The licensing of standard essential patents: will licensing negotiation groups take a hold in the market?

It is well-known that the licensing of standard essential patents (“SEPs”) has caused plenty of controversy and legal disputes between SEP holders and implementers. This has recently led to legislative efforts in the EU in the form of discussions on the introduction of an SEP Regulation, designed to address certain issues in the market, including what is perceived as licensing demands by SEP holders that are not fair, reasonable and non-discriminatory (“FRAND”) (see on this our Noerr Insight).

One tool that had been proposed in this context in the past but is not part of the legislative efforts, is the use of licensing negotiation groups (“LNGs”) which negotiate licensing terms for multiple implementers. They are in effect the complement to patent pools, which negotiate licensing terms on behalf of SEP holders. Thus far, licensing negotiation groups have not been established in the SEP licensing market, not least because of concerns under antitrust law. In particular, LNGs had raised concerns that they constitute agreements between competitors that may restrict competition and thus run afoul of the cartel prohibition (Art. 101 TFEU and Section 1 German Competition Act). A recent declaration by the German Federal Cartel Office (“FCO”; Bundeskartellamt) on the so-called Automotive Licensing Negotiation Group or “ALNG” (an LNG concerning SEPs for mobile communications technologies) has now raised the possibility that LNGs may soon take a hold in the market after all.

The declaration by the FCO in the ALNG case

On 10 June 2024, the FCO publicly declared that it will tolerate the establishment of the ALNG by several well-known SEP implementer companies (BMW, Mercedes-Benz, Thyssenkrupp and VW). The declaration by the FCO came in the form of a letter by the chairman of the responsible decision division (Vorsitzendenschreiben) after the members of the ALNG had themselves requested a review of their plans under antitrust law (pursuant to Section 32c German Competition Act).

After an extensive assessment including a market survey, the FCO decided to tolerate the ALNG based on the fulfilment of certain criteria and subject to certain strict conditions:

• Market shares: In cases of joint purchasing efforts (such as joint licensing negotiations), European antitrust law provides for a threshold of a combined market share of 15%. If this threshold is not exceeded, it is presumed that the members of the joint purchasing efforts do not have an amount of market power that their efforts will lead to a restriction of competition. Importantly, the threshold concerns both the purchasing/licensing market as well as the downstream sales market for end-products.
  In the case of the ALNG, the FCO considered that the (current and potential future) participants’ combined share for the licensing of general mobile communication technologies will not exceed 15%, while this threshold may be exceeded when looking at the licensing of automotive-specific SEPs. Accordingly, the ALNG is explicitly restricted to the licensing of general mobile telecommunication SEPs.
  As for the downstream markets for the sale of end-products (vehicles), the FCO considered the threshold to be exceeded as well. However, since the costs for SEP licensing concerning general mobile telecommunication technologies is comparatively small, the FCO concluded that a restriction of competition was unlikely on these markets as well.

• Openness: The FCO also considered it necessary and thus required the ALNG to remain open to suppliers who may also be entitled to and interested in licensing the respective SEPs.

• Voluntary negotiations: The FCO further required the members of the ALNG to also offer bilateral negotiations with SEP holders and patent pools, further mitigating the possible effects of combining purchasing power.

• Measures to limit the exchange of information: In order to exclude the potential for any impermissible exchanges of competitively sensitive information between the ALNG members, the FCO required the implementation of precautionary, organisational measures that the ALNG had previously offered. Through these measures, it is intended to limit the exchange of information to what is absolutely necessary for the joint licensing efforts.

• Notification of future changes: Finally, the FCO compelled the ALNG to notify it of any future extension in the scope of its activities and of any other significant change.

While the declaration does not bar the FCO from re-assessing the efforts by the ALNG in the future, it provides some legal certainty for the companies involved that ALNG (as currently organized) complies with European/German antitrust law.

What this may mean going forward

It remains to be seen whether the effort by the members of the ALNG and the corresponding declaration by the FCO will lead to further efforts by implementers to form LNGs. Certainly, such efforts would also have to conform to antitrust law in other jurisdictions if the negotiations concern global licenses (as is often the case).

Given the perceived issues with SEP licensing and since LNGs had been proposed as one solution (among many; see for example proposal 75 in this report by an expert group convened by the European Commission), it may very well be worth for implementers to more seriously consider entering into plans for their own LNGs. The declaration by the FCO provides more guidance with respect to organisation and structuring of such LNGs in order to conform with antitrust law. In particular, the fact that the market share threshold of 15% was not an insurmountable hurdle despite the size of the ALNG members should strengthen the incentives for such efforts in the future.

SEP holders and patent pools on the other hand could find negotiating with a single LNG as opposed to many individual licensors less burdensome. On the other hand, the combined bargaining power of LNGs could also lead to negative outcomes in the actual licensing terms on the licensor side. In this respect, it will be interesting to see how the restrictions imposed by antitrust authorities (such as restrictions on what kind of SEPs can be part of the negotiations and the mandatory option for bilateral negotiations with individual implementers) will work in practice. In any case, SEP owners and patent pools are well-advised to develop strategies for negotiating with LNGs, should they in fact take a hold in the SEP licensing market.