Two more weeks until the single most important court ruling in the (short) history of the IoT industry: component-level SEP licensing

Originally, the Dusseldorf Regional Court had scheduled its Nokia v. Daimler ruling (with implications for a spin-off from that case, the Huawei v. Nokia case that resulted from the severance of Huawei's third-party counterclaims) for today. But for court-internal reasons, the ruling date has been pushed back by two weeks.

The Internet of Things industry should pay close attention on November 26, 2020. No judicial decision to date has been of comparable importance to the "I" in "IoT."

There's no IoT without an Internet connection. Apart from a small subset of IoT devices that will be just fine with a BlueTooth connection, some kind of WiFi or cellular (such as 4G/LTE) connectivity is a hard requirement. That's where you have to deal with thousands of allegedly standard-essential patents (SEPs)--a challenge even for large and sophisticated organizations, and nothing short of a nightmare for small and medium-sized IoT companies, especially startups.

At a Brussels conference I organized about a year ago, young and innovative IoT companies like AirTies (from Turkey) and Kamstrup (from Denmark) discussed the problem of SEP licensing from their perspective. The problem they face is that SEP holders (particularly trolls, of which are many--and they get fed with patents by the likes of Nokia and Ericsson) are at least as unwilling to extend exhaustive component-level SEP licenses to the IoT industry's suppliers as they are in the automotive context. Their calculus is always that they can maximize their leverage by going after end-product makers, such as companies that produce smart meters (such as Kamstrup). They make outrageous demands, sometimes listing dozens or even hundreds of patents that one can relatively easily identify as being technologically unrelated to the standard they claim they're essential to.

A defendant like Daimler can afford to be defended by a world-class litigation like Quinn Emanuel--and nevertheless got hit by four SEP injunctions just over these past few months. The average IoT company can only dream of hiring QE, and will find it hard to pay even for the initial analysis (not even in-depth!) of claim charts. Actually, they might not even be provided with claim charts as the Federal Court of Justice of Germany abolished that requirement this year in Sisvel v. Haier (contrary to how the Court of Justice of the EU's Huawei v. ZTE guidance should be applied)...

It's simply a fact that IoT startups can't handle SEP licensing themselves, so their suppliers (such as baseband chipset makers) must do the job and then provide a fully-licensed product. That's what patent exhaustion is all about.

The Dusseldorf court's widely expected referral to the CJEU of key legal questions related to component-level SEP licensing can be a game changer to the benefit of the IoT industry. It doesn't matter that Nokia v. Daimler is an automotive case. While it's not incorrect to refer to that kind of dispute as a "connected vehicle case," Nokia's SEPs aren't specific to self-driving cars or collision prevention. It's basic wireless communications technology. The legal questions are the same, but the problem is an even more pressing one for the IoT sector.

I've quickly drawn up a couple of charts to explain how the IoT industry's SEP licensing problems relate to those of the automotive sector. This is particularly important with a view to a Berlin roundtable next week to discuss a Qualcomm proposal that I believe neither the European Commission nor the German government can support without throwing IoT under the bus.

In a nutshell, Qualcomm, Nokia, and other SEP holders pursuing similar licensing tactics would still prefer to license their patents only at the end-product level (i.e., to Daimler, Volkswagen etc.), but not least with a view to the Dusseldorf court's upcoming referral to the CJEU they're now talking about tier 1: the automotive industry's direct suppliers. Telematics control units (TCUs) are tier 1 products from the automotive industry's perspective (the higher the number, the higher up in the supply chain). TCUs contain network access devices (NADs; tier 2), and those rely on a baseband chipset (tier 3). Here's the "nesting" of one product inside another as a simple chart (click on the image to enlarge; thist post continues below the image):

Baseband chipsets are relevant to the automotive industry just like they are to IoT products with cellular connectivity. At the level of the NAD (automotive tier 2), however, there's already some differentiation: NADs designed to be used in cars come with certain automotive-specific functionality that no IoT product needs. And TCUs are definitely just an automotive thing. It wouldn't be an economical choice to incorporate TCUs into non-automotive IoT products, and it would be a waste of space (on top of money).

This second chart shows three scenarios: two types of IoT products (with and without NADs, but again, NADs for IoT are not the same as NADs for cars), and the automotive supply chain (click on the image to enlarge; this post continues below the image):

For the reasons explained further above, end-product licensing is absolutely not a viable option for small and medium-sized IoT companies. And as the above chart shows, TCU-level licensing (tier 1) as proposed by Nokia this fall and, as I mentioned, by Qualcomm wouldn't work either. At a minimum, licenses would have to be available at the NAD level, and then the royalty would have to be commensurate with what a patented invention adds to the commercial value of that component as opposed to that of the end product.

If the top EU court holds that all levels of the supply chain are entitled to an exhaustive component-level license on FRAND terms, the problem will be solved for IoT, at least in the European market with potential repercussions around the globe.

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Don't blame EU competition chief Margrethe Vestager if SAP customers' antitrust complaints are fundamentally flawed, get copyright law wrong

You'd be hard-pressed to find anyone less SAP-friendly than me, given that I harshly criticized the German enterprise software maker (just the week before last) for botching--together with Google and Daimler--the German patent injunction reform and even called Microsoft, BMW, and Deutsche Telekom "lemmings" for following SAP's lead. The last occasion on which I collaborated with SAP was over a decade ago when we were co-complainants against Oracle's acquisition of Sun Microsystems--and the individuals I worked with at the time have meanwhile retired. Also, SAP is absolutely irrelevant to my business as a game app maker (I finally submitted a beta version to Apple on Thursday for TestFlight approval, and we'll submit our Android version to Google this week).

But I am interested in reasonable and balanced competition enforcement. While I

• dislike the notion of EU Commission vice president Margrethe Vestager being in charge of both the EU's antitrust watchdog and digital industry policy (a result of precisely the kind of backroom horse trading the EU is notorious for),

• believe some recent EU competition decisions against U.S. respondents lack merit (in one of those cases, the EU General Court recently agreed with me), and

• have been criticizing the Commission's reluctance to take action against Nokia,

it's overly simplistic and sometimes just propagandistic to cry wolf over protectionism each and every time Mrs. Vestager and the Directorate-General for Competition (DG COMP) investigate a U.S. company or fail to take action against a European industry player. It depends. Sometimes it's actually true, such as in the Nokia case, though the politician to blame for inaction in that context is EU fake news commissioner Thierry Breton. But there are cases in which it's not the real issue, and I see some initial indications of a strong case against the case against my non-friends at SAP.

Politico--to be clear, I'm not attacking that publication--reported on allegations (also found elsewhere) that Mrs. Vestager had a conflict of interest with respect to SAP. This is different from the situation in October 2019, when I actually disagreed with the focus and message of a Politico article on the automotive component-level standard-essential patent (SEP) licensing issues involving Nokia and, by short extension, Ericsson. A few weeks later I met Politico's Thibault Larger in Brussels and we understood each other's positions quite well; I also apologized should my post have appeared to insinuate anything improper or unreasonable on Politico's side.

At the heart of those complaints against SAP--one was lodged with the Bundeskartellamt (Federal Cartel Office) in 2018, and another with DG COMP--is some customers' disagreement with SAP's policy that it charges for how its software is used, which often involves third-party applications. The complainants--a group named VOICE including the likes of Siemens and Volkswagen--argue that the 2009 EU directive on the legal protection of computer programs (summary) protects interoperability to the extent that SAP couldn't do that. With my combined IP and antitrust background, I can't help but find that argument not only spurious but downright nonsensical.

What the directive in question actually refers to is the decompilation (a step that is typically at the beginning of a reverse-engineering effort) of program code. If a certain set of conditions are met, the right holder's ability to enforce copyright may be limited for interoperability's sake.

There's no such theory in Europe as copyright misuse, which is a very American concept. SAP is free to define the terms of its copyright licenses, even if those terms make whatever reference to third-party products--unless there's an antitrust violation, and the aforementioned directive explicitly says that it's not meant to restrict competition enforcement. At the same time, I can't find anything in that directive that would lower the hurdle for establishing an antitrust violation, contrary to what the complainants say.

They acknowledge that there are alternative Enterprise Resource Planning (ERP) offerings by world-class vendors such as Microsoft (way bigger than SAP, not in the ERP market, but genrally speaking) and Oracle (whose relational database management system powers most SAP installations). But they argue there's a lock-in (it's too costly to switch), and that the others are just as bad. So what do they want to make? A collective-dominance case? It's not clear from what they say publicly.

About ten years ago, I raised concerns over many customers' lock-in into IBM's mainframe technology. But here, it does appear that there are successful migration case studies. All that the VOICE group alleges is that switching costs are so high "that no [chief information officer] would survive" such a decision. What's different from the IBM mainframe case (in which the EU, by the way, ultimately did nothing) is that SAP isn't really doing anything that would make it harder for Oracle or Microsoft to compete in the ERP market--at least I can't find any such allegations on VOICE's part.

Pollitico quotes anti-SAP blogger Shaun Snapp as saying that the general counsel of a typical SAP customer has "no clue" about the exact meaning of the terms of a software license agreement. I don't think antitrust law is meant to make up for the shortcomings of in-house legal departments.

Another argument from the same source comes down to making the exploitation of a lack of sophistication a violation of competition law: SAP offers combination discounts, and according to Mr. Snapp, the average SAP customer's "procurement team [which chooses the vendor] only cares about getting the price down."

I'd have to find out more about the complaints to be able to comment on market definition and the allegations of abusive conduct in more detail. But what they've made public so far is pathetic.

I do wish to stress that copyright is far narrower in scope than patents, so it's simply not like the way SAP factors the use of third-party products in when determining a license fee could in any way be compared to, say, SEP abuse by Nokia and its partners in crime. What Nokia does has very negative implications for automotive suppliers and their direct and indirect customers all the way down to consumers--and those who will likely suffer the most, though they're far smaller and therefore in a weaker position, are all those Internet of Things startups that face shakedown after shakedown from SEP holders. But that's because patents are broad, and a SEP doesn't even have to be broad: just by virtue of being essential to a standard, it can keep someone out of a market (if an injunction gets enforced).

I'm not saying that no one could ever violate the antitrust laws through copyright assertions, but it's like 1,000 or 10,000 times harder to do on that basis than with patents, especially with standard-essential patents, and the allegations those SAP customers make in public fall far short of persuading me that SAP needs to be investigated by the European Commission or the Federal Cartel Office of Germany. I may comment on this again on some other occasion.

In the automotive SEP licensing context, Mrs. Vestager need not feel any conflict of interests: on the bottom line, the digitization of Europe's economy would benefit from component-level licensing, not only with a view to the automotive sector but also considering IoT, so even if it had to happen over Mr. Breton's objection, the Commission should take action, which is overdue now that the fourth SEP injunction has come down against Daimler since mid-August. In the SAP (by coincidence, a difference of just one letter vs. "SEP") context, it appears to me that there simply may not be a case to begin with. Rejecting those complaints is probably just a reasonable application of competition law, as opposed to an inhibition to go after a "European champion."

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Fourth patent injunction against Daimler in 11 weeks as Munich I Regional Court sides with Nokia in 3G SEP infringement case

There's no Happy Halloween for Daimler and its counsel, and the reason is not even COVID.

The notorious patentee-friendliness of certain German courts is regrettable, and an increasing burden on the country's economy. But let there be no doubt about the fact that the patent litigation firm of Arnold & Ruess has done some first-rate work for Nokia against Daimler. Today the team led by Cordula Schumacher and Dr. Arno Risse ("Riße" in German) obtained its second injunction against Daimler as the Munich I Regional Court held the Mercedes maker to infringe German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets" (case no. 21 O 3891/19). The 21st Civil Chamber of the Munich court (Presiding Judge: Tobias Pichlmaier) had not indicated an inclination at the late-July trial.

On August 18, 2020, the Mannheim Regional Court found for Nokia in another standard-essential patent (SEP) infringement case against Daimler; that injunction hasn't been enforced and possibly never will be.

Several other Nokia v. Daimler cases have been put on hold over doubts concerning the validity of the patents-in-suit. Should any of those patents survive without being narrowed out of the scope of the specifications of the relevant cellular standard, they'll do even better.

Meanwhile, I'm wondering when Quinn Emanuel will get tired of losing. In the 11-week period between the aforementioned defeat in Mannheim and today's Munich ruling in Nokia's favor, Daimler and QE also lost two other cases as the Munich I Regional Court's 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann) granted Sharp an injunction against Daimler (which triggered a settlement, see 1, 2), as did the 21st Civil Chamber in a Conversant v. Daimler case just one week ago. That's four German SEP injunctions over the course of only two months and a half.

Daimler and QE could take comfort in the fact, however, that computer maker Lenovo also lost in Munich (against Nokia, but over a codec--not wireless--patent) on the first day of the month.

Three high-profile SEP injunctions (Nokia v. Lenovo, Conversant v. Daimler, and now Nokia v. Daimler) clearly make Munich by far the most attractive venue for plaintiffs, and the court is damn proud of that fact (as I noted in my report on the presentation of the results of a survey, I don't think the "evaluation" of the court's performance does the judges justice because their technical and legal competence is not an issue--only their pro-patentee application of the law is).

Just like in the Conversant case, but with far higher stakes (and so much more time and money having been spent on the Nokia dispute), Daimler now needs the appeals court to stay the enforcement of this injunction. The prerequisite collateral (for enforcement during the appellate proceedings) of little over $20 million is easily affordable to Nokia while the actual damage to Daimler would be in the billions of dollars per year. And as I noted in the Conversant context, Daimler could be roughly six weeks closer to a decision by the Munich appeals court that might set the record straight at least on the proper security amount, if not also on the application of the CJEU's Huawei v. ZTE case law, if not for Daimler's inexplicable decision to settle with Sharp in the summer.

This is now a race against the clock. We're only 13 days away from a highly likely referral of key component-level SEP licensing questions to the CJEU. The Dusseldorf Regional Court will announce its decision on November 12, and I'm extremely optimistic about what's going to happen there. But that referral doesn't automatically trigger a stay of all other cases. It may, however, bear substantial weight with the Munich Higher Regional Court. Additionally or alternatively, it would also help Daimler if the Munich appeals court simply set a reasonable security amount (i.e., in the billions of euros).

Almost two years ago, Daimler filed an EU antitrust complaint against Nokia that hasn't gone anywhere. Nokia has been able to count on support from the EU's internal market commissioner Thierry Breton even to the extent that he would spout total nonsense. But Daimler is apparently such an old-fashioned, poorly-run company that they don't even know how to press an antitrust case in Brussels. I've seen antitrust amateurs who are better at this game than them, any day of the week.

Daimler is also one of the three companies responsible for the most stupid strategic misstep in the ongoing German patent reform process, so they'll have no one to blame but their own incompetence for the German patent injunction problem probably not getting solved anytime soon. In that context, one of their key competitors, BMW, made the mistake of joining them. That's another very old company that appears unfit for the Digital Economy. There are days when I feel very un-German. Today is definitely one of them. I don't think anyone can help certain companies. They're losers and they don't even realize to what extent that is their own fault.

If I find anything in the court's written decision, which will be handed down early next week, that sets this case apart from the Conversant case, I'll write about it. But the outcome suggests the issues were just the same, except that Nokia, unlike Conversant (and previously Sharp), hasn't granted an exhaustive component-level SEP license to Huawei.

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Huawei and patent troll Conversant settle patent dispute, automotive downstream stands to benefit from component-level agreement

On Friday, the Landgericht München I (Munich I Regional Court) entered a final (though appealable) judgment in a Conversant v. Daimler standard-essential patent (SEP) infringement case in which Conversant was asserting a former Nokia patent (or, to be precise, a derivative of a former Nokia patent). I've meanwhile obtained a copy of the ruling, and its final part (Section H) reveals that a settlement between Huawei--an indirect Daimler supplier--and the Nokia-fed patent troll has been reached.

The written decision says that on October 21, 2020 (just two days prior to the ruling date), defendant Daimler and intervenor Huawei (referred to as "intervenor no. 8") brought parallel motions asking the court to postpone the decision by two weeks in light of an agreement between Huawei and Conversant. The court denied these motions because Daimler's and Huawei's representations didn't go into sufficient legal detail, and because the settlement agreement comes with conditions precedent that weren't specified (Daimler, in fact, requested the court to ensure that the agreement would enter the record). Furthermore, the court notes that just one day prior to that motion, Huawei had filed a pleading according to which it denied having received a licensing offer from Conversant.

In most if not all German SEP cases against Daimler, Huawei intervened in its capacity as a tier 2 (indirect) supplier. Huawei makes network access devices (NADs), or connectivity modules, which some of Daimler's tier 1 (= direct) suppliers such as Continental and Samsung subsidiary Harman incorporate into the telematics control units (TCUs) they sell to the Mercedes maker. Effectively, cellular SEPs are implemented by the baseband chip (tier 3), so if a tier 3 or tier 2 supplier is licensed, so are the tier 1 supplier (TCU maker) and, by ultimate extension, Daimler.

In July, court filings in several Sharp v. Daimler cases pending before the Mannheim and Munich courts revealed a component-level SEP license deal between Huawei and Sharp. At a trial later that month it turned out that this agreement, through patent exhaustion, resolved approximatly 86% of what was at stake between Sharp and Daimler, thereby greatly reducing the impact of the injunction the Munich court handed down last month. To my dismay, Daimler didn't pursue its appeal, a decision that will cost far more in the long run than it would have cost to at least let the appeals court adjudicate Daimler's motion for an enforcement stay. We'll see in the weeks ahead whether Daimler will settle with Conversant as well--or do the right thing and fight on.

It appears that Huawei's deal with Conversant is structurally similar to the agreement with Sharp. Otherwise there wouldn't have been any basis for requesting a postponement of the decision. Therefore, this agreement is further validation of the concept of exhaustive component-level SEP licensing, and undermines the Avanci pool's end-product-only licensing policy. Conversant is another Avanci member that has now entered into a direct SEP license agreement, bypassing the pool.

Qualcomm is lobbying the European Commission--the #1 enemy of Europe's automotive industry in the SEP licensing context--and the German federal government (which could accidentally become an enemy of its automotive industry in this context as a result of some decision makers' cluelessness) with a proposal to grant licenses, on terms that would not allow those suppliers to be economically viable anyway, at the TCU (tier 1) level. But with every deal like Sharp-Huawei and Conversant-Huawei, it becomes clearer that higher levels of the supply chain must be considered as well, and may even represent the point of maximum licensing efficiency.

I'd like to share more information from the Conversant v. Daimler judgment. For only a relatively small and old portfolio, Conversant wanted 75 cents (US) per car. In my trial report I had written €0.75, but the ruling says US$0.75. Daimler's counteroffer amounted to $0.01 per connected vehicle implementing 4G/LTE, and fractions therefore for vehicles implementing only 3G, only 2G, or only emergency calls.

In Section G (right before the part that addresses the requests to postpone the ruling date), the court discusses how it arrived at the insanely low security amount of 5 million euros. Conversant can enforce the injunction during the appellate proceedings by making a deposit or posting a bond. The amount is meant to guarantee that Daimler can be made whole should Conversant ultimately lose the case, in which event Daimler would be entitled to recovery of wrongful-enforcement damages. One doesn't have to be an automotive industry expert to see that the damage of blocking Daimler's German sales (which could even impact many exports from Germany to other countries) would exceed that amount by a factor of not 10 or 100, but roughly 1,000. The ruling notes that Daimler built well over a million cars in Germany in 2018, and a similar volume would be impacted now. That's why the Mannheim court required collateral to the tune of €7 billion in a Nokia v. Daimler case.

The Munich court bases its collateral determination--as it has recently done on various occasions, apparently also including a Nokia v. Lenovo case--on Daimler's duty to mitigate damages. In a nutshell, the court's "theory" (in quotes because it makes mockery of the word) is that Daimler doesn't have to halt production and sales--it could take a license. That, however, would moot the case, thereby depriving Daimler of its right to appeal and defeating the very purpose of collateral for enforcement during an appeal. It's utterly nonsensical.

That approach to security amounts should be reviewed by the appeals court as soon as possible. It already might have been corrected if Daimler hadn't settled with Sharp.

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Conversant wins Germany-wide standard-essential patent injunction against Daimler in Munich: third court loss for Daimler in as many months

Today the 21st Civil Chamber of the Landgericht München I (Munich I Regional Court) granted Conversant Wireless, a notorious standard-essential patent (SEP) troll, a Germany-wide injunction against Daimler over EP2934050 on an "apparatus and method for providing a connection" (a divisional of a patent Nokia once gave to Conversant).

While Daimler will presumably appeal, the injunction is immediately enforceable--absent an enforcement stay that the appeals court might order--if Conversant posts a bond or makes a deposit of a negligible amount. The Munich court bases the amount of the prequisite collateral not on the economic damage resulting from enforcement, but on the SEP holder's royalty demand. In a parallel case, Nokia is now enforcing a SEP injunction on that basis against computer maker Lenovo.

In the EP'050 case, Daimler had conceded essentiality, but disputed the validity of the patent-in-suit. Let me refer you to my report on the September 23 trial. Daimler's FRAND defense was futile because the Munich court turns the CJEU's Huawei v. ZTE on its head by focusing on the implementer's counteroffer and typically never reaching the SEP holder's licensing offer, apart from a less than cursory look. And the court believes that this follows from the Federal Court of Justice's recent Sisvel v. Haier decision, which dealt (among other things) with the question of whether an implementer was a willing licensee.

This is already the third German SEP injunction against the Mercedes maker in as many months:

• On August 18, the Mannheim Regional Court granted Nokia a Germany-wide injunction against Daimler. However, Nokia would have had to provide security to the tune of €7 billion, which it couldn't afford, and at any rate, the injunction isn't being enforced because the appeals court (the Karlsruhe Higher Regional Court) wasn't going to let that happen while weighing Daimler's motion for an enforcement stay.

  By the way, Nokia might also win a Munich injunction--then practically without a requirement to provide security--against Daimler in a week from today.

• On September 10, the Munich I Regional Court's Seventh Civil Chamber granted Sharp an injunction against Daimler, and determined only a negligible security amount. Daimler appealed and requested an enforcement stay, but caved and took a license from Sharp. That decision will cost Daimler dearly. And it already has a negative effect on the Conversant dispute: had Daimler actually pursued its appeal and its motion for an enforcement stay, the Munich appeals court would already have had an opportunity to correct the lower court's Huawei v. ZTE misapplication and its approach to setting the amount of the collateral required for immediate enforcement. Those legal questions are now the same in the Conversant case, so the appeals court could have addressed those questions roughly six weeks earlier (October 23 vs. September 10)...

One of the key legal issues here is the right of component makers to a SEP license on FRAND terms. With the Dusseldorf Regional Court still being very likely (irrespectively of a Qualcomm initiative) to refer a set of component-level licensing questions to the Court of Justice of the EU on November 12, the Munich appeals court might be reluctant to let Conversant enforce its injunction against Daimler on a basis that the top EU court might later find to contravene EU competition law.

The fact that Conversant has now joined Nokia and Sharp in obtaining a Germany-wide Mercedes sales ban may have policy makers in Berlin concerned. The Federal Cabinet has patent reform on its agenda for next week. I haven't seen the draft injunction statute of the proposal they're probably going to adopt. So far, SEP injunctions weren't really the focus, but the pro-reform camp should raise the rapidly deteriorating situation on the SEP front with the Federal Parliament and try to have the bill amended so that proportionality considerations would apply to SEP cases on top of the antitrust-based FRAND defense.

In closing I'd just like to note that today's decision is yet another disgrace for the European Commission, which is totally responsible for what is going wrong in the automotive patent wars because of its regional protectionism favoring Nokia and Ericsson over Europe's automotive industry.

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Qualcomm proposes non-solution to automotive component-level patent licensing conflict: only courts can provide much-needed clarity now

For a long time, Qualcomm had kept a surprisingly low profile in the automotive patent wars. But it was always active behind the scenes. The San Diego-based chipmaker is a member of some of the same lobbying groups as Nokia and Ericsson. And more recently, Qualcomm has been lobbying the European Commission and the German government directly in order to garner support for an automotive standard-essential patent (SEP) licensing proposal that must be rejected all the way.

The exact political dynamics aren't clear, but it is disconcerting that Germany's Federal Ministry for Economic Affairs and Energy will host a closed-door workshop on November 17 to discuss Qualcomm's proposed memorandum of understanding (MOU). There is a possibility that the German government is simply doing a favor to the epitome of incompetence in the SEP policy context--EU internal market commissioner Thierry Breton, who wasn't his country's first choice for the job and recently made himself totally ridiculous by repeating himself like a broken record that European companies' leadership in 5G "is a fact" (when even the only report that ever said so has been corrected in that regard). It might also have helped Qualcomm that the ministry is advised by a (non-cellular) SEP troll--Fraunhofer--in the patent policy context. In any event, Germany's automotive industry is no match for Qualcomm when it comes to IP-related lobbying.

There are several structural issues with Qualcomm's proposed MOU. I'll just highlight the three that I consider to be the most fundamental flaws:

• Just like Nokia's recent and comparably deficient proposal, Qualcomm's proposed MOU would extend licenses only to tier 1 suppliers (which sell telematics control units (TCUs) to car makers), not to tier 2 (network access device, or connectivity module) and tier 3 (baseband chipset) suppliers. But the higher up you go, the more likely those companies are to hold cellular SEPs that enable them to cross-license with the likes of Qualcomm and Nokia.

• Another Qualcomm-Nokia parallel is that the proposed MOU wants an entire car to be the royalty base, as opposed to the smallest salable patent-practicing unit (SSPPU). That means Qualcomm and Nokia seek to overcharge. And it's economically prohibitive to TCU makers, given that those TCUs sell at not much more than what, for instance, the abusive Avanci pool tries to charge car makers for its patents (up to 4G and not even including 5G, which will be several times more expensive).

• Qualcomm is also attempting to derive non-monetary value from the MOU by having companies support its own self-serving (mis)interpretation of ETSI's FRAND policy (giving SEP holders the choice at what level of a supply chain they grant a license). Qualcomm would likely leverage that in its efforts to get the IEEE to revise its SEP policy.

Also, some of the leading 5G SEP holders are actually tier 2/3 automotive suppliers and therefore unlikely to be willing to accede to the MOU. That's just another reason for why this is a non-solution.

Qualcomm's initiative started earlier this year as far as I've been able to find out. At this point, however, part of the agenda appears to be that Qualcomm--just like Nokia--would like to dissuade the Dusseldorf Regional Court from referring to the top EU court a set of key legal questions concerning component-level access to SEP licenses. But Qualcomm's proposed MOU doesn't obviate the need to have questions clarified on which even some German courts (Mannheim/Munich and Dusseldorf) agree. The referral, which is still expected to happen on November 12, would resolve the question with respect to all levels of the supply chain. If anything, the fact that Qualcomm and Nokia are now trying to somehow distinguish tier 1 from tiers 2 and 3 underscores the need for judicial clarification.

My advice to the German automotive industry would be to decline to participate in the November 17 event as Qualcomm's proposed MOU is simply not a constructive contribution to the debate. Qualcomm has opposed component-level licensing for a long time because it's "humongously more lucrative" (as Qualcomm once told the IRS) to license only end-product makers.

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

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

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

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

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

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

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

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

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

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

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

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

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Shortsighted, unfit-for-digital-age Daimler management caves to Sharp, takes car-level standard-essential patent license instead of appealing injunction

Some antitrust cases have the potential to go all the way up to the highest court. Epic Games v. Apple is an example: while the district court in California has already scheduled a bench trial to start on May 3, 2021, the judge already told the parties she knows this would go up to the Ninth Circuit (at least).

But even when the strategic stakes are high, it takes two, and if one of them has incompetent decision-makers, a settlement may fall into place even while it would still have the chance to get a better outcome. Daimler is an example of a company of the past that is going down the tubes. Only a company that is run by third-rate bean counters (though first-rate cowards they may be), as opposed to bold and world-class visionaries, would cut its R&D spending by more than 20% over the next five years instead of doubling down on the triple transition the industry is facing (new propulsion techniques, autonomous driving, and digitization).

For whatever reason (lack of digital industry knowledge, conflict of interests, or desire to differentiate by swimming against the tide), Sanford Bernstein analysts have for a while been painting a rosier picture for Germany's leading car makers (and last year even speculated about Tesla going out of business!) than their colleagues at other firms. One of their analysts just gave an interview (in German) in which he seriously said German car makers would bridge the digital gap between them and Tesla by partnering with U.S. tech giants--as if that didn't mean that the most lucrative parts of the future automotive value chain, and the most important elements for differentiation, would belong to other companies than Daimler, BMW, or Volkswagen.

Now, today's news shows once again that Daimler's leadership is uncapable of figuring out how to succeed in the digital era:

Foxconn-owned Sharp announced a license deal with Daimler to settle the pending litigation campaign in Germany. Last year, Sharp filed five patent infringement cases in two German courts, partly over likely invalid patents, but on September 10, the Munich I Regional Court's Seventh Civil Chamber under Presiding Judge Dr. Matthias Zigann granted Sharp a Germany-wide patent injunction against Daimler, requiring only negligible collateral (a few million bucks). While Daimler said it would appeal--and presumably had meanwhile asked the appeals court to stay the enforcement of the injunction--, the lower court's ruling, which totally vitiated the FRAND defense to SEP cases under the CJEU's Huawei v. ZTE framework and ignored Daimler's suppliers' right to a component-level license under EU antitrust law, is not going to be reviewed anymore.

For 86% of Daimler's German sales, an exhaustive component-level license agreement between Sharp and Daimler's indirect supplier Huawei had actually mooted the whole matter. But the question was what Daimler was going to do in the face of the Munich injunction with respect to the remaining 14%. It's unclear whether they could technically have solved the problem by incorporating components supplied by Huawei into those vehicles--I guess they could have done so if they had really wanted to, but maybe some decision-makers at Daimler who failed to understand the wider strategic implications of this didn't want to make that logistical effort. However, with the Dusseldorf Regional Court being virtually certain to refer, as suggested by the Federal Cartel Office of Germany (Bundeskartellamt), a set of component-level standard-essential patent licensing questions to the Court of Justice of the EU, an enforcement stay would have been extremely helpful. After that referral it's going to be a whole new game, and especially the German appeals courts will have to tread carefully so as not to make a decision that the CJEU may shortly thereafter hold to be inconsistent with EU antitrust law.

Daimler had actually achieved what I call a microstay (a stay not for the duration of the entire appellate proceedings but for the time it takes the appeals court to weigh the motion for a stay) in a Mannheim case against Nokia. There, the appeals court strongly recommended to Nokia to commit to refrain from enforcing the injunction at this procedural juncture.

The price Daimler is paying now is not primarily whatever royalty Sharp may collect on (at the most) 14% of Daimler's cars. The real issue is that Daimler this way departed from its previously principled stance that SEP holders should extend exhaustive component-level licenses to Daimler's suppliers.

In other words, the fact that Daimler folded is going to be viewed by certain players as validating the model of car-level licensing. So what's the fallout then and what does this mean, going forward, with respect to other players and issues? In alphabetical order:

• Avanci: Sharp, just like Nokia, Ericsson, Qualcomm and many others, is a member of the abusive Avanci gang. While Avanci will probably welcome the aforementioned "validation" of the car-level nature of the license deal, the glass is half-empty because the deal bypasses Avanci--for the time being at least.

• Bundeskartellamt (Federal Cartel Office of Germany): The FCO had intervened in this dispute, and participated by videoconference in the trial after which the injunction came down. While the FCO may continue to content itself with filing amicus curiae briefs, it might also investigate Sharp's extortionate conduct here as it secured a car-level license at the threat of the enforcement of an ill-gotten SEP injunction. The question here is whether Sharp failed to honor its licensing obligations vis-à-vis other Daimler suppliers (which I guess it did) than Huawei in the build up to the injunction ruling. At any rate, the FCO will have learned the lesson now that some German patent infringement courts are so extremely plaintiff-friendly that amicus briefs may not be sufficient.

• Daimler's other suppliers: Some of them, such as Germany's Continental and Samsung subsidiary Harman, are Huawei customers. That shields them against all or large parts of the potential indemnification claims Daimler might have (or might have had--it depends on whether those agreements hold suppliers liable for Daimler's settlements). Others, however, are in trouble, and may lose Daimler's business. See the bullet point on Huawei further below. Also, they may have to fear that Daimler will also settle with Nokia, at which point the suppliers will lose a co-complainant in the antitrust arena.

• European Commission / DG COMP: The increasingly-protectionist executive branch of the EU has been sitting on Daimler's antitrust complaint against Nokia for two years, seeking to protect Nokia and, by extension, Ericsson rather than Europe's automotive industry. That's just politics and has nothing to do with principled competition enforcement. Daimler's management, which is failing all the way as I explained above, made a major mistake by either being too incompetent to understand from the beginning that an EU antitrust matter of this kind is more political than legal or by being stuck in the past. Whatever the reason may be, while Nokia and Ericsson (and their various allies) played the political game very aggressively, Daimler did nothing--and, as a result, achieved nothing in Brussels.

  One member of the EU Commission wil be overjoyous today: French commissioner Thierry Breton, who spreads Nokia-funded propaganda of the most postfactual kind, has been Nokia and Ericsson's best friend all along. He'll leverage Daimler's deal with Sharp in the Nokia context for sure in order to prevent EU competition chief Margrethe Vestager from launching formal investigations.

  What the Commission's Directorate-General for Competition (DG COMP) could at least do would be to encourage the German Federal Cartel Office to do what the Commission is for purely political reasons unwilling to do.

• Huawei: They may do even more business with Daimler now, and they become more important with a view to the CJEU referral by the Dusseldorf Regional Court as they're far less likely to settle with Nokia than Daimler is. The terms of all those deals aren't known, but I would assume that Huawei (listed further below) has a better deal with Sharp than Daimler, given that Huawei knows this business a lot better and is deemed by many experts to be the leading cellular SEP holder in the world. In that case, the most cost-efficient way for Daimler to resolve its problem with Sharp's patents is to incorporate cellular components from Huawei into its cars, assuming that the Sharp-Daimler deal doesn't allow double-dipping (if it did contrary to what I assume, then that in and of itself might warrant an antitrust investigation).

• Munich I Regional Court: The fact that a Munich injunction made Daimler cave, after several years of declining to take car-level cellular SEP licenses, is going to be another boost for this venue's popularity among plaintiffs. Just last week, the same court granted Nokia a video codec SEP injunction against computer maker Lenovo, involving some of the very same legal issues. We'll see whether Lenovo, which just like Daimler at the time announced an appeal, will keep on fighting so that the Munich appeals court will review the lower court's application of Huawei v. ZTE and address the question of component-level licensing obligations.

• Nokia: For Nokia it's certainly better that Daimler caved than if the Munich appeals court had possibly expressed doubts about the lower court's application of Huawei v. ZTE and positions on component-level licensing. Later this month, on the day before Halloween, Nokia may win a Munich injunction against Daimler as well. Then, Daimler has put a lot more effort into its fight with Nokia than into the dispute with Sharp, so it's unclear what Daimler's management will do. They might make their next mistake then, though they'll then be much closer to the Dusseldorf referral. And as long as Huawei keeps fighting Nokia, the question of component-level SEP licensing will have to be resolved by the top EU court.

• Patent reform: Even Judge Kuehnen ("Kühnen" in German) wouldn't interpret the current proposal by the Federal Ministry of Justice and Consumer Protection of Germany as changing anything about access to injunctive relief over SEPs. But the legislative process isn't over, and changes could still be made so as to ensure that a proportionality-based defense will be available in SEP cases as well, in addition to the antitrust-based FRAND defense. I'm not actively involved with that process, and time is not on the side of those advocating reform, so I can't offer a prediction. I'm worried that the final outcome will be even less helpful than the current draft, which is very suboptional but still a huge improvement over an earlier proposal.

• Tesla: The most innnovative one of all large automotive companies is also in the cross-hairs of various SEP holders, all of whom are Avanci members. Most recently, the PanOptis/Unwired Planet patent troll group sued Tesla in Texas. Sharp is seeking an import ban against Tesla in Japan. Whether Sharp has meanwhile also brought German patent infringement cases against Tesla isn't known, but if not, then I guess it's just a matter of time. And most likely the venue of choice will be... Munich.

  Tesla has the potential to become the #1 patent defendant in Germany as it's building a car factory near Berlin. I guess they'll be sued in Germany left and right, over SEPs and non-SEPs, by operating companies and trolls.

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Misinformed EU commissioner Thierry Breton spreads Nokia-funded fake news of European 5G patent leadership: anything but "a fact"

Further below you can find previously not published data showing what a huge problem with the expiration of 5G-essential patents Nokia faces in the coming years. If you wish to skip right to that passage, please click here.

Among the three most powerful members of the current European Commission, EU commissioner Thierry Breton (Twitter profile) is "Monsieur Non" with respect to enforcing EU competition law against standard-essential patent (SEP) abuser Nokia. He and his cabinet are the ones who adamantly oppose what would not only be right from an antitrust perspective but also benefit Europe's economy at large, from small Internet of Things startups to car makers.

For the EU, it should be a no-brainer to require SEP holders to extend exhaustive component-level SEP licenses to component makers. The enforcement priorities of the Commission's Directorate-General for Competition (DG COMP) appear to pursue only one principle: protectionism. By letting Nokia and its partners in crime (the Avanci gang) get away with what they're doing (they've already obtained two Germany-wide patent injunctions against Daimler and are seeking many more), while coming up with novel and at times even absurd theories of harm concerning American companies, the Commission is systematically destroying the reputation as a competition regulator that it worked so hard to build in earlier decades. But Mr. Breton doesn't care.

Atypically for a Frenchman, he doesn't even give a damn about his own country's economic interests. France holds few cellular SEPs, but has a sizable automotive industry, which may so far not have been sued by the Avanci gang, yet will inevitably face the same shakedown as German and American car makers. There is no such thing as a free lunch--much to the contrary, whatever royalties Nokia and its allies extract from foreign companies will be used as "comparable license agreements" in any license fee dispute with their French counterparts. There are purely tactical reasons for which it hasn't happened yet. Back royalties will be huge.

Mr. Breton's negative influence extends far beyond his informal veto of any DG COMP investigation of Nokia's refusal to live up to its FRAND licensing promise. You can set your watch by him: once the Commission has to provide input to the Court of Justice of the EU on component-level licensing, Mr. Breton is going to have no more regard (i.e., zero) for the Commission's Legal Services than he has for DG COMP's regulatory responsibility. And the Commission's IP policy unit is part of DG GROW, formerly (and less euphemistically) called the Directorate-General for the Internal Market ("growth" is something at which the EU has failed miserably, with no chance that it would ever close the digital-economy gap). The Commission's SEP Expert Group is coordinated by that IP policy unit, which is ultimately under Mr. Breton's control.

What I heard about Mr. Breton acting like a Nokia/Ericsson lobbyist, coupled with the fact that the former CEO of France Telecom may have longstanding contacts with Nokia and Ericsson, made me wonder why a commissioner would do that. The only plausible explanation is that he actually--and very much mistakenly--believes he's doing the right thing for Europe's future. In a recent YouTube interview with Politico EU, he credibly comes across as someone driven by a desire to strengthen Europe in political and economic terms (this post continues below the video):

At minute 39, however, he spouts nonsense--and repeats himself multiple times insisting that it's "a fact":

"We have been always leading in mobile communication, including in 5G. Today, Europe is the leading continent in 5G: the most patents and contracts. We are happy to have two European global companies [Nokia and Ericsson, he means] and these two companies are having [sic] more patents than others. [...] but this is a fact [...] this is just a fact [...] facts are extremely important--not just rhetoric--it's a fact."

No, Mr. Breton. You--and probably your advisers first--have to get your facts right. You're entitled to your opinion, and to your agenda, but not to your own facts. What you say about Europe leading in 5G patents is simply the opposite of a fact. It's completely untrue, and if you check the facts, chances are no one will be more embarrassed than you. So let me give you the real facts since your advisers have either failed to do so or you didn't listen to them because you're predisposed toward buying whatever Nokia's and Ericsson's lobbyists tell you.

There's not even one serious SEP study in the whole wide world that sees Europe ahead in 5G SEPs. All the independent studies see Europe behind, and losing ground.

There's only one plausible--and regrettably poisoned--source for Mr. Breton's misinformation, and that's a "study" that the very law firm representing Nokia in the automotive SEP licensing talks (including the mediation that failed earlier this year) put together. Ericsson published its key findings. Interestingly, the study is not even consistent with what the author of that Ericsson blog post, Mrs. Peterson, testified in FTC v. Qualcomm when she was trying to devalue Qualcomm's portfolio.

[Update on 09/30/2020] Bird & Bird has meanwhile stated on LinkedIn that there's a more recent version of the study, which in fact has Asia ahead of Europe, confirming my point and suggesting that Mr. Breton relies not only on incorrect, but even outdated information. [/Update]

The "methodology" of that "study" is vaguely described as applying Justice Birss's Unwired Planet v. Huawei "filtering" approach (paragraphs 325 et seq. of the ruling, but that one was actually derived from what expert witnesses paid by the litigants told the court. What the ruling indicates is that the methodology involved essentiality determinations based on a sample of patents. If Nokia's own lawyers performed that kind of analysis here, I wouldn't recommend anybody--and especially not an EU commissioner--to take the result at face value.

That "study" was published in response to other statistics based on declarations (such as IPlytics) and/or contributions to the standardization process. Those other approaches didn't lead to the kind of result Nokia and Ericsson would have liked, and while one can indeed level criticism at simple counts, they're at least performed by independent entities, not Nokia's own lawyers.

If, however, the name of the game is to take a critical perspective and conduct an essentiality analysis, Amplified and GreyB did just that, did it independently, and did a great job (click on the image to enlarge; this post continues below the image):

In the Amplified/GreyB study, Nokia's essentiality rate (i.e., the percentage of declared SEPs that passed a technical plausibility test) was just average, and Ericsson's was rather poor.

Nokia is facing a huge patent expiration problem

Many of Nokia's so-called 5G SEPs are actually patents that were already declared essential to earlier standards. The age of Nokia's portfolio is a huge issue, and I wanted to shed some light on it here. Given that the Amplified/GreyB study is currently the best 5G SEP portfolio analysis out there, I contacted them and asked them for data on how many of the "5G Core SEPs" (i.e., patent families (note they correctly focus on patent families as opposed to separately counting patents on the same invention filed in parallel in multiple jurisdictions) that were declared essential to 5G and passed their plausibility test) will expire in the years ahead. Thankfully, Amplified/GreyB provided the following table showing the number of patent families to expire by the end of a given year as well as subtotal for the years 2020-2023 (click on the image to enlarge; this post continues below the image):

Based on the numbers in the above table, I've done some further calculation that shows the cumulative percentage of the currently-live 5G SEP families (only the ones that passed the Amplified/GreyB plausibility test) that will have expired by then (click on the image to enlarge; this post continues below the image):

The dark green line at the top shows that a far higher percentage of Nokia's currently-live 5G SEP families will expire than of any other major SEP holder. In fact, over the course of the next five years, Nokia alone will lose more 5G SEP families as a result of expiration than the rest of the industry combined.

Amplified and GreyB have nothing to do with the content of this blog post other than that I asked them for the percentages of patent families set to expire in certain years. I very much appreciate the fact that they answered my question, and as I expected, the numbers are telling.

By protecting Nokia, Mr. Breton is placing a postfactual bet on a dying company's shrinking portfolio, coming from an incorrect assumption of Europe's competitiveness in that field. The alternative for him would be to show more appreciation for the innovative potential of European IoT startups and the automotive industry, including the suppliers of digital components. If he did that, his numbers might even work out.

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Component-level SEP licensing gains ground as Avanci member and notorious patent troll Sisvel settles litigation with Switzerland's u-blox

With respect to the component-level licensing of standard-essential patents (SEPs), the Federal Trade Commission's petition for a Ninth Circuit rehearing en banc of the Qualcomm case is not going to make a difference either way, given that the FTC's theory is not an actual antitrust duty to deal but just an allegation of a violation that would (should the court agree) consist of a breach of contract. Any positive effects of the FTC's continuing efforts would be of an indirect nature in terms of preserving the ability of antitrust law to combat SEP abuse. But there's been meaningful progress toward exhaustive component-level SEP licenses on multiple other fronts this third calendar quarter:

• In early July, court filings revealed an exhaustive component-level (even chipset-level) SEP license agreement between Sharp and Huawei. Later that month, Daimler told a German court that its exposure to an injunction Sharp was seeking, and which Sharp actually obtained, was reduced by 86% as a result of the Sharp-Huawei deal.

• Earlier this month, Nokia faced a hostile court in Dusseldorf, which appeared determined to refer several component-level licensing questions of EU antitrust law to the Court of Justice of the EU. As I noted on Thursday, the outcome of that case will likely be favorable unless those advocating component-level licenses fail to counterbalance the pan-European lobbying onslaught of Nokia, Ericsson, and their usual allies.

• On Thursday, IoT component maker u-blox announced a settlement and license agreement with Sisvel, an Italian patent troll, covering cellular (2G/3G/4G) products. According to its corporate website, Switzerland-based u-blox makes such modules "for the automotive, industrial, and consumer markets." The new agreement settles litigation u-blox had brought against Sisvel in the Southern District of California in March 2020 in order to demand a component-level license on FRAND terms.

Sisvel is already the third well-known Avanci member with which u-blox has announced such an agreement. In November 2019, u-blox settled with InterDigital ("InterDigitroll"), and two years ago struck a license deal with Philips.

When the Avanci pool gets bypassed like in the case of Sharp and Huawei as well as those u-blox deals, it benefits in only one way: the fact that such agreements are concluded makes it hard to allege that Avanci effectively prevents component-level license deals from happening. Continental's lawsuit was basically dismissed as a conspiracy theory. But the downside clearly outweighs the upside as Avanci's unwillingness to grant exhaustive component-level licenses on FRAND terms continues to be part of the problem, not part of the solution.

Every exhaustive component-level SEP license agreement that an Avanci member enters into makes Avanci's model more defensible, but less viable. If the majority of industry players continue to reject Avanci's abusive terms (license deals--such as with Volkswagen--that don't even cover 4G fail to validate Avanci), the time will come when Avanci will have to choose between meeting the demand for component-level licenses and dissolving itself dishonorably.

We're not there yet, though. Various Avanci members such as Nokia, Conversant, and the PanOptis/UnwiredPlanet troll group keep pressuring car makers such as Tesla through infringement litigation instead of simply licensing their suppliers.

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FTC petitions for rehearing en banc of Qualcomm antitrust decision, tells Ninth Circuit "panel opinion tears the fabric of antitrust law"

Today, competition authorities on both sides of the Atlantic made filings with appeals courts after deciding not to give up after negative decisions by three-judge panels. First, the European Commission brought a further appeal after losing the first round to Apple and Ireland in a tax policy matter styled as a "state aid" case. Second, the United States Federal Trade Commission filed a petition for rehearing en banc (meaning an enlarged panel of 11 circuit judges) by the Ninth Circuit of its Qualcomm case (this post continues below the document):

20-09-25 FTC Petition for N... by Florian Mueller

The FTC won in district court, but a three-judge panel ruled for Qualcomm on all counts last month. Given the Republican 3-2 majority, it was uncertain whether the FTC would defend its decision, but institutional reasons (the implications of the panel decision not only for this particular case, but also for many other antitrust cases to be litigated in the future) may have been the reason for which at least one Republican sided with the two Democratic commissioners in seeking a rehearing.

A cornerstone of the FTC's strategy is to stress that "panel did not overturn any of Judge Koh’s factual findings." Indeed, Judge Lucy H. Koh of the United States District Court for the Northern District of California had made a clear distinction in her ruling between findings of fact and conclusions of law, and her factual determinations are entitled to a great deal of deference. But the Ninth Circuit panel thought it could reverse based on purely legal questions.

In attacking the appellate panel's ruling, the FTC says it "conflicts with Supreme Court precedent on three questions of exceptional importance to the Nation's antitrust laws":

1. The panel took the position that whatever could theoretically be addressed in patent litigation (such as royalty amounts) wasn't an antitrust issue. The FTC finds this inconsistent with "the Supreme Court's instruction that courts must apply the antitrust laws based on economic substance, not formal labels [by which the FTC particularly means the term 'patent royalties']." The FTC's petition criticizes the panel's "form-over-substance approach." In the same context, the FTC points to the Supreme Court's Apple v. Pepper decision on consumer standing in an App Store antitrust case as well as a 2013 decision according to which patent-related agreements can be evaluated under antitrust law (FTC v. Actavis).

   The FTC may have been concerned that by accepting the panel decision the agency would find it extremely hard to apply the antitrust laws to patent-related business models in the future. Toward the end of the petition, the FTC says "{t]he panel's errors have cast doubt on fundamental matters of antitrust principle and will encourage monopolists to cloak anticompetitive practices beneath false invocations of patent law and the appearance of neutrality."

2. The FTC's second point involves the old United Shoe decision. Earlier this year I explained why I tend to agree with Qualcomm that it's inapposite. I will read the FTC's petition in detail and see whether it changes my mind regarding United Shoe (which I doubt, but you never know).

3. The FTC's third point is that the panel erred in holding that harm to Qualcomm's customers (smartphone makers) is "outside the relevant antitrust markets." Here again, the FTC points to Apple v. Pepper as a very recent Supreme Court antitrust ruling that described "protecting consumers from monopoly prices" as the "central concern of antitrust."

The issues in this case are reasonably likely to spark the interest of enough circuit judges for the rehearing en banc to happen. The far harder part for the FTC will be to get a better outcome.

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PanOptis/Unwired Planet patent troll group sues allegedly unwilling licensee Tesla over former Panasonic and Ericsson patents in Eastern District of Texas

There's further escalation in the standards-essential patent (SEP) conflict between the abusive Avanci gang and the 21st century's most innovative automotive company, Tesla:

After Conversant Wireless's patent infringement complaints against Tesla in the Western District of Texas and the Mannheim Regional Court, a request for a Japanese import ban by Sharp, and Sisvel doubled down on its litigation campaign against Tesla in the District of Delaware, the affiliated patent trolls named Optis Wireless, PanOptis, and Unwired Planet have just filed a patent infringement suit against Tesla in the Eastern District of Texas over four former Panasonic patents and one former Ericsson patents, all of them declared to be essential to cellular telecommunications standards (this post continues below the document):

20-09-20 Optis PanOptis Unw... by Florian Mueller

These are the four former Panasonic patents-in-suit:

• U.S. Patent No. 8,149,727 on a "radio transmission apparatus, and radio transmission method"

• U.S. Patent No. 8,199,792 on a "radio communication apparatus and response signal spreading method"

• U.S. Patent No. 8,254,335 on a "radio communication apparatus and radio communication method"

• U.S. Patent No. 8,320,319 on a "semi-persistent scheduled resource release procedure in a mobile communication network"

In addition, the trolls are asserting a former Ericsson patent:

• U.S. Patent No. 8,223,863 on a "method and arrangement in a cellular communications system"

Legal entities from the same patent troll group received a $506 million verdict against Apple last month in the same venue: Marshall, Texas, where the exceeding troll-friendly Chief District Judge Rodney Gilstrap presides over numerous patent infringement cases every year.

The complaint contains a relatively detailed descriptions of efforts by the Avanci patent pool firm as well as the plaintiffs in this action to sell Tesla a license. The trolls' lawyers argue that Tesla behaved like an unwilling licensee, engaging in hold-out rather than good-faith negotiations, sometimes taking many months to respond to an offer in a way that the trolls didn't consider to be constructive. But let's not take that narrative at face value:

• It remains to be seen how Tesla will seek to justify its negotiation style when it files it answer to the complaint, and when the case gets closer and ultiamtely goes to trial.

• At the heart of the problem is something you can't blame Tesla for: instead of demanding SEP royalties from Tesla on the value of an entire car, the trolls and their Avanci pool firm should talk to the relevant suppliers about an exhaustive component-level license that would cover the downstream, including but not limited to Tesla.

The day after tomorrow, the Munich I Regional Court will hold a trial over one of various patent infringement cases brought by another privateer (a patent troll fed by a large company with patents for the purpose of extracting higher royalties than otherwise), Conversant Wireless, against Daimler. As I noted in the previous post, the patent-in-suit in that case is now also being asserted against Tesla in a differnet German court (Mannheim). The Munich decision in the Daimler case won't be formally binding on the Mannheim court in any way, but should Daimler lose in Munich, Tesla would have to convince the Mannheim judges that their Munich-based colleagues made a mistake.

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