Customers are demanding more electronic value in automobiles as part of their driving experience. As a result, automotive manufacturers must consider carefully the intellectual property (IP) culture of the semiconductor industry, where patent licensing strategies are considerably different. In this case, IP refers to patent and trademark rights.

The automobile is transforming from an essentially mechanical device to an electrical one. In 1980, electronic equipment made up less than 1 percent of the cost of a vehicle. In 1990, this had grown to 7 percent, and in 2007, it's 22 percent.

As silicon displaces steel in a vehicle's value, the composition of the electronic equipment inside the vehicle is also being redistributed.

Semiconductor Insights (SI) has catalogued more than 1,200 automotive electronic components since 1989. The parts investigated are increasingly systems and microcontrollers rather than discrete devices and sensors. Not only are the sensors and control hardware part of IP analysis now, but control routines such as braking algorithms are often investigated.

With automotive electronics being the fastest-growing segment in electronics, the opportunity for semiconductor manufacturers is clear. What's less clear is the impact this will have on automotive companies' patent licensing plans.

Consider that nine of the top 10 U.S. patent assignees in 2006 were electronics companies, and an auto manufacturer first appears as No. 20 on the list (Honda Motor Co.). SI monitors the patent landscape in different technology areas in order to anticipate licensing activity. A comparison of patenting activity between automotive manufacturers and semiconductor suppliers is useful.

The accompanying chart shows the number of U.S. patents per $1 billion in revenue for the three largest vehicle manufacturers--including their largest parts suppliers, since patent portfolios for parts makers are more active--and, for comparison, the three largest automotive semiconductor suppliers--Freescale, Infineon and STMicroelectronics. The difference is striking: Semiconductor companies are an order of magnitude more active patenting their R&D.

The large difference in IP culture between the two industries has a number of causes. The semiconductor industry has always had an active IP licensing policy. R&D costs are high. Technical innovation causes rapid obsolescence in semiconductors, and profitable product cycles are often measured in months. As well, reverse engineering and advanced measurement techniques enable reliable technical support for patent infringement. Aggressive patent licensing is natural in this environment, and semiconductor companies are experienced in this. Notably, Freescale, Infineon and ST all have large product lines outside the automotive sector and are accustomed to active licensing campaigns.

In contrast, automobile product cycles typically are several years. The majority of automotive devices SI analyzes have been designed years or even decades ago and use mature silicon processes; reliability, cost and safety have priority over innovation. This, combined with the lower profit margins endured by the industry, makes it desirable to avoid large licensing campaigns. The problem is that the car is being invaded by a technology that moves at a different speed.

Seasoned readers will recall a period of decades where an AM/FM radio and cassette player were standard automotive accessories. Within one vehicle generation, the CD player has followed these devices and moved from dominance to retirement as satellite radio, DVD/MP3 players and on-board cell phones are replacing it. This change will force an equivalent response from car makers.

A common licensing strategy in semiconductor campaigns is to use a semiconductor patent to negotiate a license with a "downstream" product vendor. Downstream products incorporate the offending semiconductor device. For example, if a patent assignee can assert the patent against an integrated circuit (IC) manufacturer, and that circuit is used in a cell phone, the assignee can apply to the larger cell phone maker (and concomitant larger revenue stream) for further compensation.

The high silicon content in vehicles exposes auto companies to this tactic. Automobiles can be reverse-engineered to provide technical support in the same way semiconductor patents are analyzed.