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

This is the first part of a trilogy on licensing negotiation groups: automotive industry cartels that would collectively negotiate standard-essential patent (SEP) licenses with major patent holders and pools.

Earlier this month, the European Commission levied a € 875 million fine on Volkswagen (that company has to pay more than half a billion euros alone) and BMW--Daimler got away unscathed only because it had blown the whistle--for restricting competition in emission cleaning for new diesel passenger cars. That decision stands in the tradition of regulatory findings of cartel law violations by car makers and their suppliers. Just a few recent examples from the EU that beg the question of whether such conduct is deeply ingrained in that industry's DNA:

• Commission fines car safety equipment suppliers € 368 million in cartel settlement (2019)

• Commission fines three companies € 68 million for car battery recycling cartel (2017)

• Commission fines car parts producers € 137 789 000 in cartel settlement (2016)

• Commission fines producers of wire harnesses € 141 million in cartel settlement (2013)

One of my core principles in competition policy is that even the worst offender might have a valid concern or bring a meritorious complaint. There was a time when Microsoft was synonymous with antitrust violations in the technology industry (over issues that were not even 1% as serious as what Apple has been doing for more than a decade). Prior to Microsoft, IBM had that reputation. IBM was then behind efforts to instigate investigations against Microsoft, and Microsoft later did the same against Google. Par for the course.

But when a company that just got slapped with a half-billion-euro fine over a cartel keeps lobbying the European Commission, the U.S. Department of Justice, and possibly other regulators to obtain permission for forming another automotive cartel, its proposals and its arguments need to be closely scrutinized.

I've looked at this topic from multiple angles: whether the issues Volkswagen has identified are real; whether the proposed measures are necessary and proportionate; whether licensing negotiation groups would be more or less constructive than individual parties; whether SEP holders would still be reasonably capable of enforcing their rights; and whether the upside would outweigh the downside in competition policy terms.

Unfortunately, it turns out that this is not only a solution in search of a problem but--far worse--a kind of Pandora's box.

If it's as bad an idea as I say it is, how come it is being talked about at all? Well, that's a mystery to me, but I have a plausible explanation: policy makers' predilection for redressing the balance and for bringing about symmetry. In this case, however, it's a fallacy. A false symmetry.

Pooling patent portfolios that belong to different licensors is fundamentally different from "pooling" licensees. The asymmetry begins with respect to transparency:

• A whole lot is publicly known about Avanci, a cellular SEP pool that contains patents from more than three dozen holders and provides a one-stop licensing option to car makers (which the U.S. DOJ approved last year).

• The proposal of forming licensing negotiation groups ("LNGs") is largely being kept under wraps, the sole exception amounting to a couple of slides in a presentation delivered by Volkswagen's chief patent counsel Uwe Wiesner as part of a mid-April European Commission webinar.

Mr. Wiesner is undoubtedly the thought leader in the automotive sector when it comes to patent policy. But that doesn't mean his ideas are better than those of organizations who were dealing with cellular SEP licensing issues even before Mr. Wiesner joined the patent bar.

BMW, Volkswagen, and--unconfirmed rumor has it--Tesla have taken Avanci licenses at the car level. By now there's empirical evidence that Avanci's existence does not foreclose all sorts of bilateral license deals:

• Daimler took a car-level patent license from Nokia, settling their pending infringement litigation after striking similar (but presumably much smaller) deals with Conversant and Sharp.

• Huawei previously entered into a component-level license deal with Sharp covering tiers 1 (telematics control units), 2 (network access devices), and 3 (baseband chips).

• Huawei also secured a component-level license (covering at least one tier of the automotive supply chain, if not more) from Conversant.

• And most recently Huawei signed a 4G patent license agreement with tier 2 supplier Rolling Wireless (according to media reports) relating to components that will be incorporated into many millions of Volkswagen cars.

Those are just some publicly-known examples. There are other license deals that have been signed but not announced--at the car level as well as at the component level. If major smartphone makers held out as long as automotive companies (even Volkswagen's limited Avanci license falls far short of what it actually needs), there'd be dozens of large-scale disputes (like Nokia v. Oppo) pending. But Daimler's about-face (taking a car-level license after years of arguing that its suppliers should take the prerequisite licenses) marks a turning point, and it's too important for me to ignore. I stand by my advocacy of component-level license deals, and I celebrated the ones that were announced. That said, I recognize market realities. With the three German car makers (representing well over a dozen brands in the aggregate) and--if true--Tesla having taken car-level licenses, neither they nor their competitors can claim anymore that there's anything wrong with licensing cellular SEPs at the end-product level, just like the mobile handset industry has been doing it for ages.

In the aforementioned presentation, Volkswagen criticized the fact that Avanci's per-car license fee doesn't differentiate between, for example, a Tesla and a low-cost compact car. But the connectivity provided is essentially the same. Car makers are free to content themselves with 3G network access to save a few dollars in license fees (whether that makes sense is, of course, another question). Also, that argument is a slippery slope as automotive companies would rather pay the same per-unit royalties as the makers of the cheapest smartphones. Volkswagen's criticism of a consistent rate directly contradicts the arguments Apple always makes in its SEP licensing negotiations and in policy debates. The iPhone maker has put a lot more effort into the devaluation (just using the terminology of an Apple-internal document that surfaced in its Qualcomm litigation) of cellular SEPs than the entire automotive industry.

Volkswagen also raises the concern of double-dipping. Actually, if everyone consistently licensed SEPs at the car level, there wouldn't be any double-dipping issue--and cars could even contain more than one component implementing the covered standards and pay only a single license fee. The only risk remaining here would be that you might have a SEP holder in the supply chain, such as LG providing a network access device. True, the first authorized sale has an exhaustive effect, though that one may also be territorially limited anyway (patent exhaustion across borders is complicated, and German courts are particularly disinclined to recognize it). Also, the amount in question would not be huge even if a Huawei, Samsung or LG provided a component. And the problem could always be solved through good-faith negotiations.

It is hard to see what problem(s) licensing negotiation groups would be in a better position to solve than individual parties.

What is clear, though, is that a patent pool like Avanci making an optional one-stop licensing offer doesn't result in a concentration of market power or in coordinated misconduct. Deals of all sorts happen, and more often than not, an Avanci contributor is involved.

If Volkswagen's LNG proposal became mandatory in the sense that SEP holders facing a licensee group couldn't insist on a bilateral deal (and, if necessary, bring infringement actions to accelerate the process), it would be a recipe for disaster. It would invite group boycott. "LNG" would then mean "Licensing Never Group" until SEP holders do business on the implementers' preferred terms.

If SEP holders could bypass the LNG as they please, I guess they would and there'd be an additional layer of bureaucracy that would add no value to anyone (unless one considers it "valuable" to create an opportunity for parties to legally organize collective hold-out).

It's a misconception that the share of the patents declared essential to a standard and being contributed to a single pool has anything to do with market power. As an expert witness for then-Google-owned Motorola Mobility once famously wrote, "it only takes one bullet to kill." A single truly essential patent (meaning that it can't be worked around) confers gatekeeper-like market power on its owner. Any additional bullets would just hit a body that's already dead. In reality, the larger a pool is, the more likely it is to discipline other SEP holders by dissuading them from trying to charge more on a per-patent basis. The "market share" of the pool does, of course, have a bearing on transaction costs. But that's a potential efficiency gain that, in an idealized economic scenario, would be split fairly between licensors and licensees.

What's key is to have reasonably balanced SEP enforcement. Whether a pool holds one patent out of 10,000, or even all 10,000 that read on a standard, is a non-issue if SEP enforcement works. In the next part of this trilogy, I'll look at the implications of the LNG proposal for enforcement in more detail. The third and final part will then focus on antitrust and cartel considerations (which are so serious that even the much less radical "Proposal 75" of the European Commission's SEP Expert Group Report comes with a variety of caveats), and I'll summarize the key reasons for which I believe regulators and policy makers should flatly reject the LNG proposal and prioritize more workable and less problematic approaches.

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

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

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

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

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

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

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

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

This would have major political advantages:

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

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

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

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

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

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

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

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

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

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

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Apple may already have lost the strategic battle over antitrust market definition in multiple European jurisdictions: App Store monopoly

Never before has there been so much hope that the mobile app store tyranny may come to an end. It's a marathon, not a sprint. There'll be appeals, and the freedom fighters of the Digital Era may experience setbacks. But the first week of March  2021 may very well be judged by history as the end of the beginning.

I've previously commented on the app store bill adopted by the Arizona House of Representatives. This is just the first legislative hurdle of three, and there may be court challenges even if the state senate voted in favor and the governor signed. But it shows that the app store liberation movement is able to build political majorities and overcome Apple and Google's counterlobbying. Initiatives are underway in multiple states, and it varies by state whether Democrats or (as in Arizona) Republicans take the lead.

On the other side of the Big Pond, Apple's purely pretextual defenses of its app store monopoly are falling apart. There were not one, not two, but three news cycles this week, two of which are bad news for Apple and the third is more likely than not to portend another decision against Apple:

• The Day of Reckoning is coming for Apple in Brussels, with the European Commission's Directorate-General for Competition (DG COMP) preparing a Statement of Objections (SO). Apparently the EU antitrust authority plans to issue the SO--further to a complaint by Spotify (there was also a similar one by a Rakuten subsidiary)--before the summer vacation season.

  An SO is not a final decision. Subsequently to the SO, a company under investigation gets to make its case again--and then there's a hearing and, finally, a ruling, which in turn is appealable. I repeat myself in the same post: It's a marathon, not a sprint.

  In Europe, Apple's market share is only about 30%. A dominant market position (the EU term for what is called a monopoly in the U.S.) can, therefore, be identified only by--which I consider absolutely correct in this case--defining a single-brand market. It's clear that Apple has failed to convince EU competition experts that the market should be defined more broadly, such as all mobile apps or all music distribution channels.

  The situation on the market definition front could be even worse for Apple: DG COMP may agree with Spotify's tying theory, which involves two markets: an iOS app distribution market and an iOS in-app payment services market. With a view to what may be the winning theory here in the EU, let me point you to the December 2020 version of what has already become a true app store antitrust classic: Professor Damien Geradin and Dimitrios Katsifis's The Antitrust Case Against the Apple App Store (Revisited).

  Apple's argument against tying is that the App Store and the payment system are just one product. Indivisible. Well, atoms were considered indivisible (thus the Greek name) until subatomic particles were discovered, and Epic Games achieved nuclear fission by an act of civil obedience, as its CEO called it in a CNN interview. Epic simply delivered proof that there is demand for alternative payment systems. Even if Epic had not done so, one would just have to download Amazon's shopping app or a parking or public transport app to come to the same realization.

  A Commission SO holding Apple responsible for tying might even give rise to a request for judicial notice in the period between the Epic Games v. Apple antitrust trial in the Northern District of California and Judge Yvonne Gonzalez Rogers's ruling.

  For a long time I was somewhat skeptical of whether Spotify's complaint was just going to lead to a "Lex Spotify" or help the developer community at large. Having researched the app store antitrust situation in greater detail since last summer, and considering that Epic--which doesn't specifically complain about direct competition from Apple, while Spotify is concerned about Apple Music--has joined the investigation, I'm definitely rooting for Spotify now. If Spotify prevails on market definition, Apple's App Store monopoly is finished in Europe.

  The closer I looked at the Spotify-Apple issue, the clearer it became to me that what Spotify is facing there is even worse than the problems experienced by major professional soccer clubs who are regulated by associations that are economic operators at the same time. To some degree, the associations' own soccer tournaments, especially some that involve national teams, also compete with club tournaments, and those sports bodies regulate them all. There are serious issues there, but Apple has an "octopus" growth strategy, seeking to grab market after market by leveraging its iOS app monopoly. Apple Arcade is another example.

• Another Reuters article reported on a letter sent out by the Authority for Consumers and Markets (ACM) of the Netherlands to developers and announcing that the investigation is complete and a ruling in the making. The Dutch antitrust agency didn't indicate what the decision would be. It's independent from DG COMP. But both are part of the European Competition Network and obviously in close contact. In light of DG COMP's upcoming SO, the odds are rather long against an acquittal unless there's something deficient about those specific complaints, which I doubt.

• The UK has left the EU, giving the UK Competition and Markets Authority (CMA) the opportunity to rule on high-profile cases that it previously had to leave to DG COMP. The primary author of the paper I mentioned further above, Professor Geradin, mentioned on Twitter that his firm, Geradin Partners, represents the companies whose UK complaints against Apple are now being investigated by the CMA.

  In the UK, the iPhone market share is approximately 50%, so the CMA might not even have to reach the question of a single-brand market: there's no plausible market definition in the UK that wouldn't make Apple's app distribution monopoly in that market subject to antitrust law.

A few years ago, Qualcomm appeared to be under similar antitrust pressure around the globe, but--unless a major surprise still happens somewhere--ultimately got off the hook. However, Qualcomm was able to do deals with key players such as Apple (which needed Qualcomm's 5G chips) and Samsung. It got a lot of support from the DOJ's antitrust chief at the time (a former Qualcomm lobbyist). There are reasons for which I believe Apple cannot extricate itself from this predicament the way Qualcomm did. But, again, this is going to be a rough ride and, to mention this word for the third and final time in this post, a marathon.

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Epic Games files antitrust complaint against Apple with the European Commission's Directorate-General for Competition (DG COMP): media reports

Frankfurter Allgemeine Zeitung (FAZ) and the Financial Times report that Fortnite and Unreal Engine maker Epic Games has filed an EU antitrust complaint against Apple. Epic is being represented by Clifford Chance (the FAZ article quotes Mr. Ashwin van Rooijen), a major global firm that has been a key player in many EU tech antitrust matters over the years.

When asked why they filed this complaint against only Apple, and not simultaneously against Google, Epic's lawyers apparently said that Apple was presently the focus of EU antitrust enforcement in this context. There is an ongoing investigation of Spotify's complaint against Apple. Both Epic and Spotify are members of the Coalition for App Fairness (CAF), an organization whose positions on app distribution Microsoft has supported publicly without joining the organization.

For proper disclosure, I am a member of the informal #AppRising movement and brought my own complaints against Apple and Google in multiple jurisdictions last month (EU case numbers: AT.40747 Apple, AT.40748 Google). I consider this kind of topic to be the single most important tech antitrust issue of the 2020s. Standard-essential patent (SEP) issues continue to be very important, but are eclipsed by the #AppRising. But the concerns raised by app developers are diverse, and just like I haven't seen Epic comment on my complaint regarding COVID-related apps, I don't want to take a position on Epic's (and others') complaints over in-app payments--which doesn't mean that I necessarily disagree, just that at this point it's too early for me to speak out on a legally complex issue.

As I just mentioned my own complaints, a few hours ago iClarified mentioned me in connection with a new rule--or maybe it's more of a clarification of an existing rule--by Apple in connection with "health pass" apps (apps that enable users to show to others, such as airport security staff, that they have been vaccinated or have recently been tested negatively). So here's a bit of a clarification from my end in the context of iClarified's report on Apple's potential clarification regarding health apps: I don't envision my own app company to offer any "health pass"-like functionality and, therefore, prefer not to comment on that category of COVID-related apps other than noting that governments--rather than private entities--should regulate health passes, such as by ensuring that only health passes with a certain stamp of approval would be recognized at airports, sports venues, and so forth.

I don't mean to comment on Epic's choice of bringing a complaint against only Apple, not Google. I'm sure they had their reasons, and it's possible they previously talked to DG COMP and made their decision based on the feedback they got.

My company, however, seeks to resolve its issue with both major platforms at the same pace. Last week's decision by the Munich I Regional Court against Google, of which I've meanwhile translated the remaining 10% I just summarized a week ago, makes it clear that "gatekeepers" (the ruling already uses that key term of the upcoming Digital Markets Act) must not disadvantage high-quality health-related offerings just because they don't come from a governmental source. My company is going to bring a lawsuit in Munich on that basis pretty soon. The Munich court's holding is very clear, and Google's rule on COVID-related Android apps is fundamentally more abusive--because it results in complete foreclosure--than its preferential treatment of a government-run health information portal by its search engine. If Google doesn't take the Munich court's holdings seriously, it will just have to be enjoined again. After filing the complaint, I will publish an English translation on this blog.

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Stifling creativity, chilling innovation, and now even killing people: the EU needs to rethink its approach to industrial policy

With VaxGate, Brussels--as a metonym for the EU--is going through its worst credibility crisis ever, while Brexit is already a success story in one particularly important regard: the UK is outvaccinating the Continent. It's also a fact that British elite universities outperform their continental counterparts in global rankings.

Even EU-friendly mainstream media such as German newsweekly Der Spiegel now feel forced to talk about some of what's going wrong. Spiegel author Michael Sauga today criticizes the Merkel-Macron doctrine (to me, they're simply the Axis of Evil, or even the Axis of Death) that COVID vaccines be both developed and manufactured in Europe in order to become more independent from other economic regions. Just yesterday, the European Commission granted provisional approval to Moderna's mRNA-based COVID-19 vaccine, further to a recommendation by the European Medicines Agency. While Moderna's vaccine is already in use in the U.S., the EU clearly treated it as its lowest priority among the top six candidates, simply because it's an American company that didn't have much, if any, European manufacturing capacity at the time.

If I had to choose which of the vaccines to take today, and if I even had the choice, I'd presently--subject to what we'll learn throughout the year--prefer Moderna's vaccine. The only known issue with all those mRNA-based vaccines is that the risk of an anaphylactic shock is about 20-25 times higher than with conventional vaccines. I don't have any known allergies (there a few measurable ones, but so minor I don't even notice anything, such as when I eat hazelnuts), so I'm particularly unlikely to be that one person among 40,000 or 50,000 who would suffer an anaphylaxis. I'd just want to be under observation for 30+ minutes after the jab. What makes me feel better about Moderna's vaccine than Pfizer/BioNTech's is that it may be slightly more advanced. BioNTech hopes to make further progress this year to bring down the cooling requirements. With Moderna already being where BioNTech is trying to get, it's possible that Moderna's product is more mature. Both are 95% effective, though it remains to be seen how well they work against new mutations (for B.1.1.7, a gradual reduction of efficacy is possible, but for the South African mutation, it's not even clear whether the existing vaccines will work at all).

So the EU initially treated as a low priority the COVID-19 vaccine that may actually turn out to be the best of all, and has already turned out to be one of the first two to become available. For industrial policy reasons. One has to be highly unethical or simply deranged to let so many people die for some ill-conceived industrial policy.

When Merkel and Macron were just the Axis of Evil--not yet the Axis of Death--, they already did a horse trade that was unbelievably stupid: Article 13, which then became, after a renumbering, Article 17 of the EU Copyright Directive. It's still high on the EU Commission's priority list. The Merkel government primarily wanted something else: the news snippets tax. That's because German media giants had lobbied for it very hard. For France, however, upload filters were going to be the grand prize. So Merkel and Macron agreed to do both.

There's something I really, really wish to clarify here: I don't disagree that some smart regulatory approaches are needed to certain platforms that have become extremely powerful. In fact, some of what they're discussing in the EU with respect to "gatekeepers" makes a whole lot of sense, and a majority of the House of Representatives raised similar concerns. The question is, however, what will ensure a level playing field and what is just going to be negative on the bottom line, like cutting one's nose to spite one's face.

Upload filters stifle creativity. The right holders who benefit from it are collecting societies, and they are problematic in various ways. Ultimately, just like some overreaching data privacy rules, such a framework may even raise barriers to entry.

Some simple-minded, totally incompetent people came up with the idea at some point that copyright could have a redistributive effect favoring France and Europe as a whole. Of course, the collective European market share of copyrightable works found on Internet platforms used in Europe is far higher than the market share of European platform makers. So if you give copyright holders more leverage over the platforms, it means that far more money will flow in a certain direction than in the opposite one. But those Merkel-supported French idiocies, such as upload filters, are not well-thought-out. From a holistic perspective, they do more harm than good. They just please some lobbyists, and some fools.

It gets slightly more complex, but no less clear, in the automotive standard-essential patent (SEP) licensing context. In that case, there isn't even a clear French beneficiary such as copyright holders or Sanofi (which is going to get a lot of money for a vaccine research project that is otherwise a huge disappointment and failure so far). There actually would be French beneficiaries--car makers like Renault and automotive suppliers like Valeo--from the better policy alternative. But French EU fake news commissioner Thierry Breton is beholden to Nokia and Ericsson, probably just because he has a long history with them due to his own industry background (France Telecom).

Not only Europe's automotive industry but even more so the wider IoT industry would have benefited from allowing the European Commission's Directorate-General for Competition (DG COMP) to investigate Nokia's refusal to grant exhaustive component-level licenses to "all comers" from all tiers of the automotive supply chain.

The concept of "digital sovereignty" (which in this case means having European telecommunications infrastructure providers) could and should be separated from competition enforcement. Give them subsidies, or allow their national governments to do so. But don't let other industries--automotive and, more generally, IoT--suffer, especially when the vast majority of 5G patents aren't even owned by EU-based patent holders.

Ideally, industrial policy shouldn't influence antitrust enforcement. It's a reality that it often does, but if that's what you want to be the case, you at least have to think things through holistically. That doesn't appear to be a strength of people like Macron and Breton, and Merkel just follows them because she lives in an ivory tower and is detached from reality. A few years ago, she referred to the Internet as "Neuland" ("new land" or "unchartered territory"), which tells you all you need to know in this respect.

IP policy is industrial policy, but upload filters are insane. Competition enforcement should be principled, yet is often driven by industrial policy considerations, and whether you look at the merits of those complaints against Nokia or take an industrial policy perspective, the result would be the same: go after Nokia (and, by extension, Ericsson). And when it's about life or death, such as in the SARS-CoV-2 context, industrial policy almost literally kills people.

If the EU takes a smart and holistic approach to its Digital Markets Act/Digital Services Act initiative, and to competition enforcement in the app distribution context, its efforts may actually have a positive impact. But where things stand today, EU industrial policy, especially if devised by French politicians, all too often results in extremely stupid decisions. The EU can rely on many journalists failing to figure it out, or being ideologically biased and therefore unwilling to speak truth to power. In European media you find all those excuses that no one could foresee which vaccine research projects were going to be most successful when one would just have to compare the timeline of the EU's decisions (all of which are public) with the official progress reports of those projects (all of which are public, too, such as on the New York Times Coronavirus Vaccine Tracker). But ignorance, ideology, and spin-doctoring only do so much. Throughout this year, the EU's most miserable failure will become clearer and clearer. The decision makers in Brussels and their advisers will have realized by now that they've failed European citizens. Will they draw the necessary conclusions from it and do better in other areas?

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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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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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Politically--not legally--logical decision: EU competition commissioner Margrethe Vestager to appeal humiliating defeat in Apple-Ireland "state aid" case

Of the three key decisions that were scheduled for today, the least important one (a Nokia v. Daimler patent infringement ruling in Munich) has been pushed back on very short notice by more than a month, and the second one will be announced any moment now (and probably will have been announced by the time you read this, unless you're an early bird catching a premature worm):

According to the Financial Times, which is the European Commission's favorite media outlet when it comes to leaking competition-related (and many other types of) decisions, EU competition commissioner Margrethe Vestager has persuaded enough of the other commissioners that the Directorate-General for Competition (DG COMP) can appeal Apple and Ireland's victory in the EU General Court, which held that the Commission's "state aid" decision alleging favorable tax treatment of Apple by Ireland was baseless. The final decision will be made by the Court of Justice of the EU (CJEU), which is based in Luxembourg like the EU General Court (which was previously called Court of First Instance) and focuses exclusively on questions of law, not fact--which is a huge problem for the Commission given that the factual findings didn't support its decision in the first place.

This blog has been--and obviously has no reason not to continue to be--critical of the Commission's 13-billion euro decision (by now there's even another billion and a half in play, it appears), which was deficient, self-contradictory, and hard to reconcile with the Commission's acceptance of special tax rules in other parts of Europe that do look like state aid at first sight.

25 years ago, I actually recommended to Blizzard Entertainment (now part of Activision-Blizzard) to set up an Irish subsidiary to benefit from the low corporate tax rate there that was available to foreign investors meeting certain requirements. I had previously met officials of the Irish Development Agency at Software Publishers Association (SPA) Europe conferences, and I wanted the best for my client. But it's not the best for Europe. While I'm in favor of fair tax competition, what Ireland has been doing for a long time is just to take advantage of the EU's fundamental flaws.

The EU is a failing experiment of a "supranational" (neither an international organization like the UN, where you need unanimity for all decisions and member countries retain full sovereignty, nor a single nation state) body and the idea of "ever closer (and irreversible) integration." A few U.S. tech giants now have a market capitalization in excess of all publicly-traded companies from all industries in all European countries. Tesla, which just turned 17, is more than twice as valuable as the entire German automotive industry. The Digital Age belongs to America and parts of Asia, and Europe is the continent of losers that is more concerned with its history and diversity, and with taking care of poor neighbors, than its own future. But while the EU fails most of its citizens, some small countries like Ireland and Luxembourg have managed to take advantage of the EU's systemic deficiencies, at the expense of all others. Ireland can offer its low corporate tax rate only because it markets its access to the EU's Single Market, which is about 100 times as large as Ireland's domestic market.

The problem that the founders of the EU and its predecessors faced was that the benefits of integration (stronger together) were as clear as the impossibility--in the past and even today--of getting the governments of its member states to give up all sovereignty, and to convince the populations of particularly southern countries that the continent as a whole would have to accept one set of laws--and a common language, for which English would have been the obvious choice--while still retaining some local traditions, but practically demoting national languages to regional dialects. If the EU had done that, and if the focus had been on building an economy that can compete with places in the world where people simply work a lot harder than in most of Europe, then European digital startups could address a market with half a billion inhabitants, a single language, a single set of laws (even EU directives are not a substitute for a single jurisdiction), and make it big. Instead, the EU is going down the tubes, economically speaking.

It's telling that some of Europe's most affluent countries like Switzerland and Norway aren't EU member states, and with the UK the European country with arguably the best education system has already left.

Instead of realizing and addressing those structural shortcomings, the EU Commission changed direction in a different way over the course of the 2010s: having given up on fair competition, and being unable to cure its own diseases (by the way, the EU has also failed completely to make anything positive happen with respect to the COVID-19 pandemic; actually, open borders made everything worse), the EC opted for protectionism.

That protectionism is reflected by the EU Commission's unwillingness to require Nokia to live up to its FRAND licensing obligations vis-à-vis automotive suppliers, and its new plans for a Digital Services Act designed to give the EU Commission maximum leverage over global tech giants.

Mrs. Vestager has clearly turned a blind eye to antitrust violations by European companies, with only a few token investigations meant to create the perception of a balanced approach to enforcement, while going after each and every U.S. company, no matter how absurd the theory might be.

On the subject of absurdity, the Apple-Ireland "state aid" case was a transparent attempt to scapegoat a successful company that was on the verge of bankruptcy in the 1990s and went on to become the most valuable corporation in the history of the world, without needing any oil reserves to get there. It was a smear campaign, styled as an antitrust decision.

Not only in terms of the amount at stake, but also the extreme contortion of the law and the total absence of facts that would have underpinned those theories, Mrs. Vestager's Apple-Ireland decision has been the most ridiculous Commission ruling to date. The judges of the EU General Court realized this, and tossed it in its entirety. The Commission decision even contained two fallbacks: a Plan B, where the relevant amounts of money would have been approximately 10% of Plan A, and a totally unspecified Plan C. None of the three plans worked out and the appeals court overturned the whole thing.

In order to side with the Commission, the top EU court would have to engage in the most massive miscarriage of justice in its history, and it's not like all of its decisions had been uncontroversial. The Commission's only chance is for that to happen. It's not the kind of appeal that is reasonably likely to succeed. It's a long shot, and the only way for the Commission to prevail would be for the CJEU to place politics above the law just like the Commission did when it decided to bring this appeal.

For Mrs. Vestager personally, but also for the Commission as a whole, this is worth trying even if the chances are extremely slim. It's going to take a couple of years, and by then Mrs. Vestager's going to be nearing the end of her second term as competition commissioner. The embarrassment is going to be even greater then in all likelihood, but later is better than sooner in this case--for the commissioner, for the Commission, not for Europe, which would have a greater benefit from the Commission focusing on real issues, of which there are many, some of which I just mentioned, such as Nokia's abuse of standard-essential patents to the detriment of Europe's automotive industry and IoT startups.

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European Commission circling above--and still failing to help resolve--patent licensing dispute over automotive components

Last week, MLex published a report by Khushita Vasant (not paywalled, though most MLex reports are available only to subscribers, which is why I rarely have the chance to link to them) on a "third round of questions" the European Commission's Directorate-General for Competition (DG COMP) expects automotive suppliers to answer sometime this week.

MLex says the questionnaire "also asks carmakers about 'have-made' rights in Nokia's license offers." An academic paper recently discussed the shortcomings of such "have-made rights", and I commented on it. The Bundeskartellamt (Federal Cartel Office of Germany) summarized the parties' positions, including Nokia's offer to grant "have-made rights," in its submission to the courts hearing Nokia's German patent infringement complaints against Daimler, but clearly wasn't persuaded that the availability of "have-made rights" would obviate the need for judicial clarification on the availability of a full component-level license affording suppliers freedom to operate.

On the one hand, it's a positive sign that Daimler's and its suppliers' antitrust complaints against Nokia are still being preliminarily investigated by DG COMP. On the other hand, the Commission's hesitance to launch formal investigations is in stark contrast to a variety of cases involving American companies (you name them).

In recent months I heard from various sources that Nokia's "have-made rights" and similar proposals were flatly rejected by automotive suppliers from Europe, America, and Asia in response to the previous round of questions. If the Commission had wanted to, it could have considered that feedback a clear indication just like in scenarios in which it performs a market test of potential remedies. Here, the market responded with an unequivocal thumbs-down, and there's no reason why that should be different this time around.

In the weeks and months ahead, three German courts will decide on the well-thought-out suggestion by the Federal Cartel Office to refer certain questions of EU antitrust law to the CJEU. Meanwhile, DG COMP will have to decide on whether or not to launch formal investigations of Nokia's conduct. Should the EU's top court ultimately find that Daimler's suppliers had been entitled to a full SEP license all along, DG COMP would look bad--in terms of a dereliction of duty--for not having taken action. I believe the proper course of action would be for the Commission to launch formal investigations, which the Commission could stay pending the CJEU ruling on the underlying competition issues.

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BREAKING NEWS: Federal Cartel Office of Germany asks regional courts to refer component-level standard-essential patent licensing questions to CJEU, disagrees with Nokia

BREAKING NEWS

One of the most well-respected competition enforcement agencies in the world, the German Bundeskartellamt (Federal Cartel Office), has dealt a major blow to Nokia's abusive standard-essential patent assertion campaign against Daimler and, by extension, Daimler's global suppliers. As a result, the Mannheim Regional Court has already postponed the ruling it was slated to announce tomorrow (June 23) to August 4, 2020.

On June 18, Joerg Nothdurft, one of the highest-ranking officials of the Federal Cartel Office, sent a 24-page fax to the Mannheim and Munich courts, outlining the antitrust agency's perspective on the question of component-level licensing. In what is comparable to a Statement of Interest by the DOJ in U.S. cases or an amicus curiae brief, the Federal Cartel Office moves to stay Nokia's SEP infringement cases against Daimler and to refer multiple outcome-determinative legal questions to the Court of Justice of the EU (CJEU) in Luxembourg.

The letter notes that two of Daimler's suppliers--Continental and Valeo--drew the office's attention to certain issues.

The Federal Cartel Office proposes to request the CJEU to opine on a set of specific legal questions:

1. The first question is whether it constitutes an abuse of a dominant position under EU competition law to pursue injunctive relief against an end-product maker while refusing to fully license its suppliers.

2. The second question relates to whether a SEP holder is "entirely free" to choose the target of an infringement action regardless of its position in the supply chain.

3. The third question outlines specific cases in which the Federal Cartel Office is inclined to believe that suppliers are entitled to a license.

4. The fourth and final question raises the issue of whether SEP holders are free to offer a license only to a particular level of the supply chain.

The Federal Cartel Office notes that the European Commission's Directory-General for Competition (DG COMP) has not yet decided whether to open formal investigations, but that its failure to do so does not suggest that Nokia's course of action is in compliance with EU antitrust law.

I interpret the Mannheim Regional Court's postponement of tomorrow's decision on very short notice as a sign that the court originally intended to order a Germany-wide sales ban, but is now forced to give this further thought. I cannot imagine that Judge Dr. Kircher is still going to enjoin Daimler. And if he did so, his injunction would be stayed by the appeals court in no time.

This development is the worst news ever for Nokia and its partners-in-crime (mostly the Avanci gang) in the automotive patent wars. Nokia's and its trolls' (as well as Sharp's) infringement campaign is going to grind to a halt now. The Court of Justice of the EU will decide. DG COMP may or may not launch formal investigations now, but in the event of a referral of those legal questions to Luxembourg, the Commission would most likely await the outcome before taking specific action against Nokia. I suspect that the Federal Cartel Office filed its amicus curiae brief with DG COMP's unofficial blessings.

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Munich court to hand down key Nokia v. Daimler patent decision on Wednesday (5/20)

This morning, a spokesman for the Munich I Regional Court ("Landgericht München I") confirmed to me that the 7th Civil Chamber (Presiding Judge: Dr. Matthias Zigann) is still on schedule to announce a decision in a Nokia v. Daimler standard-essential patent (SEP infringement case on Wednesday (May 20) at 10 AM local time. The trial was held in early February, and the original ruling date was postponed by about six weeks.

"Decision" doesn't necessarily mean final judgment; the case could also be stayed or the proceedings might be reopened. So what are the most plausible possibilities?

• A finding of non-essentiality (Nokia's infringement theory is based on the specifications of the UMTS standard) appears very unlikely. Should it happen nevertheless, the complaint would be rejected. Nokia would likely appeal.

• At trial time it looked pretty much like the court was going to find in Nokia's favor on all counts and order an injunction against Daimler. Most observers still expect that to happen, and I'll prepare a blog post for that event (because there's a sufficient probability to warrant such preparation on my side), but I'm a bit of an outlier because I'm far from convinced. The passage of time might have worked against Nokia. The court might have had second thoughts in the meantime, given that Nokia's case is deficient in more than one way.

• The most obvious weakness of Nokia's case is the patent-in-suit itself. It's not realistically going to be deemed valid as granted once the Federal Patent Court of Germany looks at it. In most cases in this industry, settlements occur before the Federal Patent Court gets to decide, but this case is more likely than the average case to reach that point.

  Statistically, the Munich court stays only about 10% of its cases, while 80% of all patents-in-suit turn out invalid. That's a huge discrepancy. Injustice of the worst kind. But every once in a while, even the Munich court stays a case, and this patent--I repeat--is a particularly weak one.

• The court could also identify a need for further FRAND analysis. In this regard I'd like to refer you to a previous post on this case, entitled How many times can a patent holder violate EU antitrust law in a single litigation? (Nokia v. Daimler)

Getting back to the scenario of an injunction, however unjustified it would be, it wouldn't be a general sales ban: Daimler would still be allowed to sell cars in Germany that come with telematics control units (TCUs) from Harman (a Samsung subsidiary). Nevertheless, Daimler argues that the financial impact of not being allowed to sell cars with non-Harman TCUs would amount to 4.5 billion euros.

What many people don't know is that it's easier in Germany to obtain a patent injunction than to persuade a court to impose contempt sanctions. The standard of proof would be higher: at the contempt stage, Nokia would no longer be able to base its infringement theory on a comparison between the patent claims and the specification of the standard.

An injunction could be lifted before it has any commercial impact whatsoever, depending on what the appeals court finds. Given the fundamental flaws of Nokia's case, and the possibility of one or more antitrust authorities taking action in the meantime, that's fairly possible.

But an injunction could set off a massive news cycle in Germany. Theoretically, that could benefit the camp pushing for patent injunction reform, but as I explained before, the pro-reform movement in Germany is so ridiculously incompetent (and the worst part is they don't even know how bad they are) that even the most spectacular German patent injunction ever (or at least in a long time) probably wouldn't change the political dynamics. But one never knows.

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Rumors of Nokia facing hostile takeover bid: skepticism is warranted and competition enforcement can't wait

Nokia's stock price went up yesterday after a TMT Finance report said the company had hired Citi to fend off a hostile takeover bid from an unnamed U.S. private equity fund. The rumored bid could relate to the company as a whole or to specific assets. Nokia declined to comment.

Let's take a quick look at two questions:

• How likely is this to happen?

• What does this mean for the impending decision by the European Commission's Directorate-General for Competition (DG COMP) on the complaints brought by Daimler and four of its suppliers over Nokia's refusal to license component makers?

I haven't formed an opinion on the reliability of TMT Finance. That website may indeed have scooped all other media on this one.

Richard Kramer of Arete Research, a 20-year-old and highly specialized, independent analyst firm headquartered in London, wrote in a note to his firm's clients that "Nokia is sure to deflect this unwanted attention on multiple grounds." Mr. Kramer then points to Nokia's ownership structure: "Its largest shareholders are local Finnish pensions funds, who are unlikely to just want to cash in." (That's also my impression as I've had conversations with Nokia shareholders on various occasions, and they were all Finnish pension funds.) Nokia shareholders may not be happy with the fact that the company's shares are "down a third on a [12-month] view," but in Mr. Kramer's opinion "this reflects poor execution that [private equity] is not going to resolve quickly, and a messy, protracted effort to buy out an €18bn market cap company would be highly unwelcome with all the other issues a new CEO faces, so we see this as much more of a negative distraction than a signal of underlying value."

That makes sense to me, and I can only add something when it's clearer what the proposed deal structure would look like.

On the antitrust side, this rumor is no reason to delay anything. Much to the contrary, there is a risk of a buyout like this resulting in even more aggressive enforcement. For an example, Nokia's management might want to coerce a number of companies into license deals just to demonstrate to shareholders that this is a stock worth holding on to. If the deal happened, the new owners might ratchet up patent enforcement, or they might sell some or all of Nokia's patents to trolls (a practice called privateering, which Nokia has already engaged in to a large extent).

Cellular SEP licensing is of great concern not only to smartphone and car makers, but also to the wider Internet of Things (IoT) industry. Many (European) companies might face outsized royalty demands, and with most of them being rather small, they actually depend on their suppliers (such as chipmakers) having secured the relevant licenses.

Honest and consistent competition enforcement is always the best choice. Once an antitrust authority allows itself to be swayed by what's going on in the world of corporate finance, there's an increased risk of making bad decisions. There's always going to be some kind of volatility, and buyout offers are one typical imponderability. But what the EU should focus on is what its highest court decided in Huawei v. ZTE (in terms of everyone's access to a FRAND license), and take a principled stance. Next time, the SEP holder in question may not be European: European companies hold fewer than one in six 5G declared-essential patents.

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