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

This is the final 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. In Part I, I discussed the rich history of automotive cartels, and couldn't help but conclude that the LNG proposal is, at best, a solution in search of a problem. Part II looked at the implications for SEP enforcement. Patentees would hardly be able to hold an individual implementer responsible for the positions taken by an LNG in negotiations, no matter how unconstructive.

Paragraph 208 of the European Commission's horizontal agreement guidelines states the following on when the collective market power of companies that are otherwise competitors but enter into a joint-purchasing cooperation gives rise to competition concerns:

"There is no absolute threshold above which it can be presumed that the parties to a joint purchasing arrangement have market power so that the joint purchasing arrangement is likely to give rise to restrictive effects on competition within the meaning of Article 101(1). However, in most cases it is unlikely that market power exists if the parties to the joint purchasing arrangement have a combined market share not exceeding 15 % on the purchasing market or markets as well as a combined market share not exceeding 15 % on the selling market or markets. In any event, if the parties’ combined market shares do not exceed 15 % on both the purchasing and the selling market or markets, it is likely that the conditions of Article 101(3) are fulfilled."

In other words, up to 15% market share a purchasing alliance is probably acceptable, and above that threshold it depends on the specifics. In the first months of this year, the Volkswagen Group alone had a market share of 26% in Europe. In light of that number, it's hard to imagine that Volkswagen lacks leverage in negotiations with SEP holders, but its chief patent counsel would like licensing negotiation groups to welcome both multiple car makers as well as multiple suppliers as members. If, for example, Stellantis and Renault joined Volkswagen, the collective European market share of the three organizations would be between 55% and 56%.

In a mid-June blog post (with the second half of which I agree to a substantially greater extent than with the first), David Cohen accurately described the LNG proposal as a "monopsonistic approach to SEP licensing." A monopsony is the purchasing-side mirror image of a monopoly.

If multiple car makers collectively negotiated with SEP holders (be it with individual SEP holders or a pool like Avanci), they'd act jointly and uniformly most of the time, except when a particular member opportunistically elects to enter into a license agreement outside the LNG. When the members of an LNG jointly decide on their response to a SEP holder's or pool's licensing offer, and if that response is "too high" (which it will be most of the time), the net effect is collective hold-out (on this one, too, I agree with David Cohen) or, to put it differently, a group boycott.

SEP holders would then face the choice of either not getting paid in the near term or doing business with implementers on their preferred terms. That is not the balance that the courts in major jurisdictions have struck.

Even if there were (as there not, at least to my knowledge) any serious issues relating to SEP pools (as opposed to issues with patent enforcement), authorizing collective hold-out would not be the answer because two wrongs don't make a right.

An exceedingly permissive stance on buyers' cartels in one context would set a dangerous precedent not only within that industry (notably, the automotive industry is no stranger to purchasing cartels) but even beyond. It would become ever harder for competition authorities to draw the line somewhere when a group of companies in another field argues that only a coordinated approach to purchasing is capable of addressing whatever issues allegedly exist.

The European Commission's SEP Expert Group Report's Proposal 75 on Collective Licensing Negotiation Groups (others say "Joint Licensing Negotiation Groups") acknowledges--in different words--that the idea may not be permissible under the antitrust laws. The Commission itself did not endorse the findings in that report anyway. Volkswagen, however, would want to go beyond: not only should the Commission endorse horizontal cooperation but also vertical cooperation under the same umbrella. That would be a two-dimensional cartel.

Proposal 75 wasn't exclusively about automotive companies. One key consideration appears to have been that many IoT companies may be too small to be in a position to negotiate license agreements with major SEP holders. Critical mass is a non-issue in automotive. Those companies are large enough, they can hire sophisticated people if they want, and they tend to be represented by top-notch law firms in patent infringement litigation.

It would be as principled as it would be pragmatic to reject a proposal that has a clear downside and no discernible upside except for those seeking to engage in hold-out.

If only a single competition authority in a major market declined the automotive industry's invitation to permit a buyers' cartel, that fundamentally flawed idea couldn't come to fruition. And when there are such serious issues, it's quite likely that someone, somewhere, will say no.

I've previously (Part II) explained that LNGs don't mix with the European approach to SEP enforcement. They're also clearly against U.S. case law. The Ninth Circuit ruling in FTC v. Qualcomm as well as Continental's miserable failure so far in its U.S. cases against Avanci and Nokia are pretty clear, as is the Avanci Business Review Letter. Also, U.S. courts don't allow themselves to be used as a tool by antitrust plaintiffs trying to force defendants to business on plaintiffs' preferred terms. The LNG approach is structurally different--not an antitrust complaint--but designed to have the same effect: by arguing that LNGs (which inherently complicate licensing) are needed to counterbalance patent pools (which facilitate licensing if their terms are reasonable), the automotive industry tries to obtain permission for organized hold-out.

There are legal concerns in Asia as well. The Japanese Ministry of Economic, Trade and Industry (METI) published a report (PDF, in English) yesterday that mentions a number of potential issues concerning "joint licensing negotiations by multiple implementers." In a nutshell, LNGs might be acceptable from the Japanese point of view if they're all just IoT startups, but here are just two key caveats I found in the report:

• "It is necessary for companies to conduct horizontal joint negotiations with caution, as competition law issues may arise when the total market shares of participating companies become high."

• "If implementers jointly negotiate the price, it will possibly fall into the unfair"

The METI report also questions the "need for horizontal joint negotiations."

I'm not even sure it's good for all car makers and suppliers. Some of them are so naïve in the IP space that they may not have figured it out yet: a LNG would easily be dominated by the likes of Toyota, Volkswagen, and General Motors. Those corporations have some luxury brands like Lexus, but are mostly in the volume business. Their interests are not the same as those of smaller car makers. With Volkswagen already having indicated in public that Tesla should pay higher patent royalties than many others, why should Tesla even be interested in joining a VW-dominanted LNG? They'd probably fare better with a single per-unit royalty rate for each standard.

Car manufacturers' leverage over suppliers is another issue I have with this horizontal and vertical (i.e., two-dimensional) type of cooperation. What role are suppliers going to play? They're going to scramble to please their large customers. Are they going to vote against Volkswagen, Toyota, and GM? Are they going to act constructively with respect to past infringement and existing license and purchasing agreements even if one or more of their key accounts are more interested in a group boycott?

After more than two years of litigation between Nokia and Daimler, the outcome was a car-level license. Daimler described that one as a good deal, leaving no doubt that from the beginning the whole fight had only been about money, with supply chain licensing questions just being raised to bring down license fees. It didn't work out, and others are not even going to try. Car-level licensing has won; component-level licensing will still happen in some cases. For my credibility's sake I have to tell it like it is.

Let me end this trilogy on a hilarious note. There's this saying from the 19th century that whenever three Germans meet, they create an association. A German state-owned broadcasting company, Deutsche Welle, concedes that "there seems to be a club for everything in the country." However, clubs are legal--cartels are not.

Beware of a dangerous precedent.

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

This is the second part of a trilogy on licensing negotiation groups (LNGs): automotive industry cartels that would collectively negotiate standard-essential patent (SEP) licenses with major patent holders and pools. In the first part, I outlined some of the issues and cautioned against a false symmetry between patent pools and buyers' cartels named LNGs.

There isn't any such thing as a conventional supply-and-demand mechanism in SEP licensing. For example, patent holders can't reduce output: if they abandoned some of their patents, they'd just reduce the value of a portfolio. By contrast, if the likes of Continental, Dunlop, Bridgestone and Firestone ganged up on car makers, they could drive up the price--which is why competition authorities wouldn't allow such a cartel.

As double patenting isn't possible (if it happens, only one of the patents survives), SEP portfolios are by definition complementary to each other. One SEP--or one portfolio--can't substitute for another. As an implementer, you can't "threaten" Huawei with the alternative of taking a SEP license from Ericsson instead (unless Huawei gives you a better deal). You need a license from both.

SEP holders have an obligation to grant licenses on a fair, reasonable, and non-discriminatory (FRAND) basis. Comparable licenses go into the FRAND analysis, but comparability and substitutability are separate things.

Where you do have a supply-and-demand mechanism is when one standard competes with another. After the industry has chosen a standard, the terms of individual license deals are effectively set by the courts, directly (in the event of infringement litigation) or indirectly (SEP licensing negotiations amount to a simplified simulation of what would happen if the patent holder went to court).

Let's talk about tires again. A Conti or a Bridgestone can't force anyone to buy their tires. But customers--even if they're as advanced as Tesla--will need some tires. The fact that cars can't move without them ensures demand. Cars do move without a SEP license, though. The sad reality is that most cars are rolling and infringing at the same time.

In SEP licensing, there is no demand without the prospect of losing infringement cases and, if it comes to worst, being enjoined. Apple's 2019 policy statement on FRAND-pledged SEPs is instructive. It postulates that "[b]oth SEP licensors and licensees should negotiate transparently and willingly based on an exchange of relevant information." Apple is a net licensee, but has acquired a sizable SEP portfolio (from Intel in no small part). There's probably no smartphone maker who negotiates SEP licenses as hard as Apple. Still, Apple stresses symmetry with respect to the willingness to reach an agreement.

That symmetry is merely consistent with the guidance the European Court of Justice provided in Huawei v. ZTE, and the way it is now applied by the German courts after Sisvel v. Haier I & II. Unwilling licensees incur the risk of SEP injunctions. Otherwise there isn't sufficient deterrence in certain jurisdictions, and infringement would be profitable.

Licensing negotiation groups don't mix with Huawei v. ZTE and Sisvel v. Haier. How can a court of law identify an individual company's unwillingness to take a license on FRAND terms if it can hide behind its LNG?

Currently, there are various ways in which courts can arrive at an unwillingness finding as the result of a multifactorial analysis. Just a few examples:

• slow response times to infringement notices and licensing offers

• noncommittal expressions of an interest in taking a license

• sub-FRAND royalty rates

• contract clauses that may give rise to subsequent litigation based on a flimsy patent exhaustion argument

All of the above examples would no longer be workable criteria if lawmakers and/or regulators were to endorse LNGs. Those licensee cartels would presumably move slowly, and they could blame it on the time it takes to build internal consensus within a group. Their offers might fall far short of a FRAND rate, but how could the patentee prove that a particular defendant was responsible?

LNGs could take extreme positions in negotiations. Individual members could not be held responsible.

Volkswagen's chief patent counsel explained (in the presentation I mentioned in Part I) that the LNG would appoint someone who would organize the internal process and would be neutral with respect to the LGN's members, but would clearly have a mandate to vigorously defend the group's interests vis-à-vis patent holders. For example, Mr. Wiesner tossed out the idea that an official from German automotive industry association VDA could do the job. It's another question whether such an official would truly be neutral within the group, given that large members typically have disproportionate influence over such organizations. But even according to Mr. Wiesner's presentation, the LNG's appointed negotiator would have to defend implementers' interests against those of licensors.

In order to discharge his or her duties, the LNG's representative would have to optimize the licensing terms for the LNG's members. That means to minimize royalties, but SEP holders would have no leverage over the representative: they couldn't sue her or him. And if they sued individual members of the group, those would argue they can't be held responsible for group decisions or a "neutral" representative.

It's a safe assumption that LNGs would often assert that a particular tier of the supply chain is where the license should be granted. If an implementer takes the position in infringement litigation that someone else should take the license, the courts will not be impressed and may just order an injunction. Not so when each implementer is shielded by an LNG. According to Volkswagen's presentation, the members should be free to negotiate with SEP holders independently, but it seems they would only do that if they could get an even better deal that way.

Should the plan to be make LNGs optional, SEP holders would be free to sue individual implementers, who would in turn make their own counteroffers. In that case, LNGs would cease to serve their purpose.

In the absence of a convincing plan for how to make patent enforcement work even after LNGs have been blessed by regulators, there won't be good-faith licensing negotiations.

In the next and final part of this trilogy (though there will likely be posts further down the road to discuss the topic in light of future developments), I'll take an antitrust angle and explain why a buyers' cartel would likely lead to collective hold-out. LNGs would complicate, not facilitate, SEP licensing in the automotive industry--and they'd have the same negative effect on SEP enforcement and the judicial decision-making process.

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

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

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

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

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

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

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

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

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

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

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

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Federal Circuit may overrule Judge Albright should he hold Markman hearing prior to ruling on Volkswagen's motion to transfer venue

We're in the Western District of Texas again. Sometimes, such as on Thursday, I agree with Judge Alan Albright. As a former patent litigator, he knows this stuff inside out. But there are issues. I already indicated in a Thursday post that Judge Albright's reluctance to relinquish his jurisdiction over patent cases is controversial. And in my previous post I pointed to a recent Federal Circuit decision overruling a denial of a transfer motion by Samsung and LG.

This "what's filed in Waco stays in Waco" attitude has practical implications: he gets about 20% of all U.S. patent infringement cases, tries to keep as many of them as he can, and then he struggles to take cases to trial as quickly as he'd like to (and as plaintiffs hope). One of the ways in which he tries to optimize his workstream is that he takes a relatively long time to rule on--guess what--venue transfer motions.

On Tuesday, the Federal Circuit handed down its decision In re.: Volkswagen Group of America, Inc.. Volkswagen is the petitioner, and the original plaintiff is StratosAudio, a company that according to its website "won the CES Best of Innovations in the Mobile Electronics category in 2004 with Motorola and Hyundai Autonet." What Volkswagen sought--and didn't get at this stage--is for the case to be transferred out of the Western District of Texas or for the proceedings to be stayed until Judge Albright would get around at long last to a ruling on the venue transfer motion.

The Federal Circuit did not find that Volkswagen had a clear legal right to a stay. But that conclusion is based on the assumption that Judge Albright will adjudicate the venue transfer motion ahead of the Markman (claim construction) hearing scheduled for early October. The Federal Circuit "note[s], however, that the district court's failure to issue a ruling on Volkswagen’s venue motion before a Markman hearing may alter [the appeals court's] assessment of the mandamus factors."

That last sentence means the glass is half-full for the car maker. And it has serious ramifications for Judge Albright's case management beyond StratosAudio v. Volkswagen.

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

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

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

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

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

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

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

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

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The lemmings of patent injunction reform: Microsoft, BMW, Deutsche Telekom joined ip2innovate during German reform process

Political decision-making processes tend to be so complex that it's often very difficult to identify a clear causation between what went wrong and why. In connection with Germany's patent reform, which has been carefully crafted by the country's government to change almost nothing at all (see my initial reaction to yesterday's official legislative proposal), one can infer from publicly-accessible documents that the Brussels-based ip2innovate lobby group (Google, Daimler, SAP etc.) committed the colossal blunder that most likely condemns the reform effort to fail. "Be careful what you wish for." IP2I advocated the term "Einzelfall" that is now the central term that will render the reform ineffectual because the government's official legislative rationale clearly defines it as "hardly ever happens." Now the losers are trapped in a no-through one-way street as they can't lobby against their own proposal. They dug their own reform's grave.

Germany's leading information & communications technology news site, Heise online, quotes my analysis in an article on yesterday's legislative proposal, including my criticism of IP2I's lack of strategic sophistication. For what I know, however, chip makers Nvidia and Intel, while they're longstanding IP2I members, can't be blamed for the "Einzelfall" crap.

Were IP2I only a fringe group of the patent reform movement, the others could still combat that "Einzelfall" term effectively. But birds of a feather flock together, and lemmings famously follow other lemmings. With the sole exception of Volkswagen (the whole group including subsidiaries like Audi and Porsche), IP2I's membership directory lists practically every large German organization that demands injunction reform.

Over the course of this year, the misguided IP policy groups of three large organizations--two of them among Germany's largest corporations--joined IP2I:

• Microsoft,

• BMW, and

• Deutsche Telekom.

Deutsche Telekom's IP department habitually hurts the company's interests. They even contributed their cellular standard-essential patents (SEPs) to the abusive Avanci pool. They might have found it convenient, and maybe they thought it was "cool" to join some large patent holders in a pool, but Avanci is all about driving up licensing costs, which runs counter to Deutsche Telekom's interests. Also, Deutsche Telekom is still the only company known to have made a huge royalty payment to patent troll IPCom. They could have avoided it by simply insulating their then-outgoing CEO from the potential fallout from IPCom's patent assertions against him. Instead, they paid hundreds of millions of dollars at a time when Nokia and HTC were actually defending themselves very successfully against that same patent portfolio. Deutsche Telekom also has a reputation for having caved to other patent holders in situations in which many others wouldn't have done so.

As I already noted yesterday, Deutsche Telekom might benefit to some degree from the fact that the reform bill makes harm to third parties a factor. In Dusseldorf that might help; in Munich and even in Mannheim, it most likely won't. Those courts will tell them to take a license. If patent holders seek injunctions that threaten to shut down Deutsche Telekom's network, it's just a means to an end. The end is a costly license deal; leverage from an injunction is the means. So those patent holders will make a licensing offer, and the courts will then tell Deutsche Telekom that the harm they suffer isn't irreparable: they don't have to switch off their network infrastructure as they can take a license. I already explained based on the January draft bill how this would work.

The world's top three smartphone makers--Apple, Samsung, and Huawei--are notably absent from IP2I's membership directory. They have to defend themselves against German patent infringement complaints all the time. In order for them to be in a better position, the hurdle for a useful injunction reform statute would be considerably higher than for Deutsche Telekom (which can at least argue that third parties depend on access to its network) and German car makers, which have substantial manufacturing operations that would be susceptible to a German injunction. Again, I believe even Deutsche Telekom and those automotive companies will ultimately just be coerced into taking licenses on unreasonable terms. But at least they have far more of a hardship argument than foreign companies that export their smartphones and similar devices to Germany.

As foreign companies with limited head counts in Germany, those three would have found it difficult to make much of an impact. If Huawei had joined, it could even have been counterproductive, considering that those opposing reform (such as Nokia) would presumably have tried to politicize the debate.

Whether Apple and Samsung should have done more, in quantitative as well as qualitative terms, is a question those companies will answer for themselves when this reform process is over. Where the process stands today, the most likely outcome is that they'll just spend more money on proportionality arguments (lawyers, experts) but those suing them will have basically the same leverage in negotiations as today. There's an asymmetry here: patent trolls, or companies that practically behave like trolls by suing companies they're not competing with, only stand something to gain, and nothing to lose. They typically wield portfolios, not individual patents, and they can sue in three or more different German venues as they need leverage in only one of them.

This is frustrating to watch. It must be far more frustrating for companies to find themselves on the receiving end of those lawsuits. I warned many of them a year ago, and earlier this year. I told them what was going wrong, and how they'd have had to fix it. There was some hope last month because the previous draft looked like the government had made concessions on the statute and simply hadn't updated the legislative rationale yet. Now that the legislative rationale suggests it's easier to spot a pink elephant in your garden than a German patent case in which an injunction would be denied over proportionality considerations, and with most reform advocates being bound to IP2I's misguided March 2020 submission proposing "Einzelfall," it's extremely hard to imagine a turnaround.

Besides IP2I, there's only one other major industry group pushing for reform, and that's the VDA (German automotive industry association). They have members such as Bosch that prevent them from taking really strong positions, and they lack IP policy expertise at the staff level. So it would be a surprise if they could solve the problem IP2I has created.

I'm quite sure I'll point to yesterday's posts as well as this one many times in the coming years whenever some high-profile German patent injunctions come down or the possibility of such injunctions forces companies into license agreements. I'll be looking out for that pink elephant, and maybe I'll spot one once every while, but I won't blame the judges for what is the only reasonable interpretation of this statute in light of the official commentary: you normally don't even have to conduct a full-blown proportionality analysis because defendants will fail to distinguish their situation from that of any other defendant who has the choice of simply taking a license.

Before the Bundestag (Federal Parliament) formally receives the bill, the Bundesrat (Federal Council) will analyze the proposal and make an official statement that is going to influence the parliamentary process. Chances are that the Federal Council will either say that even this reform proposal goes too far or that it's acceptable but will warn against seriously restricting access to patent injunctions. Some conservative politicians in the Federal Parliament will almost certainly prevent any impactful reform from being passed into law, and time is on their side as the end of the legislative term is approaching (and COVID complicates everything).

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Google, SAP, Daimler (ip2innovate) botched patent injunction statute: "Singularity Killed the Reform"

If you noticed the allusion to a band name in the headline, you might have grown up in the 80s, in which case you may also remember the famous line "I pity the fool." Otherwise you might know the proverb "curiosity killed the cat". Whatever, those opposing German patent injunction reform are now on the winning track as I explained in my previous post, and in the losing camp, three companies are particularly responsible for a monumental f..kup:

Google, SAP, and Daimler.

Volkswagen deserves credit for having started the push for patent injunction reform in Germany. The three companies listed above will go down in history as the main culprits unless there's a second reversal of fortune. I'd like things to work out, but I increasingly doubt it. The anti-reform movement is just too sophisticated for a pathetic bunch of amateurs.

The documents that prove what went wrong and who's to blame are all public. So let me explain, but again, I'd like nothing more than to be proven to have been too pessimistic. Until the last moment I'll hope that the broken German patent litigation system will be fixed.

So, here's the chronology of events:

In January, the Federal Ministry of Justice and Consumer Protection published a first draft reform bill that Germany's leading patent litigators said was going to change nothing, or at least wasn't going to have significant impact. It then gave stakeholders until mid March to submit comments.

A lobby group named ip2innovate, which is based in Brussels and mostly focuses on EU patent policy, made a submission (PDF, in German) that I largely agreed with, though I expressed concerns about their statutory proposal. Back then I commented on dozens of statements, so I didn't go into detail.

Here's a screenshot of the worst blunder in this whole reform debate (click on the image to enlarge; this post continues below the image):

The first sentence of their proposed amendment to the patent injunction statute is this (in German):

"1Der Anspruch nach Absatz 1 ist ausgeschlossen, soweit die Inanspruchnahme im Einzelfall unverhältnismäßig ist." (emphasis added)

This means that injunctive relief shall be unavailable to the extent that its enforcement would be disproportionate "im Einzelfall." What does "im Einzelfall" mean? That's the problem. The term can be understood in two ways, neither of which reflects favorably on those who proposed it:

• non-judgmental interpretation: "in the individual case to be decided"

• with a quantitative connotation: "only in rare/outlier cases"

It was an utter stupidity at any rate to use a term that simply isn't a well-defined legal term. I can't remember ever having seen a German statute that contained the word. Therefore, the first thing courts will turn to when trying to make sense of the term is, besides the context, what the legislative rationale (the official commentary provided along with the law) says. I'll get to those two determinants--context and legislative rationale--in a moment.

Anyway, if the plan is to inject a new term into the law that wasn't there before, a lobby group (unless someone inside the group seeks to sabotage the effort or people don't know what they're talking about) would at least pick a term that has framing value. You'd want to use a term that has a connotation that suits your agenda. The last thing you'd want to do is shoot yourself in the foot like ip2innovate did.

Even in a neutral context and without the risk of a legislative rationale ascribing a particular meaning to the term, "Einzelfall" was the equivalent of an own goal in certain sports, or unforced error in others. That's because the non-judgmental interpretation would not be as persuasive a proposal as the quantitative one. Let's face it: the law is always used to decide individual cases. It's the single most fundamental principle of statutory interpretation (which some of the people working for ip2i's members may have learned about a loooong time ago, maybe too long) that if a term can be given one meaning that makes sense and one that doesn't, you pick the former, not the latter. Interpretation 101. With "individual case" being nonsensical, no judge could be blamed for interpreting "Einzelfall" in the sense of "rare outlier, or singularity." One could debate just how rare. But there could be no reasonable argument over whether at least some degree of rarity is implied.

To be clear, I'm not "Monday-morning-quarterbacking" here. I actually made a hands-down superior statutory proposal that I sent to a variety of companies (some of which were and are ip2i members) and select academics in January. When the German reform process is over, I'll publish it. Or maybe before. We'll see. Dozens of witnesses can confirm I shared it with numerous industry players in January 2020. So I don't just pretend to know better with the benefit of 2020 hindsight. I already did back then. And among the proposals that were officially submitted, I supported the one by the Max Planck Institute, which didn't contain any crap like "Einzelfall" either.

Now, fast forward to early September, when the ministry finally published its second draft. It already incorporated the term "Einzelfall"--and did so in connection with a reference to "besonderen Umständen." That term, just like "Einzelfall", can be interpreted in two ways:

• non-judgmental interpretation: "specific" = "under the given circumstances"

• with a qualitative connotation: "special" = "only under extraordinary circumstances"

Here, again, the non-judgmental interpretation would be devoid of any meaning as any case is decided based on its facts. And then, when you have in the very same, narrow context the combination of two terms (grammatically related to each other in the statute) that can be interpreted judgmentally or non-judgmentally, with the judgmental interpretation making sense while the other doesn't, you'd really need the legislative rationale to support a non-judgmental interpretation--or a mildly judgmental one, meaning that it would suffice for the circumstances to be somewhat special and that injunctive relief wouldn't be abolished entirely, or in a vast majority of cases.

When ip2i submitted its feedback to last month's draft (PDF, in German), it complained that "besondere" (special/specific) was "redundant" in the context of "Einzelfall". They started to realize they had botched this by proposing a term that renders the whole reform statute pointless--even without "besondere Umstände" (though even more so in that context, which basically doubles the problem).

Too late. When you're trapped, you're trapped. The proposal that the executive government adopted today (which still doesn't pass it into law, but that's what the executive officially submits to the legislature) contains the same problematic passage, has made two other terms in the statute less favorable to the interests of defendants, and the draft legislative rationale has deteriorated sharply.

On page 64 of the early September draft ("Referentenentwurf"), the ministry wrote:

"Eine dauerhafte Versagung des Unterlassungsanspruchs wegen unverhältnismäßiger Belastung des Schuldners wird hingegen nur in sehr wenigen Fallkonstellationen in Betracht kommen."

This means:

"A permanent denial of an injunction due to a disproportionate burden on the infringer will, however, only be part of the consideration in a very few case patterns."

At the time, I was being optimistic and assumed that the rationale had not been updated yet. But today's version leaves no more room for such wishful thinking:

"Eine dauerhafte Versagung des Unterlassungsanspruchs wegen unverhältnismäßiger Belastung des Schuldners wird hingegen nur in sehr wenigen besonders gelagerten extremen Fallkonstellationen in Betracht kommen. Sie setzt voraus, dass unbilligen Härten für den Unterlassungsschuldner nicht durch eine Umstellungs- und Aufbrauchfrist hinreichend Rechnung getragen werden kann." (emphasis added to highlight what was inserted in October)

Here's my translation:

"A permanent denial of an injunction due to disproportionate hardship on the infringer will, however, be part of the consideration only in a very few, specially-structured, extreme case patterns. It would be a requirement that inequitable hardship on the infringer could not be sufficiently addressed through a workaround and use-up period." (emphasis added to highlight what was inserted in October)

This is like the postmortem of an abysmal failure. With this official commentary, the bill would provide a dictionary to the courts:

• "Einzelfall" = "very rare, extreme case" ("singularity")

• "besonderen Umständen" = "there must be something out of the ordinary about the circumstances, the circumstances must stand out in a structural sense"

This means the courts will rarely even have to take a closer look at proportionality arguments--unless, as I'll say now for the last time, the pro-reform camp manages to turn this around.

The more realistic assumption is that there won't be any truly helpful developments. If any of the people representing their companies had to report to me, I'd want to know who proposed or supported "Einzelfall" and who opposed it, as that would tell me whether or not I could trust those people to vigorously defend their companies' interests.

The largest U.S. company among ip2i's longstanding members (Microsoft just joined recently) is Google. The search and Android company's European in-house patent litigator, Ralf Uhrich, may actually even benefit from this mess. While he manages Google's patent cases in other European jurisdictions as well, he is admitted to practice in Germany, and may very well return to private practice, such as to Quinn Emanuel, where he left as an associate. In Germany, becoming in-house counsel is typically a one-way street and not considered an upgrade. But Google is an American company, and the relationship between Google and QE is special. As a future QE attorney, Mr. Uhrich would be much less busy if Germany actually reformed its patent injunction regime. Near-automatic patent injunctions are a boon for German patent litigators.

Ip2i's largest European member is SAP. SAP actually hasn't been sued over patents in Germany in a long time (at least that was the case last time I checked). If SAP really had a problem with German patent injunctions, they'd presumably have entrusted someone more senior than Ina Kock, an in-house patent prosecution counsel, with this reform project. While SAP is a great employer in some other fields, it's a rather unpopular one among German patent attorneys. The company is HQ'd in the middle of nowhere, and patent attorneys at other major tech companies working in Munich (Europe's patent capital) make at least 50% more because they have more opportunities. Her background is patent prosecution, not litigation, and unlike in-house patent counsel of companies that regularly get sued, she hasn't even had the opportunity to really figure out how things actually work in German courts. Then, participating in ip2i conf calls may spice up her professional life, as she'd otherwise just be spending eight hours a day to get software patents granted in contravention of a subject-matter exclusion under the European Patent Convention. I guess that's far more important than achieving a positive outcome.

This was just come color that may explain why ip2i has performed so poorly. But I still hope they're going to get this reform effort on track, alongside some other organizations such as the German automotive association (VDA).

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Meet the patent trolls of the 2030s: Bosch, Volkswagen, Daimler, BMW

Four days before the 67th International Motor Show (IAA) in Frankfurt will end, I'd like to offer a bold prediction: unless a miracle of the kind I can't imagine happens, Germany's automotive industry (car manufacturers as well as suppliers) will suffer a fate similar to that of the smartphone divisions of the likes of Nokia and Ericsson, ultimately resulting in "trollification" by the 2030s.

As Frankfurter Allgemeine Zeitung noted last month, 52% of all patent filings related to self-driving cars belong to German companies, with Bosch alone (which is number one and followed by Audi and Continental)holding three times as many patents in that field as Google and Apple or Tesla not having any significant patent holdings in that field yet. Besides Bosch, Audi, and Continental, three other German companies are among the top 10 patent holders in this field: BMW, Volkswagen, and Daimler.

Patent filings related to self-driving cars are picking up speed, so the landscape will almost certainly change in some ways in the coming years, but not entirely.

So far, major automotive companies have not used patents aggressively. Much to the contrary, they often find themselves on the receiving end of patent troll lawsuits in the Eastern District of Texas and elsewhere, and they tend to support reasonable royalties (such as through the Fair Standards Alliance) and defensive initiatives (including a fake one--"fake" because it's merely about making a statement and doesn't solve a single patent-related problem ever--called Open Invention Network). I'm not aware of any major dispute between two large car makers. Apparently they work out cross-licensing deals quietly and amicably.

But that's because right now those companies are in the business of selling vehicles (and related services), not in the patent assertion business. While it may seem daring to talk in 2017 about what's going to happen in the 2030s (if not before), I am fairly convinced (not 100%, but way above 50%) that we're less than two decades away from the point at which Germany's automotive industry is going to enforce patents aggressively and try to shake down the future winners in the marketplace.

I believe Germany's leading car makers--and some of their key suppliers--are going to be in only a slightly better position than the smartphone divisions of companies like Nokia and Ericsson were when Apple and the Android ecosystem revolutionized the concept of a mobile communications device. I said "slightly better" because brands like BMW and Mercedes have been very strong for several times longer than Nokia's brand at the time of the iOS/Android revolution. Those brands are associated with certain strengths, some of which will remain important even in the self-driving electric future. But apart from that factor, those companies are practically doomed and will have to resort to patent licensing in less than 20 years' time. They won't disappear into oblivion too quickly, but over time they will, and there will be a long period during which they will still be around and you'll still see Mercedes stars on the roads, but where most of the revenue opportunity will belong to leading U.S. technology companies.

One challenge that those German automotive companies may somehow manage to overcome--though they haven't so far--is the one of creating good user interfaces. I've had an S-Class for a few years and the UI is just simply not well-thought-out. One example is the big button that also serves as a wheel. When using voice control to dial a number from my history of calls, that button means "Yes, this number" in one situation and "No, abort the operation" less than a second later--something that would be completely unthinkable at a company like Apple or Google. Another example is that they waste space on the screen by showing the city of a destination before the street name (which then often doesn't fit on the screen at all, or must be abbreviated beyond recognition). Those are simple things, and while it's astounding that Mercedes would ever have come up with a stupidly-designed user interface in the first place, they--and their competitors--may figure this part out over time.

Maybe someone will explain to their software developers the concept of a race condition because the way the thing intermittently fails to activate functions when starting up--or the way the UI occasionally freezes when dialing--suggests to me they have one or more of those in their code. Maybe they'll even understand that they should keep track of the last cities I navigated to so I don't have to select the same city again and again when entering a destination. And who knows, maybe they'll realize one day that they should provide free firmware updates from time to time to keep customers happy, especially when you have really nasty bugs in your software (as they do). Again, none of that is rocket science.

The bigger issues are of the strategic kind. For decades they have largely relied on a core competence: combustion engines, which involve about 200 times as many parts as electric motors. Daimler once invested in Tesla, then exited. With more foresight, it would have acquired it while it still had the chance. Anyway, those companies will lose their #1 competitive advantage.

Once Silicon Valley companies are the technology leaders (which Tesla in some ways already is) in the automotive industry, Germany's automotive companies will also struggle in the "war for talent." Most of the world's best software developers either already are in the United States or are potentially receptive to offers from such world-class employers as Google, where they can make a lot more money than at BMW, like Daimler or Volkswagen, get perks that are heard of in Germany, and often get to work on more interesting stuff. There will always be some talented developers who will choose to come to or stay in Germany, but a majority of the world's best programmers won't even consider Germany, period. Frankly, the cost-benefit ratio of learning German--a hard language to learn and of very limited use--is inferior, and most programmers already speak a least a little bit of English. In all likelihood, the average Google or Apple programmer will simply be better than his counterparts at German automotive companies, and if Apple or Google wanted to hire a very talented person away from a Volkswagen or BMW, they could in most instances.

Even if those German automotive companies figured out the digital user experience (which is doable) and even if they built better electric cars over time, there is, however, one thing that's simply going to marginalize them. It's that self-driving cars will be mobile communications devices on wheels. Speed and similar success factors of the old times aren't going to matter anymore at all. Instead, it's all going to be about what you can do while the car is doing all the driving.

The most lucrative parts of the car value chain are going to relate to productivity, communications, and entertainment applications. Plus all sorts of e-commerce (including "sharing economy"-style) services.

Those parts of the value chain will, without the slightest doubt, belong to such companies as Apple, Google, Amazon, and Microsoft. Of those companies, Apple is believed to be working on a car of its own and even made a joke about it at a corporate event. The others--especially Google--will be open to partnering (as they're already doing in some areas) with such companies as Daimler. But they're going to have all the leverage because of a force that is far more powerful than the leadership of traditional automotive companies presumably knows: network effects.

Short of developing something that would have to be several times more revolutionary than the iPhone was ten years ago, there's absolutely no way that BMW, Daimler and Volkswagen--even if they agreed to a three-way merger and secured regulatory approval for it--could ever get sufficient traction among app developers so they could compete effectively with Apple and Google. Even Microsoft with Windows Phone and with all of its money couldn't.

My app is in the final testing stage. We'll launch in a first market (probably New Zealand, where other games have also been launched early) in a couple of weeks and will quickly expand from there before finally launching in the United States. I know what drives platform choices. A few years ago I thought I would start on Android, then wanted to serve both major platforms at the same time, and ultimately decided to do iOS first, Android later. Before I would consider any other platform, we'd most likely do Mac and Apple TV versions of our game. Thereafter? Maybe, maybe, maybe even a Windows version at some point. But a Mercedes/BMW/Volkswagen version? I just don't see that happen.

Using Android on open-source terms won't be a viable option (at least nowhere outside China). Android is open-source in some ways but proprietary in others. It's no secret that most Android device makers aren't really profitable. Automotive companies can still make low-margin hardware in the future. But the biggest revenue streams are going to pass them by.

Also, a high percentage of the people buying premium cars are Apple customers, and their loyalty to Apple is simply stronger. Just this week I was thinking about this when I saw a German car with an Apple sticker on it. I was thinking to myself: Would anyone do it the other way round and put a Mercedes or BMW logo on an iPhone or a MacBook? Or a Volkswagen logo on an iPad? Obviously not.

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Automotive companies fighting for FRAND: Daimler, Hyundai join Fair Standards Alliance

About four to five years ago, there was a time when "FRAND Patents" would have been a more suitable name for this blog than "FOSS Patents": the pursuit of sales and important bans over standard-essential patents (iun violation of pledges to license them to all comers on fair, reasonable and non-discriminatory terms), royalty demands far out of the FRAND ballpark and exorbitant damages claims were the three most important symptoms of a huge underlying problem, and I did what I could to shed some light on what was going on and going wrong.

While I'm glad that some of the worst potential consequences were avoided at the time, I have realized that there is some unfinished business in that area. Antitrust settlements and court decisions were helpful. Some of them, such as Judge Posner's 2012 Apple v. Motorola ruling, were really great. But attempts to abuse FRAND-pledged SEPs are still rampant. Various SEP owners are still seeking injunctions (not in all jurisdictions but definitely in some). Royalty demands and damages claims still appear to be out of line in too many cases.

Why hasn't the problem been solved yet?

• For the most part, courts solved problems only in narrow contexts. Even Judge Robart's rate-setting decision in Microsoft v. Motorola (2013), which was wonderful in some ways, had a major shortcoming: it didn't require Motorola to base its royalty claims on the smallest saleable unit implementing a given standard, such as a WiFi chip for IEEE 802.11 patents or a baseband chip for patents on cellular network standards.

• Antitrust authorities stopped short of establishing clear, bright-line rules. Instead, they entered into settlements with major loopholes. I particularly criticized, at the time, the FTC's Google/Motorola consent decree.

That said, I do have hope that significant progress will be made over the next few years:

• Judges and competition enforcers can easily see that what was done a few years ago was generally good but simply not enough.

• Android companies (Google and certain device makers) weren't the "perfect" FRAND offenders to crack down on as they weren't repeat offenders or aggressors. What they did was just retaliation for attacks on Google's Android mobile operating system and the related ecosystem. They hadn't done this before (Motorola maybe, but not Google, which owned Motorola at the height of the smartphone patent wars). They haven't done it since. What they wanted then was not to cause damage to the concept of FRAND licensing: at the most they were prepared to accept collateral damage in order to end the smartphone patent wars on the basis of (more or less) zero-zero license deals.

  Google's antitrust lawyers stressed all the time that their client hadn't drawn first blood -- and they pointed to assertions of patents on de facto industry standards and to what they called "commercially essential" patents. Microsoft said something very accurate at the time: two wrongs don't make a right. Unfortunately, however, regulatory agencies are controlled by politicians, and they just didn't want to take sides in the ecosystem wars between Android rivals and the Android ecosystem. As a result, some of the world's worst SEP abusers benefited from what Google/Motorola, Samsung and others were doing (and from those companies' political weight). But times have changed. Earlier this year, Google joined the Fair Standards Alliance. It's now fighting the good fight for FRAND.

• The pro-FRAND coalition is now more broadbased and more powerful than ever. Case in point, I received a press release today from the Fair Standards Alliance announcing that Daimler and Hyundai have joined the Brussels-based organization, joining major IT companies such as Google, HP, Cisco, Intel, Dell, and Juniper Networks as well as rival car manufacturers Volkswagen, BMW, and Tesla.

  They are profoundly concerned about abusive assertions of patents on wireless and IoT (Internet of things) industry standards. That concern isn't new: automotive companies frequently have to defend themselves against patent assertions (in the Eastern District of Texas and elsewhere). I'm not allowed to disclose the name publicly but I also gave some advice a few years back to a major German automotive company, and I've talked to lawyers defending such companies in court. But if the problem wasn't huge, those organizations wouldn't have joined the Fair Standards Alliance.

Let's give meaning to FRAND. I'll make my little contribution again by blogging about FRAND developments, not only but also in a litigation context.

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