Suppliers angered by automakers' IP negotiating tactics

Christoph Hammerschmidt
Courtesy of EETimes Germany

URL: http://www.my-esm.com/showArticle?articleID=171204267

BADEN-BADEN, Germany — October 10, 2005 — Electronics suppliers blasted automakers during an industry conference here last week over alleged hardball negotiating tactics involving intellectual property.

Wolfgang Runge, program committee chairman of the VDI Congress on Electronic Systems for Vehicles, harshly criticized automakers over their treatment of suppliers, most of whom are small- or medium-sized companies, during contract negotiations. Runge, CEO of ZF Lenksysteme, a joint venture that includes parts maker Bosch, said it is unacceptable for suppliers to be pressured to surrender their intellectual property rights in order to win orders from car makers.

Runge told EETimes.de that suppliers must often surrender their IP rights under pressure from auto makers to win orders.

"These are far from being isolated cases,” Runge alleged. The practices, he added, are “a general trend” that allegedly constitutes illegal action on the part of the major automakers on a global scale: “This is happening at the domestic and international level,” Runge added.

Contacted this week to respond to Runge's allegations, the German auto industry group VDA (Verband der Automobilindustrie) a spokesman said, "We see no reason to comment." The group represents more than 500 companies, including most German auto manufacturers.

Runge’s remarks were warmly received at the congress, indicating that his remarks struck a nerve with the approximately 1,500 developers in attendance. Interviews at the conference indicated that Runge’s complaints are widely held. Many developers confirmed Runge's contention that orders placed by major automakers are often contingent upon the surrender of all IP rights to the invention or product — without compensation.

Such arrangements entitle OEMs not only to use the fruits of their suppliers’ R&D efforts for their own benefit, but also to divulge them to third parties. “We found that a competitor was using IP we’d developed,” complained one automotive electronics development manager who requested anonymity. “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.”

According to the CEO of another auto electronics supplier, it is now standard practice for automakers to require that IP rights be surrendered, even if a supplier holds a patent for the technology.

The executive added, “There’s only one [way] to describe what’s going on now: Out-and-out war.”