Monday, March 22, 2021

Three fateful decisions will drive up Tesla's patent licensing costs: Avanci license, Austin factory, and German Gigafactory

I've criticized those old-fashioned German car makers on numerous occasions, and chances are there'll be more reasons further down the road. Now I can't help but offer the prediction that Tesla is going to far outspend, on a per-car basis, everyone else in the automotive industry, and that's because of three decisions its management took without fully considering the ramifications it has for future patent licensing negotiations and infringement disputes.

As the saying goes, you can't argue with success. But Tesla's market capitalization doesn't mean that the company doesn't make mistakes in its operational business that a company like Apple, with its far greater experience in--and more sophisticated and strategic approach to--patent licensing and litigation, would avoid. Tesla is going to pay hefty tuition fees before it will learn how to play this game like the pros in Cupertino.

Avanci license

As IAM (Intellectual Asset Management) reported, industry observers believe that the new Avanci licensee (whose name the patent pool firm behind Avanci, Marconi, hasn't disclosed yet) is none other than Elon Musk's electric vehicle maker.

What gives rise to this speculation is that several lawsuits by Avanci members against Tesla have recently been dismissed in different U.S. federal districts.

Last year, Tesla settled with Conversant (as IAM reported), which was suing Tesla in the Western District of Texas. Actually, Conversant appears willing to license automotive suppliers, as its settlement with Huawei shows. So Tesla should have insisted on Conversant extending a license to its component makers. Then, Conversant's patent portfolio is pretty old and weak, so it might just have appeared cost-efficient to take a direct license, just like Daimler thought when it settled with Sharp. Both settlements--Tesla/Conversant and Daimler/Sharp--unnecessarily endorsed the concept of licensing cellular SEPs at the level of a car. Just like I criticized Daimler's decision in no uncertain terms, I didn't like Tesla's deal with Conversant because of what it means for other automotive SEP disputes. But Daimler has, at least so far, declined to take an Avanci license. Tesla apparently has done just that, and that means it has opened a can of worms and will have to pay off countless patent trolls, but also major operating companies holding patents it infringes.

I've looked up a few U.S. dockets and been able to verify that apparently there are no more cases pending between Avanci members and Tesla. Here's an Optis Wireless v. Tesla stipulation of dismissal from the Eastern District of Texas (this post continues below the document):

21-02-26 Optis v. Tesla Sti... by Florian Mueller

The following screenshot shows a Sisvel v. Tesla dismissal, dated March 2, in the District of Delaware (click on the image to enlarge):

After taking an Avanci license, Tesla is not going to be able to credibly defend itself against other SEP holders by arguing that those patent holders should insteasd talk to Tesla's suppliers.

Austin factory and relocation to Texas

Earlier today I mentioned that the Western District of Texas is the world's #1 hotspot for patent damages, and that is so because companies with a presence there (as opposed to merely having resellers offer its products) can't just move patent cases out of that district under TC Heartland.

Texas is building an Austin factory and even plans to move its HQ to Texas. It's understandable in political terms, because even though I predict Texas will become a blue state in the not too distant future, Texas Democrats may be as centrist as California Republicans, at least in fiscal policy. However, the Western District of Texas effectively imposes a huge patent tax on business.

Gigafactory Berlin-Brandenburg

From a marketing point of view, it made a lot of sense for Tesla to build a "Gigafactory" in Germany. "Made in Germany" has always been, in no small part, about cars. It's a major market. And maybe Tesla hoped to generate political goodwill in the largest EU member state.

However, Germany is exactly the jurisdiction to which patent holders flock in pursuit of injunctions. The judicial district in which you're based there doesn't matter: there's no forcible venue transfer, thus no TC Heartland equivalent either. The problem is that a patent injunction in Germany will not only disrupt Tesla's sales in that particular market, but will force it to halt production in its Gigafactory. Also, Tesla wouldn't be able to circumvent an injunction by exporting the products it makes in Germany to other markets.

Tesla could have built a factory somewhere else in Europe. Just a little bit to the east of its Berlin-Brandenburg site there's Poland. In that jurisdiction it's likely that politicians would immediately take action and protect a major foreign investor against patent injunctions, should the Polish judiciary follow the German example. But in Germany there's no chance: even local players like Volkswagen, Daimler and BMW have failed (partly because their IP lobbying expertise is lacking and wanting) to persuade lawmakers to address the issue. As I explained in my most recent post on the subject, the proposed reform will not affect patent holders who make a licensing offer by the trial date. There won't be a proportionality analysis in such cases. And those are the cases Tesla will be dealing with.

The best cross-jurisdictional patent litigation strategy against Tesla will be to sue them for damages in the Western District of Texas and to seek an injunction in Germany. Maximum leverage.

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