The idea of patents
In its day, NMT was based on open-source code. This played a vital role in organizing the work on GSM, and the architecture for the system was taken over completely from NMT.
The idea of patents arose when it did as a combination of two reasons, Svanberg says. “People were sitting on their inventions for fear of having their ideas stolen. On the other hand, if you gave inventors a chance to publish their discoveries and in return get some protection and a chance to earn money, you had a win-win situation. That got technological developments moving,” he says.
In the telecom industry, patent issues are extremely complex. “A system that allows you to ring from Stockholm to Rio is not something one individual can develop alone. It requires standardization and a process where agreement can be reached about who is going to develop what,” says Svanberg.
Lars Magnus Ericsson did not really care much about patents. He applied for a few himself but dealt with them pragmatically. When he was told that a competitor in one of the neighboring Nordic countries was copying his designs, he said they were welcome to do so and that the best product would certainly win.
Within the frameworks of the NMT and GSM processes in the 1970s and 1980s, the rest of the world was given numerous innovations that could be used freely. The Nordic suppliers learned some bitter lessons from this. If you did not apply for a patent yourself, sooner or later someone else would do so, and then they would start to make trouble. As Uddenfeldt puts it: “We soon learned from Motorola and Qualcomm that applying for patents was important.”
At the start of 2000, Ericsson had around 10,000 patents; at the start of 2009, it had about 24,000, and aims to win many more. In LTE, Ericsson’s target is at least 25 percent of the patents.
A well-stocked patent portfolio gives a company greater technological freedom of choice. Strategic blocking patents (essential patents) have their own special value. Gustav Brismark, who is in charge of Ericsson’s patent portfolio, explains: “For a long time, Ericsson’s policy has been based on trying to maintain a ‘balance of trade’ in patents, so that we receive as much in revenues from licensing as we end up paying. That is why we try to win lots of patents.”
Ericsson employees are obliged to sell their patents to the company for one Swedish crown; in return they receive a one-off payment of SEK 30,000 per patent.
Svanberg is frank: “There are some who want proprietary technologies. We are not one of them,” he says.
Uddenfeldt says one important lesson is that patents are developed most effectively when they relate to real needs: “Patents are often about combining different kinds of knowledge. If you cannot see any need, then a patent is a shot in the dark. But if you are out there meeting customers you can see needs that nobody else can. What I did not understand to begin with but realized subsequently is that the best patents are conceived when knowledge and needs are united.”
FAIR AND REASONABLE
It was once up to the inventor to decide what to charge for an idea. In the GSM world, an approach was developed that effectively means knowledge is available and used to everybody’s advantage at a reasonable cost. Royalty payments for rights should be set on a fair, reasonable and non-discriminatory (FRAND) basis
“We have meetings in the sector where we make mutual agreements,” Svanberg says. “How much use have we made of other companies’ rights over the past year? We make a rough assessment and agree on what we each should pay. This takes place on a transparent, fair, reasonable and non-discriminatory basis, not with threats to take each other to court.
“You can cream off about 6–7 percent to develop a global standard. Actually it is a way of sharing the money, a consensus arrangement. If the system did not exist it would be impossible to make phone calls.”
Two challenges to the FRAND system are “patent hogs” and the tendency by some to use rights without paying for them. CTO Håkan Eriksson makes a comparison with landlords and tenants. Patent hogs are like landlords that charge rents that are too high. The others are like squatters, who occupy apartments without paying any rent.
Svanberg puts it this way: “If you want to take a more advanced view, FRAND is a form of open source. In the telecom world there is a kind of open-source behavior when standards are being developed. And it is natural for Ericsson to think in these terms.”
Author: Svenolof Karlsson & Anders Lugn