Tuesday, December 12, 2017

EU guidelines on standard-essential patents favor product-centric businesses large and small

Given that I'm working hard on my personal "Flexit," I'm the exact opposite of your average "EU ├╝ber alles" kind of claquEUr. But when the EU does something right, I'll acknowledge it. The "Communication from the [EU] Commission to the [EU] Institutions on Setting out the EU approach to Standard[-]Essential Patents" (published the week before last) is by far the best I've seen from the European Commission, or any EU institution, in ages.

Just like the Fair Standards Alliance, I welcome this (now quoting the FSA) "forward-looking guidance to European industry" on SEP licensing because the European Commission declined to endorse "use-based" licensing fees, which is what the likes of Nokia and Ericsson (and their non-European allies, particularly Qualcomm) wanted. "Use-based" licensing is just a euphemism for gutting the "ND" (non-discrimination) part of "FRAND" by allowing patent holders to charge royalties on components of multifunctional products they have nothing to do with. Industry issues often enter the public sphere only through litigation, and the dispute between Apple and Qualcomm serves as a useful showcase: Apple credibly alleges that Qualcomm effectively seeks incremental royalties on iPhones with more memory, better/bigger screens, better cameras, fingerprint sensors, and so forth. That kind of insanity is what "use-based licensing" comes down to. I wonder when the likes of Qualcomm will demand royalties on the interior of the official Apple Stores, arguing that no one would walk into those stores in the first place if it weren't for wireless connectivity...

Obviously, Apple was among the parties who provided input to the European Commission that was materially consistent with what the Fair Standards Alliance proposed. We can talk about the proper royalty base (or damages base, to be precise) again in the build-up to next year's fourth Apple v. Samsung trial, but let's stay focused on SEPs right here and now.

The royalty-base issue became the most hotly-contested one during the EU consultations on which last month's official communication was based. But the question of injunctive relief is no less important. At the end of the day, a SEP holder can extract excessive SEP license fees either way: by going directly for overcompensation (in the form of license fees and/or damages awards) or by getting leverage through injunctive relief (sales bans, import bans, seizures by customs authorities; USITC-style remedies are indeed available and sometimes granted in the EU as well) and then imposing non-FRAND settlement terms. Arguably, injunctive relief is even more problematic since it can also be used to shut competitors out of markets. The EU guidelines on SEPs do make reference to the Huawei v. ZTE ruling by the Court of Justice of the EU, and it becomes clear (not just between the lines) that the Commission, generally speaking, disfavors SEP injunctions. What made stakeholders focus more on the royalty base is simply that the rejection of "use-based licensing" has yet to be enshrined in case law while there's plenty of case law around the globe that has practically made it impossible to obtain SEP injunctions except under extremely rare circumstances. The Qualcomm showcase is also telling: while Qualcomm has flooded Apple with patent infringement suits this year, it's not even trying to seek SEP injunctions (including SEP-based import bans): all of its injunction requests are based on non-SEPs according to Qualcomm's own representations.

The EU stresses that its guidelines are a set of policy recommendations, not an interpretation of the law. But the part on injunctive relief is a statement of the law for the most part. I hope that some of the ongoing disputes and competition enforcement actions will over the next few years result in so much clarification that even the royalty-base question will have to be considered a largely settled ("settled" in terms of "adjudicated") issue.

The Commission guidelines start off with transparency. I agree with that part. It's an interesting suggestion that patent offices could help determine and, after a standard is finalized and a patent finally issued (or narrowed through reexaminations or litigation), revisit the question of whether a given patent, as finally issued, is actually essential to a standard, as finally adopted. Apart from the standard-specific parts the EU positions on transparency relating to SEPs should also apply to non-SEPs. At least I can't see any reason why they shouldn't. But it would have been off-topic for the Commission to make a more comprehensive recommendation on patent ownership transparency.

In subsection 2.2, the EU SEP guidelines refer to the principle of non-discrimination (again, the "ND" in "FRAND"). That part of the guidelines could have been sharper, clearer, and more elaborate. But the Commission's competition enforcement arm still has the opportunity to make a positive impact with respect to some SEP holders' refusal to extend licenses to rival chipset makers.

I disagree with the Commission's rosy portrayal of alternative dispute resolution (ADR) mechanisms and of the (so far non-existent) Unified Patent Court. I always consider it a lost opportunity when a SEP licensing issue gets resolved through an opaque process that doesn't contribute to the evolution of case law (on the proper royalty base, for instance).

The part on open source and SEPs (Section 4) is factually accurate. What I think should always be made clear in this context is that open-source companies such as Red Hat do pay patent royalties all the time while claiming in policy discussions that open source, particularly software licensed under the GPL free software license, and patent royalties are inherently incompatible.

All in all, the EU SEP guidelines are a victory for businesses of all sizes whose focus is on making and selling products (as opposed to the monetization of patent portfolios). While Europe's companies are and will remain insignificant in the largest market segments and most lucrative fields of technology (apart from SAP, and even that one may be acquired by a U.S. tech company sooner or later), the jury is still out on its automotive industry (I'm skeptical, but others aren't), and the EU Commission refers to Internet-of-Things (IoT) startups. In IoT, there are and will be many niche opportunities, and that's exactly where the EU (as an economy) does have some opportunities (while it's never going to be competitive in search engines, operating systems etc.). I agree with the Commission that small IoT companies need a healthy and reasonable SEP-licensing environment. Helping those companies, and Europe's automotive industry, makes a lot more sense than wacko calls for a cordinated EU response to the success of companies like Apple, Google, and Facebook.

More than anything, I'm glad the European Commission didn't bow to lobbying pressure from increasingly patent-focused has-beens like Ericsson and Nokia. Those companies aren't Europe's future. And some of the key beneficiaries of supra-FRAND royalties would be non-EU companies such as Qualcomm at any rate.

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Friday, December 8, 2017

Google's Android-Java "fair use" trial win over Oracle is virtually certain to be overturned

I haven't blogged about this case in a long time and won't spend much time now, but I wish to be of service to my readers here since there doesn't seem to be any reporting in the IT press about how yesterday's Oracle v. Google Federal Circuit hearing went. To the extent anyone reported at all, it appears those reports were either written before the hearing or, if after, they're behind paywalls (or at least Google News doesn't find them).

I won't reiterate my unchanged position on the case in general and "fair use" in particular now. All that matters is what's going to happen now, and it would be a major surprise if last year's ruling by Judge Alsup in the Northern District of California, based on a jury verdict that came into being under circumstances I harshly criticized at the time, was affirmed.

The Federal Circuit yesterday published the official recording (MP3) of the hearing. The panel, which previously held the Java API declaring code copyrightable (it's no secret that this has been my view for a long time), does not appear to agree with Judge Alsup's decision to withhold evidence on non-mobile Android devices (desktop PCs etc.) from the jury. The only question at this stage appears to be whether the appeals court, after finding that this decision and possibly some others were wrong and prejudiced Oracle, will resolve the "fair use" defense by throwing it out directly as a matter of law or, at a minimum, remand for a retrial. I think the probability of a JMOL is greater than 50%.

When listening to the recording, you'll see that the appellate panel firstly was very interested in Oracle's JMOL argument and even allowed five minutes above and beyond the originally allotted time. Then Google's appellate attorney got a very rough ride. The most impressive part of the recording is the last five minutes: an amazingly powerful rebuttal statement by Orrick's Joshua Rosenkranz. This is as good as it gets.

While no one said so at the hearing, I believe Judge Alsup completely destroyed his credibility with the Federal Circuit by excluding absolutely essential and outcome-determinative evidence. He's in for a second reversal in the same case--which is unusual, but he had it coming.

When the appellate opinion is handed down, many people will be surprised that the case is still alive. But you won't be because I felt I had to tell you since, to the best of my knowledge, no other free-to-read website has done this job, at least not yet.

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Wednesday, December 6, 2017

After Apple's patent infringement counterclaims, Qualcomm launched a barrage of new complaints

A week ago, on November 29, there was a flurry of activity between Apple and Qualcomm, and I'd like to share the documents with you now as well as a few observations:

  • Apple filed its answer and counterclaims (uploaded to Scribd) to Qualcomm's first infringement complaint (a companion lawsuit to an ITC complaint). The introductory statement contains the following portrayal of the parties:

    "This case presents a tale of two companies. On one hand we have Apple who literally created the modern smartphone as a product category, with the iPhone's cutting edge design, easy connectivity, superlative battery life, and interactive applications that make the smartphone the smartphone. On the other we have Qualcomm, who developed rudimentary telephone technology that carried voice calls in the early days of feature phones, but whose technology is dated. [...]

    The weak patents Qualcomm asserts here for the first time appear to be a blatant effort to take credit for the innovation of others. Notably, all of Qualcomm's asserted patents were filed and prosecuted well after the iPhone was introduced. Put plainly, Qualcomm saw the unique features and success of the iPhone, and then pursued patents trying to cover the Apple product much like a common patent troll."

    While I wouldn't subscribe to this description 100%, it is a fact that Qualcomm's innovations already powered pre-iPhone devices, and if Qualcomm had really been the primary innovator in the smartphone space, the iPhone and iPhone-like Android devices wouldn't have displaced older phones such as those made by Nokia at the time. The difference that the iPhone made was at a different layer of the technology stack. As for whether Qualcomm is behaving "much like a common patent troll," I'd have been less inclined to agree with Apple's lawyers on this one before Qualcomm made its four other filings that same day. In other words, Qualcomm couldn't have done much more to lend credence to the "troll" label.

    In addition to defending itself against Qualcomm's claims, Apple brought counterclaims alleging that Qualcomm is infringing eight Apple patents on techniques that minimize battery power consumption.

  • Qualcomm filed a second ITC complaint against Apple (uploaded to Scribd), over five patents described as relating to touch gestures, autofocus, multitasking, quick charging, and machine learning. Once again, Qualcomm is seeking an import ban against devices incorporating Intel chips, which is problematic given Qualcomm's market dominance. Considering that the previous ITC complaint was filed in the summer, Qualcomm apparently just waited long enough so it would have a decent chance of avoiding consolidation of two ITC actions into one (in which case Qualcomm would come under pressure to narrow its combined case, and which would delay resolution).

  • In the Southern District of California, Qualcomm filed a civil companion lawsuit mirroring the ITC complaint (uploaded to Scribd).

  • Qualcomm also filed a complaint (uploaded to Scribd) over patents originally filed by Palm Computing and the creators of a device named TouchTable.

  • Finally, Qualcomm brought a complaint (uploaded to Scribd) over what it says relates to battery charging, content delivery, machine learning, stepped gain mixers, image processing, and circuitry.

Sometimes it's hard to see the forest despite all the trees. The core issue is Qualcomm's behavior that regulators around the globe have already held to be anticompetitive. Qualcomm writes in its latest complains that "Apple misled governmental agencies around the world into investigating Qualcomm in an effort to indirectly exert leverage over Qualcomm," but where there is so much smoke, and in so many different places, it's hard to imagine there isn't also a whole lot of actual fire. No company can ever have the persuasive power that Qualcomm claims Apple has. Qualcomm would have us believe that Apple managed to mislead multiple regulatory agencies with their specialized and dedicated case teams and experienced senior decision makers. I just can't imagine this to be the case. Instead, I believe that "you can fool all the people some of the time and some of the people all of the time, but you cannot fool all the people all the time" (a quote attributed to Abraham Lincoln).

There's an antitrust core here, which (let's not forget) also involves patent exhaustion issues. Around that core, there are tangential and peripheral issues and factors.

For example, there's Broadcom's takeover bid, which Qualcomm's board has rejected.

There's Qualcomm's constant struggle to balance investor relations and litigation/antitrust priorities. The investor relations part was important at the outset and became even more relevant after Apple and another company (which analysts tend to believe is Huawei) stopped royalty payments to Qualcomm through contract manufacturers.

And now there's a whole lot of infringement litigation.

As I've said in previous posts, the real issues here are so important to the entire mobile device industry that I hope it won't come down to leverage (whether it's leverage based on Apple's cessation of royalty payments or leverage based on Qualcomm's infringement claims against Apple). The outcome should depend on the merits--and only on the merits.

Whether Qualcomm will get much leverage out of its infringement cases is impossible to tell at this early stage, but in this industry companies typically don't get much leverage out of non-standard-essential patents because, if it comes to worst, they can usually be worked around--nor do they get much leverage out of standard-essential patents because of their obligation to license them on fair, reasonable and non-discriminatory terms to all comers (Qualcomm doesn't quite agree on "to all comers" yet, as it denies licenses to chipset makers, but that will hopefully change as a result of antitrust proceedings in multiple jurisdictions, Apple's cross-jurisdictional lawsuits, and maybe even lawsuits by other parties, which can always happen).

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Thursday, November 23, 2017

Happy Thanksgiving -- and some information about my iOS trivia game app

I wish you all a Happy Thanksgiving! Hope you're having a great time now with family members and/or friends.

In recent years I've mentioned on various occasions that I was working on an app. Now, at long last and on the occasion of this holiday post, I'll be more specific about it.

This is one of only two posts you'll ever find here about my app. Promised. The only other one will be a single paragraph once it can be downloaded from the U.S. App Store, just to tell you that and where you can find it in case you're interested. Other than that, I'll keep my app and this blog completely separate, recognizing that only some--but presumably not most--of the professionals following patent and antitrust cases play trivia game apps. I've set up a separate blog and several separate social media accounts for my app.

Most of you presumably hadn't heard of me before I wrote about the "smartphone patent wars." That's why it may come as a surprise to some of you that my primary focus is a game app. Actually, in the mid to late 1990s--long before I started this blog (and even before I ran a campaign against a proposed piece of EU software patent legislation)--I was already in the computer games business: I was a consultant to Blizzard Entertainment, now best-known for World of Warcraft; and I founded an online gaming network, which was acquired by a large multinational telecommunications company. So I'm back to my roots now, as counterintuitive as it may seem.

In 2014, I founded a company, Quizista, to develop a revolutionary trivia game, Quizcover. It's revolutionary in the sense that it puts an end to the monotony of traditional trivia games and innovates the most fundamental aspects of trivia gaming: the way the game presents questions, the way players enter their answers, the way the answers are evaluated, and the kinds of hints (also called "boosters") players can get. It also has other advantages, several of which are shown on this feature comparison table (which, by the way, we're not going to use in communications with consumers).

Just like all other trivia game apps, Quizcover comes with the traditional trivia game question type (one option is right while three are wrong), which I call "Pick One" and which still makes sense for a lot of purposes. But on top of that, it has a couple of more interactive question types, Pick Some (multiple answers are correct) and Match Two (where players have to form correct pairs). The conventional Pick One trivia question type would also have worked on a 1990s Nokia phone. The Pick Some and especially Make Two types are very easy to learn, but they make much better use of touchscreens, they're more engaging, and they're more informative. They make all the difference, and I'm deeply convinced that the days of conventional trivia games are numbered. Once someone has experienced the diversity of Quizcover, why settle for monotony?

For a long time I have wanted to make knowledge more playable and trivia gaming more interesting and, at the same time, more informative. I've been fortunate to be working with a group of great software developers and content authors who share my vision. That vision has turned into a reality. Last month, Apple approved the first release of my app for distribution via the App Store and we made it available in a number of markets, but without any promotional efforts so far. In recent weeks we've made further UX improvements, some of which we consider very significant, and we're soon going to conduct our final test of a new version before publishing the app in the United States (the market for which its content was mostly created), which may already happen next week. And then we'll make more noise but, as I said, not on this particular blog.

If you have an iPhone or iPad running on iOS 10 or 11, and if you're interested in joining that final beta test, please email me at info@quizista.com and I'll be glad to make sure you receive a test version soon via TestFlight. There's no obligation attached to participating in such a beta test.

I would also like to invite you to follow Quizcover on Instagram. We recently started posting some facts and questions from our game there on a purely experimental basis and we like the platform, so once we've launched the app in the U.S. market, we'll be more active here, too.

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Tuesday, November 7, 2017

Supreme Court denies certiorari in second Apple v. Samsung case: $119M ruling upheld

This morning's Supreme Court order list indicates that Samsung's petition for writ of certiorari (request for Supreme Court review) in the second California Apple v. Samsung case has been denied. The top U.S. court's decision follows (literally and figuratively) the position taken by the Solicitor General of the United States, which was not a given but isn't much of a surprise either.

While I still believe the three Federal Circuit panel judges who threw out the $119 million decision got it right, the Supreme Court can only hear a limited number of cases per year. The decision to deny certiorari doesn't mean that the Supreme Court agrees with the Federal Circuit on any of the substantive issues in the case. Part of the anti-cert argument was that other cases might be better vehicles for addressing those issues.

This pretty much ends the roller-coaster ride that this particular case (which is just part of the once-huge #appsung dispute) has been. All that's left to be sorted out now is relatively unimportant.

Samsung made a lot of headway with respect to design patent damages, and will get a new trial. In that context, the Supreme Court had granted a cert petition by Samsung and overruled the Federal Circuit. The Supreme Court might have been particularly hesitant to hear yet another Apple v. Samsung case.

There was a time when this dispute comprised cases pending in nine or ten jurisdictions, and when it appeared to escalate endlessly. By now, it's just about non-strategic matters pending in the Northern District of California. After Judge Lucy Koh granted Samsung a new trial over design patent damages, I already expressed my opinion that this would be a good time for them to put the dispute behind them, especially since neither of them has a major problem with the "article of manufacture" test adopted by Judge Koh. As unfortunate as the Supreme Court decision that became known today may be in some ways, it, too, paves the way for a settlement. At a minimum, those Energizer Bunny-style litigants should be able to settle that second case. The remainder of that case is a mathematical exercise with limited probabilistic elements. They should conserve court and party resources now.

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Friday, November 3, 2017

After report that Apple will drop Qualcomm chips, Qualcomm files a breach-of-contract lawsuit

The day before Halloween, the Wall Street Journal reported that Apple was designing next year's iPhones and iPads without Qualcomm chips. Instead, Apple would use Intel and MediaTek components according to the report.

Nothing is final yet, and Qualcomm says it could and would still sell its products to Apple. But the window of opportunity for Qualcomm will presumably close in the not too distant future. At this point, if Qualcomm could reach an agreement with Apple, it would have to be considered a "design win" for Qualcomm (though at first sight it would merely be the continuation of a longstanding business relationship).

In case Qualcomm can't turn this around, a settlement of the earth-spanning antitrust and patent licensing disputes between the two companies will become considerably harder to reach. At a stage at which Apple relies entirely on other companies' chipsets, the only commercially relevant questions for the two to sort out will be about (re)payments and rebates for the past, and about standard-essential patent (SEP) licensing revenues for the past and for the future. In that scenario, Qualcomm will have to prove in court that Apple actually does need a license to any valid and enforceable Qualcomm SEPs, and that will take time.

It could be--but presuambly isn't--a coincidence that one day after the Wall Street Journal article, Qualcomm filed a breach-of-contract lawsuit against Apple in the Superior Court of California for the County of San Diego (this post continues below the document):

17-10-31 Qualcomm v. Apple Breach of Contract Complaint by Florian Mueller on Scribd

One of the reasons for which I doubt that the timing is a coincidence is that Qualcomm has previously appeared to make filings just before or after news that matter to investors, or before earnings calls. For example, in July it announced infringement lawsuits against Apple just before it became known that another customer (financial analysts tend to think it's Huawei) stopped paying patent royalties.

The short version of the Superior Court complaint is that Qualcomm is seeking damages and to enforce the right to perform a certain kind of audit (specific performance) because Apple allegedly violated a Master Software Agreement for Limited Use by disclosing confidential information about Qualcomm's program code to a rival chipset maker, Intel. For example, the complaint alleges the following:

"[I]n 2017, Apple requested that Qualcomm provide details about how Qualcomm's implementation of a particular interprocessor communication was designed to meet a certain wireless carrier's requirements. Qualcomm’s proprietary implementation of this communication protocol is not dictated by any standard and it contains Qualcomm's highly confidential trade secrets. Apple, however, included in the 'CC'd Persons' distribution list for this request an engineer from Intel (a competitive vendor) and an Apple engineer working with that competitive vendor. In a separate incident, Qualcomm received correspondence indicating that rather than preventing information regarding Qualcomm's proprietary implementations from being shared with Apple engineers working with competitive vendors, Apple appears to have merely redacted the code name that Apple uses for Qualcomm on that correspondence. As another example, an Apple engineer working on a competitive vendor's product asked an Apple engineer working on Qualcomm's product to request assistance from Qualcomm relating to a downlink decoding summary for carrier aggregation."

Also, Qualcomm makes reference to a "posting" by someone who Qualcomm believes could be an Intel engineer:

"[...] Qualcomm became aware of a posting regarding Intel Corp. layoffs that appears to have been posted by a former modem design engineer, and which contains several statements of concern that on August 14, 2017 Qualcomm specifically requested Apple investigate. The post references a CNBC article reporting on the ITC action filed by Qualcomm against Apple and goes on to say: 'We were told to ignore intellectual property rights when designing the modem. There was even a conspiracy to copy Qualcomm's technology by hints from Apple about the 'reference device'.' This statement appears to be made by an Intel engineer working on the Apple (Intel branded) modem."

Let's see how Apple will respond to these allegations. Only one thing is certain: this does nothing to justify Qualcomm's licensing practices, so whatever may or may not come out of that case in state court, the fundamental issues (which are of concern to the industry at large, not exclusively Apple and Intel) are still the same. A good offense is sometimes the best defense, but at first sight, the new complaint doesn't look like something that would give Qualcomm a great deal of leverage in settlement negotiations. In the short term this is just further escalation, and I doubt very much that this will "persuade" Apple to use Qualcomm chips in next year's iPhones and iPads. And if the bridge is burned, this dispute might take as long as Apple v. Samsung (actually, Samsung is still doing a lot of business with Apple, which is more than Qualcomm may be able to say in a year from now).

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Sunday, October 29, 2017

The EU's definitive defeat: digital tax plans and a declaration of surrender to Silicon Valley

What you're reading here is a highly skeptical take on the EU's innovation policy and economic outlook from an EU citizen who will leave the EU as soon as possible (more on my personal conclusions at the end of this post).

The EU has a huge competitiveness issue already, and due to the eurozone's lack of innovation, especially in its Mediterranean member states, the sovereign-debt crisis is never going to be resolved. The European Central Bank is, in some ways unlawfully, keeping Europe's south afloat and will do so for some more time, but at some point there will be a crisis of unprecedented proportions--either an acute and dramatic crisis or an extended depression from which the eurozone as an economic area won't really recover.

In the 21st century, innovation is the only way that industrialized countries can achieve more than 1% or 2% of year-on-year organic growth--obviously short of an unexpected discovery of natural resources, which is not realistically going to happen in the EU, or wage cuts in underperforming countries that are even less realistic than the existence of huge undiscovered gold mines in France, Spain, and Italy. The Finnish economy, for example, was performing extremely well while Nokia was setting new records all the time, but shrank by about 9% in a single year as a result of the iPhone/Android revolution. And it's shrinking again. Countries like Spain and Italy--and even France--never had a Nokia in the first place. The Mediterranean economies are strong in industries that mostly existed already in ancient Roman times (agriculture, construction, with even textile going to Asia). Tourism is, relatively speaking, the most modern industry that is strong in those countries, and the EU predicts about 5 million more tourists per year, which I don't doubt but it's not going to do much about youth unemployment rates of 46% in Greece, 38% in Spain, 36% in Italy, and more than 20% in France.

The EU wanted to become "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth" by 2010, and failed, as even the then-prime minister of Sweden conceded in 2009. For example, per-capita GDP in the EU was less than $38K last year vs. $57K in the U.S.

By now the EU appears to have given up on its ambitions for the digital economy. Instead, its focus is on a new tax that could lead to a full-blown trade war with the U.S. and would definitely harm European companies and consumers in the end.

I'll write about the tax plan again soon because I'll try to make a contribution to the mobilization of app developers and other European technology companies against that plan. In this post, I'll connect a few dots to show the broader picture.

In a Q&A document on the EU's digital tax plans, the EU recognizes the increasingly important role of digital business to the economy:

"In 2006, only one digital company was among the top 20 firms by market capitalisation, accounting for only 7% of the market capitalisation. In 2017, 9 out of the top 20 companies were technology companies accounting for 54% of the total top 20 market capitalisation. Between 2008 and 2016, the revenues of the top 5 e-commerce retailers grew by 32% on average per year. During the same time period, revenue in the entire EU retail sector grew on average by 1% per year."

The largest companies in the digital economy are U.S. and Chinese companies, plus South Korea's Samsung. As a Wikipedia page shows, no EU company has been among the world's largest 10 companies (from all industries, but with digital businesses now leading) by market capitalization since Royal Dutch Shell in the second quarter of 2014. That's a huge failEUre, and a strategic issue because it means that to the extent Europe has any innovative businesses at all (such as SAP), they're not at the top of the M&A food chain.

While that tax plan Q&A still claims the EU wants its digital startups to succeed, the EU's digital industry commissioner has just given an interview to Frankfurter Allgemeine Zeitung, in which she says Europe doesn't need a company like Google. How little weight the digital economy has in the EU is reflected by the commissioners assigned to that area of responsibility. Presently, the EU's digital commissioner is Mariya Gabriel, a young Bulgarian politician with an even less impressive track record than her technology-illiterate predecessor, Germany's Guenther Oettinger, who became the laughing stock of many people in the EU tech industry. Mrs. Gabriel said in the aforementioned interview that the EU should focus on fields such as nanorobotics, security chips, and "automotive digitization", where she says EU companies are leading the way. I checked on who the current leaders in nanorobotics are and found more U.S. than EU companies among the top 10, with all of those EU companies being small enough to be acquired sooner or later, and I've previously outlined my thinking on the automotive future.

There are structural reasons for which the EU not only lacks major players like Apple and Google but why it's highly unlikely that any of its startups will, as an independent company, ever reach that level:

  • The U.S. market is the most important single market, followed by China. That's why I decided to focus on the U.S. first (we'll create content for other markets later), just like this blog has more readers in the U.S. than anywhere else, but EU companies usually serve their domestic market first. No matter how often the EU talks about the "Digital Single Market" (DSM), which is also the context of those terrible digital tax plans, it simply won't be a single market like the U.S. market anytime soon. Multilingualism is a major challenge for the EU, but most countries are too proud and too lazy to think for even one second of adopting English as an EU-wide official language. Therefore, startups can't address the EU market as a single market. It's about a lot more than just translating one's product. For example, there's no major tech news website or IT magazine that people read across the EU.

  • That EU tax document refers to something that is a huge factor indeed: network effects. It's not just that large U.S. companies benefit from network effects. In a way, the U.S. tech industry as a whole has the equivalent of network effects because it attracts and funds many of the world's most talented technologists. There's a virtuous circle involving business angels (many of whom made a fortune through stock and stock options in previous-generation tech startups) and institutional investors of the kind the EU won't have.

  • Investor mentality also plays a role. In the EU, investors generally prefer niche businesses, while in the U.S., there is more of a willingness to "think big" and place bets on what EU investors would consider unrealistic long shots.

  • Partly as a result of unselective migration, in many cases combined with dumbing-down educational policies, the eurozone's population is, on average, becoming weaker and weaker in math according to the Trends in International Mathematics and Science Study (TIMSS). Non-eurozone industrialized countries take fairly high percentages of their 12-year-old students to the top performance level (Singapore: 50%; South Korea: 40%; Northern Ireland: 27%; Russia: 20%; United States and Kazakhstan: 14%), while the largest eurozone countries perform worse each time the study is repeated. Germany, for instance, dropped by 10 ranks between 2007 and 2012 and is now at 5%, which makes it the one-eyed among the blind among major eurozone economies (Italy 4%, Spain 3%, France 2%). The French number is an unbelievable disaster. If you looked at an average class of 30 students in Northern Ireland, eight of them would reach the top level, while in France you'd need two classes of that size to find just one such student. But to address the root causes of that problem would require French politicians to say and do highly unpopular, politically-incorrect things. That's why no one's talking about the big elephant in the room.

Contrary to what the EU says, its tax plans won't make any EU company more competitive. Also, it doesn't make sense that U.S. and other digital businesses "can take full advantage of the networks, infrastructure and rule of law institutions available in EU Member States, without paying any tax in that country." Seriously, how many lawsuits have Apple's App Store or Google's Play Store given rise to in the entire EU? Few and far between I would guess. Do they use such infrastructure as roads and bridges? Not really. It just comes down to cheap electrical and optical signals going over the networks, and the network traffic caused by the download of an app is typically less than a couple of minutes of even a low-quality video stream.

Unfortunately, the Commission's tax initiative has drawn support even from normally libertarian, free-market and fiscally conservative parties such as Germany's FDP, whose secretary-general said last week that she wants to impose higher taxes on the likes of "Apple, Google, and Facebook."

There is some resistance from such countries as Ireland, and unanimity would be required for an EU-wide rule, but something bad could come out of this. Ideally, the EU would like to address the issue at an even higher international level (OECD). If not, the Commission will make a proposal for the EU to act unilaterally. And then, if some countries tried to block the plan, the largest EU member states such as Germany and France might just go ahead without the rest of the EU--and once that threat becomes real, an EU-level agreement might materialize.

Whatever may or may not happen in the end, it's already clear that the EU's dubious "state-aid case" against Apple was just an attempt by the Commission's competition enforcement arm to position itself as the vanguard of the EU's tax crusade against the digital economy's winners. This is just the behavior of sore losers.

I wouldn't have been against a small EU consisting of quality countries in economic and educational terms, with everyone giving up national sovereignty for a greater good. But an unselective and expansive EU that consistently puts the cart before the horse (common currency for disparate economies without a common economic and fiscal policy; internally open borders without effective external controls) was a bad idea.

A few days ago, the European Central Bank announced that, after spending (literally) trillions of euros buying government debt mostly from the likes of Italy and Spain, it was now going to reduce the extent of that program to 30 billion euros a month. By comparison, that is about 10% more than Germany's federal budget. Also, the ECB already owes Germany approximately 800 billion euros through its Target 2 system (with Italy and Spain being the primary net lenders, and even Greece being a significant net recipient). The only way that those countries could ever repay their debts would be sustainable, organic, rapid economic growth. The ECB says that the need for growth is why its "quantitative easing" must continue, and mainstream media in Europe largely parrot that pretext (and even those who criticize the ECB don't tell the whole truth about the mess). But quantitative easing and zero interest rates don't change the fundamental problems I mentioned above. It certainly won't hone anybody's math skills or prevent European tech companies from being bought by U.S. and Chinese acquirers. Instead of spurring growth, the ECB simply enables southern European governments to avoid hard and unpopular decisions. As their excessive borrowing continues, the mess gets bigger until the system implodes.

Just like the ECB's quantitative easing doesn't benefit innovative businesses, the kind of digital tax the EU has in mind would just benefit governments in the short term.

Finally, the kind of disclosure I promised further above. I must admit that I was totally against the 1992 Maastricht Treaty (the treaty that converted the European Community into the European Union and laid the foundation for the euro currency) and now, 25 years later, everything that could have gone wrong with the euro currency and free movement (and that experts had warned against before those fatal decisions were taken) has indeed gone wrong. In 2004-2007 I opposed various EU policy initiatives and consistently got along very well with the "Brexiteers" in the European Parliament. I do sometimes support EU competition cases if they involve genuine antitrust and merger control issues, but not if they're "total political crap".

I don't want to be a resident of the dysfunctional EU anymore. I'm on my way out of the EU as we speak. After years of development, I'm finally about to launch my app, which has already been approved by Apple for App Store distribution, in the U.S. market. I haven't announced the name of the product and of my company on this blog or on Twitter yet, but I will soon. All that I have said so far is that it's going to revolutionize the trivia game market. And it will.

Once my app generates a certain level of revenues, which I'm sure it will soon (just don't know exactly how much and how soon), I'll be in a position to relocate to the U.S. on a permanent basis. That step is actually overdue. As a matter of fact, this blog has widely been perceived as a U.S. tech/IP law/policy blog (even by the Library of Congress). I've always considered, despite its challenges, the United States the greatest country on Earth, and I've traveled a lot more in the U.S. than in Europe already. Now it's not just about personal preferences or the greater opportunities I see in the U.S.--I'm really deeply convinced that the eurozone is on the completely wrong track without any hope that things could somehow work out in the end. The overindebted economies of the Mediterranean region won't recover, and Germany isn't strong enough to support them forever. For example, Italy technically owes Germany (through the ECB) many hundreds of billions of euros, but Germany's trade surplus over Italy is just on the order of 10 billion euros a year. The numbers just don't make sense. Once Germany's pension system becomes unsustainable due to the demographic gap (by the 2030s at the latest), it will be game over for the eurozone, if not before.

Should the EU levy a special tax on digital businesses, its innovation problem would only exacerbate. It's worse than merely rearranging deck chairs on the Titanic.

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