Thursday, April 7, 2022

European Commission endorses car-level licensing and enforcement of standard-essential patents in answer to Member of European Parliament: unhelpful to Thales, Conti etc.

When Members of the European Parliament (MEPs) ask the European Commission (EC) written questions, they're entitled to an answer, but rarely are those replies meaningful. They tend to be abstract and evasive. If not for one rather interesting aspect that I'll highlight in a moment, the same could be said about EU trade chief and EC EVP Valdis Dombrovskis's answer to questions regarding competitive distortions caused by unwilling SEP licensees among non-European car makers. I commented on the most interesting one of MEP Alfred Sant's three questions about automotive standard-essential patent licensing last month.

The former prime minister of Malta had raised an objective concern--with companies like Volkswagen, Daimler, and BMW being Avanci 4G licensees while Japanese car makers (to name just one major industrial country) are notably absent from the list of licensee. Furthermore, two European SEP holders are key players in cellular standards. Different studies arrive at divergent results on market share, which is why Ericsson's IP chief took to LinkedIn this week. Given the EU's economic interest on both the licensor and--from a level-playing-field point of view--licensee side, a more substantive and action-oriented response would have been warranted. But the EC's modus operandi with respect to parliamentary questions has always been like that, which doesn't mean that such questions don't raise awareness for issues (even though it may appear like those questions are more or less ignored).

That said, the EC's answer to MEP Sant's questions does contain a pretty clear statement on a key issue in automotive SEP licensing:

"Through the Commission’s competition enforcement and the subsequent Huawei vs ZTE judgment by the Court of Justice of the European Union, the EU has established a system that mandates a number of procedural steps aimed at avoiding abuses and, provided that those steps are complied with, ensures that any holder of EU SEPs can get injunctions before national courts in the EU against any implementer of the SEPs, including car manufacturers, that are unwilling to take a licence on fair, reasonable and non-discriminatory terms." (emphases added)

So, the solution that the EC proposes is for SEP holders to sue infringing car makers in the courts of EU member states.

The EC's draft horizontal guidelines (PDF) recite the language in Huawei v. ZTE according to which SEPs must be licensed "to [all] third parties" (or "to any third party"). That, however, is not a rejection of the "access to all" argument according to which it's sufficient to license car makers. Also, those horizontal guidelines only have a bearing on future decisions by standard-setting organizations as opposed to existing standards.

Much to the contrary, the EC's answer to MEP Sant shows that SEP holders are free to enforce patents against infringing car makers, which under Huawei v. ZTE means they can use the leverage they get from patent injunctions to require car makers to license those patents.

The EC wanted to deflect the MEP's call for a more proactive approach to trade policy with a view to unwilling licensees in the automotive industry by recommending private enforcement. Intuitively, the level of the supply chain at which the EC suggests such private enforcement is the end-product level: the car. Not the telematics control unit (TCU), network access device (NAD), or baseband chipset.

The EC's proposal for how to tackle the problem of unwilling licensees in the automotive sector is similarly results-focused as the rationale behind the Continental v. Avanci decision by the United States Court of Appeals for the Fifth Circuit, which affirmed the lower court's result--the dismissal of Conti's case--and even identified an additional reason. Conti has until one week from today for filing its petition for a rehearing. That petition is a given, as Conti requested (and obtained) an extension for it. The EC's answer to MEP Alfred Sant doesn't directly relate to the question of Article III standing in the United States, but the EC appears to be on the same page as the Fifth Circuit on the question of whether access to all is a pragmatic solution.

Another automotive supplier, Thales, is suing Avanci and Nokia in Munich, where a trial has been scheduled for September 2022. The Munich I Regional Court's position on licensing in the supply chain has been clear and consistent. That's one of the reasons for which I don't expect Thales to achieve anything. The EC's response to MEP Sant just shows once again that even the EU's executive branch of government doesn't take issue with the licensing practices (Avanci) and enforcement strategies (Nokia) Thales is challenging. Based on the EC's interpretation of Huawei v. ZTE, Thales has no case.

There are--and always will be--license deals at the component level. But most of the time, car makers will have to take a license at the end-product level lest they be enjoined. Based on its answers to MEP Sant, the Commission clearly has no problem with SEP holders seeking and enforcing injunctions against unlicensed car makers in the courts of any EU member state. Otherwise the EC would have suggested enforcement against upstream suppliers.

Share with other professionals via LinkedIn: