Tech convergence drives auto to burn up old strategies

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The new market dynamics in driverless cars are pushing car makers and suppliers to overhaul their patent strategies by building up portfolios and better positioning themselves for licensing negotiations and a potential patent war

Depending on the benchmark royalty rates and licensing practices established by cases such as Nokia v Daimler in Germany and Continental v Avanci in the US, car makers and suppliers could soon be faced with unpalatable costs for connected and autonomous technologies in driverless cars.

Should the costs be too high, implementers might even decide that litigation is preferable to taking a licence, and a patent war might ensue.

With these ‘grim’ prospects on the horizon, in-house counsel tell Patent Strategy that automotive companies could soon embark on a patent strategy overhaul so they can be more assertive in licensing negotiations or aggressive during a litigation spate.

“The automotive industry might start to build up a portfolio of standard essential patents of their own as a defensive play to go out and counterclaim against some of these telecoms players,” says Dalpreet Saluja, chief IP counsel at Visteon in Detroit. “It could be a strategy that comes out of all this litigation that is coming out, but it is hard to say.”

He adds that automotive companies should start to change their approach and become smarter, by perhaps changing their defensive strategies to deal with those exploiting the patent system, and that they might find offensive opportunities along the way.

Many traditional players and new entrants are already building up their portfolios and exploring ways to possibly leverage their new positions in the IP landscape.

Raymond Millien, head of IP at Volvo Cars, has made his ambition to build the business’s patent portfolio clear in the past. In that context, Johanna Wright, senior patent attorney at Volvo Cars in Gothenburg, says one way for car companies to offset the costs of licensing from telecoms firms is to build up portfolios for the purposes of monetisation or encouraging cross-licensing deals. 

“That is definitely something we could see more of – and while I’m not sure whether it will be our plan, it is a good way to reduce costs.”

The global patent counsel at a tier-one automotive supplier in the US adds that he was recruited to his company precisely to build up its patent portfolio and put itself in a better position for changing market dynamics.

“It’s a slow process and takes a lot of effort to change hearts and minds in the company,” he says. “New players in the industry, such as Waymo and Uber, are also building their portfolios, and traditional companies need to follow suit and stop thinking of IP as a commodity and start considering it as an asset to be leveraged and exploited – if they have not already started.”

He adds that he does not think that the automotive industry has traditionally put the necessary resources into patent development programmes, and that they need to start doing that soon.

The head of IP at a Japanese car maker adds that the industry has already seen car companies such as Ford build up their portfolios of design patents and use them defensively. There is no reason to suspect that these companies would not do the same with other patents.

And it seems that telecoms companies might welcome this change. The patent licensing director at a telecoms firm says it would be great to see car makers express how much they value connectivity by channelling investment into R&D, partly because it would give telecoms and automotive more opportunities to work together.

Brose Group IP attorney Corey Neil in Michigan adds that suppliers might react to these changing market dynamics by becoming more defensive and choosing not to indemnify original equipment manufacturers (OEMs) against SEPs. If car makers start to become more assertive with suppliers on producing a product to a certain specification, he says, suppliers might push back and say that they simply cannot guarantee that a component is free of third party rights.

Of course, whether companies start these overhauls or not will depend on how pending litigation goes in the US and German courts. Todd Pleiness, patent attorney at Mahle in Michigan, points out that whether car companies will become aggressive will largely come down to how royalty rates pan out.

Active enforcers?

Surrounding these intentions to embark on a patent strategy overhaul is a question of whether car companies might start to become active enforcers. Car makers have traditionally not sued reliable suppliers, and it rarely makes financial sense for a supplier to sue a customer.

Neil at the Brose Group says that dynamic is likely to stay the same, although he is keeping an eye on how the introduction of new players might change the situation.

Indeed, car companies might not be so hesitant when it comes to suing new suppliers in the electronics, software or telecoms industries that might prove to be mere litigious than traditional component manufacturers.

Saluja at Visteon says he does not see auto companies becoming offensive players on a large scale because they are too busy building their products and do not have time to build and arm for patent enforcement.

“For the near future, I don’t see that changing – but it is an unknown because this is a new area for automotive and lots could change,” he says.

The global patent counsel at a tier-one automotive supplier in the US says most car companies are not in a good position to embark on an offensive licensing or litigation rampage because they simply haven’t put enough money into developing their patent portfolios in the past.

“As it stands, if litigation starts, it will not be the car makers who fire the first shot because they are not necessarily in the best positon to do so,” he says. “There will be big litigation at some point because the size of the driverless car pie is humungous, and traditional OEMs may not be in a positon to fight back – so they may have a big problem.”