Wednesday, December 11, 2019

Commissioner Vestager makes competition-chilling remarks on automotive complaints against Nokia at Chillin'Competition conference

"Chillin'Competition" is a nice wordplay for a conference title. To my dismay, that event provided the setting for competition-chilling utterances by EU competition commissioner Margrethe Vestager. "Competition-chilling" in the sense of doing nothing to promote fair and vibrant competition--and free movement of goods, one of the bloc's key objectives--with respect to automotive components that come with cellular connectivity. The best way to promote competition in that field is to ensure the makers of those components receive exhaustive component-level licenses on FRAND terms. Commissioner Vestager made herself a name as being supposedly tougher than even the legendary "Steely Neelie," but with respect to standard-essential patents (SEPs), her predecessor JoaquĆ­n Almunia used to take swifter and more decisive action.

Daimler's antitrust complaint was filed more than a year ago. Then, a few months later, four suppliers (Continental, Valeo, Gemalto, and BURY Technologies) lodged their complaints. There's no justification whatsoever for not bringing the antitrust hammer down now.

Khushita Vasant, a Brussels-based reporter for the Policy & Regulatory Report (PaRR), was first to break the news on Nokia's mediation offer to Daimler and its Tier 1 (= direct) suppliers, and also first to report on Monday that Mrs. Vestager told reporters after the aforementioned conference that "it would be a good thing if there was mutual understanding [between Nokia and the automotive complainants]." The Commission expects an update "by mid-February," writes PaRR.

This means another two months will be wasted. With the greatest respect for the Internaational Chamber of Commerce, this matter here doesn't lend itself to mediation, and there are only two possible outcomes:

  • Daimler surrenders. Or:

  • No deal.

The binary question is: do the component makers get an exhaustive license on FRAND terms? If so, they'd also be free, for an example, to sell excess quantities openly on the market to anybody. That's what is called a free market. The EC knows that.

The monetary terms are, of course, non-binary. If Nokia sought a license fee that wouldn't enable those component makers to stay in this business, it wouldn't help. But the very first step must be for Nokia to stop disputing the component makers' entitlement to a license.

Huawei is suing Nokia in a German court with only the objective of finally getting a component-level licensing offer. No one should ever have had to bring such a complaint, or to ask the European Commission to investigate. Nokia's refusal is downright irrational as it never disputed a phone maker's entitlement to a SEP license, and Huawei's connectivity modules come with all the same types of hardware components as a phone, apart from the screen. The telematics control units (TCUs) made by the likes of Continental incorporate such network access devices (NADs) and come with even more hardware. There's nothing in the claims of those standard-essential patents that a mobile phone has and a NAD or TCU doesn't. I've seen many SEPs, possibly more than anyone involved with the EU investigation, and I have yet to see a cellular SEP that claims a screen.

Daimler and its suppliers should have made Nokia's commitment to an exhaustive component-level license on FRAND terms a precondition for even sitting down and talking. Then, once Nokia has made that commitment, one can talk about FRAND royalty amounts. Those amounts are amenable to negotiation, mediation (where no one is forced to agree), determination by a court of law, or arbitration--the latter, however, provided that the parameters are properly defined, including the right to dispute essentiality and validity, and if there are safeguards against the SEP holder going into arbitration (the results of which tend to gravitate toward the middle) making out-of-this-world demands.

This maneuver helped Nokia in two ways:

There is no indication of Huawei being a party to the mediation talks (at least I couldn't find any in the media), so at least that Dusseldorf antitrust lawsuit against Nokia is going forward.

A leading German patent litigator, who is mostly on the enforcing (not defending) side and is not involved with the Nokia cases in any way, told me he's convinced Nokia can't win. He said this was going to be their "Vietnam." While I'm glad to see Daimler taking a stand against Nokia's conduct, and also hope that all that Nokia is going to get out of this is some hefty legal bills, Daimler and its suppliers must not let their guard down.

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