Context: A recent letter by the Alliance for Automotive Innovation (AAI) and other auto industry lobbyists to Avanci was centered around (and characterized by) fundamental misconceptions (July 12, 2024 ip fray article). For instance, the Avanci licensing platform was accused of controlling the market for standard-essential patent (SEP) licensing in the automotive sector despite the fact that its licensors are free to engage in bilateral licensing (and a number of them have actually done so over the years, which is why even Tesla had to tell a UK court that it already) has a 5G license from an Avanci contributor (July 18, 2024 ip fray article) and Nokia previously announced a license deal with an unnamed Chinese car maker.
What’s new: Near-simultaneously with the above-mentioned letter to Avanci, the AAI’s chief lawyer Charles Haake used Law360 to advocate, through an opinion piece, legislative measures to bring down SEP royalties (July 12, 2024 Law360 guest article). The purpose of this short article is to quickly flag some of the issues with the content of that article.
Businesses like to save costs, but if they try to use political and regulatory processes to that effect, they should make arguments that withstand scrutiny —unlike the AAI’s Law360 piece.
It starts with the headline, which goes beyond “click-baiting”:
“Cell Tech Patent Holdup Is Stalling Automaker Innovation”
First, there hasn’t been a single 5G patent infringement lawsuit against a car maker (much less against an automotive supplier) to date, while Avanci’s 5G program has already announced multiple license agreements. It’s hard to imagine “holdup” without any litigation in a given field.
This does not mean to say that SEP hold-up doesn’t exist: those who deny it are just as wrong as those who deny hold-out. What’s happening between InterDigital and Lenovo could be reasonably described as hold-up: some (not only InterDigital itself) would disagree, but the argument can be made that the UK judiciary, after two rounds of litigation, has set a rate that Lenovo has publicly offered to pay and that InterDigital should accept, given that Lenovo appears to have stronger arguments as to why InterDigital is not entitled to higher royalties in the 5G era (but, if anything, a lower rate) (July 17, 2024 ip fray article).
The second and even bigger issue is that the AAI argues SEP licensing issues are “stalling automaker innovation” (gradually more moderately expressed in the body of the article as “a significant roadblock to motor vehicle innovation in this area of connectivity”). Not only is there no evidence for that, but at this point there isn’t even the slightest indication that a single car maker has decided not to innovate, just because the Avanci 5G license costs $29 for early-bird licensees and $32 for those who forgo the discount.
Just last month, the AAI released a report, together with another D.C. entity (CTIA), on how innovative car makers can be thanks to 5G (June 26, 2024 CTIA press release). The AAI is now contradicting its own report. It can’t expect third parties to be impressed by such inconsistencies.
The AAI article talks about the possibility of an “inventor [being] locked out of the market for a cellular-connected product.” If someone used SEPs just to keep someone else out of the market, it would certainly be anticompetitive. But that’s not what’s happening, and the article admits that the answer is FRAND.
The article doesn’t even get basic terminology right, which is all the more embarrassing when the (official) author is a lawyer:
“This [FRAND licensing] promise makes sense from the license holder’s point of view. They have the exclusive right to aguaranteed stream of customers, but they forfeit the right to be exclusionary in their licensing arrangements.”
What Mr. Haake meant is “right holder” (not “license holder”)…
The argument that automotive suppliers “[t]ypically” take care of patent licensing has been discussed by others on numerous occasions. What cellular patent holders argue is that in their industry it works the other way round and it’s typically the end-user device (the handset or, here, the car) that gets licensed.
It’s totally fact-free to claim that “Avanci refuse[s] to sell licenses to auto suppliers, insisting instead on licensing onlyautomotive original equipment manufacturers.” Avanci doesn’t own those patents. Its licensors do. Probably some of those licensors would be happy to allow Avanci to license suppliers, but many of them are not. In the end, that group can only do what everyone agrees to do, like the United Nations.
As a lawyer, Mr. Haake must know that Continental’s lawsuit against Avanci was not just put before the district court in Dallas but also appealed to the Fifth Circuit, which affirmed the dismissal. He takes something out of context by mentioning the district court’s reference to “fraud toward the [standard-setting organization]”: no such fraud exists in this context, and Conti never had any basis to say so.
He then also mentions Continental’s lawsuit in Delaware state court. That one was withdrawn, as ip fray reported last week (July 18, 2024 ip fray article).
It’s an interesting pattern that the AAI is trying to get mileage out of failed (because meritless) lawsuits, including the Tesla case in the UK, though, to be fair, that dismissal could still be appealed, in theory at least (July 18, 2024 ip fray article).
The comparison between a 4G-connected home security system and a car just doesn’t work. The home security system will send data over 4G only very rarely: when there’s an alarm or when someone checks or changes the status. It’s also a completely different product category. Even some of the AAI’s own members don’t agree that there should be a fixed royalty regardless of end-product price: the likes of Volkswagen and Toyota would rather pay a lower royalty than Mercedes and Tesla.
The article touts the innovations that automakers and their suppliers create. There’s nothing wrong with being proud of all of that. But when it comes to connectivity, they’re all standing on the shoulders of giants. They didn’t build it themselves.
How patent hold-up can be, in the absence of infringement lawsuits, “a real and growing problem in the auto industry” is a mystery.
Mr. Haake ignores all U.S. patent-related antitrust case law over the course of well over a decade by claiming that “U.S. antitrust laws are supposed to address” disputes over SEP royalties. That’s not what any U.S. court has found anytime in recent history.
And then he describes the proposed EU SEP Regulation as a “model” for U.S. legislation, despite the fact that the EU proposal has major flaws and may actually never be passed into law in its current form.
All in all, it looks like Avanci and its licensors are just being accused of things they’re not engaging in (again, there is no 5G SEP enforcement action by Avanci licensors going on as we speak) in order to make a “case” for U.S. legislation on SEPs. Interestingly, the U.S. government decided not even to replace an abandoned position paper on SEPs. They didn’t want to make soft law, but the AAI now wants them to legislate to do away with litigation that does not (at this point, at least) exist.
An article like that gives lobbying a bad name.