Patents are the structural foundation of the digital economy.  They create incentives for entrepreneurs like me to bet the proverbial farm on a great idea with the confidence that we can bring it to market and compete with the biggest companies in the world. The problem is that some companies are abusing patents in ways that threaten the very innovations they are meant to serve.

Patent trolls are already a well-known phenomenon in the innovation space. The threat of unscrupulous lawyers armed with vague, confusing letters and overly broad patents are a clear and present danger for startups and innovation generally.  Another form of patent abuse that rarely gets the attention it deserves, however, is the bait-and-switch practices of some large companies involved in setting industry standards, the basic building blocks of modern technology.


The basic pattern of abuse starts when industry players gather together to discuss creating a next generation technology that provides some form of desirable interoperability between devices.  As part of the process, the companies involved will commit to license any patents related to a final standard under Fair, Reasonable, and Non Discriminatory (FRAND) terms.  English translation: they promise to charge a reasonable price and to not pick and choose to whom they license their patents in exchange for the huge volume of licensees that is expected with standard status.  It’s a choice these companies make willingly, but some companies have started reneging on those promises and are using their now “standards essential patents” (SEPs) to charge absurd licensing fees.

The problem is particularly acute in the telecom industry in which we operate.  The smartphones we all now carry would be nothing more than paper weights without the underlying standards that allow phone calls, text messages, web content, and mapping software to work seamlessly whether you are on an Apple, Samsung, or Nokia device anywhere in the world.  A recent analysis suggested that royalties for just the standards covering the chips that connects you to the cellular network and WiFi could cost around $100; that’s roughly 25 percent of the average $400 smartphone retail cost.

It might seem like this is merely a battle between Fortune 50 companies, but undermining the entire standards system and price gouging on SEPs will have dangerous consequences for entrepreneurs like me, consumers and the future of innovation.  Without an effective and predictable standards system, entrepreneurs will find it almost impossible to compete with established players in any standards-based industry.  For consumers, this means that cheaper and more specific mobile technologies (like wireless medical devices) may never come to market because the patent royalties are insurmountable.

Fortunately, there appears to be some progress in the effort to prevent SEP abuse and keep the royalty system in balance.  Courts are no longer using a 25 percent royalty as a starting point.  They also are starting to implement better methods to account for the value of an invention that may be a small component, rather than basing royalties on everything that surrounds the invention in a product or the mere fact it is part of the standard.   Competition agencies here and abroad have said standards patent holders can’t threaten us with an injunction and hold us hostage to sign up to excessive royalties or other unreasonable terms unless we’re refusing to negotiate with the patent holder.

Our company, TM Technologies, is developing breakthrough technology enabling multi-fold increases in efficiency and capacity of wireless communication networks.  We believe manufacturers and network operators will be eager to embrace our breakthroughs if they are not discriminated against in patent licensing negotiations or impeded by considerations beyond engineering performance.

By way of analogy, imagine the ingredients that go into an omelet. You might come up with a great new cheese that would make a really fabulous omelet, but you won’t sell very much of that great cheese and no new omelettes will result for consumers if the egg supplier decides to charge $10 per egg for anyone not using their incumbent preferred cheese supplier. In a “FRANDly” kitchen, the terms for buying eggs and other essential ingredients would remain fair, predictable, and non-discriminatory. The market would then be free to provide such a mouth-watering assortment of omelets that it would probably also spur job creation in the diet and fitness markets!

For our part, we would love to someday submit our technology for consideration by a standards body and would gladly accept a commitment to license any patents we have on reasonable terms. Hopefully, this issue will get the attention it deserves so that our innovation economy may continue to reap the many rewards of “FRANDly” collaboration.

Bain is president of TM Technologies, Inc ( and author of the forthcoming “Enemies of Innovation.”