Make games not war: protecting competition & markets would preserve the CMA's authority after its outlier ruling on Microsoft's purchase of Activision Blizzard

The UK part of the Microsoft-ActivisionBlizzard merger process is standing at a crossroads (click on the image to enlarge):

There has been news in recent days concerning each of the three ways forward:

• The President of the Competition Appeal Tribunal (CATribunal or just CAT) of the United Kingdom, Mr Justice Marcus Smith, conducted an initial case management conference on Tuesday.

• The possibility of Microsoft and Activision Blizzard closing the deal over the Competition & Market Authority's objection was already recommended last month by Macquarie, one of the world's largest investment banks. On Thursday, MLex reported that Microsoft has an external legal team (or a team of teams) analyzing strategies for consummating the transaction despite the CMA block. The short term for that option is "closing over [the CMA]".

• On Friday, Bloomberg also obtained confirmation of "closing over" being contemplated, but what's more important, Microsoft's president will meet with the UK's Chancellor of the Exchequer and CMA officials next week:

  Microsoft President Brad Smith meets UK Chancellor Jeremy Hunt next week to vent his frustration at Britain's veto of the $69 billion takeover of Activision https://t.co/X5cHqct0y6

  — Bloomberg UK (@BloombergUK) June 2, 2023

  In a CNN interview on Wednesday, Mr. Smith said Microsoft was "determined" to make the acquisition work, and focused on finding solutions. To me that means the deal will go through, but it should go through on the most positive basis.

The current merger agreement expires on July 18. That's only about six weeks from now. The parties couldn't appear more committed to this transaction, but at some point there must be closure. As a litigation watcher, I'd love the parties to take the left turn (CAT) or to "close over" (which would--as Bloomberg also notes--almost inevitably give rise to even more, and more protracted, litigation). The "ABK" (for Activision Blizzard King) topic has grown my Twitter follower base from 13K to 23K in only a few months, and growth has recently even accelerated. But as an app maker and as a consumer, I keep my fingers crossed for the high-level talks in London that will hopefully yield a good result for everyone other than those opposing the deal for anticompetitive reasons.

Let's take a quick look at the three options and relevant new developments:

• Amicable resolution

  The two key benefits of a settlement of the pending appeal would be (a) that resources would be freed up immediately for other things and (b) that there wouldn't be a winner and a loser. The only question would be how all stakeholders--including (but not limited to) consumers, cloud-streaming companies, and app developers--would benefit.

  If a positive outcome was achieved, who would even care about whether the CMA or the European Commission or anyone else was right about market definition and different companies' market shares? All those questions would become merely academic.

  What I've been observing on Twitter is that the EC is now very popular among gamers. When I mentioned that the deal was a case for unconditional clearance and that I preferred the Brazilian and Chilean decisions, someone responded:

  i find the EC one with remedies being the best for Gamers

  The minority of consumers who celebrated the CMA block don't actually fear that the acquisition would result in less competition. They are "console warriors" who'd like Microsoft's Xbox to disappear without even thinking about how the removal of that competitive constraint would affect Sony's pricing and product decisions.

  The CMA's competition concern is narrow. It's all about how Microsoft might leverage ABK's games, particularly Call of Duty, to strengthen its cloud gaming service (xCloud). Into that sole remaining theory of harm, the CMA imported its previously withdrawn ones (a conglomerate theory involving Azure, Windows, and the Xbox, as well as its console gaming services ToH by arguing that some cloud-gaming business models may not be compatible with a Bring Your Own Game approach).

  I just can't see why it shouldn't be possible for the CMA and Microsoft--even more so with the most powerful minister of the current UK government moderating the talks--to figure out a win-win-win-win-win for the agency, the merging parties, gamers, cloud streaming companies, and game makers.

  The EU remedies are a natural starting point. While I believe those already go beyond what can be reasonably expected and feel that the outcome shouldn't make the EU result appear grossly suboptimal, the CMA and Microsoft may come up with something that complements them and will benefit stakeholders. Obviously that part is in the eye of the beholder. If you ask me as an app maker, I'd ask Microsoft for a firm commitment to creating a universal mobile app store as soon as possible in a relevant jurisdiction (here, the UK, where a digital markets law named DMCC Bill--crafted largely by the CMA's current CEO--may be passed into law in the near term). I was not only disappointed that the CMA's final Microsoft-ABK report discounted the procompetitive potential of such an app store but even bewildered, given that the CMA--even on the very same day--published a document that linked the DMCC Bill to the merger ruling. If there is any connection, it's that particular procompetitive justification.

  That is just one example. It's really up to the parties to work it out. A constructive solution will also go a long way toward reassuring investors of the UK not being a jurisdiction in which regulatory excess gets in the way of business. For instance, on Friday, SharePrices.com published an Alliance News article on analysts describing the UK as "less accomodating" for big business, and the negative impact that perception has on UK company valuations. On Monday, an opinion piece in the Financial Times warned that the CMA "risks undermining business dynamism" and argued that it was time for an independent review of the direction in which the CMA has been drifting over time.

• Appellate Proceedings

  Mr Justice Smith keeps pressing ahead. Since the Tuesday hearing, the court has shortened the time (as discussed there) for interventions (PDF). As a result, only those petitions for intervention that were filed before close of business on Friday will be considered. And the panel is now complete, with Professor Anthony Neuberger and the court's chairman Ben Tidswell joining Mr Justice Smith. I commented on the addition of those two high-profile members on Twitter.

  The next case management conference will be held on Monday, June 12. I didn't like the CMA's attempt to slow-roll the proceedings, which even runs counter to the current UK government's strategic steer that urges the CMA to resolve matters expeditiously in the interest of the economy. I hope they'll do better on June 12. The CMA's outside counsel, Rob Williams KC, found it extremely difficult to come up with excuses for delay. As a result, he stuttered a lot. I mentioned that fact in my live Twitter coverage because I want my audience there to hear not only what happens in strictly formal terms but also get some "color." Obviously, that wasn't meant to denigrate him as a person, and when the focus shifts from case management to the actual issues, he may perform a lot better. I'd rather not underestimate him, but can't see how the CMA could realistically avoid that its decision will be quashed--except if the matter never comes to judgment.

• Closing over

  According to the MLex story I mentioned, which was corroborated by Bloomberg, the options that are being contemplated to close the deal despite the UK situation include, but may not be limited to, closing the deal anyway and defending it in court, in which case Microsoft would argue that the CMA decision was unlawful to begin with (which is also my view), and an alternative approach where Activision Blizzard would withdraw from the UK market in order to avoid the CMA's jurisdiction and open the door to the consummation of the transaction. Activision could still serve the market through UK distributors, but would not have a presence or sell directly to UK customers.

  In a recent post I expressed concern that some regulators' disregard for the legal bounds of merger control may result in more appeals and in more Illumina-Grail-style case where deals get closed without even awaiting the outcome of a merger review.

  The stakes would be high for the CMA as its inability to prevent this deal from closing would weaken it in the eyes of future acquirers of companies. And the worst-case scenario would then be for the CMA to lose the appeal.

  Also, UK gamers would be adversely affected. Some choices available to consumers in other jurisdictions might not exist in the UK, or prices could be higher as a result of intermediaries maximizing their margins. Countless gamers might complain to Members of Parliament about the CMA if that happened.

  This acquisition is way more important to Microsoft than Giphy was to Meta--and while the Meta-Giphy decision was also debatable, it was far easier to defend than the Microsoft-ABK block.

  Until about eight days ago, I'd have been totally in favor of closing over. At this point I would prefer for the CAT to rule, given that I'm very optimistic the decision will be a bloodbath from which the CMA would not be able to recover--not in this case, and not with respect to other cases in the next few years. It's not just the appellate ruling: the hearing itself has the potential to become a nightmare for the CMA and its leadership. The assertion that Microsoft has a 70% market share in cloud gaming is so unbelievably indefensible that the CMA will look very bad if that appellate hearing goes forward.

  The CMA needs to become more reasonable, but a generally weakened CMA would not even be in my interest as an app maker. I'd like them to implement the DMCC Bill (once enacted) forcefully and relentlessly. But they must now preserve the agency's credibility and assert their authority in a constructive way.

U.S. update

In other Microsoft-ActivisionBlizzard news, the Sony-supported class-action lawyers behind the private lawsuit in San Francisco have given notice of an appeal to the United States Court of Appeals for the Ninth Circuit of the denial of their motion for a preliminary injunction. I've commented on that one in a tweet. The short version is that the appeal is most likely not even going to be heard by the court (much less decided) before the deal is closed (or, in a hypothetical alternative, abandoned).

The Federal Trade Commission (FTC) appears very afraid of losing its in-house case over the Microsoft-ABK merger. The trial will begin in less than two months. The commissioners already had (and in the Illumina-Grail case exercised) the ability to overrule the agency's Administrative Law Judge (ALJ), and now they want it to be routine procedure that the commissioners decide, downgrading the ALJ ruling to a "recommended" as opposed to "initial" decision. I commented on that one on Twitter, too. In light of the Supreme Court's Axon decision, the FTC appears to be almost literally begging for more unconstitutionality challenges.

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CMA's appalling stalling can't prevent courtroom disaster, reinforces 'closed for business' narrative -- Justice Marcus Smith moves forward swiftly and is unconvinced of agency's market definition

Mr Justice Marcus Smith--the UK's top antitrust-specialized judge (President of the Competition Appeal Tribunal (CATribunal or just CAT)) as well as a technically savvy patent judge--has indeed assigned the highest possible priority to the adjudication of Microsoft's appeal of the Competition & Markets Authority's (CMA) attempt to block Microsoft's acquisition of Activision Blizzard King (ABK, NASDAQ:ATVI). In my previous post I already said that this case--the biggest and highest-profile one in the history of the UK and one of the most important antitrust cases the world has ever seen--could further delay the Optis Wireless v. Apple standard-essential patent (SEP) ruling.

But the CMA is thankless for that effort beyond the call of duty. Much to the contrary, the agency continues to lose credibility at a worrying pace. At yesterday's initial case management conference, the CMA came across as the opposite of a responsible and trustworthy regulator. The CMA is digging itself an ever bigger hole instead of finding a way out of the mess it created because Mr Justice Smith isn't having any of that.

The term "case management conference" is almost a misnomer. Yesterday's court hearing lasted almost four hours, which I covered live in a 128-part Twitter thread. The first tweet of that thread has already been viewed about 200K times. You can click on it and work your way down to find my live commentary, or you can go to a web page generated by the ThreadReader app (though the final tweet of that thread is not shown in full there).

For the CMA and its counsel, it was a total disaster. They should be concerned for institutional reasons, and their lead appellate counsel, Rob Williams KC, not only underperformed his world-class counterparts (Daniel Beard KC for Microsoft and Lord Grabiner KC for Activision (which is seeking, and obviously can't be denied the right, to intervene): Mr. Williams's performance was as abysmal as the insane merger ruling he is trying to defend. He was literally stuttering, and it was not attributable to ab speech disorder (otherwise I wouldn't have mentioned it), but close to one.

What's most shocking is actually the CMA's political insensitivity. They didn't get the law, the technology, and the economics right in the Microsoft-ABK case because they were biased. But now it looks like they can't even read the writing on the political walls. There is that well-founded concern over the UK appearing to be "closed for business" as a result of regulatory hubris and arbitrary excess. Politicians have expressed concerns over the CMA's decision, and Prime Minister Rishi Sunak himself told the CMA via a LinkedIn post that generally addressed the issue of overregulation but also through a formal "strategic steer" document that they should make their decisions reasonably fast because businesses are impacted by protracted uncertainty. And what are they doing now? Stalling. It was unbelievable. There was practically zero substance in what the CMA's counsel said. It was all just about excuses, evasions, and pretexts for slow-rolling the proceedings, in a transparent attempt to buy the U.S. FTC time and betting on a hypothetical failure of Microsoft and Activision to agree on an extension of the merger agreement (the current one expires on July 18).

After 13 years of watching litigations of this kind, I can easily identify stalling. The CMA behaved like companies that know they infringe intellectual property rights and just hope to delay the proceedings to avoid the inevitable. The CMA wants to be saved by the bell, and Mr Justice Smith diplomatically reproached them by saying that he assumes the CMA wants to be a responsible regulator and also do its part so this matter gets resolved swiftly.

The image that the CMA projects on the UK's business environment is terrible. If politicians were concerned just based on the decision, they have even more reasons to be concerned after the CMA's litigation conduct came to light yesterday. Their excuses are ridiculous. For instance, despite the fact that Microsoft announced its intent to appeal the decision right after the decision on April 26, Mr. Williams claimed to have had only a couple of days to familiarize himself with the matter.

The CMA knows that even the wide latitude it enjoys due to the deferential Judicial Review standard won't help in the end. Its decision is not defensible. It is a general rule that lawyers will argue the facts if good for them, otherwise the law, and if neither the facts nor the law are on their side, they'll emphasize policy. The CMA's legal argument appears to come down to nothing more than how deferential the standard of review is (in other words, it's not about right or wrong, but that they believe they can get away even with wrong decisions). The facts are totally against them, and Mr Justice Smith, who has previously shown that he can understand far more complex technical questions just based on reading a patent specification, has already read the decision more than once and still can't see how the CMA arrived at the conclusion that cloud gaming was a market (as opposed to the delivery method that industry players say it is). The CMA can't make a policy argument either, other than big being bad. So it resorts to stalling.

The CMA issued that convoluted ruling in late April hoping that if there's a whole lot of factual stuff in there, the appeals court might just not dare to reverse them. They wanted to create a situation where an appellant would have to raise not just a dozen issues but possibly hundreds. And they wanted to plant so many trees that it would be impossible to see the forest. But that isn't working here, with second-to-none lawyers who know how to identify the weakest links of the chain and how to explain the issues to a court--and a presiding judge who sees through the smokescreens. He appears already to have identified that there is no reason (unless the CMA comes up with a surprise argument) why gamers couldn't just install games locally instead of relying exclusively on cloud streaming.

The other two members of the CATribunal panel have "yet to be appointed" according to Mr Justice Smith. He said that either one of the panel members would be an economist, or if none of the three was an economist, they would be assisted by one of the CAT's economists.

How could the CMA possibly shoot itself in the foot by feeding the "closed for business" narrative with its outrageous stalling tactics?

It is a mystery. On Twitter, someone gave one of the reasons: they just haven't previously been held accountable in court the way they are now, as others abandoned their mergers instead of appealing.

To be honest, this is the first time the CMA has really been challenged like this, Sainsburys/ASDA & Farelogix/Sabre both abandoned thier deal following CMA reports

Following Brexit, the new position the CMA find themselves in, is proving an issues to our international partners

— BigGeordieGeek@warhammer.social (@BigGeordieGeek) May 31, 2023

The CMA tried to deny the obvious, which is that its decision--and not the FTC's resistance, given that the FTC would need a preliminary injunction from a federal district court--is the only reason the deal can't close. Daniel Beard KC explained yesterday that in Canada an investigation is still ongoing, but enough time has passed that Microsoft could close the deal without breaking the law there by now. Mr Justice Marcus Smith can obviously see that the CMA is an outlier (I'll talk about the latest clearance decision further below) and wasn't impressed with the CMA's attempts to stall. He has set another case management conference for June 12, and while Microsoft would have preferred to start the hearing even earlier, it is definitely impressive that the CAT currently plans to hear the case in late July and early August (weeks of July 24 and 31). What they'll discuss on June 12 is, among other things, whether Microsoft may have to forgo some of the opportunities to rely on expert evidence in order to keep the schedule.

The CATribunal will hand down a judgment in the summer. It's hard to see how the CMA could avoid a potentially humiliating defeat. The best they can do now is find an exit from all of this.

I had to update my timeline chart twice yesterday. First there was news from South Korea, with the Korea Fair Trade Commission (KFTC) granting unconditional approval to the purchase. This means the deal has been approved by the regulators in charge of 39 countries with a collective population size of more than 2.4 billion people (more than 36 times the size of the UK) and an aggregative GDP of $44 trillion (14 times the size of the British economy). And then I also wanted to reflect Mr Justice Smith's case management plans. It's interesting that the FTC trial and the CAT hearing may overlap (click on the image to enlarge):

Since the CMA made its absurd decision on April 26, there's only been good news for the transaction. The week in which the EU cleared at the beginning and China toward the end was remarkable, but so was yesterday when the Korean clearance decision was followed by a CAT hearing that was dreadful for the CMA.

The CMA is now basically being a ghost driver who thinks that all the other cars coming in the opposite direction are on the wrong side of the street. It's high time they turned around.

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Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard); GenghisComm sues Toyota over SEPs; updates on Nokia-OPPO, KPN-Ericsson

This is a roundup post that discusses four different standard-essential patent (SEP) disputes and multiple jurisdictions. Quick links:

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

3. Nokia invalidated OPPO patent-in-suit

4. KPN defended one of patents-in-suit against Ericsson earlier this month

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

It's been almost a year since the Optis Wireless v. Apple trial in the High Court of Justice in London, but no decision has come down yet. In a similar case, InterDigital v. Lenovo, it took Justice Mellor similarly long as those FRAND (fair, reasonable, and non-discriminatory) rate-setting cases are incredibly labor-intensive for the courts adjudicating them.

The judge presiding over the FRAND part of the Optis v. Apple case is Mr Justice Marcus Smith, whose reputation extends not only to patent but also competition law: he is the President of the Competition Appeal Tribunal (CATribunal, or just CAT) of the United Kingdom.

It is not unusual for judges to divide their time between two courts. In fact, numerous European patent judges are doing so now between national courts and the Unified Patent Court (UPC). Since a few days ago, Mr Justice Smith is presiding over an antitrust case that is by far the biggest in the CAT's history, not only in terms of what's at stake (Microsoft's $68.7 billion purchase of Activision Blizzard) but also the enormous public and media attention--and on top of all of that, it's a matter that the UK's Prime Minister (who stressed the CMA's responsibility for growth and investment), Chancellor of the Exchequer, and its Parliament's Business and Trade Committee are concerned about.

Microsoft filed its appeal of a Competition & Markets Authority (CMA) merger-blocking decision on Wednesday evening UK time. Mr Justice Smith published the summary of the grounds of appeal (PDF) approximately 48 hours later and scheduled a case management conference for Tuesday (May 30). I already predicted at the beginning of this month that he would personally preside over that ultra-high-profile appeal. After yesterday's publication of the summary of the appeal, I commented on the grounds of appeal in a 40-part Twitter thread and added some further commentary on the comity part.

I'll live-tweet about the case management conference on Tuesday.

The deal has been cleared by the regulators who decided the matter for 38 countries (30 of them European Economic Area member states), with a collective population of 2.4 billion and aggregate GDP of $45 trillion, so if not for the CMA's absurd ruling, the deal could actually close now. But the CMA's leadership would like their agency--which the CAT has to overrule fairly often if one considers the deferential standard of review called Judicial Review--to be the world's policeman for major mergers, especially major tech mergers. There is profound concern in the UK over the CMA's eccentricities and regulatory overreach, and the CAT is now called upon to restore sanity and curb megalomania.

The CMA is now an outlier on the global stage. The only regulator to agree with them is the FTC, which under its current leadership opposes virtually any merger it gets to review and openly admits it doesn't care about losing in court all the time. The CMA decision is so clearly biased and incorrect that more and more people are wondering whether the reason is not just regulatory hubris or a lack of understanding of the technology markets involved, but whether it is even attributable (at least in part) to bad faith. My personal opinion is that a good-faith merger decision where the regulator looks at all of the evidence with an open mind and strives faithfully to apply the law to the facts definitely looks different.

There are mistakes that can be adequately explained with a lack of diligence (the CMA totally embarrassed not only itself but the UK and its government when the provisional findings--the equivalent of the Statement of Objections in the EU--subtracted only one year of costs from five years of benefits. The CMA corrected that mistake after Microsoft pointed it out, and revised the provisional findings. That was almost certainly just a lack of diligence. But the final decision just showed that before the merger review even started in earnest they must have been hellbent on blocking the merger. After they had to give up their primary theory of harm (vertical foreclosure affecting Sony in the videogame console market) and even prior to that realized they had to drop a "conglomerate" theory (involving Windows (an open platform), Azure (an easily substitutable commodity), the Xbox, and Activision Blizzard's games), they simply shoehorned those failed theories of harm into a "cloud gaming" theory of harm.

Weeks before Microsoft filed its appeal, the gamer community had already identified and discussed plenty of issues on Twitter and discussion boards. The decision is not just flawed or extremely wrong. It's a lot worse than that.

Against that background, gamers and other observers of the process can't be blamed for asking questions about the impartiality of the person who according to what a reporter from a major news agency told me "basically made the decision for the CMA": the agency's Senior Director of Mergers, Colin Raftery. Only because I wanted my many Twitter followers with an interest in that merger topic to understand that an unbalanced panel might respond to a historic speech by EU antitrust chief Magrethe Vestager on the same day, I mentioned--and proved based on a LinkedIn screenshot--that Mr. Rafferty started his career and spent seven years at Cleary Gottlieb Steen & Hamilton, a firm that has been consistently adverse to Microsoft for decades and is representing the most vocal critic of the Activision deal--Sony Interactive Entertainment--in its worldwide complaints, also in the UK. Cleary also advises Google, the other (and less vocal) complainant, but not in this context it seems. That factoid was picked up by Windows Central, and other media reported as well. On social media (Twitter, TikTok etc.) there was widespread outrage. My personal opinion is that none of us knows what Mr. Raftery's personal relationship with the Cleary lawyers opposing the deal on Sony's behalf--and with Sony's executives--is, so the truth could be anything from reassuring to mildly disconcerting to problematic.

It turned out that Mr. Raftery was previously instrumental to a merger-blocking decision that favored a former client. And it doesn't look good that the CMA takes an extreme position on a vertical merger now (Microsoft-ActivisionBlizzard) while it allowed Sony to make a horizontal acquisition of particular relevance to the UK market.

It now befalls Mr Justice Smith and his CATribunal to ensure a legally correct outcome and to restore the general public's confidence in the UK regulatory process. The fact that the first case management conference already takes place a few days later suggests that he wants to adjudicate the matter as swiftly as possible, which is in everyone's interest except Cleary and two of its clients, and CMA officials who may hope that the merger will be abandoned before their mistakes and their abuse of power won't be exposed.

People are already talking about a novelization or a documentary about that merger, given that some of what has happened here amounts to truth being stranger than fiction. I guess some of my blog posts and tweets about the case will come in handy if and when that happens. Those of you who have practiced law before Mr Justice Smith, or know him as a colleague, can already think about which Hollywood actor might play him.

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

There isn't much happening anymore in terms of automotive SEP litigation. Avanci has licensed the vast majority of car makers, Continental finally gave up its U.S. federal antitrust litigation against Avanci and some of its licensors (continuing only its Delaware state law action against Nokia), and Telit dropped a lawsuit that had been brought by Thales in Munich against Avanci and Nokia.

While the European Commission doesn't seem to appreciate the contribution of patent pools to the licensing process the way it used to do, Avanci's success has made it part of the solution. Recently even Samsung--one of the world's largest implementers of cellular standards--joined Avanci as a licensor at no extra cost to licensees.

A few SEP holders--some of which are non-practicing entities--still aren't Avanci licensors. One such company is GenghisComm Holdings, which on Wednesday filed a SEP infringement lawsuit in the Eastern District of Texas against Toyota:

When it comes to comparable licenses, Toyota will be able to point to the license it has taken from Avanci, paying $15 per car for the vast majority of 4G SEPs. GenghisComm is presumably suing for the purpose of extracting a substantially higher royalty rate relatieve to the strength of its portfolio. Maybe the plan is to benefit from the unpredictability of patent damages verdicts.

3. Nokia invalidated OPPO patent-in-suit

About two weeks ago I reported on the (appealable) revocation of two Nokia patents as a result of OPPO's challenges. For the sake of complete reporting, I'd like to add that this month a written decision (PDF) also came down in an opposition proceeding in which Nokia has achieved the (equally appealable) revocation of an OPPO patent-in-suit: EP3563600 on "separate configuration of numerology-associated resources." the oral hearing took place on March 23.

4. KPN defended one of its patents-in-suit against Ericsson earlier this month

Here's a follow-up to the post of a few days ago on Ericsson obtaining the invalidation (by the USPTO's PTAB) of one of KPN's patents-in-suit. I hadn't previously commented on that dispute, so now I'd like to provide a bit more context.

Of the three patents-in-suit from KPN's first case against Ericsson in the Eastern District of Texas,

• one (RE'089) was invalidated as I reported,

• one was never challenged through an IPR petition (U.S. Patent No. 8,881,235 on "service-based authentication to a network"), and

• a third one, U.S. Patent No. 9,253,637 on a "telecommunications network and method for time-based network access", was deemed valid by the PTAB in a May 12, 2023 decision (IPR2022-00069).

A second KPN v. Ericsson case is also pending in the same district (i.e., before Judge Rodney Gilstrap):

Koninklijke KPN N.V. v. Telefonaktiebolaget LM Ericsson and Ericsson Inc. (case no. 2:22-cv-282-JRG): July 25, 2022 complaint

According to the docket, the trial will begin on April 1, 2024 with jury selection.

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Ericsson strikes down patent underlying KPN's $32 million jury verdict from August 2022: PTAB invalidates all challenged claims

The patent infringement dispute between Dutch telecommunications carrier KPN and Swedish telecommunications equipment maker Ericsson is unusual because infrastructure makers typically sell products to telcos rather than getting sued by them over patents. What is not that unusual, though, is the fact that Ericsson is on the receiving end of that case. Ericsson and Nokia, while being net licensors, typically have multiple disputes pending at any given time in which someone else wants to collect patent royalties somewhere, most frequently in the United States. That's why those two companies don't take extreme positions when they are on the enforcing side: they know what it's like when the shoe is on the other food, and they know that whatever they say as a defendant may be held against them as a plaintiff (though inconsistencies could only undermine their credibility but in the end all that should matter is the law).

Last August, a jury in the Eastern District of Texas handed down a verdict in KPN's favor and relating to a package of three patents. The verdict form did not distinguish by patent or claim, but merely indicated whether "any" of the claims had been infringed and whether any of the patents were invalid (juries rarely ever invalidated patents, and here they also thought all patents-in-suit were valid):

Koninklijke KPN N.V. v. Telefonaktiebolaget LM Ericsson & Ericsson Inc. (case no. 2:21-cv-113-JRG, E.D. Tex.): Jury Verdict of August 26, 2022

KPN is apparently never going to get the $32 million payout.

One of the three patents-in-suit, U.S. Patent No. RE48,089 on a "method and system for automatic coverage assessment for cooperating wireless access networks", has now been invalidated by the PTAB. Ericsson--represented by the Baker Botts firm--challenged most claims, also including the ones asserted in the Texas infringement action, and prevailed across the board. The PTAB judgment came down yesterday:

Ericsson Inc. v. Koninklijke KPN N.V. (PTAB IPR2022-00079, Patent RE48,089): Judgment (of May 23, 2023) Determining All Challenged Claims Unpatentable

Maybe this decision will pave the way for a settlement between the parties. They should be commercial partners, not adversaries in patent litigation.

Earlier today I commented on USPTO Director Kathi Vidal's proposed PTAB IPR rulemaking reform. Then I saw this interesting PTAB decision.

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USPTO Director Kathi Vidal's reforms of discretionary denial rules are fair and balanced: abuse of all sorts must be curbed, including extortion and circumvention of litigation estoppel

The USPTO under Director Kathi Vidal is on the right track with respect to PTAB IPR reforms, particularly with a view to discretionary denials. Probably many of you will disagree. Many of my esteemed readers are on one side or the other: net licensors (including pure licensing firms) as well as net implementers. I'm sympathetic to either side's legitimate concerns, and I have friends across the whole spectrum. When taking positions, I can't please everyone, nor can policy makers.

I think the USPTO has not had a more balanced Director in quite a while. I have great respect for Andrei Iancu, but his policies very much reflected his firm's predominant--if not exclusive or near-exclusive--client profile, i.e., the interests of the enforcing side. His predecessors in office knew the perspective of actual operating companies, with Michelle Lee coming from a net licensee (Google, which nevertheless considered patents very valuable in its early years) and David Kappos from a net licensor (IBM). Kathi Vidal's most important clients in private practice have been companies like Apple, i.e., PTAB IPR heavy users. But it would not be correct to claim that she was using her current position to just advance her former clients' interests.

I applaud the USPTO for its policy-making efforts, above all for the first section (on petitions filed by certain for-profit entities) of its April 21 advance notice of proposed rulemaking.

In light of the VLSI v. Intel case with the $2.4B verdict, Director Vidal correctly identified discretionary denials as a field in which decisive action was needed. Unfortunately, her predecessor--for the reason discussed above, which is unrelated to his track record as a litigator representing patent holders--had overshot in one way and not taken action against a more blatant form of abuse. That was comparable to pulling some healthy teeth while failing to identify a sore one. The USPTO is now likely to strike a far better balance.

The idea underlying the America Invents Act (AIA) was that patent owners should not get to overleverage their intellectual property rights in litigation. As a litigation watcher with a primary focus on U.S. cases, I can't remember if I've ever seen a case in which a jury held a patent invalid. Juries typically believe that the USPTO got it right. So the PTAB IPR system is important, and I'm in favor of it, but there is abuse from both sides.

Unified Patents' business model does raise serious issues, arguably even bigger ones than OpenSky. OpenSky, in case you don't remember, is the entity that essentially collected a ransom from VLSI in exchange for withdrawing a PTAB challenge that posed a serious threat to the aforementioned verdict. Some described this as "extortion" and I can see why, but if one thinks it through, Unified Patents' business model is way more problematic.

The USPTO has correctly identified that in the VLSI case, the party with a legitimate interest in challenging the validity of the patents-in-suit, Intel, was (at least temporarily) unreasonably restricted in its ability to defend itself, while someone with a business model that the AIA was never intended to enable profited from it. The only sound approach to policy making in such a situation is to address issues arising from an abuse of the system without overshooting to the detriment of actual defendants.

An end-justifies-means argument is not going to help, and the USPTO should not give it any weight. Sure, if a patent shouldn't have been granted in the first place, there must be ways of overturning it, and jury trials won't work. At the same time, well-resourced defendants should not be able to just outspend patent holders, and the purpose of the PTAB is not to give every defendant two bites at the apple, so if a PTAB challenge fails, defendants are reasonably estopped from re-raising the same issues in the related infringement litigation. If the end of defeating invalid patents justifies any means, then we must also celebrate OpenSky as heroes, allow multiple challenges in different fora (i.e., no estoppel), abolish or massively increase page limits for petitions, and so forth. That wouldn't result in good policy.

Here's the USPTO's proposal to curb abuse by entities like Unified Patents:

"The changes under consideration would make clear that the Board would discretionarily deny any petition for IPR or PGR filed by an entity that: (1) is a for-profit entity; (2) has not been sued on the challenged patent or has not been threatened with infringement of the challenged patent in a manner sufficient to give rise to declaratory judgment standing; (3) is not otherwise an entity that is practicing, or could be alleged to practice, in the field of the challenged patent with a product or service on the market or with a product or service in which the party has invested to bring to market; and (4) does not have a substantial relationship with an entity that falls outside the scope of elements (1)–(3). The Office contemplates defining 'for-profit entities' as entities that do not qualify for tax-exempt status with the Internal Revenue Service."

That makes a lot of sense to me. We're not talking about unreasonably restricting the ability of the companies that are Unified "members" to defend themselves: they can bring their own challenges in their own name and will then be reasonably subjected to litigation estoppel.

There are (at least) two key concerns over Unified Patents' business model, and either is enough of a reason in its own right to support the USPTO's proposal:

1. Abusive circumvention of litigation estoppel:

   There simply is no need for the USPTO to condone Unified's business model, given that its "members" can bring their own petitions. The USPTO is not even against a pooling of resources: if you have a joint defense group, why not bring one challenge on behalf of everyone? The problem with Unified is that they say their members don't get to decide which patents they challenge. But obviously it's a pay-to-play system. They're not doing that work pro bono. Disallowing such petitions will increase transparency. Could transparency also be increased in other areas, such as patent ownership? Absolutely, but that is not a reason to tolerate a circumvention of litigation estoppel rules. I also don't think the USPTO should give any weight to claims that this is about singling out just one PTAB filer. It's a business model that others could also adopt.

2. Extortionate effects:

   For the avoidance of doubt, I'm not alleging extortion, but I do see extortionate effects of Unified Patents' business model. Nice patents you have there... too bad if anything happened to them.

   • Philips' membership:

     While Philips does have an operating business, it's actually known as a rather aggressive enforcer of patents, including but not limited to standard-essential patents (SEPs). Philips has precisely the profile of the companies whose SEPs routinely challenges. Why is Philips a member? It cannot be ruled out that they primarily joined so that their patents would be left alone.

   • Unified's expansion into patent pool administration:

     While I've repeatedly given credit to MPEG LA with respect to other pools they run, their joint venture with Unified Patents named Alium has left me unconvinced so far. In particular, I find it hypocritical to say that Unified will help ensure "patent quality" in connection with O-RAN when they are not going to challenge Alium's own patents but only those belonging to patent holders who decline to contribute their patents to that pool. Here, again, you have that "racketeering" effect, presenting companies with a choice of being trolled or making Unified money.

   All of those issues are not unique to Unified Patents: others might implement their business model or similar models, even with a purely extortionate agenda.

There still is time to submit formal comments to the USPTO.

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Avanci Broadcast patent pool adds ETRI, KPN, NEC, NERC-DTV, thereby increasing coverage of ATSC 3.0 standard-essential patent families to 80%

In March, Avanci announced its first non-automotive standard-essential patent (SEP) pool: Avanci Broadcast, a pool for the ATSC 3.0 (also known as NextGenTV) broadcasting standard that is particularly popular in the United States and in South Korea.

At the time of its launch, the pool contained more than 70% of the ATSC 3.0-essential SEP families, and the vast majority of TV sets supporting ATSC 3.0 were licensed from the beginning (though it's important to consider that TV sets are not only the device category to implement ATSC 3.0; there are also set-top boxes, for instance). Some of the licensor are also major implementers, but not all initial licensees were also licensors (Sony is only a licensee).

The ATSC 3.0 pool was the first Avanci pool to announce Samsung as a licensor. Shortly thereafter, Samsung also joined Avanci's automotive SEP pool.

Today Avanci announced the Avanci Broadcast pool's expansion to "over 80% of essential patent families for the ATSC 3.0 broadcasting standard" through the addition of four licensors:

• South Korean research institute ETRI,

• Dutch telecommunications carrier KPN,

• Japanese electronics giant NEC, and

• China's Shanghai National Engineering Research Center of Digital Television (NERC-DTV).

Existing licensees (LG, Samsung, Sharp, Sony) are now automatically licensed to the new licensors' ATSC 3.0 SEPs as well, at no additional cost. That is a feature of the Avanci pools, but also of many other patent pools. In my opinion, the European Commission's recently somewhat negative take on patent pools does not give sufficient consideration to that (and not only to that) fact.

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As of today, Microsoft could consummate the Activision Blizzard purchase without fear of sanctions from a U.S. court: investment bank Macquarie recommends going ahead

Today--Monday, May 22--is a very important day for Microsoft's acquisition of Activision Blizzard King (ABK). This is the earliest legally possible closing date from a U.S. perspective. The U.S. situation is so key because, as Illumina's acquisition of Grail proved, the only 100% reliable way to prevent a U.S.-U.S. merger is a U.S. court order (even Illumina said they'd abide by one, but didn't care about the world's regulators). That's because violating a prohibition by a U.S. court can result in criminal sanctions.

As of today, Microsoft is free to close the deal. Not free without financial, political, and reputational risks. But, to put it bluntly, no one will go to jail over it.

I'm not saying Microsoft will initiate the closing process today--not because they couldn't, but because there still is time under the current merger agreement: well over a month to make further headway and minimize those financial, political, and reputational risks. And they have momentum now, suggesting there'll be further good news. Still, let's not underestimate the significance of this date. Since the announcement of the merger in January 2022, this is now the first day on which the decision makers at Microsoft go to work and they have an important choice. It's just their decision whether or not to trigger the deal-closing process--as Macquarie, one of the world's largest investment banks (Wikipedia page), officially recommends--or to take more time because it appears prudent.

So let's look at where things stand, with last week having been incredibly eventful, and at what's next (click on the image to enlarge):

With the European Commission as well as China's State Administration for Market Regulation (SAMR) having cleared the transaction last week, the deal has been approved by 38 countries with a total population of 2.37 billion people and an aggregate Gross Domestic Product of US$42 trillion, with a caveat concerning South Africa that's also reflected in my timeline chart (the regulator recommended unconditional clearance, and normally that's the outcome, but formally it's a two-step process like in Brazil and the final procedural step is scheduled for June 21).

The aggregate population size of those countries is more than 35 times that of the United Kingdom, and the aggregate GDP is more than 13 times that of the UK.

Not only is the South African process technically still ongoing, but so are a few other regulatory processes. Countries from which we may hear in the days and weeks ahead include, but are not necessarily limited to, New Zealand (deadline: June 9), South Korea, Canada, and Turkey. In Australia the process is currently on hold, but the clock will at some point be restarted.

In fact, the process is technically still open in the UK: as I reported on Twitter, the final decision has not been made yet because the absurdity that they put out on April 26 was just a final report. The CMA is now accepting feedback until June 19 to its draft final decision. While this would normally just represent a formality, the CMA may in the meantime realize that a decision based on the Inquiry Group's irrational report would not be defensible in court, and I also see political dynamics in the UK that suggest the CMA needs an exit strategy. The CMA's leadership got a rough ride in a parliamentary committee, where the CMA's chair readily acknowledged that "the government has levers" if the CMA ignores government policy. The next day, the UK's Chancellor of the Exchequer (arguably the #2 person in the UK government) took a "dig" at the CMA according to the Times (a newspaper that has partly given anti-corporate extremists a platform to comment on this deal). Also, City A.M., the leading financial daily for the London area (as opposed to the Financial Times, which is London-based but an international publication), published an opinion piece that harshly criticizes the CMA.

Losing the appeal in this high-profile case would be the worst scenario for the CMA's leadership, but prior to that the CMA cannot possibly be interested in taking its chances that the deal will be closed regardless.

In a note to clients, Macquarie wrote that closing the deal now over the CMA's objection "would result in a legal battle with the CMA but one we think worth fighting as it is precedent-setting for an acquisitive company to allow one country to block a $75 billion deal."

In financial terms, the hypothetical risk would be in the tens of billions, but any fines would have to be proportionate to the conduct in question, and if the CMA's decision is quashed, there is no basis for anything, at least not for a major fine. So far, the CMA's record fine was $50 million (imposed on Meta for not keeping an acquired company sufficiently separate). By contrast, the breakup fee under the merger agreement with Activision Blizzard is $3 billion, and there are activist investors who would like ABK to collect that one. Also, it's impossible to know today what ABK's shareholders would expect in exchange for an extension of the merger agreement.

It's not just about money, and that's why Macquarie also looks at the downside holistically: if Microsoft abandons the deal, it pays $3 billion, and will find it hard to make any other major acquisition until the regulatory tide in some places turns. I would add another issue: it would look as if Microsoft had tried to make an acquisition for anticompetitive purposes, and seemingly brave regulators thwarted the plan. In reality, it's a procompetitive deal that spurs competition between large corporations in some markets, to the benefit of consumers, workers, and small companies (game makers and other app developers, streaming companies like Nvidia and Boosteroid that are totally in favor of the deal though the CMA claims to understand their market better than they do).

Another negative effect of "caving" would be that Microsoft would make itself a "soft target" for zealous regulators not only in merger but also unilateral conduct cases.

Regulators can't just demand that acquirers respect the law, but they must do so in the first place. We live in times where some regulators go too far. Obviously, despite the valid reasons for which Macquarie suggests closing the deal over the CMA's objection, Microsoft would not want to come across as lawless, and wouldn't want to burn bridges forever with regulators.

The timeline chart I showed further above indicates that there still is time to make further headway and to potentially work out a solution with the CMA. With the FTC, it looks like there is no near-term chance to make it work. According to MLex, Microsoft again offered behavioral remedies to the FTC (after the EU decision), but in vain. I shared my thoughts on that on Twitter. It's possible that Microsoft knew the FTC wasn't going to be receptive, but had to give it a try with a view to the next steps.

What about the U.S.?

It is much more of a psychological-political issue than a legal one that the FTC didn't clear the deal. The FTC is now against any major merger, filing lawsuit after lawsuit, and losing all the time. But the FTC and the CMA are trying to give each other cover: the CMA tells UK politicians that it's not alone in this because the FTC is suing to block the deal, and the FTC can say in the U.S. that an overseas regulators also opposes the transaction.

If the CMA's Inquiry Group had not recommended a prohibition decision, the deal-closing process might already be triggered today or the FTC would already have filed a motion for a temporary restraining order and preliminary injunction last week after EU clearance. No regulator likes to be the last one standing, but it's important to understand the difference between the FTC's lawsuit and the CMA's final report: the FTC would most likely fail to win a preliminary injunction, and then the deal could close, though the FTC could keep on fighting and theoretically, after several years, there might be a forced divestiture. The CMA could already (based on an interim order) impose fines now if the deal was closed over its objection.

On Friday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied a preliminary injunction that class-action lawyers were seeking. In order to give the court enough time to adjudicate that motion, Microsoft had made a commitment not to close the deal before today (May 22). Microsoft acknowledged at a May 12 hearing that it would have been very difficult to close then, but didn't commit to an extension either (and after that hearing, the EU and China cleared the deal). Judge Corley handed down her decision late on Friday, the last business day before the earliest possible closing date.

So if Microsoft told the FTC now that the closing of the deal is imminent, the FTC would have to request a court order that would prevent the deal from closing. It would point to the CMA decision, but that would not be very persuasive. I don't believe the FTC would win a preliminary injunction. But if a judge who is not yet familiar with the matter had to make a decision on a temporary restraining order (TRO) within a few hours, then there is a possibility of the status quo being preserved for another two weeks (after which a TRO either has to be replaced by a PI or it goes away, absent the enjoined party's consent to being enjoined for longer than that).

That's why my timeline chart indicates a potential TRO window: given the Fourth of July holiday, I believe Microsoft would have to trigger the process in late June so that the court would have two weeks to decide if necessary. Otherwise a TRO could extend beyond the closing date in the current merger agreement.

Of course, the parties could also extend that agreement. That would give them enough time to defeat the CMA in the Competition Appeal Tribunal (the standard of review is exacting, but not an insurmountable hurdle, and on remand the CMA would have to decide in accordance with the CAT's guidance). They could also try to defend themselves in the FTC's in-house court, which is statistically not a level playing field to put it mildly. Given how weak the FTC's arguments are, it could be one of those rare cases in which the FTC loses before its own judge, but it could also be yet another case in which the FTC wins in its own court only because it's not an independent court. Also, even if the FTC loses in its own court, the commissioners--the same ones who decided to bring that lawsuit--could decide to block the deal anyway. That process is controversial, and the Supreme Court opened the door to constitutional challenges in federal court with its recent Axon ruling.

If Microsoft does not close the deal by mid July and first awaits a decision by the CAT, there would be a significant risk of a "deadlock" for an extended period of time. It would take time until a CAT ruling, then the CMA could take its time on remand, and if they had to wait for a federal appeals court in the U.S. to overrule a final FTC decision, that could take until late 2024 if not longer. There could be a window for closing the deal before the U.S. process concludes, but there is no guarantee.

Looking at all of the risks for everyone involved, this is a clear case for an agreement between Microsoft and the CMA. For the CMA, a scenario in which it would attempt--but practically fail--to block a merger, and then likely lose in court later, would be terrible. Even if the deal wasn't closed now, but Microsoft and ABK at least take the time to get a CAT decision, the CMA would stand to lose a lot of credibility and influence. Imagine a future parliamentary oversight hearing where the CMA's leadership would have to defend its actions--creating a situation in which the EU and China are more open for business than the UK--after having been proven to have been wrong.

The deal could close any day now, but in a month from now, Microsoft's position will likely be even stronger. At that point, however, they'll be approaching the potential TRO window you can see in my timeline chart further above. The next few weeks will be interesting, but in a month from now things could really heat up--unless the parties prefer to extend the merger agreement and prove the CMA wrong in the CAT before closing the deal.

While a British media report suggested a few weeks ago that the appeal was going to be filed within a matter of days, it hasn't shown up on the court's website nor has there been any announcement.

The CMA revised its provisional findings after a clear mistake was flagged. Maybe the feedback and input that the CMA will receive in the weeks ahead will open the door to a correct decision and constructive solution. If not, I'd like to see Microsoft do what Macquarie considers a perfectly rational choice. That's just my personal preference.

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Former ACT | The App(le) Association policy officer admits small companies don't pay people like him: panel debate on EU SEP Regulation proposal

It speaks volumes about Apple's values that even after Bloomberg exposed ACT | The App(le) Association as an astoturfing operation, they still attempt to fool policy makers--such as European Commission officials--into believing that ACT represents small app developers and IoT startups. They continue to issue statements, to lobby policy makers, to organize events, and to participate in debates--all of that in the name of small companies, even when they actually work against them, such as on App Store issues.

The European Commission should not invite them to events unless Apple sends them to speak on its behalf, which would be the only honest thing to do. But I may be asking for too much.

Bloomberg's investigative journalism was highly effective regardless of whether the EC turns a blind eye to its results. ACT itself was forced to admit that Apple paid for more than half of its funding, and then Bloomberg managed to talk to four former ACT employees (ACT is, by the way, set up as a company) who said that "more than half" was a gross understatement and that ACT simply takes directions from Apple.

A former de facto ACT employee indirectly and inadvertently threw the organization under the bus on Friday: Alexander Prenter, a Brussels-based native New Zealander who is now a policy officer at the Fair Standards Alliance. I wish to make it perfectly clear that Mr. Prenter is well-respected, as is the Fair Standards Alliance (FSA). I am actually happy for him that he joined the FSA in July 2021 after several ears of working for ACT. Whether or not one agrees with the FSA--and I could have various disagreements with them during the EU legislative process that is about to start--they are transparent about their membership as opposed to just claiming to speak for thousands of companies no one has ever seen or heard of.

At a webinar held by the European University Institute on Friday (May 19), the EC's proposed regulation on standard-essential patents (SEPs) was discussed. Professor Jorge Contreras (Utah), Michael Schloegl (Continental), and Alexander Prenter took pro-implementer positions, essentially saying the proposal doesn't go far enough, while Urska Petrovcic (Qualcomm) and Richard Vary (Bird & Bird, a firm that advises and represents not only SEP holders like Nokia but also implementers) believe it goes too far. What came up in several interventions was the lack of hard evidence for the need to legislate on the subject.

While the Commission's Directorate-General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) seeks to justify this bill with the alleged plight of SMEs forced to deal with SEP licensing and litigation, the impact assessment provides anecdotal evidence (apart from being unverifiable, some of it even implausible) at best. In the end the Commission relies on about three dozen SMEs who have provided input (again, this is totally unverifiable, and last year I debunked a totally made-up SME-SEP story that was paid for by the same lobbying entities pushing for an EU SEP law). But only a couple of them ever actually licensed SEPs.

Mr. Prenter attempted to explain away the conspicuous absence of evidence for actual SEP issues faced by SMEs. He said SMEs don't employ someone like him to fill out questionnaires. That was an interesting admission considering that ACT does claim to represent SMEs, does orchestrate submissions by companies claiming to be SMEs facing SEP issues, and Mr. Prenter worked for ACT from 2017 or (at the latest) 2018 until 2021.

In other words, Mr. Prenter conceded that SMEs don't pay for ACT's work (as Bloomberg had also found out).

A 2018 "Study on safety of non-embedded software" refers to an "Interview [with] Brian Scarpelli and Alexander Prenter, ACT, 16 March 2018."

The SME topic also came up at a recent Brussels presentation of two DG GROW-commissioned "studies" by "researchers". Licensing expert Eric Stasik explained that it simply isn't profitable for SEP holders to approach every small implementer and work out a license deal. As Mr. Stasik explained, you'd like to generate that additional licensing income if you're a SEP holder, but you can't economically justify it.

At least a couple of participants in that event agreed that patent pools could actually help get SMEs licensed to a greater extent. By virtue of transactional efficiencies, pools might make it profitable for SEP holders to grant licenses to SMEs. While that particular pool wasn't mentioned, I think Sisvel's recently-launched NB-IoT pool has the potential to prove helpful in this context.

My own position on this topic is somewhere in the middle between the two camps:

• Mr. Stasik is right that SEP licensing is not a practical issue for SMEs, simply because SEP licensing is a high-volume business and SEP enforcement is too expensive. As a litigation watcher, I have yet to see a case where a small company actually gets sued over a SEP. The relatively smallest one I've seen so far is AVM, a company that has a 70% market share in the German WiFi router market. Even AVM is not an SME by the EU's criteria.

• DG GROW should admit that the ones who are really pushing for the EU SEP Regulation are Apple (directly and via entities like ACT) and the automotive industry. They should be honest about it.

• But I also agree with those who say that infringement--even if tolerated for the reason identified by Mr. Stasik--is not a sustainable basis to do business.

• I furthermore agree that SMEs are increasingly implementing FRAND standards.

If the Commission wanted to engage in further outreach to SMEs that implement standards, organize events, hold confidential conversations with SMEs about SEP licensing issues, I'd welcome such initiatives in principle. But why legislate now? Why in that particular form that is unbalanced and poorly-thought-out? The more appropriate thing to do would be to keep an eye on the situation and take incisive action only if and when there is hard evidence for SMEs facing serious problems on a significant scale. It will become known if there's a lot of enforcement activity against small companies (which will probably never be the case). If SMEs ever faced a serious problem, the most important question would be how to help them without putting a thumb on the scales in favor of the likes of Apple to the detriment of those who invest in standards-related innovation and need licensing income to fund that effort.

The dispute resolution mechanisms proposed by the Commission will be too costly even for most SMEs. I would expect the average SME to simply decline to participate in any FRAND conciliation proceeding for cost reasons.

Europe--like the rest of the world--has enough problems that are real. It's better to focus on those issues instead of listening to fake SME organizations or SMEs who may be real but whose SEP stories would be debunked as nonsense or insane exaggerations if only they were scrutinized by experts.

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Will regulators' disregard for legal bounds of merger control lead to more appeals and/or to more Illumina-Grail-style gun jumps?

The Microsoft-ActivisionBlizzard merger reviews set dangerous precedent in some places, not in terms of legal precedent but with a view to what future acquirers of companies may deem the best regulatory strategy. And it's only the most striking case, but the problem goes beyond.

Some competition authorities are not make responsible use of the primary leverage they have. That primary leverage is not that they can block a deal--for which the legal standard is still fairly high--but that they can delay it by forcing companies to appeal blocking decisions, which takes more time than most merger agreements allow. Overleveraging may work for some time. Ultimately, the question is how future acquirers will respond (and what course of action their in-house and outside counsel will recommend).

In recent years I've seen two major tech acquisitions that the acquirers approached conservatively even though there was no legal basis on which anyone could reasonably prohibit those deals. The first one was IBM-RedHat, the second and currently ongoing one is Microsoft-ActivisionBlizzard. In both cases, the merger agreements allowed for an unusually long period of time (about 1.5 years) to obtain the prerequisite approvals. Formal notifications took quite long after the merger announcements, allowing for extensive prenotification talks. In the Red Hat case, the deal was closed well ahead of schedule. In the Activision Blizzard (ABK for "Activision Blizzard King") case, the question is now--incredibly--whether the parties will extend the merger agreement beyond the current July 18 closing date in order to be able to litigate with the CMA (and also the FTC, though if not for the CMA block the U.S. process could be accelerated anytime by creating a situation in which the FTC needs a preliminary injunction, which it most likely wouldn't win).

It's possible that everything still works out. In formal terms, Microsoft's commitment to a U.S. federal district court was only not to close the deal before May 22 (this coming Monday). The CMA's regulatory excess is viewed increasingly skeptical by the ones who ultimately have the power to get the CMA back on track. It would be quite risky for the CMA to take its chances in the Competition Appeal Tribunal (CATribunal, or just CAT): it could suffer a major, potentially even humiliating defeat there, and the politicians it is accountable to or who ultimately control it (the CMA is "independent" until it is not) wouldn't take that lightly. This week, the CMA faced tough questions in the UK Parliament and a warning from the Chancellor of the Exchequer, arguably the second most powerful person in the current UK government and generally very well respected and trusted:

Chancellor Jeremy Hunt says in relation to Microsoft-Activision deal being blocked by UK competition authority that “I think that regulators should understand their wider responsibility for economic growth”…

A bit of a warning shot there

— Ashley Armstrong (@AArmstrong_says) May 17, 2023

The BBC's Business Editor noted the important "but" in the Chancellor's remark:

Jeremy Hunt re: Microsoft/Activision being blocked by UK competition authroities - "I wouldn't want to interfere with their independence BUT they need to understand their wider responsibility"

— Simon Jack (@BBCSimonJack) May 17, 2023

Technically, the CMA case is still open. Today the CMA published three documents related to its request for comments on its proposed final order. I shared the links on Twitter.

It's also possible that the CMA doesn't work out a solution in time for the July 18 closing date. I have no idea what will happen then. Given that the CMA decision is extremely weak, an appeal to the CATribunal may be worth the time and effort. However, it's not a criminal offense to simply close a merger and deal with the consequences. My purely personal opinion is that, clearance decisions in several more jurisdictions provided, the point will come in about a month where unless common ground is found, it might make sense to start the closing process and defeat a preliminary injunction motion by the FTC, and to minimize any potential UK fines by treating the UK cloud-gaming market separately after the merger (such as by not offering ABK games on xCloud in the UK, or maybe no xCloud at all, given that the service is unavailable in many countries anyway, though for infrastructure reasons). I can, however, see reasons why Microsoft might not want to do that.

Whatever happens, the world is watching, and especially future acquirers of companies and their lawyers are watching. I believe that with what has happened so far, different strategies will be needed. A constructive approach to regulators is the right choice as long as regulators are constructive, but some are not and that may not change too soon.

The shortest form in which I can state my concern here is that if regulators don't reciprocate and reward a notifying party's constructive attitude, future parties may be well advised to act less constructively in the first place.

While I commend the EU Commission for having reached a far more reasonable conclusion than the FTC (which according to a new MLex report once again refused to engage in behavioral-remedy discussions, despite the EU outcome) and the CMA, and the EC also gets far more support from the worldwide gamer community, I don't fully agree even with that decision, given that this was a case for unconditional clearance and they imposed remedies. Those remedies are good for consumers, but the end doesn't justify the means.

In other words, even the EC in my opinion overleveraged its regulatory powers here for political reasons. I can't imagine the EC could have defended a blocking decision in court. But Microsoft can't litigate against all of the major regulators at the same time, and at some point wants to close the deal. It is, however, a shame that agencies with much less of a reputation for antitrust regulation actually made far more appropriate decisions, particularly Brazil's CADE and Chile's FNE. They got it right. The Western world's "Big Three" did not (though the EC was less wrong than the other two).

So what's the right regulatory strategy for an acquirer who does a deal that--like Microsoft-ActivisionBlizzard--is legally on the safe side, but there is a regulatory risk for purely political reasons, such as backlash against Big Tech ("techlash")?

The way regulators--even the EC, though primarily the CMA and FTC--have behaved so far in the Activision case, I don't think lawyers can still recommend giving regulators a lot of time prior to formal notification, and hoping that regulators are interested in working out reasonable solutions. One has to prepare for different degrees of unreasonableness in different places.

I see two approaches that are more appropriate for cases that are easy to defend in court but where regulators will act politically and disregard the law or if necessary even the facts:

• Notify ASAP:

  Instead of giving regulators the courtesy of long pre-notification talks that may just turn out a waste of time, it may be better to notify this type of merger at the earliest opportunity. It can be done within weeks of a merger agreement.

  Then there'll be more time for appeals.

  Regulators won't like that. It also makes it harder to get some favorable decisions in reasonable places before the less constructive regulators decide. But in some cases this could still be the best way forward. If a merger agreement comes with a far-off closing date, but notifications are done very early on, regulators know that the strategy is court-centric. Most regulators don't like to lose in court, so this could get them to act more constructively than being nice.

• Illumina-Grail ("gun-jumping"):

  The Fierce Biotech website summed up Illumina's completion of the acquisition of Grail without certain regulatory approvals (they even set aside half a billion dollars or so for the potential fines) as "regulators be damned."

  It's risky in various ways. But the fines--and the underlying merits--are subject to court review. The worst-case scenario is that a merger may have to be undone later, and that is another reason for which Illumina-Grail is an unorthodox outlier. It's just that certain regulators provoke more such cases.

  Breakup fees in agreements on future mergers may rise as a result of the Microsoft-ABK situation. The higher a breakup fee is, the more inclined an acquirer may be to go down Illumina-Grail Avenue.

  Illumina-Grail was an extreme case. They disputed some regulators' jurisdiction over the case. That will not be an option in ABK-style deals. So I'm not saying others would do it exactly the same way. What I could imagine, however, is that some companies may seek as many approvals as possible, focus on the positive outcomes, and then determine that one or two negative decisions are not a reason to cancel the deal.

  The only hard limit for a merger between two U.S. companies is a U.S. injunction. No one would want to bear the consequences of acting in contempt of a prohibitive injunction by a U.S. federal court. The risks outside the U.S. can be calculated if it's a U.S.-U.S. deal.

  In other words, an approach that would have been deemed irresponsibly risky in the past may now make sense in certain situations.

The best solution would be for regulators to act constructively and to apply the law faithfully. The latter apparently works in countries like Brazil and Chile, so why shouldn't it in some larger economies where it used to work until recently?

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