Telecommunication SEP and FRAND term impacts on smart metering
Are you working in smart metering, but terms like SEP or FRAND don't ring any bell? Then, take 5 minutes to read this article, and you'll be much better equipped to know what extra costs might wait for you in your meter roll outs.
During 2023, I met many global smart meter companies and AMI solution providers. They've used 2G (GPRS), 3G or 4G (LTE), LTE-M, or NB-IoT in their roll outs. What's the number one headache right now? No, it's not the black spots in coverage or deprecation of 3G networks. Number one is cellular patent fees, or Standard Essential Patents (SEP), as they are generally referred to. The cost of wireless modules and communication fees were known when the project offer was made but cellular IP fees were nowhere to be seen. Yes, for most, those have come unexpectedly and only after the roll out. In other words, when it's too late to charge additional bill-of-material costs.
ESMIG, the European association of smart energy solution providers, has also recognized how cellular SEP owners' licensing practices impact the energy sector. Their statement here (1) is a great read.
The question that puzzles me most is how on earth the cellular SEP (2) fees come as a surprise for so many companies in the smart metering business. SEP holders like Qualcomm, Ericsson, Nokia and Huawei have been very vocal about their rights. They've been openly sharing information on their websites.
In my view, here's why:
Cellular communication has not been the core of smart metering companies. Many smart metering companies have patents in metering technology but not on wireless communication. Smart metering companies typically don't have a direct relationship with telecommunication SEP holders – they communicate through wireless module suppliers or distributors. This differs from smartphone manufacturers investing a lot in R&D efforts in phones using cellular connectivity. They have patented essential cellular patents and invested in their patent portfolio. These companies are used to managing the licensing of their patents with their competitors. And in some cases, these topics ended in disputes being sorted out in courts. Such events are blowing down innovation. To overcome this, the international standards organizations have included in their rules that essential patent holders must license their SEP patents on Fair, Reasonable And Non-Discriminatory terms, known as FRAND (3). Companies contributing to technology development are compensated through patent royalties paid by the technology users.
The second issue is misinformation. Many smart metering companies believe that wireless module manufacturers take care of these licensing fees. This is not the case. Patent fees are charged from the original equipment manufacturer (OEM) based on the patent value to the end application. Companies like Huawei and Ericsson collect patent fees from OEMs (4). Smartphone companies are more used to this practice with their licensing agreements than other industries. Today, the automotive industry follows suit as cellular communication is broadly used in their products. Examples can be found, e.g., in royalty pricing for connected vehicles from the Qualcomm homepage (5). Similarly, the SEP holders are signing agreements with smart meter OEMs like EDMI using telecommunication technology in their products (6). Hence, the module vendors can't cover the liabilities of patent fees of final products, which is often a misunderstanding in the market about what module vendors promise.
A common misbelief is that fees are agreed upon by one SEP patent holder and there are no further payments. FRAND terms enable SEP holders the right to be compensated for an invention. It should be clear to everyone that no one can agree on license fees on behalf of others. For example, when using a Qualcomm-based module, there wouldn't be any fees. This is not true. For instance, Chinese smartphone manufacturer OPPO is willing to comply with and execute the court's decision regarding the global FRAND licensing fees for Nokia's patents (7).
Some smart metering companies have already negotiated with the biggest patent holders in this area to get compensation for their patents. Minor patent holder claims can be settled through patent pools based on agreement with each patent holder to simplify negotiations. Sisvel (8) and Avanci (9) pool telecommunication SEP holders into a single license agreement. From public references such as EDMI settlements, we can note that the fee will be USD 2-3 for a 3G license and USD 3 for a 4G license. It should be pointed out that the Avanci license agreement excludes companies such as Qualcomm, Nokia and Huawei, which indicates that the fees per smart meter will exceed USD 4 altogether (9-10).
Patent fees are compensation for the patent holders for their R&D investments for standard technology development, which other companies use. Technology evolution and standardization processes are open for innovations where interested companies are investing in research and developing new standards and platforms for the benefit of all. But the thing is, these costs can't be left out of calculations.
If the impact of patent fees is not visible in a smart metering tender, there is no view of the overall cost either. The patent holders can come to the meter manufacturer at any time to collect the fees for their patents. Manufacturers should work with SEP holders to agree on fees before roll outs. If manufacturers wait until the roll outs are completed, they have a more challenging negotiation position when the SEP holders knock on the door and hand in their invoices.
Jani Vehkalahti
SVP Smart Grids, Wirepas
_
References:
2) https://www.nokia.com/licensing/principles/?did=D00000007067
3) https://www.ericsson.com/en/patents/frand
4) http://www.fosspatents.com/2022/12/huawei-qualcomm-interdigital-agree-that.html
6) https://www.edmi-meters.com/news/edmi-joined-the-avanci-4g-smart-meter-patent-licensing-program/
7) https://www.oppo.com/en/newsroom/ip/statement-on-global-royalty-rates-for-nokias-patents/
8) https://www.sisvel.com/licensing-programmes/iot/cellular-iot/#tab-patent-owners
9) https://www.avanci.com/iot/4g-smart-meter/
10) https://www.huawei.com/en/news/2023/7/ipr-innovation-horizon
