Daimler reloaded: another automotive company takes patent license from Nokia, which consistently insists on end-product-level licensing

There's a big "See I told ya so" waiting for you toward the end of this post as far as patent licensing to car makers is concerned, but let's look at this news in a logical sequence of steps:

Nokia just sent out its earnings release for the second quarter (and the first half) of 2021. Irrespectively of how strongly I've sometimes disagreed with their positions in litigation, I always read their statements and have an active subscription to their news releases. What immediately struck my attention in today's announcement is this passage:

"Nokia Technologies continues to scale with two licensing agreements with automotive manufacturers including Daimler." (emphasis added)

That "including" part suggests they're not going to disclose the name of the other party than Daimler. Nokia's victory over Daimler--getting the Mercedes maker to take a car-level license after more than two years of litigation and nearly three years after Daimler's EU antitrust complaint over the question of where in the supply chain standard-essential patents (SEPs) should be licensed--was announced in early June.

The following part of Nokia's "Q2 2021 Investor presentation" (PDF) doesn't state the second name either, so unless someone leaks something, or whenever it gets mentioned in open court (because of the non-discrimination part of FRAND), we're not going to know (click on the image to enlarge):

It's not just highly unlikely but even unthinkable that Nokia, despite getting its way in the largest-scale and highest-profile automotive SEP dispute ever, would have changed course and granted an exhaustive and otherwise unrestricted license to an automotive supplier. The most plausible scenario is that after Daimler's defeat someone else decided that hold-out was just going to cost a ton of legal fees, for nothing.

You can't argue with success. Or, as investors often say, the trend is your friend.

If it were up to me, I'd prefer Avanci and all of its members (as some do) to offer an exhaustive component-level license at the chipset, network access device (NAD), and telecommunications control unit (TCU) level. But I don't get to decide. Marconi, the company behind Avanci, can do only what its members are able to agree upon. Apart from a few hold-outs, car-level patent licensing is now uncontroversial. It's a fact of life.

I doubt that those automotive patent deals are large enough to be a key factor behind this bullet point of today's earnings release:

"Considering our strong start to 2021, we revise our full year 2021 Outlook, including net sales expected to be EUR 21.7bn to 22.7bn (previously EUR 20.6bn to EUR 21.8bn) with comparable operating margin in the range of 10-12% (previously 7-10%)."

However, patent licensing in general seems to be working out well for them. The Daimler dispute cost a lot of money, but appears to effectively dissuade others from picking that kind of fight. By contrast, Daimler wasted tens of millions of euros--and the result is just that anyone else can sue them now and force them to take a car-level license, which sooner or later will make an Avanci license look cheap.

What does Nokia's announcement of not one but two automotive patent license deals mean for the wider automotive patent licensing debate?

"See, I told ya so." Joint licensing negotiation groups (LNGs) are not necessary to work out license agreements between cellular SEP holders and automotive companies. No matter how hard Volkswagen and some of its allies may be pushing for the legalization of otherwise highly anticompetitive buyers' cartels, the market keeps proving them wrong. Today's announcement doubly debunks Volkswagen's LNG story:

• Deals keep falling into place without LNGs, so the plot is thickening that the real issue is a group boycott by unwilling licensees (from which more and more companies are defecting).

• Avanci members like Nokia are not only contractually and theoretically, but in every practical sense, free to enter into direct license agreement with automotive industry players. That means Avanci is truly just one additional option, a one-stop option for more than three dozen portfolios, but not a licensors' conspiracy.

As a regulatory authority or policy maker, I would find it a very clear case to politely decline any invitation to authorize a buyers' cartel likely to slow down the licensing process and organize group boycott (as the Japanese government noted earlier this week) when there is not only a Business Review Letter by the USDOJ but also hard real-world evidence--actions speak louder than words--of there being no licensors' cartel that would have to be counterbalanced (apart from the fact that two wrongs don't make a right, so even if there were a sellers' cartel, the solution would not be to allow a buyers' cartel). Who would want to turn antitrust law on its head against all the empirical evidence from the market--and knowing that it takes only one major jurisdiction to break up a cartel?

It always feels good to see one's analysis validated. It feels even better when it happens so quickly. It's just one deal with an unnamed car maker, but previously BMW had taken an Avanci license in 2017, Volkswagen had taken a limited one (and has otherwise continued to infringe, so I wonder when they'll get sued), Tesla according to rumor settled multiple parallel lawsuits by means of an Avanci license, and Daimler took a car-level license from Nokia. And now another deal happened, without litigation because otherwise we'd know.

I'll ask around to find out more and will do a follow-up post if and when warranted. But there may already be news deals and/or new lawsuits by the time I find out the licensee's name. Also, I guess Huawei will continue to make headway with its automotive patent licensing efforts.

One thing I try hard not to be is obtuse. Opinionated I am, but that's another word starting with the same letter. Rationality forces me to recognize what has happened and where things are going. This is an unstoppable wave. Licensing--not lobbying--is the answer.

If you haven't previously read my thoughts on collective licensing negotiation groups, here are the links to all parts of my recent trilogy:

1. SEP Licensing Negotiation Groups -- Part I: analogy to patent pools entails false symmetry between facilitating and complicating automotive patent licenses

2. SEP Licensing Negotiation Groups -- Part II: justice delayed is justice denied when unwilling licensees can hide behind a consensus-building effort

3. SEP Licensing Negotiation Groups -- Part III: legalization of buyers' cartels would invite group boycott and collective hold-out

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Huawei signs 4G patent license agreement with Volkswagen supplier, its largest automotive licensing deal thus far

Huawei, which owns one of the world's leading cellular standard-essential patent (SEP) portfolios, just put out a press release announcing "a license agreement with a supplier of Volkswagen Group." The announce goes on to say that it's a 4G deal (suggesting to me that they're still going to have to negotiate 5G terms) and "covers Volkswagen vehicles equipped with wireless connectivity." According to Huawei, it marks the Chinese company's "largest licensing deal in the automotive industry." Huawei apparently has other license agreements in the automotive industry in place as well, and "expects more than 30 million vehicles to be licensed under its patents based on existing license agreements." (emphasis added)

Huawei itself is an automotive supplier, too. I've seen them as an intervenor in the Nokia v. Daimler cases, and a license agreement between Huawei and Sharp effectively covered about 86% of Daimler's car sales.

I'd like to know the name of that unnamed Volkswagen supplier, and whether it's a tier 1 license deal (covering telematics control units (TCUs)) or covers components higher up in the supply chain.

Whether it's a tier 1, 2 or 3 license, the announcement suggests that the licensee can't sell those components to other car makers under this particular license agreement, which appears to be specific to Volkswagen Group's 12 brands: Volkswagen, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN.

In April I mentioned a presentation by Volkswagen Group's IP chief Uwe Wiesner. In that one he also talked about an approach commonly referred to as "joint licensing negotiation group." The idea is that car makers and their suppliers would jointly negotiate license agreements with major patent holders. Today's announcement, however, does not say whether Volkswagen played an active role in those negotiations or whether Huawei was negotiating with only the supplier.

Given that the announcement describes Volkswagen's unnamed supplier as the licensee, the deal structure is undoubtedly distinct from Nokia's recent settlement with Daimler, which is a car-level license. But, to be fair, when Nokia and the Avanci pool (to which Nokia is a major contributor) are asked about their willingness to license component makers, they don't rule out license deals that cover tier 1 (TCU) suppliers but are specific to the incorporation of those components into the cars made by one particular manufacturer. There may still be significant differences between the structure of the deal Huawei announced today--especially if it's not a tier 1 deal--and the coverage Nokia and Avanci are willing to extend to tier 1 suppliers, such as so-called "have made" rights. What those deal structures potentially have in common is that the license agreement announced today may not cover components the same supplier sells to other car makers. For example, when Avanci announced its patent license agreement with BMW in December 2017, it noted that the license agreement "[would] to a large extent be handled through {BMW's] supplier for telematics units, providing them access to the essential wireless technology of many different telecommunication and patent holding companies."

Huawei is not an Avanci contributor. It holds the most important portfolio that cannot be licensed through Avanci. Today's announcement doesn't specifically endorse Avanci's model, but for the reasons I just explained, it is definitely not bad news for Avanci and its key contributors such as Nokia and Ericsson.

Volkswagen's Avanci license appears to be rather limited, as one can infer from the numbers. It seems that most Volkswagen cars are licensed only up to 3G, and only some of its brands or models are covered by a 4G license.

Avanci is widely expected to announce its 5G license fees later this year, possibly as early as in a couple of months. There will be a lot of pressure on the automotive industry, which is already incorporating 5G into many cars, to enter into cellular SEP license agreements, or to upgrade existing agreements. Today's high-volume deal between Huawei and that unnamed Volkswagen supplier sets the stage for more automotive patent license deals.

Recent developments in Germany strengthen the negotiating position of wireless SEP holders. The impact of this year's legislative amendment on patent injunctions is negligible at best, and Sisvel v. Haier is here to stay as even the Dusseldorf Regional Court won't try again to question the SEP injunction case law of the Federal Court of Justice of Germany: they won't send another preliminary reference to the European Court of Justice (after the one in Nokia v. Daimler got withdrawn as a result of the settlement). It looks like § 315 licensing offers will be safe harbor for implementers, but in that case the license fee would have to be adjusted by a court of law in the event of a dispute, and German courts are known to be rather patentee-friendly. There will be no better jurisdiction for 5G SEP enforcement than Germany.

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Former Assistant Attorney General Makan Delrahim, fighting for his legacy, says yet-to-be-named successor should have 'regulatory humility' in face of court rulings

As the keynote speaker of a Concurrences webinar held today (and ongoing as I write this post), former Antitrust Assistant Attorney General--and now UPenn professor--Makan Delrahim gave an impassioned speech. He's trying to dissuade his successor, who (as Mr. Delrahim noted) has yet to be named almost eight years after the elections, from undoing his patentee-friendly policies.

The result of a poll of webinar participants will have done nothing to soothe Mr. Delrahim. A majority of the panel, including the moderator, is on the same side as Mr. Delrahim (which obviously does not apply to Judge Fabian Hoffmann of the Federal Court of Justice of Germany and Orrick Herrington Sutcliffe's Jay Jurata), but 68% of participants responded with "yes" to the following question:

"Is there a role for antitrust to play in the debate over component-level licensing where all implementers of the standard are assured of their ability to practice the standardized the technology?"

When Mr. Delrahim was in charge of DOJ-ATR (the Antitrust Division of the United States Department of Justice), the opinion of the "United States" (as the federal government is called when filing amicus curiae briefs) was a resounding "never."

In today's webinar speech, Mr. Delrahim mostly focused on access to injunctive relief over SEPs, but he twice referenced the Ninth Circuit's FTC v. Qualcomm decision, in which case Qualcomm's refusal to grant exhaustive SEP licenses to chipset makers played a key role. The former U.S. antitrust chief also lauded a couple of European high-court rulings: the UK Supreme Court's Unwired Planet v. Huawei and the German Federal Court of Justice's Sisvel v. Haier opinions.

Mr. Delrahim's position is that the "ability to exclude" is a key "incentive" for filing for patents, and this right should not be limited except by the legislature. He does say--as he could hardly claim the opposite--that FRAND commitments should be enforced under contract law. That works in the U.S., which recognizes third-party beneficiaries' rights, but in some jurisdictions it would not even be an option. Judge Hoffmann noted toward the end of today's webinar that in Germany the courts have no problem applying the antitrust laws to a duty to extend licenses, and Germany's seminal Orange-Book-Standard case involved a de facto standard without a FRAND commitment. Microsoft v. Motorola Mobility is an example Mr. Delrahim mentioned for the enforcement of contractual rights. But violations of a FRAND pledge "do not somehow conjure up an antitrust violation," said Mr. Delrahim. He went on to stress that a breach of a FRAND contract "should NEVER be a violation of the antitrust laws." And this line of thought culminated in the view that "using antitrust law with its triple damages and hammers in [his] view is a misuse."

In the first part and again toward the end of his speech, Mr. Delrahim basically addressed his former government agency via a prime-time (shortly after the usual start of business in DC) webinar. He described the new U.S. Attorney General (and former circuit judge) Merrick Garland as "very thoughtful" on antitrust. But he does take issue what he sees happening below, such as the downgrading of his IEEE threat letter and recent comment by the Acting Assistant Attorney General at an IAM event that they were "rethinking [their] policy on SEPs." He didn't specifically mention those activities, but he asked the rhetorical question of why there should be "change in policy without debate, real argument, why do that?" And Mr. Delrahim said this made no sense "given recent legal decisions in the US" (besides FTC v. Qualcomm, he may also mean Continental v. Avanci in the Northern District of Texas). He also defended himself against some article that apparently said enforcement of SEP-related obligations "went to the wayside" under him.

Mr. Delrahim reinforced that message to the Biden (or Garland) DOJ by saying he "can't imagine" the DOJ would depart from his SEP policies "given the strength of the Ninth Circuit decision" in FTC v. Qualcomm. Admittedly, that decision gained weight when the Ninth Circuit declined to hold a rehearing en banc and the FTC didn't file a petition for writ of certiorari (request for Supreme Court review). Those circumstances make the decision stronger within that circuit, which is the economically most important one, but do not make it broader, nor does FTC v. Qualcomm become binding precedent on a nationwide basis.

The final message to his future successor was that "for an executive agency not to factor in [court rulings, particularly FTC v. Qualcomm] lacks the regulatory humility antitrust enforcers should have." This begs the question of whether Mr. Delrahim himself acted with "regulatory humility" as he filed countless amicus briefs, even in support of foreign-owned patent assertion entities...

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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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CJEU sets August deadline for observations from European Commission, EU member states and parties on standard-essential patent licensing questions in Nokia v. Daimler

In November 2020, the Dusseldorf Regional Court decided to refer to the Luxembourg-based Court of Justice of the European Union (CJEU) two sets of legal questions: one about the component-level licensing of standard-essential patents (SEPs) and another about the application of the Huawei v. ZTE SEP injunction framework. Nokia brought an interlocutory appeal, which was going nowhwere and ultimately withdrawn.

Another procedural milestone was reached on April 29. The CJEU provided translations of the preliminary reference to the European Commission, other EU institutions, the EU member states, the three non-EU member states of the European Economic Area (Iceland, Liechtenstein, Norway), and the parties and intervenors so they can file observations.

Under the court's procedural rules, the parties normally have two months plus an automatic 10-day extension "on account of distance" (which appears a bit anachronistic in the Digital Age, as it would almost be enough for service by stagecoach). Currently, due to the COVID-19 pandemic, there's an additional automatic extension by one month. All in all, this means the filings will be due on August 8 (a Sunday, so this may practically mean August 9).

Unlike in the United States, where a diversity of stakeholders may file amicus curiae briefs, the CJEU will accept submissions only from the types of entities listed further above. Therefore, companies who are not parties to or intervenors to this case must persuade governments to file observations supporting their positions.

Preliminary references by national courts must first be translated into the EU's official languages before the court can formally request observations. In November, I provided a heavily streamlined translation of the questions the Dusseldorf court submitted. I feel for the CJEU's translators, who couldn't just take those liberties. To give you an idea, there's one grammatical sense in the official English translation that spans 13 lines in printed form, "thanks" to an abundance of qualifiers and relative clauses.

Notwithstanding the practical advantages of my streamlined version, let me provide you with the CJEU's canonical translation . You can still read my translation first so you know upfront what they're trying to get to.

I'll follow up soon with further commentary and analysis (in future posts).

[OFFICIAL TRANSLATION]

A. Is there an obligation to license suppliers on a priority basis?

1. Can an undertaking at a downstream stage in the economic process rely on the plea of abuse of a dominant position within the meaning of Article 102 TFEU to dismiss a patent infringement action for a prohibitive injunction brought by the proprietor of a patent essential to a standard established by a standardisation body (‘SEP’) who has irrevocably undertaken to that body to grant a licence to any third party on FRAND terms, where the standard for which the patent at issue is essential, or parts thereof, are already implemented in an upstream product procured by the defendant in the patent infringement action, whose suppliers which are willing to obtain a licence are refused, by the patent proprietor, their own unrestricted licence for all [Or. 4] types of use relevant under patent law on FRAND terms in respect of products implementing the standard?

   (a) Is this the case in particular if it is customary practice in the relevant industry of the final product distributor for the intellectual property right situation in respect of the patents used by the supplier part to be clarified by way of licensing through the suppliers?

   (b) Is there licensing priority for suppliers at every stage of the supply chain or only for the supplier immediately upstream of the distributor of the final product at the end of the value chain? Do customary trading practices also play a decisive role in that regard?

2. Does the prohibition of abuse under antitrust law require that the supplier be granted its own, unrestricted licence for all types of use relevant under patent law on FRAND terms for products implementing the standard in the sense that the end distributors (and, where relevant, the upstream customers) in turn no longer require their own, separate licence from the SEP holder in order to avoid patent infringement in the case of use of the supplier part concerned in accordance with its intended purpose?

3. If Question 1 is answered in the affirmative [This is an ERROR in the official translation! It should be "in the negative" like in my translation]: Does Article 102 TFEU lay down specific qualitative, quantitative and/or other requirements for the criteria according to which the proprietor of a standard-essential patent decides the potential patent infringers at different levels of the same production and value chain against which it is to bring an action for a prohibitory injunction?

More precise clarification of the requirements established by the decision of the Court of Justice in the Huawei v ZTE case (judgment of 16 July 2015, C-170/13):

1. Irrespective of the fact that the [Or. 5] obligations to act (notice of infringement, licensing request, FRAND licence offer; licence offer to the supplier to be licensed on a priority basis) to be reciprocally complied with by the SEP holder and the SEP user must be discharged prior to any litigation, is it possible for obligations to act not fulfilled prior to any litigation to be discharged subsequently in the course of court proceedings in a manner that preserves the rights of the party concerned?

2. Can a meaningful licensing request by the patent user be assumed only if, on the basis of a comprehensive assessment of all the circumstances surrounding the matter, it is clearly and unequivocally apparent that the SEP user is willing and prepared to enter into a licensing agreement with the SEP holder on FRAND terms, irrespective of what form such FRAND terms (which, in the absence of a licence offer drawn up at that time, are not at all foreseeable yet) may take?

   (a) Is it generally the case that an infringer that remains silent on a notice of infringement for several months thereby indicates that it is not interested in obtaining a licence, such that – despite the existence of a licence request expressed orally – there is no such request, with the consequence that the SEP holder’s action for a prohibitory injunction must be allowed?

   (b) Can a lack of a licence request be inferred from licence terms presented by the SEP user by way of a counter-offer, with the result that the action for a prohibitory injunction brought by the SEP holder is subsequently allowed without first assessing whether the SEP holder’s own licence offer (which preceded the SEP user’s counter-offer) complies with FRAND terms in the first place?

   Is such an inference precluded in any event if the licence terms of the counter-offer from which a lack of a licence request is to be inferred are terms in respect of which it is neither manifestly apparent nor established at the highest judicial level that they are incompatible with FRAND terms? [Or. 6]

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Retired UK judge: ETSI FRAND pledge requires component-level licensing of cellular standard-essential patents

Today's IPKat/LSE Joint Event was entitled "The CJEU's billion-dollar questions -- who gets a SEP license and when should an injunction be granted?" One of Europe's most famous patent judges, recently-retired Lord Justice Sir Christopher Floyd, gave a clear answer to the first question: in his interpretation, ETSI's standard-essential patent (SEP) licensing pledge entitles every maker of equipment, including suppliers of components, to a license on FRAND terms.

That conclusion didn't surprise me. The ETSI agreement must be interpreted under French law, and at my Brussels conference on component-level SEP licensing in November 2019, French law professor Philippe Stoffel-Munck took the same position. What made the judge's position today particularly noteworthy is that he previously criticized the ETSI FRAND pledge for containing only about half the clarity that he'd like to see in it. He provide one example of such a shortcoming: the pledge doesn't specify in what forum any disputes over licensing terms should be resolved.

While some major cellular SEP holders--such as InterDigital, whose licensing chief Eeva Hakoranta also spoke today--argue that licensing at the end-product level is the standard in their industry, two industry representatives at today's webinar--though it's important to note they all expressed only their personal opinions--explained why component-level licensing is key to the ability of standardization to serve its purpose. Intel's IP policy chief Dr. Rebekka Porath mentioned that Intel, a member of approximately 300 standard-setting organizations, does grant SEP licenses at the component level. Last summer, a component-level SEP license deal between Huawei and Sharp became known (neither Huawei nor Sharp spoke today). Automotive supplier Continental's IP chief Dr. Roman Bonn explained the supply chain for connected cars, where cellular standards are implemented in the baseband chipset. What corroborates this view is what WilmerHale's patent and antitrust attorney Tim Syrett explained: he's litigated various SEP cases in the U.S. involving SEPs, and the infringement analysis always focused on the source code of the baseband chip. (This is a structural difference between SEP litigation in the U.S. and Germany; in the latter country, infringement allegations are typically based on the specification of a standard, not on what the accused products actually do.)

With respect to industry practice, SEP litigants, particularly Nokia, frequently point to the Avanci patent pool, which licenses end-product makers (and to the extent it has anything to offer to tier 1 suppliers, i.e. car makers' direct suppliers, that's not a full and exhaustive license). In today's IPKat/LSE webinar, Mrs. Hakaronta from InterDigital mentioned that 20 automotive brands had taken an Avanci license (while complaining in no uncertain terms about the attitude of other auto makers to SEP licensing, with a particular emphasis on Daimler).

The number of 20 (Avanci-licensee brands) is an overstatement because some of them have licenses that don't cover 4G (just up to 3G). Volkswagen's chief patent counsel Uwe Wiesner was among the speakers of yesterday's patent pools webinar, organized by the European Commission's DG GROW. His presentation quoted an October 2020 paper according to which "[t]he automakers that have taken a license represented approximately 12% of the total worldwide vehicle production in 2019." Volkswagen's high-volume brands apparently don't have a 4G license from Avanci.

Mr. Wiesner's Avanci "case study" painted anything but a rosy picture. He criticized Avanci's rule of licensing only car makers for not meeting the needs of potential customers. To put it differently, Mr. Wiesner didn't quite sound like a perfectly happy customer: at least it's fair to say he sees a lot of room for improvement, and isn't fully sold yet on Avanci's terms, despite being generally sympathetic to pools.

The Dusseldorf Regional Court's preliminary reference of access to component-level licenses to the European Court of Justice won't be decided in webinars. But such events shed light on the underlying facts and on industry realities. Plus, today a fomer high-profile judge took a crystal clear position on access to component-level SEP licenses based on the ETSI FRAND pledge.

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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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