In this hoganlovells.com interview, Hogan Lovells partner Celine Jimenez Crowson addresses the relationship between standard-essential patents (SEPs) and the connectivity technologies used in connected and autonomous vehicles (AVs). She discusses the increased exposure of automotive manufacturers and suppliers to litigation from patent aggressors, how new autonomous vehicle technologies influence intellectual property transactions, and challenges involved in setting telecom-related standards.

Why are we seeing an increased level of activity related to standard-essential patents and connected cars?

Crowson: We are getting a lot of requests from clients for help. One trend that we’re seeing involves standard-essential patents directed to telecom-related standards, such as Wi-Fi, 3G, and LTE/4G. These are the communication protocols that telecommunications devices use, and that are now being incorporated into automobiles to fuel their connectivity. 

There are a number of large players that have been traditionally involved in the telecom business, that are now reaching out to automotive companies, mostly the original equipment manufacturers (OEMs). They’re saying to the OEMs — in a somewhat aggressive fashion — we hold patents related to these connectivity technologies, we think you’re infringing these patents by incorporating this technology into your cars, and we want you to take a license or we’re going to sue you.

Who is impacted by this pressure to license and threat of lawsuits — the OEMs or the suppliers?

Crowson: Both are. OEMs are getting licensing letters. Suppliers, however, are also getting drawn into these disputes because oftentimes they are supplying the chips, modules, electronics, and software that provide the connectivity technologies. For example, it’s likely not the car maker that is providing the Bluetooth or 4G technology — it’s an automotive supplier. We are sometimes able to represent both OEMs as well as the automotive suppliers when they’re on the same side of the SEP licensor (or patent troll) issue.

Many of the telecom, or once-called telecom, companies have significantly become licensing entities that are acquiring and holding patents. Some more traditional patent trolls have gotten into this business as well by acquiring patents from telecom and tech companies.

With the risk of suits from SEP-holding non-practicing entities (NPEs), or patent trolls, how can companies protect themselves? 

Crowson: Companies are struggling with what to do. To the extent that the patents being asserted are related to the standards — sometimes they’re not, but to the extent they are — these are standards because everybody has to use them. So “we’re not using your patent” arguments aren’t as available when it comes to standard-essential patents. 

That said, oftentimes we help with analysis of the patents that are being asserted. First, we want to understand whether they’re actually related to standards — some may be but oftentimes not all asserted patents are. Also, sometimes the patents that are asserted may be broad — too broad — and there are arguments that they should have never been issued. There may be challenges we can make with respect to the patents, such as challenging them at the United States Patent and Trademark Office (USPTO) with a post-grant challenge procedure. Further, it’s important to understand what aspect of technology is being accused and from whom that technology may be supplied. How much cost of a product unit does the accused technology contribute? Is the accused technology touted in marketing material as driving purchasing? A lot of that activity — both investigation and perhaps challenges and even litigation, frankly, is geared toward lowering the price of a license. 

We can also help in the license negotiations, while at the same time putting some pressure on by challenging patents or infringement reads if our client does decide to enter into license negotiations — and many of them do, in parallel. In addition to analysis and challenges, we can help with the actual negotiations, helping clients draft letters and responses, especially outside of the United States, where there are special negotiation steps that should be followed, and also in the United States. 

For patents that relate to standards, there are special things that the one who’s accused is supposed to do when they get these licensing letters to make sure that the accused is able to take advantage of the patent owner’s obligation to provide a standard-related patent at a fair royalty. If you have a standard-related patent, which came out of your participation in a standards-related organization, you have an obligation to license that patent at a fair royalty. But in order to take advantage of that obligation by the patent owner, the accused has to act quickly to respond to a licensing letter, and at least in Europe, to say that they’re willing to take a license. There’s a sort of dance that goes back and forth that’s laid out by case law in jurisdictions, such as Germany and the UK. It’s pretty strict with respect to the steps that those accused need to take to preserve the defense that are owed a fair royalty rather than an injunction. In the U.S., although the required negotiation steps are not so well laid out, accused parties still need to make sure they are acting prudently to avoid allegations of willful infringement. 

We help clients make sure that in the negotiations, they are behaving in the appropriate way so as to take advantage of the fair and reasonable royalties that the patent holder has agreed through its participation in standards organizations to provide, and to avoid increased damages awards that can come if accused are found to be willful patent infringers.

What does “behaving in the right way” mean — can you elaborate?

Crowson: There has been significant case law developed in Europe with respect to how accused — and patent owners — need to behave once this negotiation over SEPs starts, including from the initial licensing letter. For example, the patent holder has to spell out in detail what products are accused and the basis for the infringement. Then the accused is under an obligation to respond relatively promptly — within a few months. It’s not like the old days, where companies could just toss a letter like that into the trash and see if they heard from the accuser again. In order to take advantage of the potential fairest royalty rate, the accused also needs to express a willingness to enter into licensing discussions; they can’t just say, “We don’t infringe, go away.” Then the patent owner needs to provide detailed licensing terms in response. There are more required steps as well.

Those are the kinds of behavior that clients need to know about, so they don’t forfeit the opportunity to be treated as a willing licensee and owed a fair and reasonable royalty rate. And as mentioned, there are steps that need to be taken under U.S. law to avoid being deemed a willful infringer.

Is the issue related to SEPs focused on connected cars, or could it transition to autonomous vehicles? 

Crowson: Currently, it applies mostly to connectivity in vehicles because the telecom standards have been well established. But that said, there are standards organizations popping up with respect to autonomous driving technologies. Presumably, those standards will start to develop in the arena of autonomous driving and its security. It is a bit further off, but one could imagine the same kind of issues that are arising in connectivity also cropping up as all these players involved in autonomous driving begin to get together and develop standards for autonomous driving technologies.

Should the newer standards organizations take steps to avoid setting up a regime, essentially, where we have all these patent aggressors?

Crowson: In some regards, the standards organizations in the area of autonomous driving are moving more slowly, because there are so many different players — little companies and big — involved in autonomous vehicles. The big companies are acquiring technologies as well. But one thing many are thinking about is, can standards organizations put more teeth into some of their rules and obligations when folks join those standards organizations to avoid this patent aggression cropping up once those standards become adopted and a few players decide that they’re going to start trying to buy up and aggregate enforcement of these patents?

There is also discussion about whether standards setting organizations (or courts) should consider placing a total value on a standard at the outset so that when myriad patents surrounding that standard are developed, the problems that arise with royalty stacking given so many patent assertions can be alleviated. When it comes to the valuing of standards and royalty stacking issue we have also helped clients get in touch with economists and finance experts who can help there.

The standards organizations are also trying to take on more responsibility, which will slow them down. I think it’s going to be difficult, frankly, without court authority and all of that, to put teeth into their regulations, but they’re at least thinking about those kinds of things.

Is the move towards autonomous and assisted driving generating an increase in M&A transactions? 

Crowson: For sure. We’re seeing hundreds of new players getting involved in various autonomous driving-related technologies, whether it is crowdsourcing to help with mapping and navigation, augmented and virtual reality, or security-related software and technologies to help ensure that autonomous vehicles don’t get hacked. 

We see, on the one hand, automotive manufacturers buying smaller companies that are specialists in this technology. We help with those transactions and acquisitions of both technology and businesses, to make sure that the acquirer is getting what they think they’re getting — that the intellectual property is free from encumbrances; that it’s not likely to infringe the intellectual property of others; and, even on the trademark side, that the name of the business that’s being acquired is clear. 

A lot of our clients are either acquiring or, if they’re smaller companies, being acquired by larger entities that are looking to get involved in autonomous driving. They need technology but they also need people — thought leaders. So we see companies acquiring groups of professors from MIT or Stanford who are thought leaders in the software and algorithms that are so entrenched in autonomous driving. 

This area is going to be very software and algorithm driven. For many of the traditional automotive companies, such things as mapping and navigation, and artificially intelligent software, wasn’t their core business; they were buying those capabilities from others. Now they’re making acquisitions to bring in that business and technology. We’re involved in diligencing the technology and ideas coming in and making sure that companies are getting what they think they’re getting, and getting enough assets to move forward with their business.