Wednesday, April 1, 2020

Nokia swimming against judicial tide with its dogged refusal to license automotive component makers

Not only has the European Commission's Directorate-General for Competition (DG COMP) resumed its preliminary investigations of Daimler's and four of its suppliers' antitrust complaints over Nokia's refusal to license automotive suppliers, but the former handset maker may come under pressure in a variety of jurisdictions.

Nokia apparently hopes to gain leverage from a German court ruling scheduled for next week's Thursday (earlier this week, the Munich I Regional Court's press office confirmed that the decision was, for now, still slated for that day), though the coronavirus crisis may limit the immediate impact on Daimler's German sales while the appeals court would review a hypothetical Nokia win. Daimler brought an extremely strong invalidity contention, fulfilled its obligations under the Court of Justice of the EU's Huawei v. ZTE ruling to be shielded from an injunction, and couldn't have been sued by Nokia in the first place had the Finnish company lived up to its FRAND licensing promise and licensed Daimler's suppliers. Furthermore, banning an entire car over one of thousands of little elements of a wireless standard would not be a proportionate remedy in accordance with Article 3 of the European Union's IPR Enforcement Directive.

The third point--the obligation to grant an exhaustive component-level license on FRAND terms to suppliers at any level of the supply chain--is what the dispute is all about. In addition to those ten Nokia v. Daimler patent infringement cases (of which Nokia has already lost one and will likely lose many more), let's not lose sight of Huawei's German antitrust lawsuit aiming to obligate Nokia to make a component-level FRAND licensing offer. That case will presumably go to trial later this year. The Dusseldorf Regional Court has taken favorable positions on component-level licensing before, and as I mentioned in the post I just linked to, the presiding judge of one of the patent-specialized panels of its appeals court (Judge Thomas Kuehnen of the Dusseldorf Higher Regional Court) explained in an article last year that SEP holders have an obligation under Art. 102 TFEU (the abuse-of-dominant-position paragraph of EU law) to license any implementer of a standard who so requests.

Assuming Nokia loses in the two Dusseldorf courts, it could appeal the matter further to the Federal Court of Justice (the highest German court to hear patent cases since the Federal Constitutional Court would deal with only a narrow set of constitutional questions such as the right to be heard). The Dusseldorf Higher Regional Court could allow a further appeal. Otherwise Nokia would have to petition the top court first (comparable to a cert petition in the U.S.).

Nokia's chances at the top level are waning, though. I'm not aware of a single statement by a patent judge of the Federal Court of Justice endorsing a refusal to license component makers, but at least two of them have endorsed Judge Kuehnen's theory of a right to sue for a FRAND offer:

  • On November 5, 2019, Judge Fabian Hoffmann gave a talk at a Munich conference entitled "FRAND 2019" and presented a slide that contained the following ringing endorsement of Judge Kuehnen's article on a duty to license component makers (click on the image to enlarge; this post continues below the image):

    The highlighted word means "compelling" or "persuasive." The context is that of a "license to all comers" and the second line states that licensing anyone who asks for it is simply in line with Art. 102 TFEU. I respect copyright, so I copied only the part of Judge Hoffmann's slide that was necessary to show his endorsement of Judge Kuehnen's position.

  • I have heard from a perfectly reliable source that another member of the patent division of the Federal Court of Justice--and notably a member known for being extremely sympathetic to patentees (which also applies to Judge Kuehnen, by the way)--stated in a conversation at a relatively recent conference that he, too, agrees with Judge Kuehnen.

Any of those German courts could refer the question of component-level licensing to the CJEU in Luxembourg. It's doubtful whether that would be necessary given the clarity of CJEU's Huawei v. ZTE ruling with respect to the obligation to grant a license any implementer.

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Thursday, March 26, 2020

Europe stands several times more to lose than to gain from condoning Nokia's refusal to license automotive suppliers

On both sides of the Atlantic one can watch interesting examples of "reverse protectionism":

Antitrust enforcement should simply be a question of legal merits. But the industrial-policy argument that some forces within the European Commission make in Nokia's (and, by extension, Ericsson's) favor just doesn't withstand even superficial scrutiny.

Three charts that I've quickly produced with OpenOffice Calc, relying on data points published on the Internet, show that the European Union would ultimately help Asian and American patent holders extract license fees from European product makers more so than it would strengthen Nokia and similarly-situated Ericsson:

  1. According to the latest IPlytics figures, Nokia (including Alcatel-Lucent) owns 8.63% of all 5G declared-essential patent families, and Ericsson 5.32%. That's a total of 13.95% for the only two European companies on the list--all others are American and Asian patent holders:

    Therefore, no matter how much (over)compensation those two licensors--Nokia and Ericsson--may be able to obtain, the EU economy will remain a net licensee in the greater scheme of things.

  2. Europe's automotive industry dwarfs Nokia and Ericsson with respect to investment in research and development. According to ACEA (European Automobile Manufacturers Association), "EU automotive investment in R&D has increased by 6.7% to reach €57.4 billion annually." Macrotrends says "Ericsson research and development expenses for the twelve months ending December 31, 2019 were $4.107B, a 8.3% decline year-over-year." Statista shows that Nokia's R&D spend is also in decline, down to €4.41 billion. Here's a column chart (click on the image to enlarge):

  3. Finally, it's also interesting to compare the number of jobs in the EU's automotive industry (ACEA: "13.8 million Europeans work in the auto industry (directly and indirectly), accounting for 6.1% of all EU jobs") to the entire population sizes of the two countries whose "national champions" hold 5G patents (click on the image to enlarge):

The underlying patent licensing issue affects more than the automotive sector. There's an emerging Internet of Things industry, and countless European IoT startups are simply not equipped to deal with end-product-level SEP licensing but could make highly innovative products if the wireless chips they incorporate into their products were exhaustively licensed.

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Saturday, March 21, 2020

YOUR TAX DOLLARS AT WORK: Justice Dept. defends foreign-owned patent trolls against Apple and Intel

Apple and Intel--two American high-tech icons--are suing Softbank-owned Fortress Investment on antitrust grounds in the Northern District of California. Their complaint admittedly raises legal questions of first impression. Fortress brought a motion to dismiss the complaint just on the basis of the legal theories it is based upon. Apple and Intel obviously oppose that motion.

Over the last couple of days, various parties filed amicus curiae briefs with the court. Apple and Intel are notably supported by

But Fortress has an ally that you wouldn't expect to back a foreign-owned patent troll group trying to extract money from some of America's greatest tech companies (having filed dozens of lawsuits against the likes of Apple, Google, and by extension, Intel): the United States Department of Justice, claiming to speak on behalf of the United States (i.e., the federal government).

Makan "Macomm" Delrahim, a former Qualcomm lawyer and now the Assistant Attorney General heading the DOJ's Antitrust Division, stops at nothing in his tireless efforts to help patent holders maximize their returns at the expense of the wider economy and actual innovation (this post continues below the document):

20-03-20 Statement of Inter... by Florian Mueller on Scribd

Mr. Delrahim and his subordinates' submission supports Fortress with respect to the claims brought by Apple and Intel under federal antitrust law. The fact that Fortress is Japanese-owned doesn't mean that the DOJ couldn't have good reasons for supporting them: it's about fundamental legal questions that also affect American patent holders. The real issue here is that even if Fortress were American-owned, it would simply be irreconcilable with the America First philosophy to back hyperagressive patent trolls (who sometimes bring dozens of lawsuits against just one defendant such as Apple or Google).

It's shocking, and I wanted to share the news. In a future post I may go into detail on the motion to dismiss (possibly after Fortress's reply brief). The case is still on my watchlist.

The ongoing coronavirus crisis--in which Fortress was about to prevent essential research, but then backtracked under public pressure, while Apple offered a major contribution--is not going to go away anytime soon. Short of a vaccine or effective and reliable cure, many restrictions will remain in force for some time, and many people's lives won't return to normal. The damage that virus is causing to the global economy is beyond belief. Governments around the world will soon face an ecomomic policy challenge of unprecedented proportions. For a swift recovery, it's advisable to support product-making and service-providing companies (like Apple, Intel, and Google) against patent trolls like Fortress and its numerous shell companies who just siphon off money from those who create many jobs. The real economy needs to highlight that simple fact to President Trump and his closest advisers. Enough is enough.

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Practitioners and companies far from giving up on Unified Patent Court -- intergovernmental renegotiation will open door to improvements

For the time being, the Unified Patent Court (UPC)--a single patent judiciary for the contracting states of the European Patent Organization (which runs the European Patent Office)--is actually the Nullified Patent Court. And doubly so:

  1. Three weeks ago, the European Patent Litigators Association (EPLIT) announced that it had "learned that the UK government intends to stop its cooperation towards the creation of the Unified Patent Court." The UPC Agreement involved ultimate jurisdiction of the Court of Justice of the EU (CJEU) over certain segments of patent law. The UK couldn't have submitted to CJEU without its government exposing itself to allegations of betraying the majority that voted in favor of Brexit four years ago.

  2. What came as more of a surprise than British anti-CJEU consistency, the Federal Constitutional Court of Germany yesterday announced that a majority of its Second Senate had declared (as per an order dated February 13, 2020) the German legislature's Act of Approval to the Agreement on a Unified Patent Court (UPC Agreement) "void" as the Bundestag (Federal Parliament) had passed it with a simple majority as opposed to the two-thirds majority required by the Basic Law (Germany's de facto constitution) for acts that effectively amend the country's constitution. Here, the conferral of ultimate jurisdiction over a certain field of law to a new non-German court was held to be tantamount to an amendment to the Basic Law--and, therefore, a violation of constitutional rights asserted by complainants. A minority of three dissenting judges, however, considered this application of the two-thirds majority rule to be exceedingly strict and a potential impediment to further European integration (a very policy-driven position that is unfaithful to the law).

    Simply put, the majority of judges viewed not the UPC Agreement but its ratification to be unconstitutional.

    Apart from the need to modify the treaty in light of Brexit and the fact that the coronavirus crisis dictates other priorities, the government coalition parties couldn't re-ratify an updated UPC Agreement without support from the opposition as they hold only 398 (56%) of the Bundestag's 709 seats. Theoretically, the libertarian FDP (80 seats = 11%) could provide the missing votes.

The combination of the UK's withdrawal (as the UK was a "must have" contracting state under the original UPC Agreement and supposed to be the seat of one of three sectorial appeals courts) and the higher quorum for re-ratification in Germany suggests significant delays, but doesn't spell definitive doom for the UPC project in the opinion of practitioners:

  • Gerd Zimmermann, founder of patent firm Zimmermann & Partner, says "there still is a strong political will in continental Europe to put the UPC in place, as neither Brexit nor the Constitutional Court's ruling weakened the resolve to put a single European patent judiciary in place."

  • Bardehle Pagenberg, a leading IP prosecution and litigation firm that analyzed the fallout from brexit just one day before the Constitutional Court's ruling, said in a press release that "most of industry is rightly in favor of the system even without the UK."

Patentverein, a group of German medium-sized companies critical of the country's bifurced patent litigation system (which deprives defendants of a full invalidity defense to infringement claims), also issued a press release expressing hope that "a new European effort [would] be made without the UK on board."

So there is widespread consensus that re-ratification (subsequently to renegotiation) is a question of when, not if. interestingly, the two patent firms as well as Patentverein say or at least imply it's also a question of how (i.e., on what terms):

  • Bardehle Pagenberg provides a non-exhaustive laundry list of areas in need of improvement: "Since the UPCA has to be revised anyway, the opportunity could – and should – be seized to make the system more attractive. Issues to be considered are the criticized opt-out / opt-in regulations, sound grounds for the compulsory inclusion of European bundle patents, the good, but improvable rules of procedure, the (high) reimbursable attorney fees (which may be prohibitive for SMEs), the renewal fees for the Unitary Patent, as there is no valid reason for subsidizing national budgets via the renewal fee share in the Unitary Patent, just to name the most important ones."

  • Patentverein more subtly expresses the organization's "hopes that the good parts of the [EU-wide] Unitary Patent will be preserved," which I interpret as diplomatically suggesting that there is room for improvement.

  • Mr. Zimmermann says "it's rather likely that governmental and private-sector stakeholders will make a variety of political demands, though it's hard to imagine that any dealbreaker would surface." He considered it "essential to work toward a new multilateral agreement, but negotiation dynamics should not produce a result that would come at efficiency's expense." For an example, "most European patents are filed in the EPO's three official languages, irrespectively of the UK's participation, so for practical purposes the agreed-upon language regime should be maintained."

In addition to those reactions to yesterday's ruling, let's not forget that the UPC's Rules of Procedure have previously been--and without a doubt will again be--a subject of debate. Six years ago, a broad industry coalition warned against the risks of the UPC turning Europe into a trolls' paradise.

In that context, access to injunctive relief is the most important issue--as it is in the German patent reform debate. Earlier this week, the Federation of German Industries (BDI)--the largest industry association in Europe--was forced to retract a submission (particularly on injunctive relief) that the Federal Ministry of Justice and Consumer Protection had already published on its website, as the statement misleadingly suggested that large parts of the German economy backed a permissive approach to patent injunctions. This setback for patent enforcement extremists proved that the companies advocating--as did the aforementioned UPC Industry Coalition--a more balanced patent system are ever more influential. There's a strong connection between a future "UPC 2.0" effort and the ongoing process for a reform of Germany's Patent Act: whatever comes out of the national legislative process will inform--if not dictate--the position the German government will have to take when the UPC Agreement is renegotiated. The stakes could hardly be higher, and a growing number of stakeholders are perfectly aware of this while some others are still clueless as to what it takes to influence patent legislation.

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Tuesday, March 17, 2020

German patent reform movement strikes back: Federation of German Industries (BDI) withdraws injunction-friendly submission to government

The German patent reform movement has miles to go, but it is far from beaten. Last weekend I commented on the submissions (feedback to a patent reform proposal) Germany's Federal Ministry of Justice and Consumer Protection published last week, and noted that the submission by the BDI (Federation of German Industries, an umbrella association of associations) appeared to isolate the automotive industry by taking an injunction-friendly (though troll-critical) position. I pointed out that in reality there's a strong interest in patent injunction reform across different segments of the economy.

In a development that is as surprising as it is telling, the BDI's paper has been withdrawn from the website of the Federal Ministry of Justice and Consumer Protection. The only plausible explanation is that some of the pro-reform forces succeeded in convincing the BDI that it was not speaking for the entirety of German industry associations minus automotive and information & communications technology, but had merely been hijacked by patent extremists.

The ministry would very much have liked the BDI to reach a consensus. A paper that wasn't supported by two major member associations wasn't exactly a consensus position--but the BDI portrayed it as the position of a vast majority of the German economy, which it simply wasn't (as I already made clear on Sunday).

This withdrawal represents a very significant setback for those seeking to preserve the status quo of (near-)automatic patent injunctions.

On this occasion, I'd like to clarify what I meant on Sunday by calling on all pro-reform forces to throw their weight behind the Max Planck Institute's (MPI) submission:

  • First, I meant the MPI paper as a whole, of which the proposed statute is an extremely important--but not the only--part. The document makes it clear what real-world issues that defendants are facing in German patent litigations are meant to be addressed by the proposed proportionality requirement. A proportionality requirement that the statute itself does not elaborate on will, of course, have to be accompanied by a rationale (a commentary provided by the legislature itself) that courts will rely on as they interpret the new statute. The combination of statute and rationale will determine the actual effect.

  • Second, there's nothing wrong with companies saying that they agree with everything the MPI paper says while some of the may still favor positions that go further and/or statutes of greater specificity. And different organizations will set different priorities. But the MPI paper could serve as a common denominator in an effort to overcome fragmentation.

  • Third, with the ministry having put forward a first draft that narrowingly redefines the word "(dis)proportionate" (vitiating it to the point that it merely applies to a few extreme cases at the outer margin of disproportionality), it is now critical to ensure that the statute will have scope for all (dis)proportionality theories that the law--and particularly EU law--allows. That's the most important breakthrough one can achieve now for the sake of balancing the system.

  • Fourth, while the ministry will obviously read--and most likely has already read--the MPI's paper attentively, it's key to consider that politics is not only about what is said, but also very much about who says it. If the ministry and the actual legislature (the Federal Parliament) see that there are strong signs of an economic majority supporting that position, then there is a potential for momentum of the kind that no academic paper can ever have without being backed by corporations and possibly other types of stakeholders.

  • Fifth, I wish to make clear that my proposal to adopt the MPI's paper as the common denominator of the pro-reform movement was not and is not intended to put it above academic write-ups on the subject of German patent injunction reform. The MPI's submission is simply my recommendation among those documents that were officially provided to the ministry in response to its first draft. I have heard rumors of confidential submissions, but a movement can only be unified behind a published position. Also, other documents commenting on, and suggesting improvements to, the ministry's first draft have been circulated. In fact, I wrote one myself that basically blends Art. 3 IPRED and eBay factor #2. But the pro-reform movement should now, ideally, rally behind a paper that was officially submitted to, and published by, the ministry.

The withdrawal of the BDI's injunction-friendly position may mark a turning point in the debate, and in the legislative process. A strong backing of a consensus position of an economic majority would be the best next step. The fact that the BDI had to retract a paper--not merely after having submitted it, but even after the government had published it!--is very encouraging. It creates a vacuum. The economic majority should fill that vacuum by major companies from different industries lending their collective support to a common-denominator position. The time has come to show the decision-makers at the ministry and in the parliament that only a few entrenched interests oppose meaningful injunction reform. The way to show it is to have an impressive list of supporters of a common position. Beyond the common position, anyone may still have--and communicate--further-reaching ideas. But you have to start someplace.

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Daimler slows down production due to coronavirus, potentially reducing impact of patent injunction Nokia is pursuing

Daimler announced today that most of its production in Europe will be suspended for (initially) two weeks, starting this week. "An extension of this measure will depend on further developments," the announcement notes.

The reasons for this are apparently a mix of protecting Daimler's workforce, containing the spread of the virus, lower demand, and supply-chain issues.

The overall situation may have an impact on Daimler's antitrust and patent dispute with Nokia (see th previous post on Continental's statement accusing Nokia of impeding innovation in the automotive supply chain). On April 9, Nokia hopes to obtain a patent injunction--over a patent that will most likely turn out invalid in the further process and based on an absurd misreading of the CJEU's Huawei v. ZTE ruling--from the Munich I Regional Court. Even if Nokia succeeded without merit, the question would be what impact the injunction would actually have--not only because it is limited to a list of specified suppliers of telematics control units, but also because reduced production volumes during the coronavirus crisis might make the situation easier to manage.

If Nokia coerced Daimler into a settlement, the problem of SEP holders like Nokia refusing to license component makers still wouldn't have been solved. The suppliers would have no reason to withdraw their EU antitrust complaints. If anything, such a course of events would add another element of abuse.

Time is of the essence for Nokia. A hypothetical win would very likely be reversed. The appeals court won't stay the injunction the next week or so, but it won't need too many months either. Under the overall circumstances mentioned above, there is a possibility that Daimler won't come under pressure until the appeals court has spoken.

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Continental says Nokia impedes innovation and sustainability in automotive industry and IoT by refusing to license component makers

While Nokia has always been outspoken about the automotive industry's antitrust complaints over its refusal to grant exhaustive component-level licenses to suppliers, I gave up at some point on the complainants' willingness to provide any information or share their views. It just didn't seem to be in their DNA. All the more surprising to me was the fact that Continental issued a statement today on the definitive failure of mediation efforts with Nokia.

The Mannheim Regional Court had originally scheduled two Nokia v. Daimler trials today, which were canceled in part because of the coronavirus situation. Continental is an intervenor in all those German SEP infringement actions against one of its largest customers, Daimler. Tires made Continental a household name, but it's a lesser-known fact that they are also a huge supplier of electronics components to car manufacturers. They and their competitors depend on exhaustive SEP licenses in order to be able to invest in further progress in this field. Today's statement refers to "connected, autonomous and sustainable mobility." I interpret "sustainable" in the sense of increasing energy efficiency at the component level as well as technologies that help reduce fuel consumption. In other words, Continental wants Nokia to make its contribution to the fight against climate change--an extremely high priority for the von der Leyen Commission--by enabling innovation a the component level.

Nokia refuses to grant exhaustive licenses to component makers. Instead, it seeks to force end-product makers such as Daimler into licenses, and in discussions involving component makers proposes alternative structures that fail to address the most important competition and innovation concerns.

Here's the full text of Continental's unprecedented statement:

The mediation between Continental and Nokia in the context of Continental's EU complaint against Nokia's licencing practice for Standard Essential Patents (SEPs) has now taken place. Continental still has no direct license for Nokia's SEPs for mobile telecommunications standards such as 3G and 4G. This is unsatisfactory for Continental.

Continental will therefore continue to seek licenses under the commitments from Nokia and other SEP-owners to grant licenses on 'fair, reasonable and non-discriminatory' (FRAND) terms and continue pursuing its complaint with the EU Commission.

Only being granted its own SEP-licenses under FRAND terms will allow Continental to realize its full potential as one of the market leaders and driving forces of innovation in connected, autonomous and sustainable mobility. Without access to the respective licenses Continental and other suppliers are not able to develop, manufacture or sell important technology for future automotive and non-automotive applications.

Nokia's refusal to license its SEPs to Continental and other car parts suppliers, wanting to just license car manufacturers is blocking innovation in the field of connectivity for a more intelligent, safer, and more sustainable mobility. Likewise, this practice is damaging emerging European markets in the automotive industry and the Internet of Things more generally.

Continental will continue to pursue its civil litigation seeking a FRAND patent license from Nokia and others in the U.S. District Court for the Northern District of Texas where Continental has submitted to an independent rate setting by that court. Continental will continue to support its customers against assertions of standard essential patents by SEP-owners applying coercive pressure and injunction claims to obtain supra-FRAND rates.

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