Weekly take: SEP owners have benefited from a lack of transparency
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Weekly take: SEP owners have benefited from a lack of transparency

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In his final article for Managing IP, Rory O’Neill explains why he is not among those who think the EU’s proposed SEP Regulation is a terrible idea

This is my last piece for Managing IP after two and a half years here, and another two and a half covering intellectual property at another title.

Regular readers may be familiar with our ‘weekly takes’, a regular supply of opinion on IP trends from our team of reporters.

Without crunching the numbers, I would guess I have been the least prolific contributor.

I didn’t always feel my opinions on IP would resonate with Managing IP’s readership or prove value for money.

I am an unreformed, Jeremy Corbyn-voting arts graduate; an advocate of broadband communism and redistributive economic policy.

I understand it can be invigorating to occasionally hear dissenting views, but I was worried that regular dialogue with our readers on the merits of market economies might be unwelcome.

Indulge me on my last day, however.

Over the last five years, I have become fascinated with IP and innovation – where it figures in industrial policy and how it helps structure the new global economy.

There have been several efforts from scholars and critics to characterise the present phase of development –surveillance capitalism, platform capitalism, data colonialism, and even technofeudalism.

Whichever one you prefer, the best of these ideas all recognise the importance of ownership over intangible assets and data in determining the winners and losers.

And despite the emergence of all these theories, IP is still understudied in political economy and business journalism.

I’m grateful, therefore, for the chance to record a few thoughts on what has been one of the most divisive topics I’ve covered for Managing IP – standard-essential patents (SEPs).

Grappling with SEPs

My introduction to SEPs five years ago didn’t go well.

I misunderstood the key issues so badly that I was ordered onto briefing calls with experts from both sides of the debate, who I had equally offended with my lack of comprehension.

Depending on whether you agree with what’s below, you might feel I’ve made some progress or failed to learn very much at all.

SEPs has nonetheless been a rewarding beat to cover, mostly thanks to the help of lawyers and press teams who never lost patience with my questions.

A lot of my time over the past year has been spent talking and writing about SEP policy, particularly the European Commission’s proposed SEP Regulation.

In some dark moments, I even thought about it in my spare time.

I’m not among those who think the SEP Regulation is a terrible idea, even though the messaging from the European Commission has been unclear.

In general, we should favour the widespread diffusion of knowledge and encourage downstream innovation.

It also seems clear that the reason SEP owners are reluctant to publish terms of their licensing deals in an EUIPO-run database is that they’ve benefited from a lack of transparency.

It was no surprise to see Mr Justice Marcus Smith call for royalty rates to be made public last November, given his findings in Optis v Apple.

Smith found that SEP owner Optis had struck deals with smaller implementers to drive the price up across the board.

Intellectual monopolies

That being said, SEP owners are simply trying to maximise their royalties and there is no reason we should expect them to do anything else.

As Rebekka Porath, global IP policy director at Intel, told a conference organised by the Fair Standards Alliance last November, SEP owners are pursuing business models that are “totally legitimate” under the current rules.

And it’s no surprise that Western SEP owners have reacted so defensively to the SEP Regulation when they are being squeezed so badly.

The two European SEP giants, Nokia and Ericsson, need licensing revenues to stay afloat, and that reveals a lot about where Europe stands.

Cecilia Rikap, associate professor of economics at University College London, has done impressive research on the political economy of technology that I would recommend to any readers with an interest in the SEP debate.

In her most recent book, Rikap outlines a taxonomy of firms operating under what she calls intellectual monopolies.

Her basic thesis is that the most powerful companies in the world are intellectual monopolies that capture knowledge from other firms down the value chain and enjoy intellectual rents.

At the top of the chain, we don't find a reliance on the licensing of IP rights such as patents, standard-essential or otherwise.

Often, what characterises intellectual monopolies such as Apple's is that the owners outsource certain areas of R&D to “innovating companies” and incorporate the resulting knowledge into their own products.

Rikap doesn’t discuss SEPs in her book, but under her model, innovating companies such as Nokia and Ericsson effectively exist to feed knowledge to more powerful companies.

It is the innovating companies that tend to be much more reliant on patent licensing than the true intellectual monopolies.

Even Qualcomm, by far the most lucrative SEP licensor, knows its place. Rikap writes: "A sign of Qualcomm's weaker bargaining power vis-à-vis Apple was that it kept providing chips to Apple while suing the latter for IPR infringement."

Nokia and Ericsson’s position is much weaker than Qualcomm’s.

Neither European company has anywhere near as lucrative a product business as Qualcomm; both have been even more dependent on SEP licensing to stay profitable.

European decline

The result is more pressure on their licensing departments as they try to keep pace with new Chinese rivals such as Huawei and ZTE.

I have frequently heard SEP owners and commentators complain about the level of Chinese-state support afforded to Huawei, the country’s 5G champion.

Extensive state subsidies helped Huawei invest heavily in R&D and establish itself not just as one of the world’s biggest handset manufacturers, as it was for a time, but as a leading telecoms innovator as well.

Complaints over Chinese state subsidies are usually aired with a sense of injustice. After all, how are Western rivals supposed to compete when the likes of Huawei aren’t governed by the usual constraints of profit and loss?

But surely it’s just smart industrial strategy on Beijing’s part.

China, incidentally, has heavily invested in creating its own intellectual monopolies and has designs on challenging the US as the next great power of the 21st century.

Meanwhile, I’m not convinced either the European Commission or its adversaries in the SEP debate have yet to come up with any serious answers to Europe’s own problems.

The SEP Regulation’s biggest opponents seem to think that strong IP rights, backed up with maximal enforcement, can help reverse Europe’s relative decline and protect its technology sovereignty.

But Europe ceded economic sovereignty to California many years ago.

Some more radical policymaking might be in order.

I especially treasured one intervention by Hillary Clinton, who in 2021 told Chatham House of the need for Western governments to wake up to the Chinese threat.

“You will never compete and win against them unless you take back the means of production,” she said.

Maybe that’s not such a bad idea.

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