FRAND: The foundation for innovation

Smartphones have permeated our lives.  From finding a restaurant to communicating with co-workers, it is difficult to remember when we did not have the Internet at our fingertips – even though it was really just a bit more than 10 years ago.

This ubiquitous connectivity has enabled a broad range of industries to come together to build the Internet of Things (IoT) – an ecosystem that stitches together our homes, cars, phones and watches, creating endless opportunities to improve our healthcare, safety, and lifestyles.

{mosads}While we have come so far, the convergence of computing and mobile technologies is really just finishing its first act – and there are many more to come.  However, the future of mobile innovation and connectivity could soon be in question.  The very patent and standards systems that fostered the wireless innovation boom could be in peril as companies are reneging on the very business compacts that provided the foundation for our wireless boom.

Seamless interconnectivity across devices from different manufacturers, running different operating systems, and using different apps is made possible by technological standards including WiFi, 4G, and Bluetooth. These standards are developed collaboratively in Standards Setting Organizations (SSO’s) –  where companies work to develop interoperable technologies together. A patented technology that is critical to that standard is known as “standards-essential patent,” or SEP.

Holders of SEPs are usually entitled to licensing fees from implementers of the standard. In return for the bargaining advantage a SEP holder has, SSOs require the holder to promise to license the SEP on terms that are fair, reasonable, and non-discriminatory (FRAND).

Increasingly, some companies that voluntarily contributed their patented technologies to these standards under FRAND terms are abusing their unique position and breaking those promises with unreasonable licensing and litigation practices. Some of the more egregious examples include SEP holders that allege patent infringement and seek an injunction to gain negotiating leverage over the companies who are implementing the standard.   

These practices not only threaten competition and create imbalance in the patent system, they also impact the viability of new markets like the nascent Internet of Things.

The current imbalance could quickly put the brakes on mobile technology’s true potential at a time when we are just starting to make an impact on some truly groundbreaking areas to include transportation, energy and healthcare.  One recent study found that the cost of patent royalties could soon surpass the price that manufacturers can charge for smartphones.

From the United States to Europe to Asia, threats to the standards process and patent policies risk the vast potential for technology to solve critical global challenges.  Patent policies that are being developed and enforced by governments, courts, regulators, and standards bodies today will directly impact the way we work, live and play for decades to come.

Because of the inter-connectedness of our economy and technology development, the collective decisions by policymakers, courts and regulators around the world create the conditions that weave the fabric of innovation.  We are not just talking about billion dollar companies fighting with other billion dollar companies.  FRAND patent issues could thwart the startup that could become the next Facebook or the next Twitter before it even starts.  By paying attention to these issues now, we can collectively attempt to create a stronger fabric that creates the potential for more, not less, innovation.

Patents and standards are complex topics usually reserved for the wonkiest of corporate attorneys and discussed in the quiet chambers of empty court rooms.  However, patents and standards have a direct impact on the products and services we use today and those that will be developed tomorrow.  It is time that we all realized that.

Reed is the executive director for ACT | The App Association.