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Fish Principal Phillip Goter Authors Article for Bloomberg Law, "SEP and FRAND Considerations for the Automotive Industry"

November 22, 2021

Fish Principal Phillip Goter Authors Article for Bloomberg Law, "SEP and FRAND Considerations for the Automotive Industry"

November 22, 2021

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To operate safely, autonomous vehicles (AVs) must communicate with other transportation system elements, such as vehicles, roadway infrastructure, and pedestrians. One important aspect of fully autonomous vehicles is vehicle-to-everything (V2X) communication, which will allow the vehicle to communicate with external entities that may affect it. The challenge to achieving true V2X is that it requires communicating and processing large amounts of data in real time, which will require a sophisticated infrastructure to process, as well as high-speed data transmission.

One avenue of achieving V2X is through existing cellular networks, such as 5G. However, broadly integrating cellular technology into automotive products may implicate Standard Essential Patents (SEP) and Fair, Reasonable, and Non-Discriminatory (FRAND) licensing issues. This article discusses how this exposure may occur.

AV Communication

The transition from manual driving to autonomous driving requires more than technological advances and infrastructure upgrades. It also requires public acceptance and belief in the safety of the system.
For widespread AV deployment to be viable, AVs must be able to perceive their environment and communicate with other elements in the transportation system—including other vehicles, roadway markings, traffic lights and signs, and pedestrians. V2X communication provides AVs with the information about their environment to make real-time decisions.

Achieving human-level decision-making across AVs will require a robust communications system to connect all AVs on the road with their environment and sufficient bandwidth and data rates to facilitate rapid information exchange. The 5G cellular network is expanding coverage and can deliver data speeds up to 100 times those of 4G LTE. This type of network is an option for supporting the real-time V2X communications that will enable AVs to operate safely and reliably.

What Are SEP & FRAND?

Standard setting organizations (SSOs) standardize technical specifications comprising many familiar communication technologies, such as Wi-Fi, 4G LTE, and 5G. Standardization promotes wide-scale adoption of technical specifications and interoperability among devices. For example, mobile phones can interoperate with a diverse array of devices of other manufacturers over Wi-Fi, cellular, and other communication networks.

Patents covering technologies that are essential for implementing a technological standard are known as Standard Essential Patents (SEP). Companies that participate in SSOs are often required to disclose their intellectual property rights that they deem essential to implement the standard. In other words, any patent of an SSO participant that would be infringed due to compliance with the standard are essential, and the SSO often requires its disclosure.

To encourage development and interoperability according to a given standard, SSOs often impose a requirement on SEP rights holders to license their patents on Fair, Reasonable, and Non-Discriminatory (FRAND) terms—for example, offering use of the patented features in exchange for a reasonable royalty. However, there is no universally agreed-upon definition for the terms “fair,” “reasonable,” and “non-discriminatory.” When disputes arise, the parties generally turn to the courts to resolve them.
Litigation involving SEPs and FRAND may raise issues such as whether a rightsholder complied with intellectual property rights disclosures to the SSO, whether a patent is actually standard-essential, whether the rightsholder has offered licenses and entered into licenses on FRAND terms, and how to calculate a FRAND licensing rate.

SEPs & FRAND in the Telecommunications Industry

SEPs and FRAND concerns are particularly common in the telecom industry because of the wide range of infrastructure and hardware devices needing to interoperate. With respect to cellular technology, 3GPP (Third Generation Partnership Project) member companies develop cellular technical specifications which are then agreed on and standardized by partner organizations. These organizational partners include:

Member companies of the organizational partners should declare any intellectual property rights believed to be essential or potentially essential to the 3GPP development effort.
Once a patent is declared essential, the patent holder may be exposed to FRAND licensing obligations. For example, ATIS requires assurances from SEP holders that either they will license without compensation or they will license under FRAND terms.

Why Automakers May Be Exposed to SEP & FRAND Considerations

Disputes surrounding SEPs and FRAND licensing typically involve phone makers, cellular infrastructure suppliers, and carriers. However, the application of 5G to V2X and other Internet of Things (IoT) technologies has the potential to expose a wide range of industries to cellular SEPs. This is because SEP owners may choose to license their patents at various points in the value chain. For AV technologies that rely on broad signal coverage and rapid communication speeds, automakers may choose to adopt 5G connectivity, potentially exposing them to SEPs and FRAND licensing.

While SEP licensing and FRAND commitments are standard in the telecommunications industry, these considerations are relatively new to the automotive industry. SEP holders and AV industry licensees are working through “right-pricing” SEP licenses for AVs and other IoT devices. In the telecommunications industry, royalty rates have been calculated as a percentage of the end-product (e.g., the phone) selling price, but determining what that percentage is can be tricky. Courts may rely on a modified version of the Georgia-Pacific factors to determine reasonable royalty damages. See Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201 (Fed. Cir. 2014).

Courts also consider pertinent economic evidence presented by the parties to determine what constitutes a reasonable royalty rate. See, e.g., Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (Fed. Cir. 2015). Moreover, one automotive supplier, Continental Automotive Systems, challenged SEP licensors Avanci, Nokia, and others. The complaint alleged that the Avanci licensing pool anti-competitively pooled cellular patents and set exorbitant licensing terms, geared to automotive OEMs and effectively excluded others in the supply chain. Continental Automotive Systems v. Avanci, et al., 3:19-cv-02933-M (N.D. Tex.). However, this case was dismissed based on a lack of standing due to Continental’s failure to plead an antitrust injury. This was because the conduct directed at downstream OEMs does not create an antitrust injury for upstream suppliers. The court further found that the Avanci patent pool was not an agreement to unreasonably restrain trade. The case was appealed to the Fifth Circuit.

Conclusion

As AV technology integration into vehicles becomes more prevalent, the automotive industry will become increasingly exposed to SEPs relating to those AV technologies. Automakers and automotive suppliers should consider SEP and FRAND as part of their overall IP strategy to ensure that they are not caught off guard. To not be caught off guard, OEMs and suppliers should be aware that incorporating cellular and wireless communication capabilities into their product offerings could expose them to SEPs. They should consider also whether their component suppliers may have already licensed the relevant SEPs.

Reproduced with permission. Published November 2021. Copyright 2021 The Bureau of National Affairs, Inc.


The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.
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