The Engineering Group Known as the IEEE has Ruled on Changing Mobile Chip licensing that will Benefit Apple & Others
In early December we posted a report titled "Apple, HP, Microsoft and Intel await Important IEEE Vote this Saturday on the Future of Wireless Technology Licensing Fees." The result of that vote only came to light yesterday and it could affect the lawsuit Ericsson brought against Apple at the beginning of the year.
Qualcomm, the world's largest maker of mobile-phone chips, earns more than 60 percent of its profits from businesses licensing its patented wireless technology, collecting $30.5 billion in licensing fees over the past five years.
The Institute of Electrical and Electronics Engineers (IEEE), a professional association that is the world's largest association of technical professionals, held a vote in December that Qualcomm feared could put a huge dent in their profits stream if IEEE voted for lowering licensing fees related to a range of wireless technologies. Such a move would greatly benefit Apple, Intel, Microsoft, HP and others. Qualcomm sees the vote as nothing more than a political move to weaken their market position.
The results of the December vote were made public yesterday by the IEEE. Their statement in-part reads as follows:
"Patents play an increasingly important role in standards, and IEEE-SA's rules include provisions relating to the use of patented technology associated with IEEE standards. The policy must balance several concerns, including respect for the rights of patent-holders and assurance that licenses to standards-essential patents are available on reasonable and nondiscriminatory terms to all implementers.
On 6 December 2014, IEEE-SA's Board of Governors approved a proposed update to the IEEE Patent Policy. This update is designed to provide greater clarity and predictability for patent-holders and implementers. The update resulted from a rigorous process over the past two years that included extensive input from a broad range of stakeholders who may choose to develop standards within the IEEE-SA framework. The members of the Board of Governors and its committees all serve as fiduciaries of IEEE who must make decisions in the best interests of IEEE."
The Wall Street Journal adds to this story today by noting that "groups such as the IEEE don't typically define what 'reasonable' means. A particularly controversial change in its bylaws states that reasonable rates should reflect the "smallest salable implementation" of a patented invention.
That concept runs counter to customary practices in mobile phones. Qualcomm, for example, charges smartphone makers that use its chips a royalty based on a percentage of the wholesale price of their handsets, which often cost hundreds of dollars. The new IEEE policy suggests that a reasonable rate should apply the percentage to the relevant chip, which might cost tens of dollars."
In our January report, that we linked to at the top of our report, we presented Ericsson's lawsuit against Apple that took the same position as Qualcomm on applying licensing fees for the iPhone. Apple opposed Ericsson and the new IEEE ruling favors Apple's position on how patent licensing fees should be calculated to really be "fair and reasonable," going forward.
The Wall Street Journal adds that "The U.S. Department of Justice last week gave a favorable opinion on the proposed changes, which the IEEE's board of directors approved Sunday."
William Merritt, chief executive of InterDigital, a wireless research company that opposed the changes stated that 'The rule change will either exclude companies or create confusion, both of which would slow the IEEE on the path toward 5G.'
On the other side "Renata Hesse, acting assistant attorney general in the Justice Department's Antitrust Division, backed the change and rejected the legal concerns in a letter responding to an IEEE request for a review by her agency. She argued that the change could aid licensing negotiations, reduce unreasonable royalty demands and spur competition among rival technologies. "The department concludes that the update has the potential to benefit competition and consumers."
Whether or not the coming changes as to how royalty payments are to be calculated will play out in Apple's defense against Ericsson's lawsuit is unknown at this time but it would seem to be a favorable turn of events.
This particular issue was also being addressed in China. In December we reported that "China wants Qualcomm Inc. to accept lower royalty payments for technology used by domestic smartphone manufacturers." China opened an anti-monopoly probe into Qualcomm's method of calculating licensing fees.
The recent IEEE decision is going to assist in the licensing fees to be set for the next-gen 5G standard. The Wall Street Journal noted in their report that "Some industry executives say companies such as Intel are pushing for the patent changes to ensure that 5G evolves differently than third-generation and 4G standards, which left Qualcomm in a strong position to charge patent royalties.
Intel officials say the overriding goals were to clarify patent rules, eliminate excess royalty payments and align the IEEE with recent court decisions and other standard-setting groups.
Only time will tell if Qualcomm, Ericsson and others will abide by the vote held by IEEE but if they want their technologies to be included in the upcoming 5G standard, I don't think they'll have much of a choice. Considering that Apple was one of the parties to push for the IEEE vote to lower patent licensing fees, we can be assured that they're encouraged with this recent ruling.
Note: We mentioned Qualcomm's trouble in China in our report and today there's been an update. Bloomberg reported later this morning that "Qualcomm Inc is likely to pay China a record fine of around $1 billion, ending a 14-month government investigation into anti-competitive practices, after the U.S. chipmaker and the regulator made significant progress during talks last week." For more on this see Bloomberg's report.