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Defining FRAND Royalties Rate
Roberto Dini
Seville, 27th October 2014
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Who is Sisvel?
• Founded in 1982 to spin-off a significant portfolio of television
patents developed by Indesit, Sisvel is a dynamic and full service
patent management company.
• Today, Sisvel is a truly independent company, but has roots deep in
the industry as its initial shareholders were major Italian television
manufacturers.
• Sisvel is one of the oldest and, with a team of over 100
professionals, largest administrators of IP Rights.
• Sisvel is headquartered in Europe, but operates as a multinational
company with subsidiaries and offices on three continents.
• Sisvel has its own research laboratories and engineering team
(Sisvel Technology).
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SISVEL International S.A.
Luxembourg
SISVEL Japan K.K.
Tokyo, Japan
SISVEL Germany GmbH
Stuttgart, Germany
SISVEL Technology S.r.l.
None, Italy
SISVEL (Hong Kong) Ltd.
Hong Kong
SISVEL S.p.A.
None, Italy
SISVEL US, Inc.
Audio MPEG, Inc.
Alexandria, VA
SISVEL S.p.A.
Milano, Italy
SISVEL UK Ltd
London, UK
Sisvel’s Global Presence
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SISVEL International S.A.
Luxembourg
SISVEL Japan K.K.
Tokyo, Japan
SISVEL Germany GmbH
Stuttgart, Germany
SISVEL Hong Kong Ltd.
Hong Kong SISVEL S.p.A.
SISVEL Technology S.r.l.
None, Italy
SISVEL US, Inc.
Audio MPEG, Inc.
Alexandria, VA, USA
SISVEL UK Ltd
London, UK
Sisvel’s Main Licensing Programs
xDSL
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KEK POINTS - What does FRAND mean?
FRAND commitment means no blocking patents.
It guarantees that essential patents are licensed under fair and
reasonable terms and make tech transfer possible.
It offers a reasonable economic return to patent owners on R&D
investments giving incentive for further innovation.
Patent Owner/Inventor
Fair Compensation
Return on Investment
Market
Avoiding monopoly
Access to technology
A balance of interest
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What is the economically efficient level of royalties? In view of creating innovation and spreading technology
• Cover R&D and Standardization costs
• Create a profit
• Cover the time delay between
innovation development and its adoption
(interests)
The total aggregate royalty income, produced during its life by a patented
innovation, should:
Costs Benefits
ROI Return On Investment
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KEY POINTS - Standardization costs
• Standardization costs are not paid by SSOs, but by the innovators who
decided to make their technology available to everybody, even if it is a
patented technology.
• Royalty income is the only way to reward innovators who renounce to
their rights to have a monopoly on a certain innovation.
Patent Standard
Exclusive use/ monopoly Collective use
vs
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Standardization costs: some examples
• The total cost (innovation + standardization) for the development of
the ISO-IEC MPEG Audio standards is estimated to approximately:
190 million €
• The total cost (innovation + standardization) for the development
of the ETSI DVB-T standard is estimated to approximately
96 million €
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Reward to the IP Owners/Innovators The inventive loop
The royalty stream from patent licensing would be sufficient
to cover the R&D costs and to finance further innovation
This business model could be applied equally
by large and small companies, and also by public and private ones
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How to define a FRAND royalty rate? Some considerations
• FRAND royalties should be based on end products (and not on
product components) .
• Normally a standardized technology is an improvement of the
operation of a product. Consumers buy new mobile phones or new TV
sets because they perform better than the previous ones. Therefore it
is the manufacturer of the products who receives an advantage in
selling at an higher price new products resulting from a
standardization process.
• The cost of IP should be related to the portion that this IP covers as
a function of the product.
• It should be a win-win solution between the benefit that the
producer has on the market in selling new patented features and
the cost born by the innovators.
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How to define a FRAND royalty rate? Some considerations
• The royalty fee should only be related to standard essential patents
• It cannot be influenced by non standard essential patents which by
definition can be circumvented
• The royalty fee should not consider ex ante estimations because,
nobody can forecast the size of the market until the standard is
deployed.
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DVB-T didn’t reach the expected worldwide coverage
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SSOs developed techniques to reduce the potential for patent hold-
up:
• Disclose standards-essential patents
• Commit to license standards-essential patents on terms that are
“fair, reasonable and non-discriminatory” (“FRAND”)
KEY POINTS - SSOs approach on IPR issues
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SSOs approach on IPR issues
• Early disclosure of essential patents and
confirmation of FRAND
• American National Standard Institute
(ANSI)
• European Telecommunication Standards
Institute (ETSI)
• Commitment to license on FRAND terms
(without disclosure)
• Digital Video Broadcasting (DVB)
• Facility for optional disclosure of patent
and detailed licensing terms
(so called ex-ante disclosure)
• Institute for Electrical and Electronics
Engineers (IEEE) Standards Association
• ETSI
• Required disclosure through facility • VITA Standards Association
• Explicit limits on licensing:
• cap on royalties
• royalty-free
• maximum per device fee
• Blu-Ray Disk Association (BDA)
• World Wide Web Consortium (W3C)
• CableLabs
• Audio Video Standard (AVS)
• Fostering formation of patent pools or
other forms of IP aggregation
• DVB
• AVS (Chinese Electronics Standards
Institute - CESI)
• IEEE
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• Ex ante disclosure and FRAND commitment is NOT ENOUGH.
• It results in all POs disclosing rates which, if summed, are too
high.
• In reality it seems that the organization of patent pools
immediately after standardization could address this point more
effectively.
• SSOs could encourage POs to meet under the supervision of an
independent patent facilitator to set royalty rates, make them
public, and quickly start a patent pool.
SSOs approach on IPR issues
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• Patent pools are useful to set a royalty level that is acceptable by
both the IP Owners and the market, because this form of IP
aggregation includes simple licensors as well as licensors who are
at the same time licensees of the patents licensed by the pool
itself.
Patent Owners of the Sisvel DVB-T Patent Pool
Simple licensors Licensors and Licensees
•Koninklijke KPN N.V.
• Orange
• TDF SAS
• Panasonic Corporation
SSOs approach on IPR issues
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LTE Royalty Rate Announcements A Natural Experiment
In April 2008, seven major telecommunications companies announced
that:
“a reasonable maximum aggregate royalty level for [all] LTE essential
IPR in handsets is a single-digit percentage of the sales price”
(i.e., <10%)
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• 10 companies disclosed royalty rates for their LTE patents (including several of the original seven)
Nokia 1,50% * ALU 2,00%
NSN 0,80% Nortel 1,00%
Ericsson 1,50% Huawei 1,50%
Qualcomm 3,25% ZTE 1,00%
Motorola 2,25% Vodafone 0,00%
This chart reports for some companies the “maximum” LTE desired royalty rates that have been publically declared by those companies.
• The sum of the royalty rates announced by those 10 companies as a single group is 14.8% (a 2-digit figure).
• Considering that potentially there could be as many as 50 parties, the aggregated value of royalties could reach easily 3 digits.
* 2% for multi standard
LTE Royalty Rate Announcements A Natural Experiment
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Patent Pools Agreements have substantial pro-competitive effects, including:
providing more certainty and predictability to those who are interested in adopting the standard by creating a leveled playing field;
reducing aggregate royalties by establishing a single royalty rate for the participating companies patents;
reducing transaction and administrative costs for both patent owners and licensees;
promoting FRAND licensing terms and conditions.
KEY POINTS - Patent Pools are Pro-Competitive
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• Enforcement and compliance are not only in the interest of patent
owners, but also in the interest of all licensees to ensure that others
do not gain an unfair advantage in the marketplace.
• An independent administrator can also ensure that enforcement is
conducted in an even-handed manner.
Improving Patent Pool
Enforcement and Compliance
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In conclusion
Promoting patent pool
and strengthening the virtuous circle (inventive loop)
to reward the innovators,
should be always favoured
as a system to foster innovation
and adopt technology
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