London 14 February 2010 - WikiLeaks...Public | © Ericsson AB 2010 | 2011-02-14 | Page 3 Patents Q1 - are patents a barrier to UK economic growth? › Ericsson broadly supports the

London 14 February 2010

Public | © Ericsson AB 2010 | 2011-02-14 | Page 2

Patents,Licensing

andR&D

2008 Global Media and ICT R&D Investment Spending: 104, 3 B Euro


Patents Q1 -

are patents a barrier to UK economic growth?

› Ericsson broadly supports the UK and related EP patent system, and we do not see patents as a barrier to growth

› The markets for GSM (2G) and WCDMA (3G) mobile phone standards have grown significantly, based on technology sharing enabled by 1000’s of patent rights

› Open standardisation has enabled many operators and vendors to be involved, increasing competition and driving down costs for consumers

› In addition operators and end users are able to choose from a wide range of vendors, rather than being “silo-ed” into one proprietary system


Patents Q2 & Q3 –

patent framework adaptation to technological changes

› The IPO and UK Courts follow a more restrictive approach to the EPO regarding the patentability of computer implemented inventions

› This lack of uniformity could be a barrier to UK economic growth–by putting at a disadvantage applicants only

using the IPO route–by failing to protect particular types of

invention in the UK-only, but where these are protected elsewhere in Europe


Patents Q4 –

is patent licensing a barrier to innovation and growth?

› Open standardisation encourages innovation and growth through patent licensing

› Telecoms standards include innovations from many different parties› Open standardisation benefits the economy by enabling competition › Input to this process requires significant R+D resources, › Lack of patents would discourage contributors› Successful markets with open standardisation and patent licensing:

›

Mobile Phone Networks (eg GSM, WCDMA)›

Internet Backbone Communication (eg SDH, OTN, IP)›

Picture and video coding (eg JPEG, MPEG)


Patents: Q6, Q8, Q9

› Sector Variance -

Telecoms: Mobile device will have technology covered by many patents from many different rights holders

-

Pharma: One drug may be covered by one patent only-

Changes to the patent system may affect different sectors differently› Examination process

›

Robust examination even with delays better than granting patents of questionable validity which would result in greater uncertainty and costs

› Value of intended EU patent›

Generally in favour if cost effective, process effective, avoids EU Courts›

But requires an appropriate unified European patent court system to work›

Current ECJ proposal not supported by Ericsson›

Prolong litigation and hence uncertainty, increase costs


Copyright and Enforcement


Pressing

issue: Growing legal digital services

Drivers of the digital market supply failure:

› Limited availability of attractive legal digital offerings

› Technology specificity of copyright hindering innovation

› Unreasonable transaction costs


Technological advances in media industry

Source: The Internet and the Mass Media, Kung, Picard, Towse, 2008

Film

MusicRecordingTelephony

Telegraph

Print Media

Radio FM Radio

TV Color TV

Satellite TV

Text TV

VCR

Digital TV

CDCassette MP3 Streaming AudioInternet Radio

Digital Radio

Videotext

E-mailFTP

WWWHTTP

P2PBlogXML

DVD

Streaming video Internet TV

MTVIPTV


There is nothing new under the sun

Technology demands constant change = Innovation

*

* Music industry refers to Record Music IndustrySource: Lucy Kung, 2010


‘Copy-fighting’

Technology advancement

› 1920: The FM Radio threat: “recording Industry fears the new medium that would provide close substitutes to buying records”.

Source: Arguments before the Comms. on Patents of the S.&H.R, Conjointly on the Bills S 6330 and H.R. 19, 853 to Amend and Consolidate the Acts Respecting Copyright 1906.

› 1906: The Recording Industry threat; i.e. gramophones, player pianos and talking machines. The technologies threaten to negate the value of sheet music an the future of creativity; Composer John Phillip Sousa to the US Congress: “…these machines are going to ruin the artistic development of music….the vocal chord will be eliminated by process of evolution, as was the tail of a man when be came from the ape”

Sources: Harvard Business Review File-Sharing and Copyright, Felix Oberholzer-Gee and Koleman Strumpf, May 2009


‘Copy-fighting’

Technology advancement

› 1960: Advent of Cable TV threat: Broadcasting industry (terrestrial TV) complained that CATV operators neither need nor deserve a free ride at the expense of copyright owners and the activities of “CATV operators constitute a clear moral wrong”. In 1975, the Film Industry describes cable industry as a “huge parasite that is feeding and fattening itself of local television stations and copyright owners”.

Source: Tim Wu “Copyright's Communication Policy” 1043 Mich. L. Rev.278, 313 (2004)

› 1980: Advent of home recording – VCR threat; Stanley M. Gortikov, president of the Recording Industry Association of America (RIAA), explained in hearings before a House committee on 14 April 1982: “I'm scared, and so is my industry. Changing technology today is threatening to destroy the value of our copyrights and the vitality of the music industry. Our nemesis is home taping.”

Sources: Harvard Business Review File-Sharing and Copyright, Felix Oberholzer-Gee and Koleman Strumpf, May 2009


Going digital: Norwegian Total Music Industry

› Total annual industry revenues grew from 1.4 BNOK to 1.9 BNOK which is + 36%

› Number of Music artist increased by + 28%› Per Capita inflation adjusted annual artist

income has increased by +66%

Source: The Norwegian Music Industry in Age of Digitalization, Bjerke & Sorbro, BI Norwegian School of Management, Oslo 2010


Creativity

not

threatened

in the digital age

› Since 2000, release of new albums have more than doubled.

› In year 2000, 35 516 music albums were created while in 2007, 79 695 (including 25159 digital albums) were published.

› World wide feature film production is up by more than 30% between 2003 and 2007.–South Korea: 80 to 124– India: 877 to 1164–China: 140 to 402–U.S: 459 to 590

› Publication of new books rose by 66% over the 2002-2007 period

Source: Nielsen SoundScan, 2008, Screen Digest 2004 and 2008, MPAA 2007


Policy Issues


The market supply failure of digital content

The market supply failure is a result of:

› limited availability of attractive legal digital offerings

› technology specificity of copyright hindering innovation

› unreasonable transaction costs

Resulting in limited availability of and more expensive cost of legal digital offerings.

Resulting in unauthorized digital content consumption, since legal and appealing market alternatives are absent or inferior.


Limited Availability


The digital Market Supply failure in figures


Content ACCESS BARRIERS

also recognized in WIPO

financed research

› Content exclusivityCompetition between multiple operators offering similar services has a positive impact on consumer level prices, helping to keep cost of services low and offering them at multiple price points. In the absence of competition, operators will be free to constantly increase the cost of services – forcing once-legal subscribers to start looking elsewhere for cheaper, often illegal, alternatives. In markets such as India, however, where there is heavy competition between satellite operators and the cable industry, subscription prices for even premium content is nominal – and individual consumer-level unauthorized pay-TV access is very low.

› Non-availability of contentNon-availability or delayed availability of content in certain markets can be cited as reasons for unauthorized access of broadcast signals and piracy. Non-availability often occurs as a result of the windowing strategy adopted by broadcasters and film studios when releasing their content into different markets.

World Intellectual Property Organization, Twentieth Session, Geneva June 21 to 24 2011, or access: http://www.wipo.int/edocs/mdocs/copyright/en/sccr_20/sccr_20_2_rev.pdf

http://www.wipo.int/edocs/mdocs/copyright/en/sccr_20/sccr_20_2_rev.pdf


availability an absolute pre-requisite to stimulate growth of legal digital offerings

› Time/Timing > Windowing and Exclusive Licensing, duration of license

› Territoriality > timed availability across nations, piracy arbitrage

› Territoriality > follow me or roaming media services > individual service in foreign territory

› Multi-Territorial licensing > creation of regional mass markets (scale), creation of profitable global niche markets, price equalization

› Range of choice > defined by factors described above and minimum upfront fees.

› Aggregation > Linear and on-demand challenging for main stream advertising model

–

Time/Device/Place Shift

Dimensions of availability > “AWATAD*”

Terms

*AWATAD= Any Where Any Time Any Device


Availability of content -

windowing

Time/Release Windows

Total Industryrevenues

80%

Cinema DVD Sell Through

Rentals PremiumPay-TV

VOD SecondChannel

DiscountSell trough

FTA

› 80% of industry revenues are served by physical means of distribution and/or consumption.

› Digital and interactive network based distribution platforms are disadvantaged, since they cannot compete effectively in addressing the vast share of the legal mass market.

› Windowing chronology is changing for the better, but the progress is slow and varies significantly across regions. This creates piracy arbitrage opportunities.

› Ex. in Nov 2010 FOXTEL in AUS announced to secure VOD releases simultaneously with DVD sell through (trial for selected titles) while Warner in US announced launch of a Premium VOD service closely trailing cinema releases.


Technology specificity of copyright


Technology

specific copyright: “distribution”

Source: The Recasting of Copyright & Related Rights for the Knowledge Economy, IVIR 2006

› Copyright is a SMÖRGÅS board of technology specific references.

› Right of reproduction, distribution and communication

› Communication to public: Broadcasting and Making available,

› On broadcasting; terrestrial, satellite, Cable, IPTV but not simulcasting over Internet.

› How about; online unicast, on demand unicast, first transmission, re-transmission, any screen, local vs. network based storage

› In a converging environment a regulatory framework that regulates similar services differently (e.g. on the basis of the technical platform), that framework is preventing the market from fully benefiting from the opportunities that technological progress offers them.

› Technology specific approach inevitably leads to inconsistencies and uncertainties.

› As heterogeneous categories of works, media and platforms converge into homogenous multimedia environment, existing regulatory distinctions (works, media, technologies) will be increasingly difficult to maintain.


How many times

can you slice

an elephant?

› Remuneration is based on separate technical features of supplying content.

› Each act of distribution is subject to exclusive right,

› …normally leads to separate pricing of each distribution…

› By way of example, online distributors must obtain licenses for the digital reproduction right and the right of making available, often in two separate transactions, sometimes from two different organizations for each territory.


..and continue

to expect payment

each time….

› Consumer will normally have to pay again, even if the original right is unchanged.

› The current technology specific exclusive rights; need to be balanced with realities of the demand side of the market.

› There is a need to recognize, end users’ actual consumption of content,

› .. and avoid the cumulative effect of technology specific exclusive rights slicing, doubling or tripling the cost of identical content for an identical user and for unaltered right to use.


Multi-screen

› License Terms with focus on the right to use of the service offered to final end user;

–

Download to Own–

On-demand (time limited)–

One time view› Irrespective of:

–

Transmission Technologies–

Delivery Networks–

Devices–

Screens

It is unreasonable to potentially triple the cost of content for a single-user, viewing the same content over multiple screens


Private

Storage

of legal

content

› The copy right regime and practice should be applied technology neutrally, e.g. independently of any physical storage, architecture and media format.

› Any storage solution architecture e.g. if the storage function is embedded in a local consumer device or in a network should be able to compete freely.

› Notably, PVR and nPVR have the same functions and should not be discriminated by law or special consent from rights holders.

› Hereby, competition between technologies is allowed and most suitable solutions will be accepted by consumers.


Transaction cost Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost

Transaction cost


Transaction Cost Adding to the digital price

› Collective Management is a national monopoly business; (in)-efficiency and productivity is in the hands of one!

› Nationally bound negotiations delay and increase the cost and price of an increasingly multi-territorial or even global business offering searching for scale an niche market opportunities.

› Dual taxation e.g. direct licensing and levies make the digital legal product more expensive.

› Cumulative cost of right slicing, i.e. for a single- user viewing across screens, time or region need to be re-assessed to avoid unreasonable price increases.


Format and platform shifting

& fair use

› Platform, format and time shifting of legitimate content should fall under a ‘fair use’ doctrine.

› This repurposing of legally acquired content, that does not change the initial right to use, within the private sphere should not trigger levies.

› Fair use should always avoid double taxation› The remuneration principle, where applicable,

for the act of copying should reflect copying of legally acquired content only.


On Private

copy levies

› Fair rewards through market-based royalties › Promoting consumer-friendly access to attractive legal offers › Private copy levies should not be the primary or significant

revenue source for digital content.› The more of direct licensing of digital content the less need

there is for private copy levies by way of compensation. › Furthermore, direct licensing means financial returns are

closely correlated to actual use of content. › By contrast, levies systems are regarded as “rough justice”.


Enforcement


Enforcement of Copyright

need for more balance !

› First we need to solve the market supply failure!

› Why is illegal file sharing happening?› Enforcement only focused approach is

inadequate and insufficient! –

Enforcement is just part of a sustainable solution!

› Who is the victim here: right holders or ISPs ?

› R&D by permission, the next step ?› Who should bear the responsibility and

costs?


Enforcement Principles

› Consumer awareness campaigns› Beyond quantity› Monitoring› Voluntary measures› Balancing act› Sanctions› Notice and take down

Documents

London 14 February 2010 - WikiLeaks...Public | © Ericsson AB 2010 | 2011-02-14 | Page 3 Patents Q1 - are patents a barrier to UK economic growth? › Ericsson broadly supports the