German competition authority paves the way for joint negotiations on the acquisition of licences for standard essential patents

Germany has just given a boost to joint negotiations regarding  Standard-Essential Patents (SEPs). It's competition regulator, the Federal Cartel Office (FCO),  just gave a green light to the launch of the "Automotive Licensing Negotiation Group" (ALNG) - a cooperation planned to involve global automotive companies such as BMW, Mercedes-Benz and VW and Thyssenkrupp. 

The ALNG is designed to and focused on negotiating joint conditions for the acquisition of licenses for SEPs, which are integral to implement technology standards such as 4G or 5G, Wi-Fi, H.265 video compression and other technologies in the automotive industry. SEPs are essential and are embedded in everyday devices from smartphones to vehicles, involving the use of thousands of individual patents. Correspondingly, they are raising the interest of EU authorities and subject to EU regulations and frameworks (read more).

Key takeaways: Joint negotiations of licences under German antitrust law

After a thorough examination of the markets affected on both the procurement and the sales side, the FCO stressed that, because of minor concerns, it would only accept the project if its activities are limited to antitrust law standards that are not automotive-specific and comply with competition law guidelines. 

In particular, ALNG’s activities must 

• be restricted to technologies that are not specific to the automotive sector, 
• be accessible to all suppliers from the automotive industry, 
• ensure that participation is voluntary and 
• limit the exchange of information to the absolute minimum necessary.  

With the licensing market for SEPs for general mobile communication technologies extending far beyond the automotive industry, the ALNG’s market share will remain under the EU Horizontal Guidelines’ 15 percent threshold. 

Despite the 15 percent threshold being exceeded on the downstream automotive markets, the FCO saw no significant threat to competition as the license costs for SEP’s are a negligible fraction of the total cost of production.

What next? Impact on and beyond the global automotive Industry

With the FCO's truly remarkable decision to support the launch of the ALNG, the FCO is, according to Andreas Mund, FCO president, “breaking new ground in the area of competition law, a development which is significant far beyond Germany”. 

The decision is – to say the least – illustrative of the increasing relevance of cooperations in the licensing market and the need for competition authorities to strike a balance between promoting innovation and preserving fair competition. This evolving landscape presents a complex interplay of innovation, economics, and legal frameworks, making SEPs a critical yet contentious element in the advancement of global technology standards.

As the stakes are high in the licensing markets, with the licensing of mobile communications SEPs alone accounting for a significant economic footprint, running into tens of billions of euros globally, there has been a shift towards forming Licensing Negotiation Groups, such as the ALNG. Joint negotiations are consistently becoming significantly more important as they are leading to reduced (transaction) costs and increased efficiency by (i) bringing together different players in the respective industry and gathering stronger negotiation powers while (ii) streamlining processes, this decision as an major step into an future-orientated direction. 

Keeping in mind that licenses are required for devices extending far beyond the automotive industry, we are excited to see to what extent the FCO’s guidance will be applicable to similar cooperations and activities in other technology-driven sectors and pave the way for further joint negotiations.