Andi Cao, J.D. Class of 2028
If you have ever used a 5G smartphone, whether an iPhone or an Android device, you have benefited from global technical standards forged through decades of patent licensing battles in the telecom sector. As cars become “connected computers on wheels,” the automotive industry is entering a similar landscape of Standard Essential Patents (“SEPs”). To sidestep the kind of lengthy disputes seen elsewhere, players in the Vehicle-to-Everything (V2X) ecosystem could benefit from developing a tailored FRAND (Fair, Reasonable, and Non-Discriminatory) licensing framework early on.
What is V2X and Why It’s a Game Changer
V2X, which stands for “Vehicle-to-Everything,” lets cars to share information with other vehicles (V2V), pedestrians (V2P), infrastructure like traffic lights (V2I), and networks (V2N). This creates a 360-degree, real-time awareness that goes far beyond today’s infotainment systems. For consumers, the benefits are clear: safer roads thanks to collision warnings and avoidance systems, plus smoother traffic flow through coordination with smart infrastructure. It is also a critical step toward fully autonomous driving.
The Rules of the Game: SEPs and FRAND
To grasp what’s at stake for connected vehicles, it helps to understand SEPs and FRAND that were sharpened by years of telecom litigation. An SEP claims an invention that is indispensable to practicing a technical standard, such as 4G and 5G. Any device using those standards relies on SEPs held by companies like Qualcomm, Ericsson, and Nokia. To prevent “hold-up,” where a patent owner demands excessive fees after an industry is locked into a standard, most standard-setting organizations require members to license their SEPs on FRAND terms. The goal? Balance the need to reward innovation with the importance of broad adoption.
But applying these principles has not been easy. Courts determining FRAND royalties often emphasize the value of the patented feature itself, not the value of the entire product. For instance, in Microsoft Corp. v. Motorola, Inc., the court rejected Motorola’s request for royalties based on the end-product price, insisting instead on the technology’s incremental contribution. That approach keeps SEP holders from profiting unduly from features they didn’t invent.
When Telecom Licensing Meets Auto Supply Chains
Not all disputes are about how much to pay, some are about who should pay within the complex supply chains. A case in point is Continental Automotive Systems, Inc. v. Avanci LLC, where Tier-1 supplier Continental challenged the SEP pool’s practice of licensing only end-product manufacturers (OEMs) as anticompetitive. As a major provider of telematics control units, Continental argued that Avanci’s refusal to offer a direct FRAND license constituted both a breach of contract and an antitrust violation, contending that licensing exclusively to OEMs was exclusionary conduct.
The Fifth Circuit, however, dismissed the case, ruling that Continental lacked antitrust standing. Since Avanci was already licensing OEMs downstream, the court reasoned, Continental was not directly prevented from using the technology. It also concluded that Continental was not an intended beneficiary of the original FRAND commitments. The case was tossed on a technicality, but the underlying tension remains: when SEP holders license only at the OEM level, suppliers have little legal power to demand a direct license.
The Continental ruling crystallizes the legal and commercial friction inherent in the automotive industry’s convergence with SEPs. While SEP holders may prefer to license at the product level, the automotive supply chain is far more fragmented, with OEMs, Tier-1 suppliers, and chipmakers all playing distinct roles. The unresolved question of which level licensing should occur at creates ongoing uncertainty over cost allocation, liability, and operational burden.
Compounding this structural misalignment is an economic mismatch. Applying a smartphone royalty model to a car, without adjusting for the vast difference in value, runs counter to the FRAND principle upheld in Microsoft. The connectivity function in a $50,000 vehicle is not 100 times more valuable than in a $500 phone. For automotive royalties to be “reasonable,” they should reflect the sector’s distinct economic reality.
In response, patent pools have emerged as one market-driven solution to this licensing complexity. By offering a one-stop license to a bundle of SEPs, they help simplify negotiations and cut legal risks for automakers. Avanci, as a leading example of this model, has attracted manufacturers from Ford and BMW to BYD. That some are signing on suggests a growing acceptance of the efficiency and predictability the pool approach offers.
A Blueprint for a Smoother Ride
As V2X technology continues to roll out, there’s still time to build a balanced and predictable licensing environment. Learning from past cases and current market shifts, the following areas are worth considering:
- Apportionment: Reinforcing the principle from Microsoft, a V2X licensing framework may want to base royalties on the value added by the connectivity function rather than the entire vehicle, ensuring that they reflect a patent’s incremental contribution.
- Licensing Levels: Greater predictability is needed regarding which entity in the supply chain should take a license. Clarifying this would reduce transactional friction and mitigate the type of litigation seen in Continental v. Avanci.
- Transparency: Early insights of total expected royalty costs for key V2X standards would support more stable planning and investment across the industry.
The shift toward connected and autonomous vehicles is more than a tech upgrade. Drawing on the legal and commercial lessons from SEPs in the telecom sector, the auto industry can craft a FRAND framework that fits its unique supply chain and economics to ultimately benefit innovators, manufacturers, and consumers alike.