Today’s most successful car companies are the industry’s fastest tech implementers. But patent infringement litigation within the industry, up by one-third in 2022, and the risks of disclosing confidential trade secrets are forcing automakers to develop new IP strategies. Much like the smartphone craze of 20 years ago, the automotive industry is experiencing technological upheaval and top companies are racing to gain footholds in developing areas of this sector.

In many ways, the automobile is the new smartphone. The technological transformation currently taking place in the automotive sector is very reminiscent of the smartphone craze of the past two decades. In some respects, this is because many of the same touchscreen and computing technologies that transformed the cellular phone are now finding applications in vehicles.

This period of tech development is similar in other ways, too. Like the smartphone wars, these advances have spurred a lot of patent infringement litigation, often from players outside of the traditional auto industry. Some automakers are choosing trade secret protection for their proprietary systems, but there are new risks of breaking confidentiality that many companies today don’t consider. Even where car manufacturers are partnering together to pool their resources, they’re finding that IP agreements sometimes need to be revisited to protect the interests of all parties.

Increase in Automotive Patent Litigation Makes a PTAB Strategy Critical to Success

New wireless communications and automated driving systems being implemented by the world’s biggest car manufacturers have become a target for patent owners who see a potential embodiment of their invention. Unsurprisingly, patent litigation against the world’s top automakers has been on the rise in recent years. This April, IAM reported that patent litigation against the top 12 original equipment manufacturers (OEM) rose by 32 percent during 2022.

In many cases, these patent lawsuits are coming from plaintiffs who are well outside of the traditional automotive industry. In October 2021, Toyota, Honda and other major car manufacturers were named as defendants in patent infringement suits filed by Intellectual Ventures, a patent licensing firm well-known as a patent plaintiff. While at least Honda has been able to settle with Intellectual Ventures, the networking technologies supporting advanced vehicle systems have provided a target for companies seeking patent royalties.

As a result, many automakers have been more proactive about defending their business interests by using patent validity trials available at the Patent Trial and Appeal Board (PTAB). Established 10 years ago within the U.S. Patent and Trademark Office, the PTAB reviews the validity of U.S. patents that have already been issued based on prior art combinations submitted by challengers. Some major car manufacturers have made very effective use of the PTAB including Volkswagen, Ford and Toyota, each of which are listed among the top 30 patent challengers at the PTAB all-time.

Be Careful in Your Joint Venture Agreements to Protect Your Confidential Information

Auto manufacturers are staying in their own lanes when it comes to technological development. Despite the importance of autonomous driving systems to the future of transportation, carmakers across the globe filed 32 percent fewer patent applications claiming autonomous systems from the fourth quarter of 2022 to the first quarter of 2023.

This reduced in-house innovation has led many carmakers to form corporate partnerships designed to leverage expertise in different automotive sectors. One such form of enterprise that has become popular in the automotive industry is the joint venture, a commercial entity formed by two distinct corporations for a specific purpose or task. In the case of the auto industry, that purpose can take many years to achieve, such as the development of a fully-electric or completely self-driving vehicle.

Companies that are thinking about pursuing a joint venture to secure their market position need to be very careful in drafting written agreements that protect their own position. Along with a clearly defined goal and well-delineated responsibilities for either party in the venture, automotive companies should also be thinking about assignment of patent ownership and decision-making authority for licensing any patent rights arising from the joint venture. For example, Nissan and Renault recently renewed their long-time joint venture with new safeguards surrounding electric vehicle patents developed and held by the joint venture.

Trade Secret Management Poses Several Challenges for Automotive Companies

Although patents provide a form of property right that can be licensed across an entire industry, there are many times when trade secret protection offers more value. Lithium-ion batteries, artificial intelligence systems and mapping for autonomous driving have each been at the center of major trade secret cases within the automotive industry in recent years. Instead of the public disclosure required by patent grants, some carmakers are recognizing that they can gain a competitive advantage with consumers by keeping some proprietary systems completely confidential.

Automotive companies need to stay aware of how certain technological advances can risk the loss of that competitive advantage. Artificial intelligence systems with natural language processing capabilities, such as the popular ChatGPT platform, are useful for drafting many types of documents and even generating software code. Unfortunately, these generative AI systems store data inputs on servers and otherwise confidential data could be disclosed to other users of the AI platform. This is a situation that consumer electronics giant Samsung has had to deal with this spring after company employees used ChatGPT to fix source code used by the company’s semiconductor division.

At the same time, automobile manufacturers that are actually engaged in litigation may want to consider loosening their grip on information they would normally keep hidden. There are times when heavy redactions to court filings can influence the way that a jury views your position. While juries often expect plaintiffs in trade secret cases to make heavy use of redactions in filings, such court practice by defendants is sometimes viewed by jurors with more suspicion.

Given current trends within the industry, it is highly recommended to have a trade secret program in place, define confidentiality, and be cautious about what your company considers to be secret, as it might have to be represented and deciphered by a court.