Automakers Unite: German Watchdog Approves Joint Licensing Negotiations

The world of standard essential patents (SEPs) is notoriously political and riddled with disputes. These patents, crucial for implementing technologies like 4G and 5G in devices like smartphones and in cars, have long become an antitrust battleground. This week’s decision by the German Federal Cartel Office (FCO) has thrown a lifeline to automotive manufacturers and could have far-reaching implications.

A minefield of legal disputes

SEP licensing can be a minefield. Unlike for other patents, SEP holders are obliged to license SEPs under “fair, reasonable, and non-discriminatory” (FRAND) terms. However, what constitutes FRAND is highly contentious. And unlike many areas of antitrust, SEP licensing is one where neutrality is a rare commodity. Advisors typically have to choose a side: either representing licensees or licensors. This “pick-a-side” approach reflects the deep divisions within the area.

The so-called “automotive patent wars” perfectly illustrate this conflict. Here, automotive suppliers sought licenses for mobile communication SEPs, but many patent holders preferred licensing only to car manufacturers, aiming for higher royalties. These disputes led to landmark litigation and antitrust complaints to the European Commission. The FCO’s decision in the case of the “Automotive Licensing Negotiation Group” (ALNG) shows that these conflicts are far from resolved.

Balancing power

What was this decision about? Licensors often leverage patent pools, offering licenses for a bundle of patents in a specific area. While they claim increased efficiency, some licensees suspect these pools inflate licensing fees and force them to take licenses for patents they do not want and need.

To counter this perceived imbalance, three German automotive manufacturers and one supplier have formed the ALNG. This group aims to jointly negotiate with licensors on behalf of its members BMW, Mercedes-Benz, Thyssenkrupp, and VW.

For years, licensors have argued that such licensee groups would violate antitrust laws. In a decision that marks a significant shift, the FCO has now declared that it will tolerate the launch of the ALNG, albeit with certain conditions, including:

• Negotiations with licensors remain voluntary, so licensors can choose to negotiate bilaterally
  
• Other automotive companies must be able to join
  
• The information shared between the members must be limited to what is the absolute minimum necessary to operate the ALNG (“need to know” – here we go again)

The antitrust analysis

On substance, the FCO’s decision seems to rely on the rules that also apply to the analysis of purchasing cooperations and thus hinges on the market shares held by the ALNG members. According to the FCO, in the market for the demand for general mobile communication SEPs, the combined share of the automotive companies involved is below 15%. This threshold is crucial because below this level, cooperation between purchasers is generally considered acceptable under EU antitrust law. Interestingly, the FCO notes that the threshold is also not met including “possible future ALNG members”.

The FCO remarks that the situation for more automotive-specific standards might be different, which means the ALNG cannot just expand its scope without further analysis.

In addition to the demand side, the FCO has looked at the markets on which the ALNG members are competitors. Under the rules for purchasing cooperations, the combined share of the parties on those markets should also stay within the 15% threshold. Even though this is not the case here, the FCO finds the ALNG acceptable because the costs of SEP licenses typically account for less than 1% of a vehicle’s total production cost.

This reads close to a textbook analysis of a purchasing cooperation, which is notable in itself – critics of licensing negotiations groups claim that such groups should in fact be treated differently.

An uncertain turning point

The FCO’s decision is a landmark one. It is the first time a major regulator has explicitly sided with licensees in their quest for collective bargaining power. However, several questions remain:

• Global Impact: While the decision applies to Germany, will other regulators follow suit? Licenses are usually negotiated on a worldwide or at least EU-wide basis, and the stance of the German regulator is not binding for the Commission or other regulators.
  
• Long-Term Impact: Will others join the ALNG and, if so, who? Will the FCO’s decision quiet or rather enrage critics of licensing negotiation groups? And will the ALNG become a model for similar groups in other industries? Only time will tell.

This case is sure to be watched closely by all stakeholders, and it could pave the way for similar initiatives in other sectors.


Photo by MART  PRODUCTION