Nokia ultimately gets Daimler to take car-level patent license, but issues persist, questions remain regarding component-level SEP licensing

Nokia and Daimler just announced--in a minimalist fashion--the settlement of their standard-essential patent (SEP) dispute after more than two years of infringement litigation and closer to three years after Daimler filed its EU antitrust complaint against against Nokia. All pending cases will be withdrawn now, which most significantly entails that the European Court of Justice (the upper division of the Court of Justice of the EU) won't address the Dusseldorf Regional Court's questions regarding the application of EU antitrust law to component-level licensing and SEP injunctions in case no. C-182/21. That said, there'll most likely be Groundhog Day pretty soon and some other case(s) raising these issues will be sent to Luxembourg, possibly separate ones for the component-level licensing question on the one hand and SEP injunctions on the other hand.

The Nokia ECJ case was going to be a hot summer topic, as the European Commission, the 27 EU Member States and the 3 EEA-only states (European Economic Area) were going to file their written observations in August. Next time, however, the referring court(s) could optimize the wording of the questions presented for a preliminary ruling.

A journalist asked whether Nokia granted Daimler a direct license, and this was confirmed, meaning that various Avanci contributors could still demand patent royalties from Daimler and bring infringement complaints. Daimler previously took licenses from Avanci contributors Sharp and Conversant after those companies indirectly licensed most of Daimler's vehicles through a component-level deal with Huawei. Huawei sells network access devices to certain Daimler suppliers such as Continental and Samsung-owned Harman. Patent exhaustion works all the way downstream.

Being a tier 2 supplier to Daimler (meaning that Daimler buys from Huawei's customers), Huawei demanded a component-level license from Nokia and brought a Dusseldorf antitrust action in the form of a third-party counterclaim. The Dusseldorf Regional Court put that Huawei v. Nokia case on hold after it decided to refer the dispositive question of component-level licensing to the ECJ. Unless Huawei and Nokia have also reached an agreement (and there is nothing in the announcement that suggests so), this means the Dusseldorf court may now refer that case--in which Huawei demands that Nokia make an exhaustive component-level SEP licensing offer on FRAND terms--to the top EU court.

In that case, Part B of the questions for the ECJ (injunctive relief, application of Huawei v. ZTE) is not at stake (and either the lower ocurt or the appeals court in Dusseldorf could simply raise those questions with the ECJ in any other SEP case before them, such as the ones I blogged about yesterday, at least two of which have been appealed to the Dusseldorf Higher Regional Court). But Part A, possibly with some modifications, is outcome-determinative in Huawei v. Nokia, too (at least to a large extent). If the Dusseldorf court did another referral, I would strongly recommend streamlining the wording. It is possible to be sufficiently clear, yet reasonably focused. There are better ways to raise the same question, as it is not necessary to provide numerous qualifiers for what is simply called a "FRAND-pledged SEP". The FRAND pledge may not even be relevant here at all in a compulsory-licensing case. This is not a U.S. SEP case based in contract law; in the EU it's an antitrust matter.

But would it really be desirable to resolve component-level licensing in what will be portrayed in the political arena as a Chinese-European dispute?

On the one hand, Huawei has made SEP litigation history in the EU with Huawei v. ZTE. That, however, was originally a dispute between two Chinese players. Now that "digital sovereignty" is a high political priority for the EU, I strongly urge European automotive suppliers such as Continental, Bosch, Valeo, TomTom and BURY Technologies--and also a company like Gemalto, which had filed an EU antitrust complaint against Nokia--to bring their own Dusseldorf lawsuits against Nokia, modeled after Huawei's case. They might even sue one or more or other SEP licensors who refuse to extend component-level licenses. The Dusseldorf court would almost certainly consolidate those cases, and Presiding Judge Sabine Klepsch of that court's 4c Civil Chamber would ideally refer a slew of component-level licensing cases to Luxembourg.

This would have major political advantages:

• Nokia and its allies could not portray the matter as a Chinese attack on European IP, European innovation, and European digital sovereignty, which is a mischaracterization at any rate but might nevertheless be politically impactful unless some European automotive suppliers enter the fray.

• The EU Member States from which the other potential plaintiffs originate would find it hard to go against their own in their written observations.

• Even if one or more of multiple disputes raising the same issue got settled along the way, it would take only one surviving dispute for the ECJ to hear and adjudicate the matter.

So far, Daimler's suppliers--apart from Huawei, which took the lead on the FRAND enforcement front--joined the infringement cases intervenors, with the courts in Munich and Mannheim not being overly interested in what they had to say, and some of them such as Continental and Valeo additionally filed antitrust complaints with the European Commission's Directorate-General for Competition (DG COMP) in early 2019.

Daimler's own DG COMP complaint is history. Daimler will also find it hard to persuade the EU in the future that it really cares about a policy issue and not just money. From what I heard, the Commission always suspected (and therefore urged mediation at some point) that Daimler just wanted to bring down the royalty rate and didn't genuinely care about whether its suppliers would be exhaustively licensed. By taking several SEP licenses at the end-product level, Daimler has validated its critics and skeptics. There's a right way and a wrong way to settle. The right way is the principled one; the wrong way is one that exposes all prior statements as hypocrisy.

Whether Daimler benefited from this protracted litigation in the end is unclear. A standard Avanci 4G license would cost $15 per car, of which Nokia gets about $2.50. It's always possible in such settlements that someone pays a high nominal rate, but side letters provide kickbacks. Here, given that Daimler doesn't have cellular SEPs of its own to cross-license and can't sell chipsets or similar components to Nokia, it's not too likely that it's a great deal for them. The price Daimler primarily pays here is its credibility, and now any other SEP holder will be a in strong position to defeat them in court unless they agree to take a car-level license. Then, Tesla (though not officially confirmed) and BMW have done the same already. Volkswagen is a special case, as I mentioned toward the end of this recent post: it appears they mostly just have a 3G license.

Avanci will announce its 5G rate in the not too distant future, and that may further raise Daimler's licensing costs.

Automotive suppliers like Conti and Valeo may previously have been hesitant to bring their own FRAND enforcement actions against Nokia as it might have reduced the likelihood of DG COMP launching formal investigations. At this point, however, we all know that the European Commission would also have preferred for the matter to be resolved by the CJEU. It's also well known that French EU commissioner Thierry Breton is proud of certain European companies' large SEP portfolios. It's time for the automotive industry to face political reality, even though I'm sure the Commission's case handlers and even their direct superiors understood the issue and its implications for IoT companies (many of which are startups and just don't represent a match for SEP holders in licensing negotiations). The fact that Daimler ultimately wasn't really interested in getting the strategic issue resolved does nothing to persuade the European Commission to investigate the suppliers' complaints, especially in light of a clear and promising litigation path via Dusseldorf.

Some automotive suppliers must come clean now. I've heard from both net licensors and net licensees that not all suppliers are as pure and principled as they would have us all believe. It's one thing to tell a court in an infringement proceeding that one wants to take a license and another to actually try to make it work. Some entities are credible to me, just looking at their own efforts; others because of what I know on a confidential basis; and then there are some, whom I cannot name, who allegedly just refer SEP holders to the end-product makers.

The settlement announced today may be a setback for the cause of component-level licensing in the short term, but it's up to the automotive industry--particularly to automotive suppliers--to draw the right conclusions and step up to the plate. I'm cautiously optimistic that at least some of them will. Their strategies were flawed, which also applies to the cause of German patent injunction reform (which may not even happen during this legislative term), but everyone is free to learn from their mistakes and do better next time.

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Nokia's latest standard-essential patent licensing offer to automotive suppliers is too little, too late to obviate referral of key questions to CJEU

Earlier this year, Nokia made mediation talks with Daimler and various of its suppliers of telecommunications components fail by refusing to grant exhaustive component-level standard-essential patent (SEP) licenses that would have provided suppliers with the operational freedom they need in order to go about their business. This was not only a disappointment but also a major embarrassment for the European Commission, which continues to be driven by regional protectionism rather than consistent enforcement of competition law and had urged the parties to negotiate even though it was a total waste of time, as anyone knowledgeable about the issues would have predicted.

Roughly eight months later, I have to grant Nokia and its attorneys that they have made some limited adjustments to their position, and that fact appears attributable to last month's Dusseldorf trial more so than to anything the EU Commission has done. Some key players in Brussels are beholden to Nokia, even to the extent that postfactual commissioner Thierry Breton parrots some outdated Nokia-funded propaganda by making an incorrect claim (of Europe being the #1 continent in 5G SEP ownership) from which Nokia's lawyers had already distanced themselves by way of an updated study.

The Dusseldorf Regional Court's strong inclination to refer certain component-level licensing questions to the top EU court--Daimler's lead counsel in the Nokia infringement cases, Quinn Emanuel's Dr. Marcus Grosch, told the Munich I Regional Court last month that he'd be very surprised if it didn't happen--appears to be scaring the living daylights out of Nokia. The decision is scheduled to come down on November 12, and at least the German appeals courts--the lower courts in Mannheim and Munich are too obsessed with forum-selling to do the right thing--will then likely be hesitant to enjoin end-product makers if their suppliers were denied SEP licenses on FRAND terms.

In an apparent effort to dissuade the Dusseldorf court from that CJEU referral, the Karlsruhe Higher Regional Court (which hears all appeals of Mannheim judgments) from staying the enforcement of ill-gotten injunctions against Daimler, and to further encourage the Munich I Regional Court to grant Nokia an injunction against Daimler, Nokia sent new licensing offers to several Daimler suppliers (including BURY Technologies, Continental, Valeo/Peiker, Huawei, Harman, and Renault, which builds an entire vehicle for Daimler) about two weeks ago. At the time Nokia also intended to make such an offer to Bosch, but was waiting for a non-disclosure agreement (NDA) to be concluded.

NDAs didn't prevent all sorts of information to leak from the failed mediation process, and I've been able to find out more about its current maneuvering than Nokia would have liked me to.

The structure of Nokia's latest offers still comes with significant field-of-use restrictions that cannot be reconciled with the principle of the free movement of goods in the EU's Single Market and the fact that under the CJEU's Huawei v. ZTE case law, Nokia owes implementers a license on FRAND terms.

Furthermore, Nokia wants to charge royalties based on the value of the end product--a car--as opposed to a reasonable royalty rate. As a result, component makers simply couldn't afford such a license.

But even if one elected to ignore those major issues, Nokia still refuses to extend licenses to certain levels of the supply chain. Its current offers are limited to telematics control units (TCUs) and don't cover network access devices (NAD, often also referred to as connectivity modules) and baseband chips. By contrast, Sharp granted Huawei a license covering all three tiers (tier 1: TCUs; tier 2: NADs; tier 3: baseband chips.

Huawei is a tier 2 supplier to Daimler and suing Nokia in order to secure an exhaustive component-level SEP license on FRAND terms. That case is also pending before the Dusseldorf Regional Court. I don't think Nokia's latest round of offers would obviate a referral of component-level licensing questions to the Court of Justice of the EU with respect to Nokia v. Daimler, but a tier 1 license would certainly not moot the legal issues in Huawei v. Nokia.

Not only is it urgent to refer the question of component-level licensing to the top EU court but there are some worrying developments in SEP case law in Germany that actually require the referral of further questions to the CJEU. One of the two patent infringement panels of the Mannheim Regional Court has recently decided to gut Huawei v. ZTE by focusing on the implementer's counteroffer; the Federal Court of Justice of Germany held in Sisvel v. Haier that SEP holders no longer need to present claim charts to implementers (which particularly disadvantages small companies, but the last thing a dogmatic judge in Germany would care about is the economy); and the Munich I Regional Court applies the Sisvel v. Haier guidance in such extreme ways that it's hard to see how any implementer could actually defend itself there short of simply capitulating and taking a license on the terms dictated by the SEP holder. Most recently, the Munich I Regional Court has practically waived the requirement to provide collateral (bond or deposit) if an injunction is enforced during the appellate proceedings. They still determine an amount that needs to be posted, but it's typically negligible. I'll talk about that some more on another occasion. For now I merely wanted to underscore the necessity to get certain German courts overruled by the CJEU before more damage is done to innovation and competition.

If Nokia keeps improving its offers at the snail's pace we've seen from the failed handset maker in recent years, the CJEU will likely provide further clarification before Nokia ever makes a truly fair and reasonable licensing offer to automotive suppliers.

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Munich I Regional Court postpones Nokia v. Daimler patent ruling from April 9 to May 20, 2020

BREAKING NEWS

In light of the coronavirus crisis, I double-checked with the Munich I Regional Court's (Landgericht München I) press office and found out that the Nokia v. Daimler standard-essential patent ruling scheduled for this week's Thursday (April 9) has been pushed back to May 20, 2020.

The court did not cite any particular reason for the postponement. A postponement of a ruling date is not unheard of in complex cases, and this is a big one in every respect. It's always better if courts take their time than to rush to judgment.

Without speculating on whether this has anything to do with corona, it's simply a fact that the Free State of Bavaria has not imposed any new restrictions in more than two weeks. The current rules (social distancing, partial lockdown) will be in force until at least April 19, 2020. Presently, courts can hold hearings and trials they deem time-sensitive, and they are free to announce decisions, with the presiding judge of a given panel determining courtroom modalities such as a minimum distance to keep between any two persons.

What's more relevant now than court-internal reasons is the impact on parallel proceedings in other places. This gives the European Commission's Directorate-General for Competition (DG COMP) more time to decide on whether to launch formal investigations into Nokia's refusal to license automotive suppliers. DG COMP resumed its preliminary investigations last month after a couple of rounds of mediation had failed.

DG COMP won't necessarily be the only competition authority in the world to take a closer look at this in the near term.

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How many times can a patent holder violate EU antitrust law in a single litigation? (Nokia v. Daimler)

Last week the Munich I Regional Court's press office confirmed to me that the Nokia v. Daimler ruling scheduled for this week's Thursday (April 9) had not been postponed. The government of the federal state of Bavaria has not imposed any additional corona-based restrictions since. From what I hear, Presiding Judge Dr. Matthias Zigann is the only member of the court's 7th Civil Chamber to go to the courthouse almost every day, while his side judges are working from home. German courts have sometimes postponed patent rulings on very short notice, but for now the operating assumption is that a decision (which may or may not be a final judgment) will come down on Thursday.

With the automotive industry being hit so hard by the coronavirus crisis, Nokia's pursuit of an injunction--while there are plenty of willing licensees (Daimler and a number of suppliers)--is ethically questionable, though there is a possibility of the injunction not having immediate effect in practical terms. So much for corona and ethics; let's also not talk today about the enormous strength of Daimler's invalidity contention, or about proportionality under Art. 3 IPRED and its political ramifications (a Nokia "win" on Thursday--an injunction against entire cars over one of thousands of tiny features of a single cellular standard--would give the whole German patent reform debate new impetus). Now I'll just focus on the antitrust implications of what might happen.

If Nokia obtained and enforced that injunction, it would likely set a new record in the number of EU antitrust violations a patent holder can commit in connection with a single patent infringement case...

The Court of Justice of the EU made it clear in Huawei v. ZTE that a standard-essential patent (SEP) holder violates Art. 102 TFEU (the abuse-of-dominant-position paragraph of EU law) by refusing to grant a FRAND license to an implementer. A license is a license, and not a "have made" right or a contractual arrangement under which a component maker merely becomes a payment processor for the car maker.

There's a number of implementers in that Nokia v. Daimler case whom Nokia has refused to license, yet it seeks to shut down products containing their components. At a minimum:

• Continental (which even made Nokia a proactive offer though EU case law firstly requires Nokia to make one)

• Huawei (which is even suing Nokia in Dusseldorf in order to be made a FRAND offer, on a basis that at least two of Germany's highest-ranking patent judges endorse)

• Bosch

• TomTom

• Valeo subsidiary Peiker

• BURY Technologies

The six companies I just listed are intervenors in the Munich case. There's even a seventh intervenor: Renault, which makes a car for Daimler. Presumably Nokia is not unwilling to license Renault as it makes entire cars (even when wearing the hat of a Daimler supplier), so in order to know whether Nokia violated the antitrust laws with respect to Renault, one would need to know the status of licensing negotiations between those two organizations. It's hard to imagine that Nokia would want a lower per-unit royalty from Renault than from Daimler, so there likely is another violation, albeit one that requires a quantitative analysis.

So there are six or seven antitrust violations in the vertical supply chain. But Nokia also appears to be violating EU antitrust law with respect to Daimler even if one ignores the suppliers for a moment as the CJEU held in Huawei v. ZTE that the only scenario in which a SEP holder steers clear of an abuse of a dominant position under Art. 102 TFEU involves the combination of two factors, neither of which is present in this case (click on the image to enlarge; this post continues below the image):

Nokia wants the Munich court to interpret the above paragraph in an absurd way. The top EU court said that a SEP injunction is warranted only after a SEP holder made a FRAND offer while the implementer failed to make a good-faith counteroffer. (A blatantly non-FRAND counterproposal would not suffice to avert an injunction.)

The CJEU gave implementers two chances to avoid being enjoined: they can show that the SEP holder's offer was not FRAND, or they can make a diigent good-faith counteroffer without delaying tactics. They can also meet both criteria at the same time, but they don't have to.

Countless articles have been authored on Huawei v. ZTE. I'll just give one example written by a major U.S. law firm (Morrison & Foerster):

"Only if the SEP holder has followed those steps and the alleged infringer continues to use the SEPs in question, and fails to make a FRAND counter-offer and provide security, may the SEP holder seek an injunction. Otherwise, doing so may constitute an abuse of the SEP holder’s dominant position [...]"

In the February trial, the court showed an inclination to agree with Nokia because "the SEP holder hasn't committed any wrongdoing if its own offer is FRAND." That's wrong, however. The CJEU ruling means that the SEP holder commits a wrongdoing either by not making a FRAND offer or by failing to continue to negotiate despite a diligent, good-faith, timely response by the implementer. One could also simplify it like this: if the SEP holder's offer is not FRAND, that's a violation, end of story; but even if it is, the SEP holder can still violate EU antitrust law by rejecting a FRAND counteroffer.

Nokia seeks to convert the two hurdles for SEP holders into two opportunities for them. In order to achieve this, they effectively suggest that Europe's highest court is inarticulate: in the world according to Nokia, "and" doesn't mean "and" when "or" suits Nokia's agenda, as if the judges in Luxembourg didn't know what "and" means.

The "and" in question has a blue background in the screenshot further above. Three L's way against Nokia's attempt to turn the CJEU ruling on its head: language, logic, and layout.

"And" means "both of." So much for the language.

"And" is a logical conjunction.

From a linguistic and logical point of view, it's made even clearer by the fact that the second one of the two parts makes reference to the first by saying "that offer" (I put a green rectangle around the relevant occurrence of "that" in the screenshot). "[T]hat offer" is the SEP holder's initial offer, and interpreting the second part as if it (more precisely, the implementer's failure to fulfill its obligations under it) could independently legalize a SEP injunction simply pulls the rug (the precondition of there already being a FRAND offer on the table) from under its feet.

Finally, the text layout would make the logical conjunction clear in its own right. In the screenshot, I applied an orange background color to the words "as long as," and a blue one to "where" a few lines below. Nokia's suggestion that the SEP holder could meet either the first or the second criterion is also nonsensical because "as long as" is before a colon followed by two bullet points, while "where" comes after the second of the two bullet points. If the two bullet points were alternative requirements for Nokia to satisfy (as they aren't anyway, for the reasons explained before), "as long as" would have to come after the first bullet point (just to the left of "prior to bringing that action"). But in the CJEU's ruling, "as long as" simply ranks higher than "where," so the two just can't be considered interchangeable.

Seeking an injunction against a willing SEP licensee constitutes only one antitrust violation vis-à-vis a given party. But here, Nokia is practically doing so against seven or eight parties. And against one of them--Daimler--Nokia is apparently violating Huawei v. ZTE even twice as it (i) seeks an injunction despite Daimler having given a diligent, good-faith, and timely response, while (ii) Nokia is demanding a fairly high multiple of the per-unit royalty from Daimler that it gets from major smartphone makers. That higher per-unit fee is even more discriminatory when considering that people use smartphone connections for far more hours per day than their cars are online (while one must not actively use a smartphone while driving, virtually no one turns it off either, so the period during which a smartphone has a cellular connection is pretty much a true superset of the hours when the car is connected).

Anything could happen on Thursday. In some other courts I'd offer a 90% prediction that the case would be stayed over serious doubts concerning the validity of the patent-in-suit. In that regard, Munich is "special" because the court rarely stays cases. But Munich, too, is part of the EU.

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BREAKING NEWS: Nokia makes antitrust mediation with Daimler and automotive suppliers over standard-essential patent licensing fail

[HAPPY NEW YEAR -- AND BREAKING NEWS]

Nokia wanted to keep its EU antitrust mediation with Daimler and various automotive suppliers strictly confidential. Nice try, but I've been able to obtain reliable and mutually-corroborating information from more than one source. (I obviously protect my sources.)

On Friday (January 10) and Saturday (January 11), Nokia--represented by Bird & Bird's Richard Vary (formerly head of litigation at Nokia) and Roschier's Niklas Östman--met with Daimler and various suppliers (Bosch, BURY Technologies, Continental, Harman, Peiker, and TomTom) at a recently-opened Munich hotel. But nothing came out of a whole series of meetings moderated by a British mediator and two British lawyers appointed by the International Chamber of Commerce. The mediator will communicate with the parties by telephone in the days ahead and make a procedural decision. Theoretically, there could be another series of meetings on the 22nd and the 23rd. However, based on how these past two days went, it would be a total waste of time to reconvene.

In practical terms, it's already clear that mediation is pointless for two reasons that made the Munich meetings fail, neither of which comes as a surprise:

• Mediation would only have made sense if Nokia had departed from its dogged refusal to extend a true and exhaustive standard-essential patent (SEP) license to Daimler's tier 1 (= direct) suppliers. Continental had made Nokia a binding offer to take such a license before mediation began, but Nokia remains unwilling to grant any such thing as a true license to component makers. It proposes a "have made" right, which is just an extended-workbench type of arrangement as opposed to a component-level license.

• Furthermore, the meetings inevitably proved unproductive because Nokia refused to make it existing cellular SEP licensing agreements (such as the one with Huawei) available to the other parties. Nokia's excuse was that those agreements allegedly weren't relevant (not only U.S. courts but even some--if not all--German courts would disagree). Therefore, Nokia's counterparts would have had to negotiate without having the slightest idea of what Nokia's existing licensees actually pay for those SEPs.

  At best, Nokia is willing to disclose an obscure and highly atypical license agreement with a car maker who apparently accepted--but only for a transitional period and with the right to terminate as per the end of 2019--a "have made" right. That same car maker is likely to sign an Avanci pool license in the near term based on what I heard.

The information I've obtained suggests that Nokia has not been constructive, neither structurally (exhaustive license vs. "have made" right) nor procedurally (disclosure of existing SEP license agreements). If Nokia had agreed to grant component-level licenses (real licenses, not "have made" rights), and if it had then presented its existing SEP licensing agreements, mediation could have worked in theory. But no one could seriously have expected it to happen, which is why I predicted the failure of this mediation effort before. By now it's failed for all practical purposes, whether or not the mediator will order another series of meetings later this month.

EU competition chief Margrethe Vestager said last month that she expected an update on mediation by mid-February. She's not going to get any good news out of mediation, that's for sure.

What I've found out about the way the talks were structured is that the first day consisted of bilateral talks between Nokia and each of Daimler's suppliers. The suppliers invited to mediation included the ones intervening in the German infringement cases, plus Samsung subsidiary Harman, but not Huawei, which wanted to join but Nokia wasn't willing.

On the second day, Nokia might have hoped to drive a wedge between Daimler and its suppliers. Daimler met separately with each supplier (for antitrust reasons, they couldn't just all sit at the same table and discuss numbers), but neither Daimler nor the suppliers were prepared to agree with Nokia that the problem could simply be solved by Daimler reaching an agreement with each supplier on how to split the outrageous, supra-FRAND royalties Nokia demands.

The European Commission's Directorate-General for Competition (DG COMP) will have to make a decision. They hoped to avoid it, but it was clear that there's a binary, structural question at issue. Either the suppliers get a license and can make components they are free to sell not only to Daimler but also to others (in case they end up sitting on some excess quantities, for instance), or it's not a license.

The next Nokia v. Daimler SEP infringement trial is scheduled for January 21 and will take place in Mannheim unless the court decides to push the trial date back. Another Mannheim trial, originally scheduled for December, was postponed on short notice, but I heard from more than one source that the patent-in-suit in that one was so ridiculously weak that the court likely wouldn't have reached the FRAND defense anyway...

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Commissioner Vestager makes competition-chilling remarks on automotive complaints against Nokia at Chillin'Competition conference

"Chillin'Competition" is a nice wordplay for a conference title. To my dismay, that event provided the setting for competition-chilling utterances by EU competition commissioner Margrethe Vestager. "Competition-chilling" in the sense of doing nothing to promote fair and vibrant competition--and free movement of goods, one of the bloc's key objectives--with respect to automotive components that come with cellular connectivity. The best way to promote competition in that field is to ensure the makers of those components receive exhaustive component-level licenses on FRAND terms. Commissioner Vestager made herself a name as being supposedly tougher than even the legendary "Steely Neelie," but with respect to standard-essential patents (SEPs), her predecessor Joaquín Almunia used to take swifter and more decisive action.

Daimler's antitrust complaint was filed more than a year ago. Then, a few months later, four suppliers (Continental, Valeo, Gemalto, and BURY Technologies) lodged their complaints. There's no justification whatsoever for not bringing the antitrust hammer down now.

Khushita Vasant, a Brussels-based reporter for the Policy & Regulatory Report (PaRR), was first to break the news on Nokia's mediation offer to Daimler and its Tier 1 (= direct) suppliers, and also first to report on Monday that Mrs. Vestager told reporters after the aforementioned conference that "it would be a good thing if there was mutual understanding [between Nokia and the automotive complainants]." The Commission expects an update "by mid-February," writes PaRR.

This means another two months will be wasted. With the greatest respect for the Internaational Chamber of Commerce, this matter here doesn't lend itself to mediation, and there are only two possible outcomes:

• Daimler surrenders. Or:

• No deal.

The binary question is: do the component makers get an exhaustive license on FRAND terms? If so, they'd also be free, for an example, to sell excess quantities openly on the market to anybody. That's what is called a free market. The EC knows that.

The monetary terms are, of course, non-binary. If Nokia sought a license fee that wouldn't enable those component makers to stay in this business, it wouldn't help. But the very first step must be for Nokia to stop disputing the component makers' entitlement to a license.

Huawei is suing Nokia in a German court with only the objective of finally getting a component-level licensing offer. No one should ever have had to bring such a complaint, or to ask the European Commission to investigate. Nokia's refusal is downright irrational as it never disputed a phone maker's entitlement to a SEP license, and Huawei's connectivity modules come with all the same types of hardware components as a phone, apart from the screen. The telematics control units (TCUs) made by the likes of Continental incorporate such network access devices (NADs) and come with even more hardware. There's nothing in the claims of those standard-essential patents that a mobile phone has and a NAD or TCU doesn't. I've seen many SEPs, possibly more than anyone involved with the EU investigation, and I have yet to see a cellular SEP that claims a screen.

Daimler and its suppliers should have made Nokia's commitment to an exhaustive component-level license on FRAND terms a precondition for even sitting down and talking. Then, once Nokia has made that commitment, one can talk about FRAND royalty amounts. Those amounts are amenable to negotiation, mediation (where no one is forced to agree), determination by a court of law, or arbitration--the latter, however, provided that the parameters are properly defined, including the right to dispute essentiality and validity, and if there are safeguards against the SEP holder going into arbitration (the results of which tend to gravitate toward the middle) making out-of-this-world demands.

This maneuver helped Nokia in two ways:

• As expected, the Commission is just going to wait, as if they hadn't been waiting more than long enough already.

• Nokia now has the chance to obtain a provisionally-enforceable injunction from the Munich court prior to Daimler and its suppliers getting a potentially more favorable decision on the licensing question from the Mannheim court.

There is no indication of Huawei being a party to the mediation talks (at least I couldn't find any in the media), so at least that Dusseldorf antitrust lawsuit against Nokia is going forward.

A leading German patent litigator, who is mostly on the enforcing (not defending) side and is not involved with the Nokia cases in any way, told me he's convinced Nokia can't win. He said this was going to be their "Vietnam." While I'm glad to see Daimler taking a stand against Nokia's conduct, and also hope that all that Nokia is going to get out of this is some hefty legal bills, Daimler and its suppliers must not let their guard down.

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Nokia outmaneuvering Daimler with settlement effort that has zero credibility--but Mannheim court confirms hearing date

One week ago, Reuters' Foo Yun Chee (who's been covering EU competition matters for more than a decade and whom I regard very highly) reported on a statement by Nokia according to which "the Finnish telecoms equipment maker had submitted a proposal for resolving the patent licensing fee row." This relates to the situation between Nokia and Daimler as well as Daimler's suppliers. Nokia brought ten German standard-essential patent (SEP) infringement actions against Daimler earlier this year--several months after Daimler had lodged an antitrust complaint with the European Commission's Directorate-General for Competition (DG COMP) over Nokia's refusal to extend exhaustive SEP licenses on FRAND terms to Daimler's suppliers. At around the same time, four suppliers (Continental, Valeo, Gemalto, and BURY Technologies) also filed complaints against Nokia with DG COMP.

I've always been outspoken about stalling. HTC's mastery of that skill in its dispute with Apple was first-rate. I could write a book or hold a full-day seminar on stalling tactics especially in U.S. and cross-jurisdictional disputes. So when I see the parties' divergent comments in that Reuters piece, I know Nokia is stalling:

"'Nokia continues to work toward constructive ways to resolve commercial disputes related to licensing of our standardized cellular technologies,' Nokia said in a statement, without mentioning any specific proposal to end the row."

"Daimler declined to comment specifically on Nokia's proposal but a spokeswoman said: 'We want clarification on how essential patents for telecommunications standards are to be licensed in the automotive industry. Nokia so far refused to comprehensively and directly license our suppliers.'"

This juxtaposition tells it all. Nokia is pretending to make a bona fide effort to address the issue. But that's just not credible for a simple reason: we're not talking about adjustable fishing quotas. This here is a binary question. Either the component makers get an exhaustive license on FRAND terms (which terms would later have to be negotiated or, if necssary, determined by a court of law or, if the parties agree on the parameters, an arbitration tribunal) that allows them to go about their business--or they don't. Huawei raised that binary question in its Dusseldorf antitrust lawsuit against Nokia.

It's an illusion that there could be anything in between. You can't be just a little bit pregnant.

So what's needed is not lip service, such as hollow-ringing words like "constructive." What's imperative is a sharp decision that puts the disputed matter to rest for good. And that's what Daimler's statement suggests between the lines. They want "clarification" on component-level licensing. Apparently they just haven't figured out yet how to get there, given that they filed their EU complaint more than a year ago and the Commission still isn't investigating.

A Mannheim trial was scheduled for next Tuesday. It would have been the first real trial--as opposed to an early first hearing--and a ruling could have come down anytime thereafter (in January with a likelihood comfortably above 90%, thus ahead of the first Munich trial scheduled for early February).

But out of an abundance of caution, I sent Yun Chee's story to the Mannheim court's press office and requested confirmation that the trial was still going forward. Judge Ruppert, a spokesman for the court, told me that the case would be heard on Tuesday at the scheduled time, but he also highlighted it was only an "early first hearing."

The Mannheim court--which I've described as the most responsible German court when it comes to staying cases involving likely-invalid patents--typically decides these cases after just one trial (which normally lasts only a couple of hours because they are so focused and efficient). However, they call it an "early first hearing" even if they conclude they can hand down a judgment afterwards. So the court's wording doesn't necessarily mean the Tuesday court row has been downgraded from "trial" to "early first hearing."

In Munich they have Patent Local Rules under which an early first hearing is mostly just about claim construction and initial infringement analysis. However, there are exceptions even in Munich. In the first Nokia v. Daimler hearing in June, Presiding Judge Dr. Matthias Zigann also addressed FRAND, even before Nokia's prayer for injunctive relief. But in Munich, when they say "early first hearing," you know for sure that there'll be a second one--the actual trial. In Mannheim, most cases are decided after the "first hearing."

Whatever the scope of the Tuesday hearing will be, the German car maker must be cautious so it won't get outwitted by Nokia. It's absolutely in Daimler's interest to get a Mannheim judgment prior to the first one in Munich, given that the Munich court has so far taken very unFRANDly positions on component-level licensing, while there is at least one Mannheim precedent where Deutsche Telekom benefitted from a supplier's willingness to take a SEP license. A Mannheim decision wouldn't be binding on the Munich court, but could help psychologically since Dusseldorf (unreasonable in other ways, but rather progressive on component-level licensing) will almost certainly decide in Daimler's favor. Munich would then be the outlier, but the appeals court there may very well be more favorable to component-level licensing. In order to get a Nokia injunction stayed quickly, a Mannheim decision upholding FRAND in the component-level licensing context would serve as persuasive authority that could make a decisive difference.

Nokia is playing games, and Daimler must be extra cautious. In the current situation, the European Commission will continue to drag its feet, and won't make a decision on that late-2018 complaint before early 2020 at the earliest. More aggressive parties in Daimler's shoes would already have lost their patience and exerted more pressure; they'd also have considered bringing in, in addition to or as a replacement of current counsel, some other EU antitrust lawyers to make more headway. It should be a simple decision for the Commission to investigate: not only is the CJEU's case law pretty clear that everyone is entitled to a FRAND license but Nokia and Ericsson are basically dying companies compared to the automotive industry and the wider IoT industry (smart meters etc.).

Quinn Emanuel defends Daimler against German patent infringement complaints all the time and is superb at that, but not involved with the EU complaints--unfortunately, QE is largely on the other side of the FRAND debate, which hopefully won't benefit Nokia (a QE client in the United States, by the way) at some point.

Nokia's EU counsel, Thomas Vinje of Clifford Chance, is extremely effective. I was adverse to him ten years ago (Oracle-Sun merger review), and he made a statement to the media about me in 2010 that was just an unsubstantiated rumor, but that's par for the course in Brussels. It's just interesting to see how his positions on standard-essential IP have evolved over the last 15 years, from his fight against Microsoft (where he led the "European Committee for Interoperable Systems") and his zero-royalty advocacy efforts in the EU procurement context over his representation to Samsung and now Nokia. I may talk about that some other time, and that's not why I wouldn't trust Nokia's talk about settlement. The reason for that is the one I gave further above: it's a binary question like being pregnant or not, so there's no middle ground, period.

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Requiring SEP holders like Nokia to license automotive suppliers would spur European IoT innovation on bottom line

While I agree with Politico.eu's question of whether it's a good idea for one EU commissioner to be put in charge of both digital innovation and antitrust enforcement, and have previously criticized the de facto merger of two other directorate-generals of the European Commission, I sharply disagree with the suggestion that a formal antitrust probe of Nokia's refusal to extend exhaustive SEP licenses to component makers on FRAND terms would threaten to weaken Europe's position in the 5G era.

Nice try, Politico and IP Europe (an industry body representing patent monetization-focused companies)--but most likely you're barking up the wrong tree as Margrethe Vestager may simply be immune to anyone's attempt to implant in their head a conflict of interests between two areas of responsibility. [Update] On Twitter, Thibault Larger, the author of the Politico article, has explicitly denied having had the intention to influence the process. He furthermore provided explanations I would summarize as arguing that while he believes there are innovation policy concerns (I view the dynamics differently), his article didn't rule out that Mrs. Vestager might decide in favor of antitrust law enforcement regardless of the industrial-policy concerns Politico believes to have identified. [/Update] Even more so when an article fails to meet journalistic standards: it would have been more honest to let IP Europe author an op-ed. [Update] Also via Twitter, the author noted that "Competitive Edge" is an opinion column. However, I replied that the fact it contains extensive quotes--with an emphasis on and strong endorsement of IP Europe's views (he finds them "very cool" as he said), but also from the Fair Standards Alliance--blurs the distinction between an opinion piece (which normally comes either with no quotes or, if there are any, they are few and far between and only for the purpose of endorsing or criticizing them) and a report. [/Update]

The backdrop is that the Directorate-General for Competition (DG COMP) received antitrust complaints earlier this year from Daimler and four of its suppliers--Continental, Valeo, Gemalto, and BURY--over Nokia's licensing practices. With the Juncker Commission on the way out and the confirmation of the incoming von der Leyen Commission facing delays, the EU's executive body is basically in a state of interregnum. At any rate, Mrs. Vestager will remain in charge of competition enforcement as she sailed through her confirmation hearing. She proved just yesterday that antitrust violators can't hope for a breathing space.

The aforementioned Politico article basically argues that Mrs. Vestager would have to leave Nokia and, by extension (as its practices are similar), Ericsson alone at this stage because they posted losses last year and are the only European makers of 5G network infrastructure, but merely launching formal investigations would adversely affect their licensing negotiations.

Either of those two Nordic companies has a market capitalization between 25 and 30 billion euros--and from my many interactions with investment banks and funds as a consultant, I assume the market has already prized in a fairly high likelihood of formal investigations. Those companies used to be much stronger than they are today, so they have become ever more reliant on patent licensing revenues. But they're in the infrastructure business because they believe it's a good one to be in. If they believed otherwise, they'd spin it off and focus on patent licensing, which would be even more profitable after eliminating the need to secure cross-licenses and the risk of infringement countersuits.

Whatever the outcome of formal investigations might be, no one will get a free ride: Nokia, Ericsson, and all other SEP holders will continue to be entitled to FRAND royalties. They believe they can make more money licensing end-product rather than component makers. Ericsson said as much in a presentation, and Qualcomm told the IRS. So for the sake of rational analysis, let's grant Nokia (and, by extension, Ericsson) that their licensing revenues might suffer some reduction as a result of an obligation to license component makers. Would that fact, in and of itself, complicate Mrs. Vestager's task when wearing her other future hat, the one for digital industry policy? Only if one defined the "digital industry" so narrowly that it would basically be limited to two companies.

Component-level SEP licensing doesn't impede innovation. It enables more of it.

Connected cars are a particularly important part of the Internet of Things (IoT). In that industry, which employs roughly 14 million people in Europe (quite a bit more than mobile communications technology companies), supply chains have great depth. Access to SEP licenses at all levels of the supply chain would result in market efficiencies as component makers would have more legal certainty with respect to IP liability--at least they'd control their destiny to a considerably greater extent. So their ability to innovate would be strengthened.

Europe is probably never going to catch up with U.S. digital platform companies like the so-called GAFA group of companies. However, car makers are still Europe's most successful exporters of technology, and plenty of other European companies have already jumped on the IoT bandwagon or will in the coming years. Every single day, some products somewhere are made fit for the digital age by means of mobile connectivity--and new products are created that would be unthinkable without it. It is, therefore, in Europe's best interest to ensure that the desire of a few to maximize their patent licensing income doesn't drive or keep countless others out of the IoT space.

The tiered supply chain has enabled the industry to innovate, bringing safer and more intelligent vehicles to consumers. Over the last five years, the worldwide automotive industry spent approximately 500 billion euros on R&D. In the EU alone, the automotive industry invested more than 170 billion euros in R&D, with stand-alone investments of EU automotive suppliers (i.e., R&D not supported by customers) accounting for more than 41 billion euros according to PwC Most Innovative Companies (2017).

In 2017, Valeo alone--only the third-largest of the five complainants--invested 1.9 billion euros in R&D and filed 2,053 patent applications. Digital innovation comes in many shapes and forms, and Mrs. Vestager will be responsible for optimizing the bottom line of an entire sector, not just that of two companies.

Not only are Nokia and Ericsson just a tiny subset of Europe's digital economy (and IoT potential) but there is also no such thing as "5G infrastructure autonomy." 5G deployment will mostly just involve upgrades to existing base stations, and Huawei already has a fairly high market share in Europe. It's probably hard to find any European carrier who wouldn't be using at least some Huawei base stations anyway.

Europe's share of 5G patents shouldn't be overestimated either. Nokia and Ericsson played a bigger role in connection with earlier cellular standards. In 5G, some Asian companies are stronger, and let's not forget about Qualcomm either. Anyone seeking licenses to 5G patents is going to need licenses to more non-European than European patents.

Most of the work on 5G has been done, so Nokia's and Ericsson's continued ability to invest in research and development won't tip the scales in that regard.

Finally, the Politico story mentioned concerns that licensing negotiations might be adversely affected by an antitrust investigation. I don't even believe that there would be much of an impact on licensing negotiations during the formal investigations. No one would be able to rely on any particular outcome of the EU case. If anyone (at any level of the supply chain) nevertheless delayed the conclusion of license agreements, such as because a car maker might prefer to wait and see whether its suppliers will be entitled to a license, license fees would still be owed on every single unit of a product that is sold. In that hypothetical scenario, a patent holder might sometimes get paid later, but liquidity is a non-issue for companies with market caps in the 25-30 billion euro range.

If launched, formal investigations shouldn't take exceedingly long as this case is important, but not huge. And Nokia itself could always cut everything short by offering commitments that would solve the problem.

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Nokia is abusing standard-essential patents, Daimler and medium-sized supplier BURY Technologies allege in EU antitrust complaints

It is high time that the automotive industry stopped being the ideal target of shakedown attempts by standard-essential patent (SEP) holders due to its sheer size, the high prices of its end products, and its pacifist attitude. For a long time, car makers used to be on the sidelines of major disputes. They generally resolved any IP issues out of court, respecting exclusionary rights in some cases and cross-licensing (or simply refraining from hostilities) in many others. But times have changed, and with cars increasingly becoming smartphones on wheels, those car makers are no longer dealing with a herd of sheep when it comes to patent assertions but have entered a jungle teeming with predators. As a result, they must confront those challenges more decisively, lest they be eaten alive.

Against this backdrop I'd like to promote (not getting anything for it) an upcoming Munich conference hosted by the Bardehle Pagenberg firm: Automotive Patent wars -- To pay or not to pay: That is the question." on May 9.

SEP disputes raise antitrust issues, and that's what's now, finally, also happening in the automotive industry:

• On March 29, Reuters reported on an EU antitrust complaint brought by Daimler against Nokia. The article quotes an official Daimler statement: "We want clarification on how essential patents for telecommunications standards are to be licensed in the automotive industry. Fair and non-discriminatory access to these standards for all users of the essential patents for telecommunications standards is a key prerequisite for the development of new products and services for connected driving." (emphasis added)

  The three words "for all users" are interesting. This wording at least makes it plausible that Daimler's complaint relates to Nokia's refusal to extend SEP licenses on FRAND terms to certain component suppliers. The motivation would obviously be for Nokia justify its royalty demands with the end price of an entire car, or substantial parts thereof.

• What reinforces this impression is the subsequent filing of a complaint by a medium-sized company (that just employs about 2,300 people; a midget compared to Daimler) named BURY Technologies, but instead of burying the hatchet, they're throwing down another gauntlet to Nokia. Yesterday (Monday, April 8), BURY Technologies announced its EU antitrust complaint against Nokia, alleging that "the Finnish group had refused to grant licenses for mobile communications components from BURY."

  The official press release refers to a "cartel complaint," which is just an incorrect translation of the German word "Kartellbeschwerde" (which broadly covers any complaint with a competition enforcement agency): it's not about Nokia having formed a cartel with others, but about unilateral conduct by Nokia as a SEP holder. It's not hard to imagine that a relatively small company just doesn't have a lot of expertise in the area of competition law.

  The fact that this complaint was filed in relatively short succession to Daimler's makes it fairly likely that there was some coordination behind the scenes, except that Daimler would know the difference between antitrust and cartels.

The question of component-level licensing is also the key issue in the FTC v. Qualcomm dispute in the Northern District of California. Just like one of the world's most famous FRAND judges, United States District Judge James L. Robart, I also think Judge Lucy H. Koh's FTC v. Qualcomm ruling could come down any moment. Daimler's and BURY Technologies' complaints over Nokia's conduct with the EU Commission show that this is a global issue, and Judge Koh has the potential here to be a global thought leader, like Judge Robart became one with respect to FRAND rate determinations (and in the U.S., with respect to antisuit injunctions against SEP abusers).

Having watched Nokia in litigation over many years (even going back to its first dispute with Apple), and the unfortunate (for Nokia and its stakeholders, though not for consumers) demise of its mobile device business that changed its attitude toward patent monetization, I'm not surprised that it apparently made demands that Daimler wasn't willing to meet without a fight. Daimler is also defending itself against Broadcom's German lawsuits (as is BMW).

With all that's going on, this blog may have to take a closer look at automotive patent cases going forward just because of a huge overlap with smartphone issues. For now, I really hope the European Commission will launch formal investigations of Daimler's and BURY Technologies' complaints. The best-case scenario would be for the U.S. to clarify the question of component-level licensing on the basis of a ruling by Judge Koh and for the European Commission to do so at the end of an antitrust investigation.

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