Thursday, October 15, 2020

Nokia's latest standard-essential patent licensing offer to automotive suppliers is too little, too late to obviate referral of key questions to CJEU

Earlier this year, Nokia made mediation talks with Daimler and various of its suppliers of telecommunications components fail by refusing to grant exhaustive component-level standard-essential patent (SEP) licenses that would have provided suppliers with the operational freedom they need in order to go about their business. This was not only a disappointment but also a major embarrassment for the European Commission, which continues to be driven by regional protectionism rather than consistent enforcement of competition law and had urged the parties to negotiate even though it was a total waste of time, as anyone knowledgeable about the issues would have predicted.

Roughly eight months later, I have to grant Nokia and its attorneys that they have made some limited adjustments to their position, and that fact appears attributable to last month's Dusseldorf trial more so than to anything the EU Commission has done. Some key players in Brussels are beholden to Nokia, even to the extent that postfactual commissioner Thierry Breton parrots some outdated Nokia-funded propaganda by making an incorrect claim (of Europe being the #1 continent in 5G SEP ownership) from which Nokia's lawyers had already distanced themselves by way of an updated study.

The Dusseldorf Regional Court's strong inclination to refer certain component-level licensing questions to the top EU court--Daimler's lead counsel in the Nokia infringement cases, Quinn Emanuel's Dr. Marcus Grosch, told the Munich I Regional Court last month that he'd be very surprised if it didn't happen--appears to be scaring the living daylights out of Nokia. The decision is scheduled to come down on November 12, and at least the German appeals courts--the lower courts in Mannheim and Munich are too obsessed with forum-selling to do the right thing--will then likely be hesitant to enjoin end-product makers if their suppliers were denied SEP licenses on FRAND terms.

In an apparent effort to dissuade the Dusseldorf court from that CJEU referral, the Karlsruhe Higher Regional Court (which hears all appeals of Mannheim judgments) from staying the enforcement of ill-gotten injunctions against Daimler, and to further encourage the Munich I Regional Court to grant Nokia an injunction against Daimler, Nokia sent new licensing offers to several Daimler suppliers (including BURY Technologies, Continental, Valeo/Peiker, Huawei, Harman, and Renault, which builds an entire vehicle for Daimler) about two weeks ago. At the time Nokia also intended to make such an offer to Bosch, but was waiting for a non-disclosure agreement (NDA) to be concluded.

NDAs didn't prevent all sorts of information to leak from the failed mediation process, and I've been able to find out more about its current maneuvering than Nokia would have liked me to.

The structure of Nokia's latest offers still comes with significant field-of-use restrictions that cannot be reconciled with the principle of the free movement of goods in the EU's Single Market and the fact that under the CJEU's Huawei v. ZTE case law, Nokia owes implementers a license on FRAND terms.

Furthermore, Nokia wants to charge royalties based on the value of the end product--a car--as opposed to a reasonable royalty rate. As a result, component makers simply couldn't afford such a license.

But even if one elected to ignore those major issues, Nokia still refuses to extend licenses to certain levels of the supply chain. Its current offers are limited to telematics control units (TCUs) and don't cover network access devices (NAD, often also referred to as connectivity modules) and baseband chips. By contrast, Sharp granted Huawei a license covering all three tiers (tier 1: TCUs; tier 2: NADs; tier 3: baseband chips.

Huawei is a tier 2 supplier to Daimler and suing Nokia in order to secure an exhaustive component-level SEP license on FRAND terms. That case is also pending before the Dusseldorf Regional Court. I don't think Nokia's latest round of offers would obviate a referral of component-level licensing questions to the Court of Justice of the EU with respect to Nokia v. Daimler, but a tier 1 license would certainly not moot the legal issues in Huawei v. Nokia.

Not only is it urgent to refer the question of component-level licensing to the top EU court but there are some worrying developments in SEP case law in Germany that actually require the referral of further questions to the CJEU. One of the two patent infringement panels of the Mannheim Regional Court has recently decided to gut Huawei v. ZTE by focusing on the implementer's counteroffer; the Federal Court of Justice of Germany held in Sisvel v. Haier that SEP holders no longer need to present claim charts to implementers (which particularly disadvantages small companies, but the last thing a dogmatic judge in Germany would care about is the economy); and the Munich I Regional Court applies the Sisvel v. Haier guidance in such extreme ways that it's hard to see how any implementer could actually defend itself there short of simply capitulating and taking a license on the terms dictated by the SEP holder. Most recently, the Munich I Regional Court has practically waived the requirement to provide collateral (bond or deposit) if an injunction is enforced during the appellate proceedings. They still determine an amount that needs to be posted, but it's typically negligible. I'll talk about that some more on another occasion. For now I merely wanted to underscore the necessity to get certain German courts overruled by the CJEU before more damage is done to innovation and competition.

If Nokia keeps improving its offers at the snail's pace we've seen from the failed handset maker in recent years, the CJEU will likely provide further clarification before Nokia ever makes a truly fair and reasonable licensing offer to automotive suppliers.

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