FOSS Patents

The Avanci 5G automotive standard-essential patent (SEP) pool revealed Mercedes-Benz as its first licensee last month. Today the licensing program announced that BMW has joined as well, which takes the number of licensed brands from one to four: Mercedes, BMW, MINI, and Rolls-Royce. Today's press release also indicates that the number of licensors has increased from 58 to 61.

By now, almost the entire automotive industry has an Avanci 4G license. But back in 2017, BMW became Avanci's first 4G licensee. It took a while for that pool to be widely adopted. Things appear to be going significantly faster with Avanci 5G now.

In retrospect, BMW's decision made business sense unless one believes in the illegal concept of group boycott: Mercedes (then named Daimler) and Volkswagen did not save money by opposing the Avanci model. They ended up choosing the pool license over bilateral licensing negotiations and disputes, but unlike BMW they incurred litigation expenses (in Volkswagen's case, the dispute was short-lived and due to the fact they licensed only 3G patents for most of the cars the group makes). BMW saved money, time, and energy. They stayed above the fray.

While I have not yet seen a German SEP infringement case targeting BMW, they are clearly not a soft target for non-SEP holders. Typically represented by Bardehle Pagenberg's Professor Tilman Mueller-Stoy ("Müller-Stoy in German), BMW is known to defend itself vigorously against patent infringement assertions, though most of the time the outcome is, obviously, a license agreement. If such a company takes a license without litigation, it must have concluded that the licensed patents are valuable.

Germany's remaining three automotive brands are Volkswagen, Audi, and Porsche, all of which belong to Volkswagen Group. Audi and Porsche clearly compete in some of the same market segments as BMW and Mercedes. It would make a lot of sense for VW to join the pool now. Sooner or later, some 5G SEP holders will start to enforce their rights against unwilling licensees. Just like German judges pressed Mercedes (then named Daimler) to explain why a license that had been taken by their closest (and equally German) competitors: BMW and Audi. I doubt that Audi would want to have to justify--particularly in front of the same judges who heard Nokia v. Daimler--a refusal to take a license that Mercedes and BMW deem to make economic sense.

Just like actions speak louder than words, real-world license deals are way more meaningful than spin doctoring and political propaganda. Mercedes-Benz told the EU that the proposed SEP regulation (or something even more lopsided) was badly needed, yet became the first Avanci 5G licensee because they deemed it prudent. Similarly, BMW Group is now an early adopter of the Avanci 5G license, yet it is a member of the Fair Standards Alliance and of certain automotive industry organizations that take similar positions.

There's nothing difficult to understand: every company would like to bring any cost category--here, cellular SEP license fees--down, even if such costs are already fair and reasonable. Automakers are no different. That is unrelated to the merits of Avanci providing a one-stop solution that Mercedes and BMW have twice (4G and now 5G) considered superior over dozens and dozens of bilateral deals. And opportunism by some car makers certainly doesn't make the EU proposal any less misguided. Case in point, a single Nokia v. OPPO decision in Sweden (which went in the defendant's favor) showcases at least four of the countless flaws of that bill.

Accurate and holistic analysis needs to look at what those companies say and what they do. License deals that are concluded in the absence of litigation--and presumably even without the slightest threat of litigation other than the fact that any infringement may sooner or later become the subject of enforcement action.

Europe's and particularly Germany's automotive industry is facing undeniably large problems. Cellular SEP licensing is none of them, though. Even if those costs were reduced through political intervention (which I don't see happening, though it is some people's agenda), that wouldn't help to address any of the fundamental challenges facing the European auto sector, particularly because there's no comparative advantage for companies selling cars in a given target market in which certain patents must be licensed.

Today's Avanci-BMW announcement is good news for those who argue that the market can and will find solutions, as are other recent license deals such as Huawei's recent agreement with Xiaomi.

Patent pools exist to simplify licensing--which must have been the reason why BMW entered into one agreement rather than 60+ bilateral deals--while some EU officials and politicians are trying to complicate the process and mistakenly view pools as part of the problem, not part of the solution.

Mercedes-Benz (formerly known as Daimler, though Mercedes has been its most famous brand for a long time) recently became known as the first licensee to participate in the Avanci 5G standard-essential patent (SEP) platform. The company previously engaged in bilateral licensing of 4G patents with Nokia and others, only to then opt for Avanci's 4G pool as a one-stop solution.

Last month, the European Commission published the car maker's feedback to the proposal for an EU SEP Regulation by the Commission's Directorate-General for the Internal Market (DG GROW). According to Mercedes, the proposed regulation "is urgently needed to eliminate the current lack of transparency and the associated imbalance in license negotiations on standard essential patents." The document advocates moving the needle even further to suit the interests of implementers.

I reached out to Mercedes to help me understand whether, after securing the vast majority of cellular communications licenses they need, there is any practical reason at this stage for them to call for legislative intervention. A spokeswoman replied later in the day. Let me show you the original statement in German, followed by my translation:

Mercedes-Benz steht für Innovation und wird mit der neuen E-Klasse die 5G Konnektivität als einer der ersten Automobilhersteller in den Markt einführen (Herbst 2023).

Wir bekennen uns klar zu den FRAND-Regeln und werden trotz eines derzeit erst entstehenden Lizenzmarktes nur lizenzierte Produkte in den Verkehr bringen.

Mercedes-Benz hat sich auch aus wirtschaftlichen Erwägungen entschieden, die angebotenen Rechte über den 5G-Avanci-Pool zu lizenzieren. Grund dafür waren mangelnde Transparenz z.B. in Bezug auf Preise und Schutzrechte sowie fehlende effiziente Alternativen.

Mercedes-Benz hält es weiterhin für erforderlich, dass der von der EU-Kommission vorgelegte Entwurf einer Verordnung über Standard-Essentielle Patente umgesetzt wird. Eine solche Verordnung kann einen klaren und vorhersehbaren Rechtsrahmen sowohl für SEP-Inhaber als auch für die Implementierer schaffen.

Translation:

Mercedes-Benz promotes innovation and, with its new E-Class generation in the fall of 2023, will be one of the first car makers to launch 5G-connected automobiles.

We are clearly committed to the FRAND regime and will only release licensed products into commerce, even though the licensing market is currently just developing.

Mercedes-Benz decided for economic reasons to license the relevant intellectual property rights via the Avanci 5G pool. The reason was a lack of transparency with respect to fees and intellectual property rights as well as the absence of efficient alternatives.

Mercedes-Benz continues to deem it imperative that the European Commission's proposal for a regulation on standard-essential patents be implemented. A regulation of that kind can establish a clear and predictable legal framework for SEP holders as well as implementers.

The part that has me particularly puzzled is the one about a lack of transparency concerning licensing costs and IPRs:

• The Avanci 5G fee is public: it's on the Avanci website.

• The licensors are all listed on the same website.

• Mercedes can find out via ETSI and other standards development organizations, or certain patent databases maintained by private enterprises, what patents those licensors have declared essential to 5G.

• The alternative to Avanci 5G would have been bilateral licensing, which they tried with 4G and apparently deemed inefficient in 2021. They could have reached out to patent holders and inquired about bilateral licensing terms.

Pragmatic or dogmatic?

Mercedes sees value in Avanci and doesn't want to risk a new round of infringement litigation (like they experienced with 4G), but the feedback they submitted to the European Commission and the statement they provided to me suggest that they believe they could get a better deal from their perspective if the EU proposal was passed into law.

This is like if one of their customers said "yes, I'll buy the new E-Class because I think it's a good deal, but I want an even better one, so I'll ask lawmakers to regulate the market so I'll get it at a lower price next time."

The praise they heap on the EU proposal is premised on two assumptions:

• that the costs of an EU SEP Register and the related essentiality checks and FRAND determinations (to be conducted by expensive experts) will not only be borne but also internalized by SEP holders; and

• that the EUIPO-appointed "conciliators" will set low aggregate and bilateral royalty rates.

What Mercedes is hoping for here may very well be consistent with DG GROW's intention. But it may just not be how the market is going to work.

Mercedes is far from the only car maker to have endorsed the EU proposal. I will comment on various other submissions (and resumed my commentary on the EU SEP Regulation with yesterday's post on Dr. Justus Baron's new paper). They are, however, the first Avanci 5G licensee, which they clearly say made economic sense for them. In other words, Avanci 5G is part of the solution. The problem is practically solved given Avanci 5G's sky-high share of the overall 5G SEP landscape. There's not a lot of 5G SEPs left outside that pool over which anyone would have to fear infringement actions. The ones who do seek to generate licensing revenue overwhelmingly participate in the program.

The Avanci 5G rate is presumably a lot less than what Mercedes will charge its customers for just one year of mobile data service (after the first couple of years, which are typically included). Mercedes also knows for how many years its cars are used: typically like 15 years or more. The license fee, however, is paid only once per car.

All of that leaves me to wonder whether Mercedes is just trying to get a better deal or whether there is a difference between the business perspective ("good deal") and a legal philosophy ("we want more of an opportunity to hold out").

I'm sure that I'm not the only one who raised that question. EU lawmakers (in the Parliament as well as the Council's experts, who are de facto--though unelected--legislators) can easily see that the automotive industry has a solution for cellular SEPs that makes economic sense. Against that background, there is no case for massive legislative intervention. As FT columnist Brooke Masters wrote last week, "heavy-handed intervention from Brussels could be counter-productive" and "[g]overnment price-setting rarely works as intended."

It would be interesting to see "government price-setting" in the automotive sector, including for automotive data plans. When it comes to the transparency of fees, many purchasers of cars don't even know what they will be charged for data services after the first few years until they get an email or letter telling them to pay up. There's also no transparency of how the annual fees for those services are split between the car maker and whatever carrier it partnered with.

It's been well over two years since I first heard from industry colleagues about an Avanci 5G pool being supposedly launched in a matter of months. Things can always take longer, especially when the adoption of a new technology by a particular industry is somewhat slow. But now--right in the middle of a month with hardly any patent-related news--the 5G standard-essential patent (SEP) licensing program for the automotive industry has just been launched.

Compared to how huge this story is--arguably the biggest development in patent licensing this year--Avanci's press release is relatively short and low-key (apart from the firm describing itself as "the independent global leader in joint licensing solutions"). Two numbers are interesting:

• 59 participants in the sum of licensors and licensees prove market acceptance for the new offering from Day One.

• The reference to "more than 130 million connected vehicles" licensed by Avanci's 4G program recalls the platform's prior success.

When Avanci started with its 2G, 3G and 4G programs, there was only a small circle of licensors; eventually, BMW signed up as the first licensee; and it took several more years to achieve a high level of market penetration. I was a skeptic and a critic at the early stages, but recognized that an automotive suefest was not the answer and that bilateral licensing--which does (as it must) remain an option--is economically inefficient given the relatively low unit volume of most car makers (even the big ones have an annual unit volume comparable to any major smartphone maker's monthly output).

If one looks beyond the press release, the licensing program's website reveals the terms and who's involved:

• The royalty rate is 29ドル per vehicle for those who sign up "before the later of February 16, 2024 or first sale of [a given car maker's] 5G connected vehicle." Thereafter, the price goes up to 32ドル. About a year ago, many car makers signed up ahead of a 15ドル-to-20ドル price increase for 4G. For those who are already selling 5G vehicles, there is now a six-month window to secure the early-bird rate.

• The first licensee is Mercedes (formerly known as Daimler, though arguably the Mercedes was always more famous than any of the organization's different corporate names). Its logo, the steering wheel-like star, is displayed on the website.

• Qualcomm, Ericsson, Nokia, and InterDigital--the four major net licensors of cellular SEPs--are all on board again, as are dozens of others. (Last time, Nokia wasn't even on the initial list, but joined later on.)

• The most famous new licensor (not only of Avanci 5G but also 4G) is Huawei. They have a huge and powerful portfolio of cellular SEPs (the 5G leader by some measure). Huawei very much emphasizes the pursuit of a balance between licensors' and licensee's interests and believes in application-specific licensing terms.

• Two other Asian companies that are major automotive industry suppliers and were previously known to participate in Avanci's 4G program are also among the 58 initial 5G licensors: Samsung and LG.

• What about absentees? Conversant participated in Avanci 4G and is not listed now, but its portfolio is pretty much expired anyway. Deutsche Telekom was an outlier anyway, given that it was the only member of the Fair Standards Alliance to participate. The only major 5G patent holder missing at this point despite having participated in the 4G pool is OPPO. But OPPO is embroiled in litigation with (at least) four other licensors: Nokia (that's the largest-scale SEP dispute at the moment), InterDigital, Philips, and now also Panasonic.

• Avanci's 4G program kept adding licensors through the years, and we may see the same trend here, though the initial coverage is already impressively comprehensive.

• From a half-dozen of patent holders who are listed among Avanci's 5G licensors but weren't (and apparently still aren't) involved with the 4G program, China Telecom stands out.

There'll be more to say about Avanci 5G in the months and years ahead. For now, suffice it to comment from a few interesting angles on today's story.

Rapid ramp-up: On the licensor side, the job is largely already done. For licensees, the decision shouldn't be hard. Those making 5G cars at this point will likely seize the opportunity. The reason I think so is that no one could stand up inside those organizations and put forward a superior plan. Infringement is illegal, bilateral licensing is (in this context) inefficient: too many portfolios to license. Not only would it take a lot of negotiations and potentially even lawsuits, but the aggregate licensing costs (not even considering transactional inefficiencies) would easily exceed the pool rate. In any FRAND dispute in a court of law, it would have to be considered that cars are in use for far longer periods than smartphones, and that car makers generate incremental revenues from data services over the years.

Licensing preferred over litigation: It's quite a coincidence that on the same day Mercedes is revealed as the first Avanci 5G licensee and Huawei as a new (4G and 5G) licensor. The former brought an EU antitrust complaint against Nokia in late 2018 (which went nowhere), and the latter was not just one more intervenor on the automaker's behalf in the Nokia v. Daimler infringement dispute but filed a third-party counterclaim seeking an exhaustive component-level SEP license from Nokia (as opposed to have-made rights, which Avanci has always offered, as have Nokia and others on a bilateral basis). That one was withdrawn last year, and a new cross-license agreement was concluded a little later. The two companies who disagreed with Nokia on automotive SEP licensing years ago are now on board--alongside Nokia--the next generation of the licensing program. It shows that reasonable people can work things out with each other.

Chinese dimension: The involvement of Huawei, China Telecom, and other Chinese entities as well as Sharp (Japanese, but owned by Foxconn) seems very significant in geopolitical terms. It would now make a lot of sense for Chinese car makers to take licenses.

EU patent policy: Among the quasi-legislative powers that the European Commission's Directorate-General for the Internal Market (DG GROW) is asking lawmakers to bestow upon the EC there is the decision on what standards and use cases should be subject to the proposed EU SEP Regulation. Arguably, automotive SEP licensing could be excluded as the market has solved the problem. Where's the value-add of the envisioned legislation? A rational analysis of what royalties wireless innovators are entitled to when their technologies are incorporated into vehicles could easily result in a substantially higher aggregate royalty rate. While DG GROW is creating unnecessary problems, licensors taking their FRAND commitment seriously and willing licensees are coming together.

Leaders: I rarely mention patent pool managers unless they speak at conferences. Here, I noticed that besides Avanci founder Kasim Alfalahi, whose vision has indisputably come to fruition, the press release also quotes senior VP Laurie Fitzgerald, a U.S. attorney based in Dublin whom different patent holders mentioned to me this year and last as their point of contact for the 5G program.

Today's announcement is a milestone. In order for autonomous driving (which will, of course, have limitations for many years to come) to materialize, connectivity is key, and the advantages of 5G are not just related to bandwidth, but 5G also reduces latency. Ideally, car makers and their suppliers will focus on innovative applications--and cross cellular SEP licensing off of their to-do lists, for the most part at least.

While the proposed EU regulation on standard-essential patents (SEPs) has rightly been called a "wholly bad idea", licensing works: there are far more bilateral license agreements (between one SEP holder and one implementer) and pool license agreements than lawsuits. Most agreements are not announced, but there are exceptions, and pools tend to be particularly transparent in that regard. Last month, Sisvel announced a 5G license agreement with Microsoft involving a relatively new multimode pool for consumer electronics devices. Today, another relatively patent pool announced a license agreement: Axxès, a French company that is a pioneer in toll collection technologies, has taken an Avanci Aftermarket license.

It's been five months (minus one day) since I reported on the launch of the Avanci Aftermarket pool. Unlike the original Avanci pool that licenses car makers, Avanci Aftermarket provides a one-stop shop solution to those making products that are subsequently installed into cars, such as trackers, toll collection, or monitoring systems. The pool started with two licensees (a company collecting road tolls and a leading provider of intelligent transport systems for the public transport sector).

Axxès facilitates toll payments for trucks, buses, and utility vehicles driving on the roads of various European countries (such as France, Germany, Italy, and Spain). So this is a European company doing business in Europe, and they did submit suggestions during the European Commission's consultations regarding a new framework for SEPs. Axxès may meet the EU's criteria for small and medium-sized enterprises (SMEs) and sees value in the Avanci model. The press release quotes Axxès' chairman and CEO, Frédéric Lepeintre, as saying "[they] are confident that being an Avanci licensee will help [them] to continue to deliver innovative solutions to the market."

So here we see an innovative medium-sized European company appreciating a market-driven solution, and apparently deeming the pool rates fair, reasonable, and non-discriminatory (FRAND). The fact that the specifics (particularly the licensee's name) are known makes this case study far more meaningful than the dubious anecdotal evidence from unnamed companies one can find in the impact assessment accompanying the proposed EU SEP Regulation.

The press release also quotes Avanci VP Marianne Frydenlund, formerly of Nordic Semiconductor. She knows and understands implementers' needs, including those of small and medium-sized ones in the IoT space, as anyone who met her at the time (she attended a licensing conference I organized in Brussels four years ago) can confirm. Avanci's management team consists not only of former executives of major net licensors, but some of its members--such as Mrs. Frydenlund--previously worked for major net licensees.

For Avanci, the license agreement with Axxès means further progress as the pool management firm expands into adjacent areas. It appears that patent holders who work with Avanci in one area tend to be more than receptive to the idea of working together in additional fields, even more so now that Avanci's automotive pool has licensed the vast majority of connected-vehicle sales in the world and provides a one-stop license to well over 50 portfolios, collectively representing most cellular SEPs in the world.

So far, Avanci's cellular pools cover 2G, 3G, and 4G. I don't know when a 5G announcement will be made, but a rapidly increasing number of cars are equipped with 5G technology and the licensing process needs to be streamlined. I guess an announcement will be made before the end of the year.

In March, Avanci announced its first non-automotive standard-essential patent (SEP) pool: Avanci Broadcast, a pool for the ATSC 3.0 (also known as NextGenTV) broadcasting standard that is particularly popular in the United States and in South Korea.

At the time of its launch, the pool contained more than 70% of the ATSC 3.0-essential SEP families, and the vast majority of TV sets supporting ATSC 3.0 were licensed from the beginning (though it's important to consider that TV sets are not only the device category to implement ATSC 3.0; there are also set-top boxes, for instance). Some of the licensor are also major implementers, but not all initial licensees were also licensors (Sony is only a licensee).

The ATSC 3.0 pool was the first Avanci pool to announce Samsung as a licensor. Shortly thereafter, Samsung also joined Avanci's automotive SEP pool.

Today Avanci announced the Avanci Broadcast pool's expansion to "over 80% of essential patent families for the ATSC 3.0 broadcasting standard" through the addition of four licensors:

• South Korean research institute ETRI,

• Dutch telecommunications carrier KPN,

• Japanese electronics giant NEC, and

• China's Shanghai National Engineering Research Center of Digital Television (NERC-DTV).

Existing licensees (LG, Samsung, Sharp, Sony) are now automatically licensed to the new licensors' ATSC 3.0 SEPs as well, at no additional cost. That is a feature of the Avanci pools, but also of many other patent pools. In my opinion, the European Commission's recently somewhat negative take on patent pools does not give sufficient consideration to that (and not only to that) fact.

A few months ago, IoT module maker Telit consummated the acquisition of the cellular IoT products unit of French industrial conglomerate Thales. As a result of the transaction, Telit inherited the antitrust dispute Thales had started in 2021, accusing the Avanci patent pool firm and one of its licensors--Nokia--of violating EU antitrust law by declining to grant exhaustive component-level licenses covering cellular standard-essential patents (SEPs).

From the beginning I had--and expressed--my doubts about the prospects of that complaint, just like I never believed in Continental's U.S. litigation against Avanci, Nokia, and others, a case that indeed went nowhere. At some point a Thales v. Avanci & Nokia trial was scheduled for September 2022, but it didn't take place. There were delays, and with what is known now it's fairly possible that Thales knew Telit--which was in the process of acquiring that business unit--wasn't really interested in pursuing that litigation.

I noticed the withdrawal of the three related U.S. discovery motions earlier this month. Thales was seeking discovery (for use in the Munich proceedings) of Avanci (Northern District of Texas), Ericsson (Eastern District of Texas), and InterDigital (District of Delaware). For instance, on May 4 Thales gave notice that the Delaware action was "dismissed without prejudice, with each party to bear own costs, attorney’s fees, and expenses." The other dismissals were also without prejudice, and there is generally no indication of an agreement having been worked out between the parties along the lines of a license agreement. If anything, there was probably just a procedural agreement to terminate the litigation.

Yesterday afternoon the Munich I Regional Court was able to confirm to me that Thales (Telit) withdrew its antitrust complaint on May 4, 2023. The case was pending before the court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner).

While Continental was primarily seeking injunctive relief (and is still suing Nokia in Delaware state court, though nothing important has happened there so far), Thales brought a complaint for damages, which was unusual. Whatever the strategy may have been, the net effect is that those automotive supplier lawsuits over component-level SEP licensing are just a waste of resources.

The automotive sector has stepped up its lobbying efforts, which is reflected by the European Commission's proposed SEP Regulation. That bill does not require SEPs to be licensed at a specific level of the supply chain, but the EUIPO may in the end encourage component-level licensing through its recommendations further to the regulation. It is too early to tell whether that will happen, as the legislative proposal is likely to undergo lots of changes in the further process. Given that car-level licensing demonstrably works (by now most car makers have an Avanci license), the case for governmental intervention, even if merely in the form of an official recommendation, is increasingly hard to make. The failure of those lawsuits brought by Conti and Thales also doesn't suggest that there's an actual problem to be solved.

Avanci just announced that "Samsung Electronics has become a licensor for several of its licensing programs, including Avanci Vehicle 4G, Avanci Aftermarket and Avanci Broadcast." IAM has already reported (paywalled).

The part about Avanci Broadcast already became known last month (Avanci announces patent pool for ATSC 3.0 (aka NextGenTV) broadcasting standard that is ubiquitous in U.S. and South Korea: initial licensors hold more than 70% of SEPs). What's new and incredibly significant is that Samsung has now also joined Avanci's automotive pools. Avanci's 4G pool has license agreements in place with virtually the entire automotive industry. In February, Avanci also announced a pool for aftermarket devices (trackers, toll collection, monitoring systems) that are not pre-installed in cars.

Samsung is the largest purely defensive holder of cellular standard-essential patents (SEPs). Despite holding one of the leading cellular SEP portfolios, it has never sued an implementer proactively, and has only countersued over SEPs for retaliatory purposes on two occasions (Apple, Huawei). This is also the first time for Samsung to join a cellular patent pool. The Korean electronics giant has been participating in video codec pools for a while (first MPEG LA, then Access Advance), but has not been among pool licensors who went out to sue unwilling licensees.

In February 2022, LG Electronics--another Korean electronics maker--already joined Avanci. The two factors that made LG such an important addition to Avanci's licensors apply to Samsung as well:

• portfolio size (Avanci already covered a solid majority of all 4G SEPs before Samsung joined, but is even stronger now and gives licensees more value without a rate increase)

  and

• automotive supplier status:

  Samsung's Harman subsidiary (operating as Harman Becker in Europe) makes network access devices (tier 2 of the supply chain) that are incorporated into telecommunications control units (TCUs; tier 1 of the supply chain), which are then incorporated into cars. With most of the world's automotive brands having taken the Avanci license, the vast majority of cellular SEPs being in the pool, and with two major tier 2 suppliers on board, it looks like resistance to Avanci's model comes down to only a few tier 1 suppliers such as Continental, whose litigation went nowhere but which continues to engage in Avanci-bashing at conferences.

Samsung's decision to join Avanci is meaningful in so many ways. Given that Samsung is one of the world's largest implementers of cellular SEPs, its conclusion that the pool rate is fair, reasonable, and non-discriminatory (FRAND) serves as further validation. If Samsung had joined on the basis of a deal that gives it cheaper access to other companies' patents for its own devices while nominally charging everyone a higher rate, that would be different--but Samsung makes phones and tablets, not cars.

It also means that Samsung expects to be compensated for the use of its IP. No more free lunch for car manufacturers and those who make connectivity-based aftermarket products.

This also has a policy dimension. The European Commission's draft SEP regulation and the draft version of the impact assessment that will accompany the legislative proposal reflect an about-face on the question of patent pools. Today's news, however, shows that pools can streamline the licensing process, while the Commission's ideas would have the opposite effect.

Everyone interested in the subject of cellular SEP licensing wants to know who the initial licensors of Avanci's upcoming 5G pool will be. Today's announcement does not mention 5G, but why would Samsung join only the 4G pool if the 5G pool could be announced anytime? We will see, but my guess is they will be involved in that one, too. This here looks like a strategic decision.

Samsung's main rivals are Apple and Xiaomi. Apple is lobbying aggressively for that EU regulation, hoping to slow-roll and complicate SEP enforcement. Most of the cellular SEPs that Apple owns are not "homegrown" patents, but were acquired from Nortel and Intel. Xiaomi has a growing SEP portfolio, and is also working on an electric vehicle. Neither Apple nor Xiaomi are Avanci licensors as we speak. But there was a time when Samsung also didn't seem to have the profile of an Avanci licensor, and now it has become one, which demonstrates Avanci's integrative force.

The European Commission's U-turn on standard-essential patent (SEP) pools is remarkable and apparently attributable to lobbying by certain parties, facilitated by DG GROW's mistake of relying on an adviser whose business benefits from complex licensing processes entailing many bilateral negotiations (and disputes).

1. From "promotion" (2014) to skepticism (2021)

2. Article 11 of the leaked draft regulation

3. Distortions and unsupported assertions in draft impact assessment

4. IPlytics' obvious conflict of interest

In 2014, a study on Patents and Standards ("prepared for the European Commission Directorate-General for Enterprise and Industry") stated the following about patent pools (click on the image to enlarge or read the text below the image):

Promotion of patent pools

Patent pools provide a one-stop solution for licensing a bundle of standard essential patents owned by different entities, thereby aiming to mitigate transaction costs, avoid royalty stacking and create a level playing field. Given these benefits the study has examined the following aspects:

• Strengthening the relation between SSOs and pools;

• Providing incentives to SEP holders to participate in patent pools;

• Encouraging entities such as universities and SMEs to participate in patent pools.

That was not the last time the Commission recognized the benefits of patent pools, which also happened in connection with the horizontal cooperation guidelines.

Two years ago, DG GROW started to question the benefits of pools, asking a lot of questions in the description of a webinar. But at least it listened to both sides, and invited people with different perspectives, among them the president of the only major European patent pool administrator--Sisvel--as well as a Europe-based executive of Avanci.

The leaked draft of an EU SEP regulation (see my previous post on that one for a link list) imposes new transparency requirements on patent pools:

Article 11

Information to be provided by patent pools

Patent pools or any entity representing a collaborative licensing group shall publish on their websites at least the following information:

(a) standards [...]; (b) the administrative entity’s shareholders or ownership structure; (c) process for evaluating SEPs; (d) list of evaluators having residence in the Union; (e) list of evaluated SEPs and list of SEPs being licensed; (f) [sample claim charts]; (g) list of products [...]; (h) royalties and discount policy [...]; (i) standard licence agreement [...]; (j) list of licensors [...]; (k) list of licensees [...].

That article is an example--one of many in that draft regulation--of what happens when there is no proper consultation process on specific regulatory ideas. Whoever drafted or contributed to that article must live in an ivory tower.

Item (b) is misplaced because the disclosure of shareholders and ownership structure is a subject of corporate--not patent--law, and determined by national laws.

It is unclear what a pool should say about the "process for evaluating SEPs": when would a pool run afoul of that part of the regulation?

Item (d) is a typical example of regulatory zealots (almost a euphemism) wanting the EU to cut its nose to spite its face: it actually creates an incentive for pools to work with evaluators based outside the EU, and for such evaluators to move out of the EU, especially since their work is not location-dependent and they can find lower taxes and better weather elsewhere. It's also not clear why the disclosure of shareholders would affect entities (be it the pool administrator firms or their shareholders) based outside the EU while the part concerning evaluators is limited to the EU. Apart from that, it is a bad idea because patent pools have good reasons to shield their evaluators from attempts to exert pressure or otherwise influence their views.

To the extent that item (e) wants pools to publish a list of their patents, there are pools that do so already, but as long as the names of the licensors are known, licensees can find out anyway. The bigger issue is that a publication of the "list of evaluated SEPs" will invite validity challenges (and possibly also actions for declaratory judgment of non-essentiality) targeting those patents in particular. Again, whoever came up with or supported that idea is clueless.

Item (f) about claim charts should be left to the way the courts apply Huawei v. ZTE.

Pools tend to be quite transparent about their standard royalties. The term "discount policy" in item (h) is again unclear. Does it include duplicative-royalty policies?

Some pools publish their standard license (item (i)), but why should everyone have to do that? When implementers inquire, they'll get an offer.

While disclosing licensors (item (j)) is non-controversial, item (k) even goes against the interests of licensees: in practice, it is typically the licensees who don't want to be named. Anyone who followed automotive SEP licensing in recent years knows that Avanci has for some time had more licensees than the brands listed on its website. A pool that is successful would like to name all licensees, but some licensees insist on confidentiality.

Article 11 is deeply flawed, but what the draft impact assessment says about patent pools is even worse.

In my previous posts and in the first part of this post I've mostly focused on what the draft regulation itself says. But the draft impact assessment, which leaked at the same time and will accompany the legislative proposal, makes laughably off-base claims regarding patent pools.

Before I point out some nonsensical details, let me start with a more fundamental question. Why take issue with the licensing terms (including, but not limited to, royalty rates) of patent pools in the first place? As long as bilateral licensing options exist, pools have to compete with those bilateral alternatives. None of the pools mentioned in the draft impact assessment bars patentees from entering into bilateral deals. Much to the contrary, I could immediately think of multiple examples for pools managed by those firms where such deals have indeed been struck (such as Huawei's agreements with Sharp and Conversant well after those companies had joined Avanci).

A pool's raison d'être is all about transactional efficiencies. If the pool rate or its other terms are too onerous, bilateral licensing will prevail, the pool will be marginalized unless it adapts, and the market--not the Commission--will have solved the problem.

The pools are not the problem, and it's not the pool administrators' fault that some German courts effectively require licensees to take an entire pool license without requiring the patent holder to make a bilateral portfolio offer (satisfying FRAND criteria) as another option. If an implementer is found to infringe a valid and essential patent, and there's a pool license on the table that costs very little and covers maybe a few dozen patent families, a court may reasonably interpret Huawei v. ZTE to the effect that a pool license is what a willing licensee would normally take--and can then determine whether the pool offer is FRAND. Admittedly, if a license fee is high and/or there are huge numbers of patent families in the pool, the market dynamics I described (pool competing with bilateral offers) are lost due to a "license or die" judgment.

If that is what the Commission is concerned about, its draft regulation is unable to solve the problem: there is nothing in there that would prevent the infringement courts from obligating an implementer to take a pool license while not requiring the patentee to make a bilateral offer. There would be a FRAND determination by the EU's trademark office, which the infringement courts can just ignore. There would also be an aggregate royalty determination for the entire standard, which the infringement courts can likewise ignore because they--not the Commission--decide whether to apply a top-down approach to valuation, and because they can disagree with the findings anyway.

The decision makers in the EU institutions must figure out one plain and simple truth: if an implementer takes a pool license, it's normally just because it's more efficient than taking numerous bilateral licenses.

The draft impact assessment is trying to understate Avanci's success. Avanci covers far more than the 60% of (up to) 4G cellular SEPs that the draft impact assessment states on page 9 (PDF page 13). The only explanation for the missing 40% is footnote 54:

"Companies missing from Avanci include among others Huawei, Samsung, Apple, Google, ETRI. Source of % IPlytics."

I'll talk about IPlytics further below. There's no substance there, the number doesn't make sense, and at any rate those five companies do not explain the missing 40% by far and away. In particular, Apple and Google--who acquired virtually of their SEPs--are not known to engage in outbound SEP licensing (they only cross-license), and that generally applies to Samsung with the sole exception of its participation in video codec patent pools. In other words, if a car maker takes an Avanci license, there is only a residual risk of litigation left.

On the same page, there is a Figure 4 that way understates the number of vehicles licensed by Avanci, and it does so by setting an arbitrary, capricious, and either incompetent or disingenuous cutoff date: August 4, 2022. Major car makers, especially from Asia, signed shortly after that date. The text above the charteven mentions Avanci's September 2022 announcement, so why didn't they update their chart accordingly? A picture is worth a thousand words, and that picture is grossly misleading.

The Commission doesn't appear to credit Avanci for the fact that it maintained a consistent pool rate over many years despite adding tremendous value--and it doesn't take that fact (the addition of licensors after the formation of a pool is announced) into consideration when discussing Sisvel. From an industrial policy perspective, it strikes me as odd that the Commission goes not only against Avanci but also against Sisvel, the only major European pool administrator. Other world economies appear to be more interested in the trade effects of intellectual property rights while the Commission would rather have EU companies send their royalty checks abroad.

The draft impact assessment lumps Sisvel--a major pool administrator--together with "specialized patent assertion entities" and incorrectly categorizes it as a former operating company:

"This includes state-owned entities (such as Japanese IPBridge or FranceBrevets), ‘privateering’ spinoffs from large operating companies (e.g. Unwired Planet from Ericsson, Panoptis from Panasonic etc), former operating companies who have ceased other activities to concentrate on patent licensing (e.g. Sisvel), and private companies acquiring patents from a variety of predecessors (e.g. IPcom, Uniloc, etc.). PAEs contribute to further fragmentation of the SEP owners market." (emphasis added)

Give me a break. Sisvel has been a patent licensing firm from the get-go. It never had an operating business.

It's also unclear to me on what factual basis (I believe there is none) the Commission distinguishes between Unwired Planet and IPCom. Why is one a "spinoff" from Ericsson and the other "acquir[ed]" patents from Bosch? But that's just another implausibility that shows some people at DG GROW don't know what they're talking about (and want the Commission as a whole to damage its reputation by proposing to put out such crap).

On page 25 (page 29 of the PDF), the Commission again does Sisvel injustice. It claims--without any factual basis whatsoever--that in the IoT SEP licensing space, "[t]he FRAND royalty expectations are likely to be higher than the market would suggest" and then points to footnote 139:

"For example, Sisvel launched a new IoT pool with 20 licensors who claim to represent about 30% of all SEPs. The price for a smart meter is announced at USD 2, so the total aggregate royalty would be around USD 7 (EUR 6.7 on 15 February 2023). The value of a consumer smart meter is reported to be around EUR 65."

No source is given. They're not even just saying "IPlytics" (which wouldn't be a sufficient answer anyway). There's no evidence of Sisvel "claim[ing]" that the respective pool represents 30% of all SEPs, while it is clear that Sisvel will try to attract more and more licensors to the pool (as I mentioned before in connection with Avanci), so there will be greater value to licensees for the same price.

How can the Commission claim to know what is FRAND?

I would argue that the extremely poor quality of DG GROW's draft regulation and of the impact assessment reflect anything but a good understanding of FRAND.

The alleged value of a consumer smart meter ("around EUR 65") is a sandbagged figure. It's more like twice that amount. But even if we assumed that EUR 65 was correct, and if we furthermore believed the Commission's unsubstantiated royalty-stacking analysis, I can't even see why an aggregate royalty rate of roughly 10% would necessarily be supra-FRAND given that smart meters are very simple devices:

• They measure something, and

• they send the data somewhere.

Cellular technology is a large part of what those devices are about. It's obvious that a cellular SEP royalty rate is, percentage-wise, lower on a connected vehicle than a baseband chipset, as the latter does nothing but implement cellular standards.

In any event, that Sisvel pool--like all of its other pools--competes with the alternative of implementers taking a multiplicity of bilateral licenses.

What is the Commission's agenda? To harm specific (even EU-based) companies? To encourage hold-out? The latter would be an interesting strategy as it would result in more litigation, which the Commission would then point to in order to argue that its proposal must be adopted as quickly as possible...

There is more than one factor that has led to the current mess. The solution is for the Commission to refrain from putting out a premature and ill-conceived proposal in favor of serious discussions of specific proposals with competent people.

In a recent post I quoted the draft impact assessment's footnote 283, which casts serious doubt on the quality of a DG GROW-commissioned study co-authored by IPlytics founder Tim Pohlmann.

It's possible that the Commission has listened to him too much, especially in connection with patent pools. He has a conflict of interest with respect to Avanci and other pools (regardless of whether pool firms are his customers, as some--though not all--are) for a simple reason: because successful pools greatly simplify patent licensing, they reduce the need for IPlytics' services. IPlytics thrives when there's complexity, confusion, and especially a huge number of negotiations and a lot of litigation. That is when parties on both sides of the negotiating table will look for material to underpin their positions.

Earlier this month, Mustafa Cakir ("Çakır" in Turkish) published a YouTube interview with Tim Pohlmann. Around minute 34, the discussion of automotive SEP licensing starts, and Mr. Pohlmann tries hard to downplay Avanci's success and the benefits it delivers. He even expresses, between the lines, unsubstantiated doubts about its royalty rate (a rate accepted by the vast majority of licensees) and about Avanci's ability to put together a 5G pool.

Where he discusses the situation faced by automakers, he focuses a lot on the modus operandi of those companies' patent departments prior to the widespread adoption of vehicle connectivity. Can car makers expect SEP licensors to change their business model only because they otherwise have to learn about cellular SEPs? Automakers incorporated those technologies into their cars, and they've also been able to have existing employees learn about cellular SEPs. In some cases, they've poached IP professionals from companies like Siemens.

IPlytics has only one problem with Avanci: that Avanci streamlines the cellular SEP licensing process for the automotive industry. As I mentioned further above, those who don't join Avanci are largely the ones who don't engage in outbound licensing anyway. Mr. Pohlmann's business would obviously benefit from an environment in which 50+ licensors have to approach approximately 100 car makers to work out bilateral licenses. Every infringement notice and every start of a negotiation process is potentially money in IPlytics' pockets--and every time a car maker takes an Avanci license, that opportunity is diminished.

Avanci is just an example. IPlytics has the same problem with any pool that is--or likely will--be successful. Then there were monks who copied books in a type of room called scriptorium and didn't welcome the arrival of the printing press. It's just that the decision makers didn't really listen to them, and DG GROW didn't exist at that time.

From the position of strength of its standard-essential patent (SEP) pool for connected vehicles--though Charles River Associates may not acknowledge the full extent of it--the Avanci brand is expanding into new segments of the patent licensing business. The Avanci Aftermarket pool launched last month and covers connected devices that are not pre-installed in cars. That is obviously an adjacent business area. The new patent pool announced today is named Avanci Broadcast and defined as "a patent licensing platform for the ATSC 3.0 broadcasting standard".

Standard: The Advanced Television Systems Committee (ATSC) standards were developed in the U.S., but have also been adopted in its neighbor countries (Mexico, Canada), and in South Korea. In other parts of the world, such competing standards as DVB and ISDB are more popular, though ATSC 3.0 may be adopted in several additional countries. In 2009, the U.S. made a complete switchover from analog (NTSC) to digital (ATSC) broadcasting of terrestrial TV programming. The latest version, ATSC 3.0, is also referred to as NextGen TV, but not mandatory, though it is technologically superior.

Avanci's press release describes the benefits of ATSC 3.0 over its predecessor version as follows:

"... ATSC 3.0 enables 4K / UHD broadcast with higher frame rates, better color and sound, and other technical improvements over the previous standard. It also works hand-in-hand with content delivered over the internet for services such as customized advertising, on-demand and premium content, and interactivity."

Licensors: The initial group of Avanci Broadcast licensors includes

• South Korean consumer electronics powerhouses Samsung and LG Electronics;

• Japanese consumer electronics icons Sharp and Panasonic;

• ONE Media, a subsidiary of Sinclair Broadcast Group, which according to a recent press release "owns, operates and/or provides services to 185 television stations in 86 markets, owns multiple national networks including Tennis Channel and Stadium; has TV stations affiliated with all the major broadcast networks and owns and/or operates 21 regional sports network brands"; and

• South Korean research firm ETRI and U.S. licensing firm Sun Patent Trust.

Avanci estimates that those patent holders "represent more than 70% of all patent families containing ATSC 3.0 declared essential patents," with "the addition of several more licensors in the coming months" apparently being in sight.

It is unusual for a licensor to issue its own press release on the creation of a patent pool, but that is what ONE Media did today. ONE Media's press release touts the technical benefits of ATSC 3.0 in detail and quotes its Executive Vice President Jerald Fritz:

"The ability to offer this remarkable technology to consumer equipment manufacturers in a simple, all-encompassing license, should ease the process of deploying new receiver products to consumers worldwide. We congratulate Avanci for helping shepherd several leading international organizations toward this common goal."

Licensees: Not only does the pool start with broad coverage of the relevant patent landscape but also with an impressive group of initial licensees. Three of those licenses--Samsung, LG, and Sharp--are also licensors, while Sony is mentioned only in its role as a licensee. According to the press release, those companies are "collectively responsible for the vast majority of ATSC 3.0 televisions sold to date." To be clear, the vast majority of TV sets doesn't mean that most of the licensing work is already done. It could be that some lower-cost TV makers will be harder to convince, and TV sets are not the only type of device to implement the ATSC 3.0 standard. Think of set-top boxes, for instance.

Pricing: The base per-unit royalty rates per TV or set-top box are stated on the Avanci Broadcast webpage. The price matrix there incentivizes signing up early, with the lowest rates applying to license agreements signed by May 31, 2023 (2ドル.10 per unit for 2022-2025, 2ドル.40 for 2026-2028). Those who sign up after May 31, 2023, but still within six months of shipping their first ATSC 3.0 product, get a rate of 2ドル.75 through 2028, which is less than the 3ドル.00 per unit (through 2028) that all those who sign up after May 31, 2023 and more than 6 months after shipping their first ATSC 3.0 product.

Management: Besides Avanci founder, the press release also quotes the executive in charge of Avanci Broadcast, who is none other than Ilkka Rahnasto of Nokia fame.

Two pools: MPEG LA, which has been a top-notch patent pool administrator for a long time, was first to launch an ATSC 3.0 patent pool. There's limited overlap with respect to licensors (ONE Media, Panasonic, Sun Patent Trust). Pool administrators operating in good faith can always find solutions to avoid duplicative royalties (be they due to previously existing pools or to bilateral licenses). Whether that is much of a practical issue here is unclear: MPEG LA's list of ATSC 3.0 patent licensees is "To Be Supplied" according to the firm's website.

In general, a single pool for a given standard is in the best position to reach a high market penetration (such as Avanci's connected vehicle pool). Fragmentation can lead to frictional losses and reduced transactional efficiencies. But this is a case-by-case question. When a new pool launches with the momentum that Avanci Broadcast apparently has, then there must have been an opportunity that some market actors thought was best addressed by means of a new pool that has the potential to bring everyone together.

Today the Auto IP & Legal World Summit started in Munich. In a preview, I wrote that Continental and the Fair Standards Alliance (FSA) were going to "argue with success (Avanci, Huawei)" at that event: both Avanci's and Huawei's licensing programs have the majority of connected vehicles in the world under license now.

One other thing that Huawei and Avanci have in common is that their policy positions are actually in the middle between pure licensors and mere implementers. The head of Huawei's European IP department, Xiaowu (Emil) Zhang, pointed out that his company still finds itself on the receiving end of standard-essential patent (SEP) assertions more often than on the enforcing side. Mr. Zhang took rather centrist positions. Avanci's Senior Vice President Laurie Fitzgerald expressed the pool management firm's satisfaction with having created a licensing solution that has brought two industries (telecommunications innovators and car makers) together. It is an unprecedented success story. Car makers could have negotiated bilateral licenses with all those patent holders. They didn't. Daimler struck a few bilateral deals when it settled litigation with Nokia and others--but ultimately opted for the pool license.

Regardless, the FSA's Secretary General Evelina Kurgonaite--pointing to the many automotive industry players among her organization's membership--and Continental's Michael Schloegl ("Schlögl" in German) criticized Avanci and Huawei. They did not propose a better alternative, though. In the end, it all comes down to license fees. If Avanci charged 1ドル.50 instead of 15ドル (now 20,ドル but most car makers still benefit from the old 15ドル deal), there wouldn't be any debate over the licensing level or access to injunctions.

Conti's Mr. Schloegl argued that other car parts than the telematics control unit (TCU) are also essential, and the price of a car would increase massively if those patent holders collected royalties relative to the value of those parts to the consumer. Huawei's Mr. Zhang, however, noted that a few years after the purchase, car makers want customers to pay for a renewal of their subscription to connectivity services and that such revenues are also enabled by cellular SEPs. All of us know those letters and emails from automakers.

I can't imagine that any other automotive patent holder (than those owning cellular SEPs) leaves money on the table. Why would someone owning patents on traditional car parts not seek fair compensation and, if necessary, injunctions? Case in point, the defendant in the seminal German case for the (dis)proportionality of patent injunctions, the Heat Exchanger decision by the Federal Court of Justice, was Daimler (now called Mercedes-Benz).

It was a lively debate. The weakest link of the chain, however, was the moderator: Benno Buehler ("Bühler" in German) of Charles River Associates. I saw people in the audience shaking their heads when he said that "around half" of all cellular SEPs are in the Avanci pool. The actual percentage is closer to 100% than to 50%. But in the SEP context, Charles River cannot be trusted. Their primary client in connection with SEPs is Apple--both directly as well as through its astroturfers.

Five months to the day after I said the Avanci patent pool had licensed "virtually [the] entire automotive industry" to the 4G cellular standard-essential patents (SEPs) of more than 50 licensors, Avanci has announced a "dedicated patent licensing program for the vehicle aftermarket" called Avanci Aftermarket.

It may seem counterintuitive, but the number of devices with cellular connectivity that owners install subsequently to the delivery of their vehicle--such as trackers, toll collection devices, and monitoring systems--is comparable to the number of cars that come with built-in cellular connectivity. Avanci's press release refers to Berg Insight's study on the global vehicle telematics hardware market, according to which there is "an annual market [for aftermarket telematics products] of over 45 million units today, with growth forecast to more than 70 million units in 2026."

The initial group of licensors includes more than 40 patent holders, which is obviously a far wider circle than when the Avanci automotive pool started. While a minority of the contributors to the automotive pool are not on board from Day One, some may join later, as Nokia did before (and may do again). The two largest SEP holders I found on the list are Ericsson and Qualcomm.

There are also some initial licensees: "a company collecting road tolls and a leading provider of intelligent transport systems for the public transport sector." It's always a good sign for a new pool when the first licensees have already signed up by launch time.

The new pool makes licenses available for three types of products defined as "monitoring only, infotainment, and other multi-function products." Monitoring (i.e., fleet tracking such as by car rental companies or large corporations that own many cars) is the most limited application. The pool's website defines such devices as being "only capable of monitoring and/or reporting on the performance, activity, location, usage, driving characteristics, or faults of a vehicle or container but without a user interface for receiving or presenting any information to anyone traveling with or inside the vehicle or container, and without the ability to control the operation of the vehicle or container." The license fee for that is only 3ドル per unit if the latest supported standard is 3G, and 4ドル if it's 4G.

For infotainment products (such as aftermarket navigation systems), the license fee is 9ドル per unit up to 3G, and 15ドル per unit if 4G is included. That number sounds familiar: it was the Avanci automotive patent pool's 4G rate from its creation until last summer (when Avanci issued a final boarding call to automakers prior to an increase to 20ドル). Aftermarket infotainment products make use of cellular standards in a way that is very similar to built-in connectivity, so I wouldn't be surprised if the license fee for those devices was increased to 20ドル as well, further down the road.

The pool's website defines infotainment products as "connected devices with the capability to download apps, play audio content or other entertainment, access Internet-enabled content such as traffic or weather conditions, and/or provide network connectivity for a wireless local area network such as a Wi-Fi hot spot."

The royalty rate for "other multi-function products" is in between (6ドル up to 3G; 7ドル.50 for 4G). The pool's website explains that this is the broadest category and basically covers anything that is not as feature-rich as infotainment products, but capable of more than monitoring:

"On board units and computers that communicate with other vehicles, ticket machines and ticket printers and other fleet management devices such as taxi dispatch systems, dash-cams, and toll collection devices with user interface for presenting information to the driver fall into this category."

Avanci's press release quotes Marianne Frydenlund, whom many in the wireless patent licensing community already knew in her Nordic Semiconductor years:

"With our experience in creating the one-stop licensing marketplace for connected vehicles, the addition of vehicle aftermarket devices is a natural extension that builds on that success. We are committed to providing efficient licensing solutions for new categories of connected products as the Internet of Things expands."

Mrs. Frydenlund is a renowned expert in IoT licensing as Nordic makes chips that power IoT products and entered into interesting agreements with Nokia as well as Huawei. Wireless aftermarket products for cars fall into certain IoT categories (such as asset trackers, which don't have to transmit large amounts of data, but they have to report their GPS coordinates from time to time).

What made Avanci's automotive SEP pool succeed should also work in favor of this new pool for aftermarket products. Device makers need those licenses, and a one-stop shop provides transactional efficiencies for both licensors and licensees. The rates are consistent with the royalties paid by makers of products that provide similar functionality. I would expect rapid adoption of this pool by aftermarket device makers, knowing that car makers, after some initial reticence, signed up in droves, especially last summer ahead of a royalty hike that would otherwise have applied to their licenses.

IAM previously reported on this announcement (paywalled).

A few months ago, the Avanci patent pool announced that its 4G program had licensed most of the industry. This year, the world's car makers will have to upgrade their cellular standard-essential patent (SEP) licenses from 4G to 5G. Will that transition go smoothly? I think it should, but it's too early to tell.

In the first part of this post I'd like to draw your attention to an interesting automotive IP conference that will be held in Munich on March 1-2; subsequently I'll also share a few observations on IPlytics' efforts to market their services to the automotive sector in ways that may raise false hopes.

Last April, conference organizer Ardensi held its Auto IP & Legal World Summit in Frankfurt, and it was a very interesting event in terms of attendees and content. This year's edition will take place in Munich on the first two days of March (click on the image to enlarge):

The conference covers a broad range of auto IP topics. The first part is about the ramifications of the Unified Patent Court (UPC), with speakers from industry players Thyssen Krupp and ABB, the EPO's Michael Froehlich (whom I remember from his days as Germany-based IP in-house counsel of BlackBerry), and two lawyers from well-known firms: Meissner Bolte's Philipp Rastemborski, who also spoke at last year's Auto IP Summit and now heads his firm's litigation practice, and Powell Gilbert's Rajvinder Jagdev, whose list of key cases is truly impressive.

A panel discussion FRAND litigation, negotiation, and dispute resolution promises some rather lively debate: Continental's Michael Schloegl ("Schlögl" in German) and the Fair Standard Alliance's Secretary General Evelina Kurgonaite will represent implementers in a debate with Avanci's Senior VP Laurie Fitzgerald and the head of Huawei's European IP department, Xiaowu (Emil) Zhang. As I wrote earlier this month, Huawei--which has recently signed up a number of car makers as licensees--has become an "accidental" net licensor, but remains a major implementer, too.

In a way, Conti and the FSA--represented at the conference by speakers who do not shy away from controversy--will have to argue with success: Avanci works. Huawei's licensing program works. But the FSA has members such as Apple and Continental who have a different vision for how they would like wireless SEP licensing to work.

One of Conti's key competitors, TomTom, will give a presentation on the changing licensing landscape.

Upon my request, the organizers provided the following short description:

The Annual Auto IP & Legal World Summit discusses the most pressing challenges faced by the global auto industry. Every year attendees from leading companies like Continental, VW, Bosch, BMW, Volvo, Mercedes Benz, Schaeffler and more gather to talk key issues, potential solutions surrounding IP risks, SEPs & FRAND negotiations, UPC, technology and more through panels, presentations and roundtable discussions. Join 100+ attendees and 30+ speakers from 01-02 March 2023 at the Hilton Munich City, Munich, Germany. Contact Vaishali on vaishali.popat@ardensi.com to get involved in the Summit.

Patent database services are useful or certain purposes, but what I take issue with is when those offering them overstate the reliability of their results or the impact their tools can make.

A few days ago, IAM published an op-ed by IPlytics' founder, Auto industry demands a fresh SEP/FRAND focus in 2023. What does this mean? Has IPlytics become a lobbying front for the automotive industry? What mandate does Tim Pohlmann have to speak for an entire sector?

The automotive industry wants smooth and efficient solutions. But if things go too smoothly and efficiently, that industry may not have much of a need for patent analytics services. In that indirect sense, IPlytics definitely is an automotive stakeholder...

The previous day, IPlytics hosted a webinar, How to gain the competitive edge for V2X technology. Can a patent analytics firm really give innovators and implementers as "competitive edge"? You be the judge.

Back to the IAM op-ed. I disagree with the suggestion that something disruptive is needed: we're just talking about an upgrade from 4G to 5G. I also disagree with some specific statements.

Mr. Pohlmann says "[car makers' buying] power is so significant that most suppliers include indemnification provisions in their contracts." But in the Continental v. Avanci dispute (which ended last year when Conti finally stopped throwing good money after bad) Conti was unable to establish injury, and a key reason for that was that it couldn't point to any actual indemnification claim. Almost the entire automotive industry has the Avanci 4G license by now, but no indemnification claim by any of those licensees against any of their suppliers has become known to date.

The traditional allocation of liability in the automotive industry is indeed that suppliers are responsible. But by now that industry has accepted to take licenses at the end-product (i.e., car) level, which eliminates the need for indemnification clauses.

The following suggestion of a causation makes no sense to me:

"A battle of where to license in the value chain was fought in US courts between automotive supplier Continental, and Avanci and Nokia. Much of the heat dissipated from the dispute when Daimler opted to take a licence from Avanci."

Conti filed its U.S. complaint (in the Northern District of California, from where it was transferred at Avanci's request to the Northern District of Texas) in 2019. Daimler initially took a car-level license from Nokia, which was announced on June 1, 2021. But Continental's federal lawsuit had been dismissed (with prejudice) approximately nine months earlier: on September 10, 2020--and it took well over a year from that dismissal until Daimler took an Avanci license (December 2021).

A few months later, the Fifth Circuit affirmed the dismissal. My article on the initial panel opinion has since been nominated for the Antitrust Writing Awards by Concurrences and George Washington University.

The chronology of events renders IPlytics' theory implausible. If there was any causation, it was the opposite: the fact that Conti failed with its U.S. litigation may have persuaded not only Daimler but also other car makers that taking an Avanci license was a pragmatic choice.

After Daimler took not only the Nokia but ultimately also the Avanci license, Conti still brought two petitions for rehearing en banc with the Fifth Circuit. The only thing Conti did not try was to appeal the case further to the Supreme Court, presumably for lack of support from potential amici curiae who didn't deem such a weak case the right vehicle to push for an obligation to license SEPs at the component level.

No one stands to gain anything from fighting the lost war over component-level licensing again in connection with 5G, other than litigation firms and other service providers, such as IPlytics.

I am humbled and honored to announce that one of my articles has been nominated for Concurrences and George Washington University Law School's 2023 Antitrust Writing Awards. As a result, I would be grateful if you could vote for the article in case you believe it deserves your support.

The article first appeared here on FOSS Patents, and was republished by Concurrences under the following headline: The US Court of Appeals for the Fifth Circuit Holds That Standard Essential Patent Holders May Choose to Only License End-Product Makers (Continental / Avanci).

You can find the "VOTE FOR THIS ARTICLE" box below the abstract on the following page:

https://awards.concurrences.com/en/awards/2023/business-articles/the-us-court-of-appeals-for-the-fifth-circuit-holds-that-standard-essential

Whoever may win, this nomination has already exceeded my expectations. By now, FOSS Patents is indeed at least as much of an antitrust blog as it is an intellectual property blog. FRAND-pledged standard-essential patents (SEPs) are at the intersection of both fields of law. But I also comment on competition cases that are not centered around patent licensing and enforcement, such as in my previous post on the opening of a Brazilian antitrust investigation into Apple's App Store practices. I am, of course, thinking about the best approach for the future to these two topics and have some ideas, but it's too early to share them. Again, your vote will be much appreciated, provided that you feel the article provided a useful summary of the Fifth Circuit panel opinion in Continental v. Avanci. By now that dispute is over as Conti refrained from seeking cert.

The voting period will end on March 14th.

When we talk about cellular standard-essential patents (SEPs) and how to license them to the automotive industry, it bears remembering that car makers generate rapidly increasing levels of revenues from connectivity itself (annual fees, after the first few years, for continued access) and premium features that would be unthinkable without connectivity. Here's a very recent headline that I found on Manufacturing.net (click on the image to enlarge):

1,200ドル/yr. for faster acceleration is just the latest example of this trend. In the summer, BMW already had to respond to criticism over charging 18ドル/mth. for heated seats.

In light of the gold mine that connectivity is for the automotive industry, one would think that SEP royalties in the low double-digits per car are a total non-issue. Not so. While Continental finally gave up on a meritless U.S. "antitrust" lawsuit in October, frustrated critics of the Avanci patent pool sent a letter to the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, Jonathan Kanter. They asked him to revisit and somehow nuance or downgrade his predecessor Makan Delrahim's July 2020 Business Review Letter that identified no competition concerns over Avanci's envisioned 5G patent pool.

AAG Kanter presumably has some more pressing issues on his to-do list. By far the best way to help the U.S. automotive industry through antitrust enforcement would be to prevent an "autocalypse": Apple and Google--who may indirectly have a hand in that anti-Avanci letter--are trying to take control over future automotive revenue streams (which I call "digital carjacking"). Senator Elizabeth Warren (D-Mass.) wrote a letter to AAG Kanter as well as FTC Chair Lina Khan about it.

But those advocating SEP devaluation are begging for attention: on Tuesday, Bloomberg Law published an opinion piece by the two principal authors of the anti-Avanci letter, Professor Michael Carrier and the Public Interest Patent Law Institute's Executive Director Alex Moss: Protect the Supply Chain From Patent Trolls Before It’s Too Late

If non-practicing entities are the paramount concern, the authors should actually welcome patent pools that have a diversity of licensors (not just Avanci, but generally speaking). For instance, Avanci has at least one important member of the--allegedly imperiled--automotive supply chain among its licensors: LG Electronics. If Avanci can bring the likes of LG, Qualcomm, Nokia, and Erisson together with licensing firms (some of which conduct their own research & development while others enable innovators to transfer assets and the related monetization risk to them), the compromise that results from it will be better for implementers than having to deal with individual NPEs.

It's a safe assumption that the few SEP holders who are not among the 50+ contributors to Avanci's 4G pool include NPEs that ask for a lot more money (relative to portfolio size) than Avanci.

Avanci is just an option. An optional one-stop shop. Car makers can take an Avanci license; they can also seek bilateral licenses if they believe the benefits of doing so outweigh the incremental transactional costs. Automotive suppliers, too, can seek licenses, including exhaustive component-level SEP licenses. One of the key reasons why the DOJ issued its Avanci BRL in the first place was that participants are not restricted from anything. Avanci members have, in fact, granted exhaustive component-level licenses to automotive suppliers.

IP Watchdog was first to report on a November 30 letter by "[t]wenty-five former judges, government officials, legal academics, and economists [...] in support of the DOJ’s 2020 business review letter." Here's the actual document:

November 30, 2022 letter to Assistant Attorney General Jonathan Kanter

The letter was authored by Professors Adam Mossoff (a frequent witness on Capitol Hill) and Jonathan Barnett. The signatories include former judges and government officials:

• Alden Abbott (Former General Counsel, Federal Trade Commission)

• Ronald A. Cass (Former Vice-Chairman and Commissioner, United States International Trade Commission)

• Judge Douglas H. Ginsburg (Senior Circuit Judge and Former Chief Judge, United States Court of Appeals for the District of Columbia Circuit)

• Damon C. Matteo (Former Chairperson, Patent Public Advisory Committee, United States Patent & Trademark Office)

• Judge Paul Michel (Chief Judge (Retired), United States Court of Appeals for the Federal Circuit)

• Judge Kathleen M. O’Malley (Circuit Judge (Retired), United States Court of Appeals for the Federal Circuit)

The key message is that the 2020 Avanci BRL got it right, and there is no compelling reason to break with the tradition of BRLs relating to patent pools:

"Any reconsideration of the 2020 business review letter, as proposed in the October 17 letter, would give rise to significant uncertainty concerning the Antitrust Division’s commitment to the aforementioned sequence of business review letters that have been issued concerning other patent pools in the information technology industry, as well as the larger group of patent pools that did not specifically seek guidance through the business review letter process but relied on the legal template that had been set forth in those previously issued letters."

Case in point, a business review letter gave patent holders the necessary confidence, back in 1997, to start MPEG LA. Earlier today I commented on a shameful lawsuit by a small minority of licensors trying to renege on their commitments to MPEG LA's HEVC patent pool. That one poses a threat to the legal certainty and transactional efficiencies that pools can provide, but so does the October 17 letter urging the DOJ to revisit the Avanci BRL. Patent pools are under attack from both sides: a small minority of unreasonable licensors as well as implementers and those beholden to them.

Yesterday's letter is highly instructive, and if you have a professional interest in this topic, I recommend you to read it. The actual letter spans little over 10 pages. The rest is the list of signatories and an appendix that lists academic papers.