Friday, July 24, 2020

Huawei's automotive component-level patent license deal with Sharp reduces Daimler's injunction-related exposure by 86%

Whether (and if so, when) Sharp is going to obtain a standard-essential patent injunction against Daimler remains to be seen. Two of the five German Sharp v. Daimler cases have already been stayed due to the patents-in-suit being likely invalid, and another stay is quite a possibility (though far from certain) on September 10, 2020 when the Munich I Regional Court's Seventh Civil Chamber (Presiding Judge: Dr. Matthias Zigann; side judges: Judge Klein and Judge Dr. Werner) will announce a decision in case no. 7 O 8818/19 over EP2667676 on a "base station device, mobile station device, and uplink synchronization requesting method," based on how yesterday's trial went.

Should Sharp prevail over Daimler on some cellular SEP, the economic impact of the hypothetical enforcement of an injunction will amount to only one-seventh of what it would have been before Huawei secured a component-level SEP license from Sharp that covers baseband chips, connectivity modules, and telematics control units provided by Huawei or its customers, such as Continental and Harman. Quinn Emanuel's Jérôme Kommer, who argued the FRAND part of the case for Daimler, told the court that the amount of the security (bond or deposit) Daimler would want Sharp to post should an injunction be enforced during an appeal (so as to ensure Daimler can be made whole in the event of wrongful-enforcement damages) had been reduced by six-sevenths (roughly 86%) as a result of the Sharp-Huawei deal.

This suggests that the Mercedes maker can equip 6 out of 7 of its models with TCUs that come from Huawei or contain a Huawei component. Mr. Kommer, who according to one of my sources arrived in a Tesla (which I can relate to and simply shows the primary threat Daimler is facing doesn't come from patents), provided only that ballpark figure without elaborating on what Daimler products could not be equipped with TCUs covered by the Sharp-Huawei license deal. I find it technically hard to imagine that Daimler's other TCU suppliers (or their network access device suppliers) couldn't simply incorporate a Huawei baseband chip into their products, but based on what I remember from FTC v. Qualcomm, Huawei's HiSilicon division makes chips only for Huawei's own use. Therefore, the ongoing Sharp v. Daimler patent litigation campaign increases the pressure on Daimler's other suppliers to secure exhaustive component-level SEP licenses from Sharp.

Based on what counsel for certain suppliers said yesterday, Sharp appears willing to extend component-level SEP licenses to other companies as well, but others haven't been able to reach an agreement on the specific terms yet. This is speculative, but the strength of Huawei's own cellular SEP portfolio likely constituted a bargaining chip some other parties lack. Actually, Samsung would be a in a very strong position as well, but its Harman Becker subsidiary uses Huawei components anyway.

With respect to past damages, the parties didn't take definitive positions, but there appeared to be a consensus that the Sharp-Huawei deal resolves more than half (and possibly far more than 50%) of the past-damages aspect of the case.

The most relevant take-away is this: In a world in which a single license deal between Sharp and Huawei can reduce Daimler's injunction exposure by 86% and resolve well over 50% of past damages, component-level licensing is clearly the way to go. It would take each SEP holder (or pool, such as Avanci, if it modified its licensing policy) only a very few license deals to cover virtually every car made anywhere on this planet. Any alleged inefficiencies of component-level licensing are not even pretextual--they are simply preposterous.

There's another key take-away from yesterday's trial, but it would go too far to address here: Presiding Judge Dr. Zigann told Daimler that the recent Sisvel v. Haier ruling by the Federal Court of Justice of Germany places the emphasis on an implementer's willingness to take a license, and Daimler might be enjoined as a result. Professor Thomas Cotter recently shared a couple of thoughts on Sisvel v. Haier (via his Comparative Patent Remedies blog), and I'll talk about the case on some other occasion. Mr. Kommer sought to distinguish Daimler's conduct from Haier's, but didn't appear to get much traction in that regard.

The Federal Cartel Office of Germany (Bundeskartellamt) participated via videoconferencing, but only passively so. Sharp's cases against Daimler are gradually distinguishable from Nokia v Daimler (where the Federal Cartel Office requests the referral of certain component-level licensing questions to the Court of Justice of the EU), given that Sharp doesn't rule out extending true (exhaustive) licenses to component makers. I was disappointed to hear that the Munich court believes Daimler's willingness to negotiate a direct license with a SEP holder like Sharp precludes an antitrust defense based on a SEP holder's failure to license component makers. I don't think Daimler could have made it any clearer that it believes its suppliers should be licensed, but fiduciary duties make it absolutely impossible for any company not to take the necessary steps to avoid being exposed to an injunction. The Munich court's position is tantamount to enabling extortion (in an antitrust sense), and underscores the necessity to have the EU's top court rule on various SEP-related questions, given that Huawei v. ZTE has practically been gutted by now.

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