Saturday, May 20, 2023

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.