Only connect: setting the standards

What are the main challenges associated with IP at Ericsson?

The challenges and the main issues we work on are the same as in the technology field. It’s our ambition to stay in the lead in the development of mobile communications and that requires strong emphasis on research and development.

In Ericsson’s case we are focusing on being the leader in the development of the standardised cellular networks in the 3rd Generation Partnership Project (3GPP). IP-wise, we work very closely with the patent department and the research groups to ensure that we can protect any innovations that Ericsson is contributing to.

How does Ericsson contribute to industry standards?

First of all, I’d like to emphasise the value of having commonly developed standards for the industry. There’s a big ‘ecosystem’ built around 3GPP where it’s the standard; it started off as GSM (the global system for mobile communications standard) providing voice and text messages. Now it’s megabits of data services and it’s been developing for more than 20 years.

That development has really helped the industry to grow. Proof of that is all the hype surrounding the most famous brands in the world going into this space and being part of it.

Ericsson is a leading player in this tech development, but we’re not the only contributor, so in all of our licensing agreements there is an out-licensing and an in-licensing component. We are dependent on this whole ecosystem, and the licensing connected to it, working. We’re of the opinion that it’s been working well for more than 20 years and is continuing to do so. Sometimes you see battles between individual companies but that’s a natural part of any competitive environment.

Does standard-setting, where companies get together to share technology, go against competition in the industry?

If it weren’t for these standards there wouldn’t be competition at the level that we have today—the fact that we have standards ensuring interoperability between brands is the main reason for having grown the ecosystem into a global presence. And the big winners are the end users—they get low price products in a highly competitive market.

The idea that having standards decreases competition is based on false assumptions—it does the opposite—and any communications system can provide competition only if you ensure interoperability between brands. The only way you can do that is by agreeing on a specification. The process is key to creating the competitive market.

How does the process for deciding on standards work?

When we developed first GSM, thereafter W-CDMA (wideband code division multiple access) and now LTE (the long term evolution standard), large technology steps have been taken to ensure competitiveness of the standard. On all these occasions the industry came together and started from a blank sheet of paper, sitting together and thinking how can we create an even better technology? It’s a very rigorous process and it starts off by agreeing on the requirements of what you want to create.

By doing so, you also open up for technology competition, because it’s not based on throwing in solutions and making them proof of the concept—it’s the other way around. You discuss requirements and then all the players in that field go away and come back to the standards organisation to propose a solution to meet those requirements.

“THE IDEA THAT HAVING STANDARDS DECREASES COMPETITION IS BASED ON FALSE ASSUMPTIONS— IT DOES THE OPPOSITE—AND ANY COMMUNICATIONS SYSTEM CAN PROVIDE COMPETITION ONLY IF YOU ENSURE INTEROPERABILITY BETWEEN BRANDS.”

It’s based on two main principles: (i) it’s driven by voluntary contributions of technical proposals where you discuss only the technical benefits of proposals, and (ii) the decisionmaking is consensus-based. The number of participants in this process has increased over time and includes manufacturers of infrastructure and end user equipment, operators and even regulatory bodies. With 3GPP, it means you produce very detailed and complete specifications on how products should work. It’s not only a subset of the interoperability, one protocol or so—it’s the whole system. It adds a lot of value to the implementers of standards and to users.

How do you identify essential patents, and ensure they are licensed on a fair, reasonable and non-discriminatory (FRAND) basis, and what do you take that term to mean?

Assessing which patents are essential is intense in terms of resources and competence. For Ericsson, looking at our own patent portfolio and the patents that are essential to LTE, which we’re working on most actively right now, it takes us weeks of qualified engineering time to make the assessment, throughout the prosecution of the patent and once the patent has been granted—you have to assess whether the granted claims are in line with what is developed in the standard.

That’s a complex analysis—you’re comparing words to mathematical formulae. As for other companies, it’s only in our bilateral discussions with other major contributors that we can make a good assessment as to whether their patents are truly essential to the standard or not. For this assessment, each party provides evidence of essentiality for their patents to the other side.

Competition in the industry is increasing all the time—20 years ago it was a few vertically integrated companies that in many ways were operating in different markets. Then it was very easy to agree on cross-licensing your patents to each other. Today, it’s still well understood that FRAND means that the total royalties any new player has coming into our market, the aggregate when you have collected all the necessary licences, should be reasonable.

It’s been a challenge to define what FRAND actually means further but from the way courts are going it’s clear that any patent owner needs to consider the value of its portfolio to the end product. That needs to be the basis for any royalties you ask. That combination is what we think FRAND means.

For a newcomer it means you’re not blocked out, and you can invest in the standard compliant products and can do so relying on the FRAND commitment. If you don’t come to a satisfactory conclusion with any licensor, there’s always the possibility of taking the dispute to court so the court can help you decide what FRAND is. It’s working, and the main proof for that is that the industry is growing and new companies are successfully developing new products with wireless connectivity.

How important is IP generated in-house, and what is the protection strategy?

Ericsson has a strong tradition of having our own strong R&D. Obviously when industries are merging there are occasions when you need to look outside for growth, not organically but by acquisition. That’s been the case for us as well and when we do so, we consider many aspects, one of them being the patent portfolio, to evaluate the companies we look at. We are investing on a yearly basis around $5 billion into R&D, and that’s a significant portion of our turnover.

We have a sizeable in-house legal group drafting, prosecuting and working closely with inventors on our patent applications. That is of course key for us, to make sure we understand the technology and can get the correct claims into our patents. Having said that, we also outsource a big portion of the work—around 50 percent. We try to do it in a way that we won’t ever lose quality. Prosecution is more important than the first draft, so we spend our time where we see it really gives us the end product.

We have a clear strategy to ensure global protection—we make sure we file very broadly for our most important patents and then based on the assessed value of the patents we go to other countries. Obviously certain markets are more important than others so we try to make sure we get most of our patents into the key markets.