FCO allows joint SEP licensing in the automotive industry

On 10 June 2024, the German Federal Cartel Office (FCO) published its assessment of a joint negotiation group for the licensing of standard essential patents (SEPs) in the automotive industry. BMW, Mercedes-Benz, Thyssenkrupp and Volkswagen can proceed to implement their proposal to SEP rights holders to negotiate SEP licences with a group of potential licencees as long as certain conditions are met. President Andreas Mundt said that in order to benefit from the FCO’s “no action letter”, joint SEP licensing negotiations must be limited to general standards not specific to automotive; they must be voluntary for SEP rights holders; they must be open not only to automotive OEMs but also to their direct and indirect suppliers; and the exchange of information must be strictly limited to what is necessary.

The FCO is the first major competition authority to state the obvious: joint licensing can be a lawful way to source technology rights. Though the FCO says that it is “breaking new ground in competition law”, it is careful not to go too far. By limiting its green light to standards that are not specific to automotive, the FCO seeks to ensure that there can only be joint licensing by automotive companies where the potential licencees’ joint licensing market share stays within the 15% safe harbour market share threshold defined in the European Commission’s guidelines on horizontal cooperation. That can hardly be called revolutionary. 

It remains to be seen how the FCO and other competition authorities assess SEP licensing negotiation groups (LNGs) in cases where the respective arrangements do not benefit from the safe harbour. Even then, LNG groups should not give rise to antitrust concerns in light of the particular legal and economic context in which SEP licensing takes place. SEP rights holders are monopolists by definition. Each patent, i.e. an exclusive right, forming part of a standard is essential to the standard. If an implementer does not obtain a licence to each SEP, it cannot implement the standard at all. An SEP does not have a substitute. More often than not, there are also no competing standards. For these reasons, SEP rights holders are obliged to commit to license SEPs on fair, reasonable and non-discriminatory (FRAND) terms. If SEP holders refuse to honour this commitment and to grant FRAND licences to a standard implementer willing to take a licence, they are abusing their monopoly power thereby infringing inter alia Article 102 TFEU. 

The obligation to grant FRAND licences implies that all similarly situated licencees must be treated similarly, unless there are objective reasons to differentiate between them. Under these circumstances, it is hard to see how LNGs could be considered to be restricting competition. Certainly, an LNG is not a “purchasing cartel”, but has the legitimate objective of ensuring fair and non-discriminatory treatment of similarly situated licencees. Moreover, joint licensing decreases transaction costs and thus potentially leads to significant consumer benefits. The European Commission should use the opportunity to provide more detailed guidance and potential safe harbour criteria for LNGs in the course of its ongoing revision of the framework for technology transfer agreements.

Yet, the licensing market is only one of the markets affected by joint licensing. Joint licensing can potentially limit competition on downstream markets for the sale of products in which the relevant technology is used. Higher cost equalisation between downstream competitors can increase the possibility of the tacit coordination of market conduct among competitors. Yet, the FCO correctly finds that the costs of SEP licences are only a fraction of the costs of cars (below 1%) and that the likelihood that competition in downstream markets is adversely affected is therefore very limited. 

While the FCO’s public statement is an important step towards striking a balance in SEP licensing negotiations, some will say it does not go far enough. SEP rights holders on the other hand need not fear disadvantages from joint negotiations under the conditions defined by the FCO. In order to motivate them to voluntarily participate in negotiations with an LNG, potential licencees need to convince SEP holders that their joint negotiation model yields efficiencies.