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A bitter dispute over billions of dollars of compensation for intellectual property rights threatens to hold back the development of 5G telephony and other wireless technologies, industry insiders say, after divisions emerged between bodies that rule on standards in the telecommunications sector.

The split reflects divergent views in the industry. Some leading companies warn that royalties from key patents could be slashed, discouraging investment and innovation. Others insist consumers will benefit from lower prices.

The dispute comes after the Institute of Electrical and Electronics Engineers (IEEE), one of the leading organisations that decides industry standards for WiFi and other advanced technologies, revised its patents policy.

Instead of royalties being calculated as a percentage of the price of the finished product, fees for IEEE approved patents would be based on the price of the components to which they contribute. Moreover, patent holders would be obliged to offer licences to all applicants and discouraged from taking licensees to court over royalty levels.

“This disturbs the balance of power between the licenser and licensee,” says Dirk Weiler, head of standards management at Nokia Networks, the Finnish telecoms equipment group.

Mr Weiler says that lowering the incentives for innovators to make intellectual property available to competitors creates the risk that technologies essential to raising the performance of a product across an industry will not be shared.

“We fear this may lead to a situation in which standards are no longer the best technologies, while companies try to keep back their high-quality intellectual property for themselves,” he says. “This is a danger we clearly see for 5G.”

Gustav Brismark, vice-president for patent strategy at Ericsson, the Swedish telephone equipment maker, says: “This new policy shifts the balance much more in favour of the users of the standard, so that it will facilitate companies who choose to hold out and refrain from negotiating in a fair manner to get the rights [to patented technology].”

InterDigital, the San Diego-based intellectual property group, and Qualcomm, the US mobile chip company, have also complained.

“In a nutshell, they don’t want developers to be paid much, and they’ve also made it as hard as possible for them to get paid at all,” wrote Bill Merritt, chief executive of InterDigital, in March this year. But other companies, including Cisco, Dell, Intel and Hewlett-Packard have backed the IEEE or are neutral. Cisco, the US networking company, has called the shift “a significant victory for consumers” that would help ensure patent holders could not “obtain unreasonable royalties”.

Owning a patent for an industry-standard technology is highly lucrative — Qualcomm made some $50bn in global licensing revenue from its 3G technologies, the European Patent Office (EPO) says.

In Europe, so-called “standard essential patents” — those relevant to technology adopted across an industry so that its products work in different countries and with other devices — are supposedly licensed by patent holders at “fair, reasonable and non-discriminatory” rates.

But the IEEE objects that there is no clear definition of a “reasonable” compensation rate, leading to costly disputes and fuelling litigation, while creating disincentives to innovation.

“If there is no hint what ‘reasonable’ is, then there is no guidance, which means the policy is totally vague,” says Konstantinos Karachalios, managing director of the IEEE Standards Association. “A totally vague policy is worse than no policy at all.”

The IEEE was “company agnostic” in deciding to change its policy, he says: “The essence is that the value created by the standard should not be appropriated by any single player.”

Standard setting bodies are seeing the first patents that are trying to define the foundations of 5G. There will be an explosion of 5G patents and royalties, says Mr Karachalios. “Everyone will gain, even those who are complaining.”

The EPO declined to comment on the dispute.

Copyright The Financial Times Limited 2017. All rights reserved.
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