Suppliers Out in Patent License Talks After Appeals Ruling (1)

Auto parts suppliers could be sidelined in negotiations over licensing for key telecommunications technology in vehicles following Continental Automotive Systems Inc.’s recent appeals court loss.

Nokia Corp., Sharp Corp. and other companies owning telecom inventions essential to industry standards want to license their patents directly to automakers such as BMW AG and Volkswagen AG. Parts suppliers, like Continental, want their own licenses.

The U.S. Court of Appeals for the Fifth Circuit ruled Continental didn’t have standing to sue for antitrust violations after it was refused a license. The court said Continental couldn’t show it suffered a non-speculative injury.

Continental brought the suit against Avanci, a patent-licensing pool, and certain companies that have contributed wireless patents to the pool, including Nokia and Sharp.

The ruling is a blow to Continental and other parts suppliers, who argue licenses to standard-essential patents (SEPs) should be available to anyone in the supply chain. Suppliers have taken on SEP holders in legal fights around the world over the argument.

“This looks like the beginning of the end for that,” said attorney David Cohen of Kidon IP.

The ruling also continues a trend of SEP holders successfully fending off legal challenges to their licensing arrangements in court, attorneys say. Licensing issues have significant implications with the arrival of 5G, which is expected to transform everything from cars to home appliances.

‘Out of Luck’

The telecom companies in the Continental suit have taken the position that it’s more efficient to negotiate with the car makers as opposed to their numerous parts suppliers.

Continental argued the companies are trying to charge inflated rates and their refusal to license to suppliers is wreaking havoc on the automotive industry.

Tesla Inc. and Honda Motor Co. Ltd. told the Fifth Circuit in an amicus brief suppliers are the ones building the parts and should be the licensees. Car makers might not know which licenses each part requires or what the right price is, they argued.

Under the Fifth Circuit’s ruling, Avanci and SEP holders can effectively cut the parts suppliers out of negotiations and deal strictly with the automakers, without fear of an antitrust lawsuit from suppliers, attorneys said. The court said Continental, which wasn’t threatened with an infringement suit, hadn’t suffered a cognizable injury that would give it standing to sue.

“These component suppliers are basically out of luck under this paradigm to force these SEP holders to license a certain point in the supply chain,” said Daniel Weinger of Mintz Levin Cohn Ferris Glovsky and Popeo PC.

License for All

The debate over whether SEP holders have an obligation to license to everyone in a supply chain, sometimes referred to as “license for all,” extends beyond automobiles.

Apple Inc., for example, has said SEP holders should make licenses available to anyone that requests a license.

The Fair Standards Alliance, a Germany-based group whose members include Google LLC and Microsoft Corp., has also pushed for the license-to-all approach, saying it’s part of the requirement that SEP holders make their licenses available on non-discriminatory terms.

“In the battle between license for all vs access to all, the Fifth Circuit has made clear that implementers will not be able to use the force of federal court litigation to compel a license where access to the standardized technology hasn’t been threatened or denied,” Baker Botts LLP attorney James Kress, who represents Avanci licensor Conversant Wireless Licensing SARL, said in an email.

By ruling on standing, the Fifth Circuit avoided the substance of Continental’s antitrust arguments. Christa Laser, a law professor at the Cleveland-Marshall College of Law, said the court left open the possibility that end product manufacturers could bring an antitrust case.

“Other entities that needed to take a license, like manufacturers, could still potentially have standing to sue,” Laser said.

Continuing Trend

The ruling is the latest legal decision cheered by SEP holders.

In August 2020, the U.S. Court of Appeals for the Ninth Circuit rejected arguments that Qualcomm Inc.’s licensing practices were anti-competitive. The court held Qualcomm wasn’t obligated to license to rival chip suppliers.

The Fifth Circuit’s ruling “continues a trend of patent owners are free to choose their own licensing arrangements,” said Amol Parikh of McDermott Will & Emery LLP.

The ruling also cramps a procedural move some suppliers have tried—the anti-suit injunction.

Continental as part of recent global litigation asked a California court to block Nokia from pursuing lawsuits in Germany against Continental customer Daimler AG. The Fifth Circuit’s ruling “pulls the substantive rug” out from under those types of cases, Cohen said.

“If they don’t have a right to bring an antitrust claim for this, they don’t have a right to seek an anti-suit injunction,” he said.