Context: On Wednesday, an Avanci executive celebrated the fact that the firm’s 4G licensing program has now licensed 100 automotive brands (July 10, 2024 LinkedIn post by Avanci’s Laurie Fitzgerald). Not all carmakers are implementing 5G yet, but among those who are, Avanci has a similarly high share.
What’s new: The Alliance for Automotive Innovation (AAI) issued a press release yesterday and published a joint letter (with the Japan Automobile Manufacturers Association, European Automobile Manufacturers’ Association, German Association of the Automotive Industry, Korea Automobile & Mobility Association and the French Association of the Automotive and Suppliers Industry) to Avanci founder and CEO Kasim Alfalahi, demanding information on how the firm arrived at its 5G royalty rate (PDF).
Direct impact & wider ramifications: The obvious purpose of the letter is not to obtain information but to start a debate over standard-essential patent (SEP) royalty rates in the automotive sector. The signatories apparently believe they already have enough information to conclude that Avanci’s rates are “exorbitant” /as the press release alleges). The objectives here may be related to the legislative process in the EU concerning a proposed SEP Regulation as well as a push for measures in other jurisdictions.
It’s normal that companies like to reduce costs, and it’s not unheard of that they look at policy initatives as one way of getting there. There is nothing wrong with car makers rather paying $10 or $20 per car than $30 on the same thing, whether it’s a patent license or a cup holder or whatever component. But when they go public with questions, questions must also be asked about their questions and the intentions behind them.
The letter itself was written by lobbyists who received assistance from lawyers. In some ways it’s similar to the letters D.C. lobbying fronts write to governments and members of Congress on a daily basis The headline of the press release, however, describes Avanci as a “5G Patent Holder,” which is nonsensical: Avanci operates a licensing program that it calls a platform and that one may also call a pool, but it does not hold a single 5G patent.
That is not just a minor inaccuracy but goes to the heart of the issue: Avanci’s offering is purely optional. Any of its licensors may engage in bilateral licensing anytime, and a number of such deals have become known. A couple of months ago, Nokia announced a license deal with an unnamed Chinese automaker, for instance.
What the AAI itself acknowledges is that 5G adds tremendous value to cars. Just last month, the AAI released a report, together with another D.C. entity (CTIA), on that very topic (June 26, 2024 CTIA press release). Maybe AAI could look at that report to find an answer to one of the questions it asks Avanci, which is why car makers should pay more for a 5G than a 4G license.
Most of the 100 automotive brands mentioned further above as Avanci 4G (and many of them already 5G) licensees are members of one or more of the organizations that signed yesterday’s open letter. That means they chose Avanci over bilateral licensing. Only one automaker was ever told by a court that it had to license the entire Avanci pool to avoid the enforcement of an injunction, and that was Ford in a German litigation with Japan’s IP Bridge. Instead of challenging that ruling by seeking an enforcement stay from the appeals court, Ford simply opted for a one-stop solution.
Just like those automotive lobbyists demand transparency from Avanci, others could ask their member companies to explain publicly how they arrive at their car prices. An apples-to-oranges comparison? Not in every respect. Presumably the reason for which automakers would decline to do so is that they would say there’s competition: customers can choose whether to buy a Tesla or a Mercedes, a Ford or a Volkswagen, a Toyota or a KIA. Automakers also have the choice to reject Avanci’s terms and enter into bilateral license agreements with dozens of patent holders. In fact, smartphone and other wireless device makers have to do that: they don’t have an Avanci-like option covering the vast majority of cellular SEPs.
Nothing prevents automotive suppliers from talking to the same licensors, and just like Nokia licensed a Chinese automaker, Avanci licensors have extended SEP licenses to companies at other levels of the automotive supply. Here, again, the simplest and shortest answer to the auto lobbyists’ letter is: “It’s optional.”
The AAI’s press release describes the “issue” as follows:
“Automaker access to certain network connectivity technology is controlled by Avanci, an operator of licensing platforms for standard essential patents (SEPs) necessary to enable 4G and 5G network connections in vehicles.”
That is absolutely positively wrong to put it diplomatically, and just stupid to put it bluntly. Avanci cannot “control” access to any technology because, again. the answer is that it’s optional.
A press release that alleges someone who makes an optional offer (to which there is a clear alternative: bilateral licensing) controls access cannot expect to be taken seriously by policy makers, regulators and other important audiences. Again, the automotive industry is within its rights to push for lower licensing costs. They’re entitled to their opinions and to legitimate objectives, but they’re not entitled to their own facts.
The letter and the press release don’t explain how the automotive industry would find the world a better place without Avanci. The aggregate licensing cost to car makers, even without considering transaction and litigation costs, would be higher.
If a lobbying group has already concluded that a royaLty rate is “exorbitant” and then wants to know its derivation, it’s obvious that they won’t be satisfied with whatever answer they will get.
They ask about a list of 5G SEPs that are licensed through Avanci, but the names of the licensors are on Avanci’s website and there’s already an ETSI database (and other sources of information) to consult.
It’s also odd that they refer to transparency obligations contemplated in the EU. At this stage, all that exists in the EU with respect to SEPs is a legislative proposal that the European Commission made and a majority of the European Parliament supports. But the EU’s most powerful legislative body, the Council, has not taken a position yet. The EU Commission is jumping the gun by already spending money on a “study” related to the implementation of a proposal that is not even certain to be enacted in any shape or form (July 11, 2024 ip fray article). Similarly, those automotive lobbyists are jumping the gun by telling Avanci about its obligations under a law that is not even in place yet (and no one knows if, and if so, in what exact form, it ever will be).