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Connectivity clashes put courts in licensing driver’s seat

Autonomous car stakeholders say they may look to reopen licensing negotiations after Nokia v Daimler and other connectivity cases that clarify licensing practices and costs, and that auto could be on the road to a patent war

One minute read: Automotive stakeholders are keeping their eyes fixed on Nokia v Daimler and other auto connectivity disputes. Depending on how they come out, parties might seek to reopen licensing negotiations and more litigation might ensue if technologies are deemed to be too expensive. It is hoped that Avanci will help calm any new tensions, but sources say participants have been pressured into joining and that they would prefer a model where module makers take licences.

The convergence of technologies in connected and autonomous cars has led to arguments between some car makers and their new telecoms suppliers over where standard essential patents (SEPs) should be licensed in the supply chain and how much they should cost.

While telecoms firms contend that their SEPs should be licensed at the original equipment manufacturer (OEM) level and for a price that reflects the value that connectivity brings to the end product, some auto firms say this is not fair, reasonable and non-discriminatory (FRAND).

A few of these quarrels came to a head this year when Broadcom sued Daimler in Germany’s Mannheim Regional Court, Daimler asked EU antitrust regulators to probe Nokia patents, and Nokia sued Daimler in Mannheim, Munich and Düsseldorf.

Also, despite several auto companies recently signing up to connected-car licensing platform Avanci, in-house counsel say they are now keeping their eyes fixed on these matters – particularly the Nokia v Daimler saga at the European Commission, German regional courts and Northern District of California – because of the enormous repercussions they could have on the industry.

Depending on how these matters go and what licensing practices are set out, autonomous car stakeholders are likely to pursue new negotiations with licensors.

“Once the principle of where licensing should take place is established in the coming months, industries will need to regroup and different types of licensing negotiations will need to go on,” says the legal director at a US-based technology company. “That process will bring further clarity on the valuation of particular patents and portfolios.”

On the manufacturer side, the head of IP at a European car maker agrees that it will be important for implementers start to conduct new negotiations with licensors, depending on whether the courts determine Nokia’s offering to be FRAND.

Johanna Wright, senior patent attorney at Volvo Cars, says her company is keeping an eye on Nokia but that she would prefer not to comment on the strategy that the business is likely to follow, depending on the case’s outcome.

On the supplier side, Todd Pleiness, IP specialist and patent attorney at Mahle in Michigan, adds that it will be some time before the industry has a full picture of the way licensing practices are going to unfold, even after the Nokia v Daimler series is settled.

“From the supplier standpoint, it is mainly a matter of waiting and seeing who settles that first case and how much money is involved in it,” he says.

But on a general level, he adds, Mahle has been doing more filing in some areas for design-around purposes and has been working on how it addresses its terms and conditions on issues such as purchasing.

Kent Baker, head of IP at semiconductor company u-Blox in San Diego, adds that it is very much a matter of wait and see, because there is no reason for telecoms or car manufacturers to change their cellular licensing practices until these cases have been decided.

He says that the business will continue with its approach to licensing. “One of the reasons I joined u-Blox was that the CEO, Thomas Seiler, has a strong belief in having a strong strategy to deal with the changes and find a reasonable position – not necessarily a polarised position – going forward.

“U-Blox’s IP strategy is one that is based on proactively seeking IP licences because our module, regardless of what end device it is put in, is providing wireless connectivity – and it is very important to have that supported as much as we can by the SEPs.”

Dalpreet Saluja, associate general counsel at automotive technology company Visteon in Michigan, says he is similarly watching developments in the case and evaluating the business’s options, but is not yet certain which strategy his company will ultimately follow.

“SEP holders should comply with their FRAND obligations,” he says. “Their licensing model must be FRAND and the reason they are getting sued now is the industry is seeing that they are not necessarily complying with that.

“Ultimately, the courts will decide whether they are complying with their obligations – but there is a good argument that they may not be.”

Suppliers that do not have a direct interest in the automotive-connectivity ecosystem are also watching these auto FRAND cases. Eric Rogers, IP counsel at auto supplier AGC Automotive Americas in Michigan, says the matters will not directly affect his business, but that the company is an interested onlooker.

“The way this case shapes out could change the way vehicle manufacturers treat IP. Even though we do not own SEPs, the downstream effects on us could be significant.”

Road to litigation?

Litigation never used to be much of an issue in automotive. Car makers were not in the habit of suing reliable suppliers, and it rarely made financial sense for suppliers to take their customers to court.

But that dynamic has changed because of connectivity standards – and depending on how pending cases go, some in-house sources suspect that more litigation might be just around the corner.

“Automotive has never been a litigious industry, but it could be that a patent war is coming,” says Johanna Wright, senior patent attorney at Volvo Cars in Gothenburg, Sweden. “It seems quite likely that litigation will increase as more companies seek to settle licensing terms in court cases.”

A spate of court cases might erupt, for example, if the courts determine that a particular royalty offer and the reasoning and calculations behind it are FRAND, and thus set a royalty licensing practice benchmark, but car makers and their suppliers deem that offer to be too expensive.

The car maker head of IP notes that economic considerations form a huge part of the connectivity licensing equation, and therefore litigation is only likely to erupt if the parts concerned are too expensive.

“If the cost is too high, implementers will try and avoid it. But if it is cheaper to take a licence – and the technology is not expensive enough to justify litigation from either side – that is what they will do.”

Litigation might also start if there is miscommunication between licensors and implementers on how much the former expects for its SEPs. Pleiness at Mahle says that if the courts rule that licensing should be done on a $90,000 car rather than a $10 communications module, companies will not settle.

“Even if a reasonable rate is determined to be just 4%, that share represents a massive amount of money,” he says.

But two sources from a licensor and implementer explain that they do not know of any telecoms companies that are trying to license SEPs as a percentage of a product. Rather their aim on some instances is to license at a rate based on the value that connectivity brings to a product.

For an autonomous car, connectivity is estimated to add $500 to $1,000 to its price, and most telecoms companies would expect to obtain a share of that value. In other instances, connectivity licensors would expect a flat rate for their tech. Avanci, which several licensors are signed up to, licenses the SEPs required for 4G connectivity in a car, for example, for $15 per vehicle.

Licensors say experience has taught them, in any case, that telecoms and automotive companies will probably find a peaceful solution to their arguments, whichever way the courts may rule in the coming months.

“Most auto industry companies are engaging in discussions with Nokia and among themselves, and as a result, a good amount of companies have agreed to licences,” says Teemu Soininen, director of patent licensing at Nokia in Finland.

“I don’t have a crystal ball but the two sides are already off to a good start,” he says. “This matter has been going on for some time and a significant portion of the market has come to an amicable licensing agreement.

“Litigation always makes the headlines, but the licensing deals that have been concluded are actually much more significant when it comes to predicting where the industry is going.”

Uwe Puetzschler, head of Car2X at Nokia, adds that rather than being focused purely on issues around patent licensing, one of the critical debates is within the automotive industry and others including road operators over different short and long range communication technologies, such as the ITS G5 and C-V2X standards.

The Avanci factor

Some autonomous car stakeholders also hope that the existence of Avanci, which was set up to implement transparency in the licensing process, will make litigation less likely.

Avanci CEO Kasim Alfalahi tells Patent Strategy that his organisation brings value to the industry by providing a simple solution to enable SEP licensing between implementers and multiple licensors in a one-stop-shop. The platform will be even more valuable in the future, he says, when 5G licensing for cars takes off because of the sheer number of organisations that are contributing to 5G standards.

Clearly, lots of car companies see the value in such a proposition. Audi and Porsche joined the platform in April and nine other firms had joined prior to that, including BMW, Rolls Royce and Seat.

But not everyone is happy with the arrangement. Continental filed an action against Avanci this year after it alleged that the licensing platform would not offer it a licence.

An industry source also argues that some Avanci participants have been put under legal pressure by patent owners to join.

Alfalahi argues, however, that car companies have in no way been pressured to join the platform. “Car companies were the ones that were asking us to start an organisation such as Avanci. They wanted a one-stop-shop where they could pay for a FRAND licence.

“I could not disagree more with that comment that they have been put under pressure.”

The industry source adds that while the licensing platform’s pricing proposal is good for some cars, it is also too expensive for others. 

“What some people do not realise about the Avanci proposal is that it is very specific,” he says. “For some cars, their proposal is very expensive and for others it is acceptable. But when you look at an entire fleet of cars, the Avanci model is potentially preferable to a situation where licenses are taken by module and unit manufacturers.

“The economic decision made by some is that it is ultimately cheaper that way, but not ideal.”

“We are not happy with it. I would have preferred a solution where the module manufacturers take the licences. Yes everyone wants a cheaper deal, but I would have accepted the monetary burden on our customers, which becomes higher if module makers take licences, to have that set up.”


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