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Qualcomm and Ericsson are defeated by Apple over European Union Patent fees

BRUSSELS (Reuters) – The European Union has made several guidelines on how much patent holders should charge for their technologies, which has become a sensitive  issue that pits Apple and other users against Qualcomm and Ericsson.

Trillions of dollars in sales are at risk as regulators ponder whether a fridge maker should pay a different rate for crucial patents than a carmaker, or whether in case of a flat, fixed rate would be fairer.

World’s No. 1 smartphone chip designer Qualcomm, uses a patent fee model which is leading in technological industries, and which is further based on how much value a technology adds to a product, is opposed by Apple and others in silicon valley.

Antti Peltomaki, Deputy Director General at the European Commission, told a conference last week that the EU hopes to finalize its guidelines by the end of the year. They will not be legally binding but could provide a basis if the EU executive decides to enact rules in future.

This decision is a part of the bloc’s broader push to set new regulations for the internet-connected devices which covers not only computers and smartphones but also covers cars, home automation and energy devices, aiming to ensure employment and other economic benefits in the so-called Internet of Things (IoT) era.

Qualcomm’s patent fee model is widely used because, it is based on “fair, reasonable and non-discriminatory” (FRAND) licensing model though The European Commission is yet to finalize on which technology this patent fee model favours.

Apple, the automotive industry and product makers say a fairer approach is to link royalties to the cost of the smallest saleable unit.

“It is not reasonable to charge more for use of the very same component in a Mercedes versus a Hyundai or a car versus a bicycle. This is discriminatory based on price of the end product, both within and outside of a particular product category,” Apple said of Qualcomm’s model in the European Commission.

Industry estimates show IoT systems could represent a market of more than $11 trillion per year by 2025.

BALANCING ACT:-

Qualcomm’s approach of royalty is an important source of profits for other mobile pioneers such as Ericsson and Nokia.

Ericsson, once the world’s biggest mobile phone and network equipment maker, has faced several hard times in global competition but still, the largest number of mobile technology patents and it follows the value-based licensing model. “Flexibility is absolutely necessary,” Patrick Hofkens, Ericsson’s director of intellectual property rights policy, mentioned. “Setting of royalty rates too low encourages new technology developers from licensing their patents to industry standards bodies, which enable mass markets to take off”, Hofkens further said.

The European Commission follows a tough balancing act, said Bristows’ Hunt.

The main difficulty for any model is to determine a fair rate. This has proven complicated enough in the mobile telecoms industry already, and it’s only going to get harder with new IoT enabled products.

IP Europe, another lobbying group whose members include Ericsson, Airbus, Nokia and Orange, says patent holders deserve a fair compensation.

“When they are contributors to a platform, they have expectations of fair remuneration,” the group’s executive secretary Francisco Mingorance said.

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