InterDigital's Bill Merritt on patent trolls, standards development and disputes with the big boys

The Engadget Interview InterDigital CEO Bill Merritt

You probably won't know the name, but you most certainly use its technology on a daily basis. InterDigital is a pioneering company that helped develop WCDMA, 3G and HSDPA during its 50-year history. It counts former Apple CEO Gil Amelio as one of its directors, but the only time you'll ever hear its name is when it's embroiled in litigation.

Either because it's suing, or being sued for licensing fees in the complex, murky world of wireless technologies, it's easy to get the idea that InterDigital is a patent troll. A name that, both Nokia and most recently, Huawei have barely stopped short of throwing at the company.

But what's it like being painted as the villain in the wireless business pantomime? Company president and CEO William "Bill" Merritt took the time to answer some of our questions, talk about what the company actually does, what's in the future and why they definitely aren't a patent troll.

Let's first talk about "patent trolls," can you explain to our readers the distinction between yourselves and "trolls," and how you feel about the term being applied to InterDigital?

I would say I'm uncomfortable with creating a class system around patent holders, and over the past few years we've seen companies that are clearly not trolls adopt more aggressive behavior around monetizing their portfolios. Traditionally, people see trolls as companies that don't do their own development, or don't have products.

"It's always very trying to be lumped into that category."

We're very different and, given that description, it's always very trying for us to be lumped into that category: we have hundreds of engineers, we participate in and often chair standards committees, and we partner with leading operators, infrastructure companies and solution providers to develop and test new solutions. At Mobile World Congress this year, we demonstrated technologies – all of them developed in-house – with partners like Alcatel-Lucent and Spectrum Bridge. Technologies that we expect to see in the marketplace in four to five years – that's how far ahead of the curve we often work.

Your position in the market is to wireless companies what ARM is to chip design, in so much that you license your wares to others. Do you ever feel that you're missing out by not producing your own hardware?

I don't think we do. First of all, we do build: every one of our development projects involves building out a complete system so we can test our technologies. We just don't focus on getting those products into a form factor that can be sold, because other companies are far better at that. More broadly, I think direct concern over immediate products in the market would possibly detract from our focus on absolute leading-edge technologies. Our eye, and our research budget, is always on what the wireless world will need and move towards in the future... not what it would be willing to buy at a specific price point today. So, in a sense, not having products is beneficial for us in our work on pioneering technologies, especially within standards. It might give us a perspective that other standards participants, all of whom are seeking market advantage, don't have.

To what extent are companies like InterDigital involved when a new standard is being developed? For example, if the ITU started discussing "5G" tomorrow (for example), would you be lobbying to handle the research or is it a race between the various parties to patent as much technology as possible?

I think it's not so much a race as it is a competition. There are a certain number of technical challenges that need to be solved, and engineers compete to develop the best, clearest, most elegant and most easily implemented solution. We compete alongside them – and again, not having products frees us to examine all aspects of a new standard's requirements. InterDigital's key is that we don't wait for standards bodies to launch a project to begin research: we look at the challenges of current technology – for example, in power consumption, or interference control, or policy control from the operator perspective – and determine what solutions would be needed to solve those problems.

Let's talk now about the creation of the patents. Is all of your research undertaken in-house or do you also purchase some in from universities or other companies?

So far, nearly all our development has been done in-house. We have more than 200 engineers, and R&D facilities in Philadelphia, New York, Montreal and San Diego. We're not against patent acquisitions. But, mainly they align with technologies in which we've built significant in-house portfolios, or where we intend to begin R&D efforts.

Are you continuing to add to your patent portfolio, and if so, what direction have those patents taken? What's the next big innovation in the space?

As we always have, we're continuing to develop new technologies and find new solutions to issues, standards-based or otherwise, and as a result we're continuing to add to our patent portfolio, at a rate of over 1,000 patents and applications per year. From a business perspective, it's essential. The market for patents has changed, and as a public company we're focused on growing our value. One of the ways we're seeking to do this is through patent portfolio sales, and selling patents implies relying on our ability to develop new ones. So we are, absolutely: it's how we expect to draw the maximum value from our strong engineering team.

"The market for patents has changed."

In terms of next big innovation, some of the key technologies we're working on right now involve bandwidth management – aggregating, segmenting and managing bandwidth, from both the device and the operator perspective. We're also doing tremendous work in spectrum aggregation, integrating TV white space and various other spectrum resources, licensed and unlicensed, into a comprehensive system. Both these technologies are rooted in our sense of a migration from fixed to dynamic networks. We're also doing work in standards-based machine-to-machine communications. We see that, and the impact standards have on driving down costs and expanding capability, as being a huge milestone in the development of wireless and the internet of things.

Who do you work with when developing your patents? Do you have much input from the Apple & RIMs of this world?

We partner with a number of companies during the research and testing phases, so we constantly get input. And we attend more than 100 engineering and academic conferences a year, submitting contributions, presenting – we recently presented our roadmap through 2020 at the LTE World Summit in Barcelona. Whether it's standards work or efforts that we hope will underpin the wireless technologies of the future, we're in constant discussion with the wireless engineering community.

As standards are becoming more universal, is there a greater need for licenses to be negotiated centrally rather than individually to prevent new entrants to the wireless market becoming bogged down in disputes?

One of the beautiful aspects of the wireless industry is the constant change and emergence of new products, companies, business models. Similarly, there are many, many ways to license a technology, depending on the market position of the licensee, their product, their revenue model, etc. I think companies need the freedom to talk to each other, and craft their own solutions.

"Sometimes, disputes cannot be avoided."

And bear in mind, the vast majority of our license agreements are reached quietly, with mutual agreement and minimal fanfare. I know disputes are messy, and that the engineering world looks down on them. But sometimes disputes cannot be avoided, and I personally think that companies need to maintain the independence to govern themselves the way they choose.

How do you calculate the worth of your patents? Is there a flat rate per handset or are there multipliers based upon the profitability and quantity of handsets in the market? Is there a different set of fees based on tablets and broadband dongles compares to phones?

As I mentioned before, there is a broad range of types of agreements, depending on product type, fixed payments vs. percentage royalties, and many other variables. Our basic practice is to achieve what we feel is a fair value for our contributions, but also to put the licensee in a position to be successful. No one would gain, including us, if the royalties on a product made the product unsuccessful.

Huawei made a complaint to the European Union, alleging that you were demanding too much money for a standards-essential patent -- echoing a claim that Nokia has made previously. Under FRAND terms, how much room is there for negotiation or do you offer a flat price for every company?

I obviously can't say a great deal about ongoing discussions with specific companies. I can only repeat what we said in our response to the announcement of Huawei's complaint: standards bodies specify commitments that participating companies should uphold, and InterDigital takes those commitments very seriously. Again, we've signed over 50 licensing agreements, the vast majority with no dispute and great mutual understanding.

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One website petitioned for company insiders to leak details about your business dealings. Given that you largely operate "behind the scenes," has the increased attention of the internet been a boon or a burden to your day to day lives?

I think that, in the way you're asking, it's been neither – it's just the ongoing reality that all public companies must operate under. But the internet has been a boon to InterDigital, definitely, because it's driving the demand for data, and the technological struggle to provide it! Technology is about limitations – data rate, power supply, spectrum, processing – and as long as the ecosystem makes it desirable to exceed those limitations, offering great applications and new capabilities, InterDigital will be in business.