Over the past two decades, American innovation has played a tremendous role in defining, inventing and deploying the wireless technology that helps put the world in our back pocket. But if US lawmakers do not take action to foster and protect indigenous development, the country risks surrendering its global leadership position.
In 1993, AT&T T,
he unveiled a series of ads that touted what seemed like impossible futuristic capabilities at the time. As it turns out, many of the predictions featured in the epic You Will campaign are woven into our lives. AT&T rightly saw much of the connected world we now take for granted, including video streaming, virtual meeting, in-vehicle navigation, digital health and remote home monitoring.
Developments in hardware have also helped make this vision a reality. The emergence of low-power processor architectures has helped speed miniaturization. Touch screens and graphical user interfaces made this hardware more accessible.
Platform dominance
When the cellular paths and devices converged 15 years ago into the smartphone, the world changed forever. Now we have access to information and entertainment in the palm of our hands. For better or worse, a lot of that happens on two platforms.
Actually, for better and for worse. Market power naturally comes from controlling a gateway through which others must pass in order to do business. Increasingly, suppliers are using that power to extract profits from others.
App developers, for example, complain that the gateways demand excessive commissions. Those with competing products and services charge that the platform companies use their dominant position to marginalize them. The news media asserts that Google and Apple do not value their content very much.
The power of the gatekeepers has become so great, they are even trying to push the wireless technology innovators that help make their platforms so powerful in the first place. All this means slower growth and higher prices.
Power and potential
The market power of platform providers has attracted attention in Washington, DC Legislators and regulators are increasingly trying to regulate them in – and they should. While the gates are getting stronger, innovators and their investors have seen the value of their intellectual property. More significantly, this large concentration of power is stifling innovation in critical strategic areas, and is threatening US technological leadership.
Standard essential patents, or SEPs, cover the basic innovations that standard setting bodies incorporate into specifications. They rely on proprietary innovations to ensure they meet their aggressive performance goals.
Adding a patent to a standard is a double-edged sword for inventors. Inclusion in the standard ensures widespread acceptance, but to be included, innovators must agree to conditions that will strip them of some patent privileges. The conditions — often referred to as FRAND, which stands for fair, reasonable and non-discriminatory — dictate how much SEPs can charge and who must be granted licenses.
FRAND ensures two things: First, that licensing fees are kept low enough to foster adoption. In the car market, for example, where LTE is expanding rapidly, there is a license for a patent pool with more than 50 SEP LTE companies – including heavyweights Nokia NOK,
Ericsson ERIC.A,
and Qualcomm QCOM,
— costs up to $20 per vehicle, depending on features.
Second, FRAND ensures that any company building products with the technology can be licensed, even from competitors. That way, for example, T-Mobile and Verizon can’t prevent each other from licensing their LTE patents or overcharge them.
All intellectual property holders are seeing the value of their innovations under attack. Most notable is the 2006 US Supreme Court ruling eBay v. MercExchange, LLCwhich effectively crushed the ability of creators to secure injunctions to stop infringement.
Ripples the eBay
EBAY,
the control and subsequent developments are far beyond the negotiations between inventors and implementers. It has reduced investment in technology research in favor of the main platform providers.
Four of the world’s most valuable companies are the main platform providers, including Apple AAPL,
Alphabet (Google) GOOGL,
Microsoft MSFT,
and AMZN Amazon.com,
(Facebook’s woes came recently on Meta Platforms META,
delisted last fall.) These providers are desirable to investors because they enjoy a dominant share of a gateway that other companies rely on to reach their customers.
The slump in patentable R&D in the United States has left an opening for companies such as China’s Huawei and ZTE 000063,
ZTCOF,
take a wider share of ownership of the innovations that shape 6G and other next-generation standards. They are taking the opportunity.
US regulators still have time to pave the way for homegrown innovators to reclaim a leadership role in telecommunications. This is where they need to start:
- Cancel the eBay decision: Injunctions would stop patent infringement in the wonder market to restore the balance of power between innovators and implementers.
- Direct regulators to implement the FRAND standard for portal access: Platform providers, for example, should only be allowed to charge software developers fees that cover the cost of reviewing apps and certifying that they are safe and compliant.
- Eliminate commissions: Platform providers should be prohibited from reducing subscriptions paid by consumers for developer services. Like excessive access fees, commissions discourage application innovation.
- Promote quality over quantity: Retool the patent system to ensure it rewards innovators for ground-breaking work, and discourages others from padding portfolios with dubious claims.
Thirty years after AT&T’s You Will campaign, it’s amazing to see how far we’ve come. It is also gratifying to understand the role of US innovators in building this vision. But Washington needs to act decisively now, or there is a good chance that others will be defining the rules of the road.
Mike Feibus is president and principal analyst of FeibusTech, a market research and consulting firm. Contact him at [email protected] Follow him on Twitter @MikeFeibus. He does not own shares directly from any companies mentioned in this column.
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