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A fight has broken out over the technology that powers our smartphones, connected cars, and the internet of things. Behind the scrap a radical EU plan to revamp the patent system for key connectivity technology. On one side, Apple, BMW, and other big manufacturers. On the other, telecoms groups, such as Qualcomm and Nokia, that invented and control the standard essential patents, or SEPs, which allow all kinds of gadgets to access the 5G and Wi-Fi networks that they need to work.
The EU is overhauling rules designed to prevent incompatible technology as it attempts to fix what some patent users describe as a broken market, but there are fears that changing the way SEP holders are paid for their intellectual property may end up hindering innovation. The increasingly widespread use of connectivity patents has exposed massive strains in a process that has often been defined by vicious litigation between corporate giants. Carmaker Mercedes-Benz, for example, spent years fighting infringement claims from Nokia.
Currently, rival companies agree to use a particular method for solving important problems, which then becomes an SEP. That designer is guaranteed customers, but must agree to licence its product to anyone at a fair, reasonable, and non-discriminatory rate. But the system has come under pressure as the universe of connected products has exploded into a $4.8tn sector.
For example, in the automobile market patent owners prefer to negotiate only with the big carmakers and sell all the needed SEPs together. Auto suppliers say that limits their ability to innovate and leaves them vulnerable to being forced to shoulder an unfair share of the patent cost.
The current system also allows global companies to use the threat of lawsuits to pressure each other on price. Brussels's proposed solution, unveiled in April, favours users over patent owners who are mostly based outside the bloc. It would create a centralised SEP register and process, force negotiation before litigation, and use outside experts to determine fair prices and royalty rates.
But Qualcomm, Nokia, and other patent holders say it will primarily cut costs for Apple and big carmakers at their expense. They argue that EU-set prices will quickly become the global norm, depriving them of the revenue they need to fund research. They also worry that the EU intervention will spark similar moves in China. Constant litigation and complex rules do slow down progress, but Brussels's proposed solution could be counterproductive.
