Understanding Your FRANDS Is Hard –– Talking Tech w/ Charles Duan & Stan Adams
Host Brian Wesolowski sits down with Charles Duan, the Director of Technology and Innovation Policy at the R Street Institute, to help understand how standards and patents can impact competition and consumers. <br><br>Then Brian brings in CDT's own Stan Adams to talk about a new "tech 101" series from CDT, Techsplanations. The series offers accessible explainers on how core technologies and internet systems actually work.<br><br>More on Techsplanations: http://bit.ly/techsplanations<br><br>More on Charlie: http://bit.ly/RStCharles<br>More on Stan: http://bit.ly/cdtstan<br>More on our host, Brian: bit.ly/cdtbrian<br><br>Attribution: sounds used from Psykophobia, Taira Komori, BenKoning, Zabuhailo, bloomypetal, guitarguy1985, bmusic92, and offthesky of freesound.org.
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Transcript
Welcome to Tech Talk. Bye. See. Tea.
Welcome to CDT's tech talk where we dish on tech and Internet policy while also explaining what these policies mean to our daily lives. I'm Brian Wasilowski, and it's time to talk tech. A recent policy wonk acronym I learned is FRAND, f r a n d, which stands for fair, reasonable, and nondiscriminatory. Today, we'll look into how this relates to the technical standards of our smart phones and what brand abuse could mean for consumers. And then we'll decode even more tech speak when we talk about a new online series from CDT, Texplanations. Our policy experts do an incredible job of explaining how tech works, and now they've finally written it down. Talking about technical standards might make some people's eyes gloss over. But in telecommunications, if there aren't consistent standards, our cell phones likely won't work in all places or on all networks. That would not be awesome. Of course, there is actual real technology layered on those standards. Chips, microprocessors, circuit boards, and lots of other stuff I could never make work. A lot of these necessary components are not surprisingly patented. Can you sense a growing tension here? Joining me today to talk about standards and patents is Charles Dwan, the director of technology and innovation policy at our friends at the R Street Institute. Welcome, Charles. Thanks. Thanks for having me here, Ryan. Really excited to talk about this. Yeah. No. I'm excited you're talking about it, and I'm not because this is an area I know very little about, so I'm excited to learn about it. So how about we start with some of the basics? What are some of the key standards for cell phone technology,
and why do they matter so much? Well, sure. And, you know, I think one of the things is that standards sound like this very complicated and strange area, but, you know, we're really familiar with them in all sorts of places. So if you think about your cell phone, it communicates with the cell towers using, using, you know, a three g, four g, soon to be five g communications protocols. It communicates with your Wi Fi router, protocols. It communicates with your WiFi router at home. It communicates with your watch or your or your speakers or your earpiece over Bluetooth. It it incorporates all sorts of communications technologies. And, really, if you think about it, every technology that you use today involves, you know, a whole lot of standards. The podcast that we're recording right now, that's gonna be stored probably over m p three or in Apple's, encoding format. That's the standard that the, that the International Telecommunication Union sets. It's gonna be transmitted over the Internet. That's gonna be sent by HTTP. That's a number standard. Millions of listeners. Millions of listeners. Right? It's gonna be done probably over the RSS protocol. That's another standard. So we just run into these all the time, and it's really what makes all the technologies that we love work because the technology we use today all involves communication and involve one computer talking with another. In order for devices to communicate, they have to speak the same language. That's where the standards come in. That's why they're so important to us. That makes perfect sense, actually. Great explanation.
So how do these standards tend to get set? How do the manufacturers
insh and how do manufacturers ensure that they're meeting these standards? Yeah. So for a long time, you know, this was kind of an indeterminate process. And, you know, companies would just kind of come up with a standard and other companies would, you know, maybe follow it, maybe not. And, you know, sometime in the early two thousands, this led to what was known as the great browser war where, you know, Internet Explorer used one form of HTML and Netscape used another one and Opera used another one. Netscape. That's the name I have for you to rely on. Right? Yes. It was I mean, it was a huge mess. And so what companies decided at a certain point was, look, we're not gonna make any technological progress if we just spend all of our time fighting over standards. So instead, they came up with a better solution, which is to form consortia. So the companies would get together, usually under the umbrella of some sort of tech technical organization. I, Triple E, is is a pretty popular one. The 3GPP group is actually a consortium of other standards consortia. So the companies would basically get together and they would say, alright, we're just gonna agree on how our devices should talk to each other to, you know, perform cell phone communications or to perform web communications or any other sort of thing. We'll just agree to to use that, and then each of us can go off and create our own implementations of that technology, our own web browsers or phones, and we can compete at that level instead of trying to fight over whose language is gonna win out, and, you know, just wasting a lot of time and and effort on that. So at this point, there are, you know, a couple of major standards bodies who, who run the show. 3GPP, I mentioned, does most of the cell phone protocols. ITU, the International Telecommunication Union, they handle most of the actual formats for, like, sound files or, video files. IEEE does Wi Fi. So you have, you know, you have a bunch of these different bodies. And their goal really is, you know, number one, standardization to make sure that all the companies are on board. But number two, to try to get as many people to adopt the standard as possible. Because if you end up with two competing standards, you just end up with a sort of different form of browser wars. So their goal, in the end, is to try to get everybody on the same page. They wanna get everybody using WiFi or Bluetooth or whatever protocol because, you know, they don't want they don't want the sort of confusion that happens when you allow lots and lots of different protocols to do the same sort of thing. And it is a joy when your, you know, my fancy new Bluetooth here headphones connect with any device I have and not just the one that, I purchased them with. So I mean, remember remember the world before we had USB where you had to install a different driver for every single thing and half the time you did a software update and everything broke? That's why we have standards. It's so that we have a single we have a single definition of, you know, how things should work. Sounds like it's really for consumers. You plug it in. It works. It's great.
I like that. Alright. So now we have to get two patents, that kind of thing that makes this all a little bit more complicated. So a lot of probably the technology used to meet these standards is patented. So what happens when you need to use a patented technology to meet the standards?
Yeah. So I think that's really where the rubber hits the road. I think the way to think about this is to start off with, you know, just what are the interests of some of these companies. Right? On the one hand, they want people to buy their products. On the other hand, you know, they're in a competitive business, and they want to, you know, have as much market share as possible. They wanna be able to try to kick out the competitors. If you're not gonna compete on the basis of differing protocols, differing standards, what are you gonna compete on? You can compete on features. That's what a lot of them do, but you can also try to leverage other strategies to demand money out of your competitors or to try to kick them out. One way you can do that is by taking advantage of a patent. If you have a patent on a standard, what you can do is you can just wait around, wait for everybody to adopt the standard, and then pop up and say, hey. I got a patent on this. Everybody has to start paying me money because, otherwise, I'm gonna sue you and I'm gonna force you to to shut your product down. Yeah. If you think if you think about that, that's a really, really valuable strategy because, you know, if you if I've got a patent on Wi Fi, for example, there was actually a company called Innovatio, a couple years back who went around with a patent on WiFi. It's not like I can just decide, oh, okay. They have a patent on WiFi. I'm gonna switch to this other thing. Because Right. If I do that, my, you know, my devices aren't gonna work. I can't just suddenly switch to a different protocol, without breaking compatibility with everything else. That means that if somebody holds a patent on some of the on some of the technology within the standard, that patent becomes incredibly valuable because you can basically force people to pay up for the patent, and they're locked in. They don't have any they don't have any way of of avoiding it. So as you can imagine, the companies who have the patents, they love this. Right? Because Because it it it's just a moneymaker for them. I mean, I've watched Shark Tank and they always ask if they have a patent on something. So, yeah, there's value there. There there's a lot of value. But then if you think about it, right, what's gonna what's that gonna mean for future implementers of the standard? Are they gonna gonna wanna implement a standard where they're worried that somebody's gonna pop up out of the woodwork and say, I've got a patent on on this technology, everybody has to pay me. The standards values, they're not gonna like that. The employers are not gonna like that. Right? So, you know, they presumably wanna do something about that to prevent, you know, some patent owner from showing up. The best way that they've come up with to do this, and they, you know, most of the standards organizations do this pretty consistently, is they require the companies who are part of their group to make an agreement. Basically, a sort of non aggression agreement that if you're gonna participate in the standards body and you're gonna contribute ideas and, you know, be part of the standard setting process, you've gotta agree
not to assert your patents in unfair ways. Is this where FRAND comes in? This is where FRAND comes in. Yes. In preparing for the show, I discovered FRAND, and I'm like, this is such a funny acronym. Tell me what FRAND is. So FRAND stands for fair,
reasonable, and non discriminatory licensing. So the idea is that, you know, the sales bodies, they don't wanna say to these companies, you've got patents, but they're totally worthless. You know, you can't make any money off them. They wanna say, okay. You know, you invented something useful. You should get something out of them. But we wanna make sure that you don't do it in a way that kills the standard. Mhmm. So what sort of requirements do we put? You can't charge too much, so you have to make it fair and reasonable, and you have to charge everybody fairly. Fairly. So you have to charge everybody kind of equally so that you're not, you know, choosing winners and losers. Mhmm. That's where the nondiscriminatory part comes in. So the idea behind the FRAN license is to make sure that, you know, number one, the patent owners get some compensation. They get some sort of adequate compensation. But on the other hand, they don't prevent people who want to implement the standard from coming into the market, coming up with their own technologies, and, you know, you know, entering the party. Because if companies aren't able to implement the standard and, compete with everybody else, the standard is not gonna get adopted in the way that these bodies want. And as a result, we're not gonna have all of these great technologies that we have. Do you think that it is just,
happenstance that frand sounds a lot like friend? It's a friendly written. Sorry. That's stupid.
So you went through the general test. I think there are a lot of law review articles entitled
something like Frandly licensing. Oh, you see. Because they just have to make I'm not even original. So it's a bad joke and it's not even original. Oh, my goodness. That's the worst. So obviously, this would be really really important for technologies that, you know, widely used, you know, or potentially widely used. So you mentioned Wi Fi. I'm sure that has a lot of, you know, patents in this case.
Five g seems to be a big one that's coming out the next wave for mobile. Is that right? Kind of a fair way to look at it? Yeah. Yeah. And, you know, I think one one really interesting to thing to think about. So each of these brand agreements, you know, it's a private agreement. And the organizations always have their sort of different ways of dealing with them. Mhmm. I, Tripoli, tends to be the most open, in terms of, you know, setting limitations on how the patent owners can use their patents, saying, you know, we wanna get as many implementers in the room as possible. Compare that with something like HDMI, where the standards body is closed, only members are allowed to implement the standard. And, you know, the FRAN policy, I think, allows for the patent owners to, you know, engage in much more complex licensing arrangement or something. Think of how many Wi Fi devices are out there, and think of how many HDMI devices are there are out there. Right? When you start opening up the licensing process of these patents, you really encourage a lot of innovation. And I think that that's why you know, that that's really a sign that these FRAN agreements are incredibly important to the sort of technology economy that we have right now. So you they're private agreements. Are there any kind of regulatory
authorities or international authorities that can take a look at these and say you're violating them even though they're private agreements? Yeah. Definitely.
So, you know, the Fran agreement, it's a private agreement, but it's a private agreement in the same way that, like, a privacy policy is a private agreement. Right? It doesn't really have, you know, like, the same, you know, like, a two party contract where there's somebody on the other side to enforce it. It's just sort of like a promise that somebody puts out there. And so what that means is that the agencies that enforce promises tend to be very involved. So namely, the Department of Justice and the Federal Trade Commission. The Federal Trade Commission has spent a lot of time working on, Fran Fran policies. You know, they've done a number of reports. They've done major studies on this, and they brought several, they brought several investigations and lawsuits against companies that they thought were violating the RAND agreement, saying, if you're if you're not gonna follow the promises that you made, the the agency is going to, you know, bring some sort of antitrust or unfair competition complaints. So so yeah, there definitely is a really important role for some of the competition agencies. Around the world, you know, a lot of people have been talking about all of these, these competition agency judgments or settlements against Qualcomm. Qualcomm, those have largely been about violations
of FRAND policies. Yeah. So let's touch on that case a little bit. If you if you know a bit about it, it's certainly the one that, you know, if you Google FRAND right now and it comes up. So Qualcomm, it's in the headlines. What what is this case? What are the concerns here specifically?
So so Qualcomm is a chipmaker and major patent holder, particularly on the technical standards for cell phone communications. So, so, you know, three g, LTE, and five g as those technologies develop. They also are a chip maker. They're the dominant maker of what are called baseband processors, the chips that actually talk between your cell phone and the cell towers. I mean, that seems important. So, you know, given the given their just position in the markets and the number of patents they they they have, they've really been a dominant force in, sort of, the development of of mobile communications technologies. And so Qualify has engaged for quite a long time in a number of, sort of, odd licensing practices that, you know, are clearly designed to, you know, just increase their profits. So for one thing, they require any, anyone who's licensing their patents to take a license to this very large bundle of patents, a lot of which are potentially irrelevant to, you know, to, like, the phone manufacturers. But they say, you know, we're if you if you wanna buy chips, you have to buy the whole bundle. They also will refuse to refuse to license their patents to chipmakers. Now you would think Oh, wait. What's going on? We said fair, reasonable, and nondiscriminatory. You would think that a company like Qualcomm wouldn't be able to discriminate in selling between chipmakers and phone manufacturers. But for a long time, they've argued that they can do this. The result of this, of course, is that when it comes to charging, you know, like a patent royalty on sales, instead of basing the royalty on, you know, like a $2 chip, they're basing the royalty on a thousand dollar iPhone. That means that they can, number one, discriminate prices among different handset manufacturers, but number two, just get a bigger chunk of the pie. They're getting a percentage not just of the chips, but also of the camera and the apps and the microphone and all of the other things that come on a phone that have nothing to do with the patents that they're licensing. So based on this, the FTC has brought a complaint and Apple has brought an antitrust lawsuit saying that, you know, this this all of these patterns and practices that Qualcomm has engaged in, in combination with just their very dominant position in the in the market, have really created an anti competitive an anti competitive situation that's, you know, has worked to the detriments of competition
and, you know, overall innovation in the in the cell phone market. And we all love our cell phones, so that is not a good thing. So based on that that case is just kind of one example. Do you think the way that patents right now are working kind of in this space and FRAND is mixed in is working? Is this the right path? Is it just, you know, we need enforcement when it does when it falls apart, but overall the right path forward? So I think it's it's interesting. They're
I think it's the best situation. It's the best arrangement out of a bunch of bad arrangements. Mhmm. You know, it's it's the old joke joke about democracy. Right? It's the it's the worst form of government except all of the others. As things go, there are other countries who have, you know, done, like, compulsory licensing systems where they just decide what the rates are. Mhmm. It seems like it's better for private entities to be arranging these sorts of, these sorts of deals among themselves. You know, they can come to what they can come to a deal that's potentially more nuanced or more reflective of their interests than, than the government would be able to. That being said, I think that there are two things that are kind of interesting. The first is that you have companies like Qualcomm who spend a lot of time just trying to play games with the with the whole process. About a year ago, IEEE tried to, engage in a process of strengthening their RAND agreement, making it harder for companies to, you know, know, bring lawsuits that would essentially force companies to pay up more money than they ought to under the RAND agreement, or to require companies to license the chip makers in addition to the handset manufacturers. Qualcomm spent a lot of time opposing this. And, you know, I they they they went to the government to try to try to lobby them into bringing antitrust suits against I triple E and, you know, all sorts of things. So, you know, one hopes that there are ways that these sort that this sort of gamesmanship can be can be prevented. There's also a question of just how far the the standard setting organizations can go themselves. One thing that's really interesting, of course, is that the standard setting associate, associations, they say you have to license the fan rate, but they never tell you what the fan rate is. Now why is that? Because you would think, you know, maybe all these companies, they could just negotiate. Yeah. The problem, as I've been told by a couple people, is that it might look like price fixing if they start doing that. If they start saying, this is the friend rates, now it starts sounding like they're setting prices for the market. As things go, you would think that there will be a lot of pro competitive benefits from them just saying, this is the Fran rate, just deal with it. You know? But they they've been worried about this problem for a long time. And one wonders whether or not there are ways of trying to alleviate that problem, to, you know, just make it easier for these sorts of licensing transactions to happen, make it easier for companies to get in on the markets, rather than having to wonder what's the right rate that we have to be paying for, for patent licenses.
Well, Charles, I learned a lot during this podcast. This was really helpful. I'm glad that CDT does not work in patents that much, but glad that there are smart people like you who are. Charles, thank you so much for joining Tech Talk. Thanks for having me. Tech policy can get a bit wonky, and all of us at CDT have moments where we slip into inaccessible tech speak and ridiculous acronyms. Despite that, folks here actually know how tech works and do a good job of explaining to policymakers and consumers when asked. In a new series, Texplanations, CDTers, as we call ourselves, actually write down some of their great normal speak. Our guest today is CDT policy counsel Stan Adams. He came up with the series and drafted a number of the post. Welcome, Stan. Thank you. Oh, I like the energy already. This is good. You're gonna match me on it. So why did you create the series and and who are they intended for?
So others might not have found this moment to be inspirational, but watching the, Facebook hearings in the senate exposed, a lack of understanding of some fundamental technologies that we all use. Oh, by who? I won't name names, but Name names, no doubt. There was an opportunity to provide some educational material for everyone. I will also say in terms of the intended audience, the initial proposed title was how to talk to your parents about technology, but that seemed both condescending and ageist. So we opened it up a bit. Most of us probably don't understand a lot of how the technology works. And for most of us that doesn't actually matter, right? It can be magic there. But for for the lawmakers and policy makers who act in this space it seems important for them to understand how these things work. Oh go ahead and just say it. It is important for them to understand how this works. So we hope that some of them read this series from time to time. Great.
So when you thought about doing it for your parents, did you break it out over Thanksgiving for your parents or no? I didn't actually go home for Thanksgiving. Oh. And any anytime I try to explain anything to my wife and child, they change the subject. I don't understand why they're not they're not as tech nerdy as you are.
They don't find it as interesting as I do, I suppose. I did get into a discussion with my wife last night about the similarities between the Internet and the electrical bridge. She works in renewable energies.
Well, that actually sounds kinda fascinating.
She was surprised to learn that the Internet globally is all physically connected. I mean, one would hope it is. Right? But undersea cables Yeah. Overland wires, it's all connected.
Not counting the So is the Internet a utility? No. I'm not going there. Don't worry. I'm not going there in this conversation. We use it every every day. Oh, there you go. There you go. So what are some of the topics that you've covered so far folks where to go and check out this series? Sure. We started by explaining what the Internet is and how it works, and then a little bit about the
World Wide Web. There is some confusion about the two and we tend to think of the internet as the world wide web or vice versa. But they are different things. We then talked about the concept of net neutrality and how we got to the messy fight that we're in now, and the prospect of regulation and or legislation moving forward. Another CD tier, Joe Jerome wrote a nice piece about VPNs and how they work with Virtual private networks. That's sorry. Thank you. That's okay. And with some hand drawn illustrations that are excellent.
You don't have that talent, Sam? I
don't have that time.
I don't have that talent nor the time, but, they are good. So why don't we try one of these out then? I mean, you highlighted a pretty good one. What is the difference between the World Wide Web and the Internet?
Sure. Sure. So the Internet is all the wires and cables and wireless antennas that physically connect your computer or your phone to every other place on Earth. They all share a common set of moving information between them so that it's possible to send information from one network here in DC across a bunch of wires to another network anywhere else on Earth.
Abu Dhabi, for example, where you once lived. For instance.
The World Wide Web is all the virtual spaces that people have have built at the edges of the network. And those are the websites and the streaming services and all the things that we actually do on the Internet. That that's the web. Cool. So it's Simple. Nonphysical space, but where where we tend to do most of our interactions. And, of course, the best website out there is cdt.org
where you can find these materials. So what are some of the future topics that you're thinking about exploring in this series?
So I know that our general counsel, Lisa Hayes, is working on one about, privacy and security
tech gear for the upcoming holiday season. Oh, fun. Did you have any tips to add to that one?
I recommended, that people use a privacy enhancing DNS provider. That's a domain name system. Explanations part one and two. The one I recommend is provided by CloudFlare. That's 1.1.1.one. Cool. There'll be more about that later. I am also trying to convince, our one of our technologists, Hannah, to write one about cookies and other online tracking mechanisms. Useful stuff. The next one I'm working on will be about mobile connectivity, as we have it now and then looking ahead to five gs as that rolls out. When are we getting five g? If you ask a local carrier, it will be next year. Sweet. If you ask me, it will be slowly emerging over the next five to ten
years. Okay. Well, I did ask you. So slowly emerging over the next five to ten years. Now what if people, you know, our wonderful listeners had an idea for a textplanation or something that they wanted explained by a CDT or who should they reach out to? You? They should reach out to me, stan@cdt.org. That is super easy. This is an awesome series. Everyone should check it out. As I plugged before, it is at c d t dot org. You can find it under one of our campaign tabs. Stan, thank you for coming on and doing some text splaining. Thanks, Brian. And that's it for this episode of Tech Talk. Thanks again to Charles for helping me understand technical standards and competition issues. That was no easy task. And be sure to visit cdt.org to read all of the textplanations that Stan talked about. I'm Brian Wasilowski. Thanks for listening.
