A patent landscape analysis on how SEPs and FRAND will affect the auto industry
Similar to the transition in the mobile phone industry from feature phones to smartphones and where business models, platforms and market participants have transformed the way that profits are distributed among companies, we will see shifts and profit redistribution within the auto industry. Most market experts predict dramatic changes in this market as a result of disruptive technology trends such as self-driving vehicles, electrification and connectivity via technologies such as 5G.
The smart car of the future will be constantly exchanging information with its environment. Vehicle-to-X systems will enable communication between other vehicles, roadsides and infrastructure. The auto industry could be one of the first sectors outside of the smartphone world to heavily rely on 5G technologies. However, the integration of the highly patented 5G standards creates economic risks for vehicle manufacturers. Royalty rates – for example, for standard essential patents (SEPs) in cellular communications standards such as 4G and soon 5G – can easily mount up to hundreds of millions of dollars a year.
Patents in the automotive industry tend to be vertically licensed. A Tier 1 manufacturer would not usually request licensing fees from an original equipment manufacturer (OEM) but would rather incorporate the license to use the suppliers’ IP rights or third-party IP rights into its component supply contracts. Also, when it comes to licensing negotiations, royalties between Tier 1 suppliers and OEMs are mostly based on a single part that has been improved by an invention – licensing costs have thus had a marginal influence on vehicle prices so far. In contrast, patent licences in the communication industry focus principally on the net selling price of the device and mainly target OEMs. Consequently, royalties are much higher, especially for manufacturers that do not own a patent portfolio to cross-license. Bylaws of standard-setting organisations, such as the European Telecommunications Standards Institute’s IP policy, do not explicitly set out how royalty rates for SEPs should be calculated.
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