Intellectual Property issues in 4G and Open Source

A brave new world?

Adrian Toutoungi, Eversheds LLP

3 July 2009

Emerging technologies – using our crystal ball…

• Essential patents in 4G mobile telecoms

• Open source software

4G mobile telecoms

Technical standards and essential patents

• Standardization

– Ideally open, ex-ante process

– interoperability

– Formal, ad-hoc or de-facto

• Essential patent

Risk of Abuse

• Patent ambush

• Light-touch regulation (so far…)

• Solutions

– Obligation to disclose early

– Obligation to grant licences on FRAND terms

– Patent pools

– Ex-ante disclosure of royalty rates

Is FRAND fit for purpose?

• No – many problems in 2G and 3G

– FRAND is in the eye of the beholder

– Cumulative royalties

– Royalty-stacking

• Not just a problem for mobile telecoms

– But particularly acute

The 2G story - background

• GSM

– 554 patent families were declared essential for GSM.

– 17 companies in total declared essential patents.

– 4 main players (Nokia, Motorola, Ericsson, Qualcomm) owned 75% of declared essential patents.

The 2G story - the cosy club

• Vertically integrated companies create a network of cross-licences;

• Difficult and slow for others to negotiate licences;

• High cumulative royalties

• 35-40% (handset)

• 30% (infrastructure)

• Upstream companies less important

• CDMAone

The 3G story - background

• 5 (now 6) air interfaces were standardized

• e.g. W-CDMA air interface

– 732 patent families were declared essential for W-CDMA.

– owned by 41 companies

• Fragmentation

• Upstream companies important

• 3G Licensing patent pool

– 12 companies signed up

– 5% maximum cumulative royalty rate

The 3G story - the clash of the titans

• Massive over-declaration of essential patents

• High cumulative royalties (10-20%)

• Litigation on a massive scale

– new remedy created by UK courts (Nokia v Interdigital)

• Impact of differing business plans

• ETSI IP policy

4G – a picnic?

Some predictions

• LTE and mobile Wi-Max

– ~80% of essential patents in common

• Fewer IP issues for 4G?

– significantly fewer essential patent families (~320 families for mobile Wi-Max)

– Fewer owners (~34 for mobile Wi-Max)

– New patent owners

– Aggregated reasonable terms + Proportionality commitment

Some predictions (cont.)

– OPA and LTE patent pools

– Nokia/Qualcomm settlement agreement

• Likely royalties

– 3-6% for mobile Wi-Max

– 4-12% for LTE

– peaking in 2020

• Sector consolidation?

• But

– compare Wi-Fi (IEEE 802.11)

– Fragmentation

Open Source update

What is it?

S T R E N G T H

BSD Mozilla LGPL GPLv2 GPLv3 Affero

Why?

Vendor/Distributor User

• R&D

• Acquisition of customers

– encourages adoption of standards

– increase market for complementary products

– support services

• Cost

• Flexibility

• Quality of service

Mainstream, mainstream, mainstream…

OS application Profile

Operating system

Web server

Mail server

Databases

Web browser

In use by over 25% of organisations (global)

Over 70% run Apache

48% share of market (EU+US)

In use by 33% of European organisations

Mozilla/Firefox 10% share of market (global)

Source: MERIT

Some more recent examples

• Acquisition of MySQL by Sun for $1bn (Q1 2008)

• Acquisition of Trolltech (now Qi software) by Nokia for $130 million (Q1 2008)

• Release of Android operating system by Open Hardward Alliance under Apache public licence (Q4 2008)

• Acquisition of Symbian by Nokia for $410 million (Q2 2008) and release of Symbian operating system under Eclipse public licence.

© EVERSHEDS LLP 2009. Eversheds LLP is a limited liability partnership.