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what good is the technology if one cannot talk to or problem was what the royalty base should be for the
understand another? Enter the standards. SEP - the cost of the phone (in the hundreds of USD) or
Standards are needed to normalize and make something the cost of the baseband chip that actually incorporated
uniform so that everyone does everything the same the standards (in the tenths of USD).
way. This becomes especially important if vehicles Many jurisdictions have allowed the royalty base to be
are to become fully autonomous. There are currently on the cost of the phone because the baseband chips
two standard technologies being developed for V2X are integral to the operation of the phone. Even using
communications: (1) WLAN-based (IEEE 802.11p), the cost of the phone as the royalty base, however,
and (2) cellular-based (3GPP C-V2X). Regardless the phone manufacturers have been able to absorb
of which standard ultimately becomes the dominant the royalty cost as it is usually several cents (USD) per
one, however, the automobile industry will need to be phone.
prepared for a legal battle that it has never faced before: But what about the automotive industry? The final
the battle over SEPs (standard-essential patents). product (the automobile), especially for an autonomous
You see, standards developed by SDOs/SSOs (Standards vehicle, will likely be in the tens of thousands, if not in
Developing/Setting Organizations), such as the 3rd the hundreds of thousands of USD, all for components
Generation Partnership Project (3GPP) that developed with manufacturing costs in the tenths of USD. What
standards for 2G, 3G, and 4G (currently developing 5G) is more, the component(s) that is covered by the SEPs
cellular communications, take technology contributions will likely be made by 2nd/3rd tier suppliers, but the SEP
from stakeholders in the relevant industry to be used in holders will likely target automakers instead because of
the standard. the cost of the potentially infringing product.
Once a contribution is adopted into the standard, This situation is already materializing as Avanci, a license
that technology will be required (i.e., essential) in platform with members holding cellular technology
implementing the standard. However, as with any SEPs targeting the auto industry, is approaching and
innovative technology, the technology adopted by the have approached automakers to take a license to its
standard will very likely be protected by a patent. members’ 2G, 3G, and 4G patents at a cost as high as
Patents, in every country with patent law, provides the USD 15 per vehicle.
patent holder the right to exclude someone from using While this amount may not look high compared to the
the patented technology without permission (usually cost of the vehicle, this amount added to the other costs
through a license agreement) or risk being sued for of manufacturing will have a significant impact on the
infringement. profitability per vehicle.
Normally, this is not a problem if a company does not In addition, the industry practice is for 2nd and 3rd
want to get a license (usually by having to pay a royalty) tier suppliers to indemnify the automaker should their
by using alternative technology not covered by a patent product infringement a patent. Most, if not all, 2nd
or not use the patented technology at all. However, and 3rd tier suppliers will not be able to support such a
if the company wants to do business with technology cost, potentially triggering a cascade effect through the
covered by a standard, it is virtually impossible not to use automotive industry.
the standard technology that is covered by an SEP. While the V2X standard is not yet fully developed and
The good news is that most SDOs/SSOs take this the automotive industry is still years away from Level 5
into account by requiring the stakeholders making automation, the risk of potential SEP litigation is very real
contributions to the standard to license any technology as various levels of automation is already being adopted
adopted by the standard under F/RAND (Fair/Reasonable in the automobiles currently being manufactured.
and Non-Discriminatory) terms. The bad news is there Early planning by studying the lessons learned by the
is no standard (pun intended) on what F/RAND is. cell phone industry and adapting them to the unique
The cell phone industry went through these growing business model of the automotive industry will be just
pains when SEP holders of 2G, 3G, and 4G technologies as important as developing technology to reach Level 5
wanted royalties from phone manufacturers. The automation.