Supply Chain Licensing For Automotive/IoT Startups

Israel boasts a strong start-up ecosystem, including in the field of vehicular communications, smart mobility and sensors. Such technologies often require the use of patented wireless communication standards, such as Wi-Fi or 4G/5G cellular standards. Recent legal developments in the United States and the European Union threaten to impose the costs of licensing these standards on such start-up companies, rather than on larger Tier 1 or OEM manufacturers farther down the supply chain. Background and Analysis

Wireless communication standards such as Wi-Fi and 5G are patented technologies. As these communication technologies are standardized, startups incorporating these technologies in their products cannot avoid patent infringement.

Nonetheless, startups should be confident that wireless communication technologies are available for incorporation in their products. Patent holders often commit to license this technology under "fair, reasonable and nondiscriminatory" (FRAND) terms specifically in order to encourage third parties to adopt their patented technology.

However, though FRAND licenses may be available, payment of a FRAND royalty is a non-negligible expense, especially for a start-up company. In addition, startups rarely have the leverage or market information to negotiate better FRAND terms.

Startups have in the past found relief in the customary commercial practices of the wireless communication industry, which typically saw the FRAND license fee as being paid...