Less than six years old, Avanci LLC has built a platform that includes most of the patents on technology that’s key to an industry standard for 4G telecommunications. And by focusing on deals with automakers rather than parts suppliers, it’s forcing the industry to rethink how patents are licensed.
Avanci now has almost 50% of connected cars on the market under license, according to the platform, with most major US and German automakers having agreed to licensing terms. Despite an attempted antitrust suit brought by an autoparts manufacturer, Avanci’s founder, Kasim Alfalahi, thinks the platform’s new approach has been “accepted by the market.”
“I’m expecting everyone to take a license,” Alfalahi said.
Automakers’ buy-in has come as the industry experiences an increase in infringement suits over standard-essential patents, or SEPs, attorneys say. It underscores the spread of SEP litigation, which had been largely confined to the telecommunications space, to new industries with the rise of wireless connectivity.
“It is an issue that is being dealt with by a number of industries that are in unfamiliar territory,” said Paul Ragusa, an attorney at Baker Botts LLP in New York. “Automotive is one that is taking it particularly hard.”
Founded in 2016, Avanci provides a one-stop shop for automakers to get access to the 2G, 3G, and 4G patent portfolios of almost 50 companies under a single license. In addition to major companies like Qualcomm, licensors also include smaller entities like Longhorn IP and IP Bridge.
Alfalahi left a job as
“I wanted to resolve all this in one way, and that really was the creation of Avanci,” Alfalahi said.
Avanci in February announced
Avanci is also developing an offering for 5G.
Auto manufacturers have been clear about wanting to avoid their own version of the smartphone wars—the protracted global legal battles sparked by a clash of the phone and computer industries that cost tech companies hundreds of millions of dollars in legal fees.
“I think it’s clear that licensing these patents through the Avanci pool, even though it’s not without controversy, has been more efficient than what we see happening in the telecom space,” University of Utah law professor Jorge Contreras said.
But there has been resistance. A sore spot for some has been Avanci’s price—$15 per vehicle for access to all of its licensors’ 2G, 3G, and 4G patents. Kasim called the number a “huge compromise” between patent owners and carmakers. Others say it lacks transparency.
“I like that it’s a very simple price,” said Tim Pohlmann, CEO and founder of Berlin-based analytics company IPLytics. “We need more explanation of how they came up with that price.”
Avanci’s licensing model has also come under challenge.
Continental Automotive Systems Inc., which provides automotive components that use cellular standards, says Avanci has refused to deal with suppliers like them. Some automakers and parts companies balk at that shift, as parts suppliers have traditionally handled patent-licensing rights.
Continental in 2019 sued Avanci and certain licensors in the platform, including Nokia, alleging antitrust violations.
While Kasim acknowledges that negotiating directly with automakers is an adjustment for the industry, he maintains that licensing wireless communications is different than buying tires or other traditional automobile parts.
“This is 50 companies creating complete technology,” he said.
There is a correlation, legal experts say, between companies that hesitate to take an Avanci license, and those that have ended up being sued by entities contributing patents to the platform.
The last remaining well-known US automobile maker not to take an Avanci license is Chrysler, according to Florian Mueller, a blogger who tracks wireless technology patent cases. Fiat Chrysler was recently sued by Longhorn IP, Mueller reported.
Longhorn IP late last month also said it has sued
“It’s a question of where [patent owners] can apply enough pressure to make them sign the license today,” Pohlmann said, noting that South Korea-based
Germany has provided that pressure point so far.
In contrast to US courts, which can be reluctant to grant injunctions in patent cases, product bans in Germany have been the default when a patent is infringed. Germany also has a dual system for patent litigation, where infringement and validity questions are decided by separate courts.
An injunction can be a major risk for automakers with production plants or significant sales in Germany.
“The German system lends itself to an SEP holder getting an injunction against a company on SEPs regardless of whether a FRAND offer was made, or on patents that potentially aren’t even valid in the first place,” said Evelina Kurgonaite, secretary general at Fair Standards Alliance, a trade group whose members include automakers like Ford and automotive parts suppliers such as Continental.
FRAND refers to the commitment made by companies that develop standardized technology to license any standard essential patents on “fair, reasonable, and non-discriminatory” terms.
Licenses for Everyone
Avanci’s licensing platform has also fueled debate over whether SEP holders have an obligation to license to everyone in a supply chain.
Continental told a US court that the refusal to license to all was wreaking havoc on the auto industry. Tesla and Honda say that by basing the licensing rate on subjective views of “the value of connectivity to the automobile,” Avanci and its licensors were greatly inflating the costs of licenses.
“It’s a question about price and a question of who gets struck with the bill that is causing all this disruption,” Contreras said.
Continental’s antitrust suit was dismissed by a Texas federal judge in September 2020. The U.S. Court of Appeals for the Fifth Circuit recently affirmed the ruling. Continental has indicated it will ask the court for a rehearing.
While antitrust challenges to SEP holders’ licensing structure haven’t yet gained traction in US courts, Contreras said it remains an open question whether a SEP owner violates its obligation under standards-setting agreements to offer FRAND terms by refusing to license to suppliers. The answer could have implications beyond automobiles, including for the smartphone industry.
That contractual question “just hasn’t had its day yet in court to have a definitive decision,” said Contreras.
“It seems pretty clear to me that you’ve got to license to everybody that wants a license.”