20-7 Avanci LLC

U.S. DEPARTMENT OF JUSTICE
Antitrust Division
MAKAN DELRAHIM
Assistant Attorney General

Main Justice Building
950 Pennsylvania Avenue, N.W.
Washington, D.C. 20530-0001
(202) 514-2401 / (202) 616-2645 (Fax)
July 28
, 2020
By Electronic Mail

Mark H. Hamer
Baker & McKenzie
815 Connecticut Ave., NW
Washington, DC 20006-4078

Dear Mr. Hamer:

This letter responds to your request, on behalf of your client, Avanci LLC, for a business
review letter from the Department of Justice pursuant to our Business Review Procedure, 28 C.F.R.
§ 50.6. You have requested a statement of the Department’s current antitrust enforcement
intentions with regard to Avanci’s proposed joint patent-licensing pool (“the Platform”), pursuant
to which Avanci will license patent claims that have been declared “essential” to implementing
5G cellular wireless standards for use in automobile vehicles (“vehicles”) and distribute royalty
income among the Platform’s licensors.
1
Avanci currently operates a licensing platform related to
4G cellular standards and offers licenses to 2G, 3G, and 4G standards-essential patents used in
vehicles and smart meters.
2
After soliciting input from a range of stakeholders in the automotive
and telecommunications industries, including potential licensors and licensees, conducting an
independent review, and considering our prior guidance and reviews of other patent pools, we

1
Although Avanci refers to its licensing program as a “Platform,” the proposed Avanci 5G Patent Platform includes
only one program that aggregates complementary patents essential to connected vehicles. Therefore, the
Department considers it a pool and evaluates the Platform in the same manner as it would a pool. Avanci may
expand the proposed Platform to include other Internet of Things (“IoT”) devices, such as smart meters and
connected homes, but these will be separate “pools” of complementary patents. See Letter from Mark H. Hamer,
Partner, Baker & McKenzie, to Makan Delrahim, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, at 4
(Nov. 21, 2019) [hereinafter “BRL Request”]. The same pooling analysis would apply to these additional programs.

2
The Department finds Avanci’s 5G Platform to be “proposed business conduct” within the meaning of 28 C.F.R. §
50.6 because, among other reasons, different patents and licensors will be required to implement 5G standards and
the Platform may encompass more Licensing Programs than the current 4G Platform. Moreover, no licensees are
able to license 5G patents through the current 4G Platform and Avanci has represented that there are other
differences in the licensing terms between the two programs that relate to royalty distribution and royalty reduction
incentives for potential licensees.

Letter to Mark Hamer
July 28, 2020
Page 2

conclude that, on balance, Avanci’s proposed 5G Platform is unlikely to harm competition.
Therefore, the Department has no present intention to challenge the Platform.
I. Fifth Generation (5G) Standards and Vehicles
5G cellular capability enhances network speed and capacity, and reduces latency, which
will enable connectivity in IoT devices, including vehicles.
3
4G connected vehicles already offer
infotainment with smartphone integration, which reports indicate consumers find valuable.
4
5G
cellular technologies, however, are expected to significantly enhance the safety and functionality
of vehicles, including vehicle-to-everything (“V2X”) communication, which permits data
transmission from a vehicle to another entity, including other vehicles.
5
V2X communication will
enable autonomous vehicles, among other innovations, in the automotive industry.
6

The 3rd Generation Partnership Project (“3GPP”), in conjunction with several standards
development organizations (“SDOs”),
7
is developing 5G standard specifications, described in
Release 15 and subsequent releases, related to V2X.
8
These specifications provide for 5G
functionality in vehicles, including enhanced sensors that allow the exchange of data from other
local sensors or devices not connected to the car, remote driving, semi-automated or fully
automated driving, and vehicle platooning, where vehicles travel closely together in a group.
9

5G cellular standards developed through 3GPP, like earlier generations of cellular
standards, include patented technologies that many patent holders have declared, through one or

3
The IoT is “the collection of physical objects (e.g., health monitors, industrial sensors) that interconnect to form
networks of devices and systems that can collect and compute data from many sources.” JILL C. GALLAGHER &
MICHAEL E. DEVINE, CONG. RESEARCH SERV., R45485, FIFTH-GENERATION (5G) TELECOMMUNICATIONS
TECHNOLOGIES: ISSUES FOR CONGRESS, at 5 (Jan. 30, 2019), https://crsreports.congress.gov/product/pdf/R/R45485
[hereinafter “CRS 5G Report”]. See also ETSI, 3GPP TR 21.915 VERSION 15.0.0 RELEASE 15, § 5.2 (2019),
https://www.etsi.org/deliver/etsi_tr/121900_121999/121915/15.00.00_60/tr_121915v150000p.pdf.

4
See Bowman Heiden, The Value of Connectivity in the Automotive Sector – A First Look, at 42 (Dec. 12, 2019),
http://dx.doi.org/10.2139/ssrn.3521488 (calculating current estimates of the revenue from connectivity to
automakers at $670 (US) and $593 (Worldwide) per connected vehicle “based on a subset of existing applications in
2018”); Martin Gehring & Volker Handing, Simon-Kucher & Partners, The Value of Mobile Connectivity in the
Automotive Industry, at 3 (June 27, 2017), https://www.simon-kucher.com/en/resources/perspectives/value-mobile-
connectivity-automotive-industry (reporting that researchers found that U.S. customers spent an average of $840 on
connectivity).

5
See CRS 5G Report, supra note 3, at 5-6.

6
Id.

7
These SDOs are ARIB, ATIS, CCSA, ETSI, TSDSI, TTA, and TTC. See About 3GPP, 3GPP,
https://www.3gpp.org/about-3gpp/about-3gpp.

8
Avanci defines 5G to include both Non-Standalone and Standalone modes of the 5G standards specifications. See
BRL Request, Ex. A.1, Doc. A.1.1, Standard Patent License Agreement § 1.27 [hereinafter “Standard PLA”]. The
Non-Standalone specifications allow telecommunications carriers to supplement existing 4G networks with 5G
technologies to improve speed and latency, whereas the Standalone specifications support independent deployment
of 5G. See CRS 5G Report, supra note 3, at 12-13.

9
3GPP Releases, 3GPP, https://www.3gpp.org/specifications/releases (last visited Apr. 14, 2020).

Letter to Mark Hamer
July 28, 2020
Page 3

more SDOs, to be 5G essential.
10
Sizes of the patent portfolios vary, but there can be thousands
of essential patents that must be licensed to avoid patent infringement.
11

Avanci, founded in 2016, offers a licensing Platform that aggregates patents declared
essential to 2G, 3G, and 4G standards, which are licensed for manufacturing connected vehicles
and smart meters. Avanci proposes to implement a similar program for implementing 5G cellular
technologies. Avanci’s 4G Platform has 38 licensors, including major standards contributors such
as Ericsson, Qualcomm, and Nokia, and it has 14 automotive brands as licensees.
12
A recent study
indicates that Avanci has aggregated approximately 50% of declared 3G standards-essential patent
(“SEP”) families worldwide (46,444 patents) and 46% of declared 4G SEP families worldwide
(68, 837 patents).
13
Although Avanci currently does not have an active licensing program related
to 5G, this same study estimated that if Avanci’s 4G licensors join the Platform, the Platform’s
estimated share of declarations would be approximately 43% (31,421 patents).
14

II. The Proposed Platform
To join Avanci’s proposed 5G Platform as a licensor, a patent holder must have at least
one patent claim that an independent evaluator has determined to be technically essential to
2G/3G/4G/5G cellular standards.
15
The structure of the proposed patent-licensing arrangement is
embodied in (1) the 5G Master License Management Agreement (“5G MLMA”) and (2) the
Standard Patent License Agreement (“Standard PLA”) and attachments.
A. The 5G MLMA
The 5G MLMA governs the terms of the patent license from the cellular standards-essential
patent licensor to Avanci, which acts as Platform administrator and licensing agent.
16
Avanci itself

10
IPLYTICS, WHO IS LEADING THE 5G PATENT RACE?, at 2 (Nov. 2019), https://www.iplytics.com/wp-
content/uploads/2019/01/Who-Leads-the-5G-Patent-Race_2019.pdf [hereinafter “IPlytics, 5G Study, Nov. 2019”];
AMPLIFIED & GREYB, EXPLORATION OF 5G STANDARDS AND PRELIMINARY FINDINGS ON ESSENTIALITY (May 2020),
https://static1.squarespace.com/static/59fa01a118b27d1bfef7f050/t/5ecc8c109259ee3d45ecda99/1590463526894/5
G+SEP+Preliminary+Report.pdf [hereinafter “Amplified and GreyB, 5G Study, May 2020”].

11
For example, a study conducted by IPlytics in November 2019 identified 87,752 5G patent declarations which
relate to 22,604 5G patent families in which 98% have at least one family member with active status. IPlytics, 5G
Study, Nov. 2019, supra note 10, at 3. A patent family is a group of patents claiming the same or similar subject
matter disclosed by a common inventor but granted in different jurisdictions. See Glossary, U.S. PAT. AND
TRADEMARK OFF., https://www.uspto.gov/learning-and-resources/glossary (defining patent family).

12
AVANCI, http://avanci.com/.

13
Bridget Diakun, Avanci Platform Covers Just Under 50% of 3G and 4G SEPs, Research for IAM Indicates, IAM
(Oct. 18, 2019), https://www.iam-media.com/frandseps/avanci-platform-covers-just-under-50-3g-and-4g-seps-
research-iam-indicates [hereinafter “Diakun, Avanci Platform Report”].

14
Id. See also Amplified and GreyB, 5G Study, May 2020, supra note 10, at 10.

15
BRL Request, Ex. 1, 5G Master License Management Agreement § 3.1 [hereinafter “5G MLMA”].

16
BRL Request, supra note 1, at 4.

Letter to Mark Hamer
July 28, 2020
Page 4

holds no patents. Under the 5G MLMA, Avanci is authorized to administer a “Licensing
Program,” which here is the “Release 15 5G Connected Vehicles Licensing Program.”
17
The 5G
MLMA allows Avanci to establish additional Licensing Programs provided that Avanci and at
least two licensors agree; individual licensors may choose whether to join additional programs.
18

All licensors, however, must agree to participate in at least one Licensing Program and the term of
the agreement is ten years unless it is terminated or the licensor withdraws.
19
Avanci will identify
potential licensees for the Licensing Program and negotiate the Standard PLA.
20
Under Section
7.4 of the 5G MLMA, licensors are prohibited from participating in another joint licensing
program for “products that are the subject of [the] Licensing program”; there are exceptions if the
licensor participated in another joint licensing program before joining Avanci; it withdraws from
Avanci; or it is in breach of the 5G MLMA and does not join the other program until two years
after withdrawal, breach, or expiration of the 5G MLMA.
21

1. Essentiality Review
Avanci’s 5G Platform is designed to license only “technically essential” standards-
essential patents – i.e., patents that are necessarily infringed by implementation of the standard.
Specifically, Section 1.5 of the 5G MLMA defines “essential patent” to mean a patent that includes
at least one claim in which “it is not possible on technical grounds taking into account normal
technical practice and the state of the art generally available at the time of adoption or publication
of the relevant Standard” to implement the relevant 2G/3G/4G or 5G standard “without infringing
such patent claims.”
22
Section 1.11 of the Standard PLA also defines “Licensed Patents” to mean
“those Essential Patent Claims . . . within a Patent or [that] issue from a Patent Application
that . . . is owned by a Licensor.”
Under Section 3.1 of 5G MLMA, only a firm that owns an “Evaluated Essential Patent” is
able to become a new licensor of the Platform. Avanci will implement a procedure to evaluate
patent claims for essentiality, similar to the one it currently employs in the 4G Platform.
23
The
procedure requires an Avanci licensor to submit a single patent portfolio (including patent
families) for evaluation within 45 days of becoming a party to the 5G MLMA for a fee.
24
Avanci

17
Release 15 set forth the standard specifications for 5G connectivity, including V2X. See supra note 8 and
accompanying text; 5G MLMA, supra note 15, § 1.10 & App. A.

18
5G MLMA, supra note 15, § 4.1.

19
Id. §§ 4.2, 7.1-7.3.

20
Id. § 2; Standard PLA, supra note 8, § 1.27.

21
5G MLMA, supra note 15, § 7.4.

22
Avanci has indicated that patents essential to 2G, 3G and 4G standards are included in the Platform because they
are necessary for backward compatibility.

23
See 5G MLMA, supra note 15, § 1.6 & App. B. An “Evaluated Essential Patent” is defined as a patent
determined to be essential by an expert pursuant to Avanci’s evaluation procedure. Id. § 1.6.

24
Id. § 3.2; id., App. B §§ 2, 3.

Letter to Mark Hamer
July 28, 2020
Page 5

will then assign an independent examiner to evaluate the patent claims that the licensor has
identified as essential. Avanci maintains a number of patent examiners for this purpose; an
examiner will be chosen after screening for conflicts of interest (meaning the examiner cannot be
affiliated with a licensor or have represented the licensor in the past).
25

The examiner will determine a patent to be essential if a single claim is essential; however,
the independent examiner does not assess the validity of the patent claims.
26
Licensors may only
collect royalties on evaluated essential patents.
27
Unevaluated essential patents and patent families
that are not associated with an “Evaluated Essential Patent” do not count toward the royalty
distribution but are included within the Platform license.
28
Avanci will terminate for cause any
licensor that does not continue to meet Avanci’s essentiality requirements, that is, if the licensor
fails to maintain at least one valid, enforceable, evaluated essential patent in the pool.
29

2. Right to Independently License Outside the Platform
The 5G MLMA provides that Avanci licensors have the right to license their essential
patents independently outside the Platform.
30
The 5G MLMA prohibits a licensor, however, from
collecting royalties from a licensee twice: once independently and again from the same licensee
through the Platform.
31
Licensors must “resolve the effect of any overlapping license with a
[l]icensee.”
32
Licensors can do this by bilaterally negotiating offsetting payments, providing
“credit or other consideration directly to a licensee as a result of an individual direct license,” or
notifying “Avanci to issue a deduction or credit to a licensee commensurate with the individual
licensor’s ... share (or portion) of Total Net Collections from a particular licensee who has an
overlapping license.”
33

3. Royalty Distribution
Avanci will calculate a licensor’s share of Platform revenue based on quantitative and
qualitative factors. Points are awarded for the following:
• The number of the licensor’s “Evaluated Essential Patents.” Licensors can earn

25
BRL Request, supra note 1, at 10; 5G MLMA, supra note 15, App. B § 4.

26
5G MLMA, supra note 15, App. B § 5.

27
Licensors earn points for essential patents, which are capped at 150 points. Id., App. C § 2.3.

28
Id.; Standard PLA, supra note 8, § 1.11. See also Royalty Distribution, infra Part II.A.3.

29
BRL Request, supra note 1, at 9; 5G MLMA, supra note 15, §§ 3.1, 7.5.

30
5G MLMA, supra note 15, § 4.3.

31
Id. § 4.4.

32
Id.

33
BRL Request, supra note 1, at 12.

Letter to Mark Hamer
July 28, 2020
Page 6

a maximum of 150 points for this category.
34
Avanci has explained that the cap is
intended to incentivize a licensor to have as many patent claims evaluated as
possible.
35
At the same time, however, the cap is intended to encourage licensors
with smaller portfolios to participate because they are able to realize a meaningful
share of the royalty distribution.
36

• Other Licensing Revenue. Points are also earned based on licensing revenue for
the licensor’s average annual licensing revenue outside the pool during three
consecutive calendar years for its 2G/3G/4G/5G SEPs.
37
Avanci has indicated that
basing a licensor’s share of royalties on comparable licensing revenue provides a
proxy for how the portfolio has been valued through bilateral negotiations in the
marketplace.
38

• Standards Contributions. Avanci will award royalty points based on standards
contributions using an Avanci-commissioned independent third-party study of
technical contributions to relevant 3GPP working groups.
39

• Licensing or Enforcement Support. Licensing support awards a limited number
of points to licensors that enforce or are prepared to enforce their essential patents
and their efforts result in Platform licenses that benefit all licensors.
40
In addition
to earning royalty points, licensors that sue for patent infringement of an essential
patent may request reimbursement of costs if the litigation results in a Platform
license.
41

4. Competitively Sensitive Information
Avanci is an independent licensing agent and has mechanisms in place to protect the
dissemination and sharing of licensors’ competitively sensitive information. Under Section 6.1 of
MLMA, Avanci will not disclose a licensor’s competitively sensitive information to unaffiliated
third parties, such as other licensors. In addition, Avanci employees and agents will only disclose

34
5G MLMA, supra note 15, App. C § 2.3.

35
BRL Request, supra note 1, at 13.

36
Id. at 13-14.

37
5G MLMA, supra note 15, App. C § 2.4.

38
BRL Request, supra note 1, at 14.

39
Id.; 5G MLMA, supra note 15, App. C § 2.5.

40
BRL Request, supra note 1, at 6; 5G MLMA, supra note 15, App. C §§ 2.6-2.7.

41
5G MLMA, supra note 15, §§ 1.15, 5.1.2-5.1.3.

Letter to Mark Hamer
July 28, 2020
Page 7

confidential information if they “need to have access” to perform their duties and have signed a
non-disclosure agreement.
42

B. The Standard PLA
The Standard PLA provides a world-wide, personal, nontransferable, nonexclusive, non-
sublicensable royalty bearing license to “make, Have Made, use, import, Sell and offer to sell
‘Licensed Products’” under Avanci’s “Licensed Patents.”
43
Licensed Patents are “Essential Patent
Claims” that are owned by the Avanci licensors and “Licensed Products” are limited to vehicles
that incorporate 5G functionality.
44
“Cellular 5G Functionality” is defined as “the ability to
perform wireless transmissions in accordance with 5G.”
45
The Standard PLA defines “Standards”
to mean “2G, 3G, 4G, and 5G.”
46
The license includes access to 2G, 3G, and 4G patents in order
to enable backward compatibility.
47
Future cellular standards are not included in the 5G
Platform.
48
Avanci will charge a flat per unit royalty depending on the level of connectivity in the
vehicle; licensees pay a lower rate if a vehicle only has E-Call capability for emergency
assistance.
49
The cost of the license will not increase as new patents are added to the Platform.
50

Avanci has indicated that its 4G Platform will remain active and that licensees will not pay a 5G
rate if they only use 4G or 3G connectivity. A licensee will receive a royalty reduction if it signs
a Standard PLA before its first sale of a Licensed Product, i.e., a connected vehicle, and if it does
not assert claims challenging the pooling agreement, licensing terms, or offers in litigation.
Licensees are permitted, however, to challenge the “validity, enforceability, or essentiality of any

42
Id. § 6.1; see also BRL Request, supra note 1, at 12.

43
Standard PLA, supra note 8, § 2.1. “Have Made” rights do not allow a third-party supplier to sell a product made
for the licensee to another party. Id. § 1.10.

44
Id. §§ 1.8, 1.11, 1.12, 1.22.

45
Id. § 1.4.

46
Id. § 1.20.

47
BRL Request, supra note 1, at 4 n.8.

48
Standard PLA, supra note 8, § 1.9.

49
Id. §§ 1.6, 5.1. Under the current program, licensees pay $9 per vehicle for 3G and $15 per vehicle for 4G
connectivity. See Pricing, AVANCI, https://www.avanci.com/marketplace/#li-pricing (last visited June 22, 2020).

50
BRL Request, supra note 1, at 14-15. Additional “Licensed Patents” may be added during the term of the
Standard PLA. Standard PLA, supra note 8, § 1.11.

Letter to Mark Hamer
July 28, 2020
Page 8

[p]atent.”
51
The Standard PLA also gives the licensees the right to independently negotiate
separate licenses with licensors.
52

III. Analysis
The Department has long recognized that patent pools can “provide procompetitive
benefits by integrating complementary technologies, reducing transaction costs, clearing blocking
positions, and avoiding costly infringement litigation.”
53
Pooling achieves these efficiencies by
aggregating the patent rights necessary to commercialize a product that are held by multiple rights
holders.
54
“[F]ragmentation of rights can increase the costs of bringing products to market due to
the transaction costs of negotiating multiple licenses and greater cumulative royalty payments.”
55

Patent pools or similar licensing platforms may be particularly useful as the IoT develops.
56

Potentially thousands to tens of thousands of patents may be declared essential to manufacturing
a product with 5G functionality.
57
Pooling complementary patents together is one way to facilitate
licensing in this space and reduce royalty stacking, which occurs when individually priced
complementary patents must be licensed to produce an end product.
58
Pools can locate potential

51
Standard PLA, supra note 8, § 5.2.

52
Id. § 9.1.

53
U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST GUIDELINES FOR THE LICENSING OF INTELLECTUAL
PROPERTY § 5.5 (Jan. 12, 2017), https://www.justice.gov/atr/IPguidelines/download [hereinafter “Antitrust-IP
Guidelines”].

54
Id.; see also id. § 2.3 (stating “[l]icensing, cross-licensing, or otherwise transferring intellectual property can
facilitate integration of the licensed property with complementary factors of production . . . [which] can lead to more
efficient exploitation of the intellectual property, benefiting consumers through the reduction of costs and the
introduction of new products”).

55
U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY
RIGHTS: PROMOTING INNOVATION AND COMPETITION, Ch. 3, § I, at 57 (Apr. 2007),
https://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/222655.pdf [hereinafter “Antitrust-IP Report”].
See also U.S. Philips Corp. v. ITC, 424 F.3d 1179, 1192 (Fed. Cir. 2005) (recognizing that negotiating individual
licenses can be “extremely expensive and time-consuming”).

56
See Setting out the EU Approach to Standard Essential Patents § 2.3, COM (2017) 712 final (Nov. 29, 2017),
https://ec.europa.eu/docsroom/documents/26583 [hereinafter “European Communication on Standard-Essential
Patents”] (indicating that patent pools and similar licensing platforms “should be encouraged” because “[t]hey can
address many of the SEP licensing challenges by offering better scrutiny on essentiality, more clarity on aggregate
licensing fees and one-stop-shop solutions”).

57
See IPlytics, 5G Study, Nov. 2019, supra note 10.

58
Antitrust-IP Report, supra note 55, Ch. 3, § I, at 57 & n.2, 58; see also Josh Lerner & Jean Tirole, Public Policy
toward Patent Pools, 8 INNOVATION POL’Y & ECON. 157, 162 (2007) (explaining that a “pool [of complementary
patents] eliminates royalty stacking and benefits both patent holders and technology users”).

Letter to Mark Hamer
July 28, 2020
Page 9

licensors and have mechanisms to evaluate essentiality, which “offers savings in search costs to
licensees.”
59
If a pool is successful, it may serve as a “one stop shop.”
60

Pools benefit licensors as well. Licensors are able to “reap the cost savings of centralized
licensing” and “realize an immediate return on their intellectual property.”
61

Because patent pools can significantly reduce transaction costs for both licensors and
licensees “and lead to the more efficient exploitation of the intellectual property,” the Department
evaluates them under the rule of reason.
62

A. Potential Procompetitive Benefits of the Proposed 5G Platform
The proposed 5G Platform appears likely to create efficiencies that may increase consumer
welfare.
By acting as a centralized licensing agent, Avanci can facilitate licensing between cellular
standards-essential patent holders and vehicle manufacturers that are new to licensing in the
cellular space. Thus, the proposed 5G Platform may help to integrate emerging 5G technologies
into vehicles faster, with less risk and less cost. As stated, a recent study estimated that the
proposed Platform’s hypothetical share of 5G declarations would be approximately 43% (31,421
patents).
63
Even if the Platform does not meet these estimates, the efficiencies have the potential
to be substantial.
64
The aggregation of complementary patents is valuable to vehicle manufacturers
that want to avoid infringement and quickly integrate 5G functionality into their vehicles.
65

Indeed, as more licensors join the pool, the proposed 5G Platform has the potential to reduce
licensing disputes, including efforts by individual licensors to “hold up” implementation of the

59
See Letter from Thomas O. Barnett, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to William F.
Dolan, Partner, Jones Day, at 7-8 (Oct. 21, 2008),
https://www.justice.gov/sites/default/files/atr/legacy/2008/10/21/238429.pdf [hereinafter “RFID Business Review
Letter”]; Letter from Charles A. James, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Ky P. Ewing,
Partner, Vinson & Elkins, at 11 (Nov. 12, 2002),
https://www.justice.gov/sites/default/files/atr/legacy/2006/04/27/200455.pdf [hereinafter “3GPP Business Review
Letter”] (“The use of a common process for evaluation and certification of 3G patents . . . offers savings in search
costs.”). See also European Communication on Standard-Essential Patents, supra note 56, § 2.3.

60
RFID Business Review Letter, supra note 59, at 7 (indicating the consortium allowed licensees to “shop at a
single stop for the patents of [platform] members” rather than having to negotiate with each licensor separately).
See also European Communication on Standard-Essential Patents, supra note 56, § 2.3.

61
RFID Business Review Letter, supra note 59, at 8.

62
Antitrust-IP Guidelines, supra note 53, §§ 2.3, 5.5.

63
Diakun, Avanci Platform Report, supra note 13.

64
See RFID Business Review Letter, supra note 59, at 7 (“Failure to realize all potential efficiencies does not mean,
however, that the efficiencies created are noncognizable.”)

65
See U.S. Philips Corp., 424 F.3d at 1193 (“[P]ackage licensing . . . protect[s] against the unpleasant surprise for a
licensee who learns, after making a substantial investment, that he needed a license to more patents than he
originally obtained.”).

Letter to Mark Hamer
July 28, 2020
Page 10

standard or stall the roll out of 5G connectivity in certain vehicles. The Platform’s scale may also
encourage vehicle manufacturers to take a license.
66

In addition, the proposed 5G Platform may help cellular SEP holders reduce the costs of
finding and negotiating with individual licensees in a fragmented and opaque industry.
67
The
Department understands that cellular SEP holders are fairly new to licensing in the automotive
space. Avanci is incentivized to grow the Platform and identify potential licensees.
68
Avanci also
has economies of scale to help licensors minimize other costs associated with licensing, such as
monitoring compliance and collecting royalties.
The efficiencies associated with aggregating complementary patents and lowering
transaction costs improve consumer welfare only to the extent that licensors participate. The 5G
Platform’s royalty calculation method has the potential to foster licensors’ participation.
Increasing incentives to participate benefits licensees because more cellular SEPs may be
aggregated, making it easier to clear blocking positions and implement the standard without added
costs.
69

As explained, the Platform’s royalty calculation method includes both quantitative and
qualitative factors.
70
These factors could encourage both large and small licensors to join the
Platform. For example, Avanci’s method considers a licensor’s contributions to 5G standards as
calculated by an independent study. It also takes into account the licensor’s average licensing
revenue for 2G/3G/4G/5G SEPs.
71
These considerations may make the Platform more attractive
to licensors that have contributed to standards development and/or with large 5G portfolios.
72

Moreover, the points cap on essential patents may encourage smaller licensors to join the Platform
because they too will realize a meaningful share of the royalties.

66
See RFID Business Review Letter, supra note 59, at 8 (“[I]f . . . patent licensing increases as a result of the pool
license, infringement litigation (and the potential for infringement litigation) will decrease.”).

67
See BRL Request, supra note 1, at 4, 17; see also U.S. Philips Corp., 424 F.3d at 1192 (recognizing that
negotiating individual licenses can be “extremely expensive and time-consuming”).

68
BRL Request, supra note 1, at 7.

69
Avanci has represented that the Platform’s fixed fees will not increase as more patents are added. BRL Request,
supra note 1, at 15.

70
Id. at 14; see also royalty distribution discussion supra page 5.

71
“Market-based evidence of prior licenses to the patent ‘may be the most effective method of estimating the
asserted patent’s value.’” Brief for the United States as Amicus Curiae at 12, HTC Corp. v. Telefonaktiebolaget LM
Ericsson, No. 19-40566 (5th Cir. Oct. 30, 2019) (quoting Commonwealth Sci. & Indus. Research Org. v. Cisco Sys.,
Inc., 809 F.3d 1295, 1303-04 (Fed. Cir. 2015)) [hereinafter “HTC Amicus Br.”]. See also Sprint Communications
Co. v. Time Warner Cable, Inc., 760 F. App’x 977, 983 (Fed. Cir. 2019), cert. denied, 140 S. Ct. 467 (2019)
(evidence of past licenses “reflect[s] the incremental value of the inventions”).
72
See Anne Layne-Farrar & Josh Lerner, To Join or Not to Join, Examining Patent Pool Participation and Rent
Sharing Rules, 29 INT’L J. INDUS. ORG. 294, 295 (Mar. 2011) (finding patent holders with large standards
contributions are less likely to join pools with a numeric proportional (per patent) royalty sharing method).

Letter to Mark Hamer
July 28, 2020
Page 11

Finally, the licensing support provisions, which award a limited number of points up to a
cap for the assertion of licensed SEPs, and the reimbursement of licensors’ litigation costs under
certain circumstances, are intended to discourage hold out by licensees and assist with
enforcement, which benefits both large and small licensors.
73
Avanci represents that it does not
own any SEPs and it is not authorized to litigate infringement claims on behalf of licensors.
74

Therefore, without some mechanism for enforcement, potential licensees would be less likely to
take a license, and individual licensors may not have the incentive to lead an enforcement effort.
The licensing support and reimbursement provisions reward licensors when their enforcement
efforts result in a Standard PLA that benefits all contributors to the Platform.
75
These provisions
are designed to address the collective action problem that licensors may be individually unwilling
to bear the substantial risks
76
or costs of litigation against an infringer when the benefits are shared
by all licensors.
77
They also limit the reward of royalty points to prevent over-enforcement.
78

We recognize that the reimbursement of litigation costs may incentivize more licensors to
sue vehicle manufacturers that Avanci has determined are “unwilling” to take a Platform license.
79

Increased enforcement may cause fewer firms to continue infringing the Licensed Patents or cause
more Licensed Patents to be tested in court and, as a result, invalid or non-essential patents to be
removed from the pool.
80
It is possible, however, that the financial incentive to sue could cause
several Platform licensors to assert their essential patents when they otherwise would not have
done so (perhaps due to the questionable strength of their declared SEPs) and this action causes

73
BRL Request, supra note 1, at 7, 14; 5G MLMA, supra note 15, § 5.1.2-5.1.3 & App. C §§ 2.6-2.7. See also Jean
O. Lanjouw & Mark Schankerman, Protecting Intellectual Property Rights: Are Small Firms Handicapped?, 47 J.L.
& ECON. 45, 70 (2004) (recognizing that “small firms are at a disadvantage in protecting their intellectual
property”).

74
BRL Request, supra note 1, at 5. See also Lone Star Silicon Innovations LLC v. Nanya Tech. Corp., 925 F.3d
1225, 1229-30 (Fed. Cir. 2019) (stating a licensee cannot bring a patent infringement suit on its own unless it
possesses all substantial rights in a patent).

75
See 5G MLMA, supra note 15, § 5.1.2-5.1.3 & App. C §§ 2.6-2.7. We have heard concerns that these provisions
may deter independent licensing. But the licensing support and reimbursement of costs provisions do not prevent a
licensor from entering into a bilateral license. Rather, the licensor will forfeit any points awarded for litigation
support and reimbursement of costs if it enters into a bilateral license that does not increase licensing revenue for the
Platform.

76
See Blonde-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 350 (1971) (holding a defendant in a patent
infringement suit may assert a plea of estoppel once the patent has been declared invalid in a prior proceeding).

77
See George J. Mailath & Andrew Postlewaite, Asymmetric Information Bargaining Problems with Many Agents,
57 REV. ECON. STUD. 351 (1990) (“A yes or no decision must be made about some issue. All agents must
agree . . . [A]s the number of agents increases, the probability of an affirmative efficient decision goes to zero.”).
78
See 5G MLMA, supra note 15, App. C §§ 2.6-2.7.

79
See id. § 4.8 (indicating that if Avanci “identifies a potential licensee that, in [Avanci’s] reasonable judgment, is
unwilling to enter into a [Platform license],” then Avanci “shall promptly notify” all licensors).

80
Licensors cannot collect royalties on invalid or non-essential patents. See id. § 3.3. See also infra Part III.B.1.

Letter to Mark Hamer
July 28, 2020
Page 12

non-infringing manufacturers to settle and take a Platform license. We find this second outcome
less likely given the large number of SEPs that may be licensed through the proposed Platform,
the safeguards in place to check essentiality, and the correspondingly high probability of
infringement (even if some Licensed Patents are later determined to be invalid).
81
As long as these
enforcement incentives do not deter Avanci’s or licensors’ good faith negotiations and they
continue to engage in meaningful negotiations with potential licensees before resorting to
litigation, the incentives may create efficiencies.
82
Accordingly, we do not view the shared
compensation of litigation costs as likely to harm competition in this case.
In sum, the proposed 5G Platform has the potential to yield efficiencies by reducing
transaction costs and streamlining licensing for connected vehicles. Together these efficiencies
may allow cellular standards-essential patent owners and vehicle manufacturers to focus resources
elsewhere, such as investment in further research and development in emerging 5G technologies
and applications. This possibility could enhance competition in these technologies, improve
safety, and benefit American consumers.
83

B. Potential Anticompetitive Effects and Safeguards
Patent pools and licensing platforms are not without antitrust risk. Pooling or platform
licensing has the potential to harm competition in a number of ways, for example, by facilitating
price-fixing, market division, or creating unlawful tying arrangements.
84
Certain safeguards can
minimize these risks. They include excluding substitute patents from the pool; permitting
independent licensing outside the pool; making the license agreement available to all interested
licensees; providing clear notice of the contents of the license; and limiting access to competitively
sensitive information, such as pricing, marketing, or R&D information through the pool.
85
The
failure to include all of these safeguards does not necessarily make a pool anticompetitive.
86

Rather, the Department evaluates the particular facts and circumstances of the proposed conduct.
87

81
See infra Part III.B.1.

82
“[T]o help reduce the costs and other burdens associated with litigation,” the Department has encouraged “both
standards-essential patent owners and potential licensees of standards-essential patents to engage in good-faith
negotiations to reach F/RAND license terms.” U.S. DEP’T OF JUSTICE, U.S. PAT. & TRADEMARK OFF., & NAT’L
INST. OF STANDARDS & TECH., POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT TO
VOLUNTARY F/RAND COMMITMENTS, at 4 (Dec. 19, 2019),
https://www.justice.gov/atr/page/file/1228016/download.

83
See, e.g., U.S. Department of Transportation’s National Highway Traffic Safety Administration Issues Statement
on Safety Value of 5.9 GHz Spectrum, NAT’L HIGHWAY TRAFFIC SAFETY ADMIN. (Oct. 24, 2018),
https://www.nhtsa.gov/press-releases/us-department-transportations-national-highway-traffic-safety-administration-
issues (“This technology has the potential to improve infrastructure, safety and efficiency as the Department works
to make road travel and future transportation significantly safer.”).

84
See Antitrust-IP Guidelines, supra note 53, § 5.5; Antitrust-IP Report, supra note 55, Ch. 3, § III(B)-(C), at 66-67.

85
Antitrust-IP Report, supra note 55, Ch. 3, §§ IIII(1)(d), at 72-73, (D), at 74-84.

86
Id., Ch. 3, § I(C)(1)(d), at 72-73.

87
Id.

Letter to Mark Hamer
July 28, 2020
Page 13

The proposed 5G Platform includes many of these safeguards that reduce the risk of competitive
harm.
1. Excluding Substitute Patents from the Pool
As explained, the pooling of complementary patents can increase efficiency by removing
the need to negotiate separate licenses, especially when, as here, there are potentially thousands of
patents declared essential to 5G standards.
88
It also “may have the pro-competitive effect of
lowering the total royalty rate to licensees, thereby lowering the final product cost to consumers.”
89

Pooling substitutes, however, may in effect fix the prices of substitutable technologies, which
eliminates an opportunity for competition and may increase costs to licensees and ultimately
consumers. When the Department has issued favorable business review letters to proposed patent
pools in the past, each one included essentiality review procedures to ensure that the pools
contained only patents “essential” to a relevant technical standard.
90
Essential patents are
necessarily complements, not substitutes.
91
Here, under the terms of the 5G MLMA and Standard
PLA, the Avanci 5G Platform will license only “Essential Patent Claims,” that are necessary on
“technical grounds” to comply with the 2G, 3G, 4G and 5G standards.
92
This “technically
essential” definition is consistent with, and in some cases, a more rigorous standard than those

88
“Complementary” patents are “patents covering separate aspects of a given technology that do not compete with
each other.” “Substitute” patents are “patents covering technologies that compete with each other.” Id., Ch. 3, §
III(B), at 66.

89
Id., Ch. 3, § III(D)(1)(b), at 77. RFID Letter, supra note 59, at 7 n.30 (citing Josh Lerner & Jean Tirole, Efficient
Patent Pools, 94 AM. ECON. REV. 691 (2004)). See also Josh Lerner & Jean Tirole, Standard-Essential Patents, 123
J. POL. ECON. 547 (June 2015).
90
Antitrust-IP Report, supra note 55, Ch. 3, § III(C)(1).

91
3GPP Business Review Letter, supra note 59, at 10.

92
5G MLMA, supra note 15, § 1.11 & App. A; Standard PLA, supra note 8, § 1.8. Essential patent claims are
defined as “any and all Patent claims as to which it is not possible on technical grounds taking into account normal
technical practice and the state of the art generally available at the time of the adoption or publication of the relevant
Standard, to make, sell, offer for sale, lease or otherwise dispose of and import, repair, use or operate products,
equipment, or methods that comply with the relevant Standard without infringing the patent claims.” Standard PLA,
supra note 8, § 1.8; see also 5G MLMA, supra note 15, § 1.5 (defining an essential patent as one that includes one
claim that is necessary on “technical grounds”).

Letter to Mark Hamer
July 28, 2020
Page 14

used in other pools that the Department has found to adequately prevent the inclusion of substitute
patents.
93
Avanci’s definitions are also consistent with ETSI’s IPR policy.
94

In addition, Avanci requires licensors to have their “Essential Patent Claims” evaluated by
an independent patent expert that is screened for conflicts of interest. Avanci maintains a plurality
of patent experts for this purpose, but they are not employees of Avanci.
95
The expert’s identity
is not disclosed to the licensor and he or she evaluates patent claims according to Avanci’s standard
procedures;
96
the expert is paid a fixed fee regardless of the outcome of the evaluation.
97
Engaging
an independent expert helps to keep substitute patents from entering a pool.
98
While the
independent expert will not evaluate a patent claim for validity, if a patent is found to be invalid,
the licensor is required to report this outcome to Avanci and it is unable to collect royalties on the
invalid patent.
99
We conclude Avanci’s procedures appear to adequately ensure that patent claims
will be evaluated objectively.
100
In addition, the Department understands that standards
development organizations do not provide essentiality checks—any patent owner can declare a
patent or patent family essential to a standard.
101
Therefore, Avanci’s proposed 5G Platform may

93
Compare Letter from Joel I. Klein, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Garrard R.
Beeney, Partner, Sullivan & Cromwell (June 26, 1997), http://www.justice.gov/atr/public/busreview/215742.pdf
[hereinafter “MPEG-2 Business Review Letter”] (requiring pool patents to be technically essential), with Letter from
Joel I. Klein, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Carey R. Ramos, Partner, Paul, Weiss,
Rifkind, Wharton & Garrison (June 10, 1999), http://www.justice.gov/atr/public/busreview/2485.pdf [hereinafter
“6C DVD Business Review Letter”] and Letter from Joel I. Klein, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t
of Justice, to Garrard R. Beeney, Partner, Sullivan & Cromwell (Dec. 16, 1998),
https://www.justice.gov/sites/default/files/atr/legacy/2006/04/27/2121.pdf [hereinafter “3C DVD Business Review
Letter”] (including patents practically or economically essential).

94
ETSI, INTELLECTUAL PROPERTY RIGHTS POLICY § 15(6), at 44-45 (Feb. 2, 2020),
https://www.etsi.org/images/files/IPR/etsi-ipr-policy.pdf (indicating that “‘essential’ as applied to IPR means that it
is not possible on technical (but not commercial) grounds . . . to make, sell, lease, otherwise dispose of, repair, use or
operate equipment or methods which comply with a standard without infringing that IPR”).

95
BRL Request, supra note 1, at 10; 5G MLMA, supra note 15, App. B §§ 4, 6.

96
See 5G MLMA, supra note 15, App. B.

97
BRL Request, supra note 1, at 10.

98
MPEG-2 Business Review Letter, supra note 93, at 5; 3C DVD Business Review Letter, supra note 93, at
4-5; 6C DVD Business Review Letter, supra note 93, at 4-5.

99
5G MLMA, supra note 15, App. C § 3.3; see also Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(1)(b)(ii), at
78 n. 141 (indicating that in other pools the Department has reviewed, the independent expert did not evaluate patent
claims for validity).

100
See 5G MLMA, supra note 15, App. B.

101
See e.g., ETSI, supra note 94, § 4, at 39; ATIS, OPERATING PROCEDURES FOR ATIS FORUMS AND COMMITTEES
(VERSION 5.5) § 10.4.1, at 9 (Aug. 23, 2018), http://www.atis.org/01_legal/docs/OP.pdf (“Neither ATIS nor the
relevant Forum shall be responsible for interpreting or making any determination concerning the validity,
enforceability or scope of any patented invention referenced in or that may be relevant to any standard, guideline, or
other ATIS deliverable.”). See also Amplified and GreyB, 5G Study, May 2020, supra note 10, at 10 (estimating
that about 25% of patents declared essential to 5G are “core” SEPs, i.e., essential to the standard).

Letter to Mark Hamer
July 28, 2020
Page 15

give some confidence to licensees that the pool contains patents they actually need to make
connected vehicles.
102

Avanci does not require licensors to have all their declared standards-essential patents
independently reviewed for essentiality; however, licensors are encouraged to have their patent
families evaluated because royalties are distributed, in part, up to an allowable points cap, based
on the number of a licensor’s evaluated essential patent claims.
103
We recognize that a requirement
to evaluate all declared standards-essential patents licensed through the Platform would allow
Avanci to more accurately exclude substitutes, but the Department appreciates Avanci’s position
that such an extensive evaluation may be “commercially impractical” due to the number of patents
that may be licensed through the Platform and this requirement could inhibit the proposed
Platform’s formation.
104
Moreover, independent evaluation is not the only safeguard here that
prevents the licensing of non-essential patents. As stated, by definition, the proposed Platform is
limited to licensing technically essential patents.
105
In addition, licensees are permitted to
challenge a Licensed Patent’s essentiality (as well as its validity and enforceability).
106

Another antitrust problem that could arise if non-essential patents were included in the
Platform is tying. Tying is “the conditioning of a license for one intellectual property right [a
standards-essential patent] on the license of a second such right [a non-essential patent],” which
“could be a concern where its effect was to foreclose competition from technological alternatives
to the second.”
107
Avanci’s requirements that all patents in Platform be technically essential helps
to ensure that non-essential patents are not licensed through the Platform, and therefore, that the
Platform will not foreclose competition between a pool patent and an alternative technology.
108

102
See European Communication on Standard-Essential Patents, supra note 56, § 2.3 (discussing that pools provide
“better scrutiny on essentiality”).

103
BRL Request, supra note 1, at 13; 5G MLMA, supra note 15, Apps. B, C.

104
BRL Request, supra note 1, at 13. In other circumstances, however, e.g., where a pool includes fewer standard
essential patents, there may be no countervailing reason for limiting the essentiality review, which helps to prevent
harm to competition.

105
See supra note 92 and accompanying text.

106
See Standard PLA, supra note 8, § 5.2. A “no-challenge” clause requiring a licensee to agree not to challenge the
validity or enforceability of a patent may be unenforceable in certain circumstances. See Lear, Inc. v. Adkins, 395
U.S. 653, 670 (1969) (“Licensees may often be the only individuals with enough economic incentive to challenge
the patentability of an inventor’s discovery. If they are muzzled, the public may continually be required to pay
tribute to would-be monopolists without need or justification.”); Rates Technology Inc. v. Speakeasy, Inc., 685 F.3d
163, 169–72 (2d Cir. 2012) (barring covenants precluding future challenges to a patent’s validity entered into prior
to litigation).

107
RFID Business Review Letter, supra note 59, at 11.

108
Id. MPEG-2 Business Review Letter, supra note 93, at 12.

Letter to Mark Hamer
July 28, 2020
Page 16

Finally, other aspects of the Platform’s design mitigate the risk that non-essential patents
will be included.
109
For example, if a licensor attempted to include wholly non-essential patents
in the Platform, these patents likely would be rejected during evaluation, or if they were not
evaluated and still included, they would not increase the licensor’s royalty share and have to be
licensed for free, similar to any patent submitted beyond the cap.
110
In addition, similar to the 4G
Platform, Avanci has represented that adding patents to the proposed Platform also will not raise
a licensee’s cost.
111

In light of the number of patents that potentially may be aggregated, the proposed 5G
Platform includes a number of safeguards that appear to strike a reasonable balance between
excluding non-essential patents from the pool and ensuring that licensors and licensees still benefit
from the cost savings associated with pooling.
2. Licensing Outside the Platform
a. Bilateral Licensing
The proposed 5G Platform allows for independent licensing outside of the Platform, which
also lessens potential competitive concerns because licensors preserve their ability to compete with
the pool license.
112
Here, the 5G MLMA provides for independent licensing and prevents licensors
from “double dipping,” i.e., collecting royalties through the Platform and from direct licensing for
the same products or components that incorporate the Licensed Patents.
113
Avanci has represented
that licensors would be required to identify overlapping licenses and work out a method, such as a
payment or credit, to account for an overlapping license.
114
The ability to license outside the
Platform is useful here given the Platform’s limited field of use and that some suppliers may want
to negotiate a direct license to make other products. The proposed Platform only provides a license
(that is non-sublicensable) to “make, Have Made, use, import, sell and offer to Sell” vehicles that

109
The Department is aware of allegations that Avanci is including non-essential patents in the 4G Platform. See
First Amended Complaint at ¶ 116, Continental Auto. Sys., Inc., v. Avanci, LLC, No. 19-2520 (N.D. Cal. July 23,
2019). While including such patents in the Platform could raise tying concerns, the Department has found no
evidence of that practice in its review of the proposed 5G Platform.

110
Avanci is authorized to expand the scope of the license, at no additional cost to the licensee, to include: “(1) all
patent claims included in a patent that includes at least one patent claim that is essential, and (2) all claims in patents
that have been declared to a relevant standard-developing body.” BRL Request, supra note 1, at 9; 5G MLMA,
supra note 15, App. A, Doc. A.1.2. The Department does not believe this expansion will result in substitute patents
entering the pool because these patents must either contain an essential patent claim or have been declared essential
to a relevant standards-development body.

111
BRL Request, supra note 1, at 15; AVANCI, supra note 49 (indicating the cost of a license will never increase
when patents are added to the license).

112
Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(2)(b), at 79-80.

113
See 5G MLMA, supra note 15, § 4.3-4.4; Standard PLA, supra note 8, § 9.1.

114
BRL Request, supra note 1, at 12; 5G MLMA, supra note 15, § 4.4.

Letter to Mark Hamer
July 28, 2020
Page 17

incorporate 5G technologies; and thus, the Platform will not license 5G enabled components or
other products.
115

The Department recognizes that “[c]reating the opportunity for independent licensing does
not guarantee that such a license will be granted.”
116
It will be up to individual licensors to decide
whether they will bilaterally license automotive manufacturers or component suppliers outside the
Platform. Based on our investigation, we understand that some licensors do engage in independent
licensing for 4G connected vehicles and components, which may continue for 5G applications and
allow innovation outside of the proposed Platform’s limited field of use. Other licensors may
choose to license to only vehicle manufacturers through the Platform because they find it more
profitable. Competitive concerns could arise if pool licensors collectively agreed not to license
outside the pool despite this safeguard, which would negate the benefits of independent
licensing.
117
The Department is not aware of any evidence suggesting that Avanci’s licensors have
entered into such an agreement with respect to the proposed Platform; in fact, we found that some
licensors independently license in the automotive space, including to component suppliers.
b. Joint Licensing
Similarly, “a concerted attempt by the pool’s licensors to hinder the ability of others
(outside the pool) to offer a competitive product or process” could raise competition concerns.
118

Section 7.4 of the MLMA prohibits licensors from joining another joint licensing program that
also licenses cellular SEPs for connected vehicles.
119
The provision does not prevent licensors
from participating in pools they joined prior to Avanci, or in pools dedicated to other fields of use,
such as a connected vehicle’s component parts (e.g., telematics units).
“Determining the competitive significance of the exclusive nature of licenses granted to
the pool . . . depends on the specific facts of the case.”
120
Here, Section 7.4 requires licensors to
commit to the joint licensing of “Release 15 5G Connected Vehicles” exclusively through Avanci.
This provision is unlikely to harm competition for a number of reasons. First, the provision allows
for direct competition from pools formed before Avanci’s and from independent licensing.
Second, the provision allows competition from pools in closely related fields, including in
licensing the use of component parts. Although Section 7.4 will apply to all of Avanci’s Licensing
Programs, licensors may decide if they want to join future Licensing Programs or competing

115
BRL Request, supra note 1, at 5; Standard PLA, supra note 8, § 2.1.

116
Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(2)(b), at 80.

117
See Complaint at ¶ 9-10, In the Matter of Summit Tech., Inc. and VISX, Inc., No. 9286, 1998 WL 129323
(F.T.C. Mar. 24, 1998) (alleging that licensor veto power to prevent the other licensor in a two-licensor pool from
licensing independently was anticompetitive); see also Summit Tech., Inc., No. 9286, 1999 WL 33912985, at *219-
220 (1999) (consent agreement dissolved the pool).

118
Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(2)(b), at 80.

119
See also BRL Request, supra note 1, at 10 n.29.

120
Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(2)(b), at 80.

Letter to Mark Hamer
July 28, 2020
Page 18

platforms if any exist; moreover, only one Licensing Program (for connected vehicles) is currently
proposed. Third, Section 7.4 provides benefits to licensees. As licensors commit to Avanci, this
provision may help to make the proposed Platform a more effective “one stop shop” for vehicle
manufacturers to license cellular SEPs. To the extent it reduces the incentive for licensors to defect
to other pools, it may also help to mitigate royalty stacking across multiple pool licenses. Thus,
on balance, we conclude the provision is not anticompetitive as proposed.
3. Transparency and Nondiscrimination
Under the proposed 5G Platform, Avanci, as an independent licensing agent, would make
licenses available to vehicle manufacturers on transparent and non-discriminatory terms. These
safeguards also help to minimize competition concerns.
121
The Platform’s flat per-vehicle royalty
rate based on the type of connectivity in the vehicle will be publicly available. The rates will not
change as new essential patents are added to the Licensing Program.
122
This transparency
streamlines negotiation and helps to reduce transaction costs.
In addition, Avanci has indicated there “would be no restriction on who can receive a
license within the Licensing Program’s field of use,” which is limited to vehicles that have 5G
functionality.
123
Although the 5G Platform’s field of use is limited to connected vehicles and not
other components in the supply chain, such as telematics units,
124
this limited field of use does not
necessarily make the Platform anticompetitive.
Here, the efficiencies from the proposed field of use appear to be considerable and are
likely to outweigh the potential competitive harm caused by limiting the scope of the Standard
PLA to connected vehicles. The Antitrust Guidelines for the Licensing of Intellectual Property
make clear that field-of-use restrictions can be procompetitive because they allow the licensor “to
exploit [its patents] as efficiently and effectively as possible” and that they may “increase the
licensor’s incentive to license.”
125
Avanci has indicated that limiting the Platform’s field of use to
connected vehicles and collecting royalties from OEMs will result in numerous licensing
efficiencies, such as simplifying scope, pricing, and royalty collection.
126
Avanci represents that
“the Vehicle manufacturer base is more visible, smaller in number, and more consistent over time,

121
Id., Ch. 3, § III(C)(1)(d), at 71-72; RFID Business Review Letter, supra note 59, at 10 (indicating licenses to
make products compliant with the Gen-2 standard were available from an independent licensing agent on
nondiscriminatory terms).

122
BRL Request, supra note 1, at 15.

123
Id. at 11.

124
A telematics control unit (“TCU”) is typically the component in a connected vehicle that exchanges data with a
network. Telematics Control Unit Market Will Exceed $6,600 Mn By 2027, MARKETWATCH (last visited June 22,
2020), https://www.marketwatch.com/press-release/telematics-control-unit-market-will-exceed-6600-mn-by-2027-
2020-05-20?mod=mw_quote_news&tesla=y.

125
Antitrust-IP Guidelines, supra note 53, § 2.3.

126
See BRL Request, supra note 1, at 16-18.

Letter to Mark Hamer
July 28, 2020
Page 19

relative to the base of component suppliers.”
127
The automotive supply chain is complex.
Identities of suppliers can be kept confidential and it could be difficult for Avanci to track which
components from either Tier 1, Tier 2, or Tier 3 suppliers in a vehicle are licensed.
128
The
Department understands that many cellular SEP holders choose to license at the end-device level
for many of the same reasons,
129
and thus, they may be more likely to join the Platform. Broad
licensor participation benefits the Platform’s licensees.
Moreover, the Standard PLA includes “Have Made” rights that would allow a vehicle
manufacturer to have third-party component suppliers make components for their 5G connected
vehicles.
130
Thus, the Standard PLA may create new access to the Licensed Patents for component
suppliers. Because these “Have Made” rights give component suppliers freedom to supply a
licensee, their exclusion from the Platform is unlikely to harm competition.
131
Moreover, if
suppliers want a direct license so that they can supply vehicle manufacturers that are not Avanci
licensees or make other connected products, they can bilaterally negotiate with licensors outside
the Platform. Furthermore, as explained, the Avanci Platform does not prevent the formation of a
pool that would license 5G-enabled components.
We note that limiting a pool license’s field of use is not uncommon. For example, the
RFID Consortium, which the Department reviewed favorably, licensed reader products, label
products, or chips compliant with the Gen-2 standard.
132
Similarly, the 3G Patent Platform
Partnership grouped essential patents into product categories such as, infrastructure, terminals, test
equipment, and like the Avanci Platform, the royalty “collection point” was “the last manufacturer
in the manufacturing ‘chain.’”
133
In neither case did the Department conclude that licensing

127
Id. at 17.

128
Id. We understand that Tier 1 suppliers sell telematics units, Tier 2 suppliers sell modules or network access
devices (“NADs”), and Tier 3 suppliers sell baseband processors or chips.

129
See Keith Mallinson, Don’t Fix What Isn’t Broken: The Extraordinary Record of Innovation and Success in the
Cellular Industry Under Existing Licensing Practices, 23 GEO. MASON L. REV. 967, 995 (2016) (“It is the
widespread practice within the cellular industry that royalties for substantial patent portfolios are assessed on
completed devices, and most commonly based on the average wholesale price (‘AWP’).”); see also David Teece &
Edward Sherry, On the “Smallest Saleable Patent Practicing Unit” Doctrine: An Economic and Public Policy
Analysis, at 11 (Tushner Ctr. for the Mgmt. of Intell. Cap., Working Paper Series No. 11, 2016) [hereinafter “Teece
& Sherry, SSPPU”].

130
Standard PLA, supra note 8, § 1.10.

131
Cf. Antitrust-IP Guidelines, supra note 53, § 5.5 (“Pooling arrangements generally need not be open to all who
would like to join . . . In general, exclusion from a pooling or cross-licensing arrangement among competing
technologies is unlikely to have anticompetitive effects unless . . . excluded firms cannot effectively compete in the
relevant market for the good incorporating the licensed technologies . . . .”). See also Borghetti et. al., FRAND
Licensing Levels Under EU Law, at 17 (Feb. 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3532469
(“Even without explicit ‘have made’ clauses, courts are unlikely to allow an injunction against upstream component
makers supplying licensed entities.”).

132
RFID Business Review Letter, supra note 59, at 2.

133
Letter from Ky P. Ewing, Partner, Vinson & Elkins, to Joel I. Klein, Assistant Att’y Gen., Antitrust Div., U.S.
Dep’t of Justice, at 12 (Dec. 14, 1999), https://www.justice.gov/sites/default/files/atr/legacy/2014/01/08/302201.pdf.

Letter to Mark Hamer
July 28, 2020
Page 20

specific fields of use or, in the case of the 3G Patent Platform Partnership, using the end product
as the royalty collection point raised antitrust concerns.
134
Rather, we focused, as we do here, on
whether the proposed licensing mechanisms created efficiencies that were likely to outweigh any
potential harms to competition.
135

Another benefit of end-device licensing through the proposed 5G Platform is that it may
help to ensure licensors are appropriately compensated for their innovation. Because the pool sets
flat per unit rates based upon the value of the technology to vehicle manufacturers that choose E-
Call or full connectivity for their vehicles, licensors may be able to recoup more of the value of
the intellectual property they created.
136

There are “a variety of ways” parties might value patented technology, including setting
royalties based on end-product revenue.
137
The essential cellular SEPs licensed here are subject
to FRAND commitments. Avanci represents that its current rates for the 4G Platform are FRAND
and reflect input from both licensors and licensees, and that Avanci intends its 5G rates also to be
FRAND.
138
There is no single correct way to calculate a reasonable royalty in the FRAND
context.
139
Each standards-essential patent holder will have to decide whether the Avanci Platform
comports with its own FRAND commitments. Standards implementors can enforce the
commitments in contract proceedings if there are disputes. The Department believes parties should
be given flexibility to license in a manner, consistent with these commitments, that best rewards
and encourages innovation.
140

(“Licensees shall not include those manufacturers of component products which are incorporated into final
assembled products for which royalties are paid to their respective licensor(s).”).

134
RFID Business Review Letter, supra note 59, at 10-12; 3GPP Business Review Letter, supra note 59, at 10-12.

135
See e.g., 3GPP Business Review Letter, supra note 59, at 9.

136
See BRL Request, supra note 1, at 5. See also Teece & Sherry, SSPPU, supra note 129, at 14 (indicating that
patent holders cannot “extract ‘the value’ of being able to use its patented technology at multiple different levels in
the value chain” due to patent exhaustion, and thus, the “second-best approach (in terms of capturing a significant
fraction of the overall value of being able to use its technology for the patent holder) is to look as far ‘down’ the
value chain as possible”). Under the doctrine of patent exhaustion, licensing a single manufacturer can exhaust the
patentee’s rights with respect to all the firms in that manufacturer’s supply chain. See Impression Prods., Inc. v.
Lexmark Int’l, Inc., 137 S. Ct. 1523, 1535 (2017) (exhaustion applies “[s]o long as a licensee complies with the
license when selling an item”).

137
See Exmark Mfg. Co. v. Briggs & Stratton Power Prod. Grp., LLC, 879 F.3d 1332, 1348 (Fed. Cir. 2018); HTC
Amicus Br., supra note 71, at 14.

138
See AVANCI, supra note 49 (“Avanci shares a commitment with the IoT ecosystem to make the latest standard
wireless technology available in a way that is fair, reasonable and non-discriminatory (FRAND).”).

139
See Commonwealth Sci. & Indus. Research Org., 809 F.3d at 1303-1304 (indicating it would be “untenable” to
use component-based royalties in every case); HTC Amicus Br., supra note 71, at 16-17.

140
HTC Amicus Br., supra note 71, at 26 (“SSOs and parties can tailor their terms to specific technologies and
industries and allow for experimentation with different terms more easily than can courts or governments.”)

Letter to Mark Hamer
July 28, 2020
Page 21

In light of these considerations, including that the proposed 5G Platform’s limited field of
use can promote licensing efficiencies and may encourage licensor participation, and licensors are
able to license outside the Platform, including in other fields of use, the Department finds that the
proposed limited field of use and royalty collection method are unlikely to harm competition.
Rather, they have the potential to facilitate the Platform’s adoption and reduce transaction costs
for both licensors and vehicle manufacturers.
The Department understands, based on our investigation, that vehicle manufacturers are
often indemnified by their suppliers for intellectual property infringement and that suppliers in the
automotive industry typically take a license to any intellectual property necessary to produce a
particular component. The proposed 5G Platform takes a different approach. To be clear, the
Department makes no assessment of whether end-device licensing will be successful in the
automotive industry or whether it is the correct approach to licensing in this space.
141
We also do
not assess whether licensors could be held liable for breaching their individual FRAND
commitments if they choose not to license outside the proposed Platform to suppliers. We simply
opine, based on Avanci’s representations and our review, that Avanci’s approach, which has the
potential to aggregate a significant number of cellular SEPs in the marketplace and streamline
licensing, is unlikely to harm competition. Therefore, the Department has no present intention to
challenge it.
4. Limited Access to Competitively Sensitive Information
The proposed 5G Platform also takes measures to protect against the sharing of
competitively sensitive, confidential business information.
142
Avanci is an independent licensing
administrator, with no patents of its own, and it does not participate in the automotive industry.
143

Thus, it has little incentive to coordinate on price or output downstream. Competitively sensitive
information, such as information provided to support royalty distribution, marketing and sales
plans, and the number of connected vehicles sold, is submitted to Avanci. The proposed 5G
Platform’s confidentiality obligations are written to prevent the disclosure of this competitively
sensitive, confidential business information to other licensors or licensees.
144
Avanci employees
are also subject to non-disclosure agreements.
145
Limiting access to competitively sensitive,
confidential business information concerning cost, output, or other proprietary data lowers the risk
of coordination in final product markets and other markets where licensors or licensees may

141
Cf. Letter from Charles A. James, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Douglas W.
Macdonald, Esq., Webster, Chamberlain & Bean, at 3 (Oct. 7, 2002), https://www.justice.gov/atr/response-
american-welding-societys-request-business-review-letter (“The Department is not in the business of picking
winners and losers. We leave that to the marketplace.”).

142
BRL Request, supra note 1, at 11-12. Confidential information includes technical and commercial information
provided to Avanci, such as tax information, royalty distribution reports, marketing and sales plans, and licensee
information, such as quantity of licensed vehicles sold. 5G MLMA, supra note 15, § 6.1.

143
BRL Request, supra note 1, at 4-5.

144
5G MLMA, supra note 15, § 6.1; Standard PLA, supra note 8, § 18.

145
5G MLMA, supra note 15, § 6.1; Standard PLA, supra note 8, § 18.

Letter to Mark Hamer
July 28, 2020
Page 22
compete.146 We find that Avanci has sufficient protections in place to prevent the sharing of
information that might result in unlawful coordination.
IV.
Conclusion
For these reasons, the Department is not presently inclined to initiate an antitrust
enforcement action against the proposed 5G Platform. This letter, however, expresses the
Department's current enforcement intention. In accordance with our normal practices, the
Department reserves the right to bring an enforcement action in the future if the actual operation
of the proposed conduct proves to be anticompetitive in purpose or effect.
This statement is made in accordance with the Department's Business Review Procedure,
28 C.F.R. §50.6. Pursuant to its terms, your business review request and this letter will be made
public immediately, and any supporting data will be made publicly available within 30 days of the
date of this letter, unless you request that part of the material be withheld in accordance with
Paragraph 10(c) of the Business Review Procedure.
Makan Delrahim
146 See
Antitrust-IP Report, supra note 55, Ch. 3, § III(D)(4)(b), at 82.