Huawei uniquely attains net-licensor status without defining its patent licensing business as profit center: 20+ license agreements struck in 2022

Huawei may have become the information and communications technology industry's first "accidental net licensor" of major proportions. In this context, "accidental" doesn't mean that anybody got hurt (nor that it was never intended): it's just that this outcome wasn't the original ambition.

The week before last, the South China Morning Post reported that "last year the company’s royalty income exceeded the expenses it paid for licensing technologies from other companies for the first time, according to Huawei."

What makes this all the more surprising is that Huawei's 2021 total revenue was still in the $100 billion range. It's easy to be a net licensor with a small product business, but for a large-scale (actually, hyperscale) implementer it's astounding, even when considering that "Huawei last year filed a record 6,952 patent applications, up 27 per cent from the previous year, through the Patent Cooperation Treaty (PCT)," which "made Huawei the world’s biggest PCT filer for five consecutive years."

While it is now imperative for Huawei to generate more revenue from patent licensing in order to fund its innovative activity despite the fallout from a U.S. trade ban, there are no signs of Huawei having sacrificed the values it defended during its net-implementer times. It's just that when it runs the numbers at (or toward) the end of a given year, the company now finds that its income from outbound patent licensing exceeds its royalty payments to third parties. That's my interpretation of the following one-sentence paragraph from the South China Morning Post article:

"However, [Huawei IP chief Alan] Fan said the company is not treating IP licensing as a business or relying on it as a major revenue stream."

The Chinese newspaper says "Huawei founder Ren Zhengfei told the company’s intellectual property (IP) team to step up efforts to turn its vast pool of patents into revenue via 'reasonable pricing' and 'generate an appropriate return' on the R&D investments, according to a company memo made public in April." So it is probably fair to say that

• yes, Huawei is now placing greater strategic emphasis than before on outbound licensing, but

• no, this doesn't mean Huawei intends to generate a high percentage of its total profits from IP royalties.

Another factor that enabled Huawei's licensing income to surpass its licensing costs is that certain types of technologies with respect to which Huawei holds particularly powerful rights--such as wireless connectivity and video/audio codecs--have become extremely ubiquitous. Take connected cars: according to the SCMP article, Huawei "has reached royalty agreements with 15 carmakers globally, including Audi, Mercedes-Benz and BMW."

The article also mentions two major cross-license agreements that Huawei announced last month: one with OPPO and another with Nokia.

On the bottom line, it appears that Huawei is now less prepared than in the past to condone free-riding on its innovations, but constructive implementers won't find it hard to strike agreements, compared to the royalty demands they face in most other negotiations...

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Volkswagen upgrades Avanci patent pool license from 3G to 4G for entire group, paving way for settlement of Acer's and IP Bridge's infringement cases in Virginia and Munich

On the last day of January, Volkswagen asked the United States District Court for the Eastern District of Virginia for an extension of time to respond to Acer 's 4G standard-essential patent (SEP) infringement complaint because the parties were discussing a settlement. Theoretically, this could have meant bilateral licensing talks, but Acer had filed its complaint because VW still hadn't upgraded a 2019 Avanci pool license from 3G to 4G. Only certain VW subsidiaries such as Audi and Porsche had a 4G license--but not the ones where most of the volume is. The VW group as a whole sells approximately 10 million vehicles annually.

We now know that VW has chosen a license to the 4G SEP portfolios of 49 different companies over countless bilateral deals: Avanci just announced that the Volkswagen Group has "expanded its existing relationship" with the patent pool so as to include 4G SEPs.

This makes a whole lot of sense. Volkswagen has now caught up with its German rivals BMW (Avanci's first announced licensee) and Daimler (which firstly settled with Nokia and then took an Avanci license in late 2021). Frankly, the previous state of affairs was an anachronism. Many of us remember when 3G was the latest and greatest in cellular telecommunications, so hot that carriers would bid huge amounts of money when spectrum was auctioned. Then the best is the enemy of the good. The best right now is, of course, 5G--for that standard, however, a pool rate has yet to be announced. 4G is now the lowest common denominator, given that some countries such as Germany, where Volkswagen is famously headquartered, have already switched off 3G.

Interestingly, when Volkswagen--through a supplier (Rolling Wireless according to media reports)--took a SEP license from Huawei last year, it was a 4G license.

The published Avanci rate for 3G is $9 per vehicle versus $15 per vehicle for 4G. Volkswagen's legal problem was that licensing is a binary question for each patent-product combination. You're licensed, or you're not licensed. If Audi--an almost-wholly-owned VW subsidiary--has a 4G license, it doesn't mean that its parent company's brand is licensed. If VW has a 3G Avanci license but implements the 4G, it simply infringes any 4G patents in the pool. But that's a thing of the past. A deal is a deal.

Not only Acer but also IP Bridge--another Avanci licensor--was enforcing 4G patents against Volkswagen. In the Acer case, the extended deadline for VW's response to the complaint ends tomorrow.

It shouldn't be hard to settle those cases now, but German business weekly Wirtschaftswoche quotes Volkswagen as saying that the Avanci license agreement "provides relief from pending litigation to an extent that is not clear-cut yet." VW also told Wirtschaftswoche that it has "reached a pragmatic solution that makes economic sense."

It is well known in the industry that LG is a Volkswagen supplier. The last major announcement by Avanci was that LG, one of the world's largest 4G SEP holders (if not the number one according to some statistics), joined the Avanci 4G pool as a licensor.

Just last week, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of automotive supplier Continental's U.S. antitrust case against Avanci and some of its licensors, particularly Nokia. In what represents a ringing endorsement of Avanci's business model, the panel held that granting a license to "third parties up the [supply] chain [...] is unnecessary to effectuate the purpose of the FRAND commitments and reduce patent hold-up." Volkswagen used to advocate so-called Licensing Negotiation Groups (1, 2, 3), which would raise serious issues under cartel law. It looks like Volkswagen didn't need to form an LNG in order to work things out with Avanci--neither for the original license in 2019 nor the 4G upgrade announced today.

Volkswagen did what was certainly best for Volkswagen under the circumstances. They chose a negotiated agreement over potentially protracted litigation. It is now actually in VW's interest that its competitors also take an Avanci license. One example of a major VW rival without such a license is Ford, which may already be under significant pressure in Germany. With every car maker that takes such a license, others will find it harder to convince the courts that they are willing licensees even if they decline to take a one-stop license for $15 per car to 49 SEP portfolios, including some very large ones (LG, Ericsson, Nokia, Qualcomm). Whether Avanci has 75% or 80% of all 4G SEPs, there can be no doubt that its share is huge.

If history repeats itself, Volkswagen will take an Avanci 5G license when 4G has been switched off in Germany. I don't expect it to take that long, however. Car makers are relatively new to the cellular SEP licensing business, but some are learning faster--and especially at a lower cost--than others.

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At IAM Auto IP conference, calls for patent licensing meet exhortations to hold out: more automotive SEP litigation may just be inevitable

The automotive industry is facing a learning curve with respect to standard-essential patent (SEP) licensing. Given what I heard at yesterday's IAM Auto IP Europe conference in Munich, I see partial progress--such as Avanci's announcement of 4G patent license agreements with three more automotive brands--while some automotive industry players appear to be learning too slowly for their own good. As a result, we're going to see more litigation, such as the cases recently brought by Intellectual Ventures (not an Avanci licensor) over a mix of three SEPs and even more non-SEPs.

In my previous post I reported on a Qualcomm executive's perspective on the illegality of licensing negotiation groups. In this post I'll discuss some of the other things that were said.

The IAM conference took place in the aftermath of two strategic defeats for automotive holdouts:

• Daimler had wasted millions and millions of euros as it ultimately took a car-level SEP license from Nokia anyway. Last year, Daimler was slapped with four German SEP injunctions over the course of less than three months. It settled two of those disputes rather quickly, and finally caved to Nokia.

  After the Daimler-Nokia settlement I researched the state of affairs in that dispute, and found out that Daimler was losing to a far greater extent than it initially appeared. The stage was set for two or three more Nokia injunctions, and one of the two that were already in place was going to become enforceable without collateral in a matter of months. Daimler's last hope would then have been a so-called § 315 offer: a declaration of one's willingness to take a license on terms that, if need be, can be adjusted by a court of law. Whether that defense would have succeeded is another question, as Daimler's overall conduct was typical of an unwilling licensee, and it's very hard to imagine that a § 315 royalty determination would have resulted in any lower rate than Nokia's share of the Avanci pool license. There just is no comparable in automotive SEP licensing that would be more likely to be recognized by the courts. So even if the § 315 defense had dissuaded the appeals court from allowing the enforcement of an injunction, Daimler would have lost.

  Nokia probably managed its litigation costs more intelligently, and in any event, Nokia's benefit from having demonstrated its preparedness to enforce patents against car makers will lead to deals with companies who'd rather not lose in court. In retrospect, Daimler was the perfect target for Nokia because the dispute even ended up hardening some of Nokia's patents, which will help Nokia in other industries, above all in disputes with smartphone makers. By contrast, Daimler is not going to get better deals from other patent holders after its poor results in litigation so far.

• Automotive companies lobbied very hard for a reform of Germany's patent injunction statute, but all levels of the judiciary have already made it clear that the availability of patent injunctions has not been compromised on the bottom line.

In this environment, the "licensing > litigation" inequation should be a no-brainer. Licensing executives from companies such as Avanci and Philips did make a compelling case. Avanci Sr. VP Laurie Fitzgerald explained that Avanci doesn't prevent its licensors from direct agreements with automotive licensees. It's an offer, a one-stop solution for access to dozens of SEP portfolios, but it's optional. It already works for some. But some others display defiance even after Nokia v. Daimler.

Automotive supplier Continental is still fighting the war that Daimler has already lost. Sitting next to Conti's IP chief Roman Bonn, U.S. trial lawyer Ed Haug said that it always depends on someone's business goals, but generally he'd not advise clients to litigate SEP matters in the United States. But that is what Conti is still trying, with the Fifth Circuit recently having heard its appeal of Continental v. Avanci (with Conti on the losing track) and a somewhat duplicative case against Nokia pending in Delaware. It's probably too late for Mr. Bonn to heed Mr. Haug's advice. Conti will likely continue to throw good money after bad.

Mr. Bonn also sounded like a visitor from a parallel universe when he was discussing the recent amendment of the German Patent Act. He suggested that automotive defendants would benefit from it, but Meissner Bolte's Philipp Rastemborski, a German patent litigator, set the record straight and explained that Germany would remain just as attractive a jurisdiction to patentees as before.

In my view, Mr. Bonn and some others don't make the proper distinction between whether a statute applies to a case pattern and whether it actually makes a difference. The revised patent injunction statute doesn't come with a carve-out for SEPs, so defendants are not precluded from raising a proportionality defense in a SEP case. However, an unwilling licensee will simply be told to take a license as neither the defendant nor any third parties will be harmed then.

More recently, Continental also appears to be obsessed with China. Mr. Bonn expressed the view that the recently-updated Chinese Patent Law was going to be applied in ways that favor Chinese companies. And like in a recent German media interview, he used Huawei for a bogeyman, saying that Huawei (and ZTE) would place greater emphasis now on revenue generation from patent licenses. I'd just like to note that Huawei is not new to outbound patent licensing. Ten years ago, in the famous EU Huawei v. ZTE, they were already a plaintiff. Now, by the standards of the automotive industry a decade may just be like a year (or less) in tech...

Matthias Schneider, who is in charge of patent licensing at almost-wholly-owned Volkswagen subsidiary Audi, used to praise "the beauty of the Avanci model" on earlier occasions. This time around, however, he made it clear that he was just expressing his own views and not necessarily those of his company, though in reality he appeared to be his master's voice, parroting Volkswagen's talking points.

The most insightful thing he said was that currently some cars cannot be made because of a shortage in supply affecting a $1 chip, and that fact had more of an impact on the automotive ecosystem than a $15 (that's Avanci's 4G rate) or $20 patent royalty, whether levied on a $10K or $80K car.

Two of Mr. Schneider's statements left me speechless though:

• He questioned the value of the Avanci license because it wouldn't "solve [his] problem": there are SEP holders outside the Avanci pool. "Why should I take an Avanci license for $15?", he asked. That's an argument I had never heard in the automotive context. There's no legal or other obligation that pools are only allowed to exist if they offer 100% coverage of a standard. Mr. Schneider would like some sort of insurance policy, but I just don't think anyone can hold Avanci responsible for what others do (or choose not to do) outside that pool any more than one could complain to Audi about a warranty issue with a Tesla. The question is whether the $15 deal streamlines the licensing process and obviates litigation--and whether the Volkswagen Group (including its Audi subsidiary) likes it or not, the case law in various major jurisdictions favors SEP holders as different speakers (other than Conti's Mr. Bonn) explained yesterday.

• Mr. Schneider still believes companies can get better deals by means of holdout. He likened patent licensing to a pick-up sticks game: the first one to move loses; if you wait longer, it gets cheaper, he said.

  Even though he disclaimed speaking for his company, this was an "intelligent infringement" argument in favor of being an unwilling licensee. One may question the wisdom of going on the record with that kind of statement.

  That attitude neither helps to avoid litigation nor are policy makers going to be inclined to support holdout. A conference like yesterday's IAM Auto IP Europe isn't a dealmaking or peace-making event. But it is a chance for constructive discussions, and neither Conti nor Audi made it sound like amicable solutions were in sight. There will be more deals, but SEP holders will have to take car makers to court again and again and again.

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The lemmings of patent injunction reform: Microsoft, BMW, Deutsche Telekom joined ip2innovate during German reform process

Political decision-making processes tend to be so complex that it's often very difficult to identify a clear causation between what went wrong and why. In connection with Germany's patent reform, which has been carefully crafted by the country's government to change almost nothing at all (see my initial reaction to yesterday's official legislative proposal), one can infer from publicly-accessible documents that the Brussels-based ip2innovate lobby group (Google, Daimler, SAP etc.) committed the colossal blunder that most likely condemns the reform effort to fail. "Be careful what you wish for." IP2I advocated the term "Einzelfall" that is now the central term that will render the reform ineffectual because the government's official legislative rationale clearly defines it as "hardly ever happens." Now the losers are trapped in a no-through one-way street as they can't lobby against their own proposal. They dug their own reform's grave.

Germany's leading information & communications technology news site, Heise online, quotes my analysis in an article on yesterday's legislative proposal, including my criticism of IP2I's lack of strategic sophistication. For what I know, however, chip makers Nvidia and Intel, while they're longstanding IP2I members, can't be blamed for the "Einzelfall" crap.

Were IP2I only a fringe group of the patent reform movement, the others could still combat that "Einzelfall" term effectively. But birds of a feather flock together, and lemmings famously follow other lemmings. With the sole exception of Volkswagen (the whole group including subsidiaries like Audi and Porsche), IP2I's membership directory lists practically every large German organization that demands injunction reform.

Over the course of this year, the misguided IP policy groups of three large organizations--two of them among Germany's largest corporations--joined IP2I:

• Microsoft,

• BMW, and

• Deutsche Telekom.

Deutsche Telekom's IP department habitually hurts the company's interests. They even contributed their cellular standard-essential patents (SEPs) to the abusive Avanci pool. They might have found it convenient, and maybe they thought it was "cool" to join some large patent holders in a pool, but Avanci is all about driving up licensing costs, which runs counter to Deutsche Telekom's interests. Also, Deutsche Telekom is still the only company known to have made a huge royalty payment to patent troll IPCom. They could have avoided it by simply insulating their then-outgoing CEO from the potential fallout from IPCom's patent assertions against him. Instead, they paid hundreds of millions of dollars at a time when Nokia and HTC were actually defending themselves very successfully against that same patent portfolio. Deutsche Telekom also has a reputation for having caved to other patent holders in situations in which many others wouldn't have done so.

As I already noted yesterday, Deutsche Telekom might benefit to some degree from the fact that the reform bill makes harm to third parties a factor. In Dusseldorf that might help; in Munich and even in Mannheim, it most likely won't. Those courts will tell them to take a license. If patent holders seek injunctions that threaten to shut down Deutsche Telekom's network, it's just a means to an end. The end is a costly license deal; leverage from an injunction is the means. So those patent holders will make a licensing offer, and the courts will then tell Deutsche Telekom that the harm they suffer isn't irreparable: they don't have to switch off their network infrastructure as they can take a license. I already explained based on the January draft bill how this would work.

The world's top three smartphone makers--Apple, Samsung, and Huawei--are notably absent from IP2I's membership directory. They have to defend themselves against German patent infringement complaints all the time. In order for them to be in a better position, the hurdle for a useful injunction reform statute would be considerably higher than for Deutsche Telekom (which can at least argue that third parties depend on access to its network) and German car makers, which have substantial manufacturing operations that would be susceptible to a German injunction. Again, I believe even Deutsche Telekom and those automotive companies will ultimately just be coerced into taking licenses on unreasonable terms. But at least they have far more of a hardship argument than foreign companies that export their smartphones and similar devices to Germany.

As foreign companies with limited head counts in Germany, those three would have found it difficult to make much of an impact. If Huawei had joined, it could even have been counterproductive, considering that those opposing reform (such as Nokia) would presumably have tried to politicize the debate.

Whether Apple and Samsung should have done more, in quantitative as well as qualitative terms, is a question those companies will answer for themselves when this reform process is over. Where the process stands today, the most likely outcome is that they'll just spend more money on proportionality arguments (lawyers, experts) but those suing them will have basically the same leverage in negotiations as today. There's an asymmetry here: patent trolls, or companies that practically behave like trolls by suing companies they're not competing with, only stand something to gain, and nothing to lose. They typically wield portfolios, not individual patents, and they can sue in three or more different German venues as they need leverage in only one of them.

This is frustrating to watch. It must be far more frustrating for companies to find themselves on the receiving end of those lawsuits. I warned many of them a year ago, and earlier this year. I told them what was going wrong, and how they'd have had to fix it. There was some hope last month because the previous draft looked like the government had made concessions on the statute and simply hadn't updated the legislative rationale yet. Now that the legislative rationale suggests it's easier to spot a pink elephant in your garden than a German patent case in which an injunction would be denied over proportionality considerations, and with most reform advocates being bound to IP2I's misguided March 2020 submission proposing "Einzelfall," it's extremely hard to imagine a turnaround.

Besides IP2I, there's only one other major industry group pushing for reform, and that's the VDA (German automotive industry association). They have members such as Bosch that prevent them from taking really strong positions, and they lack IP policy expertise at the staff level. So it would be a surprise if they could solve the problem IP2I has created.

I'm quite sure I'll point to yesterday's posts as well as this one many times in the coming years whenever some high-profile German patent injunctions come down or the possibility of such injunctions forces companies into license agreements. I'll be looking out for that pink elephant, and maybe I'll spot one once every while, but I won't blame the judges for what is the only reasonable interpretation of this statute in light of the official commentary: you normally don't even have to conduct a full-blown proportionality analysis because defendants will fail to distinguish their situation from that of any other defendant who has the choice of simply taking a license.

Before the Bundestag (Federal Parliament) formally receives the bill, the Bundesrat (Federal Council) will analyze the proposal and make an official statement that is going to influence the parliamentary process. Chances are that the Federal Council will either say that even this reform proposal goes too far or that it's acceptable but will warn against seriously restricting access to patent injunctions. Some conservative politicians in the Federal Parliament will almost certainly prevent any impactful reform from being passed into law, and time is on their side as the end of the legislative term is approaching (and COVID complicates everything).

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Qualcomm hijacks EU Commission expert group on licensing and valuation of standard-essential patents

Last December this blog commented very favorably on the European Commission's "approach to standard-essential patents" document. Unfortunately, the implementation of one item--the creation of a group of "experts on the licensing and valuation of standard-essential patents (SEPs)"--is now going in the totally wrong direction.

On Friday (19 October) a "draft" list of experts was published on the EU Commission's website (the list should ultimately appear under the "Members" tab on this page). That list is utterly lopsided to say the least (this post continues below the image; click on the screenshot to enlarge):

The above list was taken down shortly thereafter, but it has already drawn harsh criticism from the Brussels-based Fair Standards Alliance, an industry group that promotes transparency and fairness in SEP licensing and has been mentioned here on multiple occasions:

"The Fair Standards Alliance [has] strong concerns about the unbalanced nature of this group, and fear[s] that the outcome of the discussions in the group will negatively impact incentives to innovate for the years to come, to the detriment of European industry and consumers. Furthermore, we have significant concerns about the lack of substantial experience and significant competence within the experts group in terms of the licensing and valuation of SEPs, even though the Commission decision required 'substantial experience in licensing and/or valuation of SEPs.' In our view, the group lacks a sufficient amount of industry experts that have day-to-day expertise in the negotiations of SEP licenses. We therefore urge the Commission to reconsider its selection, in order to have a group that will be able to achieve balanced views on what are the best next steps in terms of FRAND licensing for European policy makers to consider as the industry moves towards the development of 5G and IoT."

That's a pretty strong and clear statement, and I philosophically agree with it, but I'll allow myself to be much more blunt: the composition of this group is a recipe for disaster. Given the positions that many of those people have voiced on countless other occasions, the outcome is predictable. It will be a nightmare for competition and innovation, and all SEP abusers' wet dream.

This group is not the result of responsible choices made by neutral public servants desiring the best for Europe. It looks like none other than Qualcomm put it together, with other aggressive SEP monetizers like Nokia, Ericsson and InterDigital possibly having contributed to it, and some patent radicals at DG GROW (the Directorate-General for the Internal Market, which I fought hard against in the days of my NoSoftwarePatents campaign) rubberstamped it.

The Commission website says "[t]he aim of the group is to increase expertise and know-how about the determination of fair, reasonable and non-disciminatory (FRAND) licensing terms, as well as the sound valuation of intellectual property." That is fake news, and the recommendations coming out of this in the end will certainly be fake FRAND.

To be clear, there are some very smart people with lots of SEP-related expertise among them. In particular, I have the greatest respect for Damien Geradin, a lawyer and a professor (University of Tilburg, Netherlands)--but the first time I heard him speak at a Brussels event (in the spring of 2010), a large part of his presentation was simply hardcore advocacy for Qualcomm. His Tilburg Law and Economics Center (TILEC) lists Qualcomm as its number one sponsor in its annual report (page 23 of the PDF).

[Update] Professor Geradin (one of my esteemed readers) has meanwhile told me that he has not represented Qualcomm since 2010 and has, in fact, also represented clients adverse to them. While the information about TILEC being funded by Qualcomm was accurate, Professor Geradin says his work does not benefit from Qualcomm's sponsorship, and he tells me he will approach the expert group meetings with an open mind. [/Update]

Economist Justus Baron is a researched at Northwestern University's Searle Center on Law, Regulation, and Economic Growth, which announced in 2013 that it received $2 million from Qualcomm for "patent research." The press release describes Qualcomm as a "visionary company."

Another economist, Jorge Padilla, heads Compass Lexecon Europe. Qualcomm is one of his firm's major clients (possibly the primary client), and he has written various papers on SEPs, habitually denying that hold-up and patent stacking are actual issues (actually, even this blog here has provided numerous examples over the years that those concerns are well-founded).

Ruud Peters used to head the IP department of Philips from 1999 to 2013, then became a part-time adviser. If I recall correctly, I crossed paths with him at an EIF (European Internet Forum) event in 2004. In any event, Philips is very active in SEP monetization.

Bowman Heiden of the University of Gothenburg, Sweden co-authored a paper last year on "patent holdout" that was sponsored by 4iP  Council, an organization that is in turn sponsored by Qualcomm, Philips, InterDigital, and the Qualcomm's two primary allies, Nokia and Ericsson (though both at different points in time complained about Qualcomm's aggressive leveraging of SEPs).

[Update] A reader has pointed me to Mr. Heiden's PhD thesis, for which he received financial and other support from Ericsson: "First, I would like to thank Gustav Brismark at Ericsson for introducing me to the complexity of FRAND and partially funding my research while allowing me the freedom to reach my own conclusions." [/Update]

Qualcomm's allies simply outnumber potential voices of reason such as Audi's Chief Licensing Officer, Mathias Schneider.

I'm afraid DG GROW won't listen to the Fair Standards Alliance, and the set of recommendations that this group will put forward will be materially consistent with whatever Qualcomm's legal department would propose.

[Update] The list is now final. Very disappointing. [/Update]

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Meet the patent trolls of the 2030s: Bosch, Volkswagen, Daimler, BMW

Four days before the 67th International Motor Show (IAA) in Frankfurt will end, I'd like to offer a bold prediction: unless a miracle of the kind I can't imagine happens, Germany's automotive industry (car manufacturers as well as suppliers) will suffer a fate similar to that of the smartphone divisions of the likes of Nokia and Ericsson, ultimately resulting in "trollification" by the 2030s.

As Frankfurter Allgemeine Zeitung noted last month, 52% of all patent filings related to self-driving cars belong to German companies, with Bosch alone (which is number one and followed by Audi and Continental)holding three times as many patents in that field as Google and Apple or Tesla not having any significant patent holdings in that field yet. Besides Bosch, Audi, and Continental, three other German companies are among the top 10 patent holders in this field: BMW, Volkswagen, and Daimler.

Patent filings related to self-driving cars are picking up speed, so the landscape will almost certainly change in some ways in the coming years, but not entirely.

So far, major automotive companies have not used patents aggressively. Much to the contrary, they often find themselves on the receiving end of patent troll lawsuits in the Eastern District of Texas and elsewhere, and they tend to support reasonable royalties (such as through the Fair Standards Alliance) and defensive initiatives (including a fake one--"fake" because it's merely about making a statement and doesn't solve a single patent-related problem ever--called Open Invention Network). I'm not aware of any major dispute between two large car makers. Apparently they work out cross-licensing deals quietly and amicably.

But that's because right now those companies are in the business of selling vehicles (and related services), not in the patent assertion business. While it may seem daring to talk in 2017 about what's going to happen in the 2030s (if not before), I am fairly convinced (not 100%, but way above 50%) that we're less than two decades away from the point at which Germany's automotive industry is going to enforce patents aggressively and try to shake down the future winners in the marketplace.

I believe Germany's leading car makers--and some of their key suppliers--are going to be in only a slightly better position than the smartphone divisions of companies like Nokia and Ericsson were when Apple and the Android ecosystem revolutionized the concept of a mobile communications device. I said "slightly better" because brands like BMW and Mercedes have been very strong for several times longer than Nokia's brand at the time of the iOS/Android revolution. Those brands are associated with certain strengths, some of which will remain important even in the self-driving electric future. But apart from that factor, those companies are practically doomed and will have to resort to patent licensing in less than 20 years' time. They won't disappear into oblivion too quickly, but over time they will, and there will be a long period during which they will still be around and you'll still see Mercedes stars on the roads, but where most of the revenue opportunity will belong to leading U.S. technology companies.

One challenge that those German automotive companies may somehow manage to overcome--though they haven't so far--is the one of creating good user interfaces. I've had an S-Class for a few years and the UI is just simply not well-thought-out. One example is the big button that also serves as a wheel. When using voice control to dial a number from my history of calls, that button means "Yes, this number" in one situation and "No, abort the operation" less than a second later--something that would be completely unthinkable at a company like Apple or Google. Another example is that they waste space on the screen by showing the city of a destination before the street name (which then often doesn't fit on the screen at all, or must be abbreviated beyond recognition). Those are simple things, and while it's astounding that Mercedes would ever have come up with a stupidly-designed user interface in the first place, they--and their competitors--may figure this part out over time.

Maybe someone will explain to their software developers the concept of a race condition because the way the thing intermittently fails to activate functions when starting up--or the way the UI occasionally freezes when dialing--suggests to me they have one or more of those in their code. Maybe they'll even understand that they should keep track of the last cities I navigated to so I don't have to select the same city again and again when entering a destination. And who knows, maybe they'll realize one day that they should provide free firmware updates from time to time to keep customers happy, especially when you have really nasty bugs in your software (as they do). Again, none of that is rocket science.

The bigger issues are of the strategic kind. For decades they have largely relied on a core competence: combustion engines, which involve about 200 times as many parts as electric motors. Daimler once invested in Tesla, then exited. With more foresight, it would have acquired it while it still had the chance. Anyway, those companies will lose their #1 competitive advantage.

Once Silicon Valley companies are the technology leaders (which Tesla in some ways already is) in the automotive industry, Germany's automotive companies will also struggle in the "war for talent." Most of the world's best software developers either already are in the United States or are potentially receptive to offers from such world-class employers as Google, where they can make a lot more money than at BMW, like Daimler or Volkswagen, get perks that are heard of in Germany, and often get to work on more interesting stuff. There will always be some talented developers who will choose to come to or stay in Germany, but a majority of the world's best programmers won't even consider Germany, period. Frankly, the cost-benefit ratio of learning German--a hard language to learn and of very limited use--is inferior, and most programmers already speak a least a little bit of English. In all likelihood, the average Google or Apple programmer will simply be better than his counterparts at German automotive companies, and if Apple or Google wanted to hire a very talented person away from a Volkswagen or BMW, they could in most instances.

Even if those German automotive companies figured out the digital user experience (which is doable) and even if they built better electric cars over time, there is, however, one thing that's simply going to marginalize them. It's that self-driving cars will be mobile communications devices on wheels. Speed and similar success factors of the old times aren't going to matter anymore at all. Instead, it's all going to be about what you can do while the car is doing all the driving.

The most lucrative parts of the car value chain are going to relate to productivity, communications, and entertainment applications. Plus all sorts of e-commerce (including "sharing economy"-style) services.

Those parts of the value chain will, without the slightest doubt, belong to such companies as Apple, Google, Amazon, and Microsoft. Of those companies, Apple is believed to be working on a car of its own and even made a joke about it at a corporate event. The others--especially Google--will be open to partnering (as they're already doing in some areas) with such companies as Daimler. But they're going to have all the leverage because of a force that is far more powerful than the leadership of traditional automotive companies presumably knows: network effects.

Short of developing something that would have to be several times more revolutionary than the iPhone was ten years ago, there's absolutely no way that BMW, Daimler and Volkswagen--even if they agreed to a three-way merger and secured regulatory approval for it--could ever get sufficient traction among app developers so they could compete effectively with Apple and Google. Even Microsoft with Windows Phone and with all of its money couldn't.

My app is in the final testing stage. We'll launch in a first market (probably New Zealand, where other games have also been launched early) in a couple of weeks and will quickly expand from there before finally launching in the United States. I know what drives platform choices. A few years ago I thought I would start on Android, then wanted to serve both major platforms at the same time, and ultimately decided to do iOS first, Android later. Before I would consider any other platform, we'd most likely do Mac and Apple TV versions of our game. Thereafter? Maybe, maybe, maybe even a Windows version at some point. But a Mercedes/BMW/Volkswagen version? I just don't see that happen.

Using Android on open-source terms won't be a viable option (at least nowhere outside China). Android is open-source in some ways but proprietary in others. It's no secret that most Android device makers aren't really profitable. Automotive companies can still make low-margin hardware in the future. But the biggest revenue streams are going to pass them by.

Also, a high percentage of the people buying premium cars are Apple customers, and their loyalty to Apple is simply stronger. Just this week I was thinking about this when I saw a German car with an Apple sticker on it. I was thinking to myself: Would anyone do it the other way round and put a Mercedes or BMW logo on an iPhone or a MacBook? Or a Volkswagen logo on an iPad? Obviously not.

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Nokia completes next stage of transformation into patent troll with sale of HERE to automotive consortium

Nokia has just made the following announcement:

"Nokia completes next stage of transformation with agreement to sell HERE to automotive industry consortium at an enterprise value of EUR 2.8 billion"

The buyers are Audi, BMW, and Daimler. I once did a consulting project, unrelated to this transaction and more generally about IP strategy, for one of them (I closed my consulting business about a year ago, however, in order to focus on app development). It's a really positive sign that these traditional industry players decided to join forces (they're on better terms with each other than major smartphone makers, but don't coalesce every day) and to outbid the likes of Uber.

All three of them--I know their products fairly well because I've repeatedly bought cars from two of them and driven long-term rental cars from the remaining one--have a lot of work to do to defend their turf against Silicon Valley companies like Tesla, Google, and Apple (AppleInsider's Mikey Campbell is a great source on that secretive project). It's ridiculous that, for example, Mercedes doesn't even provide its customers (I'm driving a 2014 S-Class) with frequent software updates the way Tesla does. And I've seen massive user experience deficiencies in the user interfaces of all three of them, including stuff of the kind that is as crazy as the removal of the Start button from Windows was but would presumably get people fired (or never even hired in the first place) at a company like Apple.

For example, the list of recent destinations of my car's navigation system, which has an ultrawide screen (two, actually, but I'm speaking of the one relevant to this problem here), often displays the city and even the county before the street, which means that the street name doesn't appear (for space constraints, even on an ultrawide screen) until I select a list entry. That just makes no sense in a country in which streets have fairly distinct names and one rarely has destinations with identical street names in two cities. Another example: the same button that can be used to select a phone number while using voice control will get the entire operation aborted if you hit it again in order to dial, though you would use that very button to dial without voice control. These examples show that a company like Daimler may understand wheels and brakes, but hasn't (yet) figured out screen layout and user interface design. Today's announcement is not the only indication of progress. The Mercedes F 015 is also very exciting.

With the F 015 being many years off, my next car will most likely be a Tesla, and I will definitely consider an Apple or Google car once available. Still I hope that those automotive companies, who have now demonstrated that they increasingly invest in digital technologies, will learn about user experience up to the CEO level, will change their development cycles and business model so they can deliver frequent and free updates to customers, will dump fossil fuels before customers dump their products, and and will do all of that in time before companies like Apple, Google and Tesla will, in a hypothetical worst-case scenario, turn them into the next Nokia.

Talking about the Nokia we know, I think the headline of this blog post is an accurate modification of the headline of today's Nokia press release: the "next stage of transformation" here relates to Nokia's trollification. By selling the HERE mapping business, Nokia has divested yet another product business. It was a licensing business, but a licensing business in which customers got something real and functional, as opposed to paying up for overbroad and often invalid (at least that's what German courts thought when Nokia sued HTC and ViewSonic a couple of years ago) patents.

Nokia's acquisition of Alcatel-Lucent has received regulatory clearance in the U.S. and Europe. Today's press release says the deal is expected to "close in the first half of 2016." It would be nice if this resulted in Nokia again focusing a bit more on actual products, but I'm very skeptical.

I guess it won't take long before numerous former Alcatel-Lucent patents show up in various lawsuits brought by patent assertion entities (PAEs). No company in the industry appears to be nearly as active and agressive in connection with privateering as Nokia. In May, Nokia and Ericsson sought to justify their privateering ways after IAM (Intellectual Asset Management) Magazine wrote about this topic, citing this blog.

Audi, BMW and Daimler will probably be among the targets of such patent assertions, given that cars are increasingly smartphones on wheels...

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