The Bundeskartellamt tolerates the launch of the “Automotive Licensing Negotiation Group” (ALNG). The ALNG is a cooperation planned by the companies BMW, Mercedes-Benz, Thyssenkrupp and VW with the aim to negotiate jointly conditions for the acquisition of licences for so-called standard essential patents (SEPs). The cooperation is to be open to further automotive companies.

Andreas Mundt, President of the Bundeskartellamt: “The use of technologies such as 4G or 5G in smartphones or cars requires thousands of patents to be licensed. Competition law acknowledges that licensors can bundle the patents required for implementing a specific standard to form a package which they offer at fair conditions. Our examination focuses for the first time on a cooperation on the licensees’ side, which is why we are breaking new ground in the area of competition law, a development which is significant far beyond Germany. After extensive investigations we have no serious concerns about the ALNG in its planned form. However, we can only tolerate the ALNG if its activities are limited to standards that are not specific to the automotive sector and other guidelines set by competition law are complied with. In particular, participation in the negotiations within this framework must always be voluntary. The cooperation must be open to suppliers from the automotive industry. The exchange of information must be limited to the absolute minimum necessary.”

In its examination of the ALNG the Bundeskartellamt focused on the licensing markets affected (the procurement side) as well as on the various automotive markets (the sales side). With increasing combined market shares on the markets affected, a procurement cooperation such as the ALGN can have even more negative effects on competition. If the 15 per cent threshold value is not exceeded, such a cooperation is in principle possible under the EU guidelines on horizontal cooperation agreements.

On a licensing market for SEPs for general mobile communications technologies, the combined share of the parties involved and possible future ALNG members from the automotive industry on the demand side is below 15 per cent. As the licences are required for many devices (for example smartphones), the demand side includes a very significant number of companies and extends far beyond the automotive industry. The situation regarding standards that are more automotive-specific may be different.

The 15 per cent threshold is in fact exceeded on the various automotive markets, at least in some cases. However, the risk of coordination between the ALGN members resulting from joint procurement is not significant because the licence costs for SEPs usually account for less than 1 per cent of a vehicle’s total production costs.

The further conditions under which the ALNG can be tolerated include in particular the requirement that the licensors’ negotiation of licensing conditions with the ALNG (instead of bilateral negotiations) is always legally and factually voluntary. Another condition is that the ALNG and the licensing negotiations it conducts are open to suppliers from the automotive industry. As to the risk that the exchange of competitively sensitive information could go beyond what is necessary for operating the ALNG, the participating parties have provided for organisational measures which are to prevent such a development and which may not be neglected.

The Bundeskartellamt has also informed the ALNG that any plans by the ALNG or its negotiation groups to extend their activities to technologies that are more specific to the automotive sector must be notified to the authority before they are implemented. This also applies to other significant changes in the organisation or activities of the ALNG.

Background

Standard essential patents (SEPs) are patents that are required to implement a certain standard in a product. Examples include the 4G or 5G mobile communications standards or standards such as Wi-Fi or H.265 (video compression), whose implementation in devices such as smartphones, but also in vehicles, involves the use of thousands of patents. Most standardisation organisations as well as competition law usually require SEP owners to license their SEPs under fair, reasonable and non-discriminatory (FRAND) terms. However, this licensing obligation and the licensing terms have repeatedly been the subject of prolonged legal disputes.

The licensing markets are of considerable economic significance. The global market volume for licences for mobile communications SEPs, for example, reaches tens of billions of euros.

Establishing Licensing Negotiation Groups (LNG) such as the ALNG is a rather new development on which the various market participants have different views. For example, the ALNG members claim that their cooperation can reduce the number of required negotiation meetings and thus reduce transaction costs, while the licensor side raises concerns that LNGs could shift the negotiation power balance at the expense of licensors.

An anonymised version of the letter of the chairman (Vorsitzendenschreiben) can be found here.