With the continued rise of connected devices and the internet of things (IoT), the focus is moving away from the theoretical possibilities they offer towards practical deployment. Nowhere is this more evident than around connected vehicles, with all major manufacturers bringing cars to market that come loaded with technology and create streams of data.
As well as turning the vision into a reality for consumers, this is also making some of the critical business issues around IoT very real for manufacturers. In particular, there is something of a power struggle taking place around where value is created and who owns this value in the digitally-connected world. Not since Apple launched iTunes and disrupted the music industry has the issue of rights, royalties and relationships been quite so essential and as hard to unpick.
This erupted into the open following the scoop published by Policy and Regulatory Report (PaRR) that Daimler has filed an antitrust complaint with the European Commission against Nokia.
While disputes about patents and licensing have long been a feature of the smartphone market, this is the first time the automotive sector has take such an action, as Khushita Vasant, the reporter who uncovered the complaint, and editor and Brussels bureau chief at PaRR, Jeremy Fleming-Jones, told DataIQ.
“With 5G and IoT roll-out, the debate over the need for clarity in licensing and royalty rates is seeing more fervour,” said Vasant. “But there is a tension between the users and holders of patents about the level at which licenses are negotiated in the value chain of a product and the royalties that are paid when you use a patent.”
Connected vehicles contain bundles of technology that are supplied by original equipment manufacturers (OEM) in order to create the finished vehicle and deliver the services it offers. Daimler has a concern that it might be at risk of a patent licensing court challenge from Nokia. “If the patent holder says you have infringed, the licensee may at times have no option but to pay up,” said Vasant.
“Since European courts may find that actions alleging infringement of a standard patents may constitute abuse of a dominant position,” added Fleming-Jones. “This has moved licensing disputes into the arena of competition law, which has become a key battleground.”
This highlights the issue of whether Daimler might be paying too much to use Nokia’s patents. Central to this argument is that it is the totality of the brand’s end product based around OEM technology and licenses which is really creating value.
In many respects, the complaint is no different from endless challenges between Apple and Samsung, for example, who are both suppliers and consumers of each other’s technology as well as being competitors in the market for their finished product.
It is just that, as Fleming-Jones noted, “this complaint is significant because it could be indicative of what will happen in the future as connectivity in products becomes the norm and the extraction of value comes into play. Will that value go to OEMs or to the car makers?”
For the legal system, this type of complaint can be hard to rule on. While the principles of contracts are clear enough, legislators are wary of deciding on financial terms, preferring to leave these to the market to decide. Said Fleming-Jones: “Regulators and courts are having to weigh the interests and value of patent holders and users in assessing disputes.”
Despite this, Vasant argued that the fact Daimler has laid its complaint at the Commission’s door shows it trusts the process. A number of precedents have been set that relate to similar issues, plus various services in the EC have come together recently to set up an expert panel - unrelated to this complaint - to provide broad guidance on IP licensing and FRAND valuation.
As the first complaint from within the automotive sector, the outcome will be followed closely by other manufacturers. It will also have potential consequences across the IoT space, although it is likely to be several years before it reaches a conclusion. The complaints process involves rounds of information gathering and assessment, with all parties having the opportunity to review and respond before any ruling gets handed down.
That said, there is no doubt that the EC understands what it is being asked to consider. “Because this is the first one around connected cars, it could be they will want to set a precedent by pursuing the complaint,” said Vasant. Both equipment manufacturers and car manufacturers alike will no doubt welcome clarity. But as she added: "It all comes down to money.”