Over the past three decades, American innovation has played a huge role in defining, inventing, and deploying the wireless technologies that help put the world in our pockets. But if U.S. lawmakers do not act to promote and protect indigenous development, the country risks losing its global leadership.
In 1993, AT&T T,
A series of commercials were launched that, at the time, sounded like incredible futuristic capabilities. It turns out that many of the predictions from the now-legendary You Will campaign have made their way into our lives. AT&T is right to see much of the connected life we now take for granted, including video streaming, virtual conferencing, in-vehicle navigation, digital wellbeing and remote home monitoring.
Developments in hardware have also helped to realize this vision. The advent of low-power processor architectures has helped accelerate miniaturization. A touch screen and GUI make this hardware easy to use.
Platform advantage
The world changed dramatically 15 years ago when the cellular and device paths converged into the smartphone. Now we can get information and entertainment in the palm of our hand. For better or worse, most of this happened on both platforms.
In fact, for better or worse. Market power naturally comes from controlling a portal through which others must conduct business. Suppliers are increasingly using this power to extract profits from others.
For example, app developers complain that gatekeepers charge exorbitant commissions. Those with competitive products and services accuse platform companies of using their dominance to squeeze them out of the market. News outlets have asserted that Google and Apple are underestimating their content.
The power of the gatekeepers has become so powerful that they are even trying to squeeze the wireless innovators who helped make their platforms so compelling in the first place. All of this translates into slower growth and higher prices.
power and potential
The market power of platform providers has drawn attention in Washington, D.C., as lawmakers and regulators increasingly try to rein them in — and they should. While the gatekeepers have grown stronger, innovators and their investors have seen the value of their intellectual property eroded. Even more ominously, this overwhelming concentration of power is stifling innovation in key strategic areas and is beginning to threaten U.S. technological leadership.
At stake are standard-essential patents, or SEPs, which cover fundamental innovations that standard-setting bodies incorporate into norms. They rely on proprietary innovations to ensure they meet aggressive performance goals.
Contributing patents to standards is a double-edged sword for inventors. Standard inclusion ensures widespread adoption, but to be included, innovators must agree to conditions that strip them of certain patent privileges. These conditions—commonly known as FRAND, which stands for fair, reasonable and non-discriminatory—determine what they can charge for SEPs and who must license them.
FRAND ensures two things: first, licensing fees are kept low enough to foster adoption. For example, in the automotive market where LTE is rapidly popularizing, there are more than 50 companies with LTE SEP patent pool licenses – including the heavyweight Nokia NOK,
Ericsson ERIC.A,
and Qualcomm QCOM,
— Costs up to $20 per vehicle depending on features.
Second, FRAND ensures that any company that uses the technology to make a product gets a license, even from a competitor. That way, T-Mobile and Verizon, for example, can’t stop each other from licensing or charging exorbitant fees for their LTE patents.
All IP holders are seeing the value of their innovations being attacked.Most notably, the United States Supreme Court’s 2006 decision on eBay v.Mercantile Exchange LLCwhich effectively reduces the ability of creators to obtain an injunction to stop infringement.
ripples eBay
eBay,
The ruling and subsequent developments were beyond the scope of negotiations between inventors and implementers. It discourages investment in technology research in favor of dominant platform providers.
Four of the most valuable companies in the world are leading platform providers, including Apple AAPL,
Alphabet (Google) GOOGL,
Microsoft MSFT,
and Amazon.com AMZN,
(Facebook’s recent woes hit Meta Platforms META,
Last fall wasn’t on the list. ) These vendors are desirable to investors because they enjoy a dominant share of the gateways that other companies rely on to reach their customers.
The downturn in U.S. patentable R&D has left opportunities for companies like China’s Huawei and ZTE 000063,
Zhongtong,
Broader ownership in the innovations shaping 6G and other next-generation standards. They are taking their chances.
U.S. regulators still have time to pave the way for domestic innovators to recapture leadership in telecommunications. Here’s where they need to start:
- overthrow eBay Decide: An injunction to halt patent infringement in the marketplace would do wonders for restoring the balance of power between innovators and implementers.
- Guiding Regulators to Apply FRAND Standards to Gateway Access: For example, platform providers should only be allowed to charge software developers to cover the cost of reviewing and certifying applications for security and compliance.
- eliminate commission: Platform providers should be prohibited from taking a cut of subscription fees paid by consumers for developer services. Like exorbitant access fees, commissions hinder app innovation.
- Promote quality over quantity: Restructure the patent system to ensure that it rewards innovators for their groundbreaking work, while discouraging others from filling portfolios with questionable claims.
After 30 years of AT&T’s You Will campaign, it’s great to see how far we’ve come. It’s also comforting to appreciate the role of American innovators in building this vision. But Washington needs to act decisively now, or risk someone else setting the rules of the road.
Mike Feibus is President and Principal Analyst at FeibusTech, a market research and consulting firm. Contact him at mikef@feibustech.com. Follow him on Twitter @MikeFeibus. He doesn’t directly own shares in any of the companies mentioned in this column.
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