Tuesday, April 3, 2012

European Commission investigates Motorola Mobility's suspected abuse of standard-essential patents against Apple and Microsoft

The EU's chief antitrust enforcer, European Commission Vice President Joaquín Almunia, who is well-respected across party lines for his principled stance, is fighting for FRAND -- in fact, it appears he is willing to fight for it harder than any of his predecessors did. Today the European Commission announced that it "has opened two formal antitrust investigations against Motorola Mobility Inc.", further to antitrust complaints lodged in February by Apple and Microsoft, both of whom alleged that the Google subsidiary-to-be is abusing its patents essential to different standards (in particular, cellular network standards in Apple's case, and the H.264 video codec in Microsoft's case; additionally, Motorola is enforcing patents related to IEEE 802.11, known as WLAN or WiFI). In late January, the Commission had already launched a formal investigation of Samsung's enforcement of standard-essential wireless patents against Apple.

The press release routinely states that, to put it differently, MMI is innocent until proven guilty. But the launch of formal investigations (as opposed to merely preliminary ones) is a key step that follows a reasonably thorough (even though only initial) assessment of the issues.

Today's announcement by Europe's top antitrust authority also comes at a very interesting timing with a view to developments in Germany, not only Europe's but even the world's hotbed of FRAND patent abuse. Germany is the only EU member state in which Motorola is suing Apple and Microsoft over standard-essential patents. The Commission's decision to launch these formal investigations should serve as food for thought for certain judges in the largest EU member state who have shown a worrying tendency in recent years (and especially in recent months) to put patent law far above antitrust law. Yesterday, Microsoft told reporters that it is relocating its European distribution center from Germany to the Netherlands ahead of a decision that the Mannheim Regional Court will hand down in two weeks from today on a Motorola lawsuit against Microsoft over two patents allegedly essential to the ubiquitous H.264 video codec standard.

Motorola was essentially begging for these investigations. Instead of drawing the appropriate conclusions from the Commission's late-January decision to investigate Samsung as well as from the clear warnings contained in the Commission's decision to clear Google's acquisition of MMI (such as a statement that this decision was merger-specific and didn't mean to "bless[]" Motorola's conduct as a whole), the handset maker kept ratcheting up its aggressive pursuit of injunctive relief against both Apple and Microsoft. In February it also became publicly known that Motorola likens standard-essential patents to bullets in a gun, claiming literally that "it only takes one bullet to kill".

What I find particularly important in the European Commission's announcement is that it outlines two legal theories of abuse, either one of which could be sufficient to find Motorola guilty of abuse of a dominant market position in accordance with Article 102 of the Treaty of the Functioning of the European Union (basically the next best thing to an EU constitution):

  1. "[T]he Commission will investigate, in particular, whether by seeking and enforcing injunctions against Apple's and Microsoft's flagship products such as iPhone, iPad, Windows and Xbox on the basis of patents it had declared essential to produce standard-compliant products, Motorola has failed to honour its irrevocable commitments made to standard setting organisations."

    This is the issue of injunctive relief. Just a few hours ago, I saw Samsung's lawyers (from the same firm that represents Motorola in its European patent lawsuits) quote the European Commission's Google-Motorola merger clearance decision in a U.S. court filing in the following, grossly distorting manner:

    The truth is that the European Commission said that seeking an injunction is "not, of itself, anti-competitive", but that is not the same as saying that it's generally allowed. That statement has been quoted out of context not only by Samsung's lawyers but also by some other people. The Commission actually indicated a reasonably comprehensive definition of FRAND abuse in that decision.

  2. "In addition, the Commission will also assess the allegation by both Apple and Microsoft that Motorola offered unfair licensing conditions for its standard-essential patents in breach of Article 102 TFEU."

    This is a fundamental difference between the Commission's approach and the current case law in Germany. At least in the Mannheim Regional Court and its appeals court, the Karlsruhe Higher Regional Court, abusive demands by FRAND patent holders are not considered to constitute an abuse unless the defendant in such a lawsuit meets a variety of criteria (some of which requirements are totally unreasonable and radically anticompetitive).

    The case against Motorola's royalty demands is exceptionally strong. Just look at these two charts, which I already showed in this blog post a few days ago (click to enlarge):

    Motorola is asking for the moon, and if such out-of-this-world royalty demands don't trigger antitrust intervention, antitrust enforcement agencies will probably never take action against those attempting to force implementers of standards into agreements on unFRANDly, anticompetitive terms. It's never easy to determine the appropriate royalty level for patents, but in this case it's a no-brainer that Motorola's demands are, by a huge factor, outside of the FRAND ballpark.

Google is already being investigated by the European Commission for suspicions of abuse of its dominant positions in search and online advertising. Now its $12.5 billion acquisition target Motorola Mobility is being investigated, and if and when Google closes the deal, it will effectively buy itself into two more EU antitrust investigations. It's time for some people in Mountain View to realize that a multi-front war against competition authorities, on three continents in parallel, is a war that they won't be able to win.

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