Recent revelations from a UK court hearing have shed light on the anticompetitive practices of Avanci, a self-described patent licensing “platform” for standard-essential patents (SEPs) covering important cellular technology standards and one of its largest members, InterDigital. As the internet of things (IoT) and 5G technologies continue to evolve, these practices could have far-reaching implications for innovation and competition. These admissions in connection with Avanci’s broader implications on competition are outlined in the paper Admissions Confirm Avanci’s Rigged Game. In this blog, we will highlight the paper’s conclusions that Avanci’s unique structure enables it to:

  1. Circumvent fair, reasonable, and non-discriminatory (FRAND) obligations
  2. Suppress competing interests among its SEP members
  3. Maximize royalties in ways that may harm competition

The Avanci “Platform”: More Than Meets the Eye

Avanci bills itself as a patent “platform” rather than a traditional patent pool, claiming to negotiate licenses as an “independent third party,” unlike a patent pool that is controlled by its SEP holder members. However, in the UK courts, Avanci and one of its members, InterDigital, have made admissions suggesting the distinction between Avanci’s structure and a patent pool is illusory. From a competition perspective, Avanci, as the license “broker,” has similar interests to its members, effectively nullifying the supposed distinction between a “platform” and a “pool.” But, as Avanci states, not all its members have similar interests depending on factors, including if they even practice their patents or if they are net licensors.

Litigation Tactics: A Coordinated Assault?

One of the most concerning aspects of Avanci’s operations is its apparent support for coordinated litigation campaigns against manufacturers. The platform reimburses litigation costs for members, but only if it results in an Avanci license. In the recent UK court hearing, InterDigital revealed Avanci operates on a commission basis. The platform’s payment structure suggests that its incentive to generate licensing revenue for its members benefits from this litigation reimbursement program.

This practice has led to:

  1. Multiple Avanci members targeting single manufacturers in unison
  2. Royalty rates for automotive manufacturers are five times higher than FRAND rate for handsets and tablets
  3. Increased pressure on manufacturers to accept Avanci’s terms at inflated rates

For example, in 2019, three Avanci members targeted Daimler; in 2020, five members targeted Tesla; and in 2022, seven members targeted Ford.

 The Shell Game

Equally troubling is Avanci’s stance on FRAND commitments. While the platform claims to offer “FRAND-ish” terms, it disclaims liability for the binding FRAND obligations of its members. Avanci does this by omitting acknowledgment of its members’ FRAND commitments in platform agreements, shielding Avanci from suits by third-party licensees. Individual Avanci members are also shielded from lawsuits by licensees because courts have refused to acknowledge that licensees have standing as third-party beneficiaries of a SEP holders’ FRAND commitment to challenge the SEP holders’ licensing rate based on FRAND principles. Interestingly, Avanci’s largest portfolio holders rely on the platform’s small portfolio holders to engage in the coordinated litigation campaigns that raise the Avanci rate while protecting them the larger members from a public rate determination. This effectively creates a “shell game.”

Avanci’s Structure and Decision-Making Process

Avanci’s structure gives it significant control over decision-making, with rate changes approved by just five out of Avanci’s 65 members voting in favor, which InterDigital has admitted before UK courts. This arrangement restrains competing interests among Avanci members and leads to inflated royalty rates.

Impact on Competition and Innovation

Since standardized technology has begun to impact multiple industries (e.g., automotive, healthcare, sustainability), these practices are likely to have broader and increasingly severe consequences on competition outside cellular technology. If Avanci’s structure continues or is mimicked, undermining FRAND foundations and threatening the development and use of standards writ large, competition will be distorted across markets. Small and medium-sized businesses (SMBs), like App Association members, are especially vulnerable to SEP licensing, as they often cannot afford expensive litigation and struggle to attract investment due to legal uncertainties.

The Role of Competition Authorities

 

The revelations from the UK hearing underscore the urgent need for regulatory scrutiny

of Avanci’s patent licensing practices. Competition authorities around the world, such as the UK’s Competition and Markets Authority (CMA), have a critical opportunity to address these issues in upcoming reviews of technology transfer agreements and in considering new laws, policies, and guidance to address well-established harmful conduct in the standards and SEP licensing contexts.

Conclusion

The admissions made during the UK court hearing have pulled back the curtain on Avanci’s operations, revealing a system that appears designed to maximize profits at the expense of fair competition. The platform’s practices, including its litigation reimbursement program, suppression of competing interests among patent holders, and apparent evasion of its members’ FRAND obligations, raise serious concerns about its impact on the IoT industry. As innovators across established and emerging markets grapple with these revelations, it’s clear that increased scrutiny and potential regulatory action may be necessary to ensure a level playing field. The future of the IoT sector will depend on how effectively these anti-competitive practices are addressed and regulated.