Saturday, October 23, 2021

EU competition chief's tough talk on cartels doesn't bode well for automotive SEP licensing negotiation groups

This is my second of at least three consecutive posts on automotive patent licensing issues. The previous one discussed the L2 Mobile Technologies v. Ford Motor Company case that is pending in the District of Delaware.

At the annual conference of the Italian Antitrust Association, the European Commission's Executive Vice President and competition commissioner Margrethe Vestager gave a speech yesterday that ushered in--as its title promised--"a new era of cartel enforcement." The manuscript was published on the Commission's website.

1+1+1=3. Mrs. Vestager vowed to crack down, inter alia, on (i) novel types of cartels and (ii) buyer cartels, and (iii) recalled recent enforcement action against (German) car makers. Automotive standard-essential patent (SEP) licensing negotiation groups (LNGs) are the combination of all of that. Further below I'll quote the relevant passages, which speak for themselves. If this doesn't serve to discourage car makers from advocating a solution that is inherently worse than the alleged problem it purports to solve, what else will?

If you haven't previously read my thoughts on collective licensing negotiation groups, here are the links to all parts of my late-July 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

In the passages from the speech that you find below, any emphases were added by me to highlight certain keywords.

Novel types of cartels (i); automotive cartels (iii)

In one way or another, most of the cartels we deal with are still fundamentally about fixing prices. But sometimes, what we want as consumers is not so much a cheaper product as a better one. More and more, for example, we want to be sure that the products we’re buying won’t harm the environment. So a cartel that holds back improvements in the quality or the sustainability of the products we buy can be just as harmful as one that fixes prices.

This is why we took our decision in July against the five German carmakers who limited competition between them on how effectively they would clean the exhaust of their diesel cars. The cartel took place within what was otherwise perfectly legal, even beneficial, technical cooperation. The companies were developing a new cleaning technology that used an additive, which they called AdBlue, to remove harmful nitrogen oxides from car exhausts. And they needed to cooperate to tackle the practical challenges – to set up a network of AdBlue filling stations, for example, or to design a standard pump nozzle that would fit any car.

But they crossed the line into illegal collusion when they indicated to each other that they wouldn’t aim at cleaning beyond the level required by the legal standard. They knew they could remove even more pollution than the law required, by injecting more AdBlue into the exhaust. So they could have competed to attract environmentally-conscious consumers, by making even cleaner cars. But instead, they chose not to compete for the best possible cleaning performance.

A case like this can be a powerful deterrent, showing companies that they can’t escape the rules, by colluding in novel ways.


[...] And at a time like this, it’s more important than ever that we keep our markets working fairly and well – not least, by taking firm action to tackle cartels.

That’s why we’re investing so much at the moment, to make sure our work stays relevant. It’s why we’re developing new ways to spot cartels, and why we take an interest in new types of cartel, as well as more familiar ones.

Buyer cartels (ii)

In the last few years, for instance, we’ve dealt with several cartels that manipulated industry reference prices, rather than fixing final prices. Last year, we fined four ethylene buyers more than 260 million euros, for conspiring to reduce the reference price that was applied in long-term contracts.

Buyer cartels like this one may not raise prices for consumers. But that doesn’t make them some sort of victimless crime. They still make our economy work less efficiently. And they still have direct victims – even if it’s suppliers, not consumers, who suffer.

And some buyer cartels do have a very direct effect on individuals, as well as on competition, when companies collude to fix the wages they pay; or when they use so-called “no-poach” agreements as an indirect way to keep wages down, restricting talent from moving where it serves the economy best.

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