Nokia's choice of software patents asserted against Daimler exposes pretext for refusing to license automotive suppliers

PaRR's EU antitrust reporter Khushita Vasant received information from two sources according to which a third round of mediation talks--after the first two, held in January and February, failed--might take place between Nokia and Daimler as well as many (though not all) of its suppliers of telematics control units (TCUs). Knowing how these things work, I guess the situation is now simply one in which the European Commission remains hesitant, for purely political reasons, to take action, and is playing for time, as is Nokia, whose patent portfolio is going down the tubes with every month that passes.

Commissioner Margrethe Vestager is even way tougher than her famous predecessor in office "Steelie Neelie" was when it comes to enforcement against U.S. companies, but (so far, so bad) soft as a jellyfish on Nokia. She and Nokia might just hope that the patent infringement ruling scheduled by the Munich I Regional Court for April 9, 2020 would scare Daimler into a settlement. It's hardly a coincidence that the rumored new round of mediation talks has the same target date...

Regardless of that latest disgraceful development, I was taking a closer look at Nokia's ten patents-in-suit against Daimler from the perspective of whether there is a scintilla of doubt about Nokia acting abusively by refusing to license Daimler's TCU suppliers. There is not.

As Daimler's lead counsel in the German infringement cases accurately noted last fall, cellular standard-essential patents (SEPs) cover techniques that are essentially embodied in the baseband chip. From a car maker's vantage point at the bottom of the supply chain, that's a tier 3 product, which gets incorporated into a (tier 2) network access device (NAD; one might also call this a connectivity module, which in turn resides in a TCU (tier 1). In other words, TCUs already contain a whole lot more hardware than is actually needed to exhaust the patentee's rights by licensing the upstream.

The European Commission employs an elite of public servants. There's no way the Commission's experts wouldn't have figured out during all of that time since Daimler's 2018 (!) complaint that Nokia's allegation of a TCU not actually practicing the standard is, euphemistically so as to avoid an analogy to bovine excrements, a pretext.

The Golden Rule of patent law: the name of the game is the claim. "Claim" in the sense of a patent claim, not a claim in terms of a (mis)representation.

The patent claims determine the scope of protection a patent enjoys. When looking at the claims of Nokia's patents-in-suit, and even when looking at the specifications (whose sole purpose in litigation is to help interpret the claims), it becomes clear that Nokia's patents don't cover end products such as a car (quite often, the Nokia-Daimler dispute is misleadingly referred to as a "connected vehicle" dispute, though none of Nokia's wireless SEPs have anything to do with what sets cars apart from phones).

In fact, seven (70%) out of Nokia's ten patents-in-suit against Daimler are even officially declared to be software patents (which the remaining three are as well, as I'll explain in a moment). That is so because they come with computer program claims--patent claims covering software without any hardware being required to infringe. As a former anti-software-patent campaigner, I'm particularly sensitive to this, and I believe the European Patent Office granted those claims in violation of the European Patent Convention, but they do come in handy now as they belie Nokia's anti-antitrust-enforcement narrative. You can find the claims toward the end of each patent specification, and I'll give an example of one program (in terms of software) claim per patent:

• claim 5 of EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission"

• claim 15 of EP2087626 on "additional modulation information signaling for high speed downlink packet access"

• claim 15 of EP2981103 on an "allocation of preamble sequences"

• claim 7 of EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources"

• claim 8 ("computer-readable storage medium comprising software instructions" is a computer program by any other name) of EP2145404 on a "method and apparatus for providing control chanels for broadcast and paging services"

• claim 31 of EP1929826 on an "apparatus, method and computer program product to request data rate increase based on ability to transmit at least one more selected data unit"

• claim 22 of EP2087629 on "a method of transmitting data within a telecommunications system"

The software that controls data transfers over a cellular model resides in a baseband chip. That's the mastermind of the whole operation. It determines what is sent out via the antenna, and it interprets what is received.

All ten of Nokia's patents-in-suit against Daimler could also be called "protocol patents": they describe how two ends of a wireless connection communicate--what A has to tell B to cause B to do something, or vice versa. It's like I say "hello, how are you?" and you respond "fine, how are you?"

That kind of communication is, of course, implemented in software (it already has been for a very long time).

There's nothing in those Nokia's patents that has to do with superior hardware. I ran full-text searches over the patent specifications, and looked closely at the device (or "apparatus") claims to identify any references to the types of hardware components that Nokia claims aren't part of TCUs:

• Eight (80%) out of the ten patents-in-suit contain not a single occurrence of at least one the following words: antenna, microphone, loudspeaker, power.

• EP'626 refers to "antenna weights" and mentions the presence of an electrical power source (without claiming to invent anything new relating to electrical power supply). The patent covers bits (zeroes or ones) that are sent and received, and the apparatus claims don't require any specific hardware but merely refer to "means for interpreting ... bit[s]" and "means for coding." That, too, is a typical software patent.

• DE'446 (the German equivalent of EP'234) only mentions "power" in the sense of "power control" as a numerical parameter. Here, again, it's instructive to look at the apparatus claims, which as opposed to claiming specific hardware relate to a "medium access control layer configured to encapsulate packets."

• The means-plus-function structure found in EP'626 and EP'234/DE'446 is also found in the other patents. Nokia's patent attorneys obviously optimized those claims for scope, and that's why they don't claim specific hardware elements such as an antenna, but instead focus on functionality. However, as long as there isn't a need for some very specific (and inventive!) hardware, but it merely suffices that something be around to do a certain job, the baseband chip as the controller of the data transfer operation is where the claimed inventive steps are implemented.

Those ten patents are the ones Nokia's litigators--among the very, very best in the industry--selected from the company's huge portfolio because they thought they'd be their strongest weapons. We could look at dozens or even at hundreds of additional cellular SEPs owned by Nokia or other companies, and the findings would be materially consistent with this sample of ten Nokia "star" patents.

It's time to get real. There's no justification for not licensing automotive suppliers, especially not under the CJEU's Huawei v. ZTE case law.

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Nokia on losing track in LTE-essential patent infringement case against Daimler in Mannheim and rumored to struggle in Munich case, too

Next Tuesday (January 21, 2020), the Mannheim Regional Court is scheduled to hold a trial in a Nokia v. Daimler case over EP2286629 on a "method and apparatus to link modulating and coding scheme to amount of resources." With mediation having practically failed (though the mediators might invite everyone to another meeting, it wouldn't be likely to yield a result), the assumption is still that the trial will go forward.

Nokia is going to lose that one in all likelihood. Presiding Judge Dr. Holger Kircher notified the parties and the numerous intervenors (various Daimler suppliers) that, on a preliminary basis, his panel has concluded the patent-in-suit is not essential to the 4G/LTE standard--neither on the basis of a literal infringement theory nor the German equivalent of the Doctrine of Equivalents (DoE).

Therefore, the court doesn't anticipate that FRAND/antitrust matters, the most important one of which is whether Daimler's suppliers are entitled to an exhaustive component-level SEP license from Nokia, would be reached in this case.

Another Nokia v. Daimler case in Mannheim was supposed to go to trial last month, and was postponed (because the parties had agreed on mediation) to March 27.

The next Nokia v. Daimler court clash after next week's trial (which in all likelihood will just result in the rejection of Nokia's complaint on the grounds of non-infringement) will take place in Munich on February 6 (see this list of trial dates). Rumor has it that Presiding Judge Dr. Matthias Zigann of the Munich I Regional Court's 7th Civil Chamber recently indicated that Nokia's royalty demands from Daimler are not FRAND-compliant, in which case Nokia would be denied injunctive relief even if the patent was deemed valid and infringed (as the court thought at an early first hearing last June). I don't know whether the court's preliminary assessment of non-compliance with the FRAND licensing obligation is purely numerical (the royalty Nokia is seeking on a per-car basis is way out of line, but I don't know whether that's where the court has a concern) or related to non-monetary terms.

Things are not going well for Nokia at the moment, but a reversal of fortunes is always a possibility in these types of disputes.

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

[HAPPY NEW YEAR -- AND BREAKING NEWS]

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

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

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

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

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

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

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

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

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

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

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

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

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BREAKING: Continental makes Nokia binding patent licensing offer ahead of EU antitrust mediation with Daimler, other suppliers

BREAKING NEWS

FOSS Patents has found out from unnamed but reliable sources that, just this week, German automotive supplier Continental has made a legally binding offer to Nokia for taking a license to its cellular standard-essential patent (SEP) portfolio. The offer forces the Finnish former mobile device maker to come clean on whether it genuinely intends to address and alleviate the competition concerns raised under EU antitrust law (Art. 102 TFEU) by Daimler and four of its suppliers (Continental, Valeo, Gemalto, BURY Technologies).

Nokia announced yesterday that Daimler and its tier 1 (= direct) suppliers agreed to mediation, which theoretically could put the highest-profile EU antitrust matter pending at the moment to rest. EU antitrust chief Margrethe Vestager, usually not one to shy away from decisive action, is oddly going to hold off until the outcome of the mediation effort will be reported to the European Commission's Directorate-General for Competition (DG COMP) by mid-February.

Under Continental's offer, if and when accepted by Nokia,

• Nokia would receive a per-unit patent royalty. Nokia would be free to choose between

  • accepting the (unknown) amount offered by Continental or

  • demanding more money, in which event a court of law would have to resolve this purely quantitative (as opposed to structural) dispute by setting a fair, reasonable and non-discriminatory (FRAND) rate.

• Continental would receive a component-level SEP license, which would be exhaustive (i.e., the downstream, such as Daimler, would fully benefit in terms of being licensed with respect to the implementation (= use) of the covered patents by Continental's telematics control units (TCUs). The proposed structure would also provide Continental with the operational freedom necessary to safeguard a functioning, competitive market for TCUs and the freedom of movement of goods (famously, one of the "Four Freedoms" of the bloc's Single Market).

Hypothetically, if Nokia offered the same deal structure to the other suppliers among the complainants, or if Nokia accepted offers of the same nature from other suppliers, the EU antitrust row would be resolved. Daimler, Continental, Valeo, Gemalto, and BURY Technologies could all withdraw their complaints, and Nokia's ten pending patent infringement cases in Germany against Daimler would be instantly mooted with respect to Daimler cars that don't come with cellular connectivity components from other suppliers. The aforementioned companies, and Nokia, could all mind their respective businesses again.

Should Nokia reject the proposed structure without simultaneously proposing a reasonably acceptable alternative capable of enabling competition and free movement of goods, its mediation offer would be exposed as a transparent attempt at stalling. While they probably won't listen to me, I would recommend to Daimler's suppliers to walk out in that scenario. Every second spent at the mediation table would be a waste of time.

As far as Daimler is concerned, the question is not whether they should walk out. It's why they participate in mediation in the first place. The dispute is not about whether Daimler can get a license. They can. Even Nokia doesn't dispute that. It's the suppliers, stupid.

Yesterday, Nokia won two court decisions unrelated to the merits of Continental's request for a license: Continental's U.S. FRAND/ antitrust case, which likewise aims to secure an exhaustive component-level license on FRAND terms, will be transferred from the Northern District of California to the Northern District of Texas, and Continental's ability to obtain a U.S. antisuit injunction against Nokia's German patent lawsuits against Daimler will be severely restricted to say the least, as the Munich appeals court affirmed an anti-antisuit injunction.

But neither a venue transfer nor an anti-antisuit injunction (no matter how spectacular the latter actually is) have the potential to answer the underlying question of access to component-level licenses. Earlier this decade, when some SEP holders abusively sought and enforced injunctive relief over SEPs, they argued that unwilling licensees were engaging in "holdout." Now there is a totally willing licensee--Continental--who has made every effort, up to the point of bringing a U.S. antitrust lawsuit, lodging an EU complaint, and now making Nokia an offer even though it's a SEP holder's obligation to make a first offer when requested. And there's a company that now risks being fined for an EU antitrust violation by being an unwilling licensor, unless Nokia departs from its prior refusal to grant the type of license requested.

The mediation effort will be farcical if Nokia continues to offer only insufficient (from a competition perspective) types of arrangements, such as "have made" rights that come down to extending a true license only to the car maker while hobbling component makers (who under such structure could not simply sell their components to any customer of their choosing).

Before mediation has even begun (the parties have just agreed to it), Nokia is already cornered. This week's offer is the best decision I've seen from Continental in this context to date. I've criticized some of their moves, I've disagreed with some of their arguments (in the U.S. litigation), but this is brilliant, provided that the European Commission is determined to protect innovation and competition.

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Avanci, Nokia win transfer of Continental's FRAND/antitrust case from San Jose to Dallas

The Avanci patent pool firm and its co-defendants--most notably, Nokia--never wanted Judge Lucy H. Koh of the United States District Court for the Northern District of California, famous for (among other high-profile cases) FTC v. Qualcomm, to adjudicate Continental Automotive Systems' FRAND/antitrust complaint. The first challenge they brought related to intra-district assignment. The N.D. of Cal. has multiple divisions, the two most important ones of which are San Jose (Judge Koh's location) and San Francisco. Avanci and Nokia (as well as some other, less significant defendants) asked for the case to be handled in San Francisco rather than San Jose, but that request was declined, and subsequently the case was assigned to Judge Koh.

The difference between San Jose and San Francisco is a one-hour drive under perfect conditions, though it's taken me up to four hours.

The defendants brought a motion to transfer venue in the summer--which has just been granted. They argued that the Northern District of Texas, where some Avanci U.S. entities are based, was the more convenient forum. In late August, Continental filed a very thoroughly-researched opposition brief. I thought it was great, and didn't expect a venue change. My predictions have a very high hit rate, but there were two weaknesses here that Judge Koh identified and one of which I couldn't have seen at the time while the other wasn't easy to spot:

• After that opposition brief that appeared strong, Continental filed its initial witness disclosures, and various players whose location would have favored the Northern District of California didn't appear on that list. Judge Koh did the only right thing to do, which was to ignore in the convenience context any witnesses Conti didn't even have on its list anymore. For example, Conti had pointed to the location of Apple witnesses, but ultimately named none.

• What has been a structural problem all along (especially in the antisuit context) is Conti's extremely compex corporate structure. In an amicus curiae brief recently filed with the Ninth Circuit in FTC v. Qualcomm, Conti explained how Michigan-based Continental Automotive Systems relates to the German group parent, and it's like a great-great-grandchild. When arguing its close connection to the Northern District of California, Conti discussed some operations there, but those are different corporate entities. Once again, the question is whether Conti's decision to have only Continental Automotive Systems (and not some other Conti entities as well, starting with the German group parent) sue Avanci and some Avanci members was a good one. It unnecessarily complicates any antisuit motion, and now it has also adversely impacted the opposition to Avanci and Nokia's venue transfer motion.

All things considered, Judge Koh found that the Northern District of Texas was the more convenient forum, especially for non-party witnesses (whose logistics are more relevant in this context than those of party witnesses, and where counsel is based doesn't matter). Also, the interest of a given district in resolving a case is generally highest where the alleged actions occurred, and that's Avanci's location in this case. Conti had pointed to Silicon Valley's stroing interest in SEP licenses for IoT businsses, and named various companies, but that was too thin for Judge Koh's taste. She might have afforded that argument some weight, but it would have had to be underpinned with some hard evidence, given that the issue is a global one as Conti itself had written at some point.

What's more important now than the basis on which Judge Koh exercised her discretion is what this means for the wider dispute:

• Texas is in the Fifth Circuit, and SEP antitrust law there isn't favorable, but that's irrelevant to the extent that Conti makes arguments under contract law.

• The Fifth Circuit isn't bad for Conti with respect to a possibly renewed motion for an antisuit injunction. I believe the Munich appeals court will overturn Nokia's German anti-antisuit injunction in a few hours, so Conti will then be free to try again. Generally, the Fifth, Seventh and Ninth Circuits--and some also say the First Circuit--are considered to be the most permissive circuits in the antisuit context. The Ninth would be preferable over the Fifth, but again, the Fifth isn't considered exceedingly restrictive.

• The bigger problem Conti faces with respect to an antisuit motion is that it will take some time before the new court is up to speed on the case and in a position to adjudge that kind of motion.

• While the Ninth Circuit's decision in FTC v. Qualcomm (the hearing will be held in February) isn't formally binding on a court in the Fifth Circuit, there will be some persuasive impact.

• Judge Koh didn't stay anything, so it's possible that even in Dallas a trial could take place in (late) 2021 (Judge Koh had scheduled it for October 2021).

• Nokia, which is suing Daimler over 10 SEPs in Germany, pretended to be constructive, though the only two outcomes of mediation by the International Chamber of Commerce as Daimler's surrender (which wouldn't help Conti and other suppliers) or simply no deal. But the European Commission won't launch formal investigations into Nokia's refusal to license component makers (though those components come with all the same hardware as phones, which Nokia does license, apart from a screen) in the meantime. And the Mannheim court postponed this week's trial to March, making it a possibility that the Munich I Regional Court will enter an injunction against Daimler before the Mannheim court might have taken a more favorable position on component-level licensing. So there have recently been setbacks for Conti on three fronts where it could have inched closer to an exhaustive component-level license: its EU antitrust complaint; its U.S. contract and antitrust case; and Mannheim (though that case was obviously brought by Nokia, it represented an opportunity for Conti).

• Here's what I would advise Conti to do in light of the current landscape and recent--not final but nevertheless hurtful--blows: Conti either has to push far harder and smarter (they have great lawyers in Germany, but the problems they face are 100% political, 0% legal) for getting Nokia investigated by the European Commission's Directorate-General for Competition (DG COMP) or if they don't want or don't know how to do that (Nokia certainly does play the game holistically, but Daimler and Conti are employing 19th-century methods against an agile, clever, no-holds-barred rival in the 21st century), they should bring a Dusseldorf lawsuit against Nokia as Huawei did. At this point they might even still get a Dusseldorf case merged for case management purposes (though technically retaining a separate case number) with Huawei's case.

Finally, here's Judge Koh's order, which is the end of the California road for this case:

19-12-11 Order Granting Ava... by Florian Mueller on Scribd

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

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

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

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

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

• Daimler surrenders. Or:

• No deal.

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

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

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

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

This maneuver helped Nokia in two ways:

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

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

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

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

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Nokia v. Daimler Mannheim trial postponed from tomorrow to March 2020: rare case in which postponement is bad for defendant

Tomorrow's Mannheim patent trial between Nokia and Daimler, with many suppliers intervening, has been postponed to March 17, 2020, as Judge Dr. Joachim Bock, the court's spokesman, confirmed to me today.

In most cases, pushing back a trial date is in the defendant's interest. What's obviously a different situation is when the "defendant" is actually a declaratory-judgment plaintiff and seeks to get a ruling in one jurisdiction in time to influence a decision in another (such as UK complaints designed to get German cases stayed). But this is the very first time in my observation for a postponement of a German patent infringement case to benefit the plaintiff, not the defendant.

[Update] Here's a statement from Nokia: "We continue to believe that constructive negotiation is the best way to resolve licensing disputes, and have offered independent mediation to Daimler and its tier 1 suppliers to that end. To ensure there is time for this mediation to be successful, we have unilaterally chosen to postpone the pending hearing on 10 December in Germany. We trust that Daimler and its tier 1 suppliers will now engage in these meaningful efforts to reach settlement. There is more to gain for all if we work together." [/Update]

As I'll explain further below, and in fact already explained last week, the question of whether or not Daimler's suppliers are entitled to an exhaustive component-level license on FRAND terms is not amenable to mediation.

I've seen a number of situations in which one party wanted the Mannheim court to stay a case--or postpone a ruling after a trial--but the court kept its schedule unless both parties stipulated to it. One case I remember particularly well involved Nokia and ViewSonic, with the latter saying that settlement talks were at an advanced stage (which is more than Nokia can say), so a ruling wasn't urgent. But Nokia disagreed, and the court handed down a decision.

Should anyone have recommended to Daimler to consent to a postponement of the Mannheim case in exchange for Nokia's zero-credibility settlement efforts, that firm would have given the German automotive company disastrously bad advice.

As I explained in the post I just linked to (on Nokia pretending to be prepared to settle), the Mannheim cases are actually an opportunity for Daimler and its suppliers to obtain positive clarification on the obligation to license component makers. It's a given that Dusseldorf will do so, but things take very long up there. It's also well-known by now that the Munich court, which incessantly cranks out injunctions (most recently against Facebook and its WhatsApp and Instagram subsidiaries), is so far not really interested in Daimler's suppliers' complaint that Nokia owes them a license. But Mannheim could send out a clear signal by siding with the Dusseldorf stance on upstream licenses, and that would make Munich an outlier (and possibly leads Munich to reconsider, or at least would bear weight with the Munich appeals court).

There was no good reason not to hold tomorrow's trial from the defendants and, especially, the intervenors' perspective. The parties could still have negotiated, which isn't going to lead anywhere unless Daimler surrenders. Nokia is not going to offer an exhaustive component-level license. If they wanted, they could do so anytime. You don't need to talk to the press (Reuters, for instance). You can just make a commitment. Any day of the week.

There is no news of Nokia having met Huawei's demand in an antitrust case pending in the Dusseldorf court: Huawei wants to enforce Nokia's obligation to make a licensing offer on FRAND terms.

Daimler's EU antitrust complaint against Nokia is more than one year old. The EU's automotive industry employs roughly 14 million people. Nokia's (and Ericsson's) refusal to license component makers is in clear violation of CJEU case law (Huawei v. ZTE, where the EU's top court stated clearly that everyone is entitled to a SEP license). It's a mystery why the European Commission still isn't formally investigating. Granted, they had some delays with the appointment of the new Commission, but even in a state of interregnum, the Commission's competition enforcement made progress in other areas.

According to Reuters's Foo Yun Chee, quoting an unnamed source, the Commission "indicated in October it could launch a probe." In order to avoid this, Nokia apparently decided to wave a fake white flag. They want to lay the foundation for finger-pointing at Daimler, claiming that Nokia wanted to settle but Daimler and its suppliers weren't constructive.

That game gets played all the time. But there's a right way and a wrong way to play it. The right way in a situation like this is to fully expose the other party's disingenuity as opposed to readily falling--even jumping--in a trap.

If Nokia indicated even over the media that they wanted to talk, Daimler could have said: "Let's talk." But Daimler should have insisted that the sequence of decisions in Germany would remain intact: Mannheim first, Munich second. (There's nothing anybody can do about Dusseldorf being much slower.)

I've seen a number of exchanges between parties' counsel in such situations. Such letters and emails often get attached to U.S. court filings. Microsoft played it very smart against Motorola. They responded in a way that ultimately forced Motorola to drop its mask. Microsoft never made a concession unless it was a great deal. Here, I can't see the great deal. It's a mistake to make it more likely, or even near-certain, that Munich will rule ahead of Mannheim.

The parties could have let the trial go forward, but could have asked the court not to rule unusually quickly. Judge Dr. Holger Kircher, the presiding judge of the Second Civil Chamber of the Mannheim Regional Court, is always in charge and doesn't allow his court to be used as a tool. But the parties could have asked him not to rule before, say, late January. That would have been the realistic time frame anyway (in light of the Holiday Season hiatus).

It's not in Daimler's interest to give the European Commission an excuse for not taking action for yet another month or more.

For an example, Daimler could have told Nokia that they're happy to talk, but there's a precondition: Nokia must recognize in writing the suppliers' entitlement to an exhaustive SEP license on FRAND terms. There's nothing to negotiate, arbitrate, or mediate about that one: it's a binary question.

Again, for an industry that employs almost three times as many people in Europe as Nokia's home country has inhabitants, or about as many as Finland (Nokia) and Sweden (Ericsson) combined, it shouldn't be hard to get such a set of legally and economically strong complaints investigated. They just relied on the wrong people, and maybe they hoped that some would be more helpful than they ultimately were, but in that case one has to keep searching for allies until there is momentum. By the way, I believe I haven't even read a single article on Daimler's EU complaint apart from this one on IT-specialized news website heise.de. If they don't even know how to draw attention to this in Germany, how can they expect swift and decisive action in Brussels?

The fact that the European Commission is dragging its feet isn't a reason to delay resolution of some important FRAND questions (especially access to licenses) in court. Much to the contrary, if the regulators don't help you, the courts are your only chance to solve the problem. Right now the only company that is pursuing a promising and convincing strategy against Nokia is Huawei with its Dusseldorf FRAND lawsuit.

If the automotive industry can't bring its economic weight to bear, it has no one to blame but itself.

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40 law and economics professors supporting FTC against Qualcomm's appeal contradict themselves just two pages apart

Last week, the Federal Trade Commission (FTC) filed its answering brief (prior coverage and commentary: 1, 2, 3) to Qualcomm's Ninth Circuit appeal of the agency's antitrust victory in the Northern District of California. This week, amicus curiae briefs in support of the FTC are due, with industry sources expecting a dozen or more submissions, and Professor Jorge Contreras (University of Utah) was first to file (this post continues below the document):

19-11-26 Jorge Contreras Acb by Florian Mueller on Scribd

Professor Contreras is not only a lawyer but also understands technology very well. He's cited all the time, including by some other amicus briefs that have meanwhile been filed in the same case. The first part of Professor Contreras's brief discusses what is also my #1 priority here: chipset-level licensing. After explaining the history of FRAND, which starts with competition law, and other legal aspects, Professor Contreras says that baseband chips are "highly complex" and "embody the principle technical features of the standard." That is, by the way, consistent with what Qualcomm's German outside counsel (then defending Daimler against Nokia) told the Munich I Regional Court last month. In the related footnote (#6), Professor Contreras notes:

"Moreover, it is not clear that a smartphone implements the entirety of the relevant standards either, as Qualcomm seems to argue, given that some functionality described in those standards is implemented in base stations and other central facilities."

At least one other amicus brief I've downloaded by now makes that point as well, and it's too important for a mere footnote. Those monetization-focused SEP holders who refuse to license component makers--Qualcomm, Nokia, Ericsson, and various trolls (though there's only a floating border between former handset makers and trolls)--come up with arbitrary and shifting-sand-style positions on what hardware components are needed in order to implement a standard. For an example, in its German infringement actions against Daimler, Nokia argues that only an end product--in that case, a car--implements a standard, but car makers purchase telematics control units (TCUs) that, in turn, come with connectivity modules (often called network access devices, or NADs), and the NADs actually are like a complete phone, just without a screen, and cars add absolutely nothing that is required to practice the standard.

Even if the debate is about chipsets used in smartphones (as in FTC v. Qualcomm), the phone is an arbitrary choice: as the footnote quoted above notes, only the combination of an entire network (with all its base stations) and the end-user devices would implement the standard if one followed Qualcomm's (or Nokia's or Ericsson's) logic. As a result, no company other than a Huawei or Samsung (which make base stations as well as end user devices) would be entitled to a cellular SEP license--or maybe telcos that operate networks and resell phones could obtain a license, too. Such a nonsensical result would be an invalid outcome that would make it impossible to give any remotely reasonable interpretation to FRAND licensing pledges.

The second part of Professor Contreras's amicus brief explains that Qualcomm's reference to its own past license agreements as a point of reference for determining reasonable (the "R" in "FRAND") royalties is "circular logic." Here, Professor Contreras cites to a publication by Professor Thomas Cotter (University of Minnesota and author of the highly recommended Comparative Patent Remedies blog): Reasonable Royalties, in Patent Remedies and Complex Products: Toward a Global Consensus.

In the third and final part, Professor Contreras takes aim at Qualcomm's "national security" argument. He provides examples of comparable companies that are doing well without Qualcomm-like misconduct:

"[B]ased on publicly-reported 2018 financial information, Intel achieved a profit margin of approximately 62% on net revenue of $70.8 billion, and Broadcom achieved a profit margin of approximately 52% on net revenue of $20.8 billion. [...] Qualcomm, by comparison, reported a profit margin of 55% on revenue of $22.7 billion."

Related to this--and also very interesting--is the comparison of R&D investments:

"In 2018, Intel invested $13.5 billion in R&D (19% of revenue) and Broadcom invested $3.7 billion in R&D (18% of revenue). [...] Qualcomm, by comparison, invested $5.6 billion in R&D (25% of revenue)."

The brief also shows that "Qualcomm is not the global leader in 5G standards or technology development, nor does the U.S. lead in this technology sector." Pointing to an IAM article by IPLytics founder Tim Pohlmann, a table is shown according to which Qualcomm is just #7 in the world in terms of 5G patent families held (with Intel, the only other U.S. company among the top 10, following closely, and those patents were acquired by Apple this summer).

Whatever the reason may be, Professor Contreras filed a separate brief from the one submitted by 40 (precisely twice as many as their colleagues who supported Qualcomm in August) law and economics professors (this post continues below the document):

19-11-27 Law & Econ Pro... by Florian Mueller on Scribd

The passage of the "40 profs" brief I like best is the one that explains the economic dynamics resulting from Qualcomm charging a patent royalty separately from selling its chipsets and making it harder for others to compete with them in the chipset business.

In connection with Qualcomm's "No License-No Chips" policy, the 40 professors address the Supreme Court's linkLine decision which said that a margin squeeze is not enough to prove an antitrust violation: instead you either need to show a duty to deal at the wholesale level or exclusionary conduct (predatory pricing) at the retail level. The FTC's explanations as to why linkLine is inapposite here are very strong, though it obviously doesn't hurt if amici address the same (critical) question, too.

Unfortunately, the O'Melveny & Myers and Hausfeld lawyers who represent the 40 professors made a mistake that the signatories--many of whom I know (a few of them I've even met) and respect, but all of whom are presumably extremely busy--didn't notice...

The brief first argues (on page 14 based on the numbering at the bottom of each page; or page 20 of the PDF) that Qualcomm can't engage in a price squeeze affecting chipset manufacturers because it doesn't license or assert patents against them:

"As to form, the input here is the license to Qualcomm’s SEPs, and the non-integrated competitors are the rival chipset manufacturers. Because Qualcomm refuses to license chipset manufacturers, it is not squeezing them with a higher license fee."

But then, only two pages later, comes footnote #14, which flatly contradicts that formalistic approach:

"Qualcomm argues that the [No License-No Chips] policy is not anticompetitive because the cost is not levied directly on the competing chipset makers. [...] But as demonstrated by the Microsoft "per processor" royalty cases, there is no requirement that a monopolist impose costs directly on its competitor. [...] What is significant is that the monopolist imposes a charge on the transaction involving the competitor." (emphasis added)

One mistake doesn't devalue an entire (otherwise very strong) amicus brief. I agree with the 40 professors that the FTC's win should be affirmed; I largely agree with their reasoning. And again, the professors themselves presumably just lacked the time to identify the flaw highlighted above before they signed. It changes nothing about my respect for all of them. While I do want Qualcomm to be required to license rival chipset makers and to stop its "No License-No Chips" policy, there are cases where Qualcomm is right and/or Qualcomm's adversaries are wrong. I commented favorably on parts of Qualcomm's motion to dismiss (2007), I criticized the methodology used by one of the FTC's experts, and I pointed out months ago that it isn't easy to "shoehorn" Qualcomm's refusal to license rival chipset makers into the Aspen Skiing pattern. Now I believe the professors' footnote #14 is right (yes, the focus should be on the economic effect of a charge as opposed to just form), but then Qualcomm, too, is entitled to the benefit of that approach in the linkLine context.

No matter how hard I try to find an element that reasonably sets one context apart from the other (the wider context is actually the same: No License-No Chips), I can't find one. Either one wants to argue that indirectly-imposed costs count, or one doesn't.

Expect more posts on FTC v. Qualcomm amicus briefs in the days ahead.

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FTC seeks to defend chip-level licensing part of Qualcomm antitrust ruling with right-for-the-wrong-reasons strategy

Late on Friday, the Federal Trade Commission (FTC) filed its answering brief to Qualcomm's appeal (this post continues below the document):

19-11-22 FTC Answering Brie... by Florian Mueller on Scribd

The part I'm most interested in--as always in this context--is chipset-level licensing. When I commented on Qualcomm's opening brief in the summer, I agreed with them in part. The problem with the Aspen Skiing (more recently endorsed in Trinko) logic applied by Judge Lucy H. Koh of the United States District Court for the Northern District of California is that the abandonment of a prior profitable and voluntary conduct is key--and in Qualcomm's case the problem is that they didn't really want to grant exhaustive licenses to rival chipset makers and only did so because they relied on an exhaustion theory that the Supreme Court disagreed with in Quanta. So at a minimum they can argue that they did not do knowingly and willingly what they did until the Quanta decision came out and they changed their licensing strategy.

Another--potential--problem with the Aspen Skiing logic is that the refusal to license rival chipset makers allows Qualcomm to collect more from end-product makers ("humongously more lucrative" as Qualcomm told the IRS), but there isn't a lot of time that passes between the two steps (refusal at chip level and collection at end-product level)--much less is it a strategy that works only by forcing someone else out of business in order to then turn a monopolist's profit (even with competitors around, it's more profitable).

In order to affirm the district court's ruling under the Aspen/Trinko standard, one would have to overcome some hurdles. The FTC apparently concludes it's smarter to lower the standard in order to prevail.

On pages 69 and 70, the FTC clearly spells it out. Just like at the stay stage, they're not going to try to defend Judge Koh's reasoning--but they do seek to defend the outcome:

"The FTC does not argue that Qualcomm had a duty to deal with its rivals under the Aspen/Trinko standard. But that heightened standard does not apply here, because—unlike the defendants in Aspen, Trinko, and the other duty-to-deal precedents on which it relies—Qualcomm entered into a voluntary contractual commitment to deal with its rivals as part of the SSO process, which is itself a derogation from normal market competition. And although the district court applied a different approach, this Court 'may affirm on any ground finding support in the record.' [...]"

So what does the FTC consider to be a better mouse trap?

They still appear to feel they're in a very strong position on contract law. Judge Koh's summary judgment that held Qualcomm to have a contractual obligation under its FRAND declarations to U.S. standard-setting organizations (ATIS and TIA) to license rival chipset makers is also under attack from Qualcomm (with a "more equal than others"-like argument), but it's going to be far harder for Qualcomm to get that one overturned. They couldn't even get it overturned directly--at most they could get a remand for the purpose of a trial where they could present extrinsic evidence, and even that is unlikely to happen because it's simply not necessary under California law when a contract is perfectly clear.

As for Qualcomm's "more equal than others" argument, the FTC's answering brief notes that "Qualcomm does not deny that it has received chip-level licenses from over 120 companies—including Ericsson," and recalls that Nokia, another amicus curiae supporting Qualcomm on this issue, once "argued to the European Commission 'that Qualcomm's termination of a modem chip license agreement' violated its 'duty to license on FRAND terms.'" (Ironically, Nokia itself is now the target of five automotive-industry complaints over a refusal to license component makers.)

The FTC is very likely to defend Judge Koh's sumamry judgment on contract interpretation. But that will not, in and of itself, result in an affirmance (for different reasons) of the finding that Qualcomm acted anticompetitively by refusing to license rival chipset makers. The FTC makes it clear that "[o]f course, a breach of contract, 'standing alone,' does not 'give rise to antitrust liability.'" But it can be a violation "when it satisfies traditional Section 2 standards--that is, only when it 'tends to impair the opportunities of rivals and either does not further competition on the merits or does so in an unnecessarily restrictive way.'" (citing to the Ninth Circuit's Cascade Health ruling, which does point to Aspen Skiing in that particular context, but without finding that the Aspen Skiing standard as a whole applied to Cascade Health)

Based on the record it's then not hard for the FTC to argue that the opportunities of Qualcomm's chipset rivals were impaired and that this behavior didn't advance competition on the merits. There's plenty of industry testimony to that effect.

In its efforts to avoid the Aspen/Trinko standard ("a generalized duty to deal with its rivals" as the FTC describes it), the FTC's brief distinguishes the cases because there was no equivalent of a voluntary FRAND licensing commitment in order to have one's inventions included in a standard in Aspen Skiing. The FTC argues that "the antitrust violation lies in the failure to act as agreed"--again, not just because a breach of contract would be an antitrust violation in all cases related to competition issues but because Qualcomm's FRAND commitments "are among the 'meaningful safeguards' that SSOs have adopted to mitigate this serious risk to competition":

"Courts have therefore recognized that conduct that breaches or otherwise 'side-steps' these safeguards is appropriately subject to conventional Sherman Act scrutiny, not the heightened Aspen/Trinko standard. Of particular relevance here, the Third Circuit held that a rival chipmaker had adequately alleged that Qualcomm itself violated Section 2 because it falsely promised an SSO that it would license its technology on FRAND terms, 'but then breached those agreements.' Broadcom [...]. The Third Circuit declined to apply the Aspen/Trinko test, emphasizing that the case 'd[id] not involve a refusal to deal.' [...] It would thus be inappropriate to apply the heightened Aspen/Trinko standard to a monopolist's exploitation of the SSO process to reinforce its anticompetitive conduct."

The FTC then points to a case in which the Ninth Circuit also "applied traditional antitrust standards to breaches of voluntary commitments made to mitigate antitrust concerns" (in that case, a merger remedy) and a similar approach in the District of New Jersey:

"In Mount Hood Stages, Inc. v. Greyhound Corp., [...] (9th Cir. 1977), this Court upheld a judgment holding that Greyhound violated Section 2 by refusing to interchange bus traffic with a competing bus line after voluntarily committing to do so in order to secure antitrust approval from the Interstate Commerce Commission for proposed acquisitions. [...[; see also, e.g., Biovail Corp. Int'l v. Hoechst Aktiengesellschaft, [...] (D.N.J. 1999) (breach of commitment to deal in violation of FTC merger consent decree exclusionary under Section 2).

What I like conceptually about the FTC's line of reasoning here is that FRAND commitments don't come out of nowhere: if the companies sitting at the standard-setting table didn't make those commitments, competition enforcers would have to take action against them at that stage, given that standard-setting is by definition exclusionary. The FRAND commitment is what enables the positive aspects of standardization, which no one would deny, to outweigh concerns over its potentially exclusionary effects--by making exclusion impossible (as long as each participant honors their FRAND pledge). Just like I called Greyhound's commitment in the Mount Hood Stages case a "merger remedy," the FRAND pledge a company makes to a standard-setting organization is a cartel remedy. Then, provided that non-compliance has anticompetitive effects, it constitutes an antitrust violation if the Ninth Circuit adopts the Third Circuit's application of the law.

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EU-based industry body outlines criteria for standard-essential patent pools to have positive impact on innovation

Earlier this month, the Brussels-based Fair Standards Alliance (FSA) announced (press release) a set of recommendations on standard-essential patent (SEP) pools (document). The primary conclusion is that patent pools can increase the efficiency of SEP licensing and, provided that the terms are FRAND (which, among other things, includes the availability of licenses to all levels of the supply chain), make a net-positive contribution to innovation, with a particular focus on the Internet of Things (IoT).

Let's start with terminology. The FSA's paper mostly uses the term "patent pool" and makes a few references, mostly when quoting other documents, to "licensing platforms." So what's the difference between a pool and a platform? A European Commission competition enforcement official explained how the 3G Patent Platform Partnership ("3G3P")--not to be confused for the 3G Project Partnership ("3GPP")--sets itself apart from a "patent pool":

1. the Platform [referring to 3G3P] is open to both licensors and licensees, whereas a patent pool consists only of licensors;

2. the licensors retain their freedom to license outside the Platform (non-exclusivity) and they do not assign patent rights to the Platform;

3. the patents are not bundled, i.e. no real pooling of patents occurs: instead licensees have the opportunity to pick and choose between patents and the licensing is carried out on a bilateral basis;

4. there is no single licence between a given licensee and the Platform, whereas in a patent pool a licensee typically has one licence agreement with the patent pool;

5. the Parties to a licence can choose between the Platform's Standard Licence and a negotiable individual licence.

The negotiability of individual licenses is presumably always a given unless a patent holder actually assigns (transfers) patents to a pool firm. Otherwise, companies would be reluctant to give up their right to enter into individual license agreements for various reasons, one of which is the ability to enter into full-portfolio cross-license agreements.

Avanci generally calls itself a platform, but on LinkedIn, Eric Stasik was surprised to see that even Avanci's lawyers, in the Continental v. Avanci et al. litigation in the Northern District of California, referred to their client as a "pool."

The FSA's paper on patent pools doesn't mention any particular pool, but the most controversial pool at the moment is Avanci: three of its contributors are suing Daimler in a total of 16 German patent infringement actions; Daimler and four suppliers have lodged antitrust compaints with the European Commission over Nokia's refusal to license component makers; Huawei is suing Nokia in Dusseldorf for the purpose of obtaining a component-level license; and Continental is doing the same in the Northern District of California.

Avanci arguably fails to meet the criteria the FSA summarized in its press release as follows:

• "[patent pools must be FRAND and at the very least] not discriminate against any entity that practices the standard and seeks a license;

• grant licenses on FRAND terms to those companies that want a license;

• ensure that royalty rates:

  • take into account the value of SEPs in the patent pool’s portfolio as part of the entire SEP landscape relevant to the standard;

  • reflect the value of the patented inventions included in the pool – and not the added value of standardization or innovations and features not covered by the SEPs.

• be transparent about license(s) offered by the pool ie publish information about the relevant SEPs and proposed licensing terms and conditions in a timely manner."

Avanci's license fees for cars ($15/unit) are supra-FRAND and that firm licenses only end-product makers (with some indirect effect of such a license on tier 1 suppliers, but not to the effect of actually licensing the suppliers on an exhaustive basis). While Avanci's agreements with its contributors apparently don't preclude them from entering into separate license agreements, Sharp apparently referred Daimler only to the availability of the Avanci pool license when bringing its German infringement actions.

At last week's Brussels conference, three small or medium-sized companies (AirTies, Kamstrup, and Nordic Semiconductor) explained their problems related to SEP licensing. Nordic's problem is that various SEP holders refuse to grant them exhaustive licenses, and AirTies and Kamstrup are companies that would benefit if they could either buy components that come with the SEP licenses they need or if they could--at least--obtain such a license from a pool.

The FSA's paper also says "[m]ultiple patent pools for a given standard may lead to duplicative royalty demands that do not take into account the aggregate royalty burden for a standard." The potential problem of royalty stacking is well-known (and even rampant). However, it may in some cases actually be better to have at least two types of pools--one with FRAND terms and one for the unreasonable ones among the licensors. Then competition enforcers--or parties that have the ability and the determination to challenge supra-FRAND demands--can focus on the unreasonable group. If there's only one pool for a standard, there is a risk of companies that would actually make more reasonable demands deciding to joina pool for convenience--even if it means they have to support license terms that go beyond what they would normally seek. Getting back to the Avanci example, it's not like all Avanci contributors are unreasonable licensors--but the convenience Avanci promises may have led some of them to join a pool that makes supra-FRAND demands.

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Short summary of November 12, 2019 Brussels conference on Component-Level SEP Licensing

This is the final part of a post-conference "trilogy." After publishing the slide decks used by seven panelists and an abstract of one presentation and reporting on the patent injunctions panel (with a particular focus on the German reform project) (where I just added the German-language version of Maurits Dolmans's slides), I'll now summarize the component-level licensing panels.

It's normally easier to report and comment on other people's conferences. What makes it equally easy in this case is simply that all the feedback I received was extremely favorable on the bottom line. There was one panel where maybe things appeared a bit repetitive during the last third or quarter to parts of the audience, but that was the only criticism I heard.

It was part of the plan to kick off the day in a way that would energize everyone. With Pat Treacy (Bristows), Paul Lugard (BakerBotts), Jay Jurata (Orrick, Herrington & Sutcliffe) and Professor Christian Donle (Preu Bohlig & Partner) I had four great lawyers--well-respected in the legal community including some of their adversaries--whom I was able to ask a few questions on component-level licensing and the royalty base. Like all other lawyers who spoke at my conference, they didn't express the views of any particular client (nor did Mrs. Treacy speak for the England & Wales High Court, on which she serves as a Deputy Judge).

The first question to them was about component makers' entitlement to a SEP license on FRAND terms under the antitrust laws. Mr. Jurata and Professor Donle explained their conclusion that it's necessary for competition to work. In those opening statements, Professor Donle made the funniest remark of the day when he said that SEPs are like railroad station toilets--not that nice, but you need to use them.

Mrs. Treacy and Mr. Lugard didn't rule out categorically that there might be circumstances under which there could be an antitrust case, but spoke out against the notion of a bright-line rule. Mrs. Treacy said that as a competition lawyer she'd like the idea of competition law being able to solve all of the world's problems, but doesn't view it that way. What she said came down to saying that an antitrust injury would need to be proven in a particular case, and otherwise contract law (FRAND declarations) might be the answer in some additional cases. Mr. Lugard used different terms to express a view that was materially consistent with this: to him, too, it's a case-by-case question. Mr. Lugard stressed the deference afforded to intellectual property rights in an antitrust context.

After the first round of statements, there appeared to be a sharp divide between Mrs. Treacy and Mr. Lugard on one side of the table (their seats hadn't been pre-assigned) and Mr. Jurata and Professor Donle on the other side. But as we went back and forth, it turned out they weren't worlds apart. All four panelists were extremely constructive, and I had the impression that one statement by Mr. Jurata--who in his introduction noted that his clients included licensors as well as licensees--was key to starting the partial "rapprochement".

The second panel addressed a fundamental question: access to licenses under contract laws. PacTechLaw's Dave Djavaherian made an initial presentation (with slides) before asking Professor Philippe Stoffel-Munck from Universite Paris I - Panthéon Sorbonne and Marc Hansen (Latham & Watkins) questions. Professor Stoffel-Munck explained contract interpretation principles under French law, which sounded familiar to California-based Mr. Djavaherian because they make universal sense. There was consensus on that panel that component makers are entitled to licenses under the ETSI FRAND declaration. (Needless to say some parties have presented expert testimony to the contrary in U.S. cases.)

The "experiences from the field" session with three medium-sized companies on the panel and Cisco's Ief Daems as the moderator addressed the issue of SEP licensing from an angle that should (and hopefully will) matter to policy makers. Metin Taskin (AirTies), Svein-Egil Nielsen (Nordic Semiconductor) and Rasmus Søby Dupont (Kamstrup) shared with us how difficult it is for companies their size to deal with patent licensing issues--and how much better things would be if all SEP holders licensed chipset makers.

One of them gave an example of 200 patents a troll wanted to license to them on the basis of those patents having been declared to be essential to the WiFi standard--but the company so approached could easily rule out for 180 (90%) of them that they were WiFi-essential. The claims were simply not closely related to the specification of the WiFi standard.

I wish someone could conduct a research project on the difficulties facing such companies in patent licensing. Apparently a lot of funding goes into efforts to get companies like that to file more patents of their own. But the unreasonable burden placed on them impedes innovation.

Professor Joachim Henkel (Technical University of Munich) presented the economics perspective on patent licensing in the IoT business. The advantages that component-level licensing offers over device-level licensing in his view are that royalties are directly tied to the implementation quality of patented technology (example: high-end vs. mid-tier or low-end baseband chip), the lower transaction cost, the fact that startups and small-volume device makers (which would include the panelists I just mentioned, though AirTies has sold tens of millions of devices and still struggles to deal with patent issues), and that all tiers of the supply chain are then licensed consistently.

In the second half of the conference, Mr. Jurata provided a quick overview of the FTC v. Qualcomm ruling by Judge Lucy H. Koh and the next procedural steps, followed by presentations by Eric Stasik (licensing practitioner's perspective on the fallout from that decision) and the Secretary-General of the Fair Standards Alliance, Evelina Kurgonaite, who applied EU statutes and case law to the facts in FTC v. Qualcomm based on Judge Koh's findings of fact and conclusions of law.

Mr. Stasik made it clear that he's not a lawyer, but he has extensive licensing experience (as a former Ericsson licensing director and, more recently, a consultant and expert witness). He's not of the opinion that component-level licensing is the answer, and he basically made the case against the case against Qualcomm. Mr. Stasik is a gifted speaker, and everyone could see his strong background in technology, standards, and licensing.

Mrs. Kurgonaite demonstrated that she's a competition lawyer, but also an articulate exponent of her organization's interpretation of FRAND. Assuming that the facts underlying an EU competition case would be the same as in FTC v. Qualcomm, Mrs. Kurgonaite concluded that such behavior would also be deemed anticompetitive in Europe.

At some point Mrs. Kurgonaite made reference to something Mr. Stasik had said before (and disagreed), but then came a point when Mr. Stasik agreed with her on an important part of her analysis, prompting Mr. Jurata to say: "Who says we can't find consensus."

It had been my goal to bring together panelists representing a diversity of views. What complicated that effort is the fact that companies who just don't want to engage in component-level licensing turned me down when I invited themn. But we still had some lively debate (not on each panel, but on multiple occasions).

Intel's director of IP policy in the EU, Dr. Rebekka Porath, moderated a panel on some antitrust complaints over component-level licensing. Professor Rafal Sikorski (Adam Mickiewicz University) gave an overview that went back to the first antitrust cases in the U.S. about 100 years ago were (F)RAND was established as a principle. His cross-jurisdictional knowledge is impressive, and since SEP cases are generally not litigated in Poland for practical reasons, he's neutral, though it appeared to me that his views on FRAND weren't far from my own. After Professor Sikorski's presentation, I filled in for Kent Baker of u-blox, who wasn't able to travel that week, to give a quick overview of the Continental v. Avanci et al. case pending in the Northern District of California. (As we were running behind schedule, I requested to hold a vote, but there was a lot of interest in that part, too, and maybe that's because Continental is also among the five companies who complained to the European Commission's Directorate-General for Competition over Nokia's refusal to license component makers.)

Thereafter, the bonus session on access to injunctive relief (which I covered a couple of days ago) took place.

I wish to thank once again all moderators and panelists, and a wonderful audience.

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Slide decks from Brussels conference on Component-Level SEP Licensing (November 12, 2019)

During and after the Brussels conference on Component-Level SEP Licensing that I organized on Tuesday, I've received various requests for the panelists' slide decks. Fortunately, all the speakers who used slides have provided them to me by now and authorized their publication.

I'll also do a follow-up in the form of a summary (with some soundbites).

Now, let me provide links to the slide decks in the chronological order of the presentations:

• Dave Djavaherian, PacTechLaw: Access to FRAND Licenses Under the Contract Laws

• Professor Joachim Henkel, Technical University of Munich: Patent royalties in the IoT industry: an economics perspective

• Eric Stasik, Avvika: Component-Level Licensing -- Licensing practitioner's perspective on fallout from FTC v. Qualcomm ruling

• Evelina Kurgonaite, Fair Standards Alliance: Could Judge Koh's reasoning be adopted under Art. 102 TFUE?

• Professor Rafal Sikorski, Adam Mickiewicz University and SMM Legal: Antitrust complaints over SEP licensing

• I filled in for Kent Baker (who couldn't travel that week) to provide a quick outline of the Continental v. Avanci et al. case in the Northern District of California

• Bram Nijhof, Taylor Wessing: Abstract on the evolution of national case law on SEP injunctions since Huawei v. ZTE

• Maurits Dolmans, Cleary Gottlieb Steen & Hamilton: The proportionality requirement under the EU enforcement directive (with certain references to the German injunction reform debate)

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