Context: Foley & Lardner patent attorney Eli Mazour (profile) produces the Clause 8 podcast series on patent law and the overall patent ecosystem.
What’s new: In the latest edition (Spotify link), Mr. Mazour interviewed Avanci Vehicle President Laurie Fitzgerald. The conversation provided an overview of how Avanci works and how difficult is always is to strike a compromise not only between licensors and licensees, but also within a rather diverse group of licensors. Some of Mrs. Fitzgerald’s explanations can serve to address widespread misconceptions about patent pools and, more generally, collective licensing programs, not least among EU policy makers working on a regulation on standard-essential patents (SEPs),
Compromise inherently means no one’s completely happy, but it’s optional
When Mr. Mazour asked Mrs. Fitzgerald whether Avanci (despite all of its success) also gets complaints, she said:
“Everybody complains to me. I’m the complaint box.”
She went on to explain that the “definition” of a compromise is that “no one’s completely happy.” Avanci primarily strives to be simple and efficient. It has to bring licensors together with each other, and licensees with licensors. To phrase it differently than she did, it’s inevitable that different stakeholders will have different interests and preferences.
In the end, however, Avanci is about “purely optional participation”:
“We are just an option. No one has to take a license. No patent owners has to join Avanci.”
That is undoubtedly correct as far as Avanci’s contracts and its commercial practices are concerned. Avanci doesn’t preclude its licensors from entering into direct bilateral agreements with automakers or their suppliers, and it’s also mentioned in the interview that various such agreements have been entered into.
What was not discussed is that there was one German court ruling that indeed deprived the implementer of a bilateral licensing option. That car maker, however, took the Avanci license instead of trying to obtain a stay of the the enforcement of the injunction in question. Givent hat the licensee elected not to exhaust its procedural options, it participation was (arguably) “purely optional” as well.
Simple, efficient pricing and the value of connectivity in the supply chain
The words “simple” and “efficient” (which are also found in Avanci’s slogan) came up many times throughout the interview. Mrs. Fitzgerald explained that Avanci’s licensees include “everything from construction, industrial vehicles, mobile cranes, excavators, trucking all the way down to the smallest passenger vehicle and luxury passenger vehicles in between.” If Avanci had to accomodate some companies’ preference for different prices, it would have to talk to each and every licensor again and broker a compromise between a diverse group of licensors. In the end, it would not deliver transactional efficiency gains.
Asked about why Avanci chose to license car makers, Mrs. Fitzgerald explained in the interview that the firm doesn’t own any patents: it can only license them if it is given the rights by the patent holders. Some wouldn’t do that, and in any event, offering licenses to multiple levels of a supply chain wouldn’t fit with Avanci’s model.
She was very clear about the irrelevance of the question of who in the automotive supply chain takes a license to cellular SEPs: the value of connectivity is not based on the selling price of the product. It’s the same throughout the supply chain.
Working things out between licensors
In the spirit of that very frank conversation, Mrs. Fitzgerald acknowledged that what Avanci offers to car makers is “not what any one of [the licensors] would do individually — probably not.” In other words, contrary to some critics who suggest that Avanci is to blame for royalty rates, Avanci’s view is that car makers would likely get less for the same money if they had to license bilaterally (not just because of higher transaction costs, but also because of the compromise struck by Avanci).
In order for a platform like Avanci to work, licensors have to come together among their group, and the terms have to be accepted by licensees. Mrs. Fitzgerald conceded that “maybe the more important agreement is the agreement between the patent owners,” who are “a very diverse group.” It was a major effort to “find the terms for a master agremeent that could work for all of those patent holders.”
She explained the “royalty allocation categories” (“where licensors can be allocated points” that determine their share of the overall royalty income):
- Patent families evaluated to be essential (essentiality checking system with independent patent evaluators (IPEs) all around the world, who are provided with claim charts and not known to the patent holders so as to maintain their independence.
- Contributions to the standardization process.
- “The licensing history for these particular patents.”
How automotive learned to address cellular SEP licensing
Mrs. Fitzgerald gave the automotive industry credit for being “in itself incredibly innovative.” But the incorporation of wireless connectivity into cars created the first situation in the history of the automotive sector where those companies suddenly had to work out licensing questions with an entire new industry: cellular SEP holders.
She acknowledged that car makers were used to their suppliers taking care of such licensing questions for them.
Cellular standards are “open for all,” but she also said:
“Open” doesn’t always mean “free” and in this context it’s not free.
That is true. Particularly in EU policy debates involving the use of open source software, some stakeholders consider only a “free” standard to be “open” while others accurately note that a standard can be “open” without necessarily being “free.”
In connection with how car makers derive value from cellular connectivity, Mr. Mazour mentioned a remark by ip fray‘s founder about automakers selling subscriptions to their customers, typically including them in the price of the car for the first couple of years but charging for any subsequent renewals.
Avanci signed its first licensee, BMW, in 2017, and the next one, Volkswagen/Audi, in 2019. In between those two signings, Mrs. Fitzgerald joined Avanci. To join Avanci, she had to move from the U.S. to Ireland.
While it’s always hard to find the first licensees, it took Avanci even longer to find the second. Mrs. Fitzgerald acknowledged in the interview that she wasn’t sure it was going to work as there is always a risk when trying to establish something new. But she “really wanted it to work,” and the worst case would simply have been to go back to her career as a lawyer.
The podcast is definitely worth listening to. It’s as instructive as it is inspiring. And toward the very end there even is an invitation to professionals who might be interested in any of Avanci’s job openings as the organization continues to grow.