You'd be hard-pressed to find anyone less SAP-friendly than me, given that I harshly criticized the German enterprise software maker (just the week before last) for botching--together with Google and Daimler--the German patent injunction reform and even called Microsoft, BMW, and Deutsche Telekom "lemmings" for following SAP's lead. The last occasion on which I collaborated with SAP was over a decade ago when we were co-complainants against Oracle's acquisition of Sun Microsystems--and the individuals I worked with at the time have meanwhile retired. Also, SAP is absolutely irrelevant to my business as a game app maker (I finally submitted a beta version to Apple on Thursday for TestFlight approval, and we'll submit our Android version to Google this week).
But I am interested in reasonable and balanced competition enforcement. While I
dislike the notion of EU Commission vice president Margrethe Vestager being in charge of both the EU's antitrust watchdog and digital industry policy (a result of precisely the kind of backroom horse trading the EU is notorious for),
believe some recent EU competition decisions against U.S. respondents lack merit (in one of those cases, the EU General Court recently agreed with me), and
have been criticizing the Commission's reluctance to take action against Nokia,
it's overly simplistic and sometimes just propagandistic to cry wolf over protectionism each and every time Mrs. Vestager and the Directorate-General for Competition (DG COMP) investigate a U.S. company or fail to take action against a European industry player. It depends. Sometimes it's actually true, such as in the Nokia case, though the politician to blame for inaction in that context is EU fake news commissioner Thierry Breton. But there are cases in which it's not the real issue, and I see some initial indications of a strong case against the case against my non-friends at SAP.
Politico--to be clear, I'm not attacking that publication--reported on allegations (also found elsewhere) that Mrs. Vestager had a conflict of interest with respect to SAP. This is different from the situation in October 2019, when I actually disagreed with the focus and message of a Politico article on the automotive component-level standard-essential patent (SEP) licensing issues involving Nokia and, by short extension, Ericsson. A few weeks later I met Politico's Thibault Larger in Brussels and we understood each other's positions quite well; I also apologized should my post have appeared to insinuate anything improper or unreasonable on Politico's side.
At the heart of those complaints against SAP--one was lodged with the Bundeskartellamt (Federal Cartel Office) in 2018, and another with DG COMP--is some customers' disagreement with SAP's policy that it charges for how its software is used, which often involves third-party applications. The complainants--a group named VOICE including the likes of Siemens and Volkswagen--argue that the 2009 EU directive on the legal protection of computer programs (summary) protects interoperability to the extent that SAP couldn't do that. With my combined IP and antitrust background, I can't help but find that argument not only spurious but downright nonsensical.
What the directive in question actually refers to is the decompilation (a step that is typically at the beginning of a reverse-engineering effort) of program code. If a certain set of conditions are met, the right holder's ability to enforce copyright may be limited for interoperability's sake.
There's no such theory in Europe as copyright misuse, which is a very American concept. SAP is free to define the terms of its copyright licenses, even if those terms make whatever reference to third-party products--unless there's an antitrust violation, and the aforementioned directive explicitly says that it's not meant to restrict competition enforcement. At the same time, I can't find anything in that directive that would lower the hurdle for establishing an antitrust violation, contrary to what the complainants say.
They acknowledge that there are alternative Enterprise Resource Planning (ERP) offerings by world-class vendors such as Microsoft (way bigger than SAP, not in the ERP market, but genrally speaking) and Oracle (whose relational database management system powers most SAP installations). But they argue there's a lock-in (it's too costly to switch), and that the others are just as bad. So what do they want to make? A collective-dominance case? It's not clear from what they say publicly.
About ten years ago, I raised concerns over many customers' lock-in into IBM's mainframe technology. But here, it does appear that there are successful migration case studies. All that the VOICE group alleges is that switching costs are so high "that no [chief information officer] would survive" such a decision. What's different from the IBM mainframe case (in which the EU, by the way, ultimately did nothing) is that SAP isn't really doing anything that would make it harder for Oracle or Microsoft to compete in the ERP market--at least I can't find any such allegations on VOICE's part.
Pollitico quotes anti-SAP blogger Shaun Snapp as saying that the general counsel of a typical SAP customer has "no clue" about the exact meaning of the terms of a software license agreement. I don't think antitrust law is meant to make up for the shortcomings of in-house legal departments.
Another argument from the same source comes down to making the exploitation of a lack of sophistication a violation of competition law: SAP offers combination discounts, and according to Mr. Snapp, the average SAP customer's "procurement team [which chooses the vendor] only cares about getting the price down."
I'd have to find out more about the complaints to be able to comment on market definition and the allegations of abusive conduct in more detail. But what they've made public so far is pathetic.
I do wish to stress that copyright is far narrower in scope than patents, so it's simply not like the way SAP factors the use of third-party products in when determining a license fee could in any way be compared to, say, SEP abuse by Nokia and its partners in crime. What Nokia does has very negative implications for automotive suppliers and their direct and indirect customers all the way down to consumers--and those who will likely suffer the most, though they're far smaller and therefore in a weaker position, are all those Internet of Things startups that face shakedown after shakedown from SEP holders. But that's because patents are broad, and a SEP doesn't even have to be broad: just by virtue of being essential to a standard, it can keep someone out of a market (if an injunction gets enforced).
I'm not saying that no one could ever violate the antitrust laws through copyright assertions, but it's like 1,000 or 10,000 times harder to do on that basis than with patents, especially with standard-essential patents, and the allegations those SAP customers make in public fall far short of persuading me that SAP needs to be investigated by the European Commission or the Federal Cartel Office of Germany. I may comment on this again on some other occasion.
In the automotive SEP licensing context, Mrs. Vestager need not feel any conflict of interests: on the bottom line, the digitization of Europe's economy would benefit from component-level licensing, not only with a view to the automotive sector but also considering IoT, so even if it had to happen over Mr. Breton's objection, the Commission should take action, which is overdue now that the fourth SEP injunction has come down against Daimler since mid-August. In the SAP (by coincidence, a difference of just one letter vs. "SEP") context, it appears to me that there simply may not be a case to begin with. Rejecting those complaints is probably just a reasonable application of competition law, as opposed to an inhibition to go after a "European champion."
Share with other professionals via LinkedIn: