How autonomous vehicles will change IP strategies

A Waymo minivan. Since 2009, Waymo autonomous vehicles have driven more than six million miles. It would take the average American driver 300 years to cover the same distance.

Download Managing IP's in-depth report, in association with Gowling WLG here.

The automotive industry is undergoing a revolution, as investment pours into research and development in new technologies, new entrants take on the established manufacturers and established business models are disrupted. With many vehicles now being manufactured with some level of automation, and fully autonomous cars being tested on public roads, Managing IP has published a special report looking at the role of IP in this fast-moving environment.

The report, published in association with law firm Gowling WLG, is based on a series of detailed interviews with industry figures, published research and data and an online questionnaire that received more than 200 responses. It can be read in full online and here we present some of the highlights.

Standardisation body SAE International has a classification system for autonomous vehicles from 0 to 5 which has been widely adopted. Levels 0-2 involve a human driver monitoring the driving environment, while levels 3 to 5 have an automated driving system monitoring the driving environment. Vehicles with adaptive cruise control, parking assistance and lane keeping assistance fall into level 1 and are already widely available, while many companies are investing in vehicles at levels 3, 4 and even 5. For example, in May this year Softbank invested $2.25 billion for a 19.6% stake in Cruise, GM's autonomous unit, valuing the unit at $11.5 billion. Cruise expects its vehicles to join ride-sharing fleets in 2019. Also in May, Waymo, owned by Google, announced a partnership with Fiat, under which it will buy up to 62,000 autonomous Fiat Chrysler minivans.

There are at least three key challenges for IP arising from developments in the industry. First, the R&D is expensive and includes some radical departures for the industry, but it is not always clear how best to use IP to protect this investment. Second, the technology is evolving and in many cases will be owned by new entrants to the industry: this will threaten existing business models and require technology licensing on a large scale. Third, collaboration and interoperability are going to be key to success –between partners as well as across the industry – and these will almost certainly require some form of industry standards and/or fair, reasonable and non-discriminatory (FRAND) licensing.

As we will see, there are already initiatives underway to license key technologies, and considerable lobbying about the best way to do so. But many in the industry fear that the path will not be smooth, and that the unfolding circumstances will lead to fights in and out of court. "There is a high probability of litigation with each other. We will find out in the next couple of years," as one in-house counsel says. Another in-house lawyer, at a leading automotive manufacturer, adds: "The biggest challenge we face is that the smartphone patent wars are coming to the automotive industry."

In the online survey conducted as part of the research for this report, 95% of respondents predicted that IP rights will play a more important role in the sector (see figure 1) with the focus being on technologies relating to autonomous vehicles and communication: the top four categories identified were control of position/course of a vehicle; batteries; control systems; and image analysis (figure 2). Patents were seen as the most significant area of intellectual property, with more than 80% of respondents saying they will be important for autonomous vehicles, but it was notable that many respondents also identified other IP rights or means of protection as likely to be important (figure 3).

Figure 4 shows that 65% of respondents see patent filings increasing, compared to 1% who believe they are decreasing. "The ecosystem is developing rapidly … Our patent portfolio is six times the size it was three years ago," an in-house counsel for one tier one supplier says, adding: "If you have valuable patents early in development with broad application, then you are well positioned … Everybody entering the field is heavily engaged in patenting activity." Another says: "Since 2015 we have dramatically increased patent applications and geographical coverage, and 50% of our filings are in new technical areas."

This trend reflects several influences. First, there is simply more money being invested in R&D, and it is expanding into new areas. Second, as one in-house counsel says, there is "enormous disruption" as new entrants develop and patent relevant technology. Third, and partly in response to this, auto companies need to ensure they are on an equal footing with their competitors, including in terms of patents. "We are building our portfolio both organically and through acquisitions," says a lawyer at a leading European manufacturer. A number of OEMs have reportedly hired staff from IT and telecoms companies to boost their R&D in this area.

But the range of companies investing in this area, as well as the scope of relevant technologies, means that there will be many more owners of relevant patents than there were in the past. This is one of the key challenges now facing the industry: the companies that assemble, manufacture and sell vehicles do not necessarily own the technologies that will be central to their development in the coming years. "Cars are already here and don't have connectivity technology of their own. Patent owners want a reasonable royalty, but car companies are used to their suppliers taking care of IP issues," explains one high-tech in-house counsel. However, there is cooperation between the different industries at various levels, such as in the 5GAA. "We're talking to the auto companies a lot more. They are very good at providing the use cases. We can tell them the restraints, so there is useful interaction between us," says one counsel at an ICT company.

Much of the technology driving autonomous vehicles is owned by IT, telecoms and software companies. Some of this technology will provide a competitive advantage and may not be licensed. But much of it is likely to relate to how cars communicate and share data and be or become essential to standards for communication, safety and security. How to license those patents is something that has been exercising manufacturers, IP lawyers and regulators over the past couple of years. "Standard essential patents (SEPs) and how they work in the automotive sector is the growing focus in this industry," says Matt Hervey, a director in the IP team at Gowling WLG in London.

The European Commission, US government and Japan Patent Office have each recently provided some guidance on FRAND licensing and enforcement, and these guidelines are discussed in more detail in the report. In addition, there have been attempts to create market led solutions, such as the creation of Avanci. The company, which describes itself as a "patent licensing clearinghouse" for the Internet of Things, offers licences to essential patents owned by its 11 members. These include Ericsson, Qualcomm, ZTE, BT, Vodafone, Panasonic and Sharp, with others expected to be added. It has a fixed-price royalty model based on the value the technology brings to a device and guarantees that the price will never increase, even if further essential patents are added to the licence. In December 2017, Avanci announced that it had signed a licence agreement with BMW, which "will to a large extent be handled through its supplier for telematics units".

Avanci says its proposal offers simplicity, transparency and predictability to the auto industry. But as things stand one source estimates that at present it only covers perhaps about half of all essential patents and several major patent owners are not members. Other licensing organisations include Sisvel – which offers patents owned by companies including Airbus, KPN, Mitsubishi and Orange – and Via Licensing (an independent subsidiary of Dolby Laboratories). And then there are companies such as Nokia that own many SEPs but have not joined any licensing pool.

The lack, so far at least, of clearly defined licensing models, combined with the development of new technologies and new entrants leads many in the industry to speculate that the era of the "gentlemen's agreement" will be replaced by one marked by assertions of patent infringement and battles in court. As one in-house counsel at a major manufacturer says: "The wireless consortiums will have to sue. I'm concerned it's going to be me that gets sued." In our survey, 86% of respondents said they expected to see either a little bit more or lots more litigation over IP rights in the sector (figure 5). "Car companies will try to hold out for as long as possible. Patent holders will be unreasonable enough and we will have litigation," comments one in-house counsel.

The first such skirmish came when Broadcom filed a series of patent actions against auto manufacturers. On May 8 this year the US chipmaker sued an OEM in the US district court in Marshall, Texas, alleging infringement of six of its patents. It followed this with a complaint before the US International Trade Commission on June 7 alleging that various companies imported and sold infotainment systems that infringed several patents covering the receipt of satellite signals and the control of TV systems in vehicles. It has also emerged that Broadcom has filed actions in Germany against German OEMs, as well as several of their suppliers, alleging infringement of 13 patents for wireless communications in vehicles. The first hearings in the cases took place in Mannheim on June 12 and 29 2018. Observers throughout the industry will be watching how these cases develop and what lessons they provide for other patent owners and manufacturers.

There are particular questions around SEPs, and how courts will tackle questions around FRAND licensing. Many are looking at recent cases in the smartphone industry for answers to questions such as: when is a patent essential to a standard? When, if ever, is an injunction appropriate in a FRAND case? And, where a patent is found to be essential, what is a suitable royalty rate? In particular, the UK litigation in Unwired Planet v Huawei, the US case TCL v Ericsson and Huawei v Samsung in China may shed light on these issues, and these are analysed in more detail in the report.

UK Autodrive is one of three projects that are part of the UK government’s Introducing Driverless Cars competition. It is carrying out road trials in the cities of Milton Keynes and Coventry, using cars provided by partners Ford, Jaguar Land Rover and Tata Motors European Technical Centre, as well as self-driving pods such as this one.

Take up of automated and connected vehicles will depend on many things – safety, accessibility, security, emotion – but solving the IP problems will be crucial to ensure that efficient, trusted and cost-effective vehicles are available. If the IP challenges discussed in this report are not adequately addressed, then the rollout of this new technology will be delayed or disrupted. All those involved therefore have an incentive to find solutions, and to react as the industry adapts – for example if ride-sharing becomes commonplace and individuals no longer see the need to own their own car, or if vehicle manufacturers adopt radically different business models. "One of the real challenges is the transition from driven to driverless cars," says Hervey of Gowling WLG. "How, practically, do you get to the point where all cars are autonomous?"

Addressing these questions will support not just the auto industry but potentially others as well: similar challenges will also be faced by many other industries once 5G systems are rolled out and the Internet of Things arrives. If it is successful, the auto industry may become a model for the successful development and licensing of IP rights.

Download the report "IP and the Automotive Industry" to read more on this topic, including discussion of related issues such as trade secrets, design rights and data protection