There are a lot of companies in telecom, but only a handful that work across the entire space. How do you describe Nokia’s position?
The simplest way to understand it is that there are really only five providers of equipment that operators like Verizon and AT&T need other than the handsets themselves. They’re Nokia and Ericsson, the Chinese providers Huawei and ZTE, and Samsung. Nokia is one of the only companies in the world that supplies all the infrastructure, equipment, and technology to get a digital signal from one receiver to another.
We own one of the broadest and strongest patent portfolios in the mobile communications sector, with around 20,000 patent families, including over 6,000 patent families declared as essential to 5G as of today, and a strong set of multimedia SEPs and implementation patents. We are very focused on resolving the most complex technical problems and coming up with fundamental, high-quality inventions.
That makes standards — and in particular SEPs — very important in your space. What are the varying approaches you see around the world?
The European regulators are seeming to move in an unusual and unprecedented way to try to regulate a space that traditionally has been left to the courts. We’ve had some attempts in the United States with government agencies taking positions on these sorts of issues. Back in 2013, we had a joint statement that was put out by the USPTO and the Department of Justice on their positions regarding appropriate remedies for the enforcement of SEPs. At the time, they had taken a somewhat implementer-friendly position that suggested that in all but the most egregious cases, injunctions shouldn’t be available for standard essential patents.
This caused some heartache amongst patent holders like ourselves. We found that even though these agencies didn’t really have the prescriptive power to make such statements, and could only offer them as guidance, foreign jurisdictions looked at those positions as though they were establishing de facto law in the United States, and that they therefore were justified in their own efforts to restrict patent holders’ available injunctive relief, and other remedies. In particular, Chinese regulators interpreted the guidance as a statement of US law rather than of the opinion of current agencies under one administration.
The government position moved in the opposite direction in 2019. Under the Trump administration, the new head of antitrust, Makan Delrahim, came in and took a different stance. He said, Look, I’m hearing from standard essential patent holders that they’re having problems with enforcement of their patents. We want to make it clear remedies ought to be available to them.
Then in 2021, the Biden administration came in and proposed a reversal. A new draft joint statement came out from the PTO, NIST, and DOJ that said the 2019 statement should be withdrawn, and we should go back to a more implementer-friendly view of the world.
We provided input on that proposal, as did many other stakeholders, both from the implementer side and the patent holder side. Eventually the conclusion was to withdraw all statements and say, We’ve discussed it, and we think that this is best left to the good judgment of the courts under existing law. That seems to have been working over the past couple of decades. We don’t see a reason to disturb that. That, ultimately, was the best and wisest solution.
“We would like to see the brakes put on what we think is probably speculative and unnecessary regulation, until there’s actually some evidence that it’s needed.”
Director of Licensing and Head of IP Regulatory Affairs, North America
Nokia Technologies
Where are the real sticking points when it comes to SEPs?
Well, with respect to the proposed regulation that the European Commission has put out, there’s a requirement that all SEP holders have to register their patents with a new official registrar that will be set up. You’ll have to declare all essential patents, and if you fail to declare them, they will be rendered unenforceable. There’s already a comprehensive database where most patent holders, at least in the wireless space, already place their declarations: the European Telecommunications Standards Institute, ETSI. So, this seems like just a duplicative endeavor that would be a waste of resources.
Another issue is that they tried to set up an aggregate royalty system, in which SEP holders would have to notify that registrar of the expected maximum aggregate royalty for any particular standard, or SEP holders and implementers could jointly ask a conciliator to recommend an aggregate royalty. We see a lot of problems with this.
One, it’s going to be a time-consuming and costly endeavor, which ultimately is nonbinding on all of its participants. Two, you’ll be trying to establish an aggregate royalty before the true value of the technology can really be established. Of course, you’re going to have diametrically opposed opinions between those who hold patents and those who merely wish to use them at the lowest cost.
A third problem is that you’re going to have a mandatory FRAND determination conciliation proceeding that an SEP holder and an implementer would have to try first, before commencing litigation in any European courts. This is, again, a nonbinding procedure. And it’s therefore really just going to be an unwelcome delay in a patent holder’s ability to enforce its patents in the event that licensing negotiations break down.
How much of this all really boils down to policy versus politics versus philosophy of a given jurisdiction?
The United States, in particular, right now is really concerned with maintaining an American and a Western presence in important standard-setting, particularly in what they call critical and emerging technologies — one of which is wireless technology. The most important thing is to provide incentives for people to participate in that process. As a major patent holder and a technology contributor to standards development, our primary incentive is that we must have sufficient return on investment for all the research and development that we do upfront to create the technology that ends up in the standards.
The standards space here is different from a lot of other product spaces. You’re putting your technology out there and making it available for use. Without the ability to prevent the introduction of products into the marketplace, you end up having to try to chase down your royalties after the fact once products are already out there. It makes it difficult to recoup sufficient return on investment to continue developing future generations of these technologies.
In our product space, the margins are thin, because the products are standardized. It’s important that we gain that sufficient return on investment through licensing because of the significant contribution licensing makes to the company’s profitability. The product cycles are fast. New markets or new products are constantly being introduced.
To what degree is the political factor a concern — the US, the EU, and China?
Very much so. The fear is that if the European Commission allows European regulators to establish worldwide aggregate royalties for particular technologies, it’s going to motivate other countries who might not be as inclined to value intellectual property in the same way as those in Europe to make similar initiatives on their own. You might see China doing that, and there’s even proposed legislation in the United States that would have similar goals.
In the past few years, you can start to see a fractured system where you’ll have multiple different jurisdictions racing to try to be the one that sets a proposed worldwide FRAND royalty that would bind all parties across the globe. And that could end up being a very difficult situation.
How would you like to see this space evolve in the next year or two? What would be the optimal developments from your perspective?
We would like to see less regulation rather than more. We think that the market is properly operating behind the scenes, and that deals are generally getting done. The vast majority of our agreements are concluded amicably, they just don’t get as much fanfare as the large multijurisdictional litigations. A lot of the regulation that’s being proposed now is theoretically to support and benefit small and medium enterprises that are entering the licensing space. And while that’s sensible, there’s no evidence yet that there is any problem that’s impacting small and medium enterprises in terms of their ability to secure licenses, or of them being unfairly or unusually targeted as recipients of lawsuits or licensing demands that are outrageous or inappropriate.
The fact of the matter is, we want the licensing market to thrive. And it makes no sense then to try to push out product developers who might enter the space. From an economic standpoint, it doesn’t really make sense that small and medium enterprises would be threatened or targeted, because they really aren’t the big pockets. We would like to see the brakes put on what we think is probably speculative and unnecessary regulation, until there’s actually some evidence that it’s needed.
While there are things that could be improved in the US, such as more ready availability of injunctive relief, the US approach right now of “no regulatory intervention, let’s leave it to the courts” — that seems to be the way to go. On the whole, we’ve found more success with letting markets handle licensing issues that pop up rather than seeking government intervention.