with non-essential patents

• Effectiveness – Create a mechanism for resolving differences of opinion to expedite patent pool formation

Examples of Patent Pool Pitfalls: Multimedia Home

Platform (MHP)• MHP adopted as open standard with widespread

expectation among broadcasters of reasonable associated license fees

• Broadcasters invested heavily in MHP

• MHP Pool Administrator failed to promptly publish full list of companies participating in the Pool and essential patents being licensed

• Initial MHP Patent Pool announcement rejected by MHP stakeholders because of unexpected licensing fees for broadcasters

• MHP licensing fees have hindered the widespread adoption of MHP and have significantly decreased Patent Owner revenue

MHP: The View of the International Authority

Philip Laven, Chairman of DVB Project and former technical director of the European Broadcasting Union (EBU) said:

"The patent holders got greedy to the point that they killed MHP. Many broadcasters in Europe are now saying they will "punish" MHP patent holders by not implementing it.”.

Source: EE Times India – May 2007

“Even if the fees could be classified as ‘fair and reasonable, the five year delay has been widely condemned as ‘unreasonable’.”

Source: DVB-SCENE - September 2006

MHP: An Attempt to Remedy

The president of Via Licensing, Jean-Michel Bourdon, in a letter sent to the DVB Project on June 12th, 2008 states that the members of the MHP patent pool have decided to remove the requirement for free-to-air broadcasters to pay MHP patent license fees.

http://www.dvb.org/news_events/news/via_licensing_removes_mhp/index.xml

Examples of Patent Pool Pitfalls (Blu-Ray)

• The Blu-Ray specification was finalized in 2004 and the first efforts to form a Patent Pool were in 2005.

• As of today, there is still no formal Blu-Ray Patent Pool and manufacturers are forced to negotiate with individual Patent Owners

• Many industry experts believe that the lack of a Blu-Ray Patent Pool has made it difficult for manufacturers to create Blu-Ray products, thereby inhibiting the widespread adoption of Blu-Ray technology

Even if in 2005:

MPEG LA Announces Plan for Blu-ray DiscTM Patent LicenseCall for Essential Intellectual Property is First Step(Denver, Colorado, USA - 9 November 2005) - MPEG LA, LLC, world leader in one-stop technology standards patent licensing, today issued a call for patents and patent applications that are essential to the Blu-ray DiscTM Standard.

Today:

“It is unclear how successful this effort will be regarding the scope, terms, and rates of any possibly ensuing programs. For example, will royalties be sought when distributing BD-ROM AV (BDMV) or BD-R/RE AV (BDAV) content on recordable or rewritable discs (BD-R/RE and DVD±R/RW/RAM)? From whom? Any exemptions? Thresholds? Amounts?”

"It is not yet decided how this will be handled," says Geary, who is responsible for MPEG LA’s Blu-ray. "But it’s likely to be addressed either in connection with the blank disc or as a charge to the duplicator.“

http://www.emedialive.com/Articles/ReadArticle.aspx?ArticleID=13818 - June 26, 2008

Blu-Ray

Benefits of Standard Developing Organizations (SDOs)

• Allows businesses to develop products which will be accepted in the market place

• Increases competition between industry players, lowering prices for consumers

• Insures quality, compatibility, and interoperability of products

• RFC 2616 defines HTTP which allowed for the establishment of the World Wide Web

Connections between SDOs and Patent Pools, how they could work

• SDOs have an interest that technologies they help standardize are succesful

• Today there are multiple competing standards for almost each technology

• Therefore it is in the interest of the SDOs that patent issues are quickly addressed

• Shortly after finalization of a standard, SDOs could encourage patent owners to meet under the supervision of a patent facilitator to set royalty rates, make them public, and quickly start a patent pool

• Royalty rates are only one element of the equation. If issued before a standard is adopted it will be in the interest of the patent holders to keep the royalties at “market rate”

Hot Topics for SDOs:Ex Ante Disclosure of Royalty

Rates• Ex ante disclosure: Some SDOs think that it is necessary to

require IPR owners to commit to royalty rates before or during the Standard selection process

• According to DOJ: It is pro-competitive and beneficial for the market (and for the success of the standard) to make public the price of IP before adoption of the standard

• However, in practice this results in all POs disclosing rates which, if summed, are too high

• In reality it seems that the organization of a patent pool immediately after standardization could address this point more effectively

Disconnects between SDOs and Patent Pools

• During the standardization process it is not possible for the potential patent owners to know how many patents will be relevant for the standard and the significance of the standard

• Today there are multiple competing standards for almost each technology

• For instance in the field of DVB-H technology there are several standards in competition on the same product such as: DVB-H, Media FLO, S-DMB, T-DMB/DAB-IP

• It is up to the market (i.e. potential licensees) to determine which standard will be successful

Case study: the DVB-H standard –1Ideal coverage: Worldwide!

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DVB-HDVB-H

Case study: the DVB-H standard - 2 Competing standards: MediaFLO

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MediaFLODVB-HDVB-H

Case study: the DVB-H standard - 3 Competing standards: ISDB

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ISDB ISDB basedbased

MediaFLOISDB

DVB-HDVB-H

Case study: the DVB-H standard - 4 Competing standards: DMB

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DMB DMB (or (or CMMB)CMMB)

DMBDMBDVB-HDVB-HMediaFLO

ISDB ISDB basedbased

ISDB

Case study: the DVB-H standard - 5Actual DVB-H coverage (service launched or

expected soon)

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DVB-HDVB-H

DVB-HDVB-H

MediaFLO

ISDB ISDB basedbased

DMBDMB

ISDB

DMB DMB (or (or CMMB)CMMB)

Conclusions

• The success of standardization is linked to the success of the patent pool

• The success of a patent pool is linked to the time that goes by between standardization and establishment of royalty rates

• In order to avoid surprises it would be more effective for SDOs to focus on fostering patent pool formation rather than requiring ex-ante disclosure of individual royalty rates

Thank You