Nokia and Daimler just announced--in a minimalist fashion--the settlement of their standard-essential patent (SEP) dispute after more than two years of infringement litigation and closer to three years after Daimler filed its EU antitrust complaint against against Nokia. All pending cases will be withdrawn now, which most significantly entails that the European Court of Justice (the upper division of the Court of Justice of the EU) won't address the Dusseldorf Regional Court's questions regarding the application of EU antitrust law to component-level licensing and SEP injunctions in case no. C-182/21. That said, there'll most likely be Groundhog Day pretty soon and some other case(s) raising these issues will be sent to Luxembourg, possibly separate ones for the component-level licensing question on the one hand and SEP injunctions on the other hand.
The Nokia ECJ case was going to be a hot summer topic, as the European Commission, the 27 EU Member States and the 3 EEA-only states (European Economic Area) were going to file their written observations in August. Next time, however, the referring court(s) could optimize the wording of the questions presented for a preliminary ruling.
A journalist asked whether Nokia granted Daimler a direct license, and this was confirmed, meaning that various Avanci contributors could still demand patent royalties from Daimler and bring infringement complaints. Daimler previously took licenses from Avanci contributors Sharp and Conversant after those companies indirectly licensed most of Daimler's vehicles through a component-level deal with Huawei. Huawei sells network access devices to certain Daimler suppliers such as Continental and Samsung-owned Harman. Patent exhaustion works all the way downstream.
Being a tier 2 supplier to Daimler (meaning that Daimler buys from Huawei's customers), Huawei demanded a component-level license from Nokia and brought a Dusseldorf antitrust action in the form of a third-party counterclaim. The Dusseldorf Regional Court put that Huawei v. Nokia case on hold after it decided to refer the dispositive question of component-level licensing to the ECJ. Unless Huawei and Nokia have also reached an agreement (and there is nothing in the announcement that suggests so), this means the Dusseldorf court may now refer that case--in which Huawei demands that Nokia make an exhaustive component-level SEP licensing offer on FRAND terms--to the top EU court.
In that case, Part B of the questions for the ECJ (injunctive relief, application of Huawei v. ZTE) is not at stake (and either the lower ocurt or the appeals court in Dusseldorf could simply raise those questions with the ECJ in any other SEP case before them, such as the ones I blogged about yesterday, at least two of which have been appealed to the Dusseldorf Higher Regional Court). But Part A, possibly with some modifications, is outcome-determinative in Huawei v. Nokia, too (at least to a large extent). If the Dusseldorf court did another referral, I would strongly recommend streamlining the wording. It is possible to be sufficiently clear, yet reasonably focused. There are better ways to raise the same question, as it is not necessary to provide numerous qualifiers for what is simply called a "FRAND-pledged SEP". The FRAND pledge may not even be relevant here at all in a compulsory-licensing case. This is not a U.S. SEP case based in contract law; in the EU it's an antitrust matter.
But would it really be desirable to resolve component-level licensing in what will be portrayed in the political arena as a Chinese-European dispute?
On the one hand, Huawei has made SEP litigation history in the EU with Huawei v. ZTE. That, however, was originally a dispute between two Chinese players. Now that "digital sovereignty" is a high political priority for the EU, I strongly urge European automotive suppliers such as Continental, Bosch, Valeo, TomTom and BURY Technologies--and also a company like Gemalto, which had filed an EU antitrust complaint against Nokia--to bring their own Dusseldorf lawsuits against Nokia, modeled after Huawei's case. They might even sue one or more or other SEP licensors who refuse to extend component-level licenses. The Dusseldorf court would almost certainly consolidate those cases, and Presiding Judge Sabine Klepsch of that court's 4c Civil Chamber would ideally refer a slew of component-level licensing cases to Luxembourg.
This would have major political advantages:
Nokia and its allies could not portray the matter as a Chinese attack on European IP, European innovation, and European digital sovereignty, which is a mischaracterization at any rate but might nevertheless be politically impactful unless some European automotive suppliers enter the fray.
The EU Member States from which the other potential plaintiffs originate would find it hard to go against their own in their written observations.
Even if one or more of multiple disputes raising the same issue got settled along the way, it would take only one surviving dispute for the ECJ to hear and adjudicate the matter.
So far, Daimler's suppliers--apart from Huawei, which took the lead on the FRAND enforcement front--joined the infringement cases intervenors, with the courts in Munich and Mannheim not being overly interested in what they had to say, and some of them such as Continental and Valeo additionally filed antitrust complaints with the European Commission's Directorate-General for Competition (DG COMP) in early 2019.
Daimler's own DG COMP complaint is history. Daimler will also find it hard to persuade the EU in the future that it really cares about a policy issue and not just money. From what I heard, the Commission always suspected (and therefore urged mediation at some point) that Daimler just wanted to bring down the royalty rate and didn't genuinely care about whether its suppliers would be exhaustively licensed. By taking several SEP licenses at the end-product level, Daimler has validated its critics and skeptics. There's a right way and a wrong way to settle. The right way is the principled one; the wrong way is one that exposes all prior statements as hypocrisy.
Whether Daimler benefited from this protracted litigation in the end is unclear. A standard Avanci 4G license would cost $15 per car, of which Nokia gets about $2.50. It's always possible in such settlements that someone pays a high nominal rate, but side letters provide kickbacks. Here, given that Daimler doesn't have cellular SEPs of its own to cross-license and can't sell chipsets or similar components to Nokia, it's not too likely that it's a great deal for them. The price Daimler primarily pays here is its credibility, and now any other SEP holder will be a in strong position to defeat them in court unless they agree to take a car-level license. Then, Tesla (though not officially confirmed) and BMW have done the same already. Volkswagen is a special case, as I mentioned toward the end of this recent post: it appears they mostly just have a 3G license.
Avanci will announce its 5G rate in the not too distant future, and that may further raise Daimler's licensing costs.
Automotive suppliers like Conti and Valeo may previously have been hesitant to bring their own FRAND enforcement actions against Nokia as it might have reduced the likelihood of DG COMP launching formal investigations. At this point, however, we all know that the European Commission would also have preferred for the matter to be resolved by the CJEU. It's also well known that French EU commissioner Thierry Breton is proud of certain European companies' large SEP portfolios. It's time for the automotive industry to face political reality, even though I'm sure the Commission's case handlers and even their direct superiors understood the issue and its implications for IoT companies (many of which are startups and just don't represent a match for SEP holders in licensing negotiations). The fact that Daimler ultimately wasn't really interested in getting the strategic issue resolved does nothing to persuade the European Commission to investigate the suppliers' complaints, especially in light of a clear and promising litigation path via Dusseldorf.
Some automotive suppliers must come clean now. I've heard from both net licensors and net licensees that not all suppliers are as pure and principled as they would have us all believe. It's one thing to tell a court in an infringement proceeding that one wants to take a license and another to actually try to make it work. Some entities are credible to me, just looking at their own efforts; others because of what I know on a confidential basis; and then there are some, whom I cannot name, who allegedly just refer SEP holders to the end-product makers.
The settlement announced today may be a setback for the cause of component-level licensing in the short term, but it's up to the automotive industry--particularly to automotive suppliers--to draw the right conclusions and step up to the plate. I'm cautiously optimistic that at least some of them will. Their strategies were flawed, which also applies to the cause of German patent injunction reform (which may not even happen during this legislative term), but everyone is free to learn from their mistakes and do better next time.
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