The first EVS technology standard patent report was released: the public rate is more than ten times higher than the 5G rate

Recently, foreign consulting firm STOUT released the "Enhanced Voice Services Patent Landscape" (hereinafter referred to as the "EVS Overview", click to get the original report). This is the first report on the overall situation of EVS technical standards, which allows practitioners to have an overall understanding of EVS for the first time.

Diagram: Usage scenarios of EVS technology

EVS is a high-definition HD voice service technology for mobile phones and is one of the standards set by the Third Generation Partnership Project ("3GPP"). Although it sounds close to the audio codec standard, EVS is essentially part of the wireless communication standard. The "EVS Overview" shows that there are a total of 350 families of standard essential patents (SEPs) declared under the EVS standard, and the current number of valid families is 339, accounting for about 0.6% of the total 3GPP 3G-5G SEPs. However, disproportionate to its SEP share, the published rate of EVS far exceeds the general level of wireless communication patents. Calculated based on the charges per patent family, it is more than ten times higher than the average 5G SEP rate announced by communication giants such as Huawei, Ericsson, and Nokia.

EVS rates: 10 times or even 100 times higher than the average rate for unlimited communications

Diagram: EVS public fee rate

Currently, there are three organizations that publicly announce EVS licensing rates: VoiceAge EVS, Crystal Clear Codec, and MPEG LA. Their respective public rates, number of patent families, and patent fees per family are shown in the figure above.

As mentioned above, EVS is a type of wireless communication technology. The commonly used rate calculation methods in the field of wireless communication are the top-down method and the comparable transaction method. The EVS Overview scientifically and systematically calculates the reasonable rate of EVS according to the top-down method for the first time.

The calculation logic of the top-down method is to first determine a total licensing cost, and then determine the licensing rate based on the share of the licensor's patents. According to the judgments of TCL v. Ericsson and Unwired Planet v. Huawei, the total licensing cost of wireless communications should account for 8.8% of the revenue of 2G/3G/4G multi-mode mobile phones, and the 4G cost should account for 6% to 10%. Under the premise that there is no 5G ruling rate for the time being, based on the cost share of 4G and combined with the share of EVS in 3GPP (0.61%), the licensing cost of EVS should account for 0.036% to 0.061% of mobile phone revenue. Based on IDC statistics, the average price of 5G mobile phones from 2019 to 2024 is US$410.54. Based on this calculation, the total licensing cost of EVS should be between US$0.15 and US$0.25, and the average value of each family of patents is US$0.0004 to US$0.0007.

This result is far from the rates published by VoiceAge EVS and others. Based on the patent fees of a single family, the latter is 11-15 times the former.

Diagram: 5G SEP rates of some patent holders

In order to verify whether the above calculation is reasonable, the "EVS Overview" also compares the EVS single-family patent fees with the 5G rates declared by some companies. The results show that the average rate of single-family 5G patent fees declared by the four patent holders, Ericsson, Nokia, InterDigital, and Huawei, is about US$0.0006-0.0008. Although this data range is not exactly the same as the value of single-family patents calculated by the top-down method, it is indeed maintained at the same level. The two phases confirm that the data is available.

On this basis, we may as well further analyze the rates of each EVS licensee in detail. VoiceAge EVS holds 14 families, with declared rates ranging from $0.22 to $0.40, with an average of $0.016 to $0.028 per family; Crystal Clear Codec holds 6 families, with declared rates ranging from $0.29 to $0.44, with an average of $0.048 to $0.073 per family, a premium of nearly 100 times.

It is beyond dispute that the right holder hopes to obtain a corresponding return on investment by collecting licensing royalties. However, it is questionable whether seeking a return that is more than ten times or even nearly a hundred times the industry average rate is still in line with the FRAND principle.

EVS patent monetization path: the "litigation-settlement" model pioneered by NPE

As part of wireless communication technology, the patent monetization model of independent licensing is extremely special. This special model can be said to be promoted by NPE (non-practicing entity), and the method adopted is the "litigation-settlement" model commonly used by NPE.

In December 2018, SoftBank subsidiary Fortress and VoiceAge (a Canadian company) announced a "strategic transaction", and VoiceAge EVS was born, with David Rosmann as CEO. Shortly thereafter, VoiceAge EVS began a large-scale EVS litigation campaign, with the defendants including HMD, TCL, Lenovo, Apple, Xiaomi, etc.

Before the birth of VoiceAge EVS, Saint Lawrence Communations (SLC), a subsidiary of the famous American NPE Acacia Research, cooperated with VoiceAge (a Canadian company). After EVS was standardized by 3GPP in 2014, SLC obtained authorization from VoiceAge (a Canadian company) and began to assert rights on a large scale for AMR-WB (the voice coding standard selected by 3GPP before EVS) and EVS patents (referred to as "SLC licensing action"). The targets of the lawsuit basically include all mobile phone companies in the world, including Apple, AT&T, HTC, LG Electronics, Lenovo (Motorola Mobility), Samsung, Sony, Verizon and ZTE. At that time, David Rosmann was the executive vice president of Acacia Research and one of the leaders of the SLC licensing action.

Crystal Clear Codec, another active licensor in the EVS field, is also a litigation-oriented NPE. Crystal Clear Codec was founded in May 2019 and its CEO is David Sewell. Crystal Clear Codec sued LG in April 2021. Some of its EVS patents come from Huawei, and some industry insiders have published articles in self-media that the reason why Huawei transferred some patents to Crystal Clear Codec was related to an infringement lawsuit Huawei encountered in 2018. In 2018, a company called EVS Codec Technologies sued Huawei, ZTE and LG. The company was also founded by David Sewell. Just two months after Crystal Clear Codec was founded, EVS Codec Technologies reached a settlement with Huawei, and Huawei subsequently transferred part of its EVS patents to Crystal Clear Codec.

It is worth mentioning that the SLC licensing action that David Rosmann had participated in was later mainly operated by two companies founded by David Sewell. One of these two companies is EVS Codec Technologies, which sued Huawei, and the other is Advanced Codec Technologies. In addition to Huawei, the companies sued by these two companies include Apple, Samsung, LG, OPPO, ZTE, Lenovo, Sony, etc.

It is not difficult to see that the "litigation-settlement" model is the consistent licensing strategy of VoiceAge EVS, Crystal Clear Codec and the operators behind them. Through litigation pressure, mobile phone manufacturers are forced to accept high licensing fees that far exceed the industry average. VoiceAge EVS obtains a high return on investment, while bringing greater uncertainty and higher licensing cost burdens to standard implementers.

The harm of the EVS model: increased patent fee stacking

The harm of the EVS model is not limited to the scope of EVS licensing, but also lies in its destructive impact of exacerbating patent fee stacking. The problem of patent fee stacking has always been one of the most important problems plaguing industrial development. In order to solve this problem, the rates of wireless communication SEPs are usually determined by a top-down method. The EVS model breaks through the top-down method's restrictions on total licensing costs by starting from scratch, and while obtaining excess licensing income, it also destroys the efforts of predecessors to solve the problem of patent fee stacking.

Patent fee stacking will inevitably increase the uncertainty of technology adoption and promotion, increase the burden on patent implementers, and ultimately affect consumers' use of technology. The promotion of HEVC video codec technology is a lesson learned. As we all know, HEVC technology was released as early as 2013, but the promotion was not smooth. Until now, the previous generation of technology, rather than the more advanced HEVC, still dominates the market. One of the reasons is that some HEVC patent right holders are dissatisfied with the FRAND rate of MPEG LA's HEVC licensing project, and set up a new patent pool HEVC Advance (now Access Advance) with the intention of charging higher rates to implementers. As a result, many video product and service providers have never adopted the HEVC standard for cost considerations, and there have been constant lawsuits in this field. At the beginning of this year, GE Video and Dolby in the patent pool were ruled by the Düsseldorf Court as not in compliance with the FRAND principle in the lawsuit with Vestel, and their application for an injunction was rejected.

If the EVS model is successful, will more rights holders start a new business to claim higher licensing fees? Will it stimulate more litigation funds to enter? Will it cause new uncertainties and affect the promotion of technology? Will it further increase the burden on implementers and affect the final consumers' access to and use of new technologies? These are all issues worth thinking about in the industry.

However, it is certain that if more and more wireless standard essential patent holders pursue super-FRAND rates, the patent fee stacking problem will worsen, causing serious cost burdens for mobile phone manufacturers, and these costs will be reflected in the selling price of mobile phones and eventually passed on to consumers. As wireless communication modules become more popular in automobiles and IoT products, the impact will no longer be limited to mobile phones. It may not be long before automobile manufacturers will face the same dilemma.