IPlytics’ Patent-Counting Fallacy

There is no doubt that the number of patents declared as potentially essential to technical standards is not an indication of essentiality; its only purpose is to make those declared patents accessible on FRAND terms should they ever become essential. Tim Pohlman, the founder of IPlytics a commercial technology consultancy, participated in an empirical study and report of essential patents commissioned by the European Commission (Tender No ENTR/09/015 (OJEU S136 of 18/07/2009)). In December 2016 his consultancy released a 62-page report on SEPs commissioned by the EC. The report was the result of an heroic effort to sort through and normalize patent declaration data for all widely adopted standards (See Fig. 1). This work was (and is) important and should not be under-valued. It has long been recognized (e.g., n.10), that patent declaration information “can be hard to find, [] the links are often messy, and standards often see improved updated releases.” On the back of the data the IPlytics team has been collecting about patents declared as potentially essential and 3GPP documents, they have been issuing privately-commissioned reports discussing their data as well as their analysis of the data in greater detail. Their recent reports on 5G have been widely discussed in the media and at conferences.

Perhaps one of the reasons for this wide discussion, is that the report self-positions itself as a “Fact-Finding Study.” While casual readers of the report may not recognize it, readers attuned to the various issues of contention in the F/RAND wars will quickly notice how the paper is, in fact, full of implicit and explicit biased policy proposals opposed by many industry players – including its conclusions that new F/RAND licensing rules are required (p42).

Another likely reason behind the buzz generated about IPlytics’ report results from its framing Essential Patents as a “race.” And as such, IPlytics has seemingly recast 5G value as a question of sheer numbers. The report includes a lot of erroneous and misleading statements on the assumed “strength” and “value” of the portfolios, despite the disclaimer acknowledging that the family statistics from ETSI provides no evidence of relative value or proportion of essentiality of different holders. Moreover, the companies with the most number of patents and applications declared as potentially essential are Chinese, specifically Huawei. The controversy surrounding Huawei combined with the implicit premise of IPlytic’s analysis that Huawei will be one of three or four primary players in the rollout of the 5G network likely is what is driving the report’s ubiquity. While Huawei is probably a well-paying client of IPlytics, listing Huawei as the 5G leader – especially in the midst of the US/China trade war encourages fallacious thinking by confusing volume with value and ‘potentially essential’ with ‘essential’.

Whether a patent is at the end essential, as opposed to potentially essential is perhaps the most obvious problem with simplistic patent counting of patents that “maybe” or “may become” essential. The fact, for example, that the ETSI online IPR database provides public access to patents declared as being essential or potentially essential, to ETSI and 3GPP standards without qualification can easily mislead observers into conflating truly essential patents with merely potentially essential patents.

This discrepancy has been around for a long time. As far back as 2005, it was recognized (p5) that “nearly  80%  of the patents declared essential are probably not essential”. In principle, this is not a problem, since this data is not used for licensing negotiations. However, these kinds of reports, basing their conclusions in non-reliable data, are likely to mislead the audience. To be fair, IPlytics acknowledges the problem of not having the required data in their 2017 report – spending some 5 pages (p48-52) summarizing some of the more well-known essentiality studies and estimating that a comprehensive essentiality study of 4G would cost 800 million Euros. Yet, despite listing the concerns on a theoretical level, the report fails to even preliminarily address this issue in their presentation of their patent counts.

Another challenge with patent counting is patent value. While it may be the fashion (whether court-mandated or not) to make each essential patent equal in value to the next, there are any number of studies that attempt to differentiate between them from a technical value perspective. For example, the IEEE Spectrum has a Patent Power Index. The results from running their index for telecom can be seen below:

Similar surveys are available from companies like iRunway (2G/3G here), which reviewed patents for their seminal nature based on technical contribution, infringement detectability, technology activity, citation rates, age of patents, and other factors. Another Article One’s study of US 4G patents which cross-referenced essentiality with an analysis of novelty.