United States: Charting The Intellectual Property Course For The Emerging Auto Manufacturer

Last Updated: November 14 2019
Article by John M. Bollinger

Tesla CEO Elon Musk once explained that "in certain sectors like automotive, solar, and space, you don't see new entrants." 1 The auto industry, in particular, rebuffs new startups with a host of ominous caveats: the inability to appraise the future of the industry, the protracted history of broken manufacturers – thousands of them, in fact – and the calculated entry of the major tech companies, like Apple and Google, that seek to challenge the incumbents for market share. Building and delivering cars to the end user has always been a battle of attrition. So the emerging automaker must be vigilant from the start and eager for loopholes and survival strategies to succeed with entry into the auto industry.

For the emerging automaker, a successful launch from startup to distribution of automobiles to the end user demands a careful survey of the auto industry to chart the best course for managing intellectual property considerations. With the push toward industry-wide implementation of electric vehicles ("EVs") and autonomous vehicles, adoption of the required infrastructure, such as EV charging stations for EV use, is anticipated by 2030. 2 In addition, the intersection of mobile-phone technology with the auto-industry represents an inevitable collision course of the major tech-companies, such as Apple and Google, with the major original equipment manufacturers ("OEMs"), such as Ford and Toyota. Between these major players are the suppliers, who historically have provided basic car parts to the OEMs but now stand as legitimate tech companies themselves, with their own contributions to the EV market. In addition, non-practicing entities ("NPEs") that develop and/or acquire patents without manufacturing any automotive products, are also within this market and present infringement risks to emerging automakers.

Recognizing that the future of the auto industry will feature such a dynamic playing field with the competing interests of the OEMs, tech companies, suppliers and NPEs, the emerging automaker requires a strategy for development of an intellectual property portfolio and a battle plan for potential litigation. Traditionally, disputes between OEMs are not litigious. Compared to the famous mobile-phone wars, such as between Apple and Samsung, the major OEMs prefer to resolve their disputes out of court.

Because the behavior of the other players, such as the suppliers and the NPEs may not be as predictable and is likely to be met with opposition, a staged-defensive strategy is advisable. Such an approach can involve implementation of deferential strategies for collaboration with potential opponents before pursing more aggressive and litigious tactics through the courts or the USPTO Patent Trial and Appeal Board (PTAB). With an eye toward collaboration, the emerging auto manufacturer may prefer cross-licensing and open-source licensing with suppliers, as an initial tactic that is more deferential. An additional step may involve collaboration with suppliers to form partnerships and defensive patent groups. For example, a defensive patent group may provide a measure of defense against potential NPE litigation, as defensive patent groups are generally in the practice of purchasing patents or patent rights to avoid NPEs asserting them. These collaborative strategies are likely preferable to the more aggressive tactics of procuring patent portfolios through company acquisitions and challenging patents in lawsuits for infringement or invalidity in post-grant proceedings in the PTAB or courts.

Indeed, company acquisitions and patent challenges entail greater risk and expense. Before pursuing a litigious path, the emerging auto maker should consider whether patent litigation is justified, starting with the question of whether the company even has the funding and resources to endeavor litigation. Patent litigation is expensive; it requires significant financial resources to prove a party's case-in-chief and establish the presence or absence of damages. Litigants must also be prepared for significant legal and expert fees and discovery costs. In addition, a litigious course entails the risk of losing a company's own patents in court or in the PTAB, if an opposing party invalidates them.

When an emerging auto manufacturer has no alternative other than litigation, concerns may be tempered by considering the scope of the asserted infringement claims and whether the patent is exposed to an invalidity attack. A third-party patent of concern can be challenged before the PTAB to reduce the costs associated with pursuing an invalidity claim in court litigation. According to the current PTAB statistics provided by the USPTO, of the 10,634 petitions for IPR proceedings between September 2012 and September 2019, approximately 52% of those petitions were instituted for IPR. 3 Of the 5,574 petitions that were instituted, approximately 80% ended with a final written decision resulting in all instituted claims unpatentable or some instituted claims unpatentable. 4 Although an opposing party may file a petition for IPR, pre and post-institution settlements commonly occur before institution or a final written decision by the PTAB.

In addition, a comprehensive patent search that surveys the auto industry may be advantageous before investing significant time and money in developing a new automotive concept or part. A search may be conducted strategically to identify potential partnerships for collaboration and cross-licensing, in addition to determining whether the proposed idea may already be protected by prior art.

Before entering the auto industry, emerging auto manufacturers should develop competitive intellectual property strategies that look to strengthen their intellectual property portfolio through collaborative partnerships, cross-licensing and strategic patent searches.

Footnotes

1 MCKENZIE, "Insane Mode – How Elon Musk's Tesla Sparked an Electric Revolution to End the Age of Oil," Published by Dutton (Nov 27, 2018).

2 IEA (2019), "Global EV Outlook 2019", IEA, Paris, www.iea.org/publications/reports/globalevoutlook2019/.

3 USPTO Patent Trial and Appeal Board Statistics, Available at: https://www.uspto.gov/patents-application-process/patent-trial-and-appeal-board/statistics

4 Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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