Friday, February 12, 2021

Ericsson VP's dissent from European Commission's expert group report on standard-essential patents draws mockery

On Wednesday, the European Commission finally published the report furnished by its group of experts on licensing and valuation of standard-essential patents (SEPs). As I noted in my commentary, it's not binding on the Commission or anyone else, and it's a collection of different perspectives and proposals. Given that it is what it is, it came as a bit of a surprise that Ericsson vice president Monica Magnusson wrote a dissenting opinion that was published along with other materials accompanying the report. I like the fact that U.S. judges write dissents and concurrences to express minority views, but the expert group report in question was so inclusive that everyone can find something to like and something to disagree with, which should render it unnecessary to distance oneself from it. The report is equidistant from the two camps.

Nevertheless, Mrs. Magnusson wrote her dissent, "with sadness" and despite holding her "fellow Expert Group members [...] in high esteem." The reason she views the expert group's as a "lost opportunity" is that it "lack[s] a common position on the current situation and future challenges" (which Reuters also noted). And she criticizes that the numerous "opinions and suggestions are often not accompanied by any empirical evidence and often include methods broadly rejected by courts." I wouldn't confuse an expert group for a research team, and in my observation, patent monetization-focused companies like Ericsson believe that the conclusion of license agreements under the threat of injunctions or in connection with commercial agreements constitutes "empirical evidence" of the reasonableness of certain licensing models.

Politico Pro accurately notes that Ericsson's dissent is driven by a desire to protect its patent licensing stream (actually, they want to grow those revenues), and goes on to question whether this kind of "drama" was needed.

As I disagree with Ericsson on substance, I'm glad to see that Ericsson got much less out of its participation in this expert group than it hoped--and I wouldn't have known for sure if not for that dissent. It's at least debatable whether a dissent was needed from a paper that doesn't take a side, though it may very well be that Ericsson was concerned about some of the suggestions in the expert group report potentially impacting litigation (if one of Ericsson's adversaries used them as persuasive authority and pointed to Ericsson's own participation). At any rate, I don't fault Ericsson for its fighting spirit. I wish some of the organizations I agree with on substance--such as certain automotive companies--were just 10% as aggressive as Ericsson.

For example, last April there was a conference call on German patent injunction reform, and the member of parliament hosting the call summarized his position and gave everyone one chance to contradict if he didn't accurately describe a certain consensus. What that politician said was very much against the interests of the pro-reform entities on the line, but none of them had the guts to object. On the 24th, the German parliament's legal affairs committee will hold a hearing on patent injunction reform, and the list of panelists is outrageously lopsided. If those advocating reform were committed to their cause, and not as weak as they are, they'd protest and even refuse to let a representative of the German automotive industry association (whose knowledge of IP policy is limited) participate. Faced with the choice between the two extremes, Ericsson simply does a far better job than certain losers, and I respect that fact, though I respectfully disagree with Ericsson's positions.

There is, of course, also a middle ground between those two extremes. The only other write-up about the expert group report by a member (other than Ericsson's dissent) that I've found so far is an SSRN paper by Professor Damien Geradin. His positions on component-level licensing are not aligned with Ericsson's, and in that paper he shares "some personal thoughts" such as that the expert group meetings were "a complex, time-consuming, and on occasion frustrating exercise." But unlike Ericsson, Professor Geradin "enjoyed [his] interactions with the other members, and [] learned a lot."

With respect to component-level licensing (the particular topic my first post on the expert group report focused on), this passage is particularly important:

"[The report makes] a distinction between have-made rights with conditions (which correspond to what is generally understood by have-made rights) and have-made rights without conditions (which would allegedly satisfy the licensing needs of component makers). The trouble is that there is no evidence that such unconditional have-made rights are recognized by courts, and thus I am sceptical that such rights could address the licensing needs of component makers. Other solutions must be found to ensure the component suppliers’ freedom to operate."

No matter how often Ericsson, Nokia, Qualcomm etc. stress that cellular SEPs are typically licensed at the level of handsets and not chips (because of those companies and others doggedly refusing to license baseband chipset makers, except that Qualcomm is more equal than others and secures such licenses for its own baseband chips), the natural choice would still be to license as high up in the value chain as possible. That's the natural way because patent exhaustion works top-down, not bottom-up.

That paper discusses a variety of topics covered by the expert group report. So far I've focused on component-level licensing, though I may find the time next week to discuss some other SEP issues, and in that case I might also quote Professor Geradin's paper again. I believe he struck the right tone, providing additional explanations and making constructive suggestions as opposed to venting frustration or discrediting the expert group report.

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