Patents and Autonomous Vehicles Jeffrey A. Miller, Esq. Kaye Scholer, Esq.

The Patent Landscape The automotive industry generates thousands of patents According to Thomson Reuters, worldwide patent filings in the automotive industry lag only computing/peripherals and telecommunications: Thomson Reuters, 2014 State Of Innovation Report, available at http://ip.thomsonreuters.com/sites/default/files/2014stateofinnovation.pdf

The Patent Landscape The automotive industry generates thousands of patents According to Thomson Reuters, worldwide patent filings in the automotive industry lag only computing/peripherals and telecommunications: Thomson Reuters, 2014 State Of Innovation Report, available at http://ip.thomsonreuters.com/sites/default/files/2014stateofinnovation.pdf

The Patent Landscape The number of patents in the industry is increasing Thomson Reuters, The State of innovation in the Automotive Industry 2015, available at http://ip-science.thomsonreuters.com/ip/SOI-Automotive-Industry-Report.pdf

The Patent Landscape Thomson Reuters reports that Toyota, TM and Hyundai are most active patent filers for autonomous driving patents Thomson Reuters, The State of innovation in the Automotive Industry 2015, http://ip-science.thomsonreuters.com/ip/SOI-Automotive-Industry-Report.pdf

The Patent Landscape Thomson Reuters reports that Bosch, Audi, BMW, Continental, Daimler, Valeo and Volkswagen are most active patent filers for Driver Assistance patents Thomson Reuters, The State of innovation in the Automotive Industry 2015, http://ip-science.thomsonreuters.com/ip/SOI-Automotive-Industry-Report.pdf

The Patent Landscape I compiled my own data using the Cooperative Patent Classification (“CPC”) system used by U.S. Patent and Trademark Office Classes include autonomous vehicles and driver assist technologies since both are likely important in litigation and licensing environments Also include analogous technologies such as video processing, navigation, active safety, etc. Classes (and subclasses) intentionally chosen to be over inclusive, but some manual culling was performed No date limit Data include both issued patents and published applications USA only

The Patent Landscape

Licensing Environment Autonomous vehicles likely to have significant standards setting organization (“SSO”) activity Most SSOs have an intellectual property rights (“IPR”) policy governing how patent owners treat other members in SSO Often require an election on how to treat standard essential patents (“SEPs”) Participation can bind members to “Fair, Reasonable and Non-Discriminatory” licensing obligations (“FRAND”) IEEE SAE

Licensing Environment - IEEE Early 2015, IEEE amended its IPR policy Requires participants to identify any patent claims that may be essential to practice of standard IEEE will request “Letter of Assurance” IEEE’s “Letter of Assurance” form is only allowed form https://development.standards.ieee.org/myproject/Public//mytools/mob/loa.pdf

Licensing Environment - IEEE Obligations of submitter of Letter of Assurance: Must allow any applicant to obtain a license License can be either royalty free or FRAND Submitter can require that applicant grant reciprocal license Cannot seek injunction FRAND based on “smallest salable component” of product See (“Understanding Patent Issues During IEEE Standards Development” for examples http://standards.ieee.org/faqs/patents.pdf If participant refuses to license, will be referred to IEEE Patent Committee (PatCom)

Licensing Environment - SAE SAE has IPR policy SAE Technical Reports can incorporate patented subject matter “if there is in the opinion of the committee developing the Technical Report technical justification and provided that SAE receive assurance from the patent holder that it will license applicants under reasonable terms and conditions for the purpose of implementing the standard.” The “assurance” can be in form of: SAE Intellectual Property Rights and Usage Policy Exemplary assurance letter at: https://www.sae.org/exdomains/standardsdev/global_resources/gv_patent_disclosure_ letter_assurance.docx

Licensing Environment - FRAND There has been significant litigation involving FRAND obligations Motorola v. Microsoft IEEE 802.11 (W-LAN) and ITU-T H.264 (video compression) Motorola had FRAND obligation Motorola filed patent infringement actions in both International Trade Commission (“ITC”) and District Court Also filed lawsuit in Germany Motorola sought injunctive relief in District Court and in Germany Motorola sought Exclusion Order in ITC During negotiations, Motorola sought 2.25% royalty on all xBox consoles and all computers running Windows This amounted to ~$4 Billion/year in royalty obligations

Licensing Environment - FRAND There has been significant litigation involving FRAND obligations Motorola v. Microsoft Bench trial at District Court (no jury) found FRAND of $1.8 Million/year After FRAND determination, jury trial held to determine whether Motorola breached contractual obligations to SSOs Jury returned $14.5 Million verdict to Microsoft Found that Motorola breached “implied contractual covenant of good faith and fair dealing” Verdict affirmed by 9th Circuit Court of Appeals Motorola v. Microsoft provides framework for determinations of FRAND royalty rates in litigation

Licensing Environment - FRAND There has been significant litigation involving FRAND obligations In re Innovatio IP Ventures IEEE 802.11 SEP Prior owners of patents agreed to FRAND obligation Innovatio asserted royalty should be percentage of selling price of end products Laptops, tablets, access points, etc. $4.17 per laptop, $16.17 pert tablet, etc. Manufacturer defendants asserted royalty should be based on percentage of selling price for wireless chips used in system-level products Royalty would range from .72 cents to 3.09 cents Court holds that it “must calculate royalties “not on the entire product, but instead on the ‘smallest salable patent-practicing unit.’ ” Wireless chip

Licensing Environment - FRAND There has been significant litigation involving FRAND obligations In re Innovatio IP Ventures Court largely follows Motorola v. Microsoft Used own calculation, which it called a “top down approach” Start with average price of a Wi-Fi chip ($14.85) Multiply by 12.1% profit margin to get profit per chip ($1.80) Court used Broadcom’s average profit margin from 2000-12. Multiplied $1.80 by 84% (the value attributable to top 10% of all 802.11 SEPs), which is $1.51 Multiplied $1.51 by 19/300 (i.e., Innovatio owned 19 of 300 SEPs in top 10% of all 802.11 SEPs) Results in 9.56 cents per chip

Licensing Environment - FRAND Lessons Royalty rates will be based on smallest salable patent-practicing unit Importance of patents to implementation of standard affects royalty Courts will set royalties to avoid patent “hold ups” (e.g.., seeking unreasonably high royalties when SSO participants fail to identify SEPs) Failure to offer FRAND can lead to contract liability Follow SSO IPR policies!

Enforcement There are a large number of patents already issued and on file directed to various autonomous vehicle technologies Patent “gold rush” almost always leads to protracted patent disputes Incumbents seem likely to license https://www.teslamotors.com/blog/all-our-patent-are-belong-you

Enforcement http://corporatenews.pressroom.toyota.com/releases/toyota+fuel+cell+patents+ces+2015.htm https://media.ford.com/content/fordmedia/fna/us/en/news/2015/05/28/ford-opens-portfolio-of-patented-technologies-to-competitors-to-.html

Enforcement Non-Practicing entities (“NPEs”) already active American Vehicular Sciences Filed multiple lawsuits against all major OEMs One campaign involves automatic headlight dimming Empire IP Through its subsidiary, Cruise Control Technologies, sued multiple OEMs Patent directed to “autonomous intelligent cruise control” Patent found invalid during Inter Partes Review (IPR) proceeding

Enforcement Landscape has changed IPR proceedings are proceedings before the U.S. Patent and Trademark Office (USPTO) that allow validity challenges Very popular According to USPTO statistics, 1737 IPR petitions filed in FY2015 http://www.uspto.gov/sites/default/files/documents/2015-11-30%20PTAB.pdf

Enforcement As of November 30, 2015: 2,296 total petitions filed “Trial” instituted in 1127 proceedings 452 proceedings terminated during trial (settlement, request for adverse judgment) 675 completed trials In 487 trials, all instituted claims cancelled In 97 trials, some instituted claims cancelled In 91 trials, no instituted claims cancelled See http://www.uspto.gov/sites/default/files/documents/2015-11-30%20PTAB.pdf Much better odds than in Federal District Court

Contact Information Jeffrey A. Miller Two Palo Alto Square 3000 El Camino Real Suite 400 Palo Alto, California 94306-2112 (650) 319-4538 jeffrey.miller@kayescholer.com