Shining example of why patents and standards don't mix

Shining example of why patents and standards don't mix

Summary: I've routinely used ZDNet as a bully pulpit directed at both the sellers and buyers of technologies who look to establish or adopt certain standards that have patents connected to them.   When a proprietary (often patented) technology earns the status of de facto standard (aka: practically unchallenged market dominance), the licensor of that technology (usually the patent holder) is basically afforded a legal monopoly and an unprecedented amount of market control.

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TOPICS: Patents
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I've routinely used ZDNet as a bully pulpit directed at both the sellers and buyers of technologies who look to establish or adopt certain standards that have patents connected to them.   When a proprietary (often patented) technology earns the status of de facto standard (aka: practically unchallenged market dominance), the licensor of that technology (usually the patent holder) is basically afforded a legal monopoly and an unprecedented amount of market control.  

To put a recognizable face on this issue, just consider the control that hundreds of thousands of businesses and organizations turned over to Microsoft when they became so addicted to Microsoft Office that there was no way out.  Documents couldn't be easily or perfectly converted to an alternative.  Macros weren't portable.  The list goes on.  Then, when Microsoft decided to change the licensing cost, those people couldn't say boo.  Who was in control?  What about when those products had security problems?  How free were they to go out and get a different, perhaps more secure product?  Well, of course they were free to do so.  It's a free world.  That is of course until the CFO gets a look at how much it will be  to convert.  Suddenly then, the world isn't so free any more.  It's cheaper to suffer at the hands of a patent holder than it is to switch.  Now, multiply your situation by the hundreds of thousands of others and you can see why it's pretty cush to be the patent holding vendor in such a situation.   By focusing on the use of unencumbered standards in your IT strategy, you can avoid such discussions with your CFO and put the person who should be in control of your IT in the first place in control of it: You.

So,  it should come as no surprise that "I told you so" was echoing in my head when I read a story  (see The 3G handset quandary) reported by News.com's Ben Charney about how handsets with Qualcomm's patented wCDMA technology in them were going up in price rather than down.  Near the bottom of the story, the second to last paragraph goes like this:

Qualcomm is facing pressure to lower wCDMA handset prices mainly because the chipmaker owns many of the standard's patents. Licensing these patents to manufacturers has become a big business for the company, accounting for about 36 percent of the revenue it generates through all its licensing agreements with manufacturers.

But it's at the beginning of the story where the effect of patents on the wCDMA standard is being felt.  Charney reports "The increase, from $212 to $215, illuminates the cell phone industry's failure so far to make an important piece of its future more affordable to the mass market."  Imagine if we had to pay a penny every time we invoked the HTTP protocol (the protocol that handles communication between our Web browsers and all those Web sites)?  Imagine if we were OK with that (we shouldn't be) but then the patent holder raised the price to 2 cents per HTTP transaction?  

wCDMA stands for Wide-Band Code Division Multiple access.  It is, by virtue of some expensive network upgrades that are already taking place around the world, the ultimate 3G successor technology (rated at up to 2 mbps) to that which the current GSM(voice)/GPRS(data) providers (in the US: T-Mobile and Cingular) are using.   In other words, much the same way users got addicted to MS-Office to the point of no return,  the ubiquity of wCDMA is fait accompli

Wouldn't it be nice to be Qualcomm right about now and to know that you're going to collect a royalty from every handset that gets sold by T-Mobile, Cingular, and other wCDMA-based cellcos?  Or let's just say you're Qualcomm and you want to do the right thing by keeping the royalties on your technology down to some break-even point where you're really not profiting.  What happens when the economy starts to contract and profits start to falter?  What are your choices if you're a public company and shareholder value is your number one prioity (far ahead of "doing the right thing").  Not only is every entity down the line in Qualcomm's food chain subject to the whims of Qualcomm's decision making, there's that other price -- the one where it's literally impossible for someone to start the next Nokia out of their garage because of how stifling to that person's innovation the royalties on the technology are.

I'm not saying that Qualcomm is intentionally abusing it's patent.  What I am saying is that Qualcomm's control over what others pay to use the technology is a perfect example of why patents (at least ones that are open to offensive use.. in other words, not ones that come with some sort of patent grant) don't mix very well with standards.  Whether they intend to abuse it or not, the patent holder ends up with far too much control and the licensees of that patent end up with all the risk.   Tsk tsk on the International Telecommunications Union for ratifying wCDMA as a standard (under the name IMT-2000 direct spread).

Topic: Patents

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  • Microsoft is the example

    this is exactly why Microsoft is very dangerous to the progress of IT and software industry. The industry must adopt open standards that do not belong to a vendor so they can break out of the monopoly trap.

    With so many addicts and brainwashed Microsoft advocates to protect their monopoly, all MS has to do is use it's financial wealth to attack its competitors (Linux and open source). But money can't buy intelligence. Look at Longhorn (Vista), nothing but fluff, vaporware and marketing. Only suckers will fall for it.
    IT-sys
  • Decimal points

    [i]The increase, from $212 to $215[/i]

    Either you slipped a couple of decimal points, or handsets are going to be prohibitively expensive just from Qualcomm's take alone.

    I'm guessing that those numbers were supposed to be $2.12 and $2.15
    Yagotta B. Kidding
  • So your point is the people that invented it make a buck?

    Hmmm, I fail to see the problem.
    No_Ax_to_Grind
    • Not exactly

      The point is that one of the groups that invented it -- and got lucky -- are making a buck from the others who invented it.

      Think of it as the lottery.
      Yagotta B. Kidding
      • Can't you say that about every invention?

        Seriously, as you look backwards it is apparent that at the "Eureka moment" there were others working on the same problems, probably lots of others.

        The truth is in any competitive system, there is usually one winner and lots of losers. Bemoaning the winner for having won is silly, that is exactly what we expect from providers of any thing or service we buy. It is this "win" that drives the entire economic engine and market ahead.

        The idea that it would be better to use a non-winner's technology as a standard seems desperately backwards to me. Desperate to avoid any possible hindrance at the cost of settling for a lesser technology or solution just doesn't make sense. I am not saying that is the case here as I simply do not know the technology, but that really doesn't matter.

        If standards committees are to automatically eliminate the best competitor and their offering because it comes with a license attached, then why in the world would anyone invest time and money to compete? I do believe this sort of "free to everyone" has been tried before, lots and lots of times. In every case it has failed because when you remove the incentives, (the rewards), the best competitors don't compete.

        No, sorry but selecting the second or third place guy because he has a "friendlier" license makes no sense at all.
        No_Ax_to_Grind
        • Competitors Don't Compete?

          Ah, I think you confusing things. You are associating the incentive with a license. A license fee among corporations is a jackpot.

          Now about "free to everyone". I find it odd that you talk like that BECAUSE it was Ford that wanted free to everyone. Before Ford cars were expensive and only affordable to a small segment of society. Ford went around the patents and made the car a mass consumption item. As a result we have one of the most competitive industries there are.

          Want another example of where "free to everyone" worked? GSM! Before GSM patents, license fees caused multiple non-cooperative networks to exist. Then the Europeans decided to sit together and rethink the cell thing. The result is that everyone who was part of GSM essentially licensed technology that was for free. GSM is now the biggest cell technology world-wide. BECAUSE the license was "free to everyone". Now that cell is big business people have become greedy and decided to charge license fees. Is it working? Not at all very few people I know are using 3G because it is too expensive!

          Sorry, but on this issue you are entirely wrong!
          serpentmage
          • Strange that both of your examples are a result of competition.

            Yes, Mr. Ford indeed had to compete and no his cars were not "free to everyone".
            No_Ax_to_Grind
          • The standards he set were open

            and therefore General Motors, Studebaker (who deviated from standards and produced vehicles ahead of their time failed), Mopar, Toyota, Nissan, Kia, Ferrari, Porsche, BMW and the list goes on, were able to break into the market and compete.

            [B]NOTE:[/B] Many of the companies listed were later in the game but, none the less they used the same standards that Henry Ford set forth and opened up to compete in the market. Look at the automotive industry and you see many standards that are open and universal and each auto maker has it's own patented methods for implementation of those standards. Motorcyles are the same way they all follow the same open standards but each has it's patented items, see Ducati's fuel injection. So you are wrong... again.
            Linux User 147560
          • Sorry, Ford patented everything he could.

            Please, if you are going to argue history do a little reaing first.
            No_Ax_to_Grind
          • RE: Sorry, Ford patented everything he could

            And he opened the standards up. Keep in mind his patents only lasted a short time, argue all you want, you are wrong. Bottom line. Every single automobile uses a standard steering, propulsion, power transmission, braking and seating configuration and implementation. All of which were designed by Ford and initially licensed. Once the patent ran out, the standard was set, the process for much of how and what Ford did was opened. Not only to the automotive industry but to other factories that needed to mimic Ford's production lines. You are wrong and you keep arguing from a losing standpoint.

            The Germans patented anti-lock brakes, which were designed initially by Ford and patened by Ford. Once the patent expired the standard was set and released. Get a clue. There were other innovations that Ford owned the patent on but he opened them up for standards compliance for all auto makers. He owned it but released it for all to use without charging.

            I will dig around and get the items I am refering to later. Right now the kids, wife and I are off to NZ! Ciao!
            Linux User 147560
          • RE: RE: Sorry, Ford patented everything he could

            Actually a lot of his ideas came from wagon builders and carriage builders. He then took their open standards and upped them to be more robust and powerful as well as more reliable. Sure initially automobiles were clunky at best, but what new technology isn't? And automobiles, the only thing that was inovative about them was they were self propelled and used rubber tires with glass for passenger protection.

            No Axe you are totally wrong, all of Fords ideas were already implemented, he just took the standard (wagons and carriages) and as my Uncle stated, upped them to a new level.

            History:
            "In 1904, the judge of the Selden vs Ford court case ordered an automobile built according to the George Selden patent. The Selden car was a failure and the Selden patent was overturned in 1911 that stopped Selden from collecting any more royalties and American car manufacturers were free to build cars at a lower cost."

            [url=http://inventors.about.com/library/weekly/aacarsseldona.htm]Source[/url]

            Microsoft could learn from this piece of history!

            "The direction of the company toward even pricier models had bothered Henry Ford. He used his new power to curtail their production, a move that coincided with the Panic of 1907. This case of accidental good timing probably saved the company. Ford, insisting that high prices ultimately slowed market expansion, had decided in 1906 to introduce a new, cheaper model with a lower profit margin: the Model N. Many of his backers disagreed. While the N was only a tepid success, Ford nonetheless pressed forward with the design of the car he really wanted to build. The car that would be the Model T."

            [url=http://inventors.about.com/gi/dynamic/offsite.htm?site=http://www.wiley.com/products/subject/business/forbes/ford.html]Source[/url]

            Seems Ford learned from the Frenchies too! I didn't know this tidbit!

            "In the winter of 1906, Ford had secretly partitioned a twelve-by fifteen-foot room in his plant, on Piquette Avenue in Detroit. With a few colleagues, he devoted two years to the design and planning of the Model T. Early on, they made an extensive study of materials, the most valuable aspect of which began in an offhand way. During a car race in Florida, Ford examined the wreckage of a French car and noticed that many of its parts were of lighter-than-ordinary steel. The team on Piquette Avenue ascertained that the French steel was a vanadium alloy, but that no one in America knew how to make it. The finest steel alloys then used in American automaking provided 60,000 pounds of tensile strength. Ford learned that vanadium steel, which was much lighter, provided 170,000 pounds of tensile strength. As part of the pre-production for the new model, Ford imported a metallurgist and bankrolled a steel mill. As a result, the only cars in the world to utilize vanadium steel in the next five years would be French luxury cars and the Ford Model T. A Model T might break down every so often, but it would not break."

            [url=http://inventors.about.com/gi/dynamic/offsite.htm?site=http://www.wiley.com/products/subject/business/forbes/ford.html]Source[/url]

            Seems American Corporations could also learn from history...

            "On January 5, 1914, Henry Ford announced a new minimum wage of five dollars per eight-hour day, in addition to a profit-sharing plan. It was the talk of towns across the country; Ford was hailed as the friend of the worker, as an outright socialist, or as a madman bent on bankrupting his company. Many businessmen -- including most of the remaining stockholders in the Ford Motor Company -- regarded his solution as reckless. But he shrugged off all the criticism: "Well, you know when you pay men well you can talk to them," he said. Recognizing the human element in mass production, Ford knew that retaining more employees would lower costs, and that a happier work force would inevitably lead to greater productivity. The numbers bore him out. Between 1914 and 1916, the company's profits doubled from $30 million to $60 million. "The payment of five dollars a day for an eight-hour day was one of the finest cost-cutting moves we ever made," he later said."

            [url=http://inventors.about.com/gi/dynamic/offsite.htm?site=http://www.wiley.com/products/subject/business/forbes/ford.html]Source[/url]

            Here ya go! Ford was the VP for SAE!

            " In addition to earning numerous patents on auto mechanisms, Ford served as a vice president of the Society of Automotive Engineers when it was founded in 1905 to standardize U.S. automotive parts. "

            [url=http://www.invent.org/hall_of_fame/60.html]Source[/url]

            How ironic is this?

            "Shamefully, Ford was an anti-Semitic and Nazi sympathizer. Comparable to Thomas Jefferson having slaves; it is paradoxical that Henry Ford (considered to be one of America's greatest minds) should also be preoccupied with racism."

            And yet again...

            "In addition to earning numerous patents on auto mechanisms, Ford served as a vice president of the Society of Automotive Engineers when it was founded in 1905 to standardize U.S. automotive parts."

            [url=http://www.hempcar.org/ford.shtml]Source[/url]

            So in a nut shell you are wrong... again! Booyah!
            In_the_end_I_Win
          • But Ford broke a patent that had made cars very expensive. (NT)

            .
            Update victim
        • Yes and no..

          The "best competitor" shouldn't need a standards committee. Standards should be based on license free solutions so that everyone can use them, IMHO. If the first place technology is that good, then people would pay more for it without a standard.

          But as we see again and again, the best technology doesn't always win. The best marketing usually wins, unless there is a standard involved. Without the standard, I doubt Qualcomm would have been able to sell their product.

          Another thing you missed, I guess, is that they are not lowering prices. As technology matures, prices usually drop. But because of this standard, and their patent, they are actually raising prices. If they were truely competing, that would not happen.
          Patrick Jones
        • Missing the main point

          The point is that the "industry" has settled upon a standard controlled by one body/company that has a profit motive that they have to satisfy. This is in direct contrast to the desire to provide a service at a competitive price.

          The idea that the company controlling the standard would RAISE prices as volume is increasing is in direct contravention to the idea of mass production where the larger numbers drives lower prices. In fact what we're seeing is essentially monpoly pricing effects where the customer built their own barrier to competition and change by installing the wCDMA hardware in their cell towers.

          Your problem is that you're busy trying to see this as a strict technology competition when in fact the best solution/standard is seldom the absolute best technology but is instead the most flexible one.
          Robert Crocker
          • No contrast at all.

            You wrote:
            The point is that the "industry" has settled upon a standard controlled by one body/company that has a profit motive that they have to satisfy. This is in direct contrast to the desire to provide a service at a competitive price.

            If the service would not exist without the standard, then the price charged is the baseline. Competitors adding to that price are finding the usual association between item provided and amount charged.
            No impact on competition at all.


            And, more broadly, if someone finds a better technological solution to the same problem, nothing would prevent that discovery from creating competition between "standard" approaches.


            This is a better/worse situation, not arbitrarily picking one from a group of equivalents.
            Anton Philidor
          • Competition comes in many forms.

            ---"The point is that the "industry" has settled upon a standard controlled by one body/company that has a profit motive that they have to satisfy."---

            And if it was the best answer then that is as it should be. Look, as I said I can't debate tech because I am not familar with it. But if indeed the best solution won, then that is what should be used.
            No_Ax_to_Grind
          • That's why the

            SAE governs all cars manufactured world wide. That's why the W3C was brought about, that's why UNIX was created and maintained the way it is, that is why Linux and BSD's are maintained and were created. They are standard compliant. Same thing for PC hardware, there is a standard that is not controlled and rediculously charged for by one single power.

            POSIX
            TCP/IP
            Web Protocols
            ANSI (I am pretty sure it plays in there somehow)

            All these and many more are why we have interoperability between all systems except Microsoft. They are the only ones that deviate from the standards that were set before they were anything but a wet dream.

            They have consistantly taken standards for all and modified them for only thier solution. And you think this is right? Why?

            I think it's wrong. It's wrong because it breaks interoperability and it prevents innovation as well as creating havoc in the industry. Just look at all the security issues Microsoft has introduce based on thier standards! Some shining example.
            In_the_end_I_Win
        • History disagrees

          Beta, restrictive license vs VHS non restrictive license. Who won? Looks to me like VHS won hands down. No sure you're making much sense there.

          Also look at Microsoft with thier less restrictive licensing than Novel and the other Unix companies in the 90s. While Unix and Novel had the better products thier restrictive licenses crippled them in the face of Microsoft.

          This just show history does not agree with you.
          voska
          • Not at all, it shows

            that competition takes many forms.
            No_Ax_to_Grind
          • Explain your stance.

            Explain what you mean. You have stated it twice at least and not provided anything to back it or show what you mean.
            In_the_end_I_Win