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IP AND THE AUTOMOTIVE SECTOR SPECIAL REPORT IN ASSOCIATION WITH
IP AND THE AUTOMOTIVE
SECTOR
SPECIAL REPORT
IN ASSOCIATION WITH
Gowling WLG is a global 100 legal practice, withmore than 1,400 legal professionals across 19cities in the UK, Canada, Europe, Asia and theMiddle East. Focused on key global sectorsincluding automotive, tech, energy, infrastructureand real estate, the firm provides clients withdeep sector expertise.
Gowling WLG’s market-leading automotiveindustry group brings together technicalexcellence in regulatory, corporate, intellectualproperty, employment, dispute resolution, realestate, commercial and competition law. With oneof the largest and most highly regarded IPpractices in Canada, leading practices in the UKand Russia, expert teams in Germany, China andDubai and a global network of IP associates,Gowling WLG’s IP practice supports its clients injurisdictions across every continent.
The firm’s specialist AutoTech team advises clientson innovative business strategies in a constantlychanging and increasingly competitive landscape.Gowling WLG is the only law firm involved in thelargest UK consortia, UK Autodrive, launchedunder the UK government’s driverless carsinitiative to support the introduction of self-drivingvehicles in the UK.
Unprecedented challenges facing theautomotive sector demand urgentre-evaluation of existing IPstrategies.
The car industry faces, simultaneously, theemergence of connected and autonomousvehicles, regulatory pressures to eliminate theinternal combustion engine and uncertainty overtariffs within Europe, with the US and potentially elsewhere.
Connected and autonomous vehicles in particularmay require great changes in the approach to IP.
Autonomy requires innovations in artificialintelligence, mapping, sensors and connectivity. Ithas also triggered new market entrants, manypursuing radical new business models basedaround mobility as a service. This threatens theattractiveness and economics of private carownership, while no-one can be sure whichapproach will win out. The viability of driverlessride hailing, for instance, may yet be dented byregulation, a lack of appropriate infrastructure,financial uncertainties around induced demandand competition from business modelsmonetising search or content delivery. And that isassuming full autonomy is technically possibleand accepted by the public.
These changes, together with electric drivetrainand alternative fuel cell development, haverequired massive investment by incumbents innew research and development and in buying upor into promising “platforms” for future revenuesand customer relationships.
Much of the current investment is in areas that IPprotects poorly or patchily from jurisdiction tojurisdiction: computer programs, computer-generated technology, data and business models.This may place more emphasis in the future ontrade secrets, confidentiality and copyright. Amove from selling products to selling mobility andrelated services will require car makers to refineand expand their current branding or co-brand
with service providing partners. The iPod and theiPhone demonstrate the importance of designrights in user interfaces and new form factorswhen technology revolutionises existing products.Autonomy may drive similar changes in all aspects of vehicle design.
Finally, the relative IP peace of the automotivesector is in question. New entrants may not beinterested in the sector’s tradition of informalagreements and cross-licensing between equals,which have avoided much litigation in the past.Connectivity, and potentially autonomy, willincreasingly require vehicles to work theinventions in “standard essential” patents. Suchpatents have been the basis for litigation in thetelecommunications sector and their owners areincreasingly looking at the automotive sector.Balanced positions recently taken by variousregulators regarding the enforcement of standardessential patents place the development oflicensing models largely in the hands of themarket.
It has never been more important for theindustry’s players to identify and protect IP, tocheck freedom to operate and to reviewapproaches to licensing.
Everyone in Gowling WLG’s leading Automotiveand IP teams would like to thank James Nurtonand Natalie Canter for their dedication and insightin corralling the abundance of material thatunderpins this report. We also thank the manyleaders in their fields who gave their time to beinterviewed and to discuss the preliminaryfindings. Naturally, in order to share theirexperiences and predictions freely, most havedone so on condition of anonymity.
Matt HerveyDirector, Intellectual Property,Gowling WLG1
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FOREWORD
2
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This report focuses on the questionsthat automated driving technologyposes for intellectual property, andhow those questions might beaddressed by industry participants,
regulators and courts. As of mid-2018, it is tooearly to make confident predictions but we canlook at how IP issues have been tackled in otherindustries (such as smartphones) for guidance.The report is based largely on in-depth interviewswith representatives of car manufacturers,telecoms companies, automotive industrysuppliers, lawyers and patent attorneys, some ofwhom spoke anonymously. We have also drawnon published research by patent offices and others,and the results of an online survey completed by219 IP professionals: the results of this are shownand analysed throughout the text.
Other topics that emerged during the researchwill be tackled in shorter side bars. These include:design rights, trade secrets and data protection.
The research for this report began in November2017 and was completed in June 2018, and wasconducted in association with Gowling WLG. Inaddition, a Steering Committee comprisingrepresentatives from across the industry wasestablished and met to discuss some of thepreliminary findings in April 2018. This meetingwas invaluable in establishing the framework forthis report and the main points to focus on. Weare grateful to all those who took part in theresearch.
METHODOLOGY
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“IP and the Automotive Industry” is aspecial report published in July 2018 byManaging Intellectual Property inassociation with Gowling WLG.
© Euromoney Trading Limited 2018.
The copyright of all editorial matterappearing in this magazine is reserved bythe publisher.
No legal responsibility can be accepted byEuromoney Trading Limited or GowlingWLG for the content of this report.
Printed in the UK by Barkers Print Limited,UK
Read this report online at managingip.comand contact Managing IP at 6-8 BouverieStreet, London EC4Y 8AX, Tel: +44 207779 8682, email [email protected] for more details
The connected car has arrived and au-tonomous technology is coming.There are many questions yet to beanswered: when will fully au-tonomous vehicles be on the roads?
Which countries and companies will lead theway? Who will win and lose from their introduc-tion? Will autonomous vehicles gain public accep-tance? But there are some certainties: hugeinvestments are being made; research and devel-opment is booming; and the new technologies andbusiness models will raise fundamental questionsabout intellectual property strategies.
Adding up data from 160 deals including in-vestments, partnerships and acquisitions, theBrookings Institution estimated that at least $80billion had already been invested in “self-drivingcars” by 2017. According to CB Insights, venturecapital and strategic corporate investors put $4.5billion into autotech in 2017, three times theamount invested in 2016. Three-quarters of thisinvestment went into autonomous vehicles.
This investment is being made by traditionalcar companies; new entrants such as Tesla; ridehailing companies such as Uber and Lyft; and
those from outside the industry, such as Waymoand Apple. A selection of recent announcementsprovides a snapshot:
In June 2018, Toyota announced investment•of $1 billion in Grab, a south-east Asian ride-hailing start-up.In May 2018, Softbank invested $2.25 billion•for a 19.6% stake in Cruise, GM’s autonomousunit, valuing the unit at $11.5 billion. Cruiseexpects its vehicles to join ride-sharing fleetsin 2019.Also in May, Waymo, owned by Google, an-•nounced a partnership with Fiat, underwhich it will buy up to 62,000 autonomousFiat Chrysler minivans.In March 2017, Intel agreed to acquire auto-•mated driving company Mobileye for $15.3billion.In 2017, Microsoft announced a patent licens-•ing agreement with Toyota covering connected car technologies.Also in 2017, Ford agreed a deal with Amazon•allowing users to control certain aspects oftheir car via the voice-based service Alexa.3
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IP and the automotive sector
SPECIAL REPORT PUBLISHED JUNE 2018
There are at least three key challenges for IParising from developments in the industry. First,the research and development is expensive and in-volves radical departures (artificial intelligence,light detection and ranging (LiDAR) etc), but it isnot always clear how best to use IP to protect thisinvestment. Second, the technology is evolvingand in many cases will be owned or implementedby new entrants to the industry: this will threatenexisting business models and require technologylicensing on a large scale. Third, as the list of an-nouncements above demonstrates, collaborationis going to be key to success – between partnersas well as across the industry – and, combined
with requirements for interoperability, this will al-most certainly lead to the use of existing and newindustry standards and fair, reasonable and non-discriminatory (FRAND) licensing.
As we will see, there are already initiativesunderway to license the platform technologies,and considerable lobbying about the best way todo so. But many in the industry fear that the pathwill not be smooth, and that the evolving circum-stances will lead to fights in and out of court.“There is a high probability of litigation with eachother. We will find out in the next couple of years,”as one in-house counsel said. Another in-houselawyer, at a leading automotive manufacturer,added: “The biggest challenge we face is that thesmartphone patent wars are coming to the automotive industry.”
What do we mean by autonomous?Many drivers believe the introduction of au-tonomous vehicles is a long way off. But in factmuch of the technology behind them is already fa-miliar, such as systems to keep cars in a lane andat a safe distance from the car in front.4
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A Waymo minivan. Since 2009, Waymo autonomous vehicles have driven more than six million miles. It would take the average American driver 300 years to cover the same distance.
“The biggest challengewe face is that thesmartphone patent warsare coming to theautomotive industry.”
Standardisation body SAE International has aclassification system from 0 to 5 which has beenwidely adopted (see table 1). Levels 0-2 involve ahuman driver monitoring the driving environ-ment, while levels 3 to 5 have an automated driv-ing system monitoring the driving environment.Vehicles with adaptive cruise control, parking as-sistance and lane keeping assistance fall into level1 and are already widely available. According toan analysis published by Bloomberg in May 2018,Waymo is planning to launch a pilot programmeof driverless vans in Phoenix this year while GMis planning a ride-hailing pilot without steeringwheel or pedals in 2019. While many other man-ufacturers are investing the level 4 and level 5technology, these two companies are “the clearleaders”, according to Bloomberg.
Inevitably the higher levels of automation re-quire much more hardware on board – in the formof sensors, cameras and navigation and road posi-tion systems on the vehicles. One crucial technol-ogy is LiDAR. LiDAR technology is expected togenerate $1.6 billion in revenue in 2022 and $31.5billion in 2032, according to analysis by the EE
Times. Between 2007 and 2017, LiDAR patent pub-lications grew by 21% a year. “Three years ago, ourIP programme was minimal. We have now built ourpatent portfolio substantially and internationally,”says one source in the LiDAR industry.
A connected worldEqually important, even at the lower levels of au-tomation, are technologies that enable communi-cation. In April 2018, for example, it becamemandatory for all new cars sold in the EU to haveeCall installed. eCall automatically dials the emer-gency services when a car is involved in an acci-dent, providing Galileo coordinates, airbagdeployment and impact sensor information. It isestimated that up to 20% of cars on the road todayincorporate connectivity of some kind.
At levels 4 and 5, connectivity will be essen-tial: vehicles will need to communicate with othervehicles on the road, with stationary objects (suchas traffic signals) and with remote centres thatwill track vehicle behaviour, collisions and nearmisses. Such technology may soon become vitalfor safety, security and navigation. In addition,5
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Yes 95%
Not sure 4%
No 1%
Figure 1: Do you think IP rights will play a moreimportant role in the development of the automotivesector over the next 5 years?
Table 1: Levels of autonomy
SAE level Name
0 No automation
1 Drive assistance
2 Partial automation
3 Conditional automation
4 High automation
5 Full automation
communications will be important for enhancingthe user experience (especially as, at the higherlevels of automation, vehicle occupants will needthings to do with their time). This could includeproviding live information, entertainment andshopping during the journey.
The role of intellectual propertyIn the online survey conducted as part of the re-search for this report, 95% of respondents pre-dicted that IP rights will play a more importantrole in the sector (see figure 1) with the focusbeing on technologies relating to autonomous ve-hicles and communication: the top four categoriesidentified were control of position/course of a ve-hicle; batteries; control systems; and image anal-ysis (figure 2). Patents were seen as the most
significant area of intellectual property, with morethan 80% of respondents saying they will be im-portant for autonomous vehicles, but it was no-table that many respondents also identified otherIP rights or means of protection as likely to be important (figure 3).
Trends in patent filingBoth our online survey and anecdotal evidencesupport the thesis that patenting activity is soaringin the automotive sector. Chart 4 shows that 65%of respondents see patent filings increasing, com-pared to 1% who believe they are decreasing. “Theecosystem is developing rapidly … Our patentportfolio is six times the size it was three yearsago,” an in-house counsel for one tier one sup-plier says, adding: “If you have valuable patents6
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What is 5G?Now under development andexpected to be launched fromabout 2020, 5G is set to providebenefits including device-to-device communication, which iscrucial to the Internet of Things.The standards for the varioustechnologies that will make up 5G– enabling reduced latency,increased volumes of connections,improved battery life and greaterdownload speeds – will beestablished during 2018–2020. Thefirst full technical specification for
the 5G wireless open standardswas released by standards body3GPP in June 2018.
Owners of 5G standardessential patents are likely toinclude a large number ofEuropean, US and Asiantechnology companies, while thetechnology is likely to beimplemented in objects throughoutthe home and workplace, as well asvehicles and mobile devices. Thismakes for a very different marketto earlier generations of mobiletechnology, where there were just ahandful of patent owners and the
technology was mainly used inmobile phones.
5G is the fifth generation ofmobile technology to beintroduced since the early 1980s.A McKinsey study estimates thatthe economic potential of IoTapplications will be up to €9trillion a year by 2025 indeveloped countries.
The 5G AutomotiveAssociation (5GAA) was foundedin September 2016 and now hasmore than 80 member companiesfrom the automotive and ICTindustries.
Going greenCommunications and autonomyare not the only areas where IPrights are set to play an importantrole in the automotive industry. Atthe same time as manufacturersare investing in automateddriving technology, there are alsorevolutionary developments infuel efficiency, battery technologyand aerodynamics.
These are largely beingdriven by legislative initiatives tocut emissions and promote cleantechnology. In the UK and France,for example, governments haveset a target of 2040 to end sales ofpetrol- and diesel-fuelled cars.Some cities plan to bring in bans
even sooner. In Germany, a courtruled in February that individualcities can go ahead with bans ondiesel cars. China’s vice-ministerof industry and informationtechnology last year said thecountry would ban fossil fuel cars“in the near future”.
These initiatives areprompting investment in batteryand charging technology topower the next generation ofvehicles. Meanwhile, in the shortterm, manufacturers aredeveloping new technologies infilters, engine control systems (sothat, for example, some cylinderscan be switched off when notrequired) and reducing theweight of vehicles by using
materials such as magnesiumalloys and carbon composites.
As both governments andconsumers increasingly emphasisethe environment, vehicles will beredesigned from the front bumperto the back. And even the mostfundamental elements of theindustry can be improved: in June2018, the European InventorAward was presented to AgnèsPoulbot and Jacques Barraud for atyre tread design that reduces fuelconsumption and CO2 emissionsand increases the life of tyres by upto 20%. Michelin patented thistechnology in 2013, nearly 120years after the same companyrolled out the very first removabletyres for automobiles.
early in development with broad application, thenyou are well positioned … Everybody entering thefield is heavily engaged in patenting activity.” An-other says: “Since 2015 we have dramatically in-creased patent applications and geographicalcoverage, and 50% of our filings are in new technical areas.”
This trend reflects several influences. First,there is simply more money being invested in re-search and development, and R&D is expandinginto new areas. Second, as one in-house counselsays, there is “enormous disruption” as new en-trants develop and patent relevant technology.Third, and partly in response to this, auto com-panies need to ensure they are on an equal foot-ing with their competitors, including in terms ofpatents. “We are building our portfolio both
organically and through acquisitions,” said alawyer at a leading European manufacturer. Anumber of original equipment manufacturers(OEMs) have reportedly hired staff from IT andtelecoms companies to boost their R&D in thisarea.
Crunching the numbersIdentifying trends in automotive patenting is hardto do. This is partly because of the great diversityof patentable technologies and the variety of com-panies involved in research, and partly becausemany technologies that are likely to be relevantto the auto industry are also going to be relevantin other fields, and may be categorised accord-ingly. As with all patent data, there is also the riskof information being out of date: patents are7
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Figure 2: In which of the following technologies do you think IP rights will play an important role in the next 5years? (%)
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Figure 3: Which of the following will be important for autonomous vehicles? (%)
published at least 18 months after being filed, so(for example) analysis of publication data in June2018 reflects what was being filed at the beginning of 2017.
However, there is a lot of useful informationin a report, “Patents and the Fourth Industrial Rev-olution (4IR)”, published by the European PatentOffice and the Handelsblatt Research Institute inDecember 2017. This analysed and classified Eu-ropean patent applications relating to
autonomous objects filed up to the end of 2016. Itfound that 5,000 such patent applications werefiled at the EPO in 2016, and that the annual rateof growth was 54% (compared to an averagegrowth in patent filings of 7.65%). The top five ap-plicants from 2011 to 2016 were Samsung, LG,Sony, Nokia and Huawei. In the 1990s, 4IR patentsrepresented less than 1% of all applications at theEPO; in 2016, they accounted for about 3.3% of applications.
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Figure 4.7: Vehicle applications and enabling technologies
What role willtrade secretsplay?Perhaps the highest-profiledispute regarding automatedvehicles so far has been the tradesecrets case between Waymo andUber in the United States. Thiscase was initiated by Waymo inJanuary 2017 and settled inFebruary 2018, with Uber offeringWaymo’s parent Alphabet 0.3% ofits equity (worth about $245million at the time) along withsome other undertakings. Thedispute concerned allegationsthat former Waymo engineerAnthony Levandowski haddownloaded and copied some14,000 documents and
subsequently communicated withUber. The litigation, being heardbefore Judge William Alsup inthe Northern District ofCalifornia, started with broadclaims of patent infringementand trade secret theft but hadshrunk before it was settled.Nevertheless, a lot of informationwas revealed in court filings –probably more than either sidewould have liked.
The case attracted muchmedia attention, thanks partly tothe possibility of some explosivewitness evidence in court, andthere was some speculation thatthis was merely the first of manysimilar disputes in the industry.But in fact the opposite may be thecase. As one US trade secretsspecialist says: “Reverseengineering is rampant and easily
available in the auto industry, andmost of what you do is going to beput out into the market. Protectingthings by secrecy is not going to beterribly practical, so secrecy willnot overtake patenting.”
Trade secrets might not beimportant for products that havebeen put on the market – but maystill have a role to play duringinternal development as newprocesses are developed. Theywill also likely be one means tokeep control of the large amountsof data needed to train andderived from artificial intelligencesystems, which will be crucial forautonomous vehicles. “There arepractical problems withenforcement of trade secrets,”says Matt Hervey of GowlingWLG. “But trade secrets could bethe key to protecting AI.”
Within 4IR, patent applications for inventionsin “vehicles” have risen sharply in the past sixyears, and reached 1,104 in 2016. Among the top25 4IR applicants, the best represented in the “ve-hicles” category were Toyota (3.6% of applica-tions), LG (2.9%), Nokia (2.8%), Qualcomm (2.7%),Honeywell and Boeing (both 2.6%). German appli-cants are particularly prominent overall, withUpper Bavaria alone accounting for 2.5% of vehicles applications within 4IR. The report alsofound that:
Position determination is by far the mostimportant enabling technology in inventionsrelated to Vehicles, with a stable presence inabout 15% of all inventions in this field (Figure4.7.a). Conversely, more than half of inventionsin Position determination are actually relatedto Vehicles, which is therefore the main driverof innovation in this enabling field (Figure4.7.b). Analytics, and to a lesser extent Securityand User interfaces, are increasinglyintegrated in applications for Vehicles. Only asmall fraction of inventions in Vehicles arerelated to Artificial intelligence or 3D systems(Figure 4.7.a). However, they represent 20%and 13% respectively of inventions in Artificialintelligence and 3D systems, and are thereforeimportant drivers of innovation in these twoenabling technologies.
Other analysis supports the EPO findings. Forexample, a study of published patent applicationsby IP firm Reddie & Grose found that patents for“autonomous vehicles” grew from just over 600 in2007 to 2500 in 2016, with the top five filers beingToyota, Hyundai, Alpine, Bosch and Honda. How-ever, when the results were broken down accord-ing to classification, a mix of traditional OEMsand new entrants was revealed:
The top filers for “control of position/course•of a vehicle” were, in order: Google, Ford, Toy-ota, GM, Bosch. For “image analysis”, the top five were Sam-•sung, Toyota, Fujitsu, Honda and Denso.For “electric propulsion with power supplied•within the vehicle” the top five were Toyota,Honda, Hyundai, Nissan and Bosch.
Licensing modelsThe diversity in ownership of patents relevant to au-tonomous vehicles leads to one of the key chal-lenges now facing the industry: the companies thatassemble, manufacture and sell vehicles do not nec-essarily own the technologies that will be central totheir development in the coming years. “Cars are al-ready here and don’t have connectivity technologyof their own. Patent owners want a reasonable roy-alty, but car companies are used to their supplierstaking care of IP issues,” explains one high-tech in-house counsel. However, there is cooperation
between the different industries at various levels,such as in the 5GAA (see box). “We’re talking to theauto companies a lot more. They are very good atproviding the use cases. We can tell them the re-straints, so there is useful interaction between us,”says one counsel at an ICT company.
Figure 6 reveals that issues to do with sharingand exploiting technologies are seen by manypractitioners as among the most likely to arisewith autonomous vehicles, while figure 7 showsthat about a fifth of respondents say they plan tobe involved in standard setting, with a similar pro-portion planning to be involved in patent poolsand taking a licence to SEPs.
IP disputes in the automotive industry havetraditionally been relatively rare for a number ofreasons. One was that companies tended to inventaround others’ IP rights. And, in cases where li-censing was necessary, disputes could often be re-solved amicably. Moreover, safety-criticaltechnology was licensed at little or no cost. Thepatent on the three-point seat belt, invented byNils Bohlin of Volvo in the 1950s, was not en-forced: as Volvo managing director Alan Dessell9
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Yes - lots more 42%
No 4%Unsure 10%
Yes - a little bit more 44%
Figure 5: Do you expect to see more litigation over IPrights in the automotive sector?
Increasing 65%
Roughly the same 15%
Decreasing 1%
Unsure 20%
Figure 4: Judging by your experience, is the number ofpatent filings in the automotive sector:
said: “The decision to release the three-point seatbelt patent was visionary and in line with Volvo’sguiding principle of safety.” Other technologieswere cross-licensed between competitors underwhat one industry participant describes as “a typeof gentlemen’s agreement”. Moreover, IP licensingwould typically be taken care of in the supplychain, meaning components were provided tomanufacturers with warranties. The new world ofautonomous vehicles changes all of that.
Computers on wheelsMuch of the technology driving autonomous vehi-cles is owned by IT, telecoms and software com-panies. Some of this technology will provide acompetitive advantage and may not be licensed,but much of it is likely to relate to how cars com-municate and share data. Some will inevitably beessential to standards for interactivity, communi-cation, safety and security. How to license thosepatents is something that has been exercisingmanufacturers, IP lawyers and regulators over the
past couple of years. “Standard essential patents(SEPs) and how they work in the automotive sec-tor is the growing focus in this industry,” saysMatt Hervey, a director in the IP team of GowlingWLG in London.
The EU, US and Japan have each recentlyprovided some guidance on this issue.
Following unprecedented lobbying from boththe automobile industry and by patent ownersand “implementors”, the European Commissionpublished a communication on SEP licensing inNovember 2017. This set out key principles “to fos-ter a balanced, smooth and predictable frame-work for SEPs”. The Communication providedguidelines on transparency, FRAND licensing andenforcement but stopped short of taking a positionon some of the most controversial issues in thestandards debate.
At about the same time, on November 10 2017,US Assistant Attorney General Makan Delrahimgave a speech at the USC Gould School of Law’sCenter for Transnational Law and Business10
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Figure 6: Which of the following do you think are likely to arise with autonomous vehicles? (%)
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Figure 7: Have you been, or do you plan to be, involved in any of the following? (%)
Conference in Los Angeles. He used this speechto address the role of standard-setting organisa-tions (SSOs), saying: “I worry that we as enforcershave strayed too far in the direction of accommo-dating the concerns of technology implementerswho participate in standard setting bodies, andperhaps risk undermining incentives for IP cre-ators, who are entitled to an appropriate rewardfor developing break-through technologies. Theduelling interests of innovators and implementersalways are in tension, and the tension is resolvedthrough the free market, typically in the form offreely negotiated licensing agreements for royal-ties or reciprocal licences.” Criticising some UScourt decisions, and urging “fresh thinking aboutthe implications of SSOs and the proper role of an-titrust law”, Delrahim concluded by saying that“concerns over possible innovator hold-up shouldnot override the dangerous prospect of implementer hold-out”.
Finally, on June 5 2018, following an exten-sive consultation process, the Japan Patent Office
also published its “Guide to Licensing Negotia-tions involving Standard Essential Patents”, a 50-page document discussing licensing negotiationmethods and royalty calculation methods. Thisguide acknowledged the “lack of convergenceover certain points” adding: “That convergencewill eventually emerge as technologies and mar-kets continue to evolve and cases of dispute reso-lution accumulate, while new issues too willinevitably emerge.”
A balanced approachIn its communication, the European Commissionsaid the evidence suggests that “the licensing andenforcement of SEPs is not seamless and may leadto conflicts”. To address this, it provided guidancein three areas: (1) Increasing transparency onSEPs exposure; (2) General principles for FRANDlicensing terms for SEPs; and (3) A predictable en-forcement environment for SEPs.
The Commission did not take a position onsome issues that were aired during the debate11
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UK Autodrive is one of three projects that are part of the UK government’s Introducing Driverless Carscompetition. It is carrying out road trials in the cities of Milton Keynes and Coventry, using cars provided bypartners Ford, Jaguar Land Rover and Tata Motors European Technical Centre, as well as self-driving podssuch as this one.
leading up to the Communication. An importantarea of disagreement is use-based licensing. SEPowners argued that, for example, a vehicle thatrequires constant connectivity makes greater useof wireless communication than a fridge thatconnects once a day, and should therefore pay agreater royalty. Another source of contentionwas: who needs to take a licence – the supplieror end-user manufacturer? It looks like it is leftto the market, or the courts, to decide these ques-tions. “The approach taken by the Commission –and by the US Assistant Attorney – has returnedthe pendulum for and against SEP holders to thecentre,” says Matt Hervey of Gowling WLG inLondon.
One of the first attempts to create a market so-lution was the establishment of Avanci in 2016.The Dallas-based company, which describes itself
as a “patent licensing clearinghouse” for the Inter-net Of Things, offers licences to essential patentsowned by its 11 members. These include Ericsson,Qualcomm, ZTE, BT, Vodafone, Panasonic andSharp, and more members are expected to beadded. It has a fixed-price royalty model based onthe value the technology brings to a device andpromises that the price will never increase if fur-ther essential patents are added to the licence. Forvehicles, the royalty rates are $3/vehicle (eCallonly), $9/vehicle (3G, 2G and eCall) or $15/vehicle(4G, 3G, 2G and eCall). Prices for 5G have notbeen set yet. In December 2017, Avanci an-nounced that it had signed a licence agreementwith BMW, which “will to a large extent be handled through its supplier for telematics units”.
Avanci says its proposal offers simplicity,transparency and predictability to the auto indus-try. But one source estimates that at present it onlycovers about half of all essential patents and sev-eral major patent owners are not members. Otherlicensing organisations include Sisvel – which of-fers patents owned by companies including Air-bus, KPN, Mitsubishi and Orange – and ViaLicensing (an independent subsidiary of DolbyLaboratories). And then there are companies suchas Nokia that own many patents but have notjoined any licensing pool.
As one in-house counsel says: “Relativelyfew people in the auto industry understandpatent licensing. With so many offers out there,12
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DesigndisputesDesign rights play an importantrole in the automotive sector,but there is inconsistency inparticular in relation to theprotection of spare parts. Areport commissioned by theEuropean Commission in 2016,as part of its review of the EUDesign Directive, found that “theeconomic evidence suggests thatthere is no broad economicjustification for maintainingspare parts protection” andrecommended that “legislativeamendment at the EU levelappears necessary”. However, nochanges to the Directive have yetbeen proposed.
In the US, the AutomotiveBody Parts Association (ABPA)recently sought a declaration thattwo of Ford’s design patents are
invalid or unenforceable. In anorder denying the ABPA’s motionfor summary judgment onFebruary 20, Judge Laurie JMichelson of the US DistrictCourt for the Eastern District ofMichigan said: “[T]he ABPAargues that designs for auto-bodyparts are simply not eligible forpatent protection becauseconsumers seeking to repair theirvehicles do not select body partsfor their design and because thedesigns were dictated by thebody parts’ function.” In thealternative, the ABPA argued thatsuch design patents areunenforceable because the rightsare exhausted upon the first sale.In a victory for Ford, the judgerejected both arguments.
In our survey, 45% ofrespondents thought that designrights would be important forautonomous vehicles, and therehas indeed been a lot of litigation
over designs in the US, Europeand in particular China.Moreover, if lessons are to bedrawn from the smartphoneindustry, then it should be notedthat many of the high-profiledisputes, including that betweenApple and Samsung, includedclaims of design infringement. AsMatt Hervey of Gowling WLGsays: “The iPod and then thesmartphone created new formfactors and user interfaces. A lotof the litigation focused on designrights as a result of that.”
It is likely that there will bedisputes over the shape of cars,the look of graphical userinterfaces (GUIs) and other usertools developed for autonomouscars. But the consensus amongthose interviewed for this reportwas that design rights, thoughvaluable in certain respects, areunlikely to play a role in theevolution of the industry.
“The approach taken bythe Commission – andby the US AssistantAttorney – has returnedthe pendulum for andagainst SEP holders tothe centre.”
it will take a lot of work to convince people theyshould be paying.” And, even if they accept theprinciple, there are further questions: whatchanges when 5G arrives? What happens if youalready have a licence from a patent owner andthat company then joins a group such as Avanci?“Many patents are already licensed, and youdon’t want to be paying double!” says one industry source.
On one side of this debate is the Fair Stan-dards Alliance, which campaigns for “a fairer andmore transparent SEP licensing ecosystem” andcounts BMW, Ford, Honda and Volkswagenamong its members. Its concerns are that imple-menters are going to end up over-paying for tech-nologies, have their supply chains disrupted andbe subject to endless litigation. On the other sideis IP Europe, which represents patent ownerssuch as Airbus, Ericsson, Nokia and Orange aswell as a number of SMEs. It argues in favour ofuse-based licensing, and points out (as one sourceput it) that connectivity will soon be as essentialto a new vehicle as an engine is.
Battles loomingThe lack, so far at least, of clearly defined licens-ing models, combined with the development ofnew technologies and new entrants leads many inthe industry to speculate that the era of the “gen-tlemen’s agreement” will inevitably be replacedby one marked by assertions of patent infringe-ment and battles in court. As one in-house coun-sel at a major manufacturer said: “The wirelessconsortiums will have to sue. I’m concerned it’sgoing to be me that gets sued.” In our survey, 86%of respondents said they expected to see either alittle bit more or lots more litigation over IP rightsin the sector (figure 5). “Car companies will try tohold out for as long as possible. Patent holderswill be unreasonable enough and we will have litigation,” comments one in-house counsel.
The first such skirmish came when Broad-com filed a series of patent actions against automanufacturers. On May 8 this year the US chip-maker sued an OEM in the US district court inMarshall, Texas, alleging infringement of six of itspatents. It followed this with a complaint beforethe US International Trade Commission on June7 alleging that various companies imported andsold infotainment systems that infringed severalpatents covering the receipt of satellite signals andthe control of TV systems in vehicles. It has alsoemerged that Broadcom has filed actions in Ger-many against two German OEMs, as well as sev-eral of their suppliers, alleging infringement of 13patents for wireless communications in vehicles.The first hearings in the cases took place inMannheim on June 12 and 29 2018. Observersthroughout the industry will be watching howthese cases develop and what lessons they providefor other patent owners and manufacturers.
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Does the IP systemneed changing?Perhaps surprisingly, given it was a surveyof IP practitioners, one-third ofrespondents to our online questionnairethought IP laws need updating for theauto industry (figure 8). No fewer than 50suggestions were given for improvements.These included the following (some ofwhich are inevitably in contradiction): • Patentability of computer software
must be clarified in both Europe andthe US
• Guidelines on collaboration shouldbe clarified
• Current means of protection need tobe longer and wider in scope
• Anti-counterfeiting measures need tobe improved
• Protection term should be shorter• The patent application process
should be speeded up• Data must be effectively protected• Clearer principles on FRAND
calculation, principles,proportionality and indemnity in thesupply chain
• Harmonisation of laws• IP laws need to be adapted to
effectively protect AI• Term of patent protection should be
reconsidered• IP laws need to be updated to
include provisions to protectexperimental data
No 31%
Unsure 35%
Yes 34%
Figure 8: Do you think IP laws need to be updated tofacilitate automotive technology development?
One of the concerns in the auto industry isthat with so much money going into autotech re-search, patent owners will be under pressurefrom investors to monetise their assets – and thismakes patents likely to be asserted. “At some pointthese patents will hit the street,” says one in-housecounsel. “It’s time to sound the alarm!” Anothersays: “I expect the patent trolls to come backstrongly.” Indeed, interviews with OEMs during
the research for this report indicate that patent as-sertions from outside the industry have increasednotably in the past couple of years, and the OEMsare braced for many more.
Patent assertions are something that carcompanies are going to have to learn to dealwith. But litigation over SEPs poses particularchallenges. It is widely accepted that the higherlevels of automation will require some cross-14
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Data is the keyOne thing that everyone agreeson is that autonomous andconnected vehicles will generateenormous amounts of data. Fromtravel patterns to information oncollisions and near misses, all ofthis data will be of value andsome of it will be closely guardedand some of it will need to beshared, either on a voluntary orcompulsory basis. “Automatedcars will constantly collect dataon the most apparently benignthings, such as the outsidetemperature,” says one former in-house counsel at a large autocompany. “Who owns thatnumber?” Our survey (figure 10)
showed that respondents weredivided over whether it should bethe manufacturer, car owner,driver, government or anindependent organisation. Suchquestions are largely outside thescope of this report, and arecovered more thoroughly in “AreYou Data Driven?” published byGowling WLG in 2017.
Nevertheless, they are issuesthat IP practitioners areincreasingly likely to be calledupon to address. As one says:“Data protection is becoming thebiggest issue. Who owns it? Howis it used? We will soon have datafor hundreds of characteristicsfor every vehicle, all of which canbe used in some way. This will
require some high-levelagreements.”
Patrick Arben, a partner ofGowling WLG, says thatcompanies are going to be moreaware of the importance ofkeeping data secure and gainingconsent from users followingrecent media coverage and theimplementation of the GeneralData Protection Regulation inMay 2018. “The threat posed by adata breach and civil claims fromdata subjects is serious,” he says,but adds: “If your infrastructurebuilds in privacy by design, thenyou should be fine. If on the otherhand you overlay security systemsafter the event then you may becreating greater vulnerability.”
Five keyquestionsWith the automobile industrychanging rapidly, there are manyuncertainties about how differentit will be in a decade’s time. Andhow the industry develops couldhave an impact on IP strategies.Here are a few issues that ourinterviewees agreed are likely toshape the way companies protect,exploit and enforce theirintellectual property:• How will business models
change? For most of its life,the car industry has beendominated by privateownership of vehicles. Willconnected and autonomouscars change this, and make itless necessary for individualsto own their own? Will the
growth of car sharing andride hailing accelerate thistrend? What impact will thishave on manufacturersdealerships and insurers?
• How will data and artificialintelligence be protected?Which IP rights will play arole? As in smartphones, willthere be competing opensource and proprietary models?
• How will the value andrecognition of trade marks beaffected? If cars merelybecome a means of gettingfrom A to B and the driverdoes not own the vehicle, willconsumers still be attracted toparticular brands? And wherebasic technology isstandardised, how will brandsstand out? What impact willsuch changes have on trademark strategies?
• As the technology behind
vehicles changes, will thataffect the importance of designrights? As new forms emerge(for example, pods and othervehicles without manualcontrols) will companies rushto register new designs? And ifso to what extent will these beprotectable and enforceable?
• Will different jurisdictionsdevelop in differentdirections? The rollout offully autonomous vehicleswill depend heavily oninfrastructure andgovernment regulation, sowill some countries movefaster than others or enabledifferent technologies orbusiness models? What willhappen where countriesshare land borders (forexample in Europe or NorthAmerica) – will commonstandards need to be agreed?
industry standards. As one in-house lawyer at ahigh-tech company said: “If there’s a really goodsafety feature that will have to be shared. And toenable them there will have to be interactionsbetween vehicles on the road. That implies somesort of FRAND obligation.” As yet, these stan-dards are yet to be set, it is not clear whichpatents will be relevant to them, or who will re-quire licences. Disputes over these questions areinevitable.
Luckily, there may be some lessons from thesmartphone industry, which has seen many yearsof litigation addressing questions such as: whenis a patent essential to a standard? When is an in-junction appropriate in a FRAND case? And,where a patent is found to be essential, what is asuitable royalty rate? Three recent cases shedsome light on these questions.
In the UK, the detailed Unwired Planet vHuawei judgment given by Mr Justice Birss inApril 2017 addressed both patent and competitionissues raised by Unwired Planet’s assertion of anumber of SEPs against Huawei. The judge con-cluded that there was one FRAND rate and that alicence should be agreed on worldwide terms. Healso set out the precise royalty rates that he be-lieved were FRAND in this case and made it clearthat the court had the power to order an injunc-tion if a licence were not agreed. Huawei has ap-pealed these findings: there was a hearing in May2018 and the Court of Appeal’s judgment is expected later this year.
Unwired Planet is one of several cases in thepast year concerning FRAND and the licensing ofSEPs. In December 2017, Judge James Selna ofthe Central District of California gave his judg-ment in TCL v Ericsson, the fourth case to deter-mine a FRAND rate in the United States but thefirst regarding a large multi-standard portfolioand the first to address what is meant by “non-dis-criminatory”. The judge rejected the patentowner’s proposed royalty rates, saying “Ericsson’spatent portfolio is certainly not as strong or essen-tial as it has claimed”, and setting his own ratesfor its 2G, 3G and 4G portfolios. Like Birss, he tookan international perspective and reviewed compa-rable licences in order to reach his conclusion. Ericsson has appealed the ruling.
Finally, in China, the Shenzhen IntermediatePeople’s Court took a slightly different approachin Huawei v Samsung, handed down on January11 2018. Finding that Samsung infringed Huawei’sSEPs, and that the patent owner had met itsFRAND obligations, the Court granted an injunc-tion covering China, criticising Samsung over itsapproach to the licensing negotiations. There arefurther cases pending between the parties in bothChina and the US.
Will these decisions, and others now pendingbefore courts, provide a model for the auto indus-try? They will undoubtedly be studied by both
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Negative impact 3%
Both positive and negative 34%
Too soon to say 10%
Positive impact 53%
Figure 11: Overall, what impact do you think IP rights arelikely to have on the development and rollout ofautonomous vehicles?
Governments/local authorities 20%
Independent organisations/NGOs 13%
Automobile manufacturers 16%
Not sure 12%
Drivers/passengers 21%
Component technology manufacturers 4%
Car owners(individuals, car hire companies etc) 15%
Figure 10: Automotive technology is likely to lead to largeamounts of data being collected from road users. Whoshould control that data?
A negative impact 4%
Unsure 38%
A positive impact 58%
Figure 9: What impact will Free and Open Source Softwarehave on the development on autonomous vehicles?
licensors and licensees. As several intervieweesnoted, the key jurisdictions for auto patent litiga-tion are likely to be Germany, the US and Chinaso cases in these countries will be looked at par-ticularly closely. But much will depend on whatstandards are agreed, the nature of the portfoliosasserted and information on comparable licences(where available). At least one in-house counselat an OEM questions whether parallels can bedrawn directly with the smartphone sector:“Smartphones are a special example in a specialindustry. There are lots of other licensing modelsfor SEPs.”
A test bedTake up of automated and connected vehicles willdepend on many things – safety, accessibility, se-curity, public acceptance – but solving the IP prob-lems will be crucial to ensure that efficient,trusted and cost-effective vehicles are available.Perhaps reassuringly, more than half of respon-dents to our survey thought that IP rights willhave a positive impact in this area (figure 11)though a similar proportion felt that free and opensource software would also have a positive impact(figure 9). If the IP challenges discussed in this re-port are not adequately addressed, then the rolloutof this new technology will be delayed or dis-rupted. All those involved therefore have an incen-tive to find solutions, and to react as the industryadapts – for example if ride-sharing becomes com-monplace and individuals no longer see the needto own their own car, or if vehicle manufacturersadopt different business models. “One of the realchallenges is the transition from driven to driver-less cars,” says Matt Hervey of Gowling WLG.“How do you get to the point where all cars are autonomous?”
Addressing these questions will support notjust the auto sector but potentially others as well:similar challenges will also be faced by manyother industries once 5G systems are rolled outand the Internet of Things arrives. If it is success-ful, the auto industry may become a model for thesuccessful development and licensing of IP rights.
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Further readingThe following documents are referred to in the text:
Brookings Institution, “Gauging investment in self-driving cars”: www.brookings.edu/research/gauging-investment-in-self-driving-cars/
CB Insights, “Autotech start up investment trends”:www.cbinsights.com/research/auto-tech-startup-investment-trends/
Bloomberg, “Who’s winning the self-driving carrace?”: www.bloomberg.com/news/features/2018-05-07/who-s-winning-the-self-driving-car-race
EPO/Handelsblatt Research Institute, “Patents andthe Fourth Industrial Revolution”:www.epo.org/news-issues/news/2017/20171211.html
European Commission, “Communication … settingout the EU approach to standard essential patents”(PDF):https://ec.europa.eu/docsroom/documents/26583/attachments/1/translations/en/renditions/native
Makan Delrahim, speech at USC Gould School ofLaw’s Center for Transnational Law and BusinessConference: www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-usc-gould-school-laws-center
Japan Patent Office, “Guide to LicensingNegotiations involving SEPs”:https://www.jpo.go.jp/torikumi_e/kokusai_e/seps-tebiki_e.html
5G Automotive Association: 5Gaa.org
European Commission, “Legal review of industrialdesign protection in Europe”:ec.europa.eu/growth/content/legal-review-industrial-design-protection-europe
Gowling WLG, “Are you data driven?”:gowlingwlg.com/getmedia/00546f3a-9074-47f8-b50b-fcd048e89095/162405-are-you-data-driven.pdf.xml
EPO, “European Inventor Award 2018”:www.epo.org/learning-events/european-inventor.html
McKinsey & Company, “Are you ready for 5G?”:www.mckinsey.com/industries/telecommunications/our-insights/are-you-ready-for-5g
“If there’s a really goodsafety feature that willhave to be shared. Andto enable them therewill have to beinteractions betweenvehicles on the road.That implies some sortof FRAND obligation.”
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