Western carmakers quietly sulk that their Chinese competitors are getting a free ride.
BRUSSELS — In the global struggle to pay as little as possible for using protected technology, the European Union is suing China for valuing patents much lower than their current price.
The EU wants to put a stop to this and last week started a case at the World Trade Organization, complaining that Beijing “has empowered its courts to set binding worldwide royalty rates for EU standard essential patents, without the consent of the patent owner.”
While that precise case relates to mobile phones, an EU official told POLITICO “we are, of course, worried that this could be used in other sectors.”
The automotive industry is another battleground over these essential patents used in industry standards, several industry sources told POLITICO. Chinese carmakers might enjoy an unfair advantage over their Western competitors by not paying their share — or not paying at all — for patents they are using in vehicles.
Say you buy a BMW or a Toyota. Since these companies aren’t in the business of developing 5G connectivity hardware, they use patented technology from other players. There’s broadly two ways to then pay the owner of the patent: You can enter lengthy direct negotiations or buy a license that covers thousands of patents from a platform.
A company called Avanci, for instance, offers a license for all 5G-related tech per car of $32 (€31). When multiplied by the output of a major carmaker, this number can quickly grow into the millions. All Western carmakers are mentioned on Avanci’s website as licensees, but no Chinese manufacturer is among them.
The license covers no less than 72 tech companies and their patents. Avanci, which is headquartered in Dallas, Texas, was founded by a former executive at Swedish network equipment group Ericsson.
Patent donors do include Chinese players who receive royalties who “license their cellular standard essential patents via Avanci,” the company’s communications director, Mark Durrant, said in a statement. “We have had many in-depth conversations with Chinese automakers over the years and continue to invite them to obtain the [intellectual property] rights they need to sell cars worldwide with 4G and 5G technology.”
Instead, Chinese car companies have been told by the government that they should neither enter individual talks with Western tech companies, nor seek to obtain any kind of license.
“There have been some concerns,” a technology industry executive said of car producers in Europe, “that many of their counterparts in China are not paying at the moment.” The executive, like the EU officials quoted in this piece, was granted anonymity because they weren’t allowed to speak on the record.
While the Chinese are accused of not paying, they’re hardly the only ones looking to strike a deal with the telecom companies. European automakers, particular the German brands, are also looking to bring down the price from historic levels.
Courts as pawns
Meanwhile, Beijing is positioning its courts to lower prices on patented technology. In its complaint to the WTO, the EU refers to a 2023 decision by a court in Chongqing which ruled against Nokia’s objections after it set the price Chinese cell phone-maker OPPO had to pay for its technology usage. Worldwide, mind you, not just in China.
“It’s been for a long time that Chinese courts maintain that there should be a big discount for the Chinese market,” a second EU official explained. “We do not consider that it should be a Chinese court, in the Chongqing region, deciding for the rest of the world what should be the rate …”
It’s the EU’s second case in this sphere, after raising in 2020 how Chinese courts try to ban European companies from getting paid via EU courts. A panel decision on this is expected this quarter, a third EU official told POLITICO.
The fresh case comes after a December publication from the China Automotive Technology and Research Center and a Chinese university, which estimates the price for a 5G license at a range between €1.17 and €2.60 — less than a tenth what Western carmakers pay via Avanci currently.
Eurpean Commission officials have tried to bring up this issue with Beijing several times, with little success. Despite some technical answers, the second EU official said he saw “no real willingness to actually discuss the issue.”
Because patented technology is often made public so it can be built upon by companies small and large, unnotified usage can remain completely invisible to the patent owner.
This is essential for innovation, though, as the technology executive told POLITICO: “It’s a problem for those who develop the technologies because they want to be able to invest in future standardization initiatives to bring the technologies to market that the car companies want to see.”
In a reaction, the Chinese Chamber of Commerce to the EU said it “regrets the EU’s decision to initiate this legal action,” hoping Beijing and Brussels can find “a constructive solution.”
Camille Gijs contributed to this report.
