Patent pools deliver market balance, transparency and equity, new research shows

When executed well, pools offer an efficient, market-driven solution to the increased licensing complexity of the IoT era, writes Jacob Schindler

The spread of connectivity into ever more IoT verticals is creating new dynamics and complexities in the licensing world. In response, industry voices and policymakers (notably in the EU) have pushed for greater transparency, predictability and efficiency in SEP matters.

According to a new research paper from Technical University of Munich doctoral candidate Yanis Luca Gamarra, who is a visiting scholar at the UC-Berkeley Haas School of Business, this situation calls for greater attention to patent pools and the factors that facilitate their success.

The study, “Patent Pools to Facilitate Licensing of Standard-Essential Patents in the Internet of Things”, draws on anonymous interviews conducted over a period of three years with a diverse cross-section of experts in patent licensing, including representatives of SEP owners, implementers and patent pool administrators.¹ Gamarra notes that the views of all three groups were “broadly consistent”, suggesting significant industry consensus around the factors that go into a successful pool.

Reduced transaction costs

When executed well, patent pools have long been understood to reduce licence transaction costs while returning income to standards contributors. “The increasing complexity” of the IoT licensing landscape, Gamarra writes, “enhances the attractiveness of pools, and may even result in implementers proactively requesting pool solutions”.

This is in part because of the significant technical, legal and market know-how that resides within successful pool operators. “The administrator’s licensing expertise is a pivotal asset that contributes significantly to the efficacy and efficiency of the pool,” Gamarra finds, adding that “diplomatic abilities” are also critical.

Patent pools are strongly incentivised to balance diverse interests around a given standard. “Administrators aim to maximize technology coverage and minimize licensee risk, tailoring their licensing models accordingly,” the study finds. “Importantly, pool administrators need to appeal to both SEP owners and implementers, leveraging diverse viewpoints in pool formation negotiations to achieve a critical mass of SEP owners and implementers.”

This intensive consensus-building process is ultimately aimed at discovering the prices and terms that will be widely accepted by both sides of the market. Crucially, the pool needs to offer a value proposition superior to multiple bilateral licences or outcomes delivered through litigation.

Equity through transparency

Another key factor highlighted in the paper is transparency. “Comprehensive openness is vital for equitable and efficient pool operations, fostering stakeholder trust and compliance,” Gamarra writes. Clear communication is necessary on multiple levels: among SEP owners during pool formation, with implementers regarding royalty rates and calculation methods, and with the broader industry regarding the pool’s overall value proposition.

Given pools’ tendency to deal with emerging technologies and product categories, adaptability is also an important advantage enjoyed by the best pool operators. It is impossible to judge the effectiveness of a pool’s licence offering until it has launched into the market. In cases where a programme has failed to gain traction, Gamarra writes, “pools have the responsibility to initiate changes if they feel that the licensing terms are not getting the market acceptance they should.”

This again emphasises pools’ role in building consensus among stakeholders and finding market-driven solutions. With their knowledge of technologies, product markets and legal environments, pool operators are capable of nimbly adjusting terms in line with business realities based on negotiations with all sides. This forms a marked contrast to the slow-moving mechanisms of judicial rate-setting and regulatory action.

Incentivise pools to spur innovation

Gamarra concludes the study by noting that its findings can help policymakers and industry players create an environment that fosters pool-based SEP licensing solutions for IoT, encouraging future pool formation and participation. As he points out, the European Commission has recognised the benefits of patent pools as recently as its November 2017 communication to the European Parliament entitled “Setting Out the EU Approach to Standard Essential Patents”.

The vast majority of the research interviews for the paper were conducted prior to the unveiling of the EU regulation on SEP licensing, which is now being considered by the Council of Ministers. A number of the experts interviewed by Gamarra in the later stages of his research expressed reservations about this proposal. One observed that patent pools could achieve the goals of the EU regulation in a more efficient and comprehensive way, while another worried that it may create significant red tape without actually increasing transparency.

The long-recognised benefits and efficiencies of pools are well worth revisiting in the context of the ongoing EU legislative process. But the paper also makes clear that not all pools succeed – those that do are the product of hard work and skilful consensus building.

Few will agree with every recommendation in the study but, on the whole, it offers a useful lens through which to identify patent pool efforts that are likely to facilitate technology adoption, reward innovation and reduce transaction costs.

Jacob Schindler is Senior Manager, Content and Strategic Communications, based in Sisvel's Hong Kong office

¹ A representative of Sisvel was among the 27 experts interviewed for the study; Sisvel provided no other support for the project.