Wednesday, June 15, 2022

Apple, Continental, astroturfers use IoT as pretext for general devaluation of standard-essential patents in submissions to European Commission

This is my second post on submissions made by stakeholders to the European Commission's Directorate-General for the Internal Market (DG GROW) in response to its consultation regarding a "new framework for standard-essential patents [SEPs]." I have previously discussed Qualcomm's and Nokia's submissions, which call out Apple on its pursuit of the devaluation of SEPs.

While Internet of Things (IoT) products are indeed a major opportunity for European tech companies, I oppose any attempt to use the needs of small IoT companies as a pretext for a broad SEP devaluation agenda. It would be more than foolish to believe that the world's richest corporation--whose astroturfers even sponsored and organized an interview with a small app developer about SEP licensing issues though it's absolutely clear that it never had to license SEPs--truly cares about any licensing challenges that IoT startups may or may not face. About half of Apple's submission to the EC is a Charles River Associates paper on SEP licensing in the IoT sector, followed by another Charles River piece on small and medium-sized businesses and SEP licensing. Those Charles River papers are propaganda pieces styled as serious research.

Give me a break. Does Apple truly care about "transaction costs inefficiencies" (a quote from the first page of Apple's submission)? It has a licensing department, and an annual litigation budget in the billions of dollars (an Optis v. Apple FRAND trial is taking place in London).

Apple quotes CRA's claim that "if licensing takes place at the component level instead, licensing transaction costs would be reduced by 99% in the IoT sector." Those actually working in SEP licensing can tell the EC about the practical challenges they face, especially when an end-product maker claims the patents have been exhausted but suppliers aren't--or at least aren't verifiably--paying royalties.

IoT is a huge and heterogeneous field in which you find everything from a simple smart meter, which may transmit a minuscule amount of data once or a few times per day, to connected cars, airplanes, and smart factories. In order for SEP holders to be fairly compensated for how their IP is put to use, they must be able to differentiate between fields of use, which is definitely most efficient at the end-product level.

What's even more important here is that transactional efficiencies can be achieved in various ways. For example, Nokia reached an agreement with Nordic Semiconductor that gives the chipmaker's customers a simple and straightforward option to license Nokia's SEPs.

Creative people will come up with new ideas, and reasonable people will implement them in commercially viable--i.e., efficient--ways.

Apple's submission (including the annexes, which were mostly produced by CRA) mentions IoT approximately 250 (!) times. But what Apple cares about is just its own profitability in smartphones, tablets, desktop computers, laptops, and soon also cars.

It's telling that Apple is stalling in the Eastern District of Texas--after initially demanding that its FRAND dispute with Ericsson be put on the fast track--because its SEP devaluation agenda will have to be discussed in open court at the December trial. Judge Rodney S. Gilstrap of the United States District Court for the Eastern District of Texas has meanwhile scheduled a hearing on Ericsson's first motion to compel for early July.

Knowing that it can't credibly speak on behalf of small and medium-sized IoT companies, Apple funds astroturfers. ACT | The App(le) Association's submission refers to the organization's "small tech business members"--but there is no indication of those "members" really having gone through the process that genuine industry associations have in place to admit new members. Instead, anyone who signs up for a newsletter is counted as a "member" without any vetting and, especially, without ever paying any membership dues. The total amount ACT | The Appl(le) Association collects in membership fees per year is apparently zero. All of its funding comes from Apple and a few others.

Another company incessantly pursuing the devaluation of SEPs is Continental. Its U.S. "antitrust" case against the Avanci patent pool and some of its licensors (most notably Nokia) is going nowhere as the Fifth Circuit panel will simply modify the appellate opinion but reach the same result, as I also told Law360 in an interview yesterday. As the Fifth Circuit found, Conti can't establish any injury as its customers can take an Avanci license.

In its submission, Conti portrays itself as not only an automotive supplier but also as a component maker for IoT. Conti says "patent pools must always merely be an alternative option to bilateral licenses, and cannot be permitted to act coercively to steer licensees to the pool and away from bilateral licensing." Actually, the Avanci pool is an alternative option and doesn't prevent its licensors from entering into bilateral licenses (such deals have indeed ben concluded).

All that Continental really wants it what it calls a "fair negotiation safe harbor." That's a euphemism for hold-out.

Conti, too, seeks to leverage IoT for its purposes. Tellingly, one of the documents it submitted to the Commission says this:

"In neither category [meaning wireless standards and codecs] do we see a significant share of cases targeting IoT products, despite the rapid growth of those markets in recent years."

The paper tries to explain this away by arguing that it just hasn't happened yet and the patent assertions would come later. But even if that were so, it means there's no clear and present danger of small and medium-sized IoT companies being drowned in lawsuits unless the EU were to regulate SEP licensing in that sector. At a minimum, Conti's submission shows that it's not an urgent or acute issue. The Nokia-Nordic deal I mentioned further above is just one example of what can be done to address any concerns. And for now, those concerns are hypothetical, as Conti's own submission concedes that there's practically no litigation targeting IoT products. I can confirm that from my vantage point as a SEP litigation watcher...

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