Implementer Arguments at the USPTO Public Listening Session on Standards Ignore Business Realities

Yesterday, the United States Patent and Trademark Office (USPTO) held a “public listening session” to hear from industry leaders on the topic of standard essential patents. The event was specifically related to the USPTO’s effort to obtain stakeholder input on questions regarding proposed international standards that were presented in a recent Federal Register Notice, as well as strategies identified in the White House’s National Standards Strategy for Critical and Emerging Technologies.

A Coordinated Effort from Implementers

One of the things that stood out when listening to the speakers was the coordination of implementers who, while often innovators themselves, rely on the technologies created by R&D companies who are the ones pushing the innovation envelope relating to standards, particularly in the telecommunications industry. It was as if the implementers were reading from the same sheet music, or at least had access to the same talking points.

At one point during the session, Lore Unt, Apple’s principal standards policy counsel, actually said that innovators do not rely on licensing royalty to justify their continued research and development relating to standards, but instead they innovate out of necessity because they need to remain on the cutting edge of innovation. This comment was echoed by others, who also pointed out that the purpose of Standard Setting Organizations (SSO) and standardization is not to reward innovators with revenue from patent licensing, but rather to benefit society. Of course, missing from these self-serving and extraordinarily naïve statements was any understanding of business reality, or common sense.

Patents are Innovators’ Currency

There are many innovators that focus on innovating with respect to various standards, and many of these innovators—including those that contribute the largest number of technological improvements relating to standards—are research and development companies that sell no products but instead monetize the research and development by licensing to implementers who want to incorporate those technologies into their products and services.

How is an R&D company that innovates and sells no tangible product supposed to remain out of bankruptcy and continue as a going concern if they are not able to monetize the technologies they create, and which others incorporate? The product of these innovators is the technology they create, which is theirs because of the patents obtained to protect the innovations others want to use. So, it is disingenuous, if not purposefully misleading, to say that innovators will innovate because they must in order to stay on the cutting edge. The cutting edge of what? Are they supposed to innovate for free, or very little, so that product companies can implement what they have created and literally make hundreds of billions of dollars? Yes, apparently—at least if you listen to implementers.

It is dangerously shortsighted to advocate for policies that either do not compensate innovators, or only minimally compensate innovators. In a world where innovation cannot be monetized, it simply won’t happen, because those who are otherwise predisposed to want to innovate will go out of business. And in a world where innovators who push the technology envelope are not able to monetize their own creations, soon implementers won’t have anything to implement, and the advance of technology will slow dramatically, if not come to a halt. Because let’s not kid ourselves—as desirable as Apple products may be, they are not the ones innovating in the telecommunication space. Apple does not innovate with respect to telecommunications spectrum or bandwidth, they innovate gadgets that uniformly depend on the technical telecommunications infrastructure and innovations that enable communication to happen.

There are many hundreds of billions of dollars to be made on various aspects of the telecommunications industry—plenty to go around for everyone. It behooves policy makers to keep in mind that, at the core, implementers just want more of the pie and detest having to share with those who create enabling technologies they rely on and fundamentally need in order to have anything themselves worth selling.

Innovation Alliance Comments

One of those who testified yesterday was Brian Pomper, Executive Director of the Innovation Alliance, whose comments rang particularly true for me. Below is an excerpt from his remarks that outlines some concrete actions the United States can take; his full comments are available here.

“First, U.S. policymakers must not follow the lead of China and the European Union to devalue patents essential to standardized technologies. China adopted policies allowing the state to set SEP royalty rates, using the guise of antitrust law to cut costs for domestic industries at the expense of U.S. and allied innovators.  And the European Union has proposed a regulation to set SEP royalty rates, which would not only disadvantage U.S. innovators, but – as Secretary Raimondo noted in recent congressional testimony – also legitimizes China’s efforts to devalue IP.

Artificially depressing patent royalties or limiting the ability of U.S. innovators to enforce patents, undermines the very purpose of IP: to give innovators financial incentives to make costly and risky R&D investments.  Without strong contributions from U.S. innovators, foreign technologies, most likely developed in China, will dominate global standards.

Second, U.S. policy should strengthen incentives to innovate in the United States, to participate in standards, and to protect technology leadership.  In particular, we believe revisions to U.S. export control rules to allow U.S. innovators to participate fully and openly in international standards development, and the withdrawal of prior USPTO-NIST-DOJ joint policy statements on SEPs were critical for promoting U.S. leadership in global standards setting.  While we were disappointed that delays in arriving at these policies created harmful uncertainty as to whether SEPs were enforceable or whether standards participation violated export control laws, we commend the ultimate outcome and appreciate the Administration’s efforts to clarify these policies.

In other respects, however, patent law developments in the past fifteen years have created uncertainty that have devalued patent protections, particularly for small and medium-sized innovators.  Supreme Court decisions have crippled the ability of U.S. innovators to stop infringement of their patents and made it harder for critical and emerging technologies like AI, biotechnology, and personalized medicine to obtain patents at all.  And proceedings before the PTAB have erected additional for innovators trying to enforce their rights.

The Innovation Alliance urges the Administration to advance efforts to restore core patent rights, like the PREVAIL Act, to restore fairness to the Patent Trial and Appeal Board, and the Patent Eligibility Restoration Act, to bring needed clarity to the scope of patent eligibility.

At the same time, we urge the Administration to oppose legislation that further weakens patent rights, including measures empowering courts or government agencies to set SEP royalty rates, or that punish U.S. inventors for trying to enforce their patent rights in foreign courts.  These efforts harm U.S. innovation and legitimize China’s own attempts to devalue U.S. inventions to benefit of their own domestic industries.

Third, we strongly support continued work with our allies to ensure global standards setting processes are technically sound and independent, and to resist efforts by countries like China to leverage state resources and power to promote their own standards “designed solely to entrench market dominance” and undermine international standards development.

The success of 4G licensing in the auto industry demonstrates the need to work closely with our allies to maintain the integrity of global standards-setting.  The majority of global automakers—virtually all major manufacturers outside of China—have signed licensing agreements allowing them to use 4G wireless for their connected vehicles.  Most Chinese automakers, however, use 4G without paying licensing fees. Robust, merit-based standards development processes ensure that Western innovators and implementers can compete in the global market for connected cars and other wireless devices, not only in 4G, but in 5G and next generation wireless technologies.”

Image Source: Deposit Photos
Author: Mazirama
Image ID: 139632256