Key Takeaways from LES seminar: Licensing Negotiation Groups (LNGs) in Standard Essential Patent Licensing

Following the European Commission's recent guidance on Automotive Licensing Negotiation Groups (ALNGs) and building on the Bundeskartellamt's approach to LNGs, on 10 September 2025 I participated in a roundtable discussion organised by the Licensing Executives Society’s (LES) German chapter, addressing this rapidly evolving area. The session analysed the European Commission's informal guidance framework and its legal and economic implications for the automotive sector, and beyond, examining key arguments for and against LNGs and their potential impact on European industrial competitiveness.

The panel, which included industry experts from both sides — patent owners, as well as implementers — addressed critical questions at the intersection of competition law and intellectual property that could significantly reshape how standard essential patent licensing operates across Europe.

What are LNGs?

Licensing Negotiation Groups (LNGs) are platforms where multiple companies (OEMs, Tier 1 suppliers, etc.) collectively negotiate with standard essential patent (SEP) holders through a designated negotiator. The European Commission has assessed LNGs under Article 101(1) TFEU and concluded they are not prohibited "purchasing cartels," finding no intended competition restrictions or likely effects on relevant markets.

Core Legal and Commercial Tensions

Market Definition Disputes

• Patent owners argue there is no general "IoT licensing market," emphasizing that licensing practices differ significantly within industries, and even more across sectors (mobile devices, automotive, smart appliances). They point to the CJEU's ruling in Huawei vs ZTE that FRAND is determined by "customary industry practice," not uniform tariffs.
• Implementers contend there is uniform demand for SEP licenses regardless of industry, creating a broad "IoT licensing market" where automotive OEMs and Tier 1 suppliers have combined market shares below 15%, justifying collective bargaining as legitimate purchasing cooperation under EU Commission Horizontal Guidelines.

Market Power Concerns

• From the patent owners' perspective, LNGs enable collective exercise of market power to set licensing rate ceilings, followed by individual negotiations for additional rebates. This creates potential for collective hold-out strategies.
• From the implementers' perspective, market power in SEP licensing markets is impossible because licensees have no "outside option." Patent owners retain the ability to sue individually and must comply with non-discrimination obligations under FRAND.

Practical Implications for In-House Counsel

Litigation Strategy Considerations

• For patent owners: Refusing to negotiate with LNGs may be used against you in subsequent litigation as evidence of alleged unwillingness to license, even though LNG negotiation results are non-binding on members who retain rights to individual follow-on negotiations.
• For implementers: Relying solely on LNG offers while refusing bilateral negotiations outside the LNG framework could similarly be viewed as evidence of unwillingness to license.

FRAND Compliance Risks

A critical asymmetry exists: SEP owners are bound by FRAND obligations, while LNGs are not (beyond demonstrating willingness to license). This creates potential SEP licensing and litigation challenges for both sides in demonstrating good faith negotiations.

Future Judicial Review

National infringement courts may review the EU Commission's guidance on LNGs as part of FRAND defenses in litigation. Implementers who rely solely on LNG offers but refuse individual negotiations risk losing on FRAND grounds and facing injunctions if courts find the LNG offer non-FRAND or originating from an unlawful purchasing arrangement (‘buyer cartel’).

Strategic Recommendations

1. Maintain flexibility: Whether you're a patent owner or implementer, preserve options for both collective and individual negotiations to demonstrate willingness to license.
2. Document good faith: Carefully document all negotiation efforts, whether through LNGs or bilateral discussions, to support future FRAND compliance arguments.
3. Monitor developments: As this area continues to evolve, stay informed about national court decisions that may provide further guidance on the intersection of competition law and SEP licensing.
4. Consider industry context: Remember that FRAND obligations are determined by customary industry practice, which may vary significantly across sectors.

The LNG landscape remains complex and evolving, particularly in the automotive sector, where the European Commission's new guidance framework is reshaping licensing negotiation strategies. In-house counsel should work closely with both competition and IP specialists to navigate these intersecting legal frameworks effectively.

For more information and guidance in this area, please contact me at stephan.waldheim@twobirds.com.

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