5G battle for connected cars: Auto giants do not accept Qualcomm tax, Huawei competes with Mercedes-Benz and Nokia

The battle for 5G patent licensing for smartphones has come to a temporary end, but the battle for the right to speak on 5G patents in the connected car market has just begun. In this battle over how to formulate the rules of the game, on one side are communication patent giants such as Qualcomm and Nokia, and on the other side are global automotive giants and parts companies. This battle for 5G patent licensing models will directly determine the future development of the connected car industry.

Six major companies call for lawsuit against Qualcomm

Qualcomm has received major good news in one month. On July 31, Qualcomm and Huawei reached a multi-year patent licensing agreement. This agreement not only brought Qualcomm a one-time patent fee of US$1.8 billion, but also meant that Qualcomm has reached patent agreements with all major OEM manufacturers in the smartphone industry, and their patent licensing model will continue in the 5G era.

On August 11, Qualcomm won a key victory in its three-and-a-half-year antitrust lawsuit against the U.S. Federal Trade Commission (FTC). The U.S. Court of Appeals for the Ninth Circuit overturned last year's unfavorable ruling against Qualcomm by the Northern District Court of California, believing that the evidence provided by the FTC could not prove that Qualcomm illegally monopolized and hindered market competition. In this lawsuit, the Department of Justice, another major antitrust agency in the United States, strongly supported Qualcomm.

Stimulated by continuous favorable factors, Qualcomm's stock price has hit new highs recently. Its current market value is close to $135 billion, and its stock price has doubled from its low point in March. It has not been affected by the decline in demand in the smartphone market due to the epidemic this year. It seems that Qualcomm has finally emerged from the haze since 2017, and its future business prospects are bright.

But just last week, six major corporate giants jointly wrote to the FTC, calling on the antitrust regulator to appeal to the U.S. Supreme Court and continue to sue Qualcomm for suspected monopoly. These corporate giants said in the joint letter that "the (Ninth Circuit Court) ruling may encourage the abuse of market dominance obtained through collaborative standard setting, thereby threatening the stability of the standard ecosystem."

The six corporate giants include: Ford, Daimler, Honda, Tesla, Intel and MediaTek. The two chip giants are direct competitors of Qualcomm, and it is completely understandable to ask the FTC to put pressure on Qualcomm. Intel was completely defeated in the competition with Qualcomm's 5G baseband chips. Not only did it withdraw from this business, but it also dragged Apple into reaching a patent settlement with Qualcomm. So why can't these four major automakers get along with Qualcomm?

A new patent battlefield for connected cars

Of course, what car manufacturers care about is not smartphones, but their own vital interests, namely the wireless communication patent licensing model for connected cars. Unlike the patent licensing model in the smartphone industry, which has basically been determined, the communication patent licensing model for connected cars, as a new market area, has not yet been determined. Car manufacturers are unwilling to easily hand over the right to speak to communication giants.

As mobile communications gradually enter the 5G era, traditional cars are also entering the era of intelligent networking. Whether it is smart entertainment, information acquisition, or autonomous driving, future smart cars cannot do without high-speed Internet connections. Cars will also become one of the important Internet connection portals for users. IDC predicted in May this year that by 2023, global shipments of smart connected cars will reach 76.3 million units, with a compound annual growth rate of 16.8% in the next five years. In addition to new cars equipped with embedded hardware, some old cars can also achieve some smart networking functions through third-party device connections.

The core component of the connected car is the in-vehicle intelligent terminal (commonly known as T-Box or TCU), which includes many modules such as OBD, CPU, GPS, 4G/5G chips, etc., which involve many wireless communication technologies, so it is also necessary to obtain relevant communication patent authorization. Simply put, T-Box is the hub for connecting the car and the cloud. International market suppliers in this field include Continental of Germany, Denso of Japan, Harman of the United States (Harman, which has been acquired by Samsung), LG of South Korea, and Huawei of China, etc.

But in the field of connected cars, auto giants are also troubled by the wireless communication patent licensing model. Glyn Moody, a senior American media person who focuses on intellectual property rights, figuratively said that cars are increasingly becoming "computers on wheels", but this is an area that automakers are unfamiliar with and have never dealt with before. They suddenly have to face many new technical standards and components. If they passively accept the patent model, they may have to pay a high price.

In the smartphone industry, communication patent giants such as Qualcomm do not charge patent fees to other chip companies such as MediaTek, but charge terminal OEM manufacturers patent fees in proportion to the price of the whole device. Similarly, communication patent giants also refuse to provide patent licenses to automotive TCU or communication module manufacturers, insisting on charging patent licensing fees directly from automobile manufacturers (i.e. end level licensing). However, automobile giants and parts suppliers are firmly resisting this rule of the game.

Huawei fights Nokia for car companies

Why follow this charging model? In the smartphone industry, communication patent giants believe that communication functions are an indispensable component of mobile phones, and the standard essential patents they have created have laid the foundation for the prosperity of the industry. Patent giants such as Qualcomm, Nokia, and Ericsson charge smartphone manufacturers patent fees of different proportions and prices based on their respective patent sharing. Of course, this means they can charge higher fees.

Communications patent giants naturally hope to continue to apply this model to the connected car industry. Compared with smartphones that cost a few hundred dollars, cars that cost tens of thousands of dollars can afford patent fees. However, car manufacturers have different opinions on this. Network communication functions are of course an indispensable component of smartphones, but for cars, network communication functions are just one of the functions.

Let's take a patent lawsuit in Germany as an example to explain the patent licensing dispute in the field of connected cars. Last year, Nokia sued Daimler, the parent company of Mercedes-Benz, for patent infringement in Germany. If Daimler did not reach a patent license, it would apply for a ban on the sale of cars with networking functions. Led by Nokia, Japanese Sharp and other standard essential patent holders also filed a lawsuit against Daimler. This means that Daimler may have to pay a high patent licensing fee.

As a supplier of in-vehicle communication chips for Daimler, Huawei and Sharp signed a patent licensing agreement in July this year. Sharp granted Huawei a complete standard essential patent license for in-vehicle communication products, including in-vehicle information service control units, in-vehicle communication modules and in-vehicle communication chip products, and exempted Huawei's in-vehicle communication product customers from infringement liability. Therefore, Sharp withdrew its lawsuit against all Daimler vehicles equipped with Huawei's in-vehicle communication products.

In addition, as a licensee of other Nokia products, Huawei also sued Nokia in Germany, demanding Nokia to grant patent licenses for its in-vehicle communication products, with the intention of forcing Nokia to partially lift its patent lawsuit against Daimler. This lawsuit is still under trial in the German court. Although Huawei is also a patent holder, they have clearly stood on the side of their automotive industry partners.

Generally speaking, standard essential patents should be granted patent licenses to third parties under the principle of fairness, reasonableness and non-discrimination (FRAND). In the connected car industry, Nokia is the full patent holder, and they do not have an in-vehicle communication product business. Qualcomm and Huawei are both patent holders and provide in-vehicle communication chips to TCU manufacturers. Huawei also produces TCU itself. This is also an important reason why Huawei supports car companies in the field of connected cars.

It remains unclear whether the FTC will appeal

Back to the relationship between the US auto giants and Qualcomm, this is not the first time that the auto giants have publicly fallen out with Qualcomm. Last November, when the lawsuit between Qualcomm and the FTC was still ongoing, the auto giants and auto parts giants jointly submitted a friend of the court opinion to the Ninth Circuit Court of Appeals, calling for attention to the negative impact of the Qualcomm lawsuit on the connected car industry. These include auto giants such as General Motors, Ford, Toyota, BMW, Volvo, Volkswagen, Mitsubishi, Porsche, Honda, and auto parts giants such as Continental and Denso.

The direct purpose of these auto industry giants' joint letter is to hope that the Ninth Circuit Court of Appeals will force Qualcomm to negotiate patent licensing directly with component suppliers in its ruling and change its current practice of charging patent fees to auto OEMs. However, the Ninth Circuit Court of Appeals' ruling last month obviously disappointed them; this was also the main reason why the auto giants pushed the FTC to continue its appeal last week.