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Nortel patent sale fuels uncertainty over LTE intellectual property

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Apple, Nokia and Google are all expected to bid for Nortel’s huge patents hoard. The winner could help decide the licensing structures for LTE.

LTE deployments and trials may be stacking up, but one significant aspect remains fraught with uncertainty – the patent position.

In previous generations of mobile technology, individual IPR holders might argue bitterly over rights and royalties, but the process was well understood – and took place strictly behind closed doors, with bilateral agreements.

At the 4G stage, the picture is more confused because there are two potential approaches to patent licensing. One is to stay with the 3G system. For obvious reasons, this is favored by the existing patent powerhouses, and Qualcomm, Ericsson and others are already claiming a long list of bilateral deals for their considerable stocks of IPR. The other is to adopt a pool approach, with a common framework that applies to all agreements, and with rules and charges published openly.

The case for a patent pool

Why is there serious impetus to change the system this time around? Several factors are in play. Pools are the norm in many other technology areas, and players from the PC, industrial devices and consumer electronics worlds – all more accustomed than traditional cellphone makers to pools – are coming into the mobile sector. Major players that have not previously participated significantly in the mobile patent world, but expect to sell large numbers of products for 4G, do not want to be excluded or disadvantaged by a system that they perceive to be weighted in favor of the mobile establishment.

In addition, pools tend to bring with them other principles that can boost competition and reduce costs. One of these is the concept of fair reasonable and non-discriminatory (FRAND) royalties, as adopted (often rather vaguely) by patent pools and standards bodies like the IEEE. Another is the idea that all patent royalty claims should be made upfront, to prevent IPR holders emerging from the woodwork once a technology is established and causing "bill shock" to vendors (this idea is increasingly being supported by standards bodies and by governments and their agencies, notably Europe‘s ETSI). The increasing importance of standards and players that emerged from the PC and web worlds, like Wi-Fi and WiMAX, have introduced once foreign ideas to the mobile arena, and they cannot now be ignored.

In addition, some of the mobile big-hitters themselves are struggling with the established licensing structures. 4G platforms are highly complex and many patents will be involved. This could add hugely to the time and expense of negotiating bilateral deals for each piece of IPR, and the number of royalty payments could wreck the chances of delivering the low-cost devices that will be required to stimulate usage in many areas – not just affordable LTE handsets for emerging economies, but the tiny embedded gadgets that will underpin new revenue streams like machine-to-machine and smart grid applications. Even Nokia and Ericsson, two of the giants of cellular IPR, have lent their weight to setting a cap on royalty charges of 10 per cent of the cost of a device. Yet this will be impossible to enforce if a manufacturer has to negotiate separate deals for scores of pieces of IPR.

The battle for LTE

In 2011, we can expect significant intrigues and battles over the licensing structure for LTE, as the industry looks towards a mass market for the devices from 2012. Vendors will fight to maximise their patent holdings, which in turn will help them influence the overall approach to IPR, and they will fight over how those patents are to be assessed and licensed. In both areas, the first OFDMA-based 4G technology to be commercialised, WiMAX, provides some interesting precedents. Many of the technologies and patents in that platform are also key to the rather similar LTE and this is shifting the balance of power in 4G.

And that in turn may help supporters of a patent pool to have more impact – given that several WiMAX IPR heavyweights, such as Intel, have come from the very different structures of the PC industry. These firms will want to use their WiMAX patents and experience to gain a new position in the once-closed cellular world, and that will be simpler to achieve via a pool. Even some major mobile players like Samsung may well take the side of a more open system – despite its huge handset sales, Samsung has not been a major IPR player in 3G, but is in the top three for WiMAX, a strength it will aim to exploit in LTE also.

The final picture of LTE patents is far from drawn yet though, so for many suppliers the first step will be to load up their arsenals. Qualcomm has already signed licensing deals for its extensive OFDM patents with four of the top five phonemakers, and Ericsson claims to have 25 per cent of the essential IPR in LTE, the largest slice – hitting back at claims earlier this year that it was only the fifth largest holder, coming after Qualcomm, InterDigital, Samsung and Huawei (Informa estimates). At the time, Ericsson‘s chief intellectual property officer, Kasim Alfalahi, told ConnectedPlanet that most calculations have used one of two "flawed" methodologies – a keyword search of global patent application databases, which does not distinguish patents that are essential specifically to LTE, or a tally of the number of patent applications for LTE submitted glob- ally. But while more precise, this does not take into account applications that will be rejected, or prove insignificant to LTE standards.

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