DOJ Antitrust Division Approval of Pooling of “Essential” Standards Will Help Speed Integration of 5G Technology Into New Vehicles

Seyfarth Shaw LLP

The US Department of Justice (DOJ) Antitrust Division recently announced that it has concluded that a proposed patent-pooling platform dedicated to “essential” 5G cellular technology standards for use in the automotive industry was unlikely to harm competition. The decision comes after an eight-month review at the request of platform owner Avanci LLC under the DOJ’s business review process, which allows companies to pre-clear proposed action with the Antitrust Division. The DOJ’s decision clears the way for Avanci to facilitate single, pooled licensing for 5G cellular technologies essential to the incorporation of wireless technology into motor vehicles.

Background. In 2016, Avanci launched its marketplace for licensing patented wireless technology related to the “Internet of Things” (IoT) to facilitate “one stop shopping” for IoT device and product manufacturers to identify, price, and license patented technology necessary to add connectivity to their products. Avanci’s initial focus was on licensing patents deemed essential to 2G, 3G, and 4G cellular technology standards, but, like the market itself, has recently expanded into 5G cellular technology.

In November 2019, Avanci submitted a request to the DOJ through that agency’s business review procedure for its planned expansion into 5G automotive connectivity licensing through a proposed joint patent-licensing pool. As part of that arrangement, Avanci would license patent claims that have been declared “essential” to implementing 5G cellular wireless standards for use in automobiles and distribute royalty income among the platform’s licensors. Though the DOJ has acknowledged the procompetitive benefits of patent pooling, such as reducing transaction costs and facilitating access to patents essential to emerging technology, the DOJ has also acknowledged that patent pooling arrangements like Avanci’s proposed platform could present antitrust risk in the form of, among other things, exclusion of non-members from emerging markets, harm to competition, and possible collusion among members.

Analysis. The Antitrust Division weighed the procompetitive and anticompetitive effects of Avanci’s proposed platform and, based on its investigation and the representations contained in Avanci’s request, announced on July 28, 2020 that it had concluded that “on balance. . . Avanci’s proposed 5G Platform is unlikely to harm competition.” Weighing on the procompetitive side of the Avanci platform, the Division found that it appeared likely to create efficiencies that may increase consumer welfare, reduce the costs for licensees to find and negotiate with patent holders, and may help “integrate emerging 5G technologies into vehicles faster, with less risk and less cost.” The Division also noted the safeguards adopted by Avanci—such as licensing only technically essential patents; permitting licensing outside the Platform and the formation of other pools at levels of the automotive supply chain; and including mechanisms to prevent the sharing of competitively sensitive information—to prevent potential anticompetitive effects of the platform.

Though the DOJ’s conclusions apply only to the Avanci platform, its Business Review Letter offers valuable insight into the DOJ’s considerations and reasoning in evaluating pooling arrangements in general and specifically those relating to the licensing of 5G-related essential patents. Avanci’s official launch of its 5G platform came the day after the DOJ issued its Business Review Letter via a press release announcing Avanci would begin discussions with IoT device manufacturers, the auto industry, and patent owners.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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