Europe’s 17% share of 5G standard-essential patents exceeds its companies’ automotive market shares in cars (16%) and dwarfs the one in smartphones (< 5%)

The Patently100 report comes with a ranking based on declared patent families. Additionally, it provides each company’s share if the analysis is limited to SEP families with at least one U.S. member. Furthermore, there is a subjective element called VENUE score that relates to the essentiality ratio.

ip fray agrees that a pure patent count is not the definitive answer. Indisputably, there can be significant differences in value. Yet ip fray remains highly skeptical of essentiality assessments in all of the reports that have been published so far (or of the kind that the proposed EU SEP Regulation envisions). Not only do such asessments favor those who obtain broad patent claims that may, on the flipside, be indefensible in litigation, but some studies out there are fundamentally flawed by focusing on keywords. As a result, a patent on an augmented reality device (smart glasses) that references various wireless terms may be deemed essential to WiFi 6 or Bluetooth, but it comes with additional claim limitations that put it squarely outside the scope of essentiality. Other patents may indeed be essential, but use different terminology, such as because the inventions were made at an early stage of the development cycle of the relevant standard while late-comers (whose patents are also less likely to be valid) were able to use the ultimately chosen terminology. ip fray has already seen a superior AI-based technology for essentiality assessments and is helping that company with partnerships in the SEP space, but let us leave that for another day.

When it comes to the percentages of SEPs collectively obtained by companies from each of the three continents where there is major 5G innovation (North America, Asia and Europe), it is unlikely that essentiality checks would result in tectonic shifts. In the Western IP community, some of those working for Western SEP holders attempt to “prove” that Chinese companies’ SEPs are less valuable, effectively just engaging in circular logic without any evidence from the most meaningful test, which is litigation. What is interesting (and encouraging for Europe), however, is that in recent weeks U.S. trade judges have handed Ericsson (four out of four cellular SEPs; December 18, 2024 ip fray article) and Nokia (four out of five multimedia SEPs; December 21, 2024 ip fray article) favorable preliminary rulings with very high hit rates.

Furthermore, in ip fray‘s observation there are far more former European patents that have have been transferred to non-European than the other way round.

This screenshot shows a visualization of Patently’s landscape shares for SEP holders by the continent in which they are headquartered:

Europe’s third place is a far better outcome than it appears to be at first sight

Former EU commissioner Thierry Breton, whose ambition and major shortcomings contributed to rabid overregulation that is now harming the European economy, argued two years ago that the SEP Regulation was needed because Europe had fallen behind in the SEP race. A few years earlier, he actually sided with Nokia in connection with antitrust complaints over component-level SEP licensing because he mistakenly believed Europe was number one.

The rational approach is to accept the reality that Europe is generally by far the weakest of the three continents in today’s digital economy, with no hope of that changing at any point in time in the remotely foreseeable future. Meanwhile, Latin America and even Africa will probably be closing the gap between them and Europe in part. Envy of continents that offer more fertile ground for entrepreneurialism and hard work, and that prioritized the technology industry at a time when Europe was still way more interested in doling out agricultural subsidies and piling up butter mountains, is going to lead to self-inflicted harm rather than smart policy decisions.

Here are now some reasons why, if we simply accept Europe’s 17% as a ballpark figure, the EU should cherish that number and take good care of European standards-related innovation.

17% is more than 16% and hugely greater than 5%

According to a Brussels-based automotive industry group, global car production in 2023 amounted to 76 million units, 12.1 million of which were built by EU automakers (March 8, 2024 ACEA announcement). That gives Europe roughly a 16% share of the global automotive market, a percentage that is likely even lower.

Europe does not have a global top 10 phone manufacturer (November 20, 2024 Manufacturing Digital article). The only European smartphone maker that generates significant volume is HMD, and it operates at the low end of the market, meaning that its unit market share is greater than its value-based market share. Even if one believed that HMD had grown significantly since the 40 million devices it sold in a recent year, and added some tiny companies’ volume on top, Europe’s share of the global 1.1 billion smartphones sold every year is less than 5%.

The following chart visualizes the three shares:

Europe may even be #2

According to Patently, Europe is number three, but Europe may even be number two:

The gap between North America (20%) and Europe (17%) could be bridged if, for instance, Qualcomm is, at it seems, increasingly forced to assert patents and if that resulted, hypothetically speaking, in a relatively high percentage of court losses for Qualcomm over SEPs). So far, Qualcomm tellingly prefers to assert non-SEPs even if the actual licensing disputes, such as with China’s Transsion, involve SEPs. Against Apple, Qualcomm gave up 20 patents just so as to avoid a judicial determination as to whether they were valid and essential. That does not mean to say that Qualcomm’s portfolio is indeed week, but it is untested and Qualcomm has yet to exude confidence in its SEPs through actions, not words.

Europe must be realistic about its lack of competitiveness in most other segments of today’s digital economy

SEPs and the mobile network infrastructure products that European SEP holders make are, relatively speaking, the crown jewel of Europe’s digital economy and wildly successful compared to the rest.

Megalomania should not cloud Europe’s perspective. Europe has lost out in every other field that matters, such as operating systems, enterprise software (apart from SAP, which turns 53 this spring), cloud computing, smartphones, social networks, crypto and now AI. Network effects at the company level (for example, platform market power) as well as the cluster level (investor-entrepreneur networks) make it practically impossible for Europe to get anywhere near the top of the food chain, meaning that a large part of its best talent will work for foreign companies (either abroad or at their European R&D centers, which create IP that will never belong to Europe) and its most promising companies will be acquired by non-European players.

To put things into perspective: it would take only three Big Tech companies’ annual profits to acquire the entire German technology industry even if Siemens (which started, under a different name, almost 180 years ago) was included.

There are several U.S. companies now with an individual market capitalization on the order of twice the entire DAX 40 (German stock market index).

When it comes to young companies with market capitalizations in the billions (“unicorn”) or tens of billions (“decacorns”) of dollars, Europe is essentially at a level with Africa now. The following chart shows companies founded less than 50 years ago (thereby excluding SAP by a few years) with values exceeding $10B:

Europe is not closing that gap. It will continue to widen.

By the end of this year, even the poorest U.S. state, Mississippi, will be richer than any of the large EU member states, of which it has to (and will) surpass only Germany. The chart below shows the status quo, but Germany’s economy is shrinking while Mississippi’s is growing fast.

Even if one adjusted those figures for purchasing power, it would not really help. Mississippi is a state where the dollar has a lot more purchasing power than the U.S. average, as it is the poorest state, relatively speaking. And if the Mississippi economy needs to buy certain goods (from commodities to AI chips) on the global market, or license patents, the prices are usually set in U.S. dollars and, at any rate, there is worldwide demand.

The election of President Donald Trump, whose key adviser is the greatest entrepreneur in human history, has recently led to further divergence in growth expectations for the U.S. and the EU:

Economists warn that Europe may be “drawn into a vicious cycle” (June 11, 2024 Polytechnique Insights article).

“The GDP gap between Europe the United States is now 80%,” wrote French newspaper Le Monde in a September 4, 2023 article.

The EU is poor compared to Switzerland as the following German-language chart (translations below) shows:

Translations:

1. Per-capita GDP
2. Sovereign debt as percentage of GDP
3. Public spending ratio as percentage of GDP
4. Inflation
5. Innovation index (for which the chart generously even takes the average of the EU’s top 5 nations; the EU-wide average would be way lower)
6. S&P credit rating
7. Unemployment
8. Youth unemployment
9. CO2 emissions per capita
10. Universities among the global top 10

Obviously, there are also some structural and cultural issues in Europe that the EU is not responsible for. But the EU is an economic policy failure. Even its Single Market promise is not working out, given that tens of thousands of pages of common regulation do not solve the real issue, which is that a startup can grow much faster in the U.S. or China with their homogeneous markets than in a market that has dozens of languages and all sorts of other barriers.

The EU has been doing particularly bad work in economic policy these past couple of decades. The laughable Lisbon Agenda was to become the world’s most competitive knowledge-based economy by 2010. That goal was missed by far, and by now it is not an exaggeration to say that in another ten years the appropriate point of comparison for Europe, in economic terms, is going to be Latin America, not the United States.

It is also worth nothing that major productivity gains have recently occurred only in EU member states that are not members of the eurozone. The next major € crisis will come, with France being overindebted and Germany entering its third year of recession in a row, unprecedented in its (at least post-war) history. The € will be devalued further by the European Central Bank, at some point (though not yet in the next few years) predictably resulting in hyperinflation. Public finances will continue to deteriorate in the large eurozone member states (and various mid-sized and smaller ones) as there is no political will in those countries to change anything about it, and Europe is too weak in high-growth high-margin industries to solve the problem through growth. While the Draghi Report makes various valid points, such as on overregulation, its ultimate proposal of taking on more debt reflects a currency system broken beyond repair (the only one in the world, and even in history, where the debtors can simply outvote creditors and set the amounts and the terms of their loans).

Europe has only three silver linings in the digital economy, and they are interrelated

Compared to the disastrous state of the European economy in general and its digital economy in particular, there are three aspects of Europe’s innovation economy that are worth highlighting here:

1. European innovators have a relatively strong position in 5G (and also multimedia) SEPs.
2. Nokia and Ericsson have a relatively strong position in mobile network infrastructure (an R&D-intensive field in which patent licensing revenues are key to those players).
3. In terms of innovation, the Nordic countries are faring significantly better than the rest of the EU, though the U.S. has numerous metropolitan areas now besides Silicon Valley with which, even relative to population size, Northern Europe cannot compete. It makes no sense for politicians from digital economy failures like France and Germany to lecture the rest of the EU on how to run innovation policy when some Nordic countries are far more successful, relative to population size.

Europe as a whole is destined to be further colonialized by non-European technology companies and to become little more than a tourism destination and cheap extended workbench, with some agriculture (though not that much relative to population size as compared to the top exporters, which include large low-density countries like the U.S., Canada, Brazil, Argentina and Australia.

Europe may not even know how valuable its position in wireless innovation is until it is gone.