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Ahead of the Curve Auto Supplier
BlogsPublications | October 26, 2016
5 minute read
Ahead of the Curve Auto Supplier

Standard-setting for connected vehicles: an antitrust concern?

Operating the Connected Vehicle Network

The auto industry is gearing up for a big transformation. As General Motors CEO Mary Barra said in an interview last year with the Wall Street Journal, “[w]e’re going to see more change in the next five to 10 years than we’ve seen in the last 50.” Whether businesses survive the shake-up will depend on their ability to innovate in electric and fuel cell technology, to integrate automated driving features, to offer mobility services and to harness the massive amount of data that underpins it all.

The most imminent game-changer, though, is vehicle connectivity. Just last week, Qualcomm unveiled the world’s first 5G modem, a major step towards the next phase of mobile telecommunications standards. The Association of Global Automakers, meanwhile, urged the Federal Communications Commission in a letter on Monday to confirm the availability of the portion of the 5.9 gigahertz band of the spectrum for short-range vehicle communication, which the FCC originally set aside in 1999 for intelligent transportation systems.

Though regulators lag behind technological developments, vehicles will soon connect with their environment—by vehicle-to-vehicle (V2V), vehicle-to-infrastructure (V2I) and vehicle-to-devices or other points of inflection (V2X) communications. No longer will a vehicle’s networked systems be a matter of convenience or entertainment for the occupants—they will provide the driver (whether human or machine) with 360-degree situational awareness to address potential hazards.

Nearly every player in the highly competitive automotive and technology industries will converge in this potentially huge new market. But no matter how lucrative the market is, there will only be so much to go around. The likely consequence of this environment: the parties involved may try to game the system to exclude competitors and claim a larger slice of the pie for themselves. Antitrust law, however, prohibits anticompetitive tactics and oftentimes requires standardization.

Safety and Standard-Setting

For the connected vehicle network to function properly and safely, data from individual cars must be collected, deciphered, stored, possibly anonymized and ultimately transmitted to other vehicles or roadside implements. One necessary aspect of that network will be the use of a security credential management system (SCMS) to determine whether a given signal is reliable and to protect driver privacy appropriately.

The effectiveness of the SCMS critically depends on the ability of different original equipment manufacturers (OEMs) and suppliers to adhere to a standardized communication method. Vehicles of different makes, models and years must be able to exchange trusted data without preexisting arrangements or altering vehicle designs. The entire connected vehicle system, moreover, needs to be secure against external threats or attacks.

It is likely that a standard-setting organization (SSO) or trade association will ultimately establish the “language” connected vehicles will “speak” to one another. Perhaps that organization will be the same one that manages the SCMS, but it need not be. The Open Connectivity Foundation (OCF), a consortium of tech titans—including Cisco, Intel, LG, Microsoft, Phillips, Qualcomm, Samsung and Sony—focuses on creating a specification and sponsoring an open-source project to facilitate the communication of billions of devices on the Internet of Things. (Google, Apple and Amazon are conspicuous by their lack of interest in joining these collaborative efforts.) The broader efforts of that group may result in a standard for the connected vehicle network becoming just one subset of the Internet of Things.

Antitrust Law and Standard-Setting

Economically interested manufacturers must be careful not to exercise decision-making authority in formulating a standard that excludes a competitor’s product, lest they risk liability under federal antitrust laws. The immunity doctrine, which exempts efforts to influence governmental action, is not generally applicable to efforts to influence the standard-setting activities of private associations.

Standard-setting can have both procompetitive and anticompetitive effects. In the connected vehicle network, interoperability standards would allow users to exchange information seamlessly and interconnect products from a variety of manufacturers. Coordinating the selection of industry standards could also expedite the implementation of new technologies, reduce costs and ease entry into the market.

On the other hand, the cooperation among competitors to set an industry standard for connected vehicle communications by its very nature would reduce competition. Once companies have agreed on the technology or standard to use, they have less of an incentive to work on developing a more effective standard, thus reducing innovation efforts. A small group of industry participants might also exclude the rest of the market from the standard, amounting to a group boycott. Finally, companies may adversely affect competition in the connected vehicle market through abuse of the standard-setting process, such as failure to disclose an important intellectual property right when required to do so.

Thanks to the Standards Development Organization Advancement Act, signed into law by President Bush in 2004, the Federal Trade Commission and the U.S. Department of Justice must analyze standard-setting activity using the rule of reason, rather than the per se rule. Under the rule of reason, the agencies weigh the procompetitive effects of the activity against its anticompetitive effects. This balances the scale for SSO participants, whereas the previous rule tipped it in favor of finding liability.

Proceed with Caution

Companies that seek to participate in the standard-setting process for the connected vehicle network must be careful not to risk incurring antitrust liability. SSOs involve complex agreements among competitors and, as a result, raise traditional collusion concerns. Participants must take care not to employ the standard in an exclusionary way, nor agree on topics outside the legitimate standard-setting activity such as price or output of standardized products. Even with the benefit of the rule of reason, companies involved in an SSO must be careful to not take action that would have anticompetitive effects.

In addition to simply being on guard regarding anticompetitive risks inherent in SSO participation, companies should analyze the SSO’s policies prior to becoming a member or help reformulate them after joining. Policies that ensure a competitive selection process protect the SSO and its members from antitrust liability in the event of a challenge. The industry must be well represented, the developed standard must be narrowly tailored and the members must be obligated to disclose, and, in some cases, license relevant intellectual property rights. In sum, companies that participate in the connected vehicle standard-setting process must be aware of the risks involved and be proactive about complying with antitrust laws. For more information on how to avoid the potential antitrust pitfalls of participating in the connected vehicle standard-setting process, please contact any member of our Automotive Industry Group.