Speedy tech deals may crash and burn later

Magna International executives did not intend to join one of the largest self-driving car consortia in the industry. Executives made the call to join quickly, after stumbling upon the opportunity during a meeting with BMW, one of Magna's customers.

"I don't know if negotiation is the right word," said Swamy Kotagiri, Magna's chief technology officer. "This came about, and we felt it an appropriate platform."

Magna's quick decision to participate is emblematic of an industry racing toward an autonomous future. Carmakers under increasing pressure to bring self-driving technology to market are learning to work outside the traditional supply chain by striking new and vaguely defined partnerships.

But without clear terms from the outset, these collaborations may create tricky legal issues, according to corporate liability and intellectual property experts.

"Everybody is in a race for talent in every corner of the globe in automotive. To successfully come together in a venture and leverage that technology is a faster way to get there," said Steven Hilfinger, a partner at Detroit law firm Foley & Lardner, which specializes in corporate and securities law. "You want to know going in what access you may have and what the expectations are. IP ownership is critical."

Experts say the rush to striking partnerships could lead to tech companies controlling critical aspects of intellectual property, ultimately earning more off the technology than the automakers or auto suppliers.

BMW's project is one example of collaborative r&d in the self-driving car space. In addition to Magna, participants include Fiat Chrysler Automobiles, Aptiv — the technology-focused supplier spun out from Delphi — Continental, Intel and Mobileye. The partners intend to deploy 40 self-driving test vehicles by the end of this year and have a nonexclusive autonomous platform on the market in 2021. Carmakers and suppliers have jointly developed things such as powertrains for decades, with the goal of spreading costs for capital-intensive projects.

But while past ventures usually operated under discreet, project-oriented deals or complex joint venture agreements, the pace, complexity and scope of self-driving car development has pushed industry stalwarts into open-ended and less-defined arrangements that bypass lengthy negotiations.

"The complexity is so high," said Stefan Sommer, CEO of supplier ZF Friedrichshafen AG, after announcing a partnership with Hella, a radar and camera supplier, this year. "The expectations of our customers are so high, the time is so tight, and the schedules are so fast."

ZF and Hella began talks via an industry association and decided each other had complementary radar offerings. But rather than enter lengthy negotiations for a joint venture, the two companies decided a nonexclusive partnership would be smarter.

Joint ventures "will not be the role model of the future," said Rolf Breidenbach, CEO of Hella. Although half of the company's sales, roughly 3 billion euros ($3.55 billion), comes from joint venture agreements, Breidenbach views them as a vestige of an earlier era.

"What we need today are open cooperations," he said. "All partners need to bring their best products, know-how, motivation to the table. They have to contribute all their capabilities."

These partnerships are varied but usually manifest as open-ended or nonexclusive joint development agreements. Volvo and Uber have a long-running partnership co-developing self-driving hardware, which includes technology such as redundant braking. Ford Motor Co. and Lyft have partnered to integrate the carmakers' vehicles into Lyft's fleet, despite the tech company already having several carmaker partners and an investment from Ford rival General Motors.

These and other collaborations are designed to develop both the technology and potential business models but often leave hard questions for later.

For instance, one detail the BMW group has not quite figured out for its one big collaboration: How will the eventual profits be divided?

"The basic principle is, to the extent that you contribute to the platform either financially or through IP, you'll enjoy a revenue stream out of that," said Glen De Vos, Delphi's chief technology officer. "How that all ends up working, I'm not sure yet. We'll see."

ZF's Sommer offers another motivating factor for working with other companies: Silicon Valley.

Silicon Valley is infamous for messy intellectual property suits, such as the trade secrets lawsuit Waymo is duking out with Uber.

"They're very aggressive in their IP," said Gregory DeGrazia, a partner at Warner Norcross & Judd who specializes in intellectual property and patent law. "As these tech companies get involved in automotive, I think we're going to see more infringement suits in the auto industry."

In 2015, DeGrazia performed a comparison of patent infringement lawsuits over a decade from major U.S. tech and auto companies. He found that tech companies Google, Microsoft and Apple were involved in more than five times as many patent lawsuits from 2004 to 2014 as GM, Ford and FCA combined.

DeGrazia finds the rise of joint development agreements and open source initiatives as potentially worrisome trends in the industry.

"You spend a lot of money developing something," DeGrazia said. "Why would you just give it away?"