On this episode of the Moor Insights & Strategy Insider Podcast, host Patrick Moorhead talks all things patents with Chief Economist and Vice President Kirti Gupta of Qualcomm and Former USPTO Director Andrei Iancu. Our conversation covered:

• Standard essential patents
• SEP portfolio and technology leadership
• Patent portfolios
• Patent evaluation

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TRANSCRIPT

Patrick Moorhead: Hi, this is Pat Moorhead with Moor Insights & Strategy and we are here for another Moor Insights & Strategy Podcast. We are talking SEPs. We’re talking geopolitics here, and I am super excited about this. We have talked about IP a ton on the show. We’ve written a lot, and I have two experts in the field. Welcome Kirti and Andrei. How are you?

Dr. Kirti Gupta: Doing well, thanks for having us, Pat.

Andrei Iancu: Great to be with you, Pat and Kirti, always a pleasure.

Patrick Moorhead: Yeah, maybe the best place to start, we talk a little bit about what the two of you do. Maybe Kirti, you could start.

Dr. Kirti Gupta: Sure. I’m the chief economist at Qualcomm and senior advisor at the CSIS think tank, actually along with Andrei, and a recovering engineer.

Patrick Moorhead: Andrei?

Andrei Iancu: Yeah. So I am a partner at Irell & Manella, which is a law firm. And I specialize on intellectual property issues, IP litigation, and all sorts of other IP strategy advice. I am also, as Kirti Mentioned, a senior advisor at the Bipartisan Center for International and Strategic Studies, CSIS, and I’m also the former director of the US Patent and Trademark Office.

Patrick Moorhead: Wow. So the two of a little bit about what we’re going to talk about. This is great. So I always have great experts here. And by the way, I need to find a way to get on a think tank. I’ve been on a bunch of boards. I’ve been in a great bunch of group, associations. I really need think tank on my resume so maybe we can talk about that for the show. But no, in all serious, let’s jump in.

Kirti, I think let me start off by giving the audience some context here. So you talked about being an engineer in your past life, noble cause, I wasn’t smart enough to do that, but the rest of my family was. And you also have actively participated in standards contribution process, global standards bodies, 3G, 4G and 5G. Can you talk, maybe for the lay people out there, the basics of what standards are and how they relate to standard essential patents or what we lovingly refer to as SEPs?

Dr. Kirti Gupta: Yeah, let’s start with some basics, Pat, and I would love to start a little with a story. What are standards? Because it’s not a very esoteric topic, once you look around in your world there are standards everywhere. It is essentially the world deciding to choose a common language for coming up with a technology solution. So let me give you a very interesting story about the great fire in Baltimore in the 1800s, when the city was under siege with a big fire and trucks came from New York, fire trucks, and they couldn’t put the fire down because the fire couplings weren’t compatible with the hoses. Very simple example of why the world needs standards for compatibility or interoperability.

Now there are these simple examples of interoperability, even pencils and their thickness have standards. Did you know that? So there are all kinds of standards, but then there are some special kinds of standards called technology standards, which you and I talk about when we think of 3G or 4G or 5G on our cell phones. This is not just about interoperability. I kind of think of these standards as a rare animal in a zoo, which is unfortunately maybe at the risk of becoming extinct but is valuable.

So at some point the world of industry decided that hey, we need common standards also to talk on the phones, and these were not just because we wanted to operate with each other, which was initially the case. Remember the time when you go from Europe to America and you couldn’t roam, 1G? But it was much more than that. It was the time when the world said, “Oh, we shouldn’t just do analog communications, we should actually do digital,” translate our signals into ones and zeros. So let’s come up with new requirements, unheard of requirements, which sound obvious now, but things like let’s have 10K kilobits per second and let’s send text messages to each other.

And then we expanded it to, “Let’s be able to send 100 megabits per second and let’s be able to have very low delay and let’s be able to send emails and streaming videos.” And now with 5G we ended up having new requirements which are even crazier, like, “Let’s harness new frequencies where waves travel very fast to be able to communicate and let’s do it at very, very low delay like under one millisecond flash of a camera and very high reliability and also super dense networks so that everything everywhere can be connected.”

This is not just about interoperability, this is about the industry saying, “Hey, let’s come together, let’s innovate in a collaborative way where hundreds of companies …” So when I used to go to standards as one engineer, in one of the many standards, in one of the many working groups of that one standard, then one or two engineers, delegates, technical experts, and our jobs would be to solve very specific technical problems in our areas collaboratively with other engineers.

This is how these massive standards get created. And it’s important to also understand just the scope a little bit. No, it’s not just like one book or one document. For 4G last release of the standard it was 1,400 different specifications, it could fill room. So these are complex technologies that are being defined by the industry coming together collaboratively. And this is why, let’s talk a little bit later in your show why this is under attack right now, and I call it a rare animal which is at the brink of extinction.

Patrick Moorhead: No, I appreciate that. And I do like you pointing out that it’s not just about compatibility, it’s even more than that, it’s capabilities and when people are on the same standard, there’s also a lot of leverage, especially when it’s global. But let’s talk SEPs right now. I’d like to turn this over to you, Andre. It seems like the companies with a large portfolio of the higher quality SEPs tend to lead the industry from an IP point of view. Can you connect the dots regarding the correlation between a strong standard essential patent portfolio and technology leadership?

Andrei Iancu: Sure. First of all, just to make it clear for everyone, a SEP is a standard essential patent. In other words, a patent that is essential to practice the standard at issue. You cannot practice the standard without practicing that particular patent as well. So that’s the very high level what a SEP is or an SEP. Look, the fundamental point about all innovation, including innovation related to standard technology, all innovation requires a strong intellectual property system.

In a free market economy like we have in the United States, companies need to be incentivized to make the appropriate level of investment to develop new technologies. Innovation by definition is risky. It’s something new that nobody has tried before, you don’t know if it’s going to work, and it’s failure prone, and a lot of innovation on top of that, once it’s created, it’s fairly easy to copy.

So if investors are going to make the investments to develop these new technologies, they need to be assured that if successful, they will have the ability to reap the profits of that investment and that the rule of law will be respected. Otherwise they’ll do something else with their money. For example, invest in real estate and buy more buildings and buy more land, which we already know those types of properties are clearly protected by a variety of laws, or a whole host of other tech investments that are less risky from this perspective.

So having patent protection and reliable patent protection is critically important. Innovation simply does not happen at scale without a strong patent system and a strong patent portfolio, period. It just doesn’t happen at scale. So that’s true of all innovation. Now this is doubly true of innovation that’s required for developing standards. Why? Well, it’s the way standards are created. The way those standards world works is multiple companies are working on different technologies to advance a particular standard and then they compete with each other. They propose it, they have a discussion and one particular standard technology wins, the other ones don’t.

So on top of … even if it works, right, even if multiple technologies work, but only one by definition has to be selected, and I’m simplifying, but nevertheless, one has to be selected because that’s how you get to a standard that everybody can participate in. So in addition to the general risk that any technology development might not succeed or can be copied here, you have an additional risk, which is even if it works it doesn’t get adopted into the standard. So this is yet an additional risk and there is other risks here as well.

So because of all that, in order to incentivize companies in a free market economy like the United States to invest and to develop technologies that have at least a chance of being adopted in to a standard, you need to have the protection of the rule of law. You need to have a reliable patent system that companies can count on if their technology succeeds and it’s adopted into a standard. So in my mind, that really is the necessary connection, it cannot happen without it in the United States.

Patrick Moorhead: Yeah, I think one thing people get confused with patents, any types of patents, that essentially, you’re bearing your soul and you’re putting proprietary confidential information into the public domain for other people to essentially know how you did things. And historically, even when you look back at the 1800s, patent enforcement and the way that people looked at patents have ebbed and flows. It seems to me, particularly recently, SEPs have come under attack from an antitrust point of view.

And I’ve seen certain companies, certain types of companies and even across different geographies, conflate holding patents with anti-competitive behavior. And sometimes if that gets its way into governments, they’re going to be anemic about enforcing it. So I’d like for both of you to weigh in on this. Kirti, why do you think this is happening, and who is gaining from these weaker protections of standard essential patents and then maybe after Kirti, Andre, you can weigh in on this?

Dr. Kirti Gupta: Yeah, let me share some interesting stats with you, Pat, that I think will shed some light. So mobile industry, where these standards that we are talking about come into play with standards, essential patents, antitrust showing an interest is the second most R&D intensive industry in the world right after biopharma, which means that a lot of money has been spent on R&D as a percentage of the revenues. In these kinds of industries typically there are a small number of firms that serve as the R&D arm of the industry because it is so incentive. And then others utilize that R&D to leverage doing R&D and other things like products or processes or deployment and so on. Not different here as well. And this is why, when I look at the data for who comes to these standards organizations and contributes their technology and competes, to Andre’s point, right, to be included-

Patrick Moorhead: Right.

Dr. Kirti Gupta: I would say that among 800 or so firms, there are 8 or 9 that are putting majority of the contributions, that are serving as the R&D arm of the industry. So there is many other industries in this space, a classic innovator implementer divide, and the innovators are few, implementers are many so the incentives … I’m an economist, show me the incentives, I will tell you the outcome.

Patrick Moorhead: Right.

Dr. Kirti Gupta: The incentives are structured in a way that people have to find a way to reduce the payment to the IP exposed once the technology is now available for use. Now the problem with that is that this is a multi-generational game. It is not like you have one generation of technology, you deploy it, you go home, everybody’s happy, you can reduce the cost, ad infinitum with antitrust or any other tool to your email. No, you have to also incentivize these companies to come back and invest in the next G, which is where this game would break down. And that’s why my plea to policymakers is always to stay above the fray of these commercial interests that play out this way.

Patrick Moorhead: So, Andre, who gains from weaker SEP protections?

Andrei Iancu: So as Kirti mentioned, we can think of the world of standards divided into two spheres. And again, this is a rough approximation, but one is the innovative sphere. The folks that do invest and create the technologies in the first place, the research and development sphere, okay? And the second sphere, we can think about the implementer sphere, the folks who actually use that technology, put it into products, deliver it to customers and the customers that actually end up using the technology. It’s an approximate division because there are quite a few companies that do both. But nevertheless, it’s a good simplified way to think about these things.

So if you weaken patents and the patent system, in the first instance the folks who benefit would be the implementer side because they would have to pay less or not pay at all for the technology that they get. But that is a static view. In the long run, nobody wins, right? Because you might in the immediate … if the technology is developed now, the developers, the innovators, thought that they have good patent protection so they’ve developed, they invested and they developed the technology and now you’re weakening it. Okay, in the first instance for this generation, the implementers stand to benefit to some extent because again, less expensive or no expense at all to use it.

But then that’s the end of the development because you are not going to have the incentive in industry to develop the next generation or the next new set of products and then nobody benefits. The consumers don’t benefit at all. But let me address if you don’t mind, let me address one of the other questions that you’ve mentioned about antitrust and anti-competitive thoughts, that some people believe that if you have strong patents or a strong patent system or a strong patent portfolio, you might regress into anti-competitive behaviors and the like. It is perhaps counterintuitive, but the fact of the matter is that patents and a strong patent system is pro-competitive.

It encourages more innovation, more technology brought to the market to compete with each other. And that is because of what you’ve mentioned earlier, a couple of reasons. So the first point is a patent is a quid pro quo. You get the patent protection but you’re disclosing to the market what you have come up with. Now that enables the next innovator to see what you’ve done, learn from it, and develop something else, and stay away from that particular solution. And if they want to be participating in the market, they have to come up with a new technology that competes with yours and then that has an exponential growth effect.

It’s not a coincidence that technological growth has been at an exponential rate since the American patent system was founded a couple of hundred years ago. The growth of technological development the world has seen in the past 200 years is way higher, out of proportion completely, with the rest of the growth humanity has experienced for millions of years. Okay? And it’s because of this exponential growth that’s enabled by the protections of the patent system and the disclosure requirements to be able to build on each other, compete with each other, and create more and more technology that’s brought to the market for the benefit of the consumer.

Patrick Moorhead: It seems like a really clear line to me, and I’m not even an IP expert, which is if you don’t properly … If the innovators are not compensated for what they do, they’re not going to put the research in, they’re not going to put the development in to do it, and that means innovation slows down. That means costs go up. And to your point about civilization and some of the incredible things we’ve done based on it, I love the drama, but it’s a reality, as a society we would slow down in terms of, I think, solving some of the biggest challenges that we have on the planet. I’d like to move on to national security.

You’ve both talked about technology leadership in the context of national security and that strong IP protection in all sectors and particularly in mobile technology, has clear cause and effect and ramifications to what the US is trying to accomplish on a global nature. Can you shed some light, talk a little bit about … through maybe a geopolitical lens, what the audience should be talking about for this century related to IP and national security? And maybe Kirti, we’ll start with you.

Dr. Kirti Gupta: Sure, Pat. The way I think of this world right now, especially in the context of mobile standards, but you can expand this to critical technology areas for tomorrow, AI, 5G, biotech, right? We are in a global race for technology leadership, no question about it. Especially in these kinds of technologies, like standards where the world has to rely on a common protocol, common principle, for it to be beneficial, we are finding ourselves in a race globally where who sets the standards and which countries lead as an important part of national strategies.

So now you marry that with this concern that you were raising in your previous question of how exactly are we incentivizing the US companies, for example, to participate in these standards. If they want to participate in these kinds of standards and contribute their technology, they need to have a return on investment, they need to have a monetization strategy, which essentially comes from licensing of their IP rights right now, intellectual property, right now. The moment we remove that incentive, we have now removed the incentive for the US companies to play in this race and compete with other players in the race coming from other countries.

Now take this to the ultimate conclusion, and it would mean that you and me and Andre and everybody else will be using phones and connecting our cars, our houses, our factories and everything using a technology that we don’t build here, that we don’t lead, that we don’t develop, but others have a much greater role in doing. So nation states can basically lead, driving, let’s say, the next generation 6G technology if we don’t create the market incentives for leading in 6G.

Patrick Moorhead: Yeah, Kirti, that’s a great perspective. I mean look at the Soviet Union and it ended up they wanted to do everything themselves, but in the end they had to buy Western technology to pretty much move their society along. And I think we’ve seen other countries that took a more global point of view on it and I think they’re a lot more better off on that. Andre, any thoughts on geopolitics and IP issues?

Andrei Iancu: Yeah, the reason this is a national security issue is because for the United States to compete internationally, not just for civilian type of technology, but military technology and the crossover technologies, you need a strong public private collaborative effort. To your point with the Soviet Union example, and there’s many other examples, but certainly true in the United States, the government alone cannot do it.

Patrick Moorhead: That’s right.

Andrei Iancu: It’s you shift all technological development to the government, it will not in any way, shape, or form be able to compete internationally and get us to have the technological lead we need in order to be able to ensure our national defense and our national security. So now if we want to involve the private sector, we have to, once again, provide the appropriate incentives and protections for the private sector to make the necessary investments to create these innovative technologies that ultimately can be used both for civilian life as well as military life and all other aspects of national security.

And there is, simply put, no other mechanism to engage the private sector, but for the patent system. Now things have been tried, like prizes and grants and everything else. None of those things have worked and there’s lots of academic data that show that those other incentives or attempted incentives to engage the private sector work. What the private sector needs is to be allowed to do its thing to make the investments it wants to do as long as it can rely on the rule of law and it can obtain appropriate compensation for those risks that they take.

Let me give you then an example of why this is critically important to national security. It’s not just the idea, okay, well we need to have better phones and we need to have American technology and better phones, which is very nice and it’s important. And by the way, also important to be able to do what we’re doing right now, right, to have these video conferences and to store data and transmit that is so much that civilian life needs, but it’s much more than that.

Some of the technologies of the future are so advanced and they are here with us now, at least at the inception phase, artificial intelligence, quantum computing, cryptography, and advanced telecom like 5G, 6G and beyond. And on top of all this, there’s convergence of these technologies where you can put them together. Now imagine a world where you have automated soldiers, okay, so robots, that are driven by artificial intelligence. In other words, they’re capable of learning on their own in the field, and autonomous movements, and they compute at quantum speeds, which are millions of times faster than the fastest supercomputer in use today, and communicate with each other at advanced 6G whatever million G beyond where we are today. Imagine the convergence of that technology.

All these things are basically on the cusp right now. The country that puts those together in a military component, and I’m just giving the military example now, but this can be applicable in civilian life, banking, all sorts of other things, but just put them together in a military aspect, the country that does that first will have an advantage that will be difficult to overcome probably for the next century, more likely for a couple of centuries beyond.

It is absolutely critical. It is difficult to overemphasize how important it is for the United States to compete in these areas and develop these technologies, put them together so that we can lead in these areas of technology, and we cannot do that, simply cannot be done without the private sector and therefore without a robust patent system.

Patrick Moorhead: Well said. I believe national security, if you look historically is driven by economic prosperity and innovation. Interestingly enough, it’s a virtuous cycle where innovation creates prosperity, and part of that risk-taking innovation is incented by protection of the people who pour billions of dollars, sometimes if you look across years, trillions of dollars into research, and I urge everybody out there not to conflate the R and the D. Research is very different from development. Development is typically productizing intellectual property and innovation that’s done in research.

The 21st, I call it the 21st and maybe a half century battlefield, is going to be automated. It is going to require a quantum level of capability and it’s connected, very different from where we are. Andre, I’d like to end this on, you’ve been cited as saying this is a Sputnik moment for the United States in the race for technology leadership. I think I know what you mean by that, but can you elaborate on it and how it directly relates to SEPs and IP protection?

Andrei Iancu: Yeah, and it relates a little bit back to my immediately previous answer about national security, but it goes beyond that. So just to remind folks, the Sputnik moment occurred at the end of the 1950s, early 1960s, where the United States was surprised that the Russians were the first to put a satellite in space and then the first to put a … and the satellite was called Sputnik. And then they were the first to put the human being in space with Yuri Gagarin. All along, before then, we thought we have the lead that we are going to get there first, that we’re so much more advanced technologically, and all of a sudden we saw the Russians and the Soviets get there before us.

Now that caused an awakening in the United States. And President Kennedy at the time in the early ’60s gave several famous speeches including one at Rice University where he committed the United States to put a human being on the moon by the end of the decade, by the end of the 1960s. And then he committed the nation to do whatever it needs to do to develop whatever technology needs to be developed to achieve that goal. So that Sputnik moment awakened the nation and created dramatic technological advances. We did succeed to put a man on the moon in 1969 and then we led for decades the technological race on all of these technologies and related technologies.

Well now we are facing a very similar situation. Now the primary competitor is China. And China is very focused, like the Soviets were back then, for winning a particular technological race. The Chinese focus is much broader than the Soviets had back then. And what’s nice to some extent is that the Chinese are willing to tell us what they’re focused on, right. They have their made in China, 2025, 2030 plans and so on, so we sort of know what they’re working on. And look, they are a centralized dictatorship basically, where the government can simply say, “This is what we’re going to invest in. This is what the companies are going to be focused on, and we’re going to as a nation develop those technologies.”

And because of that, and they’ve been focused on this for a good number of years and made the appropriate investments, they are challenging our leadership in these various technologies of the future. And I believe the United States needs to have another awakening here, and our leadership needs to rise up and commit the nation that we are going to compete, and that we are going to do what’s necessary to win these races, whether it is telecom with 5G and beyond, whether it is artificial intelligence, quantum computing, biotechnology, advanced materials, what all of these technologies we need to compete, we need to be awakened, and we need to do what’s necessary, including recognizing first and foremost that for any of this work here in the United States, we need a robust patent system.

Patrick Moorhead: Andre, sage words and advice for what we should be doing in the country and relating to innovation and technology leadership and how it relates to SEP policies and IP protection. Kirti, I’m going to give you the last word to maybe going to close this out here. Anything you’d like to add to wrap this up?

Dr. Kirti Gupta: You know, at the center where we sit, CSIS, the think tank, Dr. Henry, who’s the CEO, from a national security defense background, strong credentials in this think tank from there, always says that there is national security with a small N and small S about the armed forces of the rockets and the ammunition and so on. And then there is national security with capital N and capital S, which is about this longer term economic prosperity, innovation and development, which is why, frankly, the United States is a superpower nation over the last several decades because of this innovation engine we have created.

And I’d just like to finish off with, everything that Andre has said about embracing the Sputnik movement and creating the incentives to invest, how do we do this and why is it intellectual property that is the centerpiece of this? Because if we don’t have the intellectual property, like in market economies like ours that are non-centralized, that is literally the only market mechanism to create incentives for anybody to come and innovate, to let 1,000 flowers bloom, and then be able to translate those ideas into a monetization of their ideas. So that’s the only way, frankly, for us to compete in a real sense in this global setting.

Patrick Moorhead: Yeah, this is great. We’ve gone from Sputnik moment to flowers blooming. This is wonderful. So Kirti and Andre, I’d like to thank you for coming on the show, and this is a fascinating topic, would love to have you on again as things progress. Things don’t change quickly, but sometimes there are laws, there are certain things that do happen that would require us to get back here pretty quickly. So thanks again for being on, hope we can do it again.

Dr. Kirti Gupta: Thank you, Pat.

Andrei Iancu: Thank you, Pat, my pleasure.

Patrick Moorhead: This is Pat Moorhead with Moor Insights & Strategy, signing off with Kirti and Andre. If you like what you heard hit that subscribe button. If you’d like to provide some feedback, you know where to find me on social media. I spend way too much time there on LinkedIn and Twitter. Have a great morning, afternoon, and evening, wherever you are on the planet. Stay safe.