New IoT platform off to a good start but deals will ultimately determine success

The news yesterday that five major patent owning companies have signed up to the new Internet of Things (IoT) licensing platform Avanci, represents the first industry attempt to ensure that the expected explosion in connected devices doesn’t result in the kind of stand-offs and costly court battles we saw in the smartphone wars.

In many ways, Avanci is taking a well-established concept – a patent pool – and applying it to the IoT. But, in contrast to pools like MPEG LA, Avanci will be making standard essential patents (SEPs) that read on 2G, 3G and 4G technologies available for licensing in specific sectors or use cases, starting with connected vehicles and smart meters.

The five companies that have signed up so far – Ericsson, InterDigital, KPN, Qualcomm and ZTE – represent some of the largest SEP patent owners in the cellular space. Plus, in former Ericsson CIPO Kasim Alfalahi, Avanci has a CEO drawn from the small pool of IP executives that can both recruit such a list of businesses and convince device manufacturers, in sufficient numbers, to take a licence. In other word’s Avanci’s prospects look pretty good.

“The platform creates accessibility and simplicity,” explained Alex Rogers, head of Qualcomm Technology Licensing. “One of the things that we’ve been hearing is that as new industries become interested in making new products with cellular connections, they understand that there are a certain number of rights holders that have important essential patent portfolios and so the question for companies like that, who have never been involved in cellular, is how do I engage in this licensing process? This platform provides simplicity and efficiency for them.”

But this is patent licensing and SEP licensing to boot, so while the news of Avanci’s launch might be welcomed as a relatively simple approach to paying for relevant IP, things may not be quite as straightforward as Qualcomm et al hope. Here are the IAM blog’s takeaways from yesterday’s announcement.

Will the price be right?

In the release announcing the launch of the new platform, Avanci declared that: “Companies can expect a transparent, flat-rate price for each device that will vary based on the value the technology brings to the device.” In an interview Alfalahi stressed that the pricing will be based on FRAND terms and that the rates will be made public.

But as Alfalahi is fully aware, SEP licensing in parts of the tech space has seen some marked disagreements between licensors and licensees on just how much a licence is worth. There remains, for instance, a clear stand off between Qualcomm, Ericsson, InterDigital and several other companies over a new policy introduced by the IEEE, which has changed the terms on which some SEPs relating to standards administered by the IEEE, such as its popular 802.11 wifi standard, should be licensed. Avanci might look to simplify the licensing process but if the pricing isn’t right then it will struggle to get the volume of licensees that it needs.

Not surprisingly, Alfalahi was bullish when asked how confident he was that he and his team would be able to agree on a pricing structure that satisfied patent owners and device manufacturers. “We’re talking to both and we’re spending a lot of time thinking together with them and listening very carefully to both sides. We know very well that the only way that this will work is that we find a comfort zone for everyone involved – that the price is something that will encourage more companies to have connectivity in their products.”

The aim, he underlined, was that by making pricing predictable, licensees would not have to worry about haggling over a deal and fretting over whether they had paid the right amount. Clearly conscious of some of the ongoing arguments over SEPs and the IEEE’s new policy, Ericsson CIPO Gustav Brismark, was quick to counter any misconceptions over how the price of a license might be calculated. “It is not the case that patent owners want a percentage of the price of a Ferrari. The price will be based on the use case and the value that a technology brings to a product.”

Perhaps one of the biggest challenges that Avanci faces is that the IoT and the forces of convergence behind it mean that royalty-based patent licensing is about to become a cost of doing business to a much larger universe of companies, many of which may have had little or no experience of SEPs. That’s not to say that they won’t pay up, but it may just take them a little longer to fully appreciate the benefits of taking a licence from Avanci.

Who’s not on the list?

While the first five companies to sign up represent a good start – Ericsson and Qualcomm between them have among the largest and highest quality cellular patent portfolios in the business – this is by no means an exhaustive list of players in the space. Alfalahi stressed that Avanci was in talks with more companies and so we can expect some new joiners in the coming months. But who’s missing?

Perhaps most glaringly Nokia is not part of the launch. That could be because of the recent changes at the Finnish tech giant which saw Nokia Technologies head Ramzi Haidamus step down, somewhat abruptly, on 1st September. He was responsible for the company’s patent licensing business and so it’s possible that the decision on whether to join Avanci will be left to his successor. With Nokia having just bought Alcatel Lucent in a deal which greatly enlarges its patent portfolio, getting it on board would add significantly to Avanci’s appeal as an IoT licensing one-stop-shop.

Others missing from the major owners of 2G, 3G and 4G SEPs are the Japanese giants NTT DoCoMo and NEC. There’s also ZTE’s Chinese rival Huawei and Samsung which as patent owner and device manufacturer sits on both sides of the licensing table. And finally, there’s the matter of the old Motorola portfolio, much of which has been retained by Google although some did transfer to Lenovo when the search giant sold most of the legacy Motorola Mobility business.

China on board

It’s notable that in ZTE, one of China’s leading tech players has thrown its support behind Avanci. Not only does the company have a cellular portfolio that places it among the world’s leaders but it is also one of the new breed of Chinese multinational tech players. That should significantly help the new platform license the country’s IoT companies. China has proved tricky territory for some leading patent owners, including Qualcomm. It surely makes it easier for Avanci that rather than a bunch of Western companies demanding licensing dues from local manufacturers, ZTE will be one of the businesses receiving a return on their technology.

The right kind of leadership

For all the questions that remain to be answered around Avanci, and all the licensing deals to be done, there’s no doubt that the launch confirmed Kasim Alfalahi’s status as one of the shrewdest operators in the licensing business. That was perhaps to be expected given that as Ericsson’s IP head he had grown the company’s licensing arm into a $1 billion operation and had helped elevate the CIPO position reporting directly to the CEO. Alfalahi has a reputation as a consummate dealmaker and to get from a standing start in February to yesterday’s launch in just six months shows that the Swede has a contact book to die for and an ability to get things done. His ongoing role is key and not only as a recruiter and dealmaker. As Avanci’s membership increases, anti-trust considerations could come to the fore, particularly in places like South Korea and China where regulators have shown a willingness to get tough with licensors on competition grounds. It will be Alfalahi’s job to demonstrate in word and deed that he is acting independently of the patent owners whose assets he is offering for license.