Standard Essential Patents: Can They Cause Issues With Electric Vehicle Development?

A Standard Essential Patent (SEP) is a patent that claims an invention that is necessary to comply with a particular technical standard.  These types of patents are in a variety of industries, including telecommunications, consumer electronics, and now the electric vehicle (EV) sector. In the context of EVs and interconnected vehicles, SEPs play an important role in enhancing interoperability, increasing safety, and fostering innovation. However, SEPs also present unique challenges, particularly in the EV industry where the intersection of technology, mobility, antitrust, and patent law create amplified complexities to the existence and legality of these essential patents. This alert explores the key problems associated with SEPs in the EV sector and implications for stakeholders.

Rise of SEPs in EV Technologies

The EV industry is undergoing a transformation driven by connectivity, autonomous features, and sustainable energy solutions. These technologies can include battery management systems (BMS), advanced driver assistance systems (ADAS), and vehicle-to-everything communications (V2X). Each of these technologies are implicated by SEPs, and as a result EV manufacturers are encouraged to incorporate technologies covered by SEPs into their products. 

Reoccurring Challenges

1. Patent/Royalties

   Patent Hold Up: SEP holders may try to demand excessive royalties after companies are locked into using a particular standard.  For EV manufacturers, they may have no choice but to use the standard encompassing technology due to interoperability requirements.

   Royalty Stacking: With multiple SEPs covering a single technology, EV manufacturers will face cumulative royalty demands from many patent holders, so it is difficult to predict costs and profit.
   
   

2. Licensing Disputes

   FRAND Disputes: Licensing SEPs in the EV sector often involve disputes over fair, reasonable, and non-discriminatory (FRAND) terms. Challenges arise due to differing industry norms and legal jurisdictions issues. The global nature of EV markets and the variability in SEP enforcement and FRAND interpretations across jurisdictions complicate licensing negotiations and dispute resolutions.
   
   

3. Legal and Policy

   Transparency: Regulatory bodies and standard setting organizations (SSOs) must work to improve the transparency of SEP declarations and essentiality assessment.

   Enforcement: Clearer guidelines and enforcement mechanisms for FRAND commitments are essential. Both judicial and regulatory clarity on FRAND terms is needed.

   Encouraging Alternative Dispute Resolutions (ADR): Mediation and arbitration mechanisms specific to SEP dispute in the EV area can provide quicker, less costly resolutions.
   
   

4. Cross-Industry Collaboration

   Collaboration: Collaboration between EV companies and the SEP owners can harmonize licensing practices and foster a better relationship that can be used to tackle industry challenges, both regulatory and technical.

   Antitrust Concerns: Although collaboration will ultimately increase the effectiveness of EVs and interconnected vehicles, it may encourage scrutiny from antitrust regulators.

Conclusion

As reflecting the standardized technology needed to effectively operate a world full of these vehicles, SEPs are an important component of the EV ecosphere.  Addressing the issues and concerns outlined above requires coordinated efforts amongst SEP holders, EV manufacturers, SSOs, and even regulatory agencies. Much like the interconnected electrical systems in EV’s themselves, the electric vehicle market will benefit from increased connection and coordination among the industry parties. This will ultimately foster fair and efficient SEP licensing practices. However, stakeholders should be mindful of the intersection of patents and antitrust laws when it comes to SEPs.

Crowell & Moring LLP will continue to monitor developments related to SEPs in the automotive industry. Please contact the undersigned if you have a question or require help navigating the electric vehicle legal landscape.