Wednesday, August 30, 2023

New Mercedes-Benz statement: despite Avanci 5G license, EU should enact regulation on standard-essential patents in accordance with DG GROW's legislative proposal

Mercedes-Benz (formerly known as Daimler, though Mercedes has been its most famous brand for a long time) recently became known as the first licensee to participate in the Avanci 5G standard-essential patent (SEP) platform. The company previously engaged in bilateral licensing of 4G patents with Nokia and others, only to then opt for Avanci's 4G pool as a one-stop solution.

Last month, the European Commission published the car maker's feedback to the proposal for an EU SEP Regulation by the Commission's Directorate-General for the Internal Market (DG GROW). According to Mercedes, the proposed regulation "is urgently needed to eliminate the current lack of transparency and the associated imbalance in license negotiations on standard essential patents." The document advocates moving the needle even further to suit the interests of implementers.

I reached out to Mercedes to help me understand whether, after securing the vast majority of cellular communications licenses they need, there is any practical reason at this stage for them to call for legislative intervention. A spokeswoman replied later in the day. Let me show you the original statement in German, followed by my translation:

Mercedes-Benz steht für Innovation und wird mit der neuen E-Klasse die 5G Konnektivität als einer der ersten Automobilhersteller in den Markt einführen (Herbst 2023).

Wir bekennen uns klar zu den FRAND-Regeln und werden trotz eines derzeit erst entstehenden Lizenzmarktes nur lizenzierte Produkte in den Verkehr bringen.

Mercedes-Benz hat sich auch aus wirtschaftlichen Erwägungen entschieden, die angebotenen Rechte über den 5G-Avanci-Pool zu lizenzieren. Grund dafür waren mangelnde Transparenz z.B. in Bezug auf Preise und Schutzrechte sowie fehlende effiziente Alternativen.

Mercedes-Benz hält es weiterhin für erforderlich, dass der von der EU-Kommission vorgelegte Entwurf einer Verordnung über Standard-Essentielle Patente umgesetzt wird. Eine solche Verordnung kann einen klaren und vorhersehbaren Rechtsrahmen sowohl für SEP-Inhaber als auch für die Implementierer schaffen.


Mercedes-Benz promotes innovation and, with its new E-Class generation in the fall of 2023, will be one of the first car makers to launch 5G-connected automobiles.

We are clearly committed to the FRAND regime and will only release licensed products into commerce, even though the licensing market is currently just developing.

Mercedes-Benz decided for economic reasons to license the relevant intellectual property rights via the Avanci 5G pool. The reason was a lack of transparency with respect to fees and intellectual property rights as well as the absence of efficient alternatives.

Mercedes-Benz continues to deem it imperative that the European Commission's proposal for a regulation on standard-essential patents be implemented. A regulation of that kind can establish a clear and predictable legal framework for SEP holders as well as implementers.

The part that has me particularly puzzled is the one about a lack of transparency concerning licensing costs and IPRs:

  • The Avanci 5G fee is public: it's on the Avanci website.

  • The licensors are all listed on the same website.

  • Mercedes can find out via ETSI and other standards development organizations, or certain patent databases maintained by private enterprises, what patents those licensors have declared essential to 5G.

  • The alternative to Avanci 5G would have been bilateral licensing, which they tried with 4G and apparently deemed inefficient in 2021. They could have reached out to patent holders and inquired about bilateral licensing terms.

Pragmatic or dogmatic?

Mercedes sees value in Avanci and doesn't want to risk a new round of infringement litigation (like they experienced with 4G), but the feedback they submitted to the European Commission and the statement they provided to me suggest that they believe they could get a better deal from their perspective if the EU proposal was passed into law.

This is like if one of their customers said "yes, I'll buy the new E-Class because I think it's a good deal, but I want an even better one, so I'll ask lawmakers to regulate the market so I'll get it at a lower price next time."

The praise they heap on the EU proposal is premised on two assumptions:

  • that the costs of an EU SEP Register and the related essentiality checks and FRAND determinations (to be conducted by expensive experts) will not only be borne but also internalized by SEP holders; and

  • that the EUIPO-appointed "conciliators" will set low aggregate and bilateral royalty rates.

What Mercedes is hoping for here may very well be consistent with DG GROW's intention. But it may just not be how the market is going to work.

Mercedes is far from the only car maker to have endorsed the EU proposal. I will comment on various other submissions (and resumed my commentary on the EU SEP Regulation with yesterday's post on Dr. Justus Baron's new paper). They are, however, the first Avanci 5G licensee, which they clearly say made economic sense for them. In other words, Avanci 5G is part of the solution. The problem is practically solved given Avanci 5G's sky-high share of the overall 5G SEP landscape. There's not a lot of 5G SEPs left outside that pool over which anyone would have to fear infringement actions. The ones who do seek to generate licensing revenue overwhelmingly participate in the program.

The Avanci 5G rate is presumably a lot less than what Mercedes will charge its customers for just one year of mobile data service (after the first couple of years, which are typically included). Mercedes also knows for how many years its cars are used: typically like 15 years or more. The license fee, however, is paid only once per car.

All of that leaves me to wonder whether Mercedes is just trying to get a better deal or whether there is a difference between the business perspective ("good deal") and a legal philosophy ("we want more of an opportunity to hold out").

I'm sure that I'm not the only one who raised that question. EU lawmakers (in the Parliament as well as the Council's experts, who are de facto--though unelected--legislators) can easily see that the automotive industry has a solution for cellular SEPs that makes economic sense. Against that background, there is no case for massive legislative intervention. As FT columnist Brooke Masters wrote last week, "heavy-handed intervention from Brussels could be counter-productive" and "[g]overnment price-setting rarely works as intended."

It would be interesting to see "government price-setting" in the automotive sector, including for automotive data plans. When it comes to the transparency of fees, many purchasers of cars don't even know what they will be charged for data services after the first few years until they get an email or letter telling them to pay up. There's also no transparency of how the annual fees for those services are split between the car maker and whatever carrier it partnered with.