Standard-essential patents: The battle over 5G

We are about to enter the era of 5G. There is an increasing awareness of the technology but perhaps not so much of the radical impact it is set to have on society.

Offering unprecedented data speeds between devices, the transformation 5G could visit on industries far beyond traditional telecommunications should not be underestimated.

Underpinning all of this is a bedrock of technological standards, which are essential for the technology to function. These are protected by IP and ownership is fiercely contested by some of the world’s most innovative companies.

This battle for control of 5G standards is about who has the right to license the foundation tech that will shape our world.

A leap forward

The rollout of the 5G wireless network has begun and its progress now regularly makes headlines.

Earlier this year, Uruguay launched one of the earliest commercial 5G networks in Latin America, while more cities in the US, Europe, Asia, and South Africa are gaining access to 5G connectivity.

The first 5G-enabled smartphones are now available, but what will these and other devices mean for us day to day?

Much of the discourse tends to focus on the internet of things (IoT), and how 5G will enable more devices than ever to communicate with each other.

Faster speeds and greater interconnectivity are the most obvious advantages but arguably only because they’re the features powering the most immediately comparable products we’re used to, such as smartphones.

3G and 4G transformed communications, including how we use the internet generally.

With the next iteration, whole industry sectors could be transformed. 5G’s drastically improved interconnectivity and data transfer speeds can enable further digitisation of industries such as automotive, manufacturing, agriculture, fintech, medicine, and the military to embrace emerging technologies such as augmented reality and remote operation of devices in real time.

"Building our cellular SEP portfolio is important but it's effectively a by-product of our innovation and standardisation." - Mark Durrant, Nokia

Where faster speeds and interconnectivity matter, interoperability of devices becomes crucial. Standards exist to ensure that all 5G devices operate on the same technological bedrock, allowing them to work in conjunction with each other.

This has always been true. As Alexandra Brodie, partner at Gowling WLG explains, standards have always been critical to telecommunications (where’s the value in a mobile phone that calls only devices made by the same manufacturer?).

Who sets the standards? This task falls to standard-setting organisations (SSOs).

One of the key SSOs in the field of cellular standards is the 3rd Generation Partnership Project (3GPP), a consortium of seven SSOs from different regions around the world.

Participants include patent owners, each vying for their technical contributions to be adopted as essential to the standard. This is where what Brodie calls the “rules of engagement” apply.

“If you want to be at the table, then you must disclose any patent holdings you have that could be essential to the standard that’s under discussion,” she says.

Fair and reasonable

The idea, in principle, is to place checks and balances preventing a small handful of patent owners establishing commercial monopolies on technology which is essential to a given standard.

Owners of these standard-essential patents (SEPs) are required to license them on fair, reasonable, and non-discriminatory (FRAND) terms. According to this principle, whoever wants a licence should be able to get one.

However, trouble frequently arises over the question of what exactly is “fair” or “reasonable”.

“SSOs do not have a dispute resolution system,” Brodie explains, leaving companies with a handful of options before going to court.

If no agreement can be reached on an SEP licence, one option is arbitration.

“The benefit of this is that the parties can choose the terms of arbitration,” she says. “For example, they can decide to seek arbitration for a global FRAND licence and sort the dispute out once and for all.”

SEP licensing is complex, but it will soon become unavoidable as more devices become part of the IoT.

A number of companies are carving a business out of simplifying the process. One such company is Avanci, which has offices in the US, Ireland, and Japan.

Speaking to WIPR, Luke McLeroy, senior vice president of business development at Avanci, explains the model.

“Avanci does not own any patents itself, but has the right to license all the 2G, 3G, and 4G SEPs from 36 different companies in a single licence agreement.

"It's quite likely that Huawei will look to generate revenue from its patents if it's not able to access markets." - Peter Gray, Mathys Squire

“This makes licensing more efficient, reduces risk and transactional costs, and increases transparency for everyone involved,” he says.

The company’s patent pool, at present, does not include 5G but McLeroy says his team have observed “increased interest in a 5G licensing platform”.

“There will more companies involved—more patent owners, more licensees, more product categories and many more industries compared to 4G,” he says.

“This means that there will be more opportunities to streamline licensing and make sure that it’s fair and transparent for everyone.”

Patent pooling is just one of the ways industry has responded to the challenge of ensuring SEP licensing is accessible and transparent.

Stakeholders have in recent months attempted to outline best-practice principles for FRAND licensing. In June rival guidelines on FRAND licensing in the field of 5G and IoT SEPs were launched.

One document, CWA1, reflects the views of technology companies such as Nokia, Ericsson and Orange, who are members of the IP Europe organisation.

CWA2, on the other hand, was published by trade bodies the App Association (ACT) and the Fair Standards Alliance (FSA), and was based on the contributions of companies including Apple, Honda and Volkswagen.

The companies participating in the CWA1 workshop account for nearly half of the contributions to cellular standards, said the workshop’s chairman Kerry Miller at the time.

The CWA2 guidelines, in particular, stress the importance of litigation over SEPs being a last resort.

An FSA release that accompanied the publication of the document said it was hoped that the principles could “help avert the litigation and antitrust problems already experienced over the past decade in the smartphone sector, and more recently in the automotive sector”.

If the hope is that the era of 5G can be less litigious than previous battles over smartphone technology, then stakeholders are arguably right to be concerned.

New data from Belgian firm Darts-IP, provided to WIPR, reveals that litigation related to SEPs in the field of 5G is growing at a much faster rate than with earlier cellular standards.

From the early stages of 3G’s development, for example, litigation related to the technology tripled over a period of seven to eight years. In the case of 4G, this same rate of growth took only around four years.

For 5G SEPs, it took only “one to two” years for litigation to grow at this rate.

Unwired Planet v Huawei

Litigation related to 3G and 4G still remains higher in absolute terms than that related to 5G, but the trend is clear.

Apart from the numbers, however, the case law which 5G inherits from previous generations of SEP litigation is likely to remain influential.

One such example is Unwired Planet v Huawei, which has the potential to be a landmark judgment in the UK in the field of SEP licensing.

At the time of writing, the UK Supreme Court has just finished hearing arguments in the case, and a decision is expected soon.

The crux of the issue before the UK’s highest court is whether it has the authority to adjudicate on the terms of a global FRAND licence, rather than just its
own jurisdiction.

The English Court of Appeals had previously approved a ruling of a lower court which would have set terms for a global licence for two of Unwired
Planet’s SEPs.

Huawei, which was found to have infringed the patents, had appealed on the grounds that a national court did not have jurisdiction to impose a global licence. The Chinese telecoms company proposed a UK-only licence instead.

The court, however, ruled that only a global licence could be in compliance with FRAND obligations, on the grounds that this simply reflected commercial realities.

The decision affirmed the earlier reasoning of the High Court, which held that: “a licensor and a licensee acting willingly and reasonably would have regarded country-by-country licensing as madness and ... that no rational business would have done this if it could be avoided”.

Brodie argues that the Supreme Court should again affirm the lower court’s reasoning in favour of a global FRAND licence.

“UK courts should be able to grant this kind of relief as it gives an answer that reflects commercial norms,” she says.

Part of the reason why the dispute has arisen, she explains, is that the UK is a common law jurisdiction and its courts are therefore able to “be more creative”.

“In civil code jurisdictions, what courts can and can’t do is much more circumscribed,” she says.

Huawei: a new industry leader

While Huawei is the licensee in Unwired, it is quickly developing a strong patent portfolio of its own. The Chinese company’s stake in cellular SEPs has extended to 5G, where it has emerged as a market leader, and it is set to wield significant influence in the sector for years to come.

According to Darts-IP data, Huawei is among the leading 5G SEP patent owners, and one of the small group of companies which contributed the lion’s share of technical contributions which were adopted as essential to 5G standards at 3GPP.

This data underpins the impression that would have been left with anyone watching coverage of 5G in the news in recent months: Huawei has emerged as a new major power.

Not all the coverage has been positive. The Trump administration in the US has been among the telecoms company’s sharpest critics, accusing Huawei of stealing Western trade secrets.

The conflict has played out against the backdrop of the US-China trade war, and as a result the US has banned Huawei and blocked it from participating in the country’s 5G network.

The rationale for this decision, which the US is attempting to have implemented by its allies across the world, is that Huawei’s influence in 5G cellular communication represents a security risk.

Huawei has consistently and strenuously denied all such allegations, and no other country has yet to follow Trump’s lead by shutting the company out of its 5G network.

Francisco Mingorance, executive secretary of IP Europe, told WIPR that: “IP protection must be central and become a political priority at the highest levels to ensure continued investments in R&D, full participation in 5G ecosystems and a global balance in 5G standardisation.

“European policymakers need to develop a global level playing field that maintains a choice of provider to supply Europe’s essential communications and digital infrastructure,” Mingorance said.

Amid the uncertainty over potential market access, Huawei’s leading 5G patent portfolio provides it with something of a “safety net” as more technology companies look to diversify their businesses beyond the sale of consumer devices.

This is the view of Peter Gray, partner at Mathys and Squire, who specialises in telecoms and 3GPP technologies.

“It’s quite likely that Huawei will look to generate revenue from its patents if it’s not able to access markets,” he says.

Beyond potential access issues for Huawei, however, the more resources being piled into building strong SEP portfolios reflects something of an industry trend, particularly in the era of the IoT where more sectors are interacting with telecoms.

“Companies such as Ericsson are moving away from phones, and more towards licensing into new industry sectors such as the automotive industry, as a way of generating revenue,” Gray says.

Speaking to WIPR, Mark Durrant, communications director for Nokia handling the company’s IP business, says that its SEP portfolio is part of a broader strategy.

“Building our cellular SEP portfolio is important, but it’s effectively a by-product of our innovation and standardisation,” Durrant says.

There can be no doubting the company’s influence in the development of cellular standards, not just in recent years but across each generation of
the technology.

According to Durrant, Nokia has 2,700 patent families declared to one or more of the cellular standards, while it has declared more than 2,000 patent families as essential to 5G.

Its influence in developing the standards is borne out commercially as it plays a leading role in building the 5G network.

“We now have 48 5G contracts with operators around the world, and 15 live 5G networks,” Durrant says.

Before the advent of Apple’s iPhone, the near-ubiquity of Nokia and Sony Ericsson phones was the most visible sign of those companies’ power in the telecoms field. Nowadays, their real power lies in their patent portfolios.

While it is just one part of the puzzle, to be a telecoms leader in the era of 5G, having a strong SEP portfolio is essential. As Brodie points out, 15 years ago, “nearly everyone had a Nokia phone”.

All this puts the SSOs at the heart of this contest. With billions of dollars in licensing revenue at stake, scrutiny of their operations will only increase.

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