DOJ downgrades Delrahim letter to IEEE on standard-essential patents: inter-agency rapprochement with FTC on SEP enforcement?

The language of diplomacy and other governmental communications is very nuanced, like the British Queen's spokespersons saying she's "not amused" when she's actually outraged. The Antitrust Division of the United States Department of Justice ("DOJ-ATR") has taken this concept to a higher level. In what could be described as a digital form of body language, the Biden Administration's DOJ has unequivocally dissociated itself from the Trump Administration's position on standard-essential patent (SEP) enforcement without saying or writing a single word: just by relegating a link to a document (with the PDF remaining in the same place as before) to a long list of links that is, for the most part, merely an archive. Parts of that archive are little more than the dustbin of DOJ-ATR history.

Look at it this way: if a colleague of yours had a picture of her sweetheart on his desk, but all of a sudden decided to put it into a dark storage room, wouldn't that tell you something?

On September 10, 2020, less than two months before the election Donald Trump lost, Qualcomm-aligned Antitrust Assistant Attorney General Makan Delrahim tried to use his remaining time in office--he was going to leave anyway, and he knew what the polls said--tried to deal one final blow to net licensees of SEPs. He supplemented, updated, and appended the DOJ-ATR's 2015 Business Review Letter (BRL) to the Institute of Electrical and Electronics Engineers (IEEE). An IEEE standard all of us use in our everyday lives is WiFi (IEEE 802.11). IEEE has been a strategically important forum at the forefront of how standard-setting organizations could set more specific rules governing SEP enforcement than, for example, ETSI, whose FRAND pledges (which must be interpreted under French law wherever in the world they are enforced) come with a lack of clarity that is fully intended (though some interpretations are still clearly less reasonable than others).

Mr. Delrahim's BRL 2.0 was meant to make the IEEE change course by giving companies like Qualcomm--which in all fairness is a tremendous WiFi innovator--ammunition for IEEE-internal discussions. Qualcomm executives publicly predicted on various occasions that the IEEE was going to make its rules more patentee-friendly under pressure from the federal government. Last month, MLex's Khushita Vasant reported on a recent clash between Qualcomm, Apple, Huawei, and other companies at an IEEE patent policy meeting. It was a clash between the progressives like Apple--who wanted to continue on the path of setting implementer-friendly rules--and those seeking a revision, led by Qualcomm.

What I mentioned at the start of this post obviously doesn't apply to the Trump Administration. Mr. Delrahim's letter to IEEE suggested that the Obama Administration's 2015 BRL to IEEE had been misinterpreted. But Mr. Delrahim also disparaged his predecessor's work by claiming that "[t]he Department's assessment in 2015 of the 'direction' of U.S. law interpreting FRAND commitments on royalty rates and damages assessments was not well-supported and has not proven accurate."

In late March, I was wondering whether the DOJ and the FTC would continue to fundamentally disagree on the application of antitrust law to SEP abuse, given that the FTC didn't seek a Supreme Court review of the Ninth Circuit's FTC v. Qualcomm ruling and mentioned its coordination with the DOJ. But that was just a question, not speculation. Also, the Solicitor General would have had to represent the FTC before the Supreme court, not DOJ-ATR.

Apparently, the Biden Administration is inclined to undo at least some of Mr. Delrahim's SEP policy initiatives. The full extent will become clearer with time. But it's already certain that change has come to DOJ-ATR.

Currently, DOJ-ATR is being run by Acting Assistant Attorney General Richard Powers. Just like we've recently seen quadruple-antisuit injunctions, which I abbreviate as A4SIs and others as AAAASIs, Mr. Powers has a quadruple-A title: he's the Antitrust Acting Assistant Attorney General. What an alphabet soup.

Mr. Powers could have done his own "update" to the 2020 Delrahim letter. That update could simply have stated that the 2020 letter was an aberration, and the 2015 letter was in full force and effect again. But doing so would have required a communication style closer to that of the Trump Administration.

That's where the hierarchical structure of the DOJ-ATR website came in handy. There's one section where one can find the currently valid BRLs. From that one, Mr. Delrahim's letter has been silently removed. His letter to the Avanci patent pool is still there, and it remains to be seen what--if anything--will change in that context. But the 2020 IEEE letter is no longer there. The 2015 BRL to IEEE can still be found on that page. That makes it the one that currently counts.

The original and now-restored BRL tends to strengthen those favoring component-level SEP licensing.

The Delrahim letter to IEEE is now on the page listing "comments to state and other organizations". That page is hidden deep down in the hierarchical structure of the DOJ-ATR website. The dark storage room I mentioned further above.

This move has been clearly interpreted by the tech industry. Cisco's Senior Director, Antitrust and Competition, Gil Ohana, replied to a tweet of mine that this marked the "end of an error":

The end of an error.

— Gil Ohana (@Gilohana) April 15, 2021

A nice wordplay. Few people in California would refer to the Trump years as an "era" not only because #45's reelection bid failed but also for substantive reasons.

But let's also be realistic that there'll be a lof of wrangling over SEP issue now. The downgrade of the Delrahim letter to IEEE is a significant first step.

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European Court of Justice assigned case numbers to preliminary references in Nokia v. Daimler and Phoenix Contact v. Harting patent cases

In November, the Dusseldorf Regional Court decided to refer to the European Court of Justice certain questions of component-level licensing of standard-essential patents (SEPs) as well as questions regarding the application of the Huawei v. ZTE SEP injunction framework. In February, Nokia withdrew its interlocutory appeal of that order.

In January, the Munich I Regional Court's 21st Civil Chamber (Presiding Judge: Tobias Pichlmaier) identified a different patent-related question that it would like the top EU court to answer. The Munich court, which is clearly the most popular patent injunction venue in the world by now, would like to enjoy broader discretion in preliminary injunction decisions than its appeals court (which decides patent PI cases consistently with the appeals courts in Dusseldorf and Karlsruhe) allows. I translated that order.

Both preliminary references have been assigned case numbers by the CJEU:

• C-44/21 for the preliminary injunction matter (Phoenix Contact v. Harting, Munich case no. 21 O 16782/20), and

• C-182/21 for the SEP case (Nokia v. Daimler, Dusseldorf case no. 4c O 17/19).

It may seem counterintuitive that the earlier preliminary reference (the one from Dusseldorf) has a significantly higher case number than the later-filed one (the one from Munich). I've asked the Dusseldorf Regional Court's press office, and that court actually sent the preliminary reference to Luxembourg on November 26, 2020--about two months before the Munich court's preliminary reference. But apparently the CJEU, in an effort to avoid a potential waste of time, firstly awaited what would come out of Nokia's interlocutory appeal.

From what I heard, the translations in the automotive case will be sent to the governments of the EU member states and the parties later this month, with a likely deadline for the European Commission's, the EU Member States' and the parties' observation in early to mid August. I have not been able to find out about the timeline in the preliminary injunction case.

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Will the FTC/DOJ divide over antitrust enforcement against standard-essential patent abuse persist under President Biden?

Yesterday, the Federal Trade Commission's Acting Chairwoman Rebecca Kelly Slaughter issued a statement on the fact that the FTC did not file a petition for writ of certiorari (Supreme Court review) in the Qualcomm case. On the decision itself I had already commented a few days ago, with a particular emphasis on the fact that Qualcomm's lawyers are now representing Epic Games against Apple and Google.

The FTC's press release is now the first high-profile statement by a federal government agency on standard-essential patent (SEP) matters since President Biden took office, deserving a closer look.

I totally agree with Mrs. Slaughter that the agency's "staff did an exceptional job presenting the case" at the trial stage. And it's a good thing to give Judge Lucy H. Koh credit. It obviously looks strange that the trial court agreed with the FTC all the way (except for a duty-to-deal theory that the FTC didn't defend on appeal) while the appeals court reversed everything it could and vacated the remainder (the FRAND contract interpretation) as moot. Judge Koh deserved better. The Trump presidency was really bad for her. She had already been nominated to the Ninth Circuit, but her confirmation got derailed by the 2016 presidential election. And then the Antitrust Division of the Department of Justice, under Trump appointee Antitrust Assistant Attorney General Makan Delrahim, fought hard against her ruling--and against the FTC.

It's often easy to be wise after the event, but if there's only one aspect of trial management that Judge Koh could have done better in retrospect, it's that she could have allocated more time to a discussion of the law with counsel. This was a complex case with multiple claims and theories. After all the witnesses had been heard, some more extensive back-and-forth between judge and counsel, partly in writing perhaps, might have helped to reach more solid conclusions--maybe the same result in the end, even on the duty to deal (for a component-level license), but on a more appeals-proof basis. Instead, the parties were basically just viewed as delivery boys: they had to present the facts, but the judge thought she knew all about the law. Then, I also sometimes disagreed with Judge Koh in the Apple-Samsung context (as did the appeals court, the Fedreal Circuit in that case), but all in all she is and remains an impressive judge especially on technology industry issues.

The FTC's Acting Chairwoman didn't concede the battle to Qualcomm without a stern warning to SEP abusers:

"I am particularly concerned about the potential for anticompetitive or unfair behavior in the context of standard setting and the FTC will closely monitor conduct in this arena."

Maybe the automotive SEP licensing and enforcement context would provide the FTC with another bite at the apple that is called component-level licensing. Tesla has apparently just been coerced into an Avanci license. Obviously, Tesla itself would find it hard to enforce the antitrust laws against those who sued it over patents, after just signing a settlement agreement. But the FTC could step in and investigate what happened, and possibly take action. If the FTC won, the Avanci-Tesla agreement might be annulled. Tesla wouldn't have to violate any enforceable agreement because it would simply have a legal obligation to answer the FTC's questions.

In the automotive context, SEP holders can't argue that the industry they're dealing with has traditionally taken licenses at the end-product level. The opposite is the case. And it's a multi-tier supply chain: baseband chips get incorporated into network access devices, which in turn are incorporated into telematics control units, and the TCUs are finally built into cars.

Addressing the component-level licensing issue in the SEP context would help not only Tesla but also other U.S. car makers such as Ford and GM. And, by extension, it would benefit Apple.

But there is a significant roadblock: under the aforementioned Mr. Delrahim, the DOJ cleared Avanci's business model by means of a non-binding business review letter.

That roadblock isn't insurmountable, and as a side effect of helping Tesla, GM, Ford, Apple and especially consumers, a victory over a licensing model designed to coerce OEMs into end-product-level SEP license agreements would be the best way to dedelrahimize U.S. SEP policy.

But what about the Biden DOJ? That question already came up in my podcast a couple of months ago, where I asked DC-based antitrust attorney Jay Jurata of Orrick Herrington Sutcliffe for his thoughts on how U.S. SEP policy might evolve after the transition of power.

Mrs. Kelly Slaughter's statement starts by acknowledging "the significant headwinds facing the Commission in this matter." That passage may or may not hint at a continuing FTC-DOJ divide over this case.

My most optimistic scenario would be that the "new" DOJ will pick up where the Obama Administration left off in terms of SEPs, and the same would ideally happen at the USPTO as well, in which case we could soon return to a better SEP licensing and enforcement framework. In that case, the term "headwinds" might have been limited to the fact that the outcome before the Ninth Circuit was obviously disappointing for the FTC and Qualcomm (through its allies) had succeeded in portraying FTC v. Qualcomm as an Obama case, which wouldn't help when you face a Supreme Court with a 6-3 conservative majority.

A moderately optimistic scenario would be that the FTC talked to the DOJ, as the Solicitor General (the second highest-ranking DOJ official) would represent it before the Supreme Court, and the DOJ discouraged a cert petition not because it still shared Delrahim's positions but because it genuinely believed that chances were slim (such as for the "Obama case" reason I just mentioned, and/or because of the significant challenge that it would have been to come up with a couple of good questions for review).

The pessimistic scenario is that DOJ-ATR and FTC are still far apart on the issue.

It won't take long before we find out. For example, if DOJ-ATR again supported Fortress Investment against Apple and Intel (who recently brought a second amended complaint, with Mr. Delrahim having played a key role in enabling Fortress to get earlier versions dismissed), then there would clearly be the same divide as before.

As an app developer, I'm personally most interested in the FTC and the DOJ combating the abuse of mobile app store monopolies. The decision to abandon the Qualcomm case freed up agency resources.

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Component-level licensing of standard-essential patents most controversial subtopic of European Commission webinar on FRAND licensing and valuation

The conflict between monetization-focused standard-essential patent (SEP) holders and implementers (the latterg group also including major SEP holders who are nevertheless primarily interested in making products) appears to be everlasting. At times it even looks like both sides are ever more deeply entrenched. But at least they're still talking to each other, and not just about each other.

Yesterday the IP policy unit of the European Commission's Directorate-General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) held a webinar on "FRAND licensing & valuation" with a very balanced roster of high-profile speakers and a sizable worldwide audience. The webinar took place via Microsoft Teams and was moderated by DG GROW official Elena Kostadinova, who might have been a TV news anchor in a former life.

You can find the detailed agenda on this webpage. If time permitted, I could have done a post on each of the three parts.

A survey by the Commission crystallized what SEP holders and implementers are primarily interested in. Among implementers, "license to all" was by far the most popular subject. I know I'm a bit difficult to please with terminology, and in my recent commentary on the SEP Expert Group report I explained why I oppose the terms "access for all"/"license to all" as "access for all" paints too rosy a picture while "license to all" sounds like built-in redundancy (though it's actually about giving the implementing side the choice of the level at which to take a license). But I recognize I'm the only one out there to criticize those terms, so to my dismay they're here to stay.

The component-level licensing panel--the third and final part of yesterday's webinar--was indeed the one where the different views of the two camps became clearest, not only in the webinar itself but also in the parallel Q&A chat.

Professor Damien Geradin, founder of the Geradin Partners antitrust boutique, acknowledged that both sides of the debate make interesting arguments. In his experience, "most reasonable people" agree that license agreements shouldn't be concluded at multiple levels of a given supply chain--but there are divergent views on which level it should be.

Qualcomm licensing chief Alex Rogers accused those advocating the smallest salable patent-practicing unit (SSPPU) as the royalty base of just seeking to "devalue technology" with the effect of "disincentivizing from doing this extraordinarily important research" that enables a $4.8 trillion value of all cellular technology worldwide, while SEP royalties are on the order of just $8-13B.

His concern was well-stated, but not well-founded in my opinion. The problem is that the multi-trillion-dollar value he referred to involves gigantic investments of various sorts, and everyone else could also point to that total value and complain about being undercompensated. I'm not worried about Qualcomm or other major SEP holders laying off talented engineers anytime soon.

Bird & Bird partner Richard Vary, formerly Nokia's litigation chief and now its outside counsel in connection with automotive SEP licensing matters, equated the concept of patent exhaustion with a "windfall" for downstream members of a supply chain. In my view, the opposite is true: the reason courts around the globe adopted patent exhaustion was to avoid "double dipping"--in other words, an ill-gotten windfall for patent holders. Mr. Vary is extremely knowledgeable and persuasive, but I don't agree with his agenda in the SEP licensing context. I'll give you another example in a moment.

Marianne Frydenlund of Nordic Semiconductor discussed SEP licensing from her company's perspective, and Nordic Semi is pretty successful, but nowhere near as large as Qualcomm.

Munich University of Technology professor Joachim Henkel explained from an economic perspective why small and medium-sized IoT companies are not really equipped to deal with SEP licensing at the level of their own end products--and better off if their suppliers take care of it. Professor Henkel just published a paper on this subject, and yesterday's presentation was like a summary of that paper.

It's unfortunate that some major SEP holders just don't care about the collateral damage those IoT startups suffer from a refusal to license component makers and from the practice of privateering (providing patents to trolls, which no one does on a larger scale than Nokia and Ericsson, and some of the trolls they feed then shake down every implementer they find even some very small companies). Mr. Vary, whose opinions in this context are materially consistent with--or even 100% identical to--Nokia's, was dismissive of those concerns over IoT startups' ability to deal with the SEP licensing challenge. However, when small organizations without much of a legal department receive demand letters listing hundreds of declared-essential patents (the fewest of which are actually essential), that is a problem. Patent trolls taxing innovative startups is economically and politically undesirable.

This takes us full circle back to the official long-form name of the organizer of yesterday's conference: it's not DG Patent Monetization or DG SEP Overleveraging. It's the DG for the Internal Market, Industry, Entrepreneurship and SMEs. It's unfortunate that IoT startups aren't even 1% as active in Brussels as Nokia or Ericsson. But I hope the Commission will take their concerns in mind when shaping its policies in this field, and when crafting its input to the European Court of Justice with respect to component-level licensing of SEPs.

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Three fateful decisions will drive up Tesla's patent licensing costs: Avanci license, Austin factory, and German Gigafactory

I've criticized those old-fashioned German car makers on numerous occasions, and chances are there'll be more reasons further down the road. Now I can't help but offer the prediction that Tesla is going to far outspend, on a per-car basis, everyone else in the automotive industry, and that's because of three decisions its management took without fully considering the ramifications it has for future patent licensing negotiations and infringement disputes.

As the saying goes, you can't argue with success. But Tesla's market capitalization doesn't mean that the company doesn't make mistakes in its operational business that a company like Apple, with its far greater experience in--and more sophisticated and strategic approach to--patent licensing and litigation, would avoid. Tesla is going to pay hefty tuition fees before it will learn how to play this game like the pros in Cupertino.

Avanci license

As IAM (Intellectual Asset Management) reported, industry observers believe that the new Avanci licensee (whose name the patent pool firm behind Avanci, Marconi, hasn't disclosed yet) is none other than Elon Musk's electric vehicle maker.

What gives rise to this speculation is that several lawsuits by Avanci members against Tesla have recently been dismissed in different U.S. federal districts.

Last year, Tesla settled with Conversant (as IAM reported), which was suing Tesla in the Western District of Texas. Actually, Conversant appears willing to license automotive suppliers, as its settlement with Huawei shows. So Tesla should have insisted on Conversant extending a license to its component makers. Then, Conversant's patent portfolio is pretty old and weak, so it might just have appeared cost-efficient to take a direct license, just like Daimler thought when it settled with Sharp. Both settlements--Tesla/Conversant and Daimler/Sharp--unnecessarily endorsed the concept of licensing cellular SEPs at the level of a car. Just like I criticized Daimler's decision in no uncertain terms, I didn't like Tesla's deal with Conversant because of what it means for other automotive SEP disputes. But Daimler has, at least so far, declined to take an Avanci license. Tesla apparently has done just that, and that means it has opened a can of worms and will have to pay off countless patent trolls, but also major operating companies holding patents it infringes.

I've looked up a few U.S. dockets and been able to verify that apparently there are no more cases pending between Avanci members and Tesla. Here's an Optis Wireless v. Tesla stipulation of dismissal from the Eastern District of Texas (this post continues below the document):

21-02-26 Optis v. Tesla Sti... by Florian Mueller

The following screenshot shows a Sisvel v. Tesla dismissal, dated March 2, in the District of Delaware (click on the image to enlarge):

After taking an Avanci license, Tesla is not going to be able to credibly defend itself against other SEP holders by arguing that those patent holders should insteasd talk to Tesla's suppliers.

Austin factory and relocation to Texas

Earlier today I mentioned that the Western District of Texas is the world's #1 hotspot for patent damages, and that is so because companies with a presence there (as opposed to merely having resellers offer its products) can't just move patent cases out of that district under TC Heartland.

Texas is building an Austin factory and even plans to move its HQ to Texas. It's understandable in political terms, because even though I predict Texas will become a blue state in the not too distant future, Texas Democrats may be as centrist as California Republicans, at least in fiscal policy. However, the Western District of Texas effectively imposes a huge patent tax on business.

Gigafactory Berlin-Brandenburg

From a marketing point of view, it made a lot of sense for Tesla to build a "Gigafactory" in Germany. "Made in Germany" has always been, in no small part, about cars. It's a major market. And maybe Tesla hoped to generate political goodwill in the largest EU member state.

However, Germany is exactly the jurisdiction to which patent holders flock in pursuit of injunctions. The judicial district in which you're based there doesn't matter: there's no forcible venue transfer, thus no TC Heartland equivalent either. The problem is that a patent injunction in Germany will not only disrupt Tesla's sales in that particular market, but will force it to halt production in its Gigafactory. Also, Tesla wouldn't be able to circumvent an injunction by exporting the products it makes in Germany to other markets.

Tesla could have built a factory somewhere else in Europe. Just a little bit to the east of its Berlin-Brandenburg site there's Poland. In that jurisdiction it's likely that politicians would immediately take action and protect a major foreign investor against patent injunctions, should the Polish judiciary follow the German example. But in Germany there's no chance: even local players like Volkswagen, Daimler and BMW have failed (partly because their IP lobbying expertise is lacking and wanting) to persuade lawmakers to address the issue. As I explained in my most recent post on the subject, the proposed reform will not affect patent holders who make a licensing offer by the trial date. There won't be a proportionality analysis in such cases. And those are the cases Tesla will be dealing with.

The best cross-jurisdictional patent litigation strategy against Tesla will be to sue them for damages in the Western District of Texas and to seek an injunction in Germany. Maximum leverage.

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The French Connection: Thales is third industrial giant from France to intervene in Nokia v. Daimler standard-essential patent dispute

The Dusseldorf Regional Court's preliminary reference to the European Court of Justice asks the top EU court to opine on certain questions of antitrust law with respect to the availability of standard-essential patent (SEP) licenses to component makers. Daimler argues that Nokia actually owes its suppliers an exhaustive license that would, by extension, cover the Mercedes maker.

In late 2018, Daimler filed with the European Commission's Directorate-General for Competition (DG COMP) a complaint over Nokia's refusal to license its suppliers. About two years ago, Nokia started a patent infringement litigation campaign against Daimler that has so far failed to give the former handset maker decisive leverage.

Daimler notified its tier 1 (direct) suppliers of those cases and the possibility of indemnification claims. Certain suppliers such as Peiker, a German subsidiary of a French company named Valeo, intervened (in support of defendant Daimler) early on. Last year it became known that even French automotive company Renault is technically a supplier to Daimler, by virtue of making a car for Daimler under a cooperation agreement. Renault may not have intervened in all Nokia v. Daimler cases, but in at least a couple of Munich lawsuits.

By now, Valeo and Renault are no longer the only two French companies to have skin in the Nokia v. Daimler game: I've recently found out that Thales, a French industrial giant with 80,000 employees, finally elected to intervene in the Dusseldorf case that gave rise to the ECJ referral. Almost two years after the filing of the complaint, Thales apparently didn't want to miss this opportunity to try to influence the proceedings in Europe's highest court.

Thales is not a direct supplier to Daimler, but a tier 2 supplier (one degree removed) through its customer TomTom. Similarly, Huawei is a tier 2 supplier through such telematics control unit (TCU) makers as Continental and Harman (a Samsung subsidiary).

With a belated filing on February 20, 2021, Thales--represented by Simmons & Simmons antitrust attorney Dr. Jens Steger--attempted to persuade the Dusseldorf court to refer a set of alternative or additional questions to Luxembourg. As far as I can see, the Dusseldorf court shows no signs of being inclined to do so. It will stick to its original set of questions.

In addition to unilateral-conduct issues under Art. 102 TFEU, Thales sought to raise a couple of cartel questions (Art. 101 TFEU):

• In one of its proposed questions, Thales points out that the FRAND licensing pledge companies like Nokia made to ETSI was key to the European Commission's approval of "the ETSI agreements"--and on that basis suggests that Nokia violates Art. 101 by refusing to license component makers.

• In another question Thales takes aim at an Avanci contract clause according to which that patent pool reimburses its members' SEP enforcement costs. Thales calls into question that a pool covering more than 60% of the patents essential to a given standard. Apart from the fact that this percentage is merely based on Avanci's own estimates (which are inconsistent with various independent studies), collective ownership percentages of SEPs aren't relevant from a competition law point of view as even a single truly essential patent confers market power upon its holder.

While it's important never to forget that what makes SEPs so powerful is horizontal cooperation, which would raise serious cartel issues without a FRAND licensing obligation, I welcome the fact that the focus will remain on unilateral conduct (monopoly abuse) questions. After all, that's what makes this preliminary reference a seamless continuation of Huawei v. ZTE with a special focus on component-level licensing. Thales aspired to make creative contributions to the process, but the new theories it espouses aren't quite so compelling as to warrant a modification of the referral order, much less at this procedural stage.

Where Thales does, however, still have every opportunity to make a positive impact is by lobbying the French government--which will have the opportunity to submit written observations (comparable to an amicus curiae brief, except that the ECJ doesn't allow private non-parties to make submissions). Thales could also lobby the French EU commissioner, Thierry Breton, who has so far been more sympathetic to Nokia and Ericsson's patent monetization interests than the concerns of the automotive and wider IoT industry over SEP abuse. As internal market commissioner, Mr. Breton has responsibility for the European economy at large (and European consumers), but that doesn't mean he has to act forever as if he were Finland's permanent representative (ambassador) to the European Union. Europe has far more to gain from component-level SEP licensing: its strong automotive sector is reason enough all by itself, and its growth potential in IoT makes it an even smarter choice for the future.

Thales declined to sign Nokia's non-disclosure agreement, and I applaud them for that. However, the need to withhold certain confidential business information from them may slow down its lawyers' access to the record. Unfortunately, German litigation procedures are antiquated, so Thales can't just be provided with access to digital documents. Instead, the court has to provide the original paper documents, and the formal referral to the ECJ can take place only after Thales has had its opportunity to make copies or scans.

Subsequently to the formal referral, the CJEU can start the translation process. The deadline for the written observations to be filed by the European Commission and the governments of the EU member states (to the extent they do so) will be a couple months later--in the late summer, presumably.

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Nokia withdraws interlocutory appeal of ECJ referral of component-level patent licensing question: dilatory tactics, disrespectful style

We're witnessing the third stage of Nokia's decline. First it failed to stay competitive in the handset business. Then its business model turned ever more trollish and its patent litigation strategies ever more abusive. The third and latest downturn is that Nokia is now abusing not only its patents, but also its procedural options in litigation.

Throughout almost 11 years of blogging about patent litigation, I have acknowledged on numerous occasions when parties played the litigation game smart. Very recently, I even gave automotive supplier Continental credit for an interesting strategy in a Delaware state court, even though I bashed them in 2019 for their U.S. antisuit motion (which indeed went nowhere). Up to a certain point, litigants--whether plaintiffs or defendants--are simply in their right to exercise their procedural rights for tactical purposes. But beyond that point, such behavior is no longer legitimate, even if it is still technically legal. For example, trolls that file dozens of cases against a single defendant over the course of a few months--or simultaneously sue hundreds of defendants--give patent assertion a bad name. I still have the greatest respect for the skills of Nokia's in-house litigators and outside counsel, but in recent months it has gone a bit too far with its withdrawals of cases just on the eve of trials or decisions.

In December, Nokia dropped two patent infringement cases against Daimler in Dusseldorf just before trial (at a point where the court presumably had already spent a lot of time studying the pleadings and preparing the trial), only to refile in Munich. And now, just before Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German) of one of the patent-specialized divisions of the Dusseldorf Higher Regional Court was going to rule on Nokia's interlocutory appeal of the lower Dusseldorf court's preliminary reference to the European Court of Justice, Nokia has withdrawn its appeal. Today a spokesman for the Dusseldorf appeals court informed me by email (appellate case no. 2 W 21/21).

From the beginning, Nokia knew that this interlocutory appeal was a bit of a long shot. Its appeal talked in more detail about whether it was admissible at all than about the question at issue. After the lower court didn't reconsider, this went up to the regional appeals court, and was assigned to the Second Civil Senate, whose aforementioned presiding judge took a very clear position on component-level SEP licensing in an article he published in GRUR, the leading German IP law journal, in 2019. For Judge Dr. Kuehnen, the order on Nokia's interlocutory appeal, which he had presumably been working on for some time, would have been an opportunity to provide his input to the top EU court. Not so anymore. Nokia abused the appellate process to engage in stalling, and apparently never really wanted a decision by the regional appeals court.

When pursuing its infringement cases, Nokia can't wait to get rulings (with the exception of those infringement cases it dropped in Dusseldorf because it probably expected them to be stayed, if not rejected). It's typically the defendants to those infringement complaints who seek to extend filng deadlines, move to file post-trial briefs, and so forth. It would have been better for Nokia's credibility to act consistently, as opposed to stalling in Dusseldorf while insisting on speedy dispute resolution in other venues.

The question of component-level licensing is the key issue in Nokia's--and various other parties'--automotive patent cases. Whether one prefers one outcome of that ECJ referral or another, clarification will help, and if the ECJ ruling provides clarification (there is always a risk of a decision raising new questions), licensing negotiations will benefit from such guidance. Why does Nokia prefer to delay such resolution? Are they so worried they're going to lose? Is Nokia's plan to gain leverage over Daimler in some infringement case in the meantime? In light of a key appellate decision Nokia lost in Karlsruhe (where all appeals from Mannheim go) on Friday (which I'll discuss in the next post), it's just become even harder for Nokia to enforce any SEP injunction against Daimler in the near term.

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European Commission's expert group report on standard-essential patents uses misnomers "license to all" and "access to all"

Yesterday evening by Central European Time, the European Commission's Directorate-General for the Internal Market (DG GROW) published (expand the part entitled "Group of experts on licensing and valuation of Standard Essential Patents") the long-awaited standard-essential patent (SEP) expert group report.

When the expert group was formed in 2018, I was extremely skeptical. It looked to me like the deck was stacked against SEP implementers. I was very vocal about that concern, but the report that has been published is all about pluralism, not a particular agenda. It reflects a diversity of views and ideas, and an Ericsson executive wrote an official dissent, which I regards as a very positive sign as I tend to disagree with Ericsson on SEP matters. Maybe I was wrong in 2018 to suspect an effort to rubberstamp pro-SEP-holder policies--or, which I can't rule out for lack of knowing what exactly happened in all those expert group meetings, the dynamic changed at some point. One way or the other, my concerns were unfounded, a fact that I simply have to acknowledge in all fairness.

On a similar note, no matter how much I may disagree with EU internal market commissioner Thierry Breton on SEP matters, I like his Digital Markets Act proposal (a bill that will hopefully be improved in the further legislative process, but which is a great starting point and tackles the most important tech policy issue at this time). I hope he'll fight for that potential game changer of historic proportions even harder than he's been fighting for Nokia and Ericsson's patent monetization interests.

That said, I had to read only one sentence of the part I'm most interested in--licensing in the value chain--to find myself in some fundamental disagreement. This is just my first post on the SEP expert group report (there'll likely be more). Part 3.2 is found on pages 35-54 of the full-length version of the report. Since the FTC v. Qualcomm and Apple v. Qualcomm complaints were filed about four years ago, that topic has come up again and again on this blog, and I even organized a conference on it in 2019.

While the expert group report is merely meant to juxtapose different schools of thought, the Licensing in the Value Chain section uses Nokia/Ericsson terminology that I reject because it serves to frame the debate. Terminology is so crucial in political and legal contexts. I call on those advocating SEP implementers' interests never to adopt the terms "license to all" and "access to all"--at least not without clarifying that you actually reject them.

In the first paragraph of Part 3.2, the expert group report actually defines the terms accurately and pragmatically:

• "license to all": "SEP holders are under an obligation to grant FRAND licences to entities at any level of the value chain requesting such licences"

• "access to all": "[SEP holders] can select the level in the value chain where they grant FRAND licences" (followed by a "while" subclause I don't endorse)

SEP holders have many shrewd policy experts working for them. They know how to frame a debate, and they understand the role terminology plays. If you win the war over terminology, you can make the fight over substance an uphill battle for your adversaries. Implementers have their strengths, too, but if they acted as strategically as their counterparts, they'd adamantly refuse those misnomers "license to all" and "access to all":

• "license to all": That term unrealistically implies that everybody--from baseband chipset maker to network access device (NAD) maker to (in the automotive industry) telematics control unit (TCU) maker to end-product maker--would conclude a license with a given SEP holder. But that's a purely theoretical outcome and won't happen in practice thanks to patent exhaustion: if a license is taken high up in the value chain, the downstream is fine (example: Huawei's license deal with Sharp, through exhaustion, covers most Mercedes cars). Those vertical supply chains are like pyramids, so it would just take a few license deals at the thin top to take care of everyone.

• "access to all": This incorrectly sounds like everyone's taken care of, without everyone having to sign a license agreement.

  In the context of value-chain licensing, the term "access" is nebulous at best and mendacious at worst. I wrote above that I rejected a "while" subclause. That one says "other actors in the value chain only have the right to access the technology." What an empty word that has no basis in patent law:

  You can access any patent by downloading the relevant document from a patent database. But once you practice a patent, such as by making a product that practices a product claim or contributes to the subsequent practicing of a method claim, "access" is simply not a legal concept. You can have a license agreement; the patent rights may have been exhausted; or there may be other contractual arrangements either between yourself and the patentee (a covenant not to sue, which in the U.S. triggers exhaustion) or yourself and a third party (in which case some jurisdictions will make it harder than others for you to enforce your rights as a third-party beneficiary).

  "Access" in this context is simply a euphemism for what is more accurately described as "significant legal uncertainty for one or more levels of the value chain." It means that you may be theoretically covered by an agreement, the terms of which may not even be known to you due to confidentiality clauses, and which you can't enforce. It means that you don't have freedom to operate.

Part 3.2 of the expert group report more or less acknowledges that if SEP holders choose the licensee, they'll go after the bottom of the value chain, and if the implementer side has the choice, the license is likely to be taken higher up in the value chain. But that's just what tends to happen, not what necessarily happens. There may be situations in which an end-product maker considers it efficient to take a license at the end-product level, and others in which a SEP holder would rather manage fewer license deals with chipset makers than many more deals with end-product makers.

So what is it really about?

I propose that we non-judgmentally and truthfully--and in perfect consistency with the expert group report's own definition--distinguish from now on between "implementer's choice" and "patentee's choice" in this context. "Implementer's choice" means any implementer, at whatever level of the value chain, is entitled to a license. Of course, "any" may also mean licensing requests from more than one level of the supply chain, but realistically those who are covered by patent exhaustion wouldn't have a need to sign a license agreement. "Patentee's choice" steers clear of suggesting legal certainty by "access to all" when there are serious issues at unlicensed levels of the supply chain, as patent exhaustion works only downstream, not upstream.

Back in 2018, I was profoundly concerned that a predominantly Qualcomm-aligned SEP expert group would endorse and promote patentee's choice. Presumably, some members of that group sought to accomplish just that. Fortunately, they met resistance. They couldn't impose their will, and the outcome is now an "agree to disagree" chapter spanning 20 pages that serve to crystallize the issues.

One of many things I like about the chapter on component-level licensing is the acknowledgement that different licensing levels are prevalent in different industries, and that there are exceptions (such as component-level licenses covering smartphones--for instance, even Ericsson granted Qualcomm a chipset-level SEP license--or end-product-level licenses for cars).

It's also true that some standard-setting organizations required the participants in their standard-setting efforts to make a clearer commitment to the implementer's choice approach than others, though it's debatable whether ETSI's FRAND pledge could be interpreted in any number of ways. I've heard some very compelling argument from French law scholars that on the bottom line even ETSI's IPR policy entitles component makers to an exhaustive license.

On the technical side, I'm unconvinced of claims--which are often heard from SEP holders and their allies and also found in the expert group report--according to which it would be hard to determine at what level of the value chain a SEP is actually practiced. The baseband chipset is the master brain of cellular communications. About a year ago I showed that Nokia's patents-in-suit against Daimler are easily identifiable as baseband chipset-level patents. If one focuses on where the allegedly inventive step in any of those claimed inventions resides, the answer is simply the baseband chip. A patent litigator who frequently represents both Daimler and Qualcomm confirmed this.

The chapter on value chain licensing does make a number of valid points. For example, it might indeed be desirable to enable the companies in a given value chain, or even companies at the same level of such a chain, to engage in some coordination in order to determine the most efficient approach to licensing (Proposals 29-33, pages 46-49; I don't mean to endorse any particular one of those, but they raise important questions). Concerns over potentially violating competition law through illegal forms of cooperation appear to complicate coordination especially in the automotive industry, and in some situations the upside of allowing them to work out the most efficient solution in a given context might outweigh the downside.

Proposal 35 on page 53, Limited exhaustion -- in rem, comes down to limiting exhaustion to a field of use. This would require new patent legislation. So far, patent exhaustion is based in case law, but legislation would have more flexibility. The EU's Single Market is large enough that an EU-wide patent exhaustion regime would be relevant, and might lead other jurisdictions to take similar initiatives. However, exhaustion always has a territorial aspect. Given the chaos surrounding antisuit (and especially "multiple-anti"-suit) injunctions and extraterritorial royalty determinations (Unwired Planet), what I would consider most helpful would be a new international patent law treaty, ideally at the WHO level or at least between the U.S., the EU and key Asian jurisdictions, that would address exhaustion, antisuit injunctions, and extraterritorial patent-related determinations (such as patent valuation).

Finally, Proposal 37 on page 54, Different connectivity rates (so as to enable a patentee to "different royalties for the different chips depending on the connectivity rates of these chips"), is also very interesting. Many Internet of Things products actually just need minimal data throughput: they must be connected, but the amount of data they send may be limited to reporting a temperature once every five minutes. I'm not against price differentiation if it's based on objective criteria. I just can't see why a high-end smartphone that makes use of, say, 4G connectivity just like any low-end "dumbphone" should entitle SEP holders to a higher per-unit royalty only because of larger and higher-quality screens, more memory, and other technical characteristics that are unrelated to connectivity.

In practical terms, it's much more likely, however, that the Dusseldorf Regional Court's referral of certain component-licensing questions to the Court of Justice of the EU will bring clarification than that any policy initiative in this context is going to make an impact.

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These should be the top five priorities for those organizations seeking to promote balanced patent policy

Things haven't recently gone too well for those opposing patentee overcompensation in the information and communications technology sector and trollish litigation tactics. The German patent injunction reform effort is now at a point where even communists demand strong intellectual property protection. To turn that one around, with the end of the term approaching fast, is like trying to win a chess match after losing too many pieces. But there are five other contexts in which the camp that is making itself completely ridiculous in the German reform process could still bring about really positive developments. The following order does not indicate the relative importance of each item, but is related to how soon one would have to take action:

1. Ericsson v. Samsung now involves multiple antisuit injunctions (Samsung obtained an A1SI and A3SI in China, and according to rumors the Chinese court even entered an A4SI for good measure, while Ericsson won an A2SI that is being appealed). Ericsson has announced significant amicus brief activity. This dispute could become the next Microsoft v. Motorola in terms of its importance for U.S. antisuit injunctions in standard-essential patent (SEP) cases. It won't be hard for Ericsson to find many allies who argue that U.S. courts should enjoin, enjoin, and enjoin--just to have as much patent litigation in the U.S. as possible. But that's not going to be constructive because other countries, such as China in this case, could take the same attitude.

   It's key to help decision-makers at all levels understand that AxSI injunctions are merely a symptomatic escalation ("bring the popcorn"), but the underlying problem is territorial overreach courtesy of the Supreme Court of the UK. Escalation doesn't solve the problem. Deference and restraint are needed. It may take an international treaty to ensure patents will be litigated jurisdiction by jurisdiction, including SEP valuation. I know some patent monetization-focused companies (trolls and others) don't like that, but it's the only way out of this mess. In the Ericsson-Samsung dispute you now have a Swedish company that wants to litigate in Texas and a Korean company that asked a Chinese court for a global FRAND determination. Plus, the Swedes say that they'd be open to arbitration, but that always favors patent holders making unreasonable demands (because its results gravitate toward the middle between the parties' positions, and while you can always go higher, you can't counterbalance an excessive royalty demand by offering a negative royalty).

   It would be desirable for some amici to support Samsung's opening brief (due later this month) and to explain to the Federal Circuit that what Ericsson seeks to accomplish isn't ultimately even going to be good for the U.S. economy.

2. SEPs again: The Dusseldorf Regional Court's referral to the Court of Justice of the EU of certain component-level SEP licensing questions is certain to be affirmed by the regional appeals court. Nokia, Ericsson, Qualcomm, and other net patent licensors who prefer to shake down end-product makers are going to be lobbying all across the EU. The CJEU doesn't accept amicus briefs from companies or industry associations. You must get support for your positions from the European Commission and from the governments of EU member states. Daimler's IP lobbying capabilities are unproven to put it diplomatically for a change. More sophisticated organizations with an interest in component-level licensing should play an active role and talk to EU member state governments (to all of them) and figure out how to steer the Commission's position in the right direction.

3. Another CJEU referral, but not SEP-related: the Munich I Regional Court made a smart move from its perspective by asking the top EU court to lower the standard for preliminary patent injunctions. But every referral creates an opportunity to achieve a different outcome than the one the referrer would like. I'm not suggesting that one could or should "hijack" this referral, but it is perfectly legitimate to raise the issue of proportionality (EU Intellectual Property Rights Enforcement Directive) in this context. Maybe this referral is not only the first but also, due to group pressure on German patent judges, the last opportunity for many years to challenge the German near-automatic patent injunction regime at the EU level. In terms of what it takes, see the previous item.

4. Access to injunctions is also an issue on the other side of the Atlantic. The case law is good, but some politicians would like to overrule eBay v. MercExchange through new legislation. During the last term it turned out that Senator Thom Thillis (R-N.C.) was having second thoughts. Still, don't underestimate the risk here, and do your lobbying job on Capitol Hill before it's too late.

5. Another Congressional challenge: the aforementioned Senator Thillis does still seek to do away with Alice (invalidity of abstract patents). He actually appears to be obsessed with that one--as is equally re-elected pro-patent-troll Senator Chris "Looney" Coons (D-Del.). This is going to be a bigger challenge than preserving the eBay standard!

The above handful of policy issues are likely the most important ones this year and next with respect to patents. Should the Federal Trade Commission file a cert petition in the Qualcomm case, that would make it six (precisely 50% of which would be SEP matters). The deadline is late next month, and I heard from DC circles that this depends on new nominations of FTC commissioners by President Biden. Even if that didn't work out, it's key to at least ensure that the Biden Administration's positions on SEP enforcement will be more like those of the Obama Administration.

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Continental brings complaint against Nokia in Delaware state court: new U.S. FRAND litigation strategy may protect Daimler

Automotive supplier Continental brought FRAND litigation against the Avanci pool and several of its contributors, particularly Nokia, in 2019. But its federal lawsuit was transferred from the Northern District of California to the Northern District of Texas (i.e., Dallas), and in September it was dismissed. Continental has appealed the dismissal to the Fifth Circuit. But "Conti" (as the company is commonly referred to in the automotive industry) isn't just waiting for the appellate proceedings to unfold (a decision will likely take about a year from now). Instead, Conti has now brought a new complaint specifically against Nokia in Delaware state court, and that one has the potential to become one of the most interesting FRAND cases worldwide (this post continues below the document):

21-01-25 Continental v. Nok... by Florian Mueller

Conti issued a press release about this case, which says the automotive supplier is "seeking to hold Nokia to its promise to license telecommunications patents based on fair, reasonable and non-discriminatory (FRAND) terms" and nevertheless pursues antitrust claims against Avanci, Nokia and others in its federal case that is on appeal, "upholds its complaint with the European Commission against Nokia's abusive refusal of a FRAND license," and they're looking forward to the Court of Justice of the EU's decision on Nokia's obligations to grant exhaustive component-level SEP licenses (Nokia appealed the referral, but unsuccessfully so far).

The first question I asked myself was whether there was any overlap between this separate Delaware action against Nokia and the case that got dismissed in Texas, but might still be revived by the Fifth Circuit. It turns out that the FRAND contract claims (based on Nokia's FRAND pledges to ETSI, ATIS, and TIA) do, but in order to understand what that means, a clear distinction is key: the case dismissed in Dallas involves a mix of federal (antitrust) and state (mostly contract) claims. What the Dallas court dismissed with prejudice was the federal part--and that dismissal basically took the state law claims with it because a federal court won't hear a state claim unless there's a related federal claim in the same case. Should Conti's appeal succeed (too early to tell, but I don't expect it to be a cakewalk for them), some claims might be brought back to life, but by then the Delaware proceedings would already be fairly advanced and Conti could just drop such claims from the Texas action.

Should Conti obtain a FRAND license, its customers such as Daimler would be protected against Nokia's patent assertions.

Facing a FRAND case in the Court of Chancery of the State of Delaware is a blast from the past for the Finnish company, which sued Qualcomm there more than a decade ago in order to obtain a SEP license on FRAND terms, taking positions diametrically opposed to where it stands now that it's exited the handset business. Later, Nokia sued Apple in federal court in Delaware (not only, but also, over SEPs). In its dispute with Apple, Nokia described Delaware as its "corporate home in the United States," which Conti's complaint mentions in what might be a pre-emptive strike against any objections by Nokia to that particular venue.

I just mentioned Qualcomm, and the agreement that resulted from Nokia's Delaware action against Qualcomm could now set a ceiling for Nokia's FRAND royalty demands. First, a covenant not to sue triggers patent exhaustion in the U.S. under the Supreme Court's Quanta decision, and Conti is a Qualcomm customer. Second, "Nokia promised to offer certain royalty rates to Qualcomm’s customers." That license agreement didn't explicitly mention telematics control units (TCUs) like the ones Conti supplies to Daimler. So there'll have to be some discussion about whether Nokia's maximum-royalty promise applies. If it does, Nokia won't be able to base its royalty demands on the price of a car (or the value Nokia claims cellular connectivity adds to a car).

The question of whether a TCU is the equivalent of a mobile handset for SEP licensing purposes is also going to come up in the CJEU case over component-level licensing.

After California and Texas, Delaware--also known as The First State--is now the third U.S. state in which Conti is going after Nokia. Geographically speaking, the dispute has traveled from coast to coast, eastbound. I disagreed with some of what Conti did in California; I didn't follow the Texas case in detail, and the dismissal wasn't totally surprising; but this Delaware action--in what is probably the best state court in the U.S. to focus on commercial litigation--looks truly interesting. They're making good use of the time that it takes in the Fifth Circuit to defibrillate (which may or may not work out) the original Avanci case. And its own history in that venue will now come back to haunt Nokia, potentially resulting in royalties far below what it's seeking from Daimler.

Just looking at the extreme lengths to which Conti has to go to obtain a license from Nokia, I can't help but find it absurd how any German judge could deem a Conti customer like Daimler to be an unwilling licensee. There's an unwilling licensor here, Nokia, and figuratively speaking, Conti is chasing that one across the USA. Delaware may be the final destination in that regard.

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Podcast on developments relating to component-level SEP licensing, particularly the referral of a set of questions to the CJEU by a German court

About a year after my Brussels conference on the component-level licensing of standard-essential patents (SEPs), I invited the members of the first panel discussion of that conference to produce a podcast

• for a general update on key developments surrounding the component-level licensing of SEPs since our November 2019 panel, and

• to discuss in depth the implications of the Dusseldorf Regional Court's decision to refer to the Court of Justice of the EU a set of key legal questions (relating to component-level licensing as well as the application of the Huawei v. ZTE framework).

I'm so grateful to all four of them (in alphabetical order of last name: Professor Christian Donle of Preu Bohlig, Jay Jurata of Orrick Herrington Sutcliffe, Paul Lugard of Baker Botts, and Pat Treacy of Bristows) accepted. They rocked again! Never change a winning team. So rather than talk much more about this podcast, here's the recording (total duration: approx. 69 minutes):

Hope you find it informative.

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Nokia's attempt to evade referral of antitrust questions to top EU court faces high hurdles: questionable appealability, deferential standard of review

Nokia dreads Dusseldorf. That wasn't always so. For many years, Nokia filed cases in that city even though its disputes typically got settled on the basis of decisions that came down faster in Mannheim and Munich. But last month's order to refer to the Court of Justice of the EU multiple legal questions related to standard-essential patent (SEP) enforcement has left Nokia, well, disgruntled.

Just a few days before trial, Nokia withdrew two cases against Daimler and one against Lenovo (only to refile in Munich).

But Nokia can't derail the CJEU referral by means of withdrawing the case in which the referral happened. Once a plaintiff has formally (re)stated the prayers for relief at trial time in Germany, any withdrawal would require the defendant's consent. Daimler, however, now has a strong interest in getting the question of component-level licensing clarified. Nokia could solve the problem by getting leverage over Daimler in some other venue (coercing Daimler into a settlement that would result in a stipulated dismissal of the case that would otherwise be decided by the CJEU), but on Thursday Nokia is going to be dealt a serious blow in Munich.

Last Thursday, Nokia filed a 29-page "Sofortige Beschwerde" (the closest thing in Germany to what would be called an interlocutory appeal in the U.S.). Initially, the court that made the decision complained of (here, the Dusseldorf Regional Court) decides whether to grant relief or whether to refer it to the appeals court.

Large parts of Nokia's filing, signed by Arnold & Ruess's Tim Smentkowski, deal with the very first hurdle in front of Nokia's interlocutory appeal of the referral order: appealability. The Higher Regional Court of Cologne--just 30 miles south of Dusseldorf and in the same state, North Rhine-Westphalia--held in a different case that a referral order is not appealable because it does not interrupt a case; much to the contrary, that court held a referral is simply part of the judicial process.

Given that the Dusseldorf court, however, noted in its decision that Nokia may appeal the order, it appears less likely that the appeal will be rejected on that basis.

The most likely outcome is for the appeal to be heard, but for the order to be upheld as the lower court enjoys broad discretion with respect to referrals. The assumption is that the judges below have the right to request clarification from the top EU court. Only if a referral appeared wholly unreasonable--the rather deferential standard of review here is comparable to an abuse of discretion--would the appeals court overturn it. But here, the judge presiding over one of the two patent-specialized divisions of the Dusseldorf appeals court, Judge Dr. Thomas Kuehnen ("Kühnen" in German), is known to be in favor of this referral. Even before any major court decision on the question of component-level access to exhaustive SEP licenses came down, he already expressed his views on this topic in an article last year.

That said, Nokia's appeal might succeed with respect to the second set of questions the Dusseldorf court decided to present to the CJEU. That set of questions is not about component-level SEP licensing. It's about how to apply the Huawei v. ZTE framework. Nokia's position that those questions aren't really outcome-determinative in Nokia v. Daimler actually makes sense to me. Now, it would indeed be good if those questions were referred to the CJEU as well, given how things are going awry in Germany, but Nokia v. Daimler may not constitute an appropriate vehicle.

I believe Nokia's interlocutory appeal will be resolved swiftly, but whether it will happen before the Holiday Season is another question. Nokia may have brought that appeal primarily to cause some--even if presumably just limited--delay.

A further appeal to the Federal Court of Justice isn't possible. Otherwise there would be a risk as a presiding judge of the Federal Court of Justice--a judge with a terrible legacy in patent and antitrust law who will thankfully retire (by law, not choice) next year (which is why I don't see a point in even naming the judicial equivalent of a "lame duck" politician here at this stage)--spoke out against this referral.

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Nokia's pre-trial forum-shopping extends to its dispute with Lenovo as well (not just Daimler)

Just a quick follow-up to yesterday's post, Desperate-defiant Nokia withdraws two Dusseldorf patent cases against Daimler, trollishly refiles in Munich--where it's losing ground as well. The extent of the problem is even greater. Over the weekend I've learned that there's another recent case in which Nokia engaged in the same appalling practice--I said "appalling" because it's utterly disrespectful of a court and of the other parties to withdraw cases shortly before trial only to bring them in a venue presumed to be more sympathetic to plaintiffs.

Nokia's dispute with Lenovo involves some of the same issues as its spat with Daimler. In Munich, that includes the determination of collateral (bond or deposit to be provided if an injunction is enforced during an appeal) and the application of the Court of Justice of the EU's Huawei v. ZTE framework for deciding whether a SEP holder is entitled to injunctive relief against a particular defendant. Nokia had won an injunction against Lenovo in Munich, but the computer maker--represented by Freshfields Bruckhaus Deringer's Prince Wolrad of Waldeck and Dr. Nina Bayerl--successfully moved the appeals court for an enforcement stay.

Irrespectively of that defeat, Nokia still rests its hopes on the court below, the Munich I Regional Court. And the failed Finnish handset maker dreads Dusseldorf after last month's referral to the CJEU of various component-level licensing and other SEP enforcement questions.

The same division of the Dusseldorf Regional Court that sent those legal questions to Luxembourg--under Presiding Judge Sabine Klepsch--had originally scheduled a Nokia v. Lenovo trial over EP1440515 on an "implementation of a transform and of a subsequent quantization" for last Thursday, December 3. Nokia first requested a postponement, and then, on Friday (December 4), withdrew its Dusseldorf complaint and refiled it in Munich.

Nokia asserts that EP'515 is essential to H.264 decoders, and non-essential to encoders. As for the decoder side, Nvidia intervened, so if Nokia prevailed on essentiality and validity, the question of component-level licensing would have resurfaced.

Forum-shopping is a reality, and some courts (particularly in the Western and Eastern District of Texas as well as some German cities) engage in forum-selling. That's bad enough. But by withdrawing cases almost on the eve of a trial, Nokia is taking forum-shopping to an extreme. The question is now whether it's already doing more outrageous things than Fortress Investment's Uniloc, or just closing the gap.

Such conduct gives patent enforcement a bad name.

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Dusseldorf Regional Court refers component-level licensing of standard-essential patents to Court of Justice of the EU

The Landgericht Düsseldorf (Dusseldorf Regional Court) has indeed, as widely anticipated in light of the inclination the court expressed during the early-September trial, referred to the top EU court a set of legal questions regarding the right of component makers to an exhaustive component-level standard-essential patent (SEP) license. This news was first shared on Twitter by Benjamin Raetz ("Rätz" in German), an intellectual propety lawyer with the firm of Kather Augenstein, whose clients include Volkswagen (in favor of component-level licenses) and Ericsson (opposed). Here's the tweet (this post continues below the tweet):

Hot #FRAND News: Regional Court Düsseldorf refers questions to #CJEU, stays #Nokia's injunction prceedings against #Daimler | #SEP #patent #litigation

— Benjamin Rätz (@bjnrtz) November 26, 2020

As a result, a Nokia v. Daimler case as well as a Huawei v. Nokia case (in which Huawei is seeking to obligate Nokia to make a FRAND licensing offer at the component level) will be stayed. Formally, the decision in the Huawei case will likely come down next month or in January. But the court made it clear in September that the two cases are interrelated. In fact, Huawei's case used to be a third-party counterclaim that was severed from the Nokia v. Daimler case. Theoretically, the court could also stay Huawei's case pending the resolution of today's referral, but that would not be a good idea given that there is a risk of Nokia getting leverage over Daimler in some case and coercing the Mercedes maker into a settlement, while Huawei would certainly see this matter through. Whether Nokia will get such leverage is hard to tell. For instance, if the Munich appeals court were to (more or less) uphold the lower Munich court's negligible security amount in a different Nokia v. Daimler case, and if Daimler failed to win a stay, then the Nokia-Daimler dispute could be over as early as next month, in theory.

Two other Nokia v. Daimler cases are due to be heard by the Dusseldorf Regional Court next month. If Nokia loses on the merits, there won't be a need for a stay.

Some major SEP holder opposed to component-level licensing, particularly Nokia (which made an unacceptable new licensing offer to makers of telematics control units) and non-party Qualcomm (which counted on EU internal market commissioner Thierry Breton's support and lobbied the German Federal Ministry of Economic Affairs (where some people saw through the smokescreen while some others were pathetically clueless), tried some maneuvering in hopes of dissuading the Dusseldorf court from this referral. But now that the referral has been made, this matter will be resolved in Luxembourg.

EU competition commissioner Magrethe Vestager said at yesterday's announcement of the Commission's Action Plan on Intellectual Property that the EC wanted the parties to talk to each other and was seeking to keep these case out of the courts. That's easier said than done. Judicial clarification is needed, and it will come.

Nokia could appeal this decision to the Oberlandesgericht Düsseldorf (Dusseldorf Higher Regional Court) by means of the German equivalent to a U.S. interlocutory appeal. However, the judge presiding over one of the two patent-specialized divisions of that appeals court, Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German), took a clear position on this question last year, and he's known to be in favor of this referral.

The Bundeskartellamt (Federal Cartel Office of Germany) had filed an amicus brief with multiple German courts requesting the referral of component-level SEP licensing questions to the CJEU. Frankly, I liked the Federal Cartel Office's submission to the courts better than what the Dusseldorf court made of this, but that may be subjective.

Meanwhile, the Dusseldorf Regional Court has published the questions to be referred. They go beyond the subject of component-level licensing and also raise general Huawei v. ZTE-related questions. I will publish the original German-language version of each question and provide my own translation below each paragraph (my translation is not exactly literal but uses shorter constructs where I believe doing so does not result in a loss of accuracy, such as by not providing a definition of a term like SEP):

A. Besteht eine Pflicht zur vorrangigen Lizenzierung von Zulieferern?

UNOFFICIAL TRANSLATION: Is there an obligation to license suppliers first?

1. Kann ein Unternehmen einer nachgelagerten Wirtschaftsstufe der auf Unterlassung gerichteten Patentverletzungsklage des Inhabers eines Patents, das für einen von einer Standardisierungsorganisation normierten Standard essentiell ist (SEP) und der sich gegenüber dieser Organisation unwiderruflich verpflichtet hat, jedem Dritten eine Lizenz zu FRAND-Bedingungen zu erteilen, den Einwand des Missbrauchs einer marktbeherrschenden Stellung i.S.v. Art. 102 AEUV entgegenhalten, wenn der Standard, für den das Klagepatent essentiell ist, bzw. Teile desselben bereits in einem von dem Verletzungsbeklagten bezogenen Vorprodukt implementiert wird, dessen lizenzwilligen Lieferanten der Patentinhaber die Erteilung einer eigenen unbeschränkten Lizenz für alle patentrechtlich relevanten Nutzungsarten zu FRAND-Bedingungen für den Standard implementierende Produkte verweigert?

UNOFFICIAL TRANSLATION: 1. Can a downstream company avert injunctive relief over a FRAND-pledged SEP on the grounds of an abuse of a dominant market position in accordance with Art. 102 TFEU if the relevant standard or parts thereof are implemented by an upstream component purchased by the defendant to the infringement claim and the defendant's suppliers are willing licensees but the patentee denies them an independent and unrestricted license on FRAND terms covering all types of use relevant under patent law?

a) Gilt dies insbesondere dann, wenn es in der betreffenden Branche des Endproduktevertreibers den Gepflogenheiten entspricht, dass die Schutzrechtslage für die von dem Zulieferteil benutzten Patente im Wege der Lizenznahme durch die Zulieferer geklärt wird?

UNOFFICIAL TRANSLATION: a) Is this particularly the case if it is common practice in the end product maker's industry to clear patent rights at the component level?

b) Besteht ein Lizenzierungsvorrang gegenüber den Zulieferern auf jeder Stufe der Lieferkette oder nur gegenüber demjenigen Zulieferer, der dem Vertreiber des Endprodukts am Ende der Verwertungskette unmittelbar vorgelagert ist? Entscheiden auch hier die Gepflogenheiten des Geschäftsverkehrs?

UNOFFICIAL TRANSLATION: Are suppliers at each level of a suply chain entitled to a license, or does this apply only to the defendant's direct supplier? Does this depend on industry practice?

2. Erfordert es das kartellrechtliche Missbrauchsverbot, dass dem Zulieferer eine eigene, unbeschränkte Lizenz für alle patentrechtlich relevanten Nutzungsarten zu FRAND-Bedingungen für den Standard implementierende Produkte in dem Sinne erteilt wird, dass die Endvertreiber (und ggf. die vorgelagerten Abnehmer) ihrerseits keine eigene, separate Lizenz vom SEP-Inhaber mehr benötigen, um im Fall einer bestimmungsgemäßen Verwendung des betreffenden Zulieferteils eine Patentverletzung zu vermeiden?

UNOFFICIAL TRANSLATION: 2. Is it required by antitrust law to grant a supplier its own independent and unrestricted license on FRAND terms, for products implementing the standard, to the effect that end-product makers (and, as applicable, intermediate levels of the supply chain) no longer need to take an own, separate license from the SEP holder, thereby providing end-product makers with a defense against a patent infringement claim if the relevant component was incorporated into the end product on a licensed basis?

3. Sofern die Vorlagefrage zu 1. verneint wird: Stellt Art. 102 AEUV besondere qualitative, quantitative und/oder sonstige Anforderungen an diejenigen Kriterien, nach denen der Inhaber eines standardessentiellen Patents darüber entscheidet, welche potenziellen Patentverletzer unterschiedlicher Ebenen der gleichen Produktions- und Verwertungskette er mit einer auf Unterlassung gerichteten Patentverletzungsklage in Anspruch nimmt?

UNOFFICIAL TRANSLATION: 3. In the event the first question were to be answered in the negative: Does Art. 102 TFEU impose particular criteria--qualitative, quantitative, or otherwise--based on which a SEP holder can choose which potential infringers at different levels of the supply and value chain to enjoin?

B. Konkretisierung der Anforderungen aus der Entscheidung des Gerichtshofs in Sachen Huawei ./. ZTE (Urteil vom 16. Juli 2015, C-170/13):

UNOFFICIAL TRANSLATION: B. Clarification of requirements laid out by the CJEU in Huawei v. ZTE (judgment of 16 July 2015, case no. C-170/13):

1. Besteht ungeachtet dessen, dass die vom SEP-Inhaber und vom SEP-Benutzer wechselseitig vorzunehmenden Handlungspflichten (Verletzungsanzeige, Lizenzierungsbitte, FRAND-Lizenzangebot; Lizenzangebot an den vorrangig zu lizenzierenden Zulieferer) orgerichtlich zu erfüllen sind, die Möglichkeit, Verhaltenspflichten, die im vorgerichtlichen Raum versäumt wurden, rechtswahrend im Laufe eines Gerichtsverfahrens nachzuholen?

UNOFFICIAL TRANSLATION: Given that SEP holder and implementer have to meet certain obligations (infringement notice, request for license, FRAND licensing offer; licensing offer to a supplier) prior to litigation, is it still possible to make up, without prejudice, for obligations not previously met while litigation is pending?

2. Kann von einer beachtlichen Lizenzierungsbitte des Patentbenutzers nur dann ausgegangen werden, wenn sich aufgrund einer umfassenden Würdigung aller Begleitumstände klar und eindeutig der Wille und die Bereitschaft des SEP-Benutzers ergibt, mit dem SEP-Inhaber einen Lizenzvertrag zu FRAND-Be-dingungen abzuschließen, wie immer diese (mangels eines zu diesem Zeitpunkt formulierten Lizenzangebotes überhaupt noch nicht absehbaren) FRAND-Bedingungen aussehen mögen?

UNOFFICIAL TRANSLATION: Is a request for a license by an implementer relevant only if, based on an in-depth analysis of all circumstances, the implementer's willingness and readiness to conclude a license agreement on FRAND terms with the patentee is clear and unambiguous, irrespectively of what those terms (which at the time of the offer to take a license were not foreseeable yet) might be?

a) Gibt ein Verletzer, der mehrere Monate auf den Verletzungshinweis schweigt, damit regelmäßig zu erkennen, dass ihm an einer Lizenznahme nicht gelegen ist, so dass es – trotz verbal formulierter Lizenzbitte – an einer solchen fehlt, mit der Folge, dass der Unterlassungsklage des SEP-Inhabers stattzugeben ist?

UNOFFICIAL TRANSLATION: Does an infringer who remains silent over the course of several months upon receipt of an infringement notice give an indication of a nominal request for a license not being made in good faith, which in turn would entitle the SEP holder to injunctive relief?

b) Kann aus Lizenzbedingungen, die der SEP-Benutzer mit einem Gegenangebot eingebracht hat, auf eine mangelnde Lizenzbitte geschlossen werden, mit der Folge, dass der Unterlassungsklage des SEP-Inhabers ohne vorherige Prüfung, ob das eigene Lizenzangebot des SEP-Inhabers (welches dem Gegenangebot des SEP-Benutzers vorausgegangen ist) überhaupt FRAND-Bedingungen entspricht, daraufhin stattgegeben wird?

UNOFFICIAL TRANSLATION: Can the terms of a SEP implementer's counteroffer result in a finding of an unwillingness to take a license and the grant of injunctive relief without prior analysis of whether the SEP holder's licensing offer (which preceded the implementer's counteroffer) was FRAND-compliant in the first place?

c) Verbietet sich ein solcher Schluss jedenfalls dann, wenn diejenigen Lizenzbedingungen des Gegenangebotes, aus denen auf eine mangelnde Lizenzbitte geschlossen werden soll, solche sind, für die weder offensichtlich noch höchstrichterlich geklärt ist, dass sie sich mit FRAND-Bedingungen nicht vereinbaren lassen?

UNOFFICIAL TRANSLATION: c) Is the foregoing conclusion unwarranted at least in a case in which those licensing terms in the implementer's counteroffer that give rise to a finding of an unwillingness to take a license are not clearly out of compliance with FRAND either because it is evident or in accordance with jurisprudence of the highest court? [TRANSLATOR's NOTE: the original text has many shortcomings, one of which is that the term "höchstrichterlich" means a decision by the highest court, without clarifying whether the CJEU or the Federal Court of Justice of Germany is meant; in fact, even the Federal Constitutional Court of Germany could theoretically be the highest court in a given case]

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