The IEEE 2015 Patent Policy – A Natural Experiment in Devaluing Technology

 

While most are unlikely to be familiar with the standards development organization IEEE-SA, everyone is familiar with its flagship standard IEEE 802.11, more commonly referred to by its brand name Wi-Fi, that is utilized by billions of people daily. Like all modern wireless standards, Wi-Fi relies on cutting edge proprietary technology to innovate and progress from version to version in order to improve users’ communication experience. That principle is well captured in IEEE-SA’s logo “advancing technology for the benefit of humanity”.

In 2014, IEEE-SA proposed radical changes to its patent policy, which governs treatment of proprietary technology contributed into IEEE-SA standards. The vast changes amended more than half of the preexisting policy, and were geared towards devaluing patented technology contributed to IEEE-SA standards (also known as Standard Essential Patents or SEPs), and facilitating its infringement.

The changes all but eliminated the availability of an exclusionary order against the infringement of an SEP, regardless of how willful or egregious it is, and imposed a compulsory license of SEP to component makers. They also introduced a new definition of “reasonable rate” that is based on the smallest saleable practicing unit (despite the doctrine’s very problematic nature) and effectively eliminated the evidentiary value of comparative licenses signed by existing licensees of the technology, which is the leading patent damages rule under U.S. law (see, e.g. the CSIRO v. Cisco Federal Circuit decision).

In a Novembers 2014 resolution, IEEE-USA expressed detailed written concerns about the proposed new policy, and had asked IEEE-SA to provide evidence that keeping the old policy would be harmful; identification of the “problems” that the new policy seeks to address; explanation of the changes; explanation of how IEEE-SA plans to deal with reluctance to give Letters of Assurance (or “LoA”s) under the new policy; and other concerns.  LoAs are crucial to IEEE-SA as they are the mechanism by which members declare that some of their patents may affect the practice of the standard.  IEEE-SA ignored these questions and these in-house warnings.

Outside IEEE, policy makers and thought leaders in the U.S. and beyond were also alarmed by the potential ramifications of the radical new policy. For example, Senator Chris Coons, sent the U.S. Department of Justice a letter expressing “serious concerns” about the new policy, and warning that it could impact the competitiveness of American innovators and the U.S. economy. It also cautioned that the policy changes would impose unwarranted new conditions on American patent owners, suppress returns on R&D investment, restrict patent owners’ right to exclude even willful infringers, and affect U.S. trade interest. Other concerned voices included former Congressman Lee Terry who warned against turning off Wi-Fi, now-FTC General Counsel Alden Abbott who noted the changes undermine property rights and innovation, GMU Professor Adam Mossoff, who predicted that weakening wireless technology patents would hurt everyone, and others who lamented the new policy’s encouragement of China’s industrial policy efforts to help its less-innovative industries against more innovative U.S. and European ones.

Meanwhile in Europe, a January 5, 2015 letter by EU Director Gerard de Graaf warned that the “change in the IEEE policy…may risk having a significant impact” and urged for the new policy to be “carefully examined” before its approval and implementation.

These warnings from within IEEE and outside of it, seemed to have fallen on deaf ears, and IEEE-SA decided on February 8 2015 to adopt the proposed new policy, nonetheless, without any changes. The decision was undoubtedly encouraged by the issuance of an unusually enthusiastic DOJ Business Review Letter (BRL) to IEEE-SA by then-Deputy Assitant Attorney General Renata Hesse six days beforehand. BRLs generally state the DOJ’s lack of intention to bring an enforcement action. However, the 2015 IEEE-SA BRL went well beyond that mandate by praising the reviewed policy as having “the potential to facilitate and improve the IEEE-SA standards-setting process”. The praise was accompanied by a press release announcing that “the department [of justice] supports [IEEE-SA’s] efforts to clarify [its] patent licensing policies.”  The unique honor provided to the 2015 IEEE-SA BRL gave many pause, to say the least, including longtime Antitrust Division veterans and the Vanderbilt University professor who became the Antitrust Division’s own chief economist two years later.

On the other hand, the enthusiasm was not surprising, given that DAAG Hesse worked with two IEEE-SA volunteers from the get go to encourage and support the policy change, as revealed in the minutes of the meeting that launched the policy change. While I have touched on this kind of issue previously, that story is probably worthy of a separate blog post.

Fast forward to August 2019, what does evidence from implementation of the new IEEE-SA policy show? Four and a half years are a long time in the ICT world, and have witnessed significant developments, including:

1. Delay and chaos in standard development. Engineers working on IEEE-SA’s flagship Wi-Fi standard have described the effects of new patent policy as “delay and chaos,” “loss of momentum”, and as causing “delay in progress” and a “broken” process” through a policy that “appears to be not enforceable or implementable.”
2. Wi-Fi lost its quality approval as an American National Standard. In what seems to be a result of the negative LoA situation (a negative LoA is when the member declines to offer to license relevant SEPs under the relevant IPR policy), in March 2019 the American National Standards Institute has decided not to approve two recent Wi-Fi standard amendments from being accredited as American National Standards. In other words, the quality and reputation of Wi-Fi standards is been impaired.
3. Delays in disclosure of licensing intentions. The changes to the IEEE-SA policy and forms have caused significant delays in disclosure of licensing intentions by IEEE-SA participants. For example Huawei, one of the biggest contributors to Wi-Fi, went over 4 years (2015-2019) without submitting any patent assurance forms, a strategy sometimes referred to as “patent ambush”. The delays mean a reduced clarity of the patent landscape surrounding IEEE-SA standards.
4. RAND assurances are significiantly declining. An unprecedented number of negative Letters of Assurance (LoAs) reflecting patent holders that choose not to give RAND assurances under new IEEE-SA policy. From January 2016 to the end of June 2019, a whopping 77% (!) of Wi-Fi LoAs have been negative (including eight recent negative LoA from Huawei). This means that a majority of new LoAs are for patents whose owners are refusing to assure that they will license the SEPs on reasonable and non-discriminatory (RAND) terms.  RAND assurances are viewed as an important safety valve to ensure that implementers of the standard are not prevented from utilizing it.
5. The new policy and DOJ BRL have been misrepresented overseas. IEEE-SA has engaged in aggressive advocacy of its failed new policy overseas, especially in Asian jurisdictions, alleging US Government support for the new IEEE-SA policy and encouraging enforcement against U.S. patent holders. A May 2016 press release and picture by China’s National Development and Reform Commission (NDRC), depicts IEEE-SA officials “explaining” U.S. antitrust and DOJ positions to NDRC officials. The visit encouraged NDRC in its line of “investigations” against U.S. and Western essential patent holders such as Qualcomm, InterDigital, Dolby, Vringo, Nokia, Sisvel, HDMI, and Ericsson. These “investigations” are a well known Chinese weapon to obtain Western technology for Chinese companies to use at cheaper or near-free rates.
6. IEEE-SA has come under an DOJ antitrust investigation. In a January 2018 speech, Principal Assistant Attorney General for Antitrust Andrew Finch has announced that the DOJ Antitrust Division

“has begun scrutinizing what may appear to be buyer’s cartel or seller’s cartel behavior that’s designed to artificially shift bargaining leverage from IP creators to implementers, or vice-versa.  In particular, the Division is focused on rules of SSOs that purport to clarify the meaning of “reasonable and nondiscriminatory,” but that may instead serve to skew the bargain clearly in the direction of implementers.”

Media sources have interpreted these statements as an investigation of IEEE-SA expressing “little doubt” that the DOJ is “looking at the updated patent policy that was introduced by the IEEE. DOJ conduct investigations typically only get under way when substantial evidence of violations exists and are therefore typically costly and lengthy.

7. IEEE-SA is behaving at odds with statutory language and Antitrust Division’s insistence that SDO policy developments be made in a transparent manner by a balanced decision-making. Section 103 of the U.S. Standards Development Organization Advancement Act defines ‘standards development activity’ as “including actions relating to the intellectual property policies of the standards development organization.” IEEE-SA has embraced this definition when it filed two notices with the DOJ under the National Cooperative Research and Production Act of 1993 re “disclosing additions or changes to its standards development activities” that include “a [2015] update of the IEEE patent policy for standards development.

However, since March 2015, IEEE-SA has made multiple follow-on amendments to its patent policy documents in what seemed like an attempt to clean up the mess created by the new policy. For example, in December 2015, the LoA form was changed to limit ability to disclose licensing terms; in June 2018 IEEE-SA proposed another change to the policy, effectively admitting 3 years of trouble since the new policy took effect. Discussion of that proposal proceeded behind the scenes in closed meetings and it was never adopted. Instead, in December 2018 IEEE-SA’s Patent Committee adopted a pre-cooked wholly different amendment, which had the devastating effect that 14 of the 18 LoAs accepted in Q2 of 2019 were negative.  All these amendments were carried out behind closed doors, through groups that represented only one point of view.  Now, IEEE-SA convenes closed door meetings for anything having remotely to do with the patent policy (see, e.g., the December 2015 Board Meeting that changed of the format of the LoA,- under item 10.2  memorializing a 1:40 minute “executive session”, that’s IEEE-SA language for “super-secret and hence not all affected parties are allowed to participate”).  The meeting with China’s NDRC was also secret, until NDRC posted a press release about it – apparently even the Chinese government is more transparent than IEEE-SA.

And if that wasn’t sufficient, in 2017 then-IEEE-SA-president elect and longtime Apple consultant Don Wright (the one in the middle) set up a new super-secret committee called the Strategic Planning Coordination Committee, which meets only in closed doors and never publishes any agenda or minutes. Mr. Wright has been the active force in this super-secret committee for three years now. And his sidekick, Phil Wennblohm (Intel) who led the new policy initiative in 2013, has been chairing the IEEE-SA patent committee for 5 years in a row and seems like he will continue in this position for many years to come. So much for openness and balance, but perhaps that’s what happens when all the IEEE-SA leadership is appointed by its president through a black hole process.

It is unclear how IEEE-SA allows for or justifies these due process deficiencies. Perhaps the 2015 DOJ BRL has emboldened its leaders to believe their organization has become immune from antitrust scrutiny. One would think news of a DOJ investigation of antitrust violations in Wi-Fi working group 802.11ax should dissuade them from holding this position.

All in all, the 2015 IEEE-SA patent policy has been a devastating natural experiment in what happens when an SDO devoted to “advancing technology for humanity” devalues that very same technology on which it relies to advance is mission. The results have been harmful to IEEE-SA standards and reputation as well as to U.S. technology leadership and trade interests. Yet the same small subset of people who brought on the policy change for the benefit of their clients appear to continue to control its destiny through closed door meetings, steering the ship in the same gloomy direction despite four years of setbacks.

For the sake of Wi-Fi users and the future of U.S. technological leadership, I hope some responsible adult will wake up and put an end to this travesty before the Don Wright-Phil Wennblohn “secret five” team drives the IEEE-SA ship to the ground.