Rethinking Technology Licensing

What value should we place on intellectual property?

There has long been tension between creators and users of intellectual property (IP). This friction spans industries and certainly isn’t limited to the technology space. But with tech research and development such a central force behind innovation, and with market participants directly or indirectly reliant on it to create a platform for their products and services, it’s little wonder that IP has become such a contentious topic.

Recent months have seen an ebb in the news flow about mobile IP as attention has rightly shifted to other matters. This has followed a settlement between two companies at the heart of the battle over how the industry puts a value on cellular IP. The fruits of the settlement in 2019 between Apple and Qualcomm should become tangible in just a few months when the first 5G-enabled iPhone is launched.

Amid the growing momentum for 5G, there’s been a wave of deals: Qualcomm reported at the release of its latest financial results that it now has more than 85 5G licensees; Ericsson has 97 commercial 5G infrastructure agreements or contracts with unique operators; Nokia counts 74 commercial 5G infrastructure deals; and Huawei claims more 5G equipment contracts than either of its two European rivals, a point that’s in constant dispute. Huawei is also highlighting its leading role in IP and standards creation for 5G, although how the relative strengths and contributions of various IP portfolios should be judged is a topic for another day.

News stories about licensing and a new 5G dawn as the backdrop have painted a negative picture of patent licensing and associated royalties. This isn’t new; negativity has emanated for years from companies that offer little to no innovation but amass patent portfolios that are wielded against the real innovators for commercial gain. This is a reminder that the problem rests with the system rather than any one company. Unfortunately this also clouds the good that’s borne out of IP licensing.

None of the giant leaps in mobile innovation (2G, 3G, 4G or 5G) would have been possible without IP licensing. The research and innovation needed for a new “G” often starts some 10 years before a standard is completed. Companies involved in this process are doing so with no guarantee that the IP will be relevant or what the final standard will look like. Progress is dependent on innovation and the process of research and development. In return, the system must protect those investments, especially when they come to define a standard. A company’s IP should be protected and rewarded — through royalties — for the risk taken years earlier, should it become material to how a product or standard works.

Ericsson, Huawei, Nokia, Qualcomm and Samsung, to name but a few, all spend more than 15% of revenue on research and development. Business models and investment levels may vary, but all these companies rely on IP protection and royalties to justify sometimes speculative investments that later transform a technology like 5G.

This is central to the value of the underlying IP. Putting a value on IP is somewhat elusive by virtue of commercial and market forces and years of precedent. This combination of complexity in the development of IP and murkiness in how it’s later valued has contributed to negativity toward IP licensing. However, a broader view should consider both the size of the investment and the significance of what the innovation delivers.

This is a point made by Alex Rogers, executive vice president of Qualcomm and president of the Qualcomm Technology Licensing business. At the recent Collision from Home event, he said that in 2019 the leading licensers in mobile technology generated total royalties of about $10 billion, but the value created in the mobile industry reached more than $1 trillion, according to industry reports. If we also consider the broader impact of mobile technologies and services, built on a foundation of connectivity, this contribution is decidedly higher.

A study by GSMA Intelligence into the mobile economy revealed that mobile technologies and services produced $3.9 trillion of economic value globally in 2018 — that’s 4.6% of GDP. The figure is expected to grow to $4.8 trillion by 2023, with 5G tipped to add $2.2 trillion to the global economy over the next 15 years.

Economic impact is extremely difficult to assess and there’s always a risk that assumptions overdo the eventual significance. However, having given rise to a host of new businesses from Airbnb to Uber, it’s hard to dispute the impact that 4G has had on the global economy and society at large. I’m confident that 5G will similarly prove to become a platform for entirely new businesses and services. The heightened importance of connectivity during the Covid-19 pandemic has reinforced this view (see The Need for 5G Has Never Been Clearer). Any consideration of the value of IP has to consider this bigger picture.

Clearly a fair price should be charged for access to IP, and standard essential patents should be licensed on a fair, reasonable and non-discriminatory basis. But as we enter a new wave of innovation with 5G, we should look at the work that underpins this innovation through a wider lens. Rather than taking a narrow view, we must consider what IP licensing enables in economic benefit and why it’s important to ensure that innovation can continue to prosper.

A version of this blog post was first published by FierceWireless on 16 July 2020.