Automakers in Korea and Japan embrace defensive patent aggregation, but Chinese companies hold out
This blog has noted that one of the big themes in Asia’s automaking industry this year has been a significant move by Japanese and Korean brands to join defensive patent alliances. It’s a strategic shift for the industry that in many ways is being led by companies in this part of the world, rather than their North American and European counterparts. But Chinese companies have not yet followed the same path in significant numbers, and industry observers say with litigation on the rise there, buy-in from players in China will be crucial for these alliances going forward.
The License on Transfer (LOT) Network has been the subject of increased interest from the automotive sector since Ford joined in 2015. Japanese and Korean companies have followed suit in significant numbers – 2016 has so far seen Hyundai, Kia, Subaru, Mazda, Nissan, and (most recently, in August) Honda join the LOT community, whose members agree to license any patent transferred to an NPE to all other members.
Another patent non-aggression effort targeting automakers is the Open Invention Network (OIN), which was set up to protect Linux and other open-source technologies. Hyundai and Kia were the first automakers in the world to join the OIN community, meaning they agreed to cross-license Linux System technologies to other community members on a royalty-free basis and not to assert patents against the Linux System. In June, IAM reported that Toyota had joined not just as a licensee but as the group’s eighth board member, meaning it will help fund OIN’s patent buying and other operations. Toyota was the first automaker, and the first new company in three years to become a full member.
IAM recently caught up with OIN’s CEO, Keith Bergelt, who said it was no surprise to see the Japanese auto giant taking a leadership role in the organisation. “Toyota is the world’s largest automaker, and clearly a quiet but demonstrative leader in terms of new technology”, Bergelt said, adding that technology leadership from Japanese automakers is nothing new, with Honda and Nissan also pushing constantly to develop new innovations. OIN is supporting the Linux Foundation as it pushes a new platform known as Automotive Grade Linux (AGL), an open source project aimed at creating “a fully open software stack for the connected car”. Other car companies including Mazda, Mitsubishi Motors and Subaru are also on board with the project.
You just need to look at other tech industries in Japan including semiconductors and displays to see why Japan’s automakers are moving aggressively to make sure they don’t fall behind as technological convergence becomes the dominant theme in the sector. “There’s a sense of urgency,” Bergelt says. “They want to maintain their leadership in technological development and market share, and there is an imperative created by global competition and the advent of radical transformation of the industry that everyone can see coming in the not too distant future.”
Despite their lack of a head start when it comes to patent accumulation, Chinese companies have been more hesitant to embrace defensive patent organisations, with exceptions including Lenovo’s LOT membership and OIN licensee Foton Motor. Part of the reason may be that while some Chinese companies have had to deal with assertion overseas, it’s the rapid increase in litigation at home (almost all of which involves Chinese companies on both sides) that poses the most acute threat. Bergelt notes that there are individual companies, particularly Huawei, which are “deeply committed to open source”, but a broad-based embrace of the idea is still a ways off.
One thing that seems certain is that for defensive groups of any stripe to be relevant in China, they’ll need to own local patents. OIN is taking the unprecedented step of devoting 10%-15% of its acquisition budget to Chinese rights going forward, whereas it has previously directed almost 98% of its acquisitions to US patents. Bergelt says China is potentially a rich area for open source to become more dominant, and so his group is interested in acquiring Chinese patents whether or not they have foreign counterparts. “It’s a purposeful attempt to entreat Chinese companies to participate in open source projects and be part of the global dynamic,” Bergelt says. If groups like OIN can't entice more Chinese participation, it could not only make them less dynamic, but potentially create a new set of challenges for their projects and member companies.