Tuesday, October 11, 2005

ARE AUTO-MAKERS STRONG-ARMING SUPPLIERS TO SURRENDER PATENTS? During an industry conference meeting last week in Baden-Baden Germany, there was considerable grumbling by electronics suppliers over alleged hardball negotiating tactics used by OEM's to secure orders from suppliers. When Wolfgang Runge, who is the program committee chairman of the VDI Congress on Electronic Systems for Vehicles, blasted automakers over their treatment of suppliers, his comments "struck a nerve" with the other suppliers at the conference who roundly applauded his remarks.

Allegedly, a growing practice has emerged in the industry, where OEM's are requiring suppliers to surrender all of their IP rights in order to win orders from car makers. Most of the suppliers are small- or medium-sized companies, who have invested considerable sums in protecting the intellectual property surrounding their products. More shockingly, the arrangements entitle OEMs not only to use the fruits of their suppliers’ R&D efforts for their own benefit, but also to provide them to third parties. One anonymous development manager described his experience this way:

“We found that a competitor was using IP we’d developed . . . When we brought this situation to the attention of the relevant OEM, and asked them to at least pay a licensing fee, they told us that we were welcome to lodge this request but that in such a case they could not guarantee that we would receive orders from them in the future.”

Yow. I can understand why OEM's want suppliers to play nice with their respective patent portfolios - nobody wants to explain to their customers that orders aren't being filled because two suppliers are having a brawl over a patent. And while one may argue that the value of the sales contract adequately compensates the supplier forfeiting their IP rights, this seems like an onerous policy. And the OEM's don't seem to be losing any sleep over this practice either. When the German auto industry group VDA (Verband der Automobilindustrie) was asked to respond to these allegations, the spokesman said "we see no reason to comment."

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