Aurelia Butler

In the era of internet-connected vehicles, Europe’s carmakers are embroiled in intellectual property battles with some of the region’s biggest telecoms groups. Looming behind those conflicts is fear about the rising dominance of China.Companies from Asia’s biggest economy, led by Huawei, have filed a deluge of patents around the essential technology that allows products, from cars to mobile devices, to access 4G, 5G and WiFi networks. Anything that connects to the internet must secure a licence for these so-called standard essential patents (SEPs) from technology creators.Chinese companies were behind 65 per cent of filings of SEPs last year to standards body ETSI, according to data collected by Clarivate, up from 37 per cent in 2019. EU commissioner Thierry Breton this week noted that since 2014, the share of SEPs globally held by European companies dropped from 22 to 15 per cent, while Chinese companies’ doubled. “I’m strongly urging and encouraging companies to file and file and file patents . . . Chinese companies are doing it a lot,” he said.Breton was setting out new European Commission proposals to increase transparency and reduce litigation in the patent market, led in part by fears that competitiveness in the bloc was under threat. Under the new rules, companies would have to register their patents with the EU Intellectual Property Office, which would in turn help set licensing and royalty rates. The move has sparked controversy among leading patent holders who fear it will create even more onerous procedures, such as registering every single patent with the new body, and reduce their access to the courts for infringement cases. This could ultimately hit their global competitiveness, they worry.The review follows several legal disputes, including a lawsuit between Nokia and Mercedes-Benz. The telecoms group sued the carmaker, previously known as Daimler, for patent infringement when negotiations over pricing broke down. The case was settled outside court two years ago.China’s increasing interest in SEPs has sparked concern in the car industry, which is already reliant on the largest Asian country for key components across much of its supply chain and has become deeply wary of the escalation of geopolitical tensions between Washington and Beijing.Huawei, which has suffered from US and European sanctions imposed over fears it helps Beijing conduct cyber-espionage and technology theft, has led the pack, filing thousands of patent applications in 2020 and 2021. “In 5G, the winner is clear — it’s Huawei,” said Michael Schlögl, head of patents at German car supplier Continental.Huawei, which invested $21.8bn in R&D in 2021, has developed several licensing relationships within the car industry. But it has so far opted not to license its IP via a patent pool called Avanci used by Ericsson, Nokia and others, choosing instead direct agreements with component makers including a Volkswagen supplier. It has signed bilateral SEP agreements with at least 13 carmakers, including Audi and BMW.Huawei, which invested $21.8bn in R&D in 2021, has placed particular focus on the car industry © Qilai Shen/BloombergPatent ownership can become a good source of income for telecoms technology companies such as Huawei, which has been losing business internationally as many western countries have started purging the company from telecommunications networks because of concerns over its relationship with Beijing. Chinese companies are now increasingly in a position where they could “keep other companies out of business — not just in the automotive supply, but for the whole Internet of Things”, said Schlögl.Christian Loyau, legal affairs and governance director at the body responsible for standardisation of communication technology in Europe, ETSI, warned that if Chinese companies felt they were not allowed to participate fairly in western markets, Beijing could decide to “use their patents as weapons” and curtail western companies’ access to key technologies. A person close to Huawei said that it negotiates licences in a “friendly and amicable way” in the hope that its technology can be “beneficial for the whole industry”. Telecoms equipment group executives point to the fact that the quantity of patents filed does not necessarily equate to their quality and that Ericsson and Nokia still dominate when it comes to lucrative quality patents. Huawei generated about $1.3bn from patent licensing between 2019 and 2021. Nokia generated €1.5bn in 2021 alone, while Ericsson generated around €900mn last year.

Nevertheless, fears about the role of Chinese companies in patent development come as a growing number of products become connected, prompting the need for licences for wireless access to 4G, 5G and eventually 6G networks. Car companies are among traditional industries increasingly wary of the power telecoms equipment makers hold over conditions such as pricing for the IP licences.Groups including Nokia and Ericsson have been pegging the price of connectivity patents to the price of a car, rather than the significantly cheaper connectivity hardware developed by automotive suppliers, meaning they can charge more. Anja Miedbrodt, senior counsel in intellectual property defence at Mercedes-Benz, said the conflict between the two industries was also threatening to upend supply chains. With vehicles such as the Mercedes-Benz E-class requiring more than 3,700 different parts from more than 340 suppliers, she said, carmakers could not be responsible for ensuring each part was patent-compliant — adding that requiring this “would turn around the entire set-up of the automotive industry”.However, a person close to Nokia said that patent holders were charging only around $20 per car. The company said that the “refusal by some companies to pay for the use of other companies’ technology is the main barrier to efficient and effective SEP licensing”. The $20 cost “might not sound like much for the consumer, but multiply this by hundreds of standards [needed by] car technologies”, said Schlögl, adding that if connectivity SEP fees kept rising, “you might indeed see a bill of licence fees that an end consumer would never accept”.Additional reporting by Javier Espinoza More

Hedge funds have been rushing to unwind bets against Italian government bonds in recent weeks, cutting their losses as the highly indebted country confounds expectations to deliver strong returns following a period of political calm. The total value of Italy’s bonds borrowed by investors to wager on a fall in prices has dropped by 40 per cent over the past month, according to data from S&P Global Market Intelligence.The move marks a retreat from last year, when short positions shot up to their highest level since the global financial crisis, peaking at €46bn last November amid concerns over the country’s dependence on gas imports and the election of rightwing prime minister Giorgia Meloni.But a warmer than expected winter and a lack of confrontation with Brussels has helped drive an ICE Bank of America index of Italian government debt up 3.4 per cent so far in 2023 in total returns. A sharp drop in natural gas prices has delivered an extra boost to the Italian economy, which is expected to grow 1.2 per cent this year, outpacing the ECB’s 1 per cent growth forecast for the wider eurozone. “I can certainly see shorts throwing in the towel,” said Richard McGuire, head of rates strategy at Rabobank, adding: “I suspect this is a combination of the fact the trade has gone nowhere, and the emergence of banking sector tensions which is a challenge for those who had been expecting ECB activism to pull the rug from under BTPs”. A senior European official said the main reason why investors were reducing their short positions was down to the way the new government under Meloni has been “a lot more calm and constructive in fiscal policy and in its relations with the EU” than many investors had expected. The rally has meant that the gap or “spread” between Italy and Germany’s 10-year debt — a key gauge of risk — has remained much narrower than the it was throughout most of last year. It has traded in the range of 1.2 to 2 percentage points this year, down from a peak of over 2.5 percentage points last autumn.Beyond a brighter economic outlook, the resilient performance of Italian government bonds in recent months has also been underpinned by a surge in purchases by domestic retail investors and non-financial companies, which has more than offset a retreat by foreign investors.In the six months since August 2022, Italian households and non-financial companies bought an extra €50bn of domestic government securities, increasing their holdings by just over 30 per cent to €213bn, according to data released by the Bank of Italy this month. More

German calls for tough debt reduction targets to be embedded in EU fiscal rules have hit stiff opposition from Brussels and a number of leading capitals, with officials warning they would stifle EU plans to modernise its budgetary policy. Christian Lindner, German finance minister, reiterated his country’s demand for tighter fiscal discipline as he attended informal meetings in Stockholm on Friday and Saturday, saying he wanted a system that would include clear numerical benchmarks to deliver reliable reductions in debt. Berlin has proposed that the debt-to-GDP ratios of heavily indebted countries should fall by 1 percentage point a year. For countries with less onerous debts, the minimum requirement would be a 0.5 percentage point reduction per year. Lindner’s calls have caused deep concern among some EU member states, with one European Commission official dismissing them as being incompatible with proposals to create a more flexible system adapted to member states’ individual needs. “It’s like baking a cake: you don’t put cement in it,” the official said, adding that Berlin’s proposals would make the new budgetary formula “inedible”. Draft legislation unveiled by the European Commission on Wednesday seeks to usher in far-reaching reforms to the EU’s labyrinthine Stability and Growth Pact, giving individual states greater ownership of their individual debt reduction plans. Member states and the European parliament are preparing to haggle over the details as capitals attempt to strike a deal on a revised framework by the end of this year or early in 2024. Elisabeth Svantesson, the finance minister of Sweden, which holds the EU’s rotating presidency, said she was positive about the deal’s prospects. “Will it be easy? No. Will it be possible? Yes,” she told reporters. The commission added extra safeguards to its draft regime in a bid to reassure Berlin that there would be minimum standards that member states must meet. These included a requirement that member states ensure their debt-to-GDP ratios are lower at the end of the initial four-year timeframe, compared with the most recent reading. Countries with budget deficits above the Stability and Growth Pact threshold of 3 per cent will have to push through a minimum fiscal adjustment of 0.5 per cent of GDP a year — even if they are not yet formally in a so-called “excessive deficit procedure”. Lindner said in Stockholm that Germany was playing a constructive role in the discussions, but added that if a deal could not be struck the old rules would apply. Enforcement of the pact was suspended early in the Covid pandemic, but the commission has said it is likely to be reimposed next year. Brussels is eager to push through reforms quickly in a bid to avoid the imposition of unrealistic debt reduction requirements embedded in the old regime. It wants to ditch an existing EU rule that requires a 1/20th per annum reduction in debt ratios by member states with debt above the EU’s 60 per cent of gross domestic product ceiling. The commission official said it was essential to get away from the old regime’s unenforceable “magical figures”. Bruno Le Maire, French finance minister, challenged Germany’s proposals on Friday, warning against the imposition of automatic debt or deficit reduction requirements. “One size does not fit all,” he told reporters in Stockholm. Reaction among traditionally hawkish members states has been mixed. While Austria has spoken in favour of tight safeguards, the Netherlands has opposed the kind of mandatory fixed minimum debt-reduction target that is being pushed by Lindner. More