Carmakers raise concerns at Chinese dominance over connectivity patents

In the era of internet-connected vehicles, Europe’s carmakers are embroiled in intellectual property battles with some of the region’s biggest telecoms groups. Looming behind those conflicts is fear about the rising dominance of China.

Companies from Asia’s biggest economy, led by Huawei, have filed a deluge of patents around the essential technology that allows products, from cars to mobile devices, to access 4G, 5G and WiFi networks. Anything that connects to the internet must secure a licence for these so-called standard essential patents (SEPs) from technology creators.

Chinese companies were behind 65 per cent of filings of SEPs last year to standards body ETSI, according to data collected by Clarivate, up from 37 per cent in 2019. EU commissioner Thierry Breton this week noted that since 2014, the share of SEPs globally held by European companies dropped from 22 to 15 per cent, while Chinese companies’ doubled.

“I’m strongly urging and encouraging companies to file and file and file patents . . . Chinese companies are doing it a lot,” he said.

Breton was setting out new European Commission proposals to increase transparency and reduce litigation in the patent market, led in part by fears that competitiveness in the bloc was under threat. Under the new rules, companies would have to register their patents with the EU Intellectual Property Office, which would in turn help set licensing and royalty rates.

The move has sparked controversy among leading patent holders who fear it will create even more onerous procedures, such as registering every single patent with the new body, and reduce their access to the courts for infringement cases. This could ultimately hit their global competitiveness, they worry.

The review follows several legal disputes, including a lawsuit between Nokia and Mercedes-Benz. The telecoms group sued the carmaker, previously known as Daimler, for patent infringement when negotiations over pricing broke down. The case was settled outside court two years ago.

China’s increasing interest in SEPs has sparked concern in the car industry, which is already reliant on the largest Asian country for key components across much of its supply chain and has become deeply wary of the escalation of geopolitical tensions between Washington and Beijing.

Huawei, which has suffered from US and European sanctions imposed over fears it helps Beijing conduct cyber-espionage and technology theft, has led the pack, filing thousands of patent applications in 2020 and 2021.

“In 5G, the winner is clear — it’s Huawei,” said Michael Schlögl, head of patents at German car supplier Continental.

Huawei, which invested $21.8bn in R&D in 2021, has developed several licensing relationships within the car industry. But it has so far opted not to license its IP via a patent pool called Avanci used by Ericsson, Nokia and others, choosing instead direct agreements with component makers including a Volkswagen supplier. It has signed bilateral SEP agreements with at least 13 carmakers, including Audi and BMW.

Patent ownership can become a good source of income for telecoms technology companies such as Huawei, which has been losing business internationally as many western countries have started purging the company from telecommunications networks because of concerns over its relationship with Beijing.

Chinese companies are now increasingly in a position where they could “keep other companies out of business — not just in the automotive supply, but for the whole Internet of Things”, said Schlögl.

Christian Loyau, legal affairs and governance director at the body responsible for standardisation of communication technology in Europe, ETSI, warned that if Chinese companies felt they were not allowed to participate fairly in western markets, Beijing could decide to “use their patents as weapons” and curtail western companies’ access to key technologies.

A person close to Huawei said that it negotiates licences in a “friendly and amicable way” in the hope that its technology can be “beneficial for the whole industry”.

Telecoms equipment group executives point to the fact that the quantity of patents filed does not necessarily equate to their quality and that Ericsson and Nokia still dominate when it comes to lucrative quality patents. Huawei generated about $1.3bn from patent licensing between 2019 and 2021. Nokia generated €1.5bn in 2021 alone, while Ericsson generated around €900mn last year.

Nevertheless, fears about the role of Chinese companies in patent development come as a growing number of products become connected, prompting the need for licences for wireless access to 4G, 5G and eventually 6G networks.

Car companies are among traditional industries increasingly wary of the power telecoms equipment makers hold over conditions such as pricing for the IP licences.

Groups including Nokia and Ericsson have been pegging the price of connectivity patents to the price of a car, rather than the significantly cheaper connectivity hardware developed by automotive suppliers, meaning they can charge more.

Anja Miedbrodt, senior counsel in intellectual property defence at Mercedes-Benz, said the conflict between the two industries was also threatening to upend supply chains.

With vehicles such as the Mercedes-Benz E-class requiring more than 3,700 different parts from more than 340 suppliers, she said, carmakers could not be responsible for ensuring each part was patent-compliant — adding that requiring this “would turn around the entire set-up of the automotive industry”.

However, a person close to Nokia said that patent holders were charging only around $20 per car. The company said that the “refusal by some companies to pay for the use of other companies’ technology is the main barrier to efficient and effective SEP licensing”.

The $20 cost “might not sound like much for the consumer, but multiply this by hundreds of standards [needed by] car technologies”, said Schlögl, adding that if connectivity SEP fees kept rising, “you might indeed see a bill of licence fees that an end consumer would never accept”.

Additional reporting by Javier Espinoza