Friday, December 13, 2019

BREAKING: Continental makes Nokia binding patent licensing offer ahead of EU antitrust mediation with Daimler, other suppliers


FOSS Patents has found out from unnamed but reliable sources that, just this week, German automotive supplier Continental has made a legally binding offer to Nokia for taking a license to its cellular standard-essential patent (SEP) portfolio. The offer forces the Finnish former mobile device maker to come clean on whether it genuinely intends to address and alleviate the competition concerns raised under EU antitrust law (Art. 102 TFEU) by Daimler and four of its suppliers (Continental, Valeo, Gemalto, BURY Technologies).

Nokia announced yesterday that Daimler and its tier 1 (= direct) suppliers agreed to mediation, which theoretically could put the highest-profile EU antitrust matter pending at the moment to rest. EU antitrust chief Margrethe Vestager, usually not one to shy away from decisive action, is oddly going to hold off until the outcome of the mediation effort will be reported to the European Commission's Directorate-General for Competition (DG COMP) by mid-February.

Under Continental's offer, if and when accepted by Nokia,

  • Nokia would receive a per-unit patent royalty. Nokia would be free to choose between

    • accepting the (unknown) amount offered by Continental or

    • demanding more money, in which event a court of law would have to resolve this purely quantitative (as opposed to structural) dispute by setting a fair, reasonable and non-discriminatory (FRAND) rate.

  • Continental would receive a component-level SEP license, which would be exhaustive (i.e., the downstream, such as Daimler, would fully benefit in terms of being licensed with respect to the implementation (= use) of the covered patents by Continental's telematics control units (TCUs). The proposed structure would also provide Continental with the operational freedom necessary to safeguard a functioning, competitive market for TCUs and the freedom of movement of goods (famously, one of the "Four Freedoms" of the bloc's Single Market).

Hypothetically, if Nokia offered the same deal structure to the other suppliers among the complainants, or if Nokia accepted offers of the same nature from other suppliers, the EU antitrust row would be resolved. Daimler, Continental, Valeo, Gemalto, and BURY Technologies could all withdraw their complaints, and Nokia's ten pending patent infringement cases in Germany against Daimler would be instantly mooted with respect to Daimler cars that don't come with cellular connectivity components from other suppliers. The aforementioned companies, and Nokia, could all mind their respective businesses again.

Should Nokia reject the proposed structure without simultaneously proposing a reasonably acceptable alternative capable of enabling competition and free movement of goods, its mediation offer would be exposed as a transparent attempt at stalling. While they probably won't listen to me, I would recommend to Daimler's suppliers to walk out in that scenario. Every second spent at the mediation table would be a waste of time.

As far as Daimler is concerned, the question is not whether they should walk out. It's why they participate in mediation in the first place. The dispute is not about whether Daimler can get a license. They can. Even Nokia doesn't dispute that. It's the suppliers, stupid.

Yesterday, Nokia won two court decisions unrelated to the merits of Continental's request for a license: Continental's U.S. FRAND/ antitrust case, which likewise aims to secure an exhaustive component-level license on FRAND terms, will be transferred from the Northern District of California to the Northern District of Texas, and Continental's ability to obtain a U.S. antisuit injunction against Nokia's German patent lawsuits against Daimler will be severely restricted to say the least, as the Munich appeals court affirmed an anti-antisuit injunction.

But neither a venue transfer nor an anti-antisuit injunction (no matter how spectacular the latter actually is) have the potential to answer the underlying question of access to component-level licenses. Earlier this decade, when some SEP holders abusively sought and enforced injunctive relief over SEPs, they argued that unwilling licensees were engaging in "holdout." Now there is a totally willing licensee--Continental--who has made every effort, up to the point of bringing a U.S. antitrust lawsuit, lodging an EU complaint, and now making Nokia an offer even though it's a SEP holder's obligation to make a first offer when requested. And there's a company that now risks being fined for an EU antitrust violation by being an unwilling licensor, unless Nokia departs from its prior refusal to grant the type of license requested.

The mediation effort will be farcical if Nokia continues to offer only insufficient (from a competition perspective) types of arrangements, such as "have made" rights that come down to extending a true license only to the car maker while hobbling component makers (who under such structure could not simply sell their components to any customer of their choosing).

Before mediation has even begun (the parties have just agreed to it), Nokia is already cornered. This week's offer is the best decision I've seen from Continental in this context to date. I've criticized some of their moves, I've disagreed with some of their arguments (in the U.S. litigation), but this is brilliant, provided that the European Commission is determined to protect innovation and competition.

Share with other professionals via LinkedIn: