The great redistribution of wealth. Winners and Losers under the Commission's SEP Proposal.
I am a numbers guy and as I read through the European Commission's Proposal for a Regulation on FRAND and SEPs, I wondered what this brave new world or linear predictbility would look like.
So I ran some numbers. Being an engineer I will make rough calculations from memory so let me apologize for the lack of precision. I just want to get a general sense.
The total licensing market for cellular standards is something like $18 billion +/-. This is an across the board average of around 5% of ASP of all smartphones. Five SEP holders (shown above in the Table 1) earn 70% of this income with Qualcomm taking the lion's share. This is how it looks today.
The Commissions Proposal pretty clearly suggests that the Competence Centre will make FRAND determinations on a proportional basis from a maximum aggregate royalty also to be determined by the Competence Centre.
If we assume that the maximum aggregate royalty is selected such that the total market for licensing revenues remains the same as today, and using the latest 5G scorecard from iPlytics, Table 1 shows the way royalties would be distributed.
Huawei is the big winner, indeed the only winner among the current top five SEP holders. Nokia remains about the same. Ericsson falls back considerably. And Qualcomm is crushed. InterDigital is crushed. The top five licensors would loose nearly €5 billion in licensing revenue.
Little Shanghai Langbo, on the other hand, appears to be an SME with bright future under the Commission's Proposal.
Author, Business Transformation Veteran & Technologist
1 年Thanks Eric.
Owner, Kazehara AB
1 年Thanks Eric, very enlightening and as always, to the point. The other major point that can be drawn from this graph is that any "winner" in your example will be heavily challanged by implementers as they try to cash in on the EUIPO SEP landscape while all the "loosers" will also heavily challange the result in order to defend their commercial position, upon which their company depend (and the entire 3GPP ecosystem in the long term). The commission proposal, of a mandatory process with a non-binding outcome will not provide any efficiency increase. Instead it will be a source of further hold-out. Especially for deep pocket users of the technology.
Thanks Eric, not commenting on the numbers as such, but frankly believe the real loser here is global standards and the innovative industry that has invested in developing this valuable technology platform - as well as every SEP holder that has true enforcement capability. Europe is the only jurisdiction where SEP enforcement works in practice and courts have started addressing the problem of holdout. I look at this, and my conclusion is the European Commission is promoting holdout, engaging in price regulation ( ironical, indeed, given its charter) and eroding patent protection for SEPs by denying access to justice for SEP holders. Only one thing is certain: if this proceeds, the beneficiaries will be outside Europe.
Semi-Retired IP Valuation Expert
1 年Order of magnitude is a fine way of figuring the impact of the proposal. Thanks for the calculations.