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5G and Beyond

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5G communications technologies will transform entire industries around the world and are already a core element of the mobile communications and automotive ecosystems. Jonathan Barnett discusses the intellectual foundation for sound innovation and competition policy in wireless-enabled environments.

Image courtesy of interviewee. January 18, 2024

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This video video discusses the evolution of wireless communication from the late '90s to the present, highlighting the transformative impact of 5G technology. It distinguishes between Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C) communications and introduces Machine-to-Machine (M2M) communications as a critical component of 5G, particularly in the automotive and mobility sectors.

The significance of intellectual property (IP) rights within the wireless ecosystem is emphasized, detailing the division of labor between technology innovators and device manufacturers. The importance of secure IP rights is highlighted for fostering effective licensing relationships, crucial for the monetization of technological advancements.

This video video explains the concept of Standard Essential Patents (SEPs), which are necessary for interoperability among devices, as vital in enabling market entry for new producers. It notes that SEPs are licensed under Fair, Reasonable, and Non-Discriminatory (FRAND) terms to balance the interests of innovators and implementers.

Regulatory perspectives, especially from the US, EU, and China, regarding SEP licensing and potential issues like patent hold-up and royalty stacking are explored. The evidence indicates that the market has functioned effectively without significant intervention, with consumer prices decreasing and market adoption increasing.

The document advocates for an evidence-based approach to competition policy in the wireless sector, emphasizing the need for careful regulatory practices that respect the balance between preserving innovation incentives and ensuring access to technology for manufacturers. It concludes that a balanced and cautious approach is vital as the industry transitions into 5G and the Internet of Things (IoT).

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X-TIMESTAMP-MAP=LOCAL:00:00:00.000,MPEGTS:90000

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We need to go back in time to the late nineties

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where you may remember you had maybe a Nokia

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or Ericsson cell phone.

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You could talk, you could do some simple text messages

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later on, there was a little bit more visuals.

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You start again to 3G

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and then 4G, then everything explodes, right?

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And we can see everything that we can do today with video.

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Now, everything that I just described is mostly what's known

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as B2C communications, right?

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So you're interfacing with YouTube

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or you're interfacing with Uber, Lyft and so forth, right?

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Uh, and we also have C two C communications

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user to user, right?

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So we're using Facebook or iMessage or something like that.

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So what's different about 5G?

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Well, 5G has everything that I just mentioned,

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but it's also going to have what's known as m

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to m connections where machines are interfacing

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and communicating with each other.

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And the initial deployment, where we're going to see this,

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in the near future is in automotive,

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or what is now called, really the mobility sector.

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And what this is why this is so important is

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because all of the innovations

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that I just described there in the wireless

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communication system, consumer services,

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but this is going to be something

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that can apply generally across all industries

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and new industries that we,

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that we can't even fathom right now.

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So it's, it's hard to under, it's hard

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to overestimate the importance of it.

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The reason that intellectual property is so important in

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the wireless ecosystem, and, and,

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and I might say

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as we go into five GI should really be saying the wireless

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enabled ecosystem, right?

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'cause it's not that, that was my earlier point.

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It's not just communications.

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It's all kinds of products

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and services that are enabled by wireless.

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Now, why is intellectual property so important?

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Because since the inception of mobile

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wireless, okay, and that's from your Nokia

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and Ericsson phones back in the late nineties, okay?

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There's been a really interesting division

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of labor in the global wireless ecosystem, which is

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to simplify it, we basically have two groups

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of companies in this ecosystem.

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One are those who specialize in technology innovation

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in developing sort of the brains of the smartphone

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that makes all the magic happen that we see in the consumer

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as consumers, as users in the interface, right?

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What's our other group? Our other group are the device

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makers, right?

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And those would be the brand names that we're familiar with.

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And as the industry has developed, it's sort of broken apart

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where sort of going all the way back to,

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Adam Smith in the 19th century to same idea

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as the pin factory, just on a much bigger scale, okay?

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We have our company companies

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that specialize in the chip design,

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but they generally don't produce the devices, right?

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And we have those who specialize in the devices,

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but don't, aren't the lead contributors to the technology.

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Okay? Now, why does this make in

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intellectual property so important?

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Because to monetize the intellectual

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property that comes out of that technological innovation,

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it is distributed in the market through a licensing,

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relationship between the innovators, what are known

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as the innovators, and what are known as the implementers.

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And we need secure intellectual property rights

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to make those relationships work.

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Standard essential patterns have to do

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with interoperability.

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This is a hallmark feature, a fundamental feature

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of the digital ecosystem.

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This is what enables, let's say I've got a Samsung phone.

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Okay? I have a Gox phone. I really do. Okay?

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And, and, and my kids all have, all have apple,

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iPhones, okay?

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But of course, I, I can communicate

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seamlessly, with them.

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And why is that? That's

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because we have technological standards.

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Now, we take this for granted, okay?

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But if you go back earlier in technology history,

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let me take you a little bit earlier in time, right?

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You would have your, you would have your,

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each different, computing platform would not be able

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to speak to each other.

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Each would be its own sort of what we today call wall garden

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device in interoperability is great for competition.

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It lowers entry costs

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because as long as you comply with the standard

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that has been developed

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and agreed upon, as the industry standard,

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you can enter that market.

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And in fact, when we look at the,

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smartphone market, for example, if we look at it globally,

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including, the, the very important China market, right?

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We actually have seen over the history of the industry,

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a lot of entry into that market.

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New producers into the market. Why is that happening?

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Because we have ant agreed upon standard, okay?

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Now, where does standard essential patents come in? Okay?

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A standard essential patent is actually a

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very, very simple concept.

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It's a patent, and it covers technology that is necessary

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to implement the standard to conform to that standard so

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that your device is interoperable.

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Well, we have multiple chip suppliers in the market,

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and we have multiple suppliers

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of the technology on which those chips, are based.

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Uh, and what the,

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what the standard essential patent does, it does two things.

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It enables, device producers, as I said,

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to enter the market

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because they conform, to the,

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to the, to the standard.

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Um, but through the licensing relationships,

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it also allows the device

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Makers to have access to that technology

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lowering their costs, right?

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They don't need to reinvent the wheel again.

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Uh, and so we get two very nice effects.

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We get interoperability, which is great for consumers,

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and we also get lower entry costs

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for those new device makers to come in,

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which don't just include smartphones,

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include things like iPads and laptops and so forth.

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To understand that, we have to go a little bit back in time

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to the, to really the inception

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of the wireless communications industry, where there has

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been a common understanding roughly, really since the start

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of the industry, that

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standard essential patents are licensed subject

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to what's known as a fr commitment, which is a,

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which is known as fair,

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reasonable non-discriminatory licensing.

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And the understanding of that commitment

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reflects an effort to balance

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between two competing interests.

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On the one hand, we wanna protect implementers interests in

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having access to the technology they need

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to make those devices on reasonable terms.

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On the other hand, we want the innovators

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to have a property, right, that can be securely enforced so

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that they can get,

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a reasonable return on the risks

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and the costs that they incurred in investing

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and developing that, that technology

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and where regulators have stepped in from time

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to time has reflected,

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different understandings of,

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what the Fran commitment means

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and different understandings of whether

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or not the market is doing a good job at, reflecting

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that Fran commitment, in the prices

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and the rates that are negotiated between the SEP holders,

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who are generally the lead innovators in the industry,

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and the licensees

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who are generally the lead device makers in the industry.

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So the, the driving mission behind the book is

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as we move from 4G, into 5G into the internet

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of things, what we were striving to do in this book is

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to bring together thought leaders from academia,

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from industry, from government, right,

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to try and develop an economically informed basis

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for competition

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and IP policy in the 5G space going forward, right?

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And so what we did, for example, is

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that we have contributions in the book that go

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through the division of labor, that I described

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that go through why it's important to have a balance

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between protecting implementers interests as well

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as innovator's interests and, and, and, and, and,

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and giving equal, weight to each of those,

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each of those interests.

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We also spend a lot of time in the book bringing evidence

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to the readers, and we look at our audience as being both

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academic and a policy audience about

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how well has the market been doing, in,

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in negotiating the, the prices, the rates

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for those intellectual property rights.

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'cause at the end of the day, really what,

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what this is all about is about using intellectual property

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rights to create a market in technology, right?

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In a way, one another way to think about it.

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It's a virtual market.

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It's a market that's one

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or two steps removed from the actual devices that, that we,

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that we hold in our hands.

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If you look at the positions that have been taken,

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for most of, roughly since the mid two thousands,

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by US and EU regulators,

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there is an exception on the US side from roughly 2018

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to two 2020 on the US side.

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But without exception,

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regulators have generally taken the view both in the us,

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the eu, and in

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and in China, that, the

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SAP licensing market, for,

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smartphones have suffered from what regulators,

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and some scholars call patent hold up,

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or royalty stacking, which is the assertion,

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that an SAP owner is in a position to extract rates,

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that reflect what are, what are known

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as super competitive rates or,

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or quote unquote unreasonable rates.

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And, and one thing that we do in the book is

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that we use evidence to show

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that the evidence doesn't support this assertion.

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And if this assertion were true, right?

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It, what would happen in the market is

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that the royalty rates would stack one on top of the other,

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and the smartphones would get very expensive

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and the market would shrink

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because they'd be too expensive for most consumers.

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In fact, there has, there has never been a technology

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in the information technology space

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that has been adopted more rapidly

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around the world than wireless technology.

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And when we look more closely the data, we can see why.

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And the reason why is that the prices adjusted

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for quality are constantly been decreasing throughout

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the life of the industry.

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So you're getting to, to use more colloquial language,

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you're getting more bang

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for your buck throughout the life of the industry.

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And if we also look at the data on the royalty rates

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throughout the life of the industry, there have been roughly

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constant and at surprisingly modest levels

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throughout the life of the industry.

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Many people find this surprising,

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but it's actually quite logical.

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If you are a lead innovator in the industry,

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you wanna grow that industry.

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You wanna encourage the adoption and the standard.

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And developing a record of modest

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and constant royalty rates is, is, is a way to do that.

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Why does this matter for policy?

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Because if patent holdup is nearly an assertion

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and it does not appear to be a persuasive count of

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how the market actually operates, then it suggests

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that we should be cautious and intervening in that market.

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It suggests that the market

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is doing a pretty good job on its own

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of pricing out those technology assets, and

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therefore, we should be more cautious in taking steps

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to intervene where we may do more harm than good.

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The regulators in China have taken a view,

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of SAP licensing that has tended

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to align with the patent holdup

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and the royalty stacking concepts

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that have been dealt developed by us and,

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and eu, regulators.

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There are some assertions that the positions taken

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by Chinese competition regulators on this point align

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with the interests of local device producers.

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Uh, in the China market, at least until recently,

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China has been a net user of technology

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and that user of IP assets, in the,

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wireless space, and

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therefore, they have a natural

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economic interest in taking positions

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that constrain the enforcement

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and the licensing, freedom of SEB holders in order

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to push down those royalty rates.

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And in fact, in, in one notable enforcement action, it, it,

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it, it explicitly specified, the royalty rate.

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And we continue, we continue to see this play out,

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this tension, geopolitically

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between the China market, which again, at least

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until recently, has been a net consumer

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of wireless technology and

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therefore has an industrial policy interest in pushing

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down those royalty rates.

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Uh, whereas the, in that division of labor I mentioned,

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the lead innovators, are located in the US

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and the EU markets,

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and, they have generally taken the position,

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that it is important to have a legal infrastructure

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that allows, IP rights to be securely enforced

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to allow the market to price out,

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those IP assets without regulatory, intervention.

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I think the implications for the book are,

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are num number one, it's a methodological implication.

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Many of the contributions in the book,

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express the view that competition policy in this area,

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and again, I can't, I can't, exaggerate the, the,

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the economic states here, right?

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These, these are literally billions

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of dollars in licensing revenues

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and total market value annually, that it is important

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to ground competition policy in empirical evidence

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to move cautiously

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and slowly when so much is at stake, rather than

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as some contr contributors in the volume, assert

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grounding policy based on narratives, rhetoric,

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or merely theoretical, models.

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Um, the other, key policy implication of the book

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as we move into 5G is that substantively,

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it is essential to adopt policy in this space

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that abides by the principle of balance,

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of balancing the legitimate interests of the innovators

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in allowing their IP assets

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to be priced on the market at reasonable rates.

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And, conversely to, to give due weight

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to the interests of implementers in maintaining access to

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that technology at those same market determined reasonable

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rates.

Evolution of Wireless Communication and Intellectual Property

00:00:00 - We need to go back in time to the late nineties where you may remember you had maybe a Nokia or Ericsson cell phone. You could talk, you could do some simple text messages later on, there was a little bit more visuals. You start again to 3G and then 4G, then everything explodes, right? And we can see everything that we can do today with video. Now, everything that I just described is mostly what's known as B2C communications, right?
00:00:32 - or you're interfacing with Uber, Lyft and so forth, right? and we also have C two C communications user to user, right? So we're using Facebook or iMessage or something like that. So what's different about 5G? Well, 5G has everything that I just mentioned, but it's also going to have what's known as m to m connections where machines are interfacing and communicating with each other. And the initial deployment, where we're going to see this,
00:01:04 - or what is now called, really the mobility sector. And what this is why this is so important is because all of the innovations that I just described there in the wireless communication system, consumer services, but this is going to be something that can apply generally across all industries and new industries that we, that we can't even fathom right now.
00:01:33 - to overestimate the importance of it. The reason that intellectual property is so important in the wireless ecosystem, and, and, and I might say as we go into five GI should really be saying the wireless enabled ecosystem, right? 'cause it's not that, that was my earlier point. It's not just communications. It's all kinds of products and services that are enabled by wireless. Now, why is intellectual property so important? Because since the inception of mobile
00:02:05 - and Ericsson phones back in the late nineties, okay? There's been a really interesting division of labor in the global wireless ecosystem, which is to simplify it, we basically have two groups of companies in this ecosystem. One are those who specialize in technology innovation in developing sort of the brains of the smartphone that makes all the magic happen that we see in the consumer as consumers, as users in the interface, right?
00:02:38 - makers, right? And those would be the brand names that we're familiar with. And as the industry has developed, it's sort of broken apart where sort of going all the way back to, Adam Smith in the 19th century to same idea as the pin factory, just on a much bigger scale, okay? We have our company companies that specialize in the chip design, but they generally don't produce the devices, right? And we have those who specialize in the devices,

Significance of Intellectual Property in Technology

00:03:12 - Okay? Now, why does this make in intellectual property so important? Because to monetize the intellectual property that comes out of that technological innovation, it is distributed in the market through a licensing, relationship between the innovators, what are known as the innovators, and what are known as the implementers. And we need secure intellectual property rights to make those relationships work. Standard essential patterns have to do
00:03:42 - This is a hallmark feature, a fundamental feature of the digital ecosystem. This is what enables, let's say I've got a Samsung phone. Okay? I have a Gox phone. I really do. Okay? And, and, and my kids all have, all have apple, iPhones, okay? But of course, I, I can communicate seamlessly, with them. And why is that? That's because we have technological standards. Now, we take this for granted, okay? But if you go back earlier in technology history,
00:04:15 - You would have your, you would have your, each different, computing platform would not be able to speak to each other. Each would be its own sort of what we today call wall garden device in interoperability is great for competition. It lowers entry costs because as long as you comply with the standard that has been developed and agreed upon, as the industry standard,
00:04:45 - And in fact, when we look at the, smartphone market, for example, if we look at it globally, including, the, the very important China market, right? We actually have seen over the history of the industry, a lot of entry into that market. New producers into the market. Why is that happening? Because we have ant agreed upon standard, okay? Now, where does standard essential patents come in? Okay? A standard essential patent is actually a very, very simple concept.
00:05:19 - to implement the standard to conform to that standard so that your device is interoperable. Well, we have multiple chip suppliers in the market, and we have multiple suppliers of the technology on which those chips, are based. and what the, what the standard essential patent does, it does two things. It enables, device producers, as I said, to enter the market
00:05:49 - to the, to the standard. but through the licensing relationships, it also allows the device Makers to have access to that technology lowering their costs, right? They don't need to reinvent the wheel again. and so we get two very nice effects. We get interoperability, which is great for consumers, and we also get lower entry costs for those new device makers to come in, which don't just include smartphones,

Understanding FRAND in Wireless Communications

00:06:19 - To understand that, we have to go a little bit back in time to the, to really the inception of the wireless communications industry, where there has been a common understanding roughly, really since the start of the industry, that standard essential patents are licensed subject to what's known as a fr commitment, which is a, which is known as fair, reasonable non-discriminatory licensing. And the understanding of that commitment
00:06:52 - between two competing interests. On the one hand, we wanna protect implementers interests in having access to the technology they need to make those devices on reasonable terms. On the other hand, we want the innovators to have a property, right, that can be securely enforced so that they can get, a reasonable return on the risks
00:07:23 - and developing that, that technology and where regulators have stepped in from time to time has reflected, different understandings of, what the Fran commitment means and different understandings of whether or not the market is doing a good job at, reflecting that Fran commitment, in the prices
00:07:56 - who are generally the lead innovators in the industry, and the licensees who are generally the lead device makers in the industry. So the, the driving mission behind the book is as we move from 4G, into 5G into the internet of things, what we were striving to do in this book is to bring together thought leaders from academia, from industry, from government, right,
00:08:30 - for competition and IP policy in the 5G space going forward, right? And so what we did, for example, is that we have contributions in the book that go through the division of labor, that I described that go through why it's important to have a balance between protecting implementers interests as well
00:08:59 - and giving equal, weight to each of those, each of those interests. We also spend a lot of time in the book bringing evidence to the readers, and we look at our audience as being both academic and a policy audience about how well has the market been doing, in, in negotiating the, the prices, the rates for those intellectual property rights.

Understanding Intellectual Property in Technology Markets

00:09:28 - what this is all about is about using intellectual property rights to create a market in technology, right? In a way, one another way to think about it. It's a virtual market. It's a market that's one or two steps removed from the actual devices that, that we, that we hold in our hands. If you look at the positions that have been taken, for most of, roughly since the mid two thousands,
00:10:00 - there is an exception on the US side from roughly 2018 to two 2020 on the US side. But without exception, regulators have generally taken the view both in the us, the eu, and in and in China, that, the SAP licensing market, for, smartphones have suffered from what regulators, and some scholars call patent hold up,
00:10:36 - that an SAP owner is in a position to extract rates, that reflect what are, what are known as super competitive rates or, or quote unquote unreasonable rates. And, and one thing that we do in the book is that we use evidence to show that the evidence doesn't support this assertion. And if this assertion were true, right? It, what would happen in the market is that the royalty rates would stack one on top of the other,
00:11:05 - and the market would shrink because they'd be too expensive for most consumers. In fact, there has, there has never been a technology in the information technology space that has been adopted more rapidly around the world than wireless technology. And when we look more closely the data, we can see why. And the reason why is that the prices adjusted for quality are constantly been decreasing throughout
00:11:34 - So you're getting to, to use more colloquial language, you're getting more bang for your buck throughout the life of the industry. And if we also look at the data on the royalty rates throughout the life of the industry, there have been roughly constant and at surprisingly modest levels throughout the life of the industry. Many people find this surprising, but it's actually quite logical. If you are a lead innovator in the industry, you wanna grow that industry. You wanna encourage the adoption and the standard.
00:12:08 - and constant royalty rates is, is, is a way to do that. Why does this matter for policy? Because if patent holdup is nearly an assertion and it does not appear to be a persuasive count of how the market actually operates, then it suggests that we should be cautious and intervening in that market. It suggests that the market is doing a pretty good job on its own of pricing out those technology assets, and

Geopolitical Tensions in Wireless Licensing Policies

00:12:40 - to intervene where we may do more harm than good. The regulators in China have taken a view, of SAP licensing that has tended to align with the patent holdup and the royalty stacking concepts that have been dealt developed by us and, and eu, regulators. There are some assertions that the positions taken
00:13:12 - with the interests of local device producers. in the China market, at least until recently, China has been a net user of technology and that user of IP assets, in the, wireless space, and therefore, they have a natural economic interest in taking positions that constrain the enforcement
00:13:42 - to push down those royalty rates. And in fact, in, in one notable enforcement action, it, it, it, it explicitly specified, the royalty rate. And we continue, we continue to see this play out, this tension, geopolitically between the China market, which again, at least until recently, has been a net consumer of wireless technology and therefore has an industrial policy interest in pushing
00:14:13 - whereas the, in that division of labor I mentioned, the lead innovators, are located in the US and the EU markets, and, they have generally taken the position, that it is important to have a legal infrastructure that allows, IP rights to be securely enforced to allow the market to price out, those IP assets without regulatory, intervention. I think the implications for the book are,
00:14:46 - Many of the contributions in the book, express the view that competition policy in this area, and again, I can't, I can't, exaggerate the, the, the economic states here, right? These, these are literally billions of dollars in licensing revenues and total market value annually, that it is important to ground competition policy in empirical evidence
00:15:16 - and slowly when so much is at stake, rather than as some contr contributors in the volume, assert grounding policy based on narratives, rhetoric, or merely theoretical, models. the other, key policy implication of the book as we move into 5G is that substantively, it is essential to adopt policy in this space

Balancing Innovators' and Implementers' Interests

00:16:12 - of balancing the legitimate interests of the innovators in allowing their IP assets to be priced on the market at reasonable rates. And, conversely to, to give due weight to the interests of implementers in maintaining access to that technology at those same market determined reasonable rates.

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