Context: Commonly, when Avanci announces something, it involves new licensors or licensees (see, e.g., this October 9, 2024 ip fray article). Avanci’s automotive pool covers a very high percentage of all 4G and 5G standard-essential patents (SEPs), and most of the market (which for 5G depends on whether companies are already implementing it) is licensed. Intermittently, the patent pool firm comments on advocacy by automotive industry players pushing for lower license fees (July 12, 2024 ip fray article).
What’s new: Today, Avanci issued a statement on a research report on automotive SEP licensing by the China Society of Automotive Engineers, which was released late last month (December 20, 2024 WeChat post) by an affiliate of the China Automotive Technology and Research Center (CATARC). The pool firm says the authors never reached out, and attributes “numerous inaccuracies concerning Avanci and [its] solution” to that lack of communication. The statement also highlights Avanci’s wide market acceptance and the optional nature of its offer.
Direct impact & wider ramifications: In the summer, Avanci was (and presumably still is) confident of being in full compliance with Chinese competition rules (June 28, 2024 ip fray article). There is no indication of a Chinese antitrust investigation. An appellate ruling in the UK will likely come down this month in a case brought by Tesla (December 3, 2024 ip fray article).
The CATARC-supported study argues that the appropriate royalty rate would be closer to $2 than to Avanci’s rate (the earlybird rate for 5G is $29; it was $15 for 4G, but now a standard 4G rate of $20 applies for new licensees while those who signed up for the $15 deal are not affected by any price hike).
That is a huge discrepancy between the result of the study and a rate with considerable market acceptance. The derivation can be oversimplified as saying that the appropriate royalty basis is a telematics control unit (TCU), and a relatively low percentage should be applied to that component in order to calculate the total royalty rate for the entire stack. There is also an argument that Chinese courts have found in other (non-automotive) cases that a “discount” should be applied in light of Chinese car makers’ lower margins.
Nokia has already licensed two Chinese car makers (December 17, 2024 ip fray article), which shows that Avanci’s offer is truly just optional. It is not only hard but practically impossible to imagine that Nokia grants licenses to its SEP portfolio at a rate that would be so low as to be consistent with a $2 aggregate royalty rate for the entire stack.
The report does not point to the terms of real-world license agreements, which is understandable because those are subject to confidentiality obligations, but that is the kind of evidence it would take to argue that the widely accepted terms of pool are 10 times higher than a FRAND (fair, reasonable and non-discriminatory) rate.
Avanci apparently believes that the report misportrays it. In terms of “inaccuracies” (which Avanci says are “numerous”), some striking ones can definitely be found. The report talks about a U.S. Federal Trade Commission (FTC) investigation of Avanci launched in 2019 or 2020. There was definitely no formal antitrust investigation, given that it would have become known at the time.
The CATARC-supported report also omits some important facts. The study says Avanci raised its 4G royalty rate from $15 to $20. But in the meantime some major cellular SEP licensors (and a number of smaller ones) had joined. In practice, while those signing up to Avanci get to keep the same rate, the value proposition had actually changed very favorably, with major licensors like Huawei joining at a relatively late stage. Anyone who waited until the price increased to $20 (almost everyone signed up before) got a license to far more patents than those who signed up before, let alone BMW pretty much at the beginning. That, however, is not mentioned by the study.
The report criticizes Avanci for not providing a sufficiently specific derivation of the rate, but for a pool that is just an optional offer and intended to be simple and efficient, there is never going to be a mathematical formula. The rate is the result of a multi-year effort at an acceptable rate.
For now, no Chinese automaker is known to have taken an Avanci license, nor is any Avanci licensor known to have sued (or to be suing) a Chinese car manufacturer. Whether a study that suggests roughly a 90% discount facilitates an agreement is doubtful. Meanwhile, American, European, Japanese and Korean car makers are presumably unhappy that they are paying Avanci while none of their Chinese competitors is known to have done so.