3G patents initiative devised to avoid 'Qualcomm-type' disputes
totaltele.com
By Joanne Taaffe
19 June 2000
Mobile telecoms equipment manufacturers and operators are setting
up a new company with the aim of reducing the royalties they pay
each other for the use of patented technology in third-generation
mobile systems.
The move could save "hundreds of millions of dollars" in new
network-build costs, according to sponsors of the new company, led
by businesses including Alcatel SA and Mitsubishi Electric Corp.
The as yet un-named enterprise hopes to not only slash the cost to
vendors of developing equipment, but also open up the market for
3G mobile devices and network equipment to new players.
The company's partners hope to cap future technology royalty
payments at 5% of product costs. Currently, royalties account for as
much as 29% of mobile system costs.
As well, the patent-licensing cooperative could help avoid
protracted disputes such as that between equipment manufacturers
and Qualcomm Inc., San Diego, California, a former hand-set
manufacturer that decided to specialize in licensing key technology
to other vendors instead, but at a price.
"There were a lot of difficulties with GSM in making affordable
technology," said Brian Kearsey, director general designate of the
3G Patent Platform Partnership (3G3P), the cellular industry
venture that will set up the new non-profit-making company. "[If
3G is] to take off there need[s] to be a mechanism to make
acquisitions of that technology cheaper."
Patent disputes have dogged second-generation GSM equipment
manufacturers, which develop products according to standards that
are set by the European Telecommunications Standards Institute,
Sophia Antipolis, France, but which have grown out of the research
work of individual manufacturers and operators.
Not only are the rights to intellectual property often expensive, it is
hard for those that buy them to gauge whether a patent is essential to
the development of a product or not. "The issue has been a real
problem in GSM," said John Matthews, principal consultant, Ovum
Ltd., London.
"Manufacturers [pay] license fee on top of license fee on top of
license fee."
This can result in royalty fees making up 29% of the cost of a
hand-set, according to Leo Debecker, acting director of the
European Public Telecom Network Operators Association (ETNO)
in Brussels, whose organization backs the scheme. The majority of
ETNO's 46 members run mobile operations.
The new company will attempt to establish a ceiling on royalty
payments as a percentage of overall manufacturing costs.
"We would like to see royalties capped at 5%," said Hisashi Kato, the
licensing regulator of Mitsubishi in Japan, explaining that "some
people [charge] 10% or more."
If the new company succeeds in its aims it could bring about a drop
in equipment costs that could save operators "several hundreds of
millions of dollars per network," said 3G3P's Kearsey.
Currently, manufacturers buy royalties from each other on a
bi-lateral basis. This can result in a swap, if both companies hold
equally important patents. Equally it can result in one manufacturer
paying very high prices for a single patent, or being given no choice
but to buy a bundle of patents, only one of which may be essential to
the equipment they are building.
"What certain companies have done is declare more essential
patents than they had," said Serge Raes, standardization program
manager of Alcatel, Paris, and director of business development for
3G3P. As a result companies end up paying for patents that are not
as useful as the price indicates.
"It's worse than the lottery," Raes added.
But the danger for operators and the industry as a whole is that "if
there is a high royalty rate, we have to put our selling price up," said
Mitsubishi's Kato. Mitsubishi plans to build 3G terminals and may
move into 3G base station manufacturing, according to Kato.
Operator associations were enthusiastic about the initiative, arguing
that 3G license auctions in some European countries are making
network costs work out much higher than expected.
"We want to see a proliferation of suppliers and more competition
between suppliers," said Aoife Sexton, director of corporate affairs
and external relations for the GSM Association in Dublin.
"Cheaper equipment ... means more development [of services]," said
ETNO's Debecker.
A number of individual operators have also worked on developing
the 3G Patent Platform, including NTT DoCoMo, France Telecom,
Telecom Italia Mobile, T-Mobil and Sonera of Finland. They say
lower royalty fees and a clearer understanding of what technology is
covered by which patent will make it easier for new equipment
manufacturers to set up shop and compete.
"[The objective is] to keep entry costs as low as possible," said Mika
Sarajuuri, vice president at Sonera. "We would like to ensure that
technology licensing fees are acceptable and that no single player
could distort the market by having high cost license fees for 3G
essential patents."
Over the last 18 months the 3G3P has brought together 41
companies and organizations to quantify just what is meant by fair,
reasonable and non-discriminatory terms for evaluating whether a
patent is essential and for establishing a fair price, as well as
pre-defining the commercial terms of the new company.
Company brief
"Independent experts, patent lawyers and technologists ... will
declare it to be an essential technology and assign it a dollar value,"
said Kearsey.
The company will also incorporate an appeal procedure.
Although the company's operating brief is decided, it still has no
legal framework, and must wait for the go ahead from regulatory
authorities, including the U.S. Department of Justice.
This is because the company will offer services that have been
defined by a large number of potential competitors. Kearsey hopes
that the company will have the all-clear within the next two months
so that it can begin operation in September. |
