Thursday, July 29, 2021

Daimler reloaded: another automotive company takes patent license from Nokia, which consistently insists on end-product-level licensing

There's a big "See I told ya so" waiting for you toward the end of this post as far as patent licensing to car makers is concerned, but let's look at this news in a logical sequence of steps:

Nokia just sent out its earnings release for the second quarter (and the first half) of 2021. Irrespectively of how strongly I've sometimes disagreed with their positions in litigation, I always read their statements and have an active subscription to their news releases. What immediately struck my attention in today's announcement is this passage:

"Nokia Technologies continues to scale with two licensing agreements with automotive manufacturers including Daimler." (emphasis added)

That "including" part suggests they're not going to disclose the name of the other party than Daimler. Nokia's victory over Daimler--getting the Mercedes maker to take a car-level license after more than two years of litigation and nearly three years after Daimler's EU antitrust complaint over the question of where in the supply chain standard-essential patents (SEPs) should be licensed--was announced in early June.

The following part of Nokia's "Q2 2021 Investor presentation" (PDF) doesn't state the second name either, so unless someone leaks something, or whenever it gets mentioned in open court (because of the non-discrimination part of FRAND), we're not going to know (click on the image to enlarge):

It's not just highly unlikely but even unthinkable that Nokia, despite getting its way in the largest-scale and highest-profile automotive SEP dispute ever, would have changed course and granted an exhaustive and otherwise unrestricted license to an automotive supplier. The most plausible scenario is that after Daimler's defeat someone else decided that hold-out was just going to cost a ton of legal fees, for nothing.

You can't argue with success. Or, as investors often say, the trend is your friend.

If it were up to me, I'd prefer Avanci and all of its members (as some do) to offer an exhaustive component-level license at the chipset, network access device (NAD), and telecommunications control unit (TCU) level. But I don't get to decide. Marconi, the company behind Avanci, can do only what its members are able to agree upon. Apart from a few hold-outs, car-level patent licensing is now uncontroversial. It's a fact of life.

I doubt that those automotive patent deals are large enough to be a key factor behind this bullet point of today's earnings release:

"Considering our strong start to 2021, we revise our full year 2021 Outlook, including net sales expected to be EUR 21.7bn to 22.7bn (previously EUR 20.6bn to EUR 21.8bn) with comparable operating margin in the range of 10-12% (previously 7-10%)."

However, patent licensing in general seems to be working out well for them. The Daimler dispute cost a lot of money, but appears to effectively dissuade others from picking that kind of fight. By contrast, Daimler wasted tens of millions of euros--and the result is just that anyone else can sue them now and force them to take a car-level license, which sooner or later will make an Avanci license look cheap.

What does Nokia's announcement of not one but two automotive patent license deals mean for the wider automotive patent licensing debate?

"See, I told ya so." Joint licensing negotiation groups (LNGs) are not necessary to work out license agreements between cellular SEP holders and automotive companies. No matter how hard Volkswagen and some of its allies may be pushing for the legalization of otherwise highly anticompetitive buyers' cartels, the market keeps proving them wrong. Today's announcement doubly debunks Volkswagen's LNG story:

  • Deals keep falling into place without LNGs, so the plot is thickening that the real issue is a group boycott by unwilling licensees (from which more and more companies are defecting).

  • Avanci members like Nokia are not only contractually and theoretically, but in every practical sense, free to enter into direct license agreement with automotive industry players. That means Avanci is truly just one additional option, a one-stop option for more than three dozen portfolios, but not a licensors' conspiracy.

As a regulatory authority or policy maker, I would find it a very clear case to politely decline any invitation to authorize a buyers' cartel likely to slow down the licensing process and organize group boycott (as the Japanese government noted earlier this week) when there is not only a Business Review Letter by the USDOJ but also hard real-world evidence--actions speak louder than words--of there being no licensors' cartel that would have to be counterbalanced (apart from the fact that two wrongs don't make a right, so even if there were a sellers' cartel, the solution would not be to allow a buyers' cartel). Who would want to turn antitrust law on its head against all the empirical evidence from the market--and knowing that it takes only one major jurisdiction to break up a cartel?

It always feels good to see one's analysis validated. It feels even better when it happens so quickly. It's just one deal with an unnamed car maker, but previously BMW had taken an Avanci license in 2017, Volkswagen had taken a limited one (and has otherwise continued to infringe, so I wonder when they'll get sued), Tesla according to rumor settled multiple parallel lawsuits by means of an Avanci license, and Daimler took a car-level license from Nokia. And now another deal happened, without litigation because otherwise we'd know.

I'll ask around to find out more and will do a follow-up post if and when warranted. But there may already be news deals and/or new lawsuits by the time I find out the licensee's name. Also, I guess Huawei will continue to make headway with its automotive patent licensing efforts.

One thing I try hard not to be is obtuse. Opinionated I am, but that's another word starting with the same letter. Rationality forces me to recognize what has happened and where things are going. This is an unstoppable wave. Licensing--not lobbying--is the answer.

If you haven't previously read my thoughts on collective licensing negotiation groups, here are the links to all parts of my recent trilogy:

  1. SEP Licensing Negotiation Groups -- Part I: analogy to patent pools entails false symmetry between facilitating and complicating automotive patent licenses

  2. SEP Licensing Negotiation Groups -- Part II: justice delayed is justice denied when unwilling licensees can hide behind a consensus-building effort

  3. SEP Licensing Negotiation Groups -- Part III: legalization of buyers' cartels would invite group boycott and collective hold-out

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