1 Standards, open standards and Interoperability II September 2005 Sophia Antipolis Track 3: IPR in Standards Break-out session Room = Amphi Athena co-moderators: Markus Muenkler & Karl Heinz Rosenbrock Support: Stephane Tronchon & Adrian Scrase

2 Overview  Approx 45 attendees  Objectives of Track 3:  Agree a problem definition on IPR issues  Assess requirements on an updated IPR regime (if required)  Position ETSI on an “IPR think tank” for IPRs on standards  Discover what ETSI’s part is in the solution to be found

3 Summary of contributions  People’s Republic of China  Call for WTO to act on IPR regime  Vodafone evaluation of IPR challenges and requirements  Highlighting key challenges of today’s IPR regime  Focus on commercial impacts decreasing value of standardisation  Pointing out requirements for an updated ETSI IPR regime  Focus on creating a predictable commercial environment within ETSI and increasing visibility of 3rd party IPR  Reactions on Vodafone contributions  Tim Frain, Nokia: In agreement, adding issues “proportionality”, “essentiality assessment”, “transparency of essential patent holdings”, and “transparency of licensing terms”  Mark Paxman, PA Consulting: In agreement, (1) pointing at effort to conduct multiple licence negotiations and (2) suggesting to explore scoping and implementation aspects: “IPR overseeing entity”, “handover of IPR matters”, “fixing 3G and GSM/timing

4 Summary of contributions  GSC#10 Resolution N° 15 "IPR Policies" Posted by ETSI Secretariat  Today’s IPR policies typically provide effective incentives to interoperate, innovate and compete  IPR policies of the majority of SDOs provision for standards users to license essential IP under RAND/FRAND compensatory or compensation-free (e.g. royalty free) terms and conditions  Some IPR policies seek to have overbroad disclosure obligations that discourage participation implicitly requiring patent searches to avoid severe penalties for inadvertently failing to make a disclosure  Rigo Wenning, W3C, commenting: “Grosso modo the GSC#10 confirmed the current policy; not recognizing the troubles that were discussed at our last conference.”; “I think mixing and mangeling discriminatory patent-pool policies and reasonable and non-discriminatory royalty free approaches together in one phrase is showing that there is trouble and concern, but a rather profound dislike of change.”; “I'm rather confused by the message of GSC#10 and I think they missed the opportunity for good directions when everybody was listening.”

5 Summary of contributions  Posted by George T. Willingmyre, GTW Associates  “Open Standards and the Problem with Submarine Patents” (Aura H. Soininen)  Patents that surface after the technology has been widely adopted without the knowledge of lurking rights may create problems in the marketplace, harming both companies and consumers  It has often been assumed that antitrust (U.S.) and competition laws (Europe) will help in alleviating those problems. I have found, however, that neither the Sherman Act nor the Treaty of Rome provide much help in the submarine-patent dilemma  “Evaluating the Performance of Standard Setting Organizations with Patent Data” (Marc Rysman, Tim Simcoe)  Attempt to systematically measure SSO’s role in economic performance or technological change  Showing that the SSO patents collect many more citations, typically around three times as many, and receiving them over a longer time  Found an economically and statistically significant correlation of citations with disclosure

6 Summary of contributions  Comments on the discussion to date Posted by Isabelle Valet-Harper, Microsoft  Focus remains on patents rather than software/copyright issues; careful balance interests of IPR holders and implementers  Resist urge to make quick changes as it may cause significant contributors to discontinue participation, in effect move their patent claims outside relevant IP policy  First demonstrate that problems are real and systemic  Cumulative patents or pool pricing may be more appropriately addressed through market forces or other mechanisms that lay outside the scope of a standards organization or its IPR policy

7 Summary of contributions  GSMA IPR Advisory Group problem statement on IPR Posted by David O’Byrne, GSMA  Problem lies in IPR disclosure, ambiguous understanding of FRAND licensing, patent ambush, unpredictable IPR payments, and true patent essentiality  Unless the SDOs and operators develop an approach to perfecting a solution for these issues, the industry could soon find itself impeded by oppressive royalties for all new technologies, stifling competition and growth

8 Summary of Discussions  Fruitful discussions on a range of topics  Notion of “Submarine Patents”  Are the issues identified an IPR Policy problem or a licensing issues or a behaviour issue ?  Business modeling challenge raised by the complex licensing regimes in the absence of general guidelines on FRAND  Intelligence on IPRs in SDOs might be needed  Timing of IPR Declarations  Early awareness of the financial repercussions of IPR costs is desirable

9 Summary of issues  Issues identified 1.Deferred IPR declaration – Where essential (or potentially essential) IPR is not identified or declared at the time of development of the standard, this precludes the ability to evaluate the IPR effect on technology selection or to achieve true competitive evaluation and licence determination. IPR holders are subsequently in a position to set particularly high royalty levels without true competitive pressure once a standard has been adopted and the embedded IPR is ‘essential’ to that standard The rules are not sufficiently precise to ensure that all relevant IPR is accurately declared in time. In particular, patent applications may not be published for 18 months. Applicants claim that IPRs claimed but not yet granted have to be kept secret. If so, this can undermine our aim for transparency in developing standards in a climate of openness, where there are no hidden IPRs. There is uncertainty around identification of existence of unpublished applications and notification of modifications to those existing applications which create potential essential IPR. Some informed commentators suggest that there are a number of undeclared essential (or probably essential) IPRs already in use in the mobile industry. If true, this represents an unmanaged cost risk to our current and future business. 2.FRAND regime – Lack of definition of commercial terms (FR) has resulted in unsustainable demands from IPR holders who control IPR in standards, many of whom have participated in the standard-setting process. Lack of visibility of licensing terms prevents evaluation of whether they are fair, reasonable and non- discriminatory obligations. The lack of definition of licensing terms at the time of development of the standard precludes the ability to evaluate the IPR effect on technology selection or to achieve true competitive evaluation between IPRs within a standard or between standards. Royalties even get charged for non-standard related technologies. E.g. royalties charged as a percentage of the final product sale price, even for smart phones and lap tops. This represents a tax on other peoples innovation and may lead to a “royalties on royalties” effect.

10 Summary of Issues  Issues identified 2Cumulative patent royalties / “Patent stacking ” – IPR from multiple companies can raise the license burden to an extent unbearable to our industry. As a result, the development of markets could be stifled, effectively disabling the standards work. This matter is further compounded by: Cumulative IPRs/IPR holders for a specification (e.g. OMA DRM) Cumulative specifications for a technology Cumulative technologies for a product Cumulative patent licence models for handsets, infrastructure and service usage 3Multiple licences – The cost and effort required to negotiate licences with many patent holders (20-30 estimated in the case of W-CDMA) are considerable. 4Bundling of patents in portfolios – Charging one royalty for hundreds of patents within a portfolio, irrespective of validity or essentiality, could stifle innovation and represents a deterrent/obfuscation to development of alternatives to the technologies incorporated in a standard. It also creates huge disincentives to identify and challenge individual patents whose validity may be questionable. 5Lack of active IPR management – ETSI does not take an active role in IPR management. Far from it! ETSI is not supposed to recognise commercial implications of IPR when choosing technologies, i.e.: Not checking essentiality of patents being declared. As a consequence, there is no transparency as to who owns how many essential IPR. No IPR intelligence looking outside the ETSI membership, other than members occasionally pointing out external IPR. Not getting actively involved in resolving IPR issues, once they occur. Absence of the lack of essentiality check

11 Summary of Issues  Issues identified (cont.) 7No way of indemnification 8Hiding FRAND behind NDAs e.g. Misuse Of NDAs to hide licensing terms and conditions 9No systematic work on detecting third party IPRs (already addressed in Vodafone’s contribution ?) 10Position on how we work with companies not being members Potential Hazard linked with affiliates companies 11Lack of enforceability of the IPR Policy ? (Note: Sanity check to be performed)  Critical subjects requiring immediate follow-up:  Prioritization of issues? What are the issues that have public policy concerns and that should be addressed first)  Sanity Check of issues to be performed with regards to the work of the ETSI IPR ad hoc (Credibility issue)

12 Results and way forward  Achievements of SOS II IPR  Agree on a list of IPR issues in standardisation  Position ETSI as the “IPR think tank” for IPRs & Standards  Ensured that ETSI is part of the solution to be found  SOS II IPR to ETSI GA in November  Agree to present IPR issues  Agree to propose to the GA to mandate IPR working group to address IPR issues and report to GA#47 (March 2006)  SOS III IPR workshop on February 2006 ?  Continue debate through SOS web forum  Focus on requirements and solutions for an updated IPR regime  Discuss possible pilot case with new IPR regime  Outline steps to IPR reform  Workshop to be kept separate from GA#46  Consider addressing larger audience (e.g. GSC#11, 28 May 2006)