Wednesday, August 16, 2023

Avanci announces 5G patent pool with 58 licensors, notably also including Huawei, and former Nokia foe Mercedes as inaugural licensee

It's been well over two years since I first heard from industry colleagues about an Avanci 5G pool being supposedly launched in a matter of months. Things can always take longer, especially when the adoption of a new technology by a particular industry is somewhat slow. But now--right in the middle of a month with hardly any patent-related news--the 5G standard-essential patent (SEP) licensing program for the automotive industry has just been launched.

Compared to how huge this story is--arguably the biggest development in patent licensing this year--Avanci's press release is relatively short and low-key (apart from the firm describing itself as "the independent global leader in joint licensing solutions"). Two numbers are interesting:

  • 59 participants in the sum of licensors and licensees prove market acceptance for the new offering from Day One.

  • The reference to "more than 130 million connected vehicles" licensed by Avanci's 4G program recalls the platform's prior success.

When Avanci started with its 2G, 3G and 4G programs, there was only a small circle of licensors; eventually, BMW signed up as the first licensee; and it took several more years to achieve a high level of market penetration. I was a skeptic and a critic at the early stages, but recognized that an automotive suefest was not the answer and that bilateral licensing--which does (as it must) remain an option--is economically inefficient given the relatively low unit volume of most car makers (even the big ones have an annual unit volume comparable to any major smartphone maker's monthly output).

If one looks beyond the press release, the licensing program's website reveals the terms and who's involved:

  • The royalty rate is $29 per vehicle for those who sign up "before the later of February 16, 2024 or first sale of [a given car maker's] 5G connected vehicle." Thereafter, the price goes up to $32. About a year ago, many car makers signed up ahead of a $15-to-$20 price increase for 4G. For those who are already selling 5G vehicles, there is now a six-month window to secure the early-bird rate.

  • The first licensee is Mercedes (formerly known as Daimler, though arguably the Mercedes was always more famous than any of the organization's different corporate names). Its logo, the steering wheel-like star, is displayed on the website.

  • Qualcomm, Ericsson, Nokia, and InterDigital--the four major net licensors of cellular SEPs--are all on board again, as are dozens of others. (Last time, Nokia wasn't even on the initial list, but joined later on.)

  • The most famous new licensor (not only of Avanci 5G but also 4G) is Huawei. They have a huge and powerful portfolio of cellular SEPs (the 5G leader by some measure). Huawei very much emphasizes the pursuit of a balance between licensors' and licensee's interests and believes in application-specific licensing terms.

  • Two other Asian companies that are major automotive industry suppliers and were previously known to participate in Avanci's 4G program are also among the 58 initial 5G licensors: Samsung and LG.

  • What about absentees? Conversant participated in Avanci 4G and is not listed now, but its portfolio is pretty much expired anyway. Deutsche Telekom was an outlier anyway, given that it was the only member of the Fair Standards Alliance to participate. The only major 5G patent holder missing at this point despite having participated in the 4G pool is OPPO. But OPPO is embroiled in litigation with (at least) four other licensors: Nokia (that's the largest-scale SEP dispute at the moment), InterDigital, Philips, and now also Panasonic.

  • Avanci's 4G program kept adding licensors through the years, and we may see the same trend here, though the initial coverage is already impressively comprehensive.

  • From a half-dozen of patent holders who are listed among Avanci's 5G licensors but weren't (and apparently still aren't) involved with the 4G program, China Telecom stands out.

There'll be more to say about Avanci 5G in the months and years ahead. For now, suffice it to comment from a few interesting angles on today's story.

Rapid ramp-up: On the licensor side, the job is largely already done. For licensees, the decision shouldn't be hard. Those making 5G cars at this point will likely seize the opportunity. The reason I think so is that no one could stand up inside those organizations and put forward a superior plan. Infringement is illegal, bilateral licensing is (in this context) inefficient: too many portfolios to license. Not only would it take a lot of negotiations and potentially even lawsuits, but the aggregate licensing costs (not even considering transactional inefficiencies) would easily exceed the pool rate. In any FRAND dispute in a court of law, it would have to be considered that cars are in use for far longer periods than smartphones, and that car makers generate incremental revenues from data services over the years.

Licensing preferred over litigation: It's quite a coincidence that on the same day Mercedes is revealed as the first Avanci 5G licensee and Huawei as a new (4G and 5G) licensor. The former brought an EU antitrust complaint against Nokia in late 2018 (which went nowhere), and the latter was not just one more intervenor on the automaker's behalf in the Nokia v. Daimler infringement dispute but filed a third-party counterclaim seeking an exhaustive component-level SEP license from Nokia (as opposed to have-made rights, which Avanci has always offered, as have Nokia and others on a bilateral basis). That one was withdrawn last year, and a new cross-license agreement was concluded a little later. The two companies who disagreed with Nokia on automotive SEP licensing years ago are now on board--alongside Nokia--the next generation of the licensing program. It shows that reasonable people can work things out with each other.

Chinese dimension: The involvement of Huawei, China Telecom, and other Chinese entities as well as Sharp (Japanese, but owned by Foxconn) seems very significant in geopolitical terms. It would now make a lot of sense for Chinese car makers to take licenses.

EU patent policy: Among the quasi-legislative powers that the European Commission's Directorate-General for the Internal Market (DG GROW) is asking lawmakers to bestow upon the EC there is the decision on what standards and use cases should be subject to the proposed EU SEP Regulation. Arguably, automotive SEP licensing could be excluded as the market has solved the problem. Where's the value-add of the envisioned legislation? A rational analysis of what royalties wireless innovators are entitled to when their technologies are incorporated into vehicles could easily result in a substantially higher aggregate royalty rate. While DG GROW is creating unnecessary problems, licensors taking their FRAND commitment seriously and willing licensees are coming together.

Leaders: I rarely mention patent pool managers unless they speak at conferences. Here, I noticed that besides Avanci founder Kasim Alfalahi, whose vision has indisputably come to fruition, the press release also quotes senior VP Laurie Fitzgerald, a U.S. attorney based in Dublin whom different patent holders mentioned to me this year and last as their point of contact for the 5G program.

Today's announcement is a milestone. In order for autonomous driving (which will, of course, have limitations for many years to come) to materialize, connectivity is key, and the advantages of 5G are not just related to bandwidth, but 5G also reduces latency. Ideally, car makers and their suppliers will focus on innovative applications--and cross cellular SEP licensing off of their to-do lists, for the most part at least.