ROAM
May 2000
Foundations of 3G: IPR: A balanced approach to IPR
Can intellectual property claims arising from 3G technology be resolved outside the courts, or are the lawyers destined to be the main beneficiaries once again? Julian Bright reports on how one company is approaching the issue.
Suppliers of mobile equipment could be facing substantial royalty claims for the technology they want to include in their next generation products. As 3G and its intermediate technologies are implemented worldwide, levels of investment in new products will be running high.
Volume production of handsets is expected to be around 500 to 520 million this year (Dresdner Kleinwort Benson), and by 2005 - even at a conservative estimate - the figure is likely to be around 1 billion. These handsets and the systems that support them will incorporate elements from a range of standards, including GSM, CDMA and TDMA. This could mean open house for IPR claimants with patents in the 3G arena, and possibly a field day for the lawyers.
Despite the amicable resolution of Ericsson's differences with Qualcomm last year, following a dispute that generated some acrimonious exchanges throughout the industry, it would be dangerous to conclude that co-operation rather than confrontation might be the preferred way forward. Many holders of IPR will themselves be players in a market where suppliers face keen competition. Others, who depend in larger part on revenue streams from royalties, will want to maximise their return on investment in R&D.
WAP IN DOUBT
Barely had the dust settled on the Ericsson/Qualcomm confrontation, when a surprise claim by Geoworks that it holds essential IPR for WAP and its associated wireless markup language (WML) led to further consternation, with some observers questioning the future of WAP itself.
The latest twist in the Geoworks claim is the announcement that the company is seeking licensing of its technology on "fair, reasonable and non-discriminatory terms and conditions,"in line with the IPR protocol laid down by the WAP Forum, of which Geoworks is a member. "Our objective is to handle technology royalties in a businesslike manner," said Don Ezzell of Geoworks. The company has also joined North America's Wireless Data Forum.
If companies such as Geoworks can exercise their IPR claims without recourse to litigation, a great deal of time and expense will have been saved.
One company that has found a way around the problem is InterDigital Communications, which expects to benefit from its own IPR, especially in CDMA. Like Qualcomm, which focuses on chipset development and garnering royalties from its CDMA patents, InterDigital's focus and key expertise is in developing rather than manufacturing products based on CDMA technology. This means primarily chipsets, and creating and patenting solutions for 3G systems.
"Our strategy is to grow as one of the leading developers of advanced air interface and full system on a chip technology for the wireless industry, with an emphasis on wideband CDMA," says Rip Tilden, executive VP communications and strategic planning for InterDigital.
Nevertheless, licensing the company's intellectual property worldwide is an important part of the equation, especially in W-CDMA. "We want a revenue annuity stream from licensing," says Tilden. "The margins in that are 90 per cent. That is an important part of the model," he adds.
CO-OPERATIVE AGREEMENT
Finding a way to settle claims without recourse to the law can avoid long drawn-out and expensive litigation. Since 1993 InterDigital itself has been embroiled in an ongoing dispute with Ericsson over royalties for Ericsson's alleged use of InterDigital's patented TDMA technology.
Failing an out of court settlement by the two parties, this dispute is unlikely to go to a hearing until 2001, by which time the technology will have been overtaken.
However, when it comes to W-CDMA development, InterDigital has managed a compromise solution with Nokia that allows both companies to benefit from ongoing research. As a pre-requisite, Nokia has acknowledged a past infringement on InterDigital's TDMA technology, and has paid it $31.5 million in royalties.
Following this settlement the two companies have embarked on a collaboration to develop TDD technology for Nokia 3G products. On conclusion of the project, InterDigital will retain ownership of the technology, but has agreed to allow Nokia exclusive use for a pre-defined period of something less than one year.
The TDD technology under development is ideal for asymmetric data services over short distances, and will be deployed for applications such as wireless LANs, and to create wireless hotspots for large packet data transfers, such as internet and file access. InterDigital's other major development activity is in the development of frequency division duplex (FDD) systems, where it plans to sell its 'system on a chip' ASIC to producers of handsets.
Revenues from InterDigital's previous patents in areas such as TDMA have been patchy, amounting to just US$252 million for the six years to 1999.
By comparison, in fiscal year 1999 Qualcomm's Technology Licensing division, which develops and patents CDMA technology and generates fees and ongoing royalties from the worldwide sales of CDMA phones, chipsets, infrastructure and test equipment, recorded revenues of US$0.45 billion.
InterDigital's Tilden admits that the company largely withdrew from collaborative TDMA work, and gained a reputation in the industry of being purely a 'tax collector'. Yet, although the company lost another IPR claim against Motorola in 1995, it now has 21 licencees worldwide for its TDMA technology. Today the approach on W-CDMA is very different. "The expectation is that we can begin to ramp up revenues over the next 18 months, and then have an accelerated opportunity for growth as we begin to sell chips," explains Tilden.
How successful the company will be in establishing an IPR revenue stream from its 3G development remains to be seen. According to senior VP, Brian Kiernan, InterDigital holds patents in key areas for W-CDMA, such as power control, dynamic channel allocation, and node synchronisation. The revenue payment arrangements that the company envisages for its W-CDMA patents will also be differently structured from those for TDMA, with licencees being asked for a smaller upfront contribution, but with regular royalty payments commencing at an earlier stage.
ESSENTIAL IPRs
To demonstrate its involvement in W-CDMA, InterDigital is a committed participant in standards bodies such as 3GPP, the ITU, ETSI, ANSI and ARIB. Such involvement also has its benefits. The company is careful to file its patent applications before declaring its research to the standards committees, but will then often move for these to be adopted into the standard.
The aim is to establish essential IPR (patents that are incorporated into an industry standard), which are potentially more valuable than those that only claim to have a commercial benefit to other companies (commercial IPR). "The standards bodies will require compulsory licensing if the patent impacts a particular technology," points out Robert Kelly, a lawyer with Washington-based Squire, Sanders & Dempsey, adding that "few patents are really highly valuable, and those are likely to be issued first."
From InterDigital's point of view, as others have found, it clearly makes sense to work from within trade associations and industry standards bodies if you want your intellectual property to be acknowledged. Whether that means a litigation-free rollout of 3G is another question.
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