Summary
This paper critically examines the Automotive Licensing Negotiation Group (ALNG) proposal and its potential ramifications for European innovation and the Standard Essential Patent (SEP) licensing markets. The proposal, tolerated by the German Federal Cartel Office (FCO) under certain conditions, has stirred criticism among industry and academic circles, prompting a thorough economic and legal analysis. The significance of mobile technology, particularly cellular standards like 4G and 5G, to global GDP cannot be overstated. These technologies are vital across various sectors, including automotive, healthcare, and transportation. The framework of Standard Development Organisations (SDOs) and Fair, Reasonable, and Non-Discriminatory (FRAND) licensing terms have been instrumental in fostering innovation and economic growth. However, concerns have been raised, particularly by automotive industry associations and some big tech implementers, regarding the transparency and fairness of FRAND licensing practices. It has been alleged that a lack of clear rules has led to legal uncertainty, potentially discouraging standards’ adoption and follow on innovation.
The second section explains that in the ever-evolving world of SEP licensing, the introduction of an Automotive Licensing Negotiation Group (ALNG)has raised more questions than it has answered. The ALNG is a cooperative initiative proposed by BMW, Mercedes-Benz, Thyssenkrupp, and VW to jointly negotiate licenses for SEPs used in automotive technologies like 4G and 5G. It has been promoted as a mechanism to facilitate negotiations and increase transparency for SEP licensing in the automotive sector. However, this initiative, put forward by industry automotive powerhouses, deserves closer scrutiny. Upon analysis, the claimed benefits of the ALNG do not appear to be an efficient one-size-fits-all solution for SEP-related perceived difficulties. Instead, it appears more an attempt to consolidate bargaining power under the pretext of market efficiency. The paper offers insights into the economic and legal precariousness of the proposal.
Next, the paper outlines the operational framework of the SEP licensing market, noting that cellular standards—developed through collaborative forums like 3GPP—are indispensable for modern connectivity. These technologies are often patented and licensed under FRAND (fair, reasonable, and non-discriminatory) terms. While licensing can occur bilaterally or through third parties, such as patent pools, both methods possess their own sets of advantages and drawbacks.
In this environment, the ALNG emerges, presenting itself as a neutral intermediary designed to address inefficiencies. However, this so-called neutrality warrants scepticism. The ALNG would operate as a limited liability company (GmbH) and purports to engage independent experts to negotiate on behalf of automotive licensees. The claimed goals (reducing costs, minimising litigation, and equalising negotiating power) seem laudable at first glance. But the design of the proposal raises concerns about transparency, fairness, and legal compliance.
In June 2024 the German Federal Cartel Office (FCO) issued a letter stating that it would tolerate the ALNG under certain conditions, with safeguards aimed at limiting anticompetitive fallout. The ALNG’s scope is restricted to general mobile telecommunication standards (e.g., 4G, 5G) and other standards that are not highly automotive-specific (e.g. Wi-Fi), and participation must be voluntary. Crucially, the exchange of commercially sensitive data among members must be tightly controlled, and licensors must be free to decline to negotiate with the ALNG without consequence.
Yet, this conditional acceptance appears worryingly superficial. Critics argue that the FCO's acceptance relies on an overly broad and arguably unrealistic market definition. By treating all cellular SEP licenses as part of one homogenous market, it conveniently downplays the actual dominance ALNG members could exert within the automotive segment. Such a sweeping classification obscures the specific power dynamics at play, creating a regulatory blind spot.
In the next section of the paper, the alleged rationale behind the ALNG is examined. Many of the concerns raised by automotive firms have, in fact, seen considerable legal clarification over recent years. Some examples are lack of transparency in FRAND terms, difficulties in determining patent essentiality, and procedural complexities. Judicial interpretations across Europe have progressively harmonised FRAND, offering much-needed predictability.
The paper argues that the suggestion that high SEP royalties are driving European suppliers out of the market is tenuous at best. Global supply chain shifts, competitive manufacturing costs abroad, and geopolitical factors may play a more influential role. The paper asserts that to lay the blame solely on SEP owners provides an easy, yet not necessarily correct target, let alone a constructive solution. Moreover, the claim that SEP royalties hinder innovation in the EU ignores the fact that these royalties fund the very R&D that propels the region’s technological leadership.
The paper scrutinises the ALNG’s legality, casting doubt on some of its underlying assumptions. One of the most concerning aspects is the potential erosion of the legal principles established in Huawei v. ZTE. This CJEU (Court of Justice of the European Union) decision championed good-faith negotiations. The ALNG injects ambiguity into what constitutes a ‘willing licensee.’ If SEP owners refuse to engage with the ALNG, are they automatically cast as acting in bad faith? The implications are worrying for SEP owners and threaten to upend the delicate balance established by EU case law.
ALNG proponents often draw parallels between the ALNG and patent pools. But the analogy is more misleading than informative. Unlike patent pools (where complementary patents are licensed jointly by the owners to streamline access), the ALNG aggregates demand-side actors, essentially forming a powerful buying group. In this case, there exists a risk of collective hold-out, where firms delay or obstruct negotiations to force favourable terms. The non-binding nature of any agreement reached through the ALNG only compounds this risk. It also offers participants the ability to renegotiate without consequence.
The next section cautions that the ALNG’s purported benefits must also be evaluated in light of potential distortions to market dynamics. Standardising licence terms across key industry players risks blurring the line between cooperation and collusion. Sensitive business information, even if ostensibly managed by independent experts, may still leak, intentionally or otherwise, facilitating downstream price coordination. The centralisation of purchasing power under one umbrella is a textbook example of behaviour that EU competition law seeks to prevent.
The paper therefore contends that when assessed under Article 101 of the Treaty on the Functioning of the European Union (TFEU), the ALNG arrangement raises significant legal concerns. The FCO’s broad upstream market definition conveniently dilutes the group’s apparent market share, thus avoiding closer scrutiny. However, this characterisation is misleading. The real-world value of an SEP licence varies drastically depending on the industry. A 5G technology embedded in an autonomous vehicle has vastly different implications from the same technology in a household appliance. Treating them as functionally identical blurs important economic realities.
The FCO’s refusal to define downstream markets—such as those involving automotive sales—further undermines its analysis. Even if SEP licensing costs comprise less than 1% of a vehicle’s total production cost (as suggested by the FCO), this does not constitute a safe harbour.
Another pressing concern is whether the ALNG constitutes a "by object" restriction under Article 101 TFEU. If deemed so, it would be considered inherently anticompetitive, negating the need for a detailed market impact assessment. The comparison to buyer cartels is not without merit. In recent Commission cases involving price-fixing by recycling firms and chemical firms, this mere coordination among buyers was sufficient to trigger enforcement. The parallels are striking: both scenarios involve dominant market players seeking to suppress supplier prices under a collective bargaining model.
If the ALNG is seen as a joint purchasing agreement (JPA), then its implications under Article 101 TFEU must be carefully weighed. JPAs can offer efficiencies, but when they involve dominant buyers (like large automakers), they risk depressing supplier revenues and stifling innovation. The ALNG’s structure and potential for coordinated hold-out exacerbate these concerns.
While the ALNG claims to mitigate these risks through third-party mediation and strict information controls, such measures remain largely theoretical. There is a conspicuous lack of detail regarding how these safeguards will be enforced or audited. The reliance on commitments rather than enforceable mechanisms gives little comfort to observers wary of cartel-like behaviour.
Moreover, the ALNG introduces strong incentives for collective hold-out. Further, members can simply reject the terms negotiated by the group and demand better individual deals later. This strategy not only delays royalty payments but also exerts undue pressure on SEP owners to concede sub-FRAND terms. Over time, this weakens the commercial case for engaging in costly R&D, leading to a chilling effect on innovation.
Even assuming some efficiency gains in the short term, the long-term consequences are deeply concerning. The most likely outcome is a transfer of surplus from SEP holders to large manufacturers, without any guaranteed benefit for consumers. Lower licensing fees may as well pad profit margins rather than reduce retail prices. More importantly, diminished revenues for SEP owners may curtail the development of future technologies, stifling the very innovation that Europe seeks to champion.
The paper concludes that the ALNG represents an initiative that may conceal deeper concerns. Although presented in the language of fairness and efficiency, its structure and intended function raise questions about its potential for exerting undue market influence. The potential for collective hold-out, information exchange, and anticompetitive collusion cannot be ignored. Until it can demonstrate true transparency, enforceability, and compliance with established legal requirements, the ALNG may not serve as a model to emulate. Instead, it highlights potential risks of reforms that, while well-intentioned, could inadvertently enable anticompetitive outcomes.
