Opinion: Big Tech’s squeeze of technology innovators is costing you more for apps and other internet services
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Over the past three decades, American innnovation has played an outsized role in defining, inventing and deploying the wireless technology that helps tuck the world into our back pocket. But if U.S. legislators don’t take action to foster and protect homegrown development, the country risks ceding its global leadership position.
In 1993, AT&T
T,
unveiled a series of ads that foretold of what sounded at the time like impossibly futuristic capabilities. As it turned out, many of the predictions featured in the now-legendary You Will campaign have been woven into the fabric of our lives. AT&T correctly saw an impressively large slice of the connected life we now take for granted, including video streaming, virtual meeting, in-vehicle navigation, digital health and remote home monitoring.
Developments on the hardware front also helped make this vision a reality. The emergence of low-power processor architectures helped speed miniaturization. Touch screens and graphical user interfaces made this hardware more accessible.
Platform dominance
When the cellular and device paths converged 15 years ago into the smartphone, the world forever changed. Now we have access to information and entertainment in the palm of our hands. For better or worse, much of that happens on just two platforms.
Actually, for better and worse. Marketplace power naturally comes from controlling a gateway through which others must pass to conduct business. Increasingly, providers are leveraging that power to extract profits from others.
App developers, for example, complain that the gatekeepers demand excessive commissions. Those with competitive products and services charge that the platform companies leverage their dominant position to edge them out. News media asserts that Google and Apple undervalue their content.
The gatekeepers’ power has gotten so great, they are even trying to squeeze the wireless technology innovators that help make their platforms so compelling in the first place. All of this translates into slower growth and higher prices.
Power and potential
The platform providers’ market power has attracted attention in Washington, D.C. Legislators and regulators increasingly are trying to reign them in — and they should. While gatekeepers have been getting stronger, innovators and their investors have seen the value of their intellectual property erode. More ominously, this overwhelming concentration of power is dampening innovation in critically strategic areas, and is beginning to threaten U.S. technological leadership.
At stake are standard-essential patents, or SEPs, which cover the underlying innovations that standard-setting bodies incorporate into specifications. They rely on proprietary innovations to ensure they meet their aggressive performance goals.
Contributing a patent to a standard is a double-edged sword for inventors. Inclusion in the standard ensures broad adoption, but to be included, innovators must agree on conditions that strip them of some patent privileges. The conditions — often referred to as FRAND, which stands for fair, reasonable and non-discriminatory — dictate what they can charge for SEPs and who must be granted licenses.
FRAND ensures two things: First, that licensing fees are held low enough to foster adoption. In the automobile market, for example, where LTE is proliferating rapidly, a license for a patent pool with more than 50 companies’ LTE SEPs — including heavyweights Nokia
NOK,
Ericsson
ERIC.A,
and Qualcomm
QCOM,
— costs up to $20 per vehicle, depending on features.
Second, FRAND assures that any company building products with the technology can secure a license, even from competitors. That way, for example, T-Mobile and Verizon can’t prevent each other from licensing their LTE patents or charging too much for them.
All intellectual property holders are seeing the value of their innovations come under attack. Most notable is the U.S. Supreme Court’s 2006 ruling on eBay v. MercExchange, LLC, which effectively crushed creators’ ability to secure injunctions to stop infringement.
The ripples of the eBay
EBAY,
ruling and subsequent developments have extended beyond negotiations between inventors and implementors. It has depressed investment in technology research in favor of dominant platform providers.
Four of the world’s most valuable companies are the leading platform providers, including Apple
AAPL,
Alphabet (Google)
GOOGL,
Microsoft
MSFT,
and Amazon.com
AMZN,
(Facebook’s recent woes knocked Meta Platforms
META,
off the list last fall.) These providers are desirable for investors because they enjoy dominant share in a gateway that other companies depend on to reach their customers.
The slump in patentable R&D in the U.S. has left an opening for companies such as China’s Huawei and ZTE
000063,
ZTCOF,
to take a broader share of ownership in the innovations that shape 6G and other next-generation standards. They are seizing the opportunity.
There is still time for U.S. regulators to pave the way for domestic innovators to reclaim a leadership role in telecommunications. Here’s where they need to start:
- Overturn the eBay decision: Injunctions that halt patent infringement in the marketplace would do wonders for restoring the balance of power between innovators and implementers.
- Direct regulators to apply the FRAND standard to gateway access: Platform providers, for example, should only be allowed to charge software developers fees that cover the cost of reviewing and certifying apps as safe and compliant.
- Eliminate commissions: Platform providers should be prohibited from taking a cut of subscriptions that consumers pay for developers’ services. Like excessive access fees, commissions discourage application innovation.
- Promote quality over quantity: Retool the patent system to ensure it rewards innovators for groundbreaking work, while dissuading others from padding portfolios with questionable claims.
Thirty years after AT&T’s You Will campaign, it’s great to see how far we’ve come. It’s also gratifying to appreciate the role of U.S. innovators in building this vision. But Washington now needs to act decisively, or there’s a real chance that others will be defining the rules of the road.
Mike Feibus is president and principal analyst of FeibusTech, a market research and consulting firm. Reach him at mikef@feibustech.com. Follow him on Twitter @MikeFeibus. He does not directly own shares of any companies mentioned in this column.
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