Saturday, July 29, 2023

Instead of messing up standard-essential patent licensing, EU institutions need to take their time and obtain advice from their legal services on fundamental rights, access to justice, comity

If the standard-essential patent (SEP) licensing system was in a state of acute crisis, with small and medium-sized enterprises (SMEs) going out of business and car makers being unable to obtain critical parts due to patent injunctions, no one would deny a need for swift and decisive action.

If SEPs were a topic of concern to wide swaths of the electorate, one could see why politicians believe the passage of a SEP bill into law--before the end of the current term--increases their chances of being (re)nominated, (re)elected or (re)appointed.

None of that is the case, though:

  • There are no SEP assertions against SMEs in court--or if there are any, they must be so few and far between that I've never seen any, despite keeping a close eye on SEP litigation not only but also in Europe. To the extent that the impact assessment accompanying the proposal presents "evidence" of SME-specific problems, it's anecdotal evidence at best and some lobbyists' fiction at worst.

  • Virtually the entire car industry is licensed to the Avanci 4G pool, which covers the vast majority of patents essential to the 2G-4G cellular standards. A solution for 5G is in the works. License fees are small when considering the much longer period of time that cars are in use compared to smartphones, and relative to the fees car makers charge their customers for data services after the first two or three years. Europe's automotive sector is clearly facing huge problems, but a license fee that's a minor cost of doing business equally affecting all car makers doing business in Europe is not a competitiveness issue. If anything, stronger SEP enforcement and higher SEP royalties would result in the small minority of still unlicensed car makers getting sued in Europe to put an end to infringement.

  • It's hard to imagine even a single voter who would choose a party or a candidate because of their stance on SEPs--or a single party member who would support someone's nomination over such an arcane issue where a webinar that attracts more than 300 participants is, relatively speaking, a blockbuster success.

There are enough serious issues on the European political agenda. There's no need to fabricate a sense of urgency here.

It is downright iressponsible to forge ahead with an ill-conceived proposal over well-founded objections and against stern warnings:

Policy makers must come to their senses now. There are serious issues. Even if one didn't know much about SEPS, one would just have to look at the linguistic "quality" of the proposal and the accompanying material to see that it's not a professional piece. There are countless typos and grammatical errors. I've never seen anything like that in official EU documents, not even during the early stages of the pandemic when political papers had to be cranked out under severe time constraints.

It is just not realistic to believe that a co-legislative process with numerous, potentially inconsistent or at least incoherent amendments is likely to solve the problem. The topic is complex, and the initial proposal does not serve as a starting point.

At minimum, the EU Council and/or the EU Parliament should obtain advice from their legal services.

The tasks of the European Parliament's legal service include "helping the committees with their legislative work." The legal service of the General Secretariat of the Council "gives opinions to the Council and its committees, in order to ensure that Council acts are lawful and well-drafted."

That is the kind of advice that should be obtained when voices to be taken seriously, such as the top judge of the UPC, articulate concerns over the EU's fundamental rights (access to justice, property rights), and when the EU's main international trading partner has communicated its opposition and the EU's compliance with its obligations under international treaties is called into question. Furthermore, the extent to which the proposal would leave important decisions (such as on the very scope of the regulation) to the Commission requires further analysis, unless the EU institutions want to give EU skeptics (of which there's no shortage in the European Parliament) another opportunity to criticize the EU for its democratic deficit.

The EU institutions have obtained advice from legal services on less complicated topics, with compulsory licensing being a good example of something that is difficult enough to justify the involvement of the legal services though much more straightforward than SEP enforcement with its international ramifications (i.e., international comity).

Also, it would make sense for the EU Council to ask the Commission various questions about the proposal before it can do any meaningful work on substance.

This is a time for responsible policy makers to hit the brakes.

Friday, July 28, 2023

Nokia v. OPPO ruling shows how UK courts would deal with EUIPO-led FRAND determination proceedings: commitments to be bound wouldn't count

This is the follow-up I promised at the end of the previous post, which put the recent Nokia v. OPPO "effect of the undertakings" ruling--which I called a "remedies roadmap"--into the context of the Mannheim court's holding that OPPO was an unwilling licensee because its counteroffer was a lump-sum royalty. It is disconcerting how the Mannheim and Karlsruhe courts forced OPPO out of the German market last year with unreasonable decisions, key parts of which have since been reduced to absurdity by decisions in other jurisdictions. But the proposed EU SEP Regulation is not the answer. Instead of tackling the real issues in a targeted way, it just creates different problems with a broadbrush approach to a highly complex and sensitive dispute resolution system that may be imperfect but is yet preferable over the proposed regulation.

EU policy makers should study Mr Justice Richard Meade's Nokia v. OPPO "Trial E" decision on remedies carefully as it serves as a preview of how the UK judiciary will deal with the types of FRAND rate proceedings envisioned by the European Commission's Directorate-General for the Internal Market (DG GROW). The short version is that an implementer would not be able to dissuade the High Court of Justice from granting a UK injunction by telling the court that it has already accepted to be bound by an EUIPO-led FRAND rate opinion. The London-based court would still present the defendant with only two options: make a commitment to take a global license on terms set by the High Court--or be enjoined from selling infringing products in, or importing infringing goods into, the UK.

Two SEP holders have recently been awarded royalties by the High Court that fell far short of their demands (InterDigital v. Lenovo, Optis v. Apple). In order for London to regain ground as a SEP enforcement venue, the Court of Appeal would have to move the needle in patentees' favor. I'm not taking a position on whether it should; just saying what SEP holders would want to happen. Mr Justice Meade's decision alone would not make SEP holders rich, to put it that way. But its key holding is significant at any rate:

The High Court rejected OPPO's commitment to be bound by a FRAND determination to be made by a court in Chongqing, China. Instead, Mr Justice Meade held that the only way for OPPO to avoid an injunction is to commit to a global license agreement on the terms to be set by the London-based court.

I've read the decision in detail, and various arguments made by Nokia were rejected. Mr Justice Meade noted that both parties had tactical reasons for preferring one forum over the other: Nokia wants the FRAND determination to be made in the UK while OPPO prefers China. One can't blame Mr Justice Meade for concluding that either party just does this based on its expectations of the future outcome, which in this case means that both parties believe the Chinese court will likely set a lower court than the British one.

What carried the day for Nokia was not that it could prove any fundamental deficiency of the Chinese FRAND determination process. Mr Justice Meade recognized that the risk of the outcome of the Chinese determinations not being within the FRAND range was low. It's just that any court in the world, when asked whether it believes a certain venue will make a correct decision, will naturally trust itself more than others.

That principle would also apply to hypothetical High Court decisions in situations where a defendant would have committed to be bound by an EUIPO-led FRAND determination.

In the beginning, the High Court wouldn't even have a reason to trust those EUIPO-led determinations: it would be an untested and unproven new dispute resolution mechanism.

But even at a point where those EUIPO-led determinations might have a certain track record, a patentee could still argue that a UK court should not rely on a foreign proceeding to the extent it can rely on its own FRAND determinations. Geographic and cultural proximity wouldn't make an EUIPO-led FRAND determination distinguishable from a Chinese FRAND rate-setting proceeding with a view to Mr Justice Meade's conclusions in Nokia v. OPPO. There has always been a systemic difference between British common law and continental European civil law, and the results of those EUIPO-led proceedings would not even be appealable to a court of law, a factor that in my view would even militate for considering the Chinese process a far more adequate substitute for a FRAND determination made by the London-based High Court. That deficiency has even been criticized by the President of the appellate division of the Unified Patent Court.

The idea of making a process led by an EU institution the world's FRAND arbiter is a bad one not only because the EU's international trading partners, first and foremost the United States, have concerns, but it's also just not workable:

  • The draft regulation that leaked in late March came with an antisuit mechanism. The EC itself complained to the WTO over Chinese antisuit injunctions.

  • The proposal that was put forward a month later was softened in that regard, but new flaws (such as an inconsistency between an EU-only SEP register and the determination of global royalty rates) were introduced.

The dilemma is that the EU can either try to force SEP holders to commit to its FRAND determination process, in which case the Commission would run afoul of its own interpretation of WTO rules, or SEP holders will not only retain their ability but even be strongly incentivized to enforce in non-EU venues such as the UK, which would presumably not be impressed when a defendant says it accepts to be bound by the outcome of an EUIPO-led FRAND determination. A British court will enjoin a defendant who doesn't commit to be bound by the UK FRAND determination.

EU policy makers--not only at the Commission but also at the legislative institutions (Parliament and Council)--should be realistic. There undeniably is room for improvement with the current system. But the rest of the world is not going to let the EU become the world's only FRAND forum. To improve the SEP dispute resolution system requires more international cooperation, not more antagonism.

UK FRAND judgment contains revelation casting EVEN MORE doubt on Mannheim court's treatment of OPPO: anti-Chinese judicial bias?

The longer the Nokia v. OPPO/OPPO v. Nokia FRAND dispute takes, the harder it becomes to believe that the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher and the Karlsruhe Higher Regional Court's Sixth Civil Senate under Presiding Judge Andreas Voss ("Voß" in German) have treated OPPO in fair, reasonable, and non-discriminatory ways. In fact, I can't help but suspect that some decisions were fundamentally unfair, unreasonable, and potentially even discriminatory. The latter would be consistent with anti-Asian statements by two high-profile German patent judges.

In the post I just linked to, I discussed that the first patent (of several) to be enforced by Nokia against OPPO in Germany has been held clearly invalid (non-novel, which is the worst outcome for a patentee) by the Tribunal judiciaire de Paris. And now I've found something in Mr Justice Richard Meade's Nokia v. OPPO remedies roadmap decision that also calls the Mannheim and Karlsruhe courts' fairness and reasonableness in the FRAND context into serious doubt.

A little over a year ago, I quoted certain passages from the Mannheim court's FRAND-related findings when it ordered an injunction over two cellular standard-essential patents from the same family.

The final point I quoted in that post was this one:

"In view of OPPO's substantially increased sales figures, any blanket license for the cellular portfolio on which the counteroffer is based is clearly not FRAND."

So, OPPO's counteroffer to Nokia was a lump-sum royalty. Nokia must have opposed that deal structure. That's the only plausible explanation for that sentence in the Mannheim decision. The Mannheim court then agreed with Nokia that it was within its rights categorically to reject a lump-sump license offer.

There are two things that we can learn in this regard from Mr Justice Meade's UK remedies roadmap decision (as a result of which OPPO either has to commit to take a license on FRAND terms to be set by the UK court or be enjoined). First, the previous (2018-2021) license agreement between Nokia and OPPO was also based on a lump-sum payment. The second point, however, is far more important here: when disputing OPPO's position that it was a willing licensee by virtue of a commitment to be bound by a FRAND determination by a Chinese court (Chongqing), Nokia argued that a per-unit royalty was unacceptable and only a lump-sum would be FRAND--and said that the Chinese court might (though it wouldn't necessarily) set a per-unit royalty.

Here's a screenshot of the relevant passage (click on the image to enlarge or read the text below the image):

Running royalty versus lump sum:

286. In these proceedings the FRAND valuation is in terms of a lump sum, whereas in the Chongqing proceedings the contentions are in terms of a per-unit or running royalty.

287. In the abstract, and for reasons I have given above, I think that the difference between lump sum and running royalty could be a major one with real impacts for a patentee, and if it were determined that each was FRAND then one can see why the patentee ought to be entitled to choose.

288. However, in the present context the difference is much less and may be nil. The reason is that the duration of the proceedings here and in Chongqing and the term for the new FRAND licence, expiring in 2024, mean that Oppo will not in reality work under the licence on an ongoing basis after it is put in place. The proposed licences in Chongqing do not include reporting provisions or the like and the result in Chongqing while analysed as a running royalty will in all likelihood result in a lump sum payment based on the per unit rate and Oppo’s sales.

289. Nokia argued that it could not be completely excluded that the Chongqing court will just set a per unit rate and that the parties might thereafter have to debate the relevant sales numbers. I agree that this cannot be ruled out, so the result in these proceedings could give Nokia a modest degree of extra certainty. It is a minor additional reason why Nokia’s ability to choose between the results would be one with some reality.

Nokia, like so many other litigants, will obviously make self-serving arguments. It's not illegal to make one legal argument in Germany and take the opposite position in the UK when discussing a Chinese proceeding. Mr Justice Meade notes that "Nokia has been unnecessarily obstructive in the Chongqing proceedings" (in connection with the technicalities of how OPPO affiliates OnePlus and realme would be licensed). He "stigmatised some of Nokia's steps as pretty" but stopped short of "conclud[ing] that it was playing games."

But this does call into question whether OPPO ever had a fair chance in the Mannheim court. I regret to say that it probably never had a chance there. It was going to be deemed an unwilling licensee for being Chinese, not for what it did or did not do. It was going to be enjoined even over a facially invalid WiFi patent. By contrast, Apple has gotten away with pretty much anything in Mannheim for more than a decade. Whether or not there are fanbois at work or it's just the fear of enjoining the world's richest company and public backlash, I don't believe that WiFi patent would have been considered valid if Apple had been the defendant, and I strongly doubt that Apple would have been deemed an unwilling licensee for offering a lump-sum royalty when a previous contract was based on one. In fact, there was a recent case in Mannheim where the very same division of the court took an extremely defendant-friendly position on FRAND that would likely have enabled Apple to come away unscathed. Double standards as far as I can tell.

Let that sink in: Nokia argued, and to a limited extent Mr Justice Meade agreed (in the last two sentences of the passage quoted above), that a lump-sum offer was preferable over a per-unit royalty, while the Mannheim court said that a lump-sum counteroffer (as opposed to a per-unit royalty counteroffer) was "clearly not FRAND."

Future defendants in OPPO's situation may now want to point courts in Germany (or elsewhere) to a UK SEP enforcement action by a patentee whenever that same patentee argues that a lump-sum royalty offer is unacceptable. And I believe the enforcement of those Mannheim SEP injunctions should now finally be stayed by the appeals court in light of hard evidence--in the form of the UK ruling--of Nokia itself not only considering a lump-sum royalty acceptable and FRAND, but even preferable. The WiFi patent injunction should also be stayed immediately in light of the French decision, after a full trial, that the patent is not valid (and not just for lack of an inventive step but even for non-novelty). The Mannheim-Karlsruhe axis has done major harm to OPPO on unfair and unreasonable grounds.

I'll soon do another post about the UK decision as I believe it also teaches a lesson with a view to the EU's misguided proposal for a SEP regulation.

Thursday, July 27, 2023

U.S. government steps up resistance to proposed EU SEP Regulation: USPTO director Vidal voices concerns at Senate hearing, announces 'all-of-government approach ... data-driven by feedback'

There are policy areas in which the European Union cannot vigorously defend the EU economy's interests without some transatlantic antagonism. Subsidies are an example. Standard-essential patents (SEPs) are not. Much to the contrary, a couple of major European SEP holders generate very significant revenues from licensees based in the United States.

But the EU's proposed SEP regulation is so fundamentally flawed that voices of reason from outside the EU are needed. One of them is the UK IPO with its very careful approach. Another example is the Biden Administration, and I just can't see why an initiative that harms European SEP holders is worth a rift between the EU and the United States.

Almost three months ago I reported on U.S. Secretary of Commerce Gina M. Raimondo having said at a Senate hearing that the U.S. government has officially commited "concerns" over the proposal to the European Commission. Yesterday (Wednesday, July 26) the Senate's Subcommittee on Intellectual Property (chairman: Sen. Chris Coons (D-Del.)) held a USPTO oversight hearing, toward the end of which the following was said:

SENATOR COONS: This is my last question. ... I've been following with genuine concern recent proposed regulations by the European Union for what would essentially be an SEP rate court. That regulation, I'm concerned, validates China's practices ... and I had shared those concerns ... and [Secretary Raimondo] agreed the proposal is problematic. What steps has the USPTO taken to communicate concerns to our European colleagues and what steps do you think the Administration can and should take to guard against restrictions on SEP licensing in the EU and globally?

DIRECTOR VIDAL: As I mentioned in my opening remarks, that's one of the things that I'm keenly focused on: it's standards, because I think it's critical to our economy. I will say that when we withdrew the 2019 policy statement around SEPs with NIST and DOJ, it was because we see standards as an international issue that individual countries weighing in in these ways could be extremely problematic. So what we've done when it comes to the EU directorate is I've met with the EUIPO in Geneva [presumably a WTO/WIPO meeting] just a week and a half ago. I've also spoken to other stakeholders in Europe about this. We also are issuing soon an FR notice, a Federal Register notice, to seek feedback from U.S. stakeholders on international SEP policy so that we can inform an all-of-government approach. That's gonna be not just the USPTO. I'm doing that with NIST, our standards and technology group, and ITA, our international group within [the Department of] Commerce, so that we can get an all-of-government approach that's data-driven by feedback.

Saturday, July 22, 2023

Mannheim mistake? OPPO fends off two Nokia lawsuits as French court invalidates patents-in-suit: injunction WRONGFULLY enforced in example of German courts disadvantaging Chinese defendants

If Nokia doesn't reach a settlement with OPPO for some more time, and if the Federal Patent Court of Germany reaches the same conclusion as a French court, Nokia may face a hefty damages claim for wrongful enforcement (way bigger than the 400,000 euros in legal fees that the French court ordered Nokia to reimburse). It was the first injunction Nokia obtained against OPPO, and OPPO subsequently left the German market. If it gets to that point, the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher would suffer a blow to its normally great reputation. In this post I am forced to raise the question of a presumably subconscious, yet systematic bias of some German patent judges against Chinese defendants, which is a serious problem in my observation.

That Mannheim panel made a decision last year in Nokia's favor against OPPO that I fundamentally disagreed with. In a parallel case involving two standard-esssential patents from one family I also disagreed (on claim construction), but to a different degree. I considered the non-SEP decision nothing short of unbelievable. My view of the patent-in-suit having been clearly invalid has now been vindicated by the Tribunal judiciaire de Paris (TJP), which one could describe as the Paris District Court. That's the court with which French patent infringement actions are filed in the first instance.

In fact, the French court also invalidated a second patent, but the other one had not been asserted in Germany, at least not to my knowledge. I'll show you the operative parts of both decisions further below. Let's first focus on the Mannheim and Karlsruhe courts' apparent mistake. How can a patent-specialized panel of judges not deem a patent invalid that seriously teaches nothing other than the following:

"If you know that a WiFi network will tell you if it is currently available, don't ask whether it is currently available."

Nokia's EP1704731 on a "method and apparatus for indicating service set identifiers to probe for" is ridiculous. When I saw it, I called it the technically thinnest European patent I've ever seen in litigation. It is litigation opportunism that a truly innovative company like Nokia would resort to such a patent in an effort to gain leverage. And it is inexplicable that two of the German patent judges I hold in the highest regard for their technical understanding particularly in the field of wireless technologies--Judge Dr. Kircher (of whom I've said that he deserves an honorary doctorate in wireless engineering) and then, in a decision rejecting a motion for an enforcement stay, Presiding Judge Andreas Voss ("Voß" in German) of the Karlsruhe Higher Regional Court, who is generally one of the smartest judges I know--did not identify that patent as a joke. The hurdle for an enforcement stay is high, but when a patent is so clearly weak, that shouldn't serve as an excuse for not stopping enforcement.

On the same day that I reported on the definitive invalidation by the European Patent Office (first confirmed by the Mannheim Regional Court, subsequently also by the EPO Boards of Appeal) of a Nokia patent-in-suit challenged by OPPO, the TJP declared EP'731 invalid for lack of novelty. That is the worst-case scenario for a decision to invalidate a patent, as lack of an inventive step would have the same effect but involves more than one piece of prior art. So even if the appeals court in France or the Federal Patent Court in the parallel German case did not reach the same conclusion that the claimed invention was fully anticipated by the prior art (a conclusion that I believe is right), it's hard to see how the patent would not at least be invalidated for its failure to meet the non-obviousness requirement.

Here's the operative part of the French decision (click on the image to enlarge):

German judges' bias against Chinese defendants

I've previously observed that many (presumably not all) German patent judges have a bias against Chinese companies. In fact, Presiding Judge Ulrike Voss ("Voß" in German) of the Dusseldorf Higher Regional Court and also Judge Andreas Voss (the two are not related as far as I know) have made statements at conferences that had me concerned. At Munich's Ludwig Maximilian University, I overheard a conversation between the Dusseldorf judge and BMW in-house patent counsel Edmund Mangold, in the course of which she defended Germany's injunction-friendly jurisprudence on the following basis:

"I hear you, but we have to deal with unrepentant infringers where injunctions are absolutely necessary. I don't want to... but, let me just say they are frequently from Asia."

Her Karlsruhe-based peer expressed, at a webinar in the late summer of 2021 (discussing that year's German patent injunction "reform"), his concern that clarification by the Federal Court of Justice would likely only arise from a case in which the defendant would be "some company from the Far East whose business model is centered around infringement."

If U.S. judges said anything in public like what those two judges from German appeals (!) courts said in recent years, they'd be accused of racism and potentially impeached. I hereby call on the German judiciary and on German UPC judges to prove in the months and years ahead that Asian and particularly Chinese defendants are finally treated fairly. I firmly believe that various decisions that were made against Chinese defendants would probably not have been made against, for instance, a company like Apple, to provide just one example. Apple has not lost a case in Mannheim (unless I missed something) in a long time...

Another patent invalidated in France

The other Nokia patent that went down the tubes in Paris is EP1702486 on "arranging handover" (click on the image to enlarge):

That ruling was handed down late on Thursday.

Other jurisdictions in which Nokia asserted that patent include India and Russia (the Russian cases were withdrawn).

OPPO is represented by Hogan Lovells in France (as well as in Germany, where EP'486 is not being asserted as far as I can see, and where Hogan Lovells lost the EP'731 non-SEP case at a time when the Federal Patent Court did not yet issue its non-binding preliminary opinions in time for the infringement hearings, as the relevant statutory amendment had not yet taken effect when the action was filed).

Thursday, July 20, 2023

Highway toll collection pioneer Axxès becomes third licensee of Avanci Aftermarket cellular standard-essential patent pool

While the proposed EU regulation on standard-essential patents (SEPs) has rightly been called a "wholly bad idea", licensing works: there are far more bilateral license agreements (between one SEP holder and one implementer) and pool license agreements than lawsuits. Most agreements are not announced, but there are exceptions, and pools tend to be particularly transparent in that regard. Last month, Sisvel announced a 5G license agreement with Microsoft involving a relatively new multimode pool for consumer electronics devices. Today, another relatively patent pool announced a license agreement: Axxès, a French company that is a pioneer in toll collection technologies, has taken an Avanci Aftermarket license.

It's been five months (minus one day) since I reported on the launch of the Avanci Aftermarket pool. Unlike the original Avanci pool that licenses car makers, Avanci Aftermarket provides a one-stop shop solution to those making products that are subsequently installed into cars, such as trackers, toll collection, or monitoring systems. The pool started with two licensees (a company collecting road tolls and a leading provider of intelligent transport systems for the public transport sector).

Axxès facilitates toll payments for trucks, buses, and utility vehicles driving on the roads of various European countries (such as France, Germany, Italy, and Spain). So this is a European company doing business in Europe, and they did submit suggestions during the European Commission's consultations regarding a new framework for SEPs. Axxès may meet the EU's criteria for small and medium-sized enterprises (SMEs) and sees value in the Avanci model. The press release quotes Axxès' chairman and CEO, Frédéric Lepeintre, as saying "[they] are confident that being an Avanci licensee will help [them] to continue to deliver innovative solutions to the market."

So here we see an innovative medium-sized European company appreciating a market-driven solution, and apparently deeming the pool rates fair, reasonable, and non-discriminatory (FRAND). The fact that the specifics (particularly the licensee's name) are known makes this case study far more meaningful than the dubious anecdotal evidence from unnamed companies one can find in the impact assessment accompanying the proposed EU SEP Regulation.

The press release also quotes Avanci VP Marianne Frydenlund, formerly of Nordic Semiconductor. She knows and understands implementers' needs, including those of small and medium-sized ones in the IoT space, as anyone who met her at the time (she attended a licensing conference I organized in Brussels four years ago) can confirm. Avanci's management team consists not only of former executives of major net licensors, but some of its members--such as Mrs. Frydenlund--previously worked for major net licensees.

For Avanci, the license agreement with Axxès means further progress as the pool management firm expands into adjacent areas. It appears that patent holders who work with Avanci in one area tend to be more than receptive to the idea of working together in additional fields, even more so now that Avanci's automotive pool has licensed the vast majority of connected-vehicle sales in the world and provides a one-stop license to well over 50 portfolios, collectively representing most cellular SEPs in the world.

So far, Avanci's cellular pools cover 2G, 3G, and 4G. I don't know when a 5G announcement will be made, but a rapidly increasing number of cars are equipped with 5G technology and the licensing process needs to be streamlined. I guess an announcement will be made before the end of the year.

Monday, July 17, 2023

EU policy makers should have listened to judges before standard-essential patent proposal that is 'wholly bad idea' for lack of 'extraordinary care'

The separation of powers obviously rules out that the judiciary makes the laws it is meant to interpret. That bedrock principle, however, does not preclude European policy makers from drawing on judicial expertise when drafting legislative proposals. Case in point, the German justice ministry invited almost as many judges as industry representatives to a May 2019 roundtable labeled as an "expert talk" while contemplating a statutory amendment relating to patent injunctions.

Even if the reason for a legislative measure is policy makers' disagreement with jurisprudence, judges can provide valuable feedback to draft statutes and do not have the interests of particular companies in mind.

The problem with the "consultations" conducted by the European Commission's Directorate-General for the Internal Market (DG GROW) relating to the proposed regulation on standard-essential patents (SEPs) is not that they didn't talk to, and solicit input from, stakeholders over an extended period of time. It's that they didn't request feedback to specific proposals (and that they didn't make more of an effort to have industry provide researchers with confidential information). That webinar series, for instance, was pretty good, and I gladly contributed to one particular part of it, but there was nothing that set those webinars apart from what the likes of Concurrences organize all the time. By contrast, the UKIPO has just recently stated the right way to go about it:

"Any significant policy recommendations/interventions subject to public consultation."

"Significant" would actually be an understatement for the incisive measure proposed by DG GROW.

That's why I support IP Europe's call for a do-over: it would be an opportunity to arrive at a well-considered and balanced proposal, giving the European Parliament and the EU Council a far more reasonable basis for their legislative work.

I am unaware of a single European judge having commented favorably on the EU proposal. I do know that many of them are reluctant to speak out publicly and decline any related invitations. To the extent that anything has been said by judges, it has been not only negative but damning.

In early June I mentioned what the President of the Unified Patent Court's Court of Appeal, Judge Dr. Klaus Grabinski, said at his court's inaugural event:

  • He voiced concern over "access to justice" issues, given that the right to request a judicial review of certain types of decisions is "a core fundamental right" under the EU's own charter. In fact, access-to-justice deficiencies were also among the first problems about the proposal that I highlighted (based on a leaked draft).

  • Judge Dr. Grabinski urged DG GROW to rethink the plan.

The UPC has just received its first SEP infringement complaint(s), but some people in Brussels don't want to give the new court the chance to develop its jurisprudence without legislative intervention--and try to sideline the UPC's dispute resolution center, too.

Judge Dr. Grabinski was, in fact, among those invited by the German government to the 2019 roundtable I mentioned further above. But apparently no EU policy maker cared to ask for his opinion on the proposal before it was formally submitted.

While Huawei v. ZTE is still "good law" in the UK (though there is a potential for future deviation), the EU SEP Regulation won't apply there at all. That makes it even easier for British judges to share their views. At a recent Concurrences event (to which I contributed as well), Mr Justice Marcus Smith--the President of the Competition Appeal Tribunal who also presides over High Court of Justice patent cases such as Optis v. Apple--didn't mince words:

  • He called the proposal a "wholly bad idea" (which sums it up nicely).

  • Like his country's patent office, he says that any regulation in this complicated area "needs to be treated or regarded with extraordinary care."

While not specifically related to the EU proposal, I'd also like to quote the former Chief Judge of the United States Court of Appeals for the Federal Circuit, Randall R. Rader. He said the following at Huawei's Innovation & Intellectual Property event last week:

"The marketplace works quietly, silently, and voluntarily. Indeed, most of the use and benefit of intellectual property comes through voluntary agreements. Licenses. Those licenses by definition are beneficial to both parties because they have both voluntarily entered them. Now, we're accustomed to perceiving intellectual property in terms of legal conflicts but in fact the story of intellectual property is the story of a system that enhances cooperation, coordination, joint efforts to improve human situations."

The fact that most agreements fall into place without litigation doesn't mean that the SEP dispute resolution system couldn't be improved. But there is no urgent need for massive intervention, and especially not with respect to small and medium-sized enterprises (SMEs). The impact assessment accompanying the EU proposal has no hard evidence for actual SEP enforcement against SMEs to offer. All that one can find there amounts to unverifiable and partly rather dubious anecdotes.

If DG GROW gave this another try, they might also want to ask the judges whether SMEs are frequent targets of SEP assertions. The smallest defendant I've ever seen in European SEP litigation is the dominant market leader (70% market share) in the German WiFi router market. That one is not even an SME by EU standards.

Sunday, July 16, 2023

U.S. judiciary endorses EU antitrust chief Margrethe Vestager's solution-oriented approach to merger reviews while UK CMA keeps its own--but also constructive--profile

At this stage the question does not appear to be whether but when--Monday, Tuesday, or in August--Microsoft will consummate the acquisition of Activision Blizzard King. There were signs of ABK being delisted from NASDAQ or at least removed from the NASDAQ-100 index as early as tomorrow.

Even a commercial agreement between Sony and Microsoft to keep Call of Duty on the former's PlayStation has fallen into place. Sony was the only vocal deal critic, though Google was lobbying against the transaction as well.

The contractual target date for closing is Tuesday, July 18. There have been media reports of a potential extension since the UK Competition & Markets Authority (CMA) opened a new investigation in light of a new proposed deal structure, with a late-August deadline and the plan to wrap up ahead of schedule (PDF). The Financial Times wrote:

"[A]fter this week’s legal victory in the US courts and a potential lifeline in the UK, people close to the companies say they are likely to agree an extension to the deal early next week.

"'Things are moving quite quickly,' said one person close to the negotiations."

There's been a flurry of news recently. On Tuesday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied (PDF) a motion by the Federal Trade Commission (FTC) for a preliminary injunction that would have blocked the transaction. That was the outcome I predicted in my previous post on that topic. Just as I already observed when I attended the five-day PI hearing in person, the FTC failed to meet multiple requirements for a merger PI.

Between that decision and the Ninth Circuit's denial of an emergency motion by the FTC, various gamers reported that my name became a trending topic on Twitter for that community. But I'd rather talk now about the actual decision makers and the key institutions, and what the current situation means for them and their regulatory philosophies:

DG COMP showed the way

In the wake of the U.S. court rulings, a very thoughtful gamer and developer active on social media as EverbornSaga--who made various great contributions to my recent Twitter Spaces (basically, talk shows via Twitter)--declared the European Commission's Executive Vice President Margrethe Vestager "[t]he True Hero of this Story":

Everborn has a point.

Judge Corley started the final part of her PI denial order ("Conclusion") with the following observation:

"Microsoft’s acquisition of Activision has been described as the largest in tech history. It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services."

That paragraph was just a more formal version of something she said at the PI hearing about those commitments and agreements:

"In many ways you [the regulators] won."

The FTC's trial counsel rejected that notion. They just wanted to block the merger. They wanted both the district court and the appeals court to turn a blind eye to the remedies that were already in place and constituted market realities. But Judge Corley was right--and is even more right now that Sony--albeit at long last--accepted an offer by Microsoft.

In a speech I called "historic" on Twitter and in various interviews, EVP Vestager stressed the need to focus on how regulators can bring about results that benefit the competitive process and consumers. She opposed the idea of--in my words--a hawkishness contest between regulators.

I still believe that actually the regulators who cleared the transaction unconditionally--most recently the Turkish competition authority--got it right. In fact, the Brazilian and Chilean decisions were my favorite ones, and in Chile they even conducted a survey among gamers to get an idea of whether vertical input foreclosure would work. But as Judge Corley wrote, the size of the deal warranted scrutiny, and that's why I don't blame regulators for launching a Phase II investigation. Still, I think that the most that a regulator could reasonably have expected here--given that the deal raises no competition concerns if analyzed competently and viewed rationally--would have been some public statements prior to clearance. Enforceable remedies with an independent monitor just seem unnecessary to me. Be that as it may, the European Commission received extremely positive feedback from gamers for clearing the deal on the basis of consumer-oriented formal remedies.

The U.S. judiciary has, by extension, endorsed EVP Vestager's regulatory philosophy.

FTC should drop its "case" now

As someone who spent far more time in court supporting (in 2019) than criticizing (in 2023) the FTC, I'm disappointed. The FTC's emergency motion with the Ninth Circuit was disingenuous in various ways. And it failed miserably.

The FTC's in-house trial is scheduled to start on August 2, and as per the Ninth Circuit's normal schedule (which can always be extended) for PI appeals, it has until August 9 to file an opening brief. The only logical thing now would be to seek an extension from the Ninth Circuit (easy, especially as I'm sure it would be unopposed) and to postpone that trial to conserve resources. And to drop the "case" after the deal has closed, as the FTC has historically always done.

Will this FTC make a rational decision? Maybe today's annoncement of an agreement between Microsoft and Sony makes it easier.

UK CMA still an outlier, but now a solution-oriented one

I stand by my harsh criticism of the UK CMA's April 26 decision and last year's issues statement. The blocking decision was all the more disappointing as I actually thought they were on the right track when they dropped their console market theory of harm in late March. Now I see that a lot of gamers are not really trusting the CMA anymore, though I encourage them to appreciate the fact that the CMA is willing to evaluate a new deal structure.

According to rumors in the media, that new deal structure would involve the divestiture of Microsoft's UK cloud gaming business to British Telecom subsidiary EE, which already had a 10-year agreement in place with Microsoft for Activision's titles.

If the CMA now approves the deal, it will have maintained the integrity of its processes, avoided a decision by the UK Competition Appeal Tribunal (which will hold a case management conference tomorrow in light of the parties' motion to stay the proceedings), and remained consistent with its position that non-divestiture remedies are disfavored even for vertical mergers.

That makes the CMA a winner, too. The question is now whether a solution can be found that enables the closing of the deal in the days ahead while also allowing the new merger review to go forward. My personal opinion is that if the CMA is philosophically inclined to clear the deal based on a UK-specific divestiture remedy, they could make an exception here and let the deal close for the time being. This merger review process is unlike any other, and therefore not really precedent-setting. Today's announcement of the agreement between Microsoft and Sony could make a major difference now.

There are serious issues in the tech industry, and arguably some even bigger problems that the world is facing in other respects. I've always said I want those regulators to emerge stronger. The FTC under its current chair has lost all four of its merger challenges. And the way they lose does not really suggest that they contribute to the evolution of U.S. merger case law or build an argument for legislative intervention, though I personally would actually consider it a good idea to make U.S. antitrust enforcement stronger if some problems (such as the FTC's in-house adjudicative proceedings, where the commissioners can ultimately just vote in favor of their own complaints) are addressed.

In the UK, the DMCC Bill will give the CMA's Digital Markets Unit more powers, and as an app maker I like that, too, though after this experience with the Microsoft-Activision case I believe a robust judicial review by the Competition Appeal Tribunal is key. Is the current framework good enough? Clearly, the CATribunal (or just CAT) is a winner here. It recognized the importance of this case, went out of its way to enable swift adjudication, and is clearly force to be reckoned with while a lot of "experts" suggested the CMA could basically do whatever it wants as the CAT would have to rubberstamp its decisions (not true) and always remand the cases anyway (not certain as the CAT itself interprets the relevant statute, which is not strictly limiting, and if the CAT effectively resolves a substantive question, a remand can be reduced to a mere notarization of a CAT decision).

I have great respect for the CMA's willingness to reevaluate the transaction in light of a new proposed deal structure, and I am hopeful that solutions will be found. Ideally also a provisional one that enables the closing of the deal in the days ahead.

As of now, prior to a new CMA decision and a New Zealand ruling that may come down in a matter of hours, the transaction can be closed with respect to 41 countries with 2.8 billion inhabitants and representing about two thirds of the global economy. With more to come.

Thursday, July 13, 2023

Huawei emphasizes balance and collaboration, announces various patent royalty rates at annual innovation & intellectual property event

This is the third year for me to watch Huawei's annual innovation and intellectual property event, and I found the 2023 edition that was held today particularly interesting. Instead of one very long blog post, I'll talk about the company-specific part today and will reference the event again in an upcoming post on statements by various high-profile patent judges (former Federal Circuit Chief Judge Randall R. Rader--who was at today's event--and currently actives judges Mr Justice Marcus Smith of the UK Competition Appeal Tribunal and Judge Dr. Klaus Grabinski of the UPC) that should be considered in connection with the European Commission's proposed regulation on standard-essential patents (SEPs).

The SEP licensing landscape is polarized. On one end of the spectrum, pure licensing firms are found, and on the other end, there are net implementers who even if they own SEPs themselves are primarily interested in devaluation. Net licensors who also have a product business can relate to either perspective, but their surplus from patent licensing tends to be substantial. If any of you can point me to a second example, please do, but to the best of my knowledge, there is no major player--other than Huawei--whose inbound and outbound patent licensing activities are pretty much in an equilibrium at this stage.

Huawei generated US$560 million in licensing revenue during the course of 2022, but also spent pretty much the same amount on license fees covering its products over the course of the last two years as it collected. In the past, the ratio was actually 3:1 (inbound:outbound licensing), but then came certain geopolitical developments that have practically excluded Huawei from particular markets. Still, historically Huawei is a net licensee, even if it accidentally attained "net licensor" status (and only by a razor-thin margin) late last year according to a media report.

I find it not only intellectually dishonest, but frankly outrageous and strategically counterproductive when those seeking to devalue SEPs treat Huawei as an enemy, be it in statements to the media or on conference panel. It's a binary "you're with us or against us" attitude, motivated by the convenience of "cheap shots" at a bogeyman. In reality, no company--if it weren't for geopolitical reasons--is better-placed to serve as a bridge between net licensors and net licensees than Huawei with its unique parity between inbound and outbound patent licensing activities. And if you asked them, I'm sure they'd rather become a net implementer, by the traditional of factor of three, as soon as humanly possible.

At today's event named "Bridging Horizons of Innovations 2023 -- Sharing Intellectual Property, Driving Innovation", Huawei's chief legal officer, Dr. Song Liuping, made it very clear: because Huawei also implements standards, it has "a balanced approach" and is "all for reasonable fees, and absolutely against excessively high royalty rates because it would impede competition and hold back SMEs because SMEs normally don't own any SEPs."

As I mentioned geopolitics, at least the institutions of the United Nations maintain a constructive dialog. Today's event included a video address by Tomas Lamanauskas, the Deputy Secretary-General of the International Telecommunication Union.

Collaboration was another theme (also in that ITU keynote). Huawei reached approximately 200 patent license agreements without the need to resort to litigation (though of course there have been and will continue to be a few cases where it couldn't be avoided). When the moderator asked why they wanted to share their technologies instead of trying to monopolize markets, Huawei's IP chief, Alan fan, had to laugh at the notion of monopolization and replied: "It is not our goal to monopolize. We benefit from competition."

Mattia Fogliacco, the president of patent pool administrator Sisvel, was one of speakers on a discussion panel at the Shenzhen event. He stressed that "the only forward is through a collaborative approach, we must work together and not against each other." And with a view to standards resulting from the contribution of technologies by all companies participating in the standards development process, Mr. Fogliacco asked this rhetorical question: "When there's no investment, how can technologies be good?" In that vein, Huawei IP chief Mr. Fan explained "the virtuous cycle that sustains the industry" where patent licensing income is invested in the development of the next generation of technologies.

While that is not my focus now, the history of this blog is actually that it started with a focus on open source, thus the name (FOSS means "Free and Open Source Software"). Interestingly, Huawei also touted its contributions to open-source software development, being the number one open-source contributor from Asia.

Huawei's press release on today's event notes that royalty rates were announced for the company's different patent license programs. Prior to doing so, however, Huawei showcased some of its groundbreaking innovations such as General Obstacle Detection for autonomous vehicles (i.e., being able to identify obstacles even of a novel nature), the transition from stereo to true 3D audio ("Audio Vivid"), and its contributions to 5.5G, the next major evolution of the 5G cellular standard. Then they announced various royalty caps:

  • Mobile handsets:

    • 5G: $2.5/unit

      4G: $1.5/unit

  • WiFi:

    • consumer grade WiFi 6 product: $0.50/unit

  • Cellular IoT:

    • IoT-centric devices: 1% of net selling price, capped at $0.75/unit, for categories NB, M, and 1; category 4+ to be discussed individually

    • IoT-enhanced devices: from $0.30/unit for Category NB to $1.00/unit for Category 4+

The emphasis today was on innovation, not on monetization, but obviously those using patented inventions must pay license fees. Huawei licenses bilaterally and through pools. I believe we'll hear more about that between now and their next annual innovation & IP event.

Thursday, July 6, 2023

EPO Board of Appeal invalidates standard-essential patent asserted by Nokia in four jurisdictions against OPPO and in at least two against Vivo

The disputes between Nokia and OPPO on the one hand and Nokia and Vivo on the other hand have been going on for some time with no resolution in sight. I noticed that an Indian appeals court ordered OPPO to make some interim payments, but that's not going to force anyone into a global license agreement. Never has, never will.

At the same time, Nokia and OPPO are challenging each other's patents, and I have a few updates about that.

  1. Surprisingly, what appeared to be a minor amendment to the claims of one 5G patent that OPPO is asserting against Nokia was deemed a significant narrowing of the claim scope by the Mannheim Regional Court, resulting in a bench ruling of non-infringement that OPPO may appeal now.

    Thus far, Nokia has managed to defuse all of OPPO's countersuits in Germany, getting some stayed (because of preliminary opinions or decisions concerning the validity of the patents-in-suit) or dismissed. But there still are some cases pending, and as far as I can see, there is no OPPO v. Nokia case yet where all appeals have been exhausted.

  2. Today I learned from the Mannheim Regional Court's spokesman that tomorrow's announcement of what could have been final judgments against OPPO and OnePlus has been canceled. The related proceedings involve EP2087626 on "additional modulation information signaling for high speed downlink packet access" and have been reopened in light of the revocation of that patent by the European Patent Office (EPO).

    It's a dramatic turn of events (or at least it would be dramatic if it wasn't just one of numerous lawsuits in the wider context). OPPO has snatched victory from the jaws of defeat. This is the chronology of events:

    Nokia already asserted EP'626 against Daimler. It was the first of Nokia's patents-in-suit against Daimler to be upheld by the EPO's Opposition Division. The NokiaNews website wrote in 2021 that "Nokia won the first battle in the dispute against Daimler" (though Nokia had previously won a couple of injunctions, this was the first validity decision in Nokia's favor).

    Yesterday, one of the EPO's Boards of Appeal heard OPPO's appeal--and at the end of the appellate hearing declared the patent invalid, just two days before the Mannheim court was going to issue an infringement ruling (presumably an injunction). Theoretically, decisions by a Board of Appeal can be appealed further to the Enlarged Board of Appeal, but only under narrow circumstances, and general guidance from the Enlarged Board of Appeal for future cases wouldn't resurrect EP'626.

    Nokia brought infringement actions over EP'626 against OPPO in Germany, the UK, and the Netherlands, and also sued over member of the same patent family in India and Indonesia (in Indonesia, Nokia's cases were dismissed on procedural grounds; Nokia also brought an Indonesian infringement action against Vivo over a member of that patent family). Nokia also sued Vivo over that patent in Germany.

    Therefore, the invalidation of EP'626 affects quite a number of Nokia enforcement actions. The ones in Germany, the UK, and the Netherlands have been resolved (short of another surprise turn of events). In jurisdictions like India, the EPO decision will serve as persuasive authority.

  3. A couple more Nokia patents have been invalidated in China as the following SIPO documents show:

UK approach to SEP policy fundamentally more thoughtful than DG GROW's legislative proposal--but SME sample sizes are insufficient on both sides of the Channel

The UKIPO (the patent office of the United Kingdom) has published the results of a survey among small and medium-sized enterprises (SMEs) concerning standard-essential patents (SEPs), warranting this follow-up to my very recent post on plausibility issues with the anecdotal SME evidence in the impact assessment accompanying the proposed EU SEP Regulation as well as to my late-March post on the UKIPO's more skeptical stance on submissions by lobbying fronts claiming to represent SMEs.

I just wish to add two points to the previous commentary:

  1. The UKIPO's approach to SEP policy continues to be more deliberate than what we've seen lately from the European Commission's Directorate-General for the Internal Market (DG GROW).

    This sentence speaks volumes:

    "Any options for intervention will be subject to public consultation."

    That is precisely what DG GROW did not do. They engaged in "consultation" that in their understanding included online polls among the participants in a webinar series (to which I also contributed as a speaker), asking general questions about companies' grievances as opposed to collecting feedback to specific types of intervention, such as a mandatory SEP register or EUIPO-led FRAND determinations (for entire standards as well as party-to-party relationships).

    Prior to publishing the results of that SME survey on the web, the UKIPO already presented the results to ETSI's IPR Standing Committee. The final bullet point of the final slide said this:

    "Any significant policy recommendations/interventions subject to public consultation."

    Conducting some general "are you all happy?" kind of consultation without specific proposals on the table cannot be a basis for impactful legislation.

    I was on a Concurrences webinar panel yesterday that was keynoted by Pierre Régibeau, the Chief Economist of the European Commission's Directorate-General for Competition (DG COMP). I very much appreciated his reference to this blog. And no one can blame him as DG COMP was not involved with the consultation process. It is, however, always interesting to hear his perspective on SEP policy, and Dr. Régibeau is right that a perfect SEP licensing framework that makes everyone happy won't be possible. That said, I believe the current proposal is not just slightly suboptimal but fundamentally misguided, and that's why I believe DG GROW should go back to the drawing board. Also, DG COMP should take another look, and a very close one I mean, at the notion of letting the contributors to a given standard form a cartel and set an aggregate royalty rate...

  2. Neither in the UK nor in the EU are sample sizes sufficient to draw any meaningful inferences concerning alleged SME issues with SEPs.

    The UKIPO at least performed some quantitative validation of the self-declared SMEs who made submissions. There is no indication of DG GROW having made that effort. Of course, even if a respondent to a survey is a legitimate SME, they might just act as a service provider to someone with an interest in influencing policy to the benefit of large corporations. I have repeatedly debunked such fake SEP stories that made no sense regardless of whether the companies telling them were small enough to count as SMEs. Last year I exposed some astroturfers (that company clearly didn't have any SEP issues with the app project they were talking about), and a few days ago I pointed to implausibilities in the impact assessment accompanying the proposed EU SEP Regulation.

    Frankly, I have my doubts about whether all of those SMEs who told the UKIPO about their SEP problems truly need to license SEPs. Let's look at these numbers:

    "34 of the 40 questionnaire respondents (85%) are SMEs. 27 respondents (68%) represent micro companies (1 – 9 employee(s))."

    How likely are "micro companies" (companies with a single-digit headcount) to actually make products that implement industry standards as opposed to just building on top of products (such as by making iPhone or Android apps) that do so?

    Anyway, the number of UK-based SMEs who responded to the survey is just 28. The UK has millions of SMEs and easily thousands of SMEs in the technology sector. So the sample size here is small, and if 9 out of 9 SMEs who answer the last question of the survey say they are afraid of injunctions, how is that meaningful?

    Statistical samples need a certain size to be reasonably reliable.

    The impact assessment accompanying the proposed EU SEP Regulation isn't better in that regard. Given the sie of the EU, it's even worse. In the end it comes down to a few dozen entities giving feedback.

    If there was a widespread SEP problem impacting SMEs, why would I as a litigation watcher never come across SEP infringement lawsuits against SMEs? Why weren't the UKIPO and DG GROW inundated by SME replies to their consultations?

    I commend the UKIPO for a more thoughtful approach than what we've seen so far from DG GROW, but even a (purely quantitative) validation of respondents and a few bar charts won't convince me that there's anything more than anecdotal evidence. Anecdotal evidence at best, that is.

Wednesday, July 5, 2023

Will Huawei make European SEP case law history again? It may have brought first SEP complaint with Unified Patent Court (defendant: Netgear)

Potentially, Huawei v. Netgear could become the UPC equivalent of the Huawei v. ZTE ruling by the European Court of Justice. IAM was first to report on the first standard-essential patent (SEP) infringement action to have become discoverable in the Unified Patent Court's (UPC) registry. With a query involving Huawei, I've also been able to find the case details.

The UPC states this week's Monday (July 3) as the date of formal receipt. Apparently there have been other cases where the UPC's registry stated a date of formal receipt that differs significantly from the date of filing.

The patent-in-suit is EP3611989 on a "method and apparatus for transmitting wireless local area network information." Huawei previously asserted WiFi SEPs against Netgear in German courts. This, too, is a WiFi patent. Huawei's counsel is Dr. Tobias Hessel, who recently joined Clifford Chance from Hoyng Rokh Monegier.

Given the UPC's administrative childhood diseases, particularly with a view to its registry, it is not certain that this is the first SEP case to have been filed with the UPC. But at minimum it's the first one to have become discoverable.

The following screenshot shows how dysfunctional the UPC's register is (click on the image to enlarge):

That's a query for all pending infringement actions. It says there are 13 results, but the first results page lists only one case (instead of 9). Huawei v. Netgear is discoverable only if one runs a narrower search.

I also doubt that only 13 infringement cases have been filed with the UPC. A number of patent holders were preparing for the June 1 launch date.

The Munich I Regional Court has confirmed to me that a Huawei v. AVM (AVM is the WiFi router market leader in Germany) case will be heard by the court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner) on next week's Wednesday (July 12). The case no. is 21 O 2576/22, and the patent-in-suit is EP3337077 on a "wireless local area network information transmission method and apparatus".

Earlier today I shared via an email to those who have subscribed to notifications from this blog the announcement of Huawei's annual IP and innovation event, which will take place in Shenzhen and be webcast on Thursday, July 13.

Monday, July 3, 2023

Dubious anecdotal evidence from SMEs adduced to justify EU proposal for regulation on standard-essential patents

On Friday, industry group IP Europe continued its series of blog posts on the proposed EU regulation on standard-essential patents (SEPs) with an article that focuses on small and medium-sized enterprises (SMEs). Above the article one can see a typewriter with "Fake News" coming out, and to my dismay I must admit they have a point. The lobbying efforts for the legislative proposal are steered and bankrolled by large corporations (essentially Apple and some automotive industry players), but places the emphasis on SME concerns, for which there is simply no evidence.

In fact, there isn't even evidence for hold-up affecting large corporations. It's worth nothing that Nokia just announced the renewal of a patent license agreement with Apple, six months prior to expiration of the one that is currently in force and without any litigation. This means Apple has recently renewed its license agreements with Ericsson, Nokia, and InterDigital, and only in one of those cases a limited amount of infringement litigation (it lasted less than a year) was needed. In the near term, there is nothing that Apple has to fear from the enforcement of SEPs in EU Member States. If anything, Apple has a long-term plan to keep SEP royalties down, and in the mid term it may be interesting to see what happens if Apple uses its own baseband processors and then negotiates a new patent license with Qualcomm.

The IP Europe article I mentioned further above explains that there is no evidence of SEP enforcement against SMEs, particularly no assertions of wireless SEPs. And it discusses the active participation of SMEs in standardization projects by the European Telecommunications Standards Institute (ETSI).

So there are no numbers. Not even anecdotal evidence in terms of verifiable accounts of actual problems. Just stories. Let's take a closer look at the problems allegedly "faced by SEP implementers" according to the impact assessment published by the European Commission's Directorate-General for the Internal Market (DG GROW) in April:

1. Remote patient health monitoring

"A manufacturer of medical devices for the treatment of critical health disorders may wish to implement cellular communication functionality in its products to enable remote patient health monitoring and efficiently improve patient adherence to treatment. Considering the multi-year (e.g. 5-10 years) medical device development process for homologation and certification from network operators, the company needs certainty at an early stage regarding the aggregate FRAND royalty for SEP licenses as it must take such factors into account during the development and commercialization phase and as it considers total cost and alternative technologies. In addition, the inability to negotiate with dozens of SEP holders individually and the prospect of being excluded from the market for an infringement of a single SEP is a further disincentive for using the connectivity standards risking the continued access of patients to telehealth services which are crucial for public health."

COMMENT: That story looks like it was authored by lobbyists/astroturfers trying to leverage a "public health" concern with buzzwords like "critical" and "crucial". While we can all agree on the potential benefits from remote patient health monitoring, the story itself fails a plausibility test:

  • Royalty rates are definitely not the only cost factor for which a device maker with a development cycle of "5-10 years" won't have definitive certainty "at an early stage". A lot of things can change in 5-10 years, and inflation is a reality, too.

  • Such specialized devices are sold at prices that dwarf cellular SEP royalties.

  • The alleged "inability to negotiate with dozens of SEP holders individually" is not explained, and in any event, the proposed EU SEP Regulation would not result in a single pool license.

  • The alleged "prospect of being excluded from the market for an infringement of a single SEP" makes no sense, given that SEP holders have no interest in excluding a device maker from the market (particularly not from a market in which they don't operate).

  • The "continued access of patients to telehealth services" is not in jeopardy: an injunction might affect the device maker, but not the patients. Even in the rare situations in which such devices are already in use but must be replaced, courts can tailor their injunctions as to allow repairs and replacements.

It just makes no sense. It's propaganda.

2. Smart meter manufacturer and its supplier

"A smart meter manufacturer is invited to take a licence from a SEP holder not only for the future but also for 5 years back.

What else did the Commission expect? Royalty-free use for the first few years?

"The smart meters are purchased by utility companies by public procurement contracts in order to promote the reduction of energy consumption under the EU Gas and Electricity Directives."

We're all in favor of energy efficiency. But then we must also ensure that the cellular technologies that enable certain energy-saving methods are funded, and patent royalties are the way to do that.

"The smart meter manufacturer buys communication components, which it integrates in its products. It directs the SEP holder to its supplier and the SEP holder prefers to negotiate with the smart meter manufacturer as it is its understanding that it can choose who to license. The smart meter manufacturer requests its supplier to indemnify it for the SEP royalties as per supply contract. The royalties are higher than what the supplier is willing and able to pay."

What the supplier is "able to pay" would have to be analyzed based on specific numbers.

"The supplier expresses its wish to take the licence itself as it used to have such licences in the past. However, it is unable to get such a licence at the conditions that are acceptable to it. Its (non-EU) competitors continue promising indemnifications to their customers."

The Commission itself has already recommended the solution to any competitiveness issues arising from (non-EU) competitors' infringement: enforcement.

Those non-EU competitors may have a different legal framework at home, but once they sell in the EU, they--or in this case, their customers--face the risk of patent infringement lawsuits there. So there is a level playing field with respect to the EU market.

"The supplier is pressured by all its worried customers manufacturing not only smart meters but also payment terminals, wireless charging, medical devices, tracking devices, etc. to keep the indemnification clauses and bear the risk of SEP licensing."

There is no indication (much less evidence) of why indemnification is a problem. All costs--including intellectual property licensing costs--must be factored in when setting prices for end products or for components.

3. Construction robot

"An EU SME developed a robot assisting in construction works. It is innovative due to an inventive electro-mechanical structure of the robot arm, wheel drive and motion control. The user controls this robot with a tablet comprising a specific Human-Machine-Interface. The communication between tablet and robot could be wired or preferably wireless. The most desired option would be WiFi, but due to the SEP license, Bluetooth fully licensed at chip level will be implemented. Another option is a wired USB connection, which also works but does not meet customers’ expectations."

WiFi patent royalties are relatively low (compared to cellular standards). The description of the product sounds like it is rather expensive, so it's unclear why that SME couldn't afford WiFi. If Bluetooth was chosen to maximize profitability, that's the device maker's choice.

4. Smart home appliance maker "not aware" of need to license WiFi SEPs

"An EU SME developed a smart home appliance for energy consumption control in a household. It can lower energy cost and optimise usage of renewable energy (solar, wind…). Collected data is sent to the company’s central server for analysis. Initially WiFi was considered to connect to a router in a household. The company was not aware that WiFi is subject to a SEP licence. To avoid SEP costs/litigation they chose a wired connection to a router instead."

What? First, how can someone assume that WiFi is royalty-free? Second, if they decided not implement WiFi for fear of SEP assertions, that proves that eventually they became aware of the fact that WiFi SEPs exist, and apparently long before they put out a product.

Smart meter maker unaware of chip not being licensed

"An EU SME developed a smart meter which is now implemented in hundreds of projects. Data between meters is sent using mostly Bluetooth, but for remote locations a chip with WiFi and 4G functionality was embedded. The company was not aware that the chip was not licensed for WiFi and 4G. If faced with litigation it will disable this chip in all its devices."

The unwareness problem could have been avoided in various ways. There must have been a disclaimer in the purchase agreement. Maybe the device maker should simply have read that contract. Alternatively, one may argue that the chipmaker should have alerted its customer to that fact beyond a clause in the agreement. None of that is the fault of SEP holders. And it does not seem unfair that a company making connected devices learns about SEP licensing.

From a patent law point of view, the last sentence makes no sense: if the chip infringes, then just disabling it won't do the trick with respect to product (apparatus) claims.

5. Health data reporting and choice of wireless standard

"An EU SME developed a product to help individuals track their health metrics and report results to their doctors in real-time. The SME and its competitors had a choice of technologies to choose from when developing their product regarding wireless connectivity. After unsuccessful attempts to license various wireless technology directly from known patent holders, the company built the product. After a robust and successful market developed, and after the point in time when the product design was “locked” in and could not be changed, numerous wireless patent holders approached the company and demanded they take a license. This effectively deprived the SME of choosing an alternative wireless technology and the patent holder did not consider other wireless technology that could have been used as a comparable value when deciding the royalty rate that was demanded."

Again, telehealth is great--but that's not the question.

Why were those "attempts to license various wireless technolog[ies] directly from known patent holders" unsuccessful, and why did they seek royalties later but declined to make an offer beforehand? Why would those patent holders not have complied with their obligations under Huawei v. ZTE? It's (at best) a mystery.

Who "deprived the SME of choosing an alternative wireless [standard]"? They made a choice at some point. No one forced them to implement a particular standard.

6. Global navigation satellite system receiver

"An EU Global Navigation Satellite System (GNSS) receiver designer and wireless cellular modem designer was asked by customers to reduce the “footprint” of their modules that were used in an end product. The EU design company could not accommodate the request because it could not directly license patents from the patent holders and the “have made” rights held by the end product company did not allow the designer to innovate. It could only “make” the product design given to it by the end product company. A non-EU competitor of the GNSS receiver and wireless cellular modem designer seized the opportunity."

Why would the company have to license SEPs to reduce the "footprint" of those modules? What exactly is meant by "footprint"?

Why would the "non-EU competitor" have had an advantage? Once its products (or those incorporating it) are sold in the EU, there is no strategic advantage based on country of origin. EU SEP enforcement rules will apply.

Oddly, there is a second version of that "EU Global Navigation Satellite System (GNSS) receiver designer and wireless cellular modem designer" story in the impact assesment, right after the first one. The second one largely overlaps, but then tells a different story. How credible is that? I mean, how likely is it that the Commission got feedback from two different companies of that kind reporting the same unspecified request for a reduced "footprint" but then telling stories with different outcomes?

Here's the second EU GNSS story:

"An EU Global Navigation Satellite System (GNSS) receiver designer and wireless cellular modem designer was asked by its EU customers to reduce the “footprint” of their modules that were used in an end product. The EU design company had a license with several cellular patent holders and took on the project. However, the EU end product company was warned there would be a significant price increase because their cellular patent license royalties were based on the average sales price of the module/modem and the combined GNSS/cellular module average sales price would be 3X higher. The EU end product company asked why the GNSS function was considered when determining cellular royalty owed and not removed from the average sales price. They learned it was standard practice in wireless licensing. The EU end product company abandoned the design improvement request."

7. IoT wireless module company

"An innovative EU IoT wireless module company that had been licensed for years by cellular wireless patent holders is now being denied licenses. The patent holders are changing to licensing only at the end product level. The patent holders claim the value of the patents they hold has increased by 4-6 times what the previous licenses demanded in royalties although many of the 3G and 4G patents have expired/are expiring and new high-speed 4G patents are not needed by the EU IoT company. The patent holders are demanding that the EU IoT companies license patents from their patent pool and that the EU IoT company acts as an agent between their customers and the patent pool, receiving a “kick-back” for doing so."

The impact assessment describes that company as "innovative" without explaining why. Such buzzwords do not enhance the credibility of a document accompanying a legislative proposal.

The paragraph is confusing. The last sentence refers to "the EU IoT companies" as well as "the EU IoT company". The plural term apparently means device makers while the singular term refers to the module maker.

It is not clear whether the licensor side or the licensee side are right in this case. Patent holders want more money and device makers want to pay less. That's normal, but without more information it's impossible to form an opinion on whether there is/was an issue.

8. Supplier lost IoT business opportunities

"Supplier explained that its sales teams regularly get questions from prospective Cellular and Wi-Fi IoT customers about “patents”, “IP rights” and “indemnification”. They consider themselves in a vacuum because there is no easy way to obtain a licence or to even know the price of such licence. It is unable to sell its products with all IP rights included, nor is it able to indemnify its customers should they receive an infringement or license claim in the future. The company has lost several Cellular IoT business opportunities to both EU and non-EU competitors making misleading or false statements with regards to “selling a licensed product” or “providing full indemnification”."

If those competitors make "misleading or false statements" concerning the licensing status of their components, then their customers will find out sooner or later. And whether or not there is "full indemnification" depends on what's in the agreements that those customers sign.

The remaining stories in that section of the impact assessment aren't more plausible or verifiable.

9. Confidential "testimonies" collected from FSA members

Why does the Commission outsource its job to the Fair Standards Alliance (FSA)? The FSA's members are free to communicate with the Commission, and the FSA can (as it presumably has) encourage them to do so.

The SME stories in DG GROW's impact assessment are not even anecdotal evidence. Frankly, some of them sound like fiction, and none of them points to a verifiable problem.

Responsible policy-making needs a much more solid basis.