
#7 Matthias Schneider | The Role of SEPs in the Auto Industry
02/07/22 • 49 min
"Avanci will later this year launch the 5G patent program with a predicted aggregate royalty for 2G, 3G, 4G and 5G in the low $20 numbers."
Matthias Schneider has been Chief Licensing Officer (patents) at Audi AG until end of 2021 and has held positions like Vice President for IPR at Siemens Communication Devices and BenQ Mobile, and Global Head of Defensive Licensing at Nokia Corp before that. Matthias knows both sides of the table working for telecommunication companies and for the automotive OEM Audi for several years. He joined Audi to negotiate important SEP licensing deals and was one of the first to negotiate a contract with the license program of Avanci for Audi where some provisions of this contract are still used across the whole automotive sector. However, the price will depend on having most of the major SEP holders join Avanci so that the coverage of 5G SEPs is high enough to justify the price.
Matthias believes the problem was that the automotive suppliers did take royalty payments for 2G, 3G and 4G SEPs into account when negotiating the supplier contract years ago, even signing indemnification clauses. Now OEM and the suppliers must negotiate who will pay the royalties and margins in the automotive supply chain are very low. Interestingly, in the past only the high-end brands have joined which may make sense given that royalties for a Fiat are at $15 the same as royalties for a Ferrari. The marginal costs of $15 are therefore much more relevant for certain automotive OEMs. Matthias however points out that it must depend on where in the car the patented technology, in this case the standard, creates value. Is the value higher for expensive cars compared to for cheaper cars? Matthias believes there is no reason why the $15 should not also be applicable to a small low-priced car such as a Fiat or Polo.
So where to license in the value chain? Well, Matthias points out that it is almost impossible to understand where the patented technology creates value when you go to the chipset manufacturer level. Here no one will know where the chip may end up because tracing chips through the supply chain is almost impossible and therefore the patent owner cannot verify if certain end products contain licensed chips. But as soon as you e.g. have (in the cellular communicate space) space an International Mobile Equipment Identifier (IMEI) number, the network access component and its license status become traceable. Therefore, licensing on the level of the manufacturer of a network access device (and afterward) is possible. A SEP license for tier 1 suppliers is thus possible and Matthias also sees increasing willingness from SEP holders to go up at least one level in the value chain with their SEP license offers.
Finally, Matthias comments on the challenge that local courts establish global portfolio FRAND rates even if they set lower rates for certain jurisdictions (e.g. China) compared to Europe and the US. Licensees often prefer to negotiate and potentially litigate on individual patents in single jurisdictions. He believes that courts such as the UK court set a global FRAND rate for SEP portfolios are stepping a bit out of their comfort zone and he would prefer a WIPO-based arbitration body for FRAND rates. How that is managed remains to be seen.
Matthias’ take on 5G and SEP licensing for the IoT is that this will have to work very differently as the royalty income per IoT device manufacturer is expected not as high as for smartphone manufacturers. Even the automotive market is far less lucrative than the handset market, because the number of cars sold globally is only around 7% of the number of smartphones. The main target market for SEP owners thus will remain the handset manufacturers.
“The litigation situation is not as bad as many people believe it is. 90% of deals are done without litigation and I am not worried that this will change.”
"Avanci will later this year launch the 5G patent program with a predicted aggregate royalty for 2G, 3G, 4G and 5G in the low $20 numbers."
Matthias Schneider has been Chief Licensing Officer (patents) at Audi AG until end of 2021 and has held positions like Vice President for IPR at Siemens Communication Devices and BenQ Mobile, and Global Head of Defensive Licensing at Nokia Corp before that. Matthias knows both sides of the table working for telecommunication companies and for the automotive OEM Audi for several years. He joined Audi to negotiate important SEP licensing deals and was one of the first to negotiate a contract with the license program of Avanci for Audi where some provisions of this contract are still used across the whole automotive sector. However, the price will depend on having most of the major SEP holders join Avanci so that the coverage of 5G SEPs is high enough to justify the price.
Matthias believes the problem was that the automotive suppliers did take royalty payments for 2G, 3G and 4G SEPs into account when negotiating the supplier contract years ago, even signing indemnification clauses. Now OEM and the suppliers must negotiate who will pay the royalties and margins in the automotive supply chain are very low. Interestingly, in the past only the high-end brands have joined which may make sense given that royalties for a Fiat are at $15 the same as royalties for a Ferrari. The marginal costs of $15 are therefore much more relevant for certain automotive OEMs. Matthias however points out that it must depend on where in the car the patented technology, in this case the standard, creates value. Is the value higher for expensive cars compared to for cheaper cars? Matthias believes there is no reason why the $15 should not also be applicable to a small low-priced car such as a Fiat or Polo.
So where to license in the value chain? Well, Matthias points out that it is almost impossible to understand where the patented technology creates value when you go to the chipset manufacturer level. Here no one will know where the chip may end up because tracing chips through the supply chain is almost impossible and therefore the patent owner cannot verify if certain end products contain licensed chips. But as soon as you e.g. have (in the cellular communicate space) space an International Mobile Equipment Identifier (IMEI) number, the network access component and its license status become traceable. Therefore, licensing on the level of the manufacturer of a network access device (and afterward) is possible. A SEP license for tier 1 suppliers is thus possible and Matthias also sees increasing willingness from SEP holders to go up at least one level in the value chain with their SEP license offers.
Finally, Matthias comments on the challenge that local courts establish global portfolio FRAND rates even if they set lower rates for certain jurisdictions (e.g. China) compared to Europe and the US. Licensees often prefer to negotiate and potentially litigate on individual patents in single jurisdictions. He believes that courts such as the UK court set a global FRAND rate for SEP portfolios are stepping a bit out of their comfort zone and he would prefer a WIPO-based arbitration body for FRAND rates. How that is managed remains to be seen.
Matthias’ take on 5G and SEP licensing for the IoT is that this will have to work very differently as the royalty income per IoT device manufacturer is expected not as high as for smartphone manufacturers. Even the automotive market is far less lucrative than the handset market, because the number of cars sold globally is only around 7% of the number of smartphones. The main target market for SEP owners thus will remain the handset manufacturers.
“The litigation situation is not as bad as many people believe it is. 90% of deals are done without litigation and I am not worried that this will change.”
Previous Episode

#6 Christa Laser | SEP litigation and legal trends in the US patent system
Professor Christa Laser comes to Cleveland-Marshall after nearly a decade of practice experience as an intellectual property litigator at the law firms WilmerHale and Kirkland & Ellis LLP. She has deep expertise in patents, trademarks, copyrights, false advertising, pharmaceutical litigation and regulation, and technology law. She has represented leading life sciences and technology companies in all stages of trial and appellate matters and consulted on legislative changes to intellectual property laws.
In her time during law practice, she gained a lot of experience representing clients such as Samsung or Lenovo in their defense strategy around standard essential patents (SEPs). SEPs play a particular role in litigation as in such litigation it is not only about questions such as validity or infringement but also about the obligation to disclose SEPs or the big question of what a FRAND rate is. Disputes in other spaces are very different. In biotech for example the infringement is often not challenged as typically both parties agree on what the compound looks like and how it’s used. Standardized technology is in comparison much more complex and it is thus much more difficult to find evidence for infringement.
And related to that we see a lot of SEP litigation where courts file so-called anti-suit injunctions. A court would issue such an injunction to prevent other courts from deciding the same issue at the same time. This is set to make sure that questions in litigation are decided by only one court. If we don’t do that, we would have chaos as two countries would decide on the same issues that are overlapping and then parties would need to figure out which decision e.g. on rates applies where? The real complexity starts when we have an anti-suit injunction from one country and another country does not agree and files an anti-anti-suit injunction to continue the litigation process. This kind of back and forth creates a lot of inefficiencies and should be avoided as Christa believes we must respect each other legal systems.
After years of legal practice at the major law firms, Kikland & Ellis as well as Wilmehale Christa decided to change careers to become a law Professor with the focuses on intellectual property and innovation. She wanted a change in her career to more objectivity look at the legal space. During her law practice she always had to represent one side of the table finding arguments to help the client win. Now she can look at issues from the outside. She still uses her practical experience with teaching her students that get presented real cases where they must then develop a strategy to win the case. Her approach is called the Socratic method a form of cooperative argumentative dialogue, based on asking and answering questions to stimulate critical thinking and to draw out ideas and underlying presuppositions.
Finally, Christa talks about her personal career and the challenge to manage working late hours at a law firm while having two kids being the main responsible childcare parent. She experienced a lot of support from her colleagues and people that helped her along the way, but she still felt it was often very hard to manage. In general, yet women are still expected to give up their careers when having children and the situation is not equal compared to men. Christa can be seen as a role model for many women as she showed others that you can have a career while having children. However, the whole system is a long way from supporting strong women in their career path. We still see a majority of males higher management positions, we still see many more male inventors e.g. listed on patents compared to women and the list goes on where even in the venture capital investment space, women less often receive investments even though statics prove women to be the more successful founders. All that must change, and our society must find ways to make this change happen.
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#8 Pio Suh | SEP monetization and enforcement
Since July 2018 Pio Suh is assigned as the Managing Director of IPCom based in Munich, Germany. He is an attorney and member of the German Bar since 2006. Pio has over a decade of experience in SEP licensing and patent litigation in the field of communication technologies. He has worked in-house for several multinational Fortune 500 companies – including Qualcomm, Oracle, and Philips – to implement patent licensing, enforcement, and litigation strategies on a global scale.
When IPCom was founded 15 years ago everything started with licensing the GSM and UMTS SEP portfolio acquired from Bosch. Today Pio explains that IPCom is not only acquiring SEPs from other patent holders but as a company acts as an active contributor to the 3GPP standard development. Indeed, the IPlytics contribution data confirms over a hundred contributions submitted to the 3GPP since 2016 for specifications related to top 4G and 5G technologies.
Pio talks about how the legal environment changed from his time at Philips, where the licensing team back then was able to get injunctions on SEPs much easier, compared to today where in Europe it became very difficult to get injunctions for SEPs. In his perspective, with the missing threat of an injunction, a situation where the licensee delays the process is inevitable. Why would a licensee promptly pay and accept an offer if there are no costs for the delay? Pio says:“For a SEP licensee, it is always cheaper to delay the process.”
If the licensee has not inventive to speed up the process, they will prolong the negotiation. Here China for some cases at least has proven to be more efficient in granting preliminary injunctions.
Pio goes on to talk about the different perspectives on what is a fair reward for providing access to patented standardized technology. And for understanding what’s FRAND in his view it also depends on the unit that must be considered. In his opinion, a telecommunications carrier should pay a royalty for SEPs depending on the number of network subscribers. In other words, the users of the network. Carriers argue however that one must use the net selling price of a base station as the basis to determine FRAND. Therefore, carriers do not want to pay royalties but point the finger at the base station manufacturer such as Ericsson, Huawei, or Samsung. However, in Pio’s view, base stations are not the accurate unit to represent the value the patented technology brings to the users. This general misalignment about what the basis for FRAND determination should be and who should pay in the value chain makes it difficult to negotiate.
IPCom owns SEP portfolios in the cellular telecommunication space. Pio explains that the barrier to getting a product on the handset market is quite high and needs significant investments in R&D, know-how, manufacturing facilities supplier networks, and so on. This is very different for example to printing and pressing a DVD – where Pio targeted licensees during his time at Philips – and here the licensee market looks very different. For handsets consequently, only larger corporations such as Apple, Samsung, Huawei, HTC but also new players such as Xiaomi, OPPO or Vivo are on the market, who are the licensees that IPCom approaches. While easy to identify and big pockets guaranteed, these companies are very experienced in defending themselves and that makes licensing quite challenging.
Pio stresses in his final remarks that for him it often goes back to the fundamentals of intellectual property rights. Imagine someone wants to use the house you own and live in. Yes, you can rent out your house but you can still decide who is allowed to rent it and for what price. For intellectual property, you have the same rights and the legal system must ensure that you are able to enforce your rights and that you will receive fair compensation for the use of your rights.
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