ACT’s call for prohibition of use-based pricing for IoT is a lost opportunity for app developers to call for a reduction of the mandatory 30% tax on their sales revenue demanded by the monopoly owners of app platforms

[Wednesday, 18 October; Brussels] At an event in Brussels today, ACT: The APP Association –  sponsored by companies including Apple, Intel, Microsoft, Facebook and eBay – called on the European Commission to prohibit use-based licensing within the longstanding FRAND licensing system.

Such a change to the longstanding practice of use-based licensing would result in the collapse of the current system of shared open connectivity standards, putting the upcoming 5G standard at risk. In fact, ACT and its sponsors are seeking to impose a uniform SEP licensing model on the whole IoT ecosystem, without any flexibility and even before some of the standards are developed.  This is illogical, inefficient and runs against competition as it is not for Silicon Valley to decide.

Reacting to the news, Francisco Mingorance, Executive Secretary of IP Europe – which represents the developers of innovative connectivity and cellular standards that enable a device industry with annual revenues of 100 billion dollars, said: “No app developer has ever had to take a licence or pay a penny to the inventors of the cellular technologies used on smartphones and other connected devices. Why app developers are not calling instead for a reduction in the fees that they pay to the monopoly owners of the online platforms they must use to sell their innovative technologies is a mystery and certainly a lost opportunity for apps companies across the world.” 

Suggestions that the European inventors of 3G and 4G technologies – who are investing heavily in developing technologies for the future 5G open standard which will underpin the Internet of Things (IoT) – are calling for anything different than what they did for the development of the thriving global smartphone connected devices market, could not be further from the truth. European investors in open standards such as Ericsson, Nokia and Orange are simply supporting well-established industry best practices that have created a multi-trillion global market and enabled the emergence of the flourishing and highly innovative app industry.

Use-based licensing (also known as value-added based licensing or price differentiation) is a long-established practice and fundamental principle of the fair, reasonable and non-discriminatory (FRAND) licensing system that has enabled the global growth and constantly improving performance of smartphone technology. It is the mechanism by which licence fees for equipment and device manufacturers are negotiated reflecting the added-value conferred on a product by adding cellular connectivity.  This system specifically enables all products, those that rely on connectivity for their prime functions (e.g. smartphones), and those where connectivity is just a feature (e.g. a smart vending machine) to be able to implement cellular standards.

Francisco Mingorance, Executive Secretary of IP Europe, said: “When the revolutionary 5G standard is ready[1] – that is after 2020 and 10 years of continued upfront investments by leading European inventors and the best in class engineers, it will provide a different order of added value to a connected car versus a vending machine. Driverless cars will use the standard to be constantly connected and responsible for safety features, hugely increasing their market value. By contrast, a vending machine may occasionally use 5G to order restocking.”

“The tech giants argue that both products should pay the same fee for access to the standard, despite the hugely different benefits they accrue from it. Such a system would either make it impossible for standards developers to receive a fair return for their innovations, or for implementers with lower market potential to operate in the internet of things at all. It would give rise to alternative, fragmented and proprietary IoT technologies owned by a few giant gatekeepers.

Even for large companies, with smartphones products that could not exist without open connectivity standards, used-based licensing fees are very reasonable.

A 2015 study into mobile phone license fees showed that the average royalty fee paid for access to 1G, 2G, 3G and 4G standards was US$7.25 per phone; the average mobile phone sales price was US$221.80.[2]

IP Europe and its members remain strong supporters of open standards and European leadership in 5G. Our members continue to support the FRAND-based licensing system – Fair, Reasonable and Non-Discriminatory – that enabled the rapid growth of the global smartphone market, and will do the same for the IoT.

Referring the upcoming release of the FRAND Communication by the European Commission, Francisco Mingorance added: IP Europe welcomes the effort of the Commission to release a balanced Communication that does not undermine the primacy of ETSI or European standardisation, nor cause added uncertainty in the market.”

The questions for the European Commission are simple ones. Do they want global connectivity to be based on closed proprietary technologies owned by a small cabal of Silicon Valley gatekeepers? Or do they want the Internet of Things (IoT) to be built on strong open standards and interconnectivity that benefit everybody, and help European companies innovate and compete?

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Standard Essential Patents or ‘SEPs’ – are the connectivity technologies incorporated into generations of open connectivity standards, like 3G, 4G and the upcoming 5G standards, expected to form the architecture of the Internet of Things (IoT), and for which a patent license is required for all implementations compliant to the standards.

Open standards development – the system by which innovative companies contribute their best technologies and intellectual property to provide global access to a single best technological standard – has been industry best practice for 20 years and credited with driving device interoperability, and enabling greater competition and product innovation in the technology market.

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About IP Europe

IP Europe brings together R&D intensive European companies and research institutes committed to innovation, from SMEs to global enterprises and non-profit research entities operating in a variety of industrial sectors. They all share a common goal: to maintain, at all policy levels, strong patent protection for innovators and support recognized fair, reasonable and non-discriminatory standardisation policies adopted by consensus that preserve fair compensation for innovators. IP Europe supports the use of Injunctive Relief against patent infringers and free riders that rely on R&D investments made by others to earn higher profits. 

IP Europe was originally launched by Ericsson, Airbus and France Brevets. The Fraunhofer Institute participates in IP Europe in its capacity of academic advisor.

For more information, contact:

Rory Douglas Home

rory@aspectconsulting.eu 

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[1] 5G PAN-EUROPEAN TRIALS ROADMAP STRATEGY

[2] Haber; Hoover IP