Recently, it made the headlines that Daimler had lodged a complaint with the European Commission against Nokia as Nokia refused to license mobile components and insists on indirect licensing of the entire vehicle.
This reminded me of another case in which Broadcom filed a billion-dollar lawsuit against Volkswagen for infringement of its patents related to wireless connectivity, graphics, and GPS tracking. The technology was used in the infotainment system supplied by Becker Automotive systems and Contic tech, using chipsets from Nvidia and Texas Instruments.
Now, if you see the bigger picture, on one side, it’s Broadcom and Nokia, the ‘tech’ giants, and on the other side its Volkswagen and Daimler, the ‘automotive’ giants, having a conflict over wireless technologies being used in cars.
For long, patent licensing in the automotive domain has been vertically aligned, with Tier-1 manufacturers and OEMs using a single-component method to calculate licensing rates and thus paying a small licensing fee. But then, Broadcom filed a billion-dollar lawsuit against VW for infringement of its above-mentioned patents.
One might think that the negotiation of royalty fees is based on the single-component method and should include a marginal licensing fee. So how can they hit a lawsuit worth a billion?
To answer this, one important thing to know is that the plaintiff, “Broadcom,” is not an automotive player and thus does not play by the rules of the automotive industry. Broadcom is a telecom giant, and royalty rates in the telecommunications sector are based on the product’s selling price rather than the single-component methodology used in the automotive sector.
This is a clear indication for executives of any car manufacturing company that uses telecom services, or for an IP director responsible for handling IP deals in the auto industry. This is the time you gear up for the future, where you might have to face complex licensing deals.
The major difference here is how the patent royalty rates are calculated in the automotive and mobile sector. In the automotive sector, the OEM manufactures and Tier-1 suppliers use a single component method to set the patent royalty fees, thus the licensing fees have a marginal effect on the final price of the car. In contrast, in the mobile sector, the royalty rates are usually calculated on the bases of the selling price of the product. This can jeopardize the entire business model at all levels from manufacturing to selling.
Though the case was settled out of court for an undisclosed amount, the point is that two sectors, the ‘Automotive’ and ‘Telecom’ sectors, are merging, and each has its own way of calculating licensing fees.
Current FRAND Terms need an update
To solve this problem, a patent pool ‘Avanci’ was created, which offers flat licensing fees of $15 for patents related to (4g/3G), which can be used in connected cars. The flat licensing fee model has worked so far because the connectivity features were limited to eCalls, software updates, etc., and it has not been a driving factor in customer selection of a car/brand.
But as we move toward the future of connected, self-driving cars and 5G, these features could be a deciding factor for clients willing to switch from one car brand to another for greater connectivity. Like, a customer might prefer a car with a self-driving feature. The next-generation 5G network will be a key factor for connected cars.
The future smart car will be able to communicate with the environment, like traffic lights, other vehicles, etc., in real-time, and thus will rely more on the heavily patented and standardized 5G. The automotive sector will be the other area, apart from smartphones, which will be significantly affected by 5G.
As a result, many mobile communication companies are entering the connected car market as their technology plays an increasingly important role in these vehicles.
In fact, Mobile companies are investing heavily in patents related to the vehicular domain. Based on the total patent data declared on the ETSI website (*declared till Nov) in the vehicular domain for 5G, 75% of the declarations are owned by the Top telecom companies. Another interesting point is that no automotive company has disclosed its 5G V2X patent portfolio. Thus is important to have a common ground for calculating FRAND terms.
With the involvement of more mobile companies and with 5G integrated cars, we can expect a shift in the way the royalty rates will be calculated, as mobile companies can have an upper hand in deciding how the royalty rates will be calculated. As in Nokia vs Daimler’s case, Nokia’s quest for fees from Daimler has brought the bigger battle between tech companies and the automotive industry into focus: royalties for technologies essential to navigation systems, vehicle communications, and self-driving cars.
Even though 5G is standardized by ETSI, it does not explain how the FRAND terms should be calculated. It will be of utmost priority to establish a common framework for FRAND terms, as both the Automotive and Mobile sectors have their own methods for calculating them. There are many issues that need to be addressed, such as whether royalties should be based on a component approach, on the total value of the product, or on where 5G is used in the supply chain.
Conclusion:
As the connectivity feature continues to be an integral part in cars of the future and with more conflict in resolving the FRAND terms, it won’t be wrong to say “FRAND war is coming…”, and thus, the car manufactures and people dealing with IP should be prepared to face complex licensing deals from the communication industry to ensure they have the right IP strategy. They have to move beyond just monitoring their competitors or the rates offered by suppliers. Here are a few pointers that can help IP directors and Managers of athe utomobile industry prepare for the future:
- Opt-in for an early licensing with Major 5G players which are active in vehicular domains
- Check for the companies declaring 5G SEP and make sure you check for the essentiality of the patent.
- Increase R&D in 5G to create your own portfolio and to secure your products. Creating a portfolio can help in better negotiations, cross-licensing.
- Keep a check on the dynamics of royalty rates. Like, what component is being affected by the patent and what impact does it make.
Authored by: Aadarsh Sharma, Patent Infringement.
