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Protect the Supply Chain From Patent Trolls Before It’s Too Late

Nov. 29, 2022, 9:00 AM

Today’s cars are different from just a few decades ago. Combining advances in computing, connectivity, and automation, they use more software than Facebook. But the more software cars use, the more vulnerable they are to abusive patent licensing schemes.

In 2020, one “patent pool” targeting car makers got a green light from the Department of Justice’s Antitrust Division. The pool’s administrator, Avanci, claims to make licensing simpler and more efficient, but in reality, it does the opposite.

Avanci offers licenses to pools of patents owned by more than 50 companies, primarily patent assertion entities and “patent trolls”—companies that make money by asserting patents instead of commercializing products.

Because Avanci’s patents are supposedly essential for wireless communication standards, they can be used to sue anyone making or using a device with wireless connectivity—from cellphones to pacemakers to cars.

That is why 28 professors, former government officials, and public interest advocates called on the Antitrust Division’s current head, Jonathan Kanter, to reconsider Avanci’s scheme and issue a new business review letter—one that opens the door to enforcement action—or downgrade the old one by classifying it as advocacy.

Violates FRAND

Given the division’s leadership at the time, Avanci’s approval was no surprise. Makan Delrahim, former assistant attorney general for the Antitrust Division, had railed against the decades-old bipartisan consensus regarding the treatment of standard-essential patents, or SEPs.

As a lobbyist, Delrahim spent over a decade advocating for Qualcomm, one of Avanci’s founding members. Delrahim’s business review letter reflected not only his extreme and impartial views, but also a shocking lack of scrutiny.

Avanci was open about its intention to offer licenses exclusively to car manufacturers—and refuse all other industry participants, including manufacturers of the components that enable wireless connectivity. This scheme overtly violates pool members’ obligations to license SEPs on fair, reasonable, and nondiscriminatory terms, also known as FRAND.

Those obligations were not superfluous: they were prerequisites for participation in standard-setting. Why? Because the potential for abuse is so great.

Without FRAND obligations, companies could push their patented technology into a standard and then, once the standard was set, demand extortionate licensing fees from anyone using it.

The DOJ acknowledged that Avanci’s plan might violate these obligations, but completely ignored the question.

Harm to Consumers

The DOJ also ignored the practical—and harmful—consequences of Avanci’s discriminatory licensing. Components that enable wireless connectivity are orders of magnitude cheaper than cars. Licensing car makers exclusively allows Avanci to charge more for the same patents.

Consumers would suffer by paying higher prices as car makers pass costs on to consumers. And the economy would suffer from less competition and innovation as unlicensed component makers choose between operating under the specter of liability, stopping development of products with wireless connectivity, and moving to a country where Avanci’s patents have no force or FRAND commitments do.

While the DOJ was wrong to ignore these concerns from the start, the passage of time has laid bare those errors as well as the incentives for pool members to act in lockstep to harm American manufacturers and consumers.

Don’t Delay

Reconsideration cannot wait. Avanci has already raised its fees and is poised to take its partnership with patent trolls across the entire internet of things, harming suppliers and users of farming equipment, household appliances, medical devices, and semiconductor chips.

In case there were any doubt that the DOJ needs to act now, just look at the supply-chain crisis. The Covid-19 pandemic sparked a catastrophic shortage in semiconductor chips, which Russia’s invasion of Ukraine exacerbated.

The problems facing the semiconductor industry are great, and its output is so important that Congress authorized more than $50 billion to support domestic manufacturing of chips and related technology. The last thing manufacturers, employees, and consumers need is Avanci piling on additional risks, costs, and uncertainty.

Without reconsideration, the business review letter will encourage the abuse of standard-setting processes, obstruct the Biden administration’s efforts to promote domestic high-tech manufacturing, and chill attempts to use private litigation to challenge Avanci’s conduct. It will also embolden Avanci to expand its abusive practices to connected devices of all kinds.

With calls for antitrust scrutiny louder than ever, the head of the Antitrust Division should not let the DOJ’s errors fester. The government must correct them to deter rather than encourage conduct that hurts American innovation, competition, and consumers. Given the broader stage on which Avanci is poised to move, there is no time to waste.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Michael A. Carrier is a distinguished professor at Rutgers Law School and an Intellectual Property Fellow at the Innovators Network Foundation who writes frequently on issues of antitrust and IP law.

Alex Moss is the executive director of the Public Interest Patent Law Institute, a non-profit dedicated to ensuring the patent system promotes innovation and access for all.