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Open standards:
together weinnovate
IPR and FRAND licensing driving
high performance connectivity for all

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Ericsson | Open standards: together we innovate

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In brief: fueling global innovation

A balanced framework for standardization is key to incentivize R&D and innovation andstimulate the investments needed to achieve seamless global connectivity. Indeed, by 2020
the mobile industry alone is expected to have invested USD 4 trillion in R&D and capital
expenditure to meet the expected demand in connectivity.1
To develop the next generation of technology for 5G and the Internet of Things (IoT),
it is vital that incentives to innovate and contribute to standardization continue to be
encouraged rather than weakened. Reducing incentives to innovate will likely have a direct
impact on the economic potential of this profound digital transformation.

In this paper, we make the following key points:
 . ICT standards are “development standards”
1
rather than mere “interoperability standards”.
Standardization within standard development
organizations (SDOs) like ETSI and ITU
involves the setting of certain productrequirements (e.g. for consumer safety
or environmental protection) on top of
the actual development of cutting-edge
technologies. Cellular standards such as 4G/
LTE and 5G/NR are thus not only set, but also
developed from the ground up, becoming
complete technical blueprints that can beused without further R&D. These standards
are created based on technology voluntarily
contributed by companies like Ericsson.
2. Within the telecom and ICT industries,
patents play an important role instandardization by allowing innovative
companies to share ideas and actualtechnology on fair and reasonable terms –that is, with the understanding that those
who make use of it will agree to compensate
innovators for their investments. This allows
SDOs to attract the best technologies to theirstandards. Where a solution adopted as partof a standard is also patented, the patent issaid to be a Standard Essential Patent.

3. At Ericsson, we are committed to
the FRAND system of licensing Standard
Essential Patents. The FRAND commitment
requires Standard Essential Patent
owners to offer access to the standardized
technology they own on fair, reasonable
and non-discriminatory terms.2 This system
has been widely used within the telecom
sector for over two decades and the vast
majority of licensing negotiations have beensuccessfully concluded, which is a signthat the system works.
4. The current FRAND system strikes animportant but delicate balance between
technology contributors and technology
users. Further policy initiatives in thisfield should not undermine incentives fortechnology developers to invest in open
and standardized technology. Likewise,
they should not encourage a shift toward
proprietary technologies that could threateninteroperability between equipment fromdifferent vendors, leading to user lock-in
and reduced consumer choice.

Source: Boston Consulting Group, “The Mobile Revolution”, January 2015
Source: Boston Consulting Group, “The Mobile Revolution”, January 2015. This includes the possibilityof licensing on a royalty-free basis, as established by Regulation No 1025/2012 – see Annex II, 4c12

5. Successful 5G and IoT standards
will require a tremendous amount ofinvestment, engineering expertise and thecapital-intensive, years-long developmentof cutting-edge technologies. An open,transparent, consensus-based and balanced
standardization framework is needed toensure that the broadest possible base ofcompanies contribute technology to thesestandards, and that an even larger groupof companies are willing to implement themin their products.

Ericsson | Open standards: together we innovate

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Seamless connectivity

Global standards are fundamental to today’s ubiquitous connectivity. Historically, there
was no uniformity between the telecommunication technologies that were adopted bydifferent countries, continents and regions. In order to help improve interoperability, different
companies participated and over time helped create globally standardized communication
technologies. These technologies ensure end-to-end system performance and worldwide
interoperability between networks, devices and network operators.

In addition, telecommunication standards
have evolved beyond pure interoperability
solutions and today enable global anddynamic ecosystems. It is against thisbackground that Ericsson envisages a world
where billions of people and devices will
be seamlessly connected. This will require
high-performing and secure technology
standards for 5G communications and
IoT, which will be developed by innovative
companies within standard-developing
organizations like ETSI3 and ITU.4

Looking to the future, we foresee an evenmore connected world, with 30 billion
connected devices expected by 2023.5
To meet the need for better networks andgreater capability, Ericsson has invested
approximately EUR 11 billion in researchand development over the past 3 years
and currently devotes more than
23,600 employees to R&D, much of which
is focused on contributing to open standards
for telecommunications.

European Telecommunications Standards InstituteInternational Telecommunications Union
5 Source: Ericsson Mobility Report, November 2017, www.ericsson.com/mobility-report3
4

In this paper, we describe how
standardization of wireless telecoms and
FRAND licensing of Standard Essential
Patents typically work. We aim to explainand highlight some important aspects andchallenges of standardization and FRAND
patent licensing.

Ericsson | Open standards: together we innovate

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The creation and evolutionof open cellular standards
Wireless cellular standards – such as GSM,
which was developed in Europe – have
proven to be highly successful on a global
scale. Indeed, the mobile wireless industry
has enjoyed remarkable growth in thelast two decades, providing affordable
communication that today connects
more than 5 billion unique subscribers6 atdecreasing prices. For instance, the averagemobile subscriber cost per megabyte
decreased by 99 percent between 2005
and 2013, while data-transmission speeds
increased by a factor of 12,000 whencomparing 2G and 4G technology.7
Wireless cellular standards are highly
complex and intended to perform andimprove over many decades. This meansthat devices and network equipment
are enhanced by continuously improved
standardized technologies, generating
better end-to-end performance and superiorfeatures for industry and consumers.
This has, among others, enabled thedevelopment of intelligent transport systems
providing real-time updates to passengers;
remote healthcare solutions that help
doctors diagnose patients on the other sideof the world; and online education platforms
which can reach remote areas via mobile
telecommunication (thereby compensating
for a lack of available qualified teachers).
We are already seeing this expand to
self-driving cars, smart cities and e-healthapplications such as tactile robotic surgery8,
and much more.
At the heart of this success lie thestandards for global wireless communication
systems developed within SDOs suchas ETSI and ITU. Creating new standards
involves many different stakeholders, suchas network and terminal equipment vendors,
service providers and research institutes.

It requires multiple steps, including setting
performance requirements (what is theneed?), identifying technical problems tosolve (what is required to fulfill this need?),researching and proposing solutions, andfinally selecting one solution based on thebest technology for each technical problem(what technical solution can best meet theserequirements?). This highly competitive
process is continuously repeated as morefunctionality is added to the standard overtime, benefiting the whole ecosystem. At theend of 2017, the first version of the radio
parts of 5G (i.e. New Radio (NR) in 3GPP)
was published, heralding the beginningof a new era for mobile communication.

The value of open standards for ICT

In the telecommunication industry, open cellular standards have ensured
the evolution of mobile wireless technology and have been a constantdriver of innovation:

1. Global cellular standards create global
ecosystems by enabling economies of scale
which lead to lower implementation costs.
They have become an engine for economic
growth in virtually all sectors that benefit
from connectivity.
2. Open standards enable companies to use
the technology included in the standards
and innovate on top of an already existing
ecosystem (even though they were not
involved in developing the standard).9

3. The open standardization processensures contributions from many different
stakeholders, and creates well-engineered
specifications based on future-proof
cutting-edge technology.
4. Cellular standards enable multi-vendor
interoperability: operator networks are often
comprised of products supplied by different
parties and they support mobile phones
and other connected devices from manydifferent vendors.

Source: www.gsmaintelligence.com/research/2018/02/the-mobile-economy-2018/660/
Source: The Boston Consulting Group, “The Mobile Revolution”, January 2015
See “Ericsson and King’s College London demonstrate 5G tactile robotic surgery” www.ericsson.com/news/2023409
9
3GPP (3rd Generation Partnership Project) standards are complete technology blueprints. 3GPP is a collaboration between
groups of telecommunications associations for which the initial scope was to make a globally applicable third-generation (3G)
mobile phone system specification. The scope was later enlarged to include the development of further cellular standards
678

5. Standards allow companies to bring
their products to market faster, thereby
capturing the market window. This fast
market access is important in the telecom
and ICT industries, where technologies
are constantly evolving and changing.

Ericsson | Open standards: together we innovate

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Fair incentive for innovators

Fair, reasonable and non-discriminatory(FRAND) licensing
Within the telecom and ICT industries,
patents play an important role instandardization by enabling innovative
companies to share both ideas andtechnology as early as possible on fairand reasonable terms – that is, with theunderstanding that those who make useof it will agree to compensate the innovators
for their investments. Where a solution
adopted as part of a standard is also
patented, the patent is said to bea Standard Essential Patent.10
Holders of Standard Essential Patents
commit to making standardized technology
accessible to the market on FRAND terms.
The FRAND system is a delicate balancing
act in which SDOs seek to obtain the best
technology, encouraging participation
by innovators while creating reasonableconditions for commercial implementation
by licensees and implementers.
In short, the FRAND commitment meansthat (i) the adoption of the standard cannot
be blocked (since Standard Essential Patent
holders agree to restrict some of theirnormal patent rights, i.e. their right to block/exclude others that accept to be bound by
FRAND terms); and (ii) it provides those who
contribute technology to standards witha return on their investments (in order toincentivize continuous investment in further
development of open standards).
This licensing framework ensures themarket becomes accessible to new players
who want to use standardized technology
to launch new products without any priorinvestment in the relevant R&D. Somevery well-known examples of companies

that grew substantially through the use ofexisting standards to which they did notinitially contribute are Samsung (Korea),
Huawei (China), HTC (Taiwan), BlackBerry(Canada) and Apple (USA).
FRAND licensing is a collaborative
success story driving growthand innovation in 5G and IoT
The current FRAND system has been
widely used within the telecommunications
sector for more than two decades.
The strongest technology standards
empowering today’s cutting-edge
technologies – 3G and 4G/LTE mobile
communications, Wi-Fi and others –were all fostered by today’s widelyused collaboration framework.
The increased media attention on some
disputes does not change the fact that in
the telecommunication industry as a whole,this licensing framework has encouraged
competition, created wide choices for
consumers, and helped to reduce prices andimprove product quality. At the same time it
provides an environment where SMEs haveaccess to new technologies. In fact, in light ofthe enormous size of the telecommunicationindustry, the limited number of existing
disputes (between only a few players inthat industry) can be considered a sign of ahealthy and competitive ecosystem.
In addition, it should be noted that
although the vast majority of user products
put on the market are indeed covered byrelevant Standard Essential Patent licenses,
there are companies that actively try to avoid(or delay) licensing discussions.
This situation is typically referred toas “patent hold-out” and has becomeIn short, a Standard Essential Patent is a patent that covers technology elected by an SDO. Therefore, a product that is compatible
with a standard must use the patent for that standard. For example, a mobile device that can connect to a 4G/LTE network will
have to use technology (and thus Standard Essential Patents) that contributed to the LTE standard
11
This situation is much more common than the hypothetical patent “hold-up” situation, whereby a Standard Essential Patent
holder uses their position to extract royalties higher than FRAND
12
Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp., ZTE Deutschland GmbH10commonplace among companies seeking
to free-ride on others’ R&D investments.
As a result, these companies are able
to sell their products at unfairly low prices,or alternatively enjoy unduly high profit
margins compared to their licensed
competitors present in the same market.11
When confronted with a company thatuses its patents but refuses to accept alicense, a patent holder needs to be able
to protect its intellectual property. In
these cases, recourse to injunctive relief isgenerally a legitimate remedy, as without
it unwilling licensees have no or very little
incentive to enter into licenses (instead
being encouraged to force patent holders
into starting litigation). This would place adisproportionate and excessive burden on
the latter and would trigger a substantial
devaluation of Standard Essential Patents.
The importance of a fair balance inthis type of licensing negotiation has been
acknowledged by the Court of Justice of
the European Union (CJEU) in its landmark
Huawei/ZTE ruling.12 Firstly, the CJEU has
clarified that FRAND is a two-way street, i.e.
not only the licensor but also the licensee
has to act in good faith. Secondly, the Court
has provided clear guidelines to determine,on a case-by-case basis, (i) whether the
alleged infringer has showed its willingness
to obtain a FRAND license (thereby avoiding
an injunction); and (ii) the circumstancesand parameters in which it is acceptable forpatent holders to resort to injunctive relief
when faced with an unwilling licensee.

Ericsson | Open standards: together we innovate

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Case study

The new IEEE patent policy

In 2015, after a controversial, closed anddisputed process, the Institute of Electricaland Electronics Engineers (IEEE) responsible,
inter alia, for the Wi-Fi standard, changed
its patent policy in a way that significantly
disfavored technology contributors.
In short, the new policy makes itpractically impossible for holders of Standard
Essential Patents to seek judicial injunctions
against licensees who refuse to enter into(or who unduly delay) licensing negotiations.
It also introduces a unique calculation
method which results in an exponential
reduction of any royalty amount due by
licensees.13 Finally, it precludes Standard
Essential Patent holders’ freedom to choose
at which level in the value chain to negotiate
a license (which is important, among otherreasons, for minimizing transaction costs).
The new policy therefore removes
any incentive for licensees to come to thenegotiating table in good faith, and makes

it extremely difficult to enforce patents
that are included in IEEE standards. Thishas started to undermine the equilibrium
between technology developers and usersthat originally allowed standardization toflourish: two years after its introduction, thenew policy has already led to a slowdownof standards development at IEEE and to
major uncertainties regarding future standard
development within this SDO, as major
technology contributors are unable to provide
assurances that they will grant access to theirpatented technology under the new policy.14
IEEE and those who benefit from it themost, i.e. technology buyers, are neverthelessaggressively promoting the new policy
worldwide. It should be noted thatsuccessful standardization inevitably leads
to a majority of standard users and a minorityof technology contributors, as typically thefoundation of the standardization effort islaid by a relatively small group of innovators

 eal-life example: Near Field Communication (NFC) is a standardized technology for contactless payments that replacesR
traditional credit cards and turns smartphone companies into banks with access to the purchasing history of their customers.
The original NFC co-inventors are a 250-employee SME that invested significant resources over 10 years to develop thetechnology and contribute to the NFC standard. Without this large SME investment, NFC could not work. In order to breakeven, the co-inventor still needed to recover a significant part of their original investment via the licensing of their patented
inventions. Under the new IEEE rules, the return for 10 years of R&D investments by the SMEs that co-invented NCF is
reduced by a factor of 30 to 50, with a reduction of potential return from between 100 and 200 million dollars to 2–7 million
dollars
14
For the marked decline in letters of assurance for IEEE standards after the new policy was adopted see
http://bit.ly/IEEE-LOAs; for evidence of the delay, chaos and loss of momentum in IEEE technical standards development
after the new policy was adopted see http://ieee802.org/minutes/2016_01/2016-01-22-minutes-v1.pdf at pp. 4-5
13(i.e. those willing to contribute the result of
their own R&D efforts to the creation of astandard). The result is that there are morevoices from users of the standards than there
are from contributors to the standard: themore successful the standard becomes, themore its creators become part of a minority
in these discussions.
If the new IEEE policy takes
effect globally, it will risk favoring
the consolidation of proprietary,
non-standardized and non-interoperable
ecosystems. The lack of interoperability
between systems and products will favor
only a few dominant companies, raise prices
and ultimately reduce consumer choice.

Ericsson | Open standards: together we innovate

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Conclusion

It’s all in the balanceWith more than 30 years’ experience as a leading contributor to open standards
and more than 45,000 granted patents, we have one of the industry’s strongest
patent portfolios.

In this paper we have seen that a balanced
framework for standardization is a necessary
element to incentivize R&D and innovationand stimulate investments needed to achievea seamlessly connected global network.
To continue developing next-generation
technology and the digital transformation,
Ericsson puts forward the following
key concepts:
1. ICT standards are “development
standards” rather than mere “interoperability
standards”. Standardization involves
not only the setting of certain productrequirements but also the actual
development of cutting-edge technologies.
2. Within the telecom and ICT industries,
patents play an important role instandardization by allowing innovative
companies to share ideas and actualtechnology on fair and reasonable terms.

3. FRAND commitment requires
Standard Essential Patent owners to offer
access to the standardized technology
they own on FRAND terms. FRAND has
been used within the telecom sector forover two decades and the vast majorityof licensing negotiations have beensuccessfully concluded.
4. The current FRAND system strikes
a balance between technology contributors
and technology users. Further policy
initiatives should not undermine incentives
for technology developers nor should
they encourage a shift toward proprietary
technologies that could threateninteroperability.
5. An open, transparent, consensus-based
and balanced standardization framework
is needed to ensure that the broadest
possible base of companies contributetechnology to 5G and IoT standards, andthat an even larger group of companies arewilling to implement them in their products.

Ericsson enables communications service providers
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Services, and Emerging Business and is designed
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and on Nasdaq New York.
www.ericsson.com

Ericsson
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Telephone +46 10 719 0000
www.ericsson.com

The content of this document is subject to revision without
notice due to continued progress in methodology, design andmanufacturing. Ericsson shall have no liability for any error ordamage of any kind resulting from the use of this document.

EAB-15:034223 Uen _Revision B© Ericsson AB 2018