Sisvel's third patent pool announcement in a row: 5G multimode pool for consumer electronics products includes patents from 14 licensors such as Mitsubishi, Siemens, major telcos

Sisvel just announced a new patent licensing program, and it's the third major pool to have been launched by this administrator in the second half of 2022:

1. In July, Sisvel announced a WiFi 6 pool with patents from such licensors as Huawei, Philips, and MediaTek.

2. A little over a month ago, a cellular patent pool for narrowband IoT devices (standards: LTE-M and NB-IoT) was launched. The initial licensors are a large and diverse group including Ericsson, some network operators, renowned research institutes, and chipset makers.

3. This morning, Sisvel launched a 5G Multimode ("5G MM") Licensing Program, which "will be focused on consumer electronic products, and includes the 2G, 3G, 4G and 5G SEPs owned by 14 founding companies: Alfred Consulting LLC, Intellectual Discovery Co., Ltd., JVCKENWOOD Corporation, KDDI Corporation, Koninklijke KPN N.V., Mitsubishi Electric Corporation, Siemens Aktiengesellschaft, SK Telecom Co., Ltd., Technology in Ariscale, LLC, Telefónica S.A., TIM S.p.A., Wilus Inc., Wireless Innovations, LLC and Sisvel [with respect to the patents that have been assigned to it]."

This means Sisvel's pools cover the latest wireless standards (5G, WiFi 6) and emerging fields of use (narrowband IoT: smart meters, asset trackers).

In April, Via Licensing announced its exit from the wireless patent pool business, leaving Sisvel as the only administrator of a cellular SEP pool for consumer electronics products such as smartphones. Effectively, Sisvel's announcement today is not just an update (from 4G to 5G) but also serves to consolidate the industry, as Sisvel's 5G MM program manager Donald Chan says in today's press release:

"Sisvel’s 5G MM program will be the only cellular patent pool directed to the wireless market for consumer electronic products, with Via Licensing having announced its exit from the space. Having a single patent pool will help eliminate confusion in the market and increase cellular licensing efficiencies for implementers and licensors alike."

And there are indeed several former Via licensors in this new Sisvel pool from the get-go.

The announcement makes it clear that the door is open to additional licensors. It mentions that "Sisvel is also continuing discussions with various additional companies that may have an interest in joining the pool," and "invites all parties that have patents they believe to be essential to the cellular standards to join the patent pool" (subject to an independent essentiality evaluation).

Obviously, some large cellular SEP holders such as Ericsson and Nokia are going to license only bilaterally. They have the licensing and litigation departments in place to go it alone. For instance, Ericsson announced a new license agreement with Apple on Friday, settling litigation that was pending in several countries. But for many other patent holders, contributing their IP to a pool is an attractive option as it reduces transaction costs.

The initial group of Sisvel 5G MM licensors already makes this pool a licensor that by some metrics plays in the same league as some of the largest individual cellular SEP owners. There can be no doubt that Sisvel's 5G MM pool will from the beginning be able to present a very significant number of essentiality claim charts to licensees.

The per-unit royalty rates are stated on Sisvel's website and even the entire license agreement (PDF) is publicly available. These are the per-device license fees:

up to 5G	up to 4G	up to 3G
US$0.50	US$0.42	US$0.25

The total addressable market is roughly a billion devices per year.

The royalty rates are actually lower than past published rates, which should make the offer more palatable to licensees. What always poses a challenge to patent holders and pool administrators is to work things out with implementers who sell most of their devices in very price-sensitive geographies. Sisvel has been quite successful in that regard, striking agreements with the likes of OPPO (the opposite--no pun intended--of a soft target) and vivo.

I can see various key success factors here that suggest it will make more sense for licensees to take the offer than to provoke infringement lawsuits, and more sense for cellular SEP owners who are similarly situated as the initial licensors to join this pool than to engage in experiments:

• the aggregate significance of the cellular SEP portfolios that have already been contributed to the pool,

• the license fee that I believe will easily be deemed FRAND should a court reach that question, and

• the pool administrator's track record of being able to work out many license deals without litigation, but also being prepared to address infringement and hold-out behavior if need be.

IAM has also reported on Sisvel's announcement (paywalled). It is an important development for the 5G patent licensing space. I consider it likely that we'll hear from this pool again on multiple occasions next year, with additional licensors joining that group as well as device makers entering into license agreements (which aren't always announced, but sometimes).

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Potential transatlantic divergence in tech competition regulation: App Store legislation, Activision Blizzard acquisition--can the cradle of antitrust law regain thought leadership?

The United States is more advanced than Europe in various ways, though not in every respect. Over the past couple of days, I have seen some news--primarily from Bloomberg--concerning mobile app stores as well as vertical mergers that surprisingly suggest the EU is currently has smarter priorities in place when it comes to tech competition regulation. The cradle of antitrust law can regain its thought leadership, but must get its act together--such as its Open App Markets Act (OAMA).

On Tuesday, Bloomberg reported on a statement by Microsoft President Brad Smith at his company's annual shareholder meeting the same day, according to which he's confident in his case for the acquisition of Activision Blizzard King (NASDAQ:ATVI), but also said this:

"I’m disappointed that the FTC didn’t give us the opportunity to even sit down with the staff to even talk about our proposal to even see if there was a solution there."

The Federal Trade Commission didn't dispute this specifically and merely told Bloomberg that remedy proposals will always be considered. But it's one thing whether a company can submit a proposal and it will be read (more or less) and another whether a competition authority constructively resolves a potential issue through dialog. It's a lot easier to work out a solution if the two sides meet and talk.

The FTC's press release that announced the complaint on Thursday made it clear to me that the FTC was suing for the sake of suing, as I called it in my immediate reaction. That impression was based not only on the press release (and later reinforced by the actual complaint, which has shocking deficiencies as well as reports that Microsoft even offered a Call of Duty commitment to the benefit of Sony's PlayStation Plus multi-game subscription service), but in the build-up to the decision there had been some media reports that indicated the FTC simply wanted to sue, period.

The misleading part about post-acquisition Microsoft-exclusive Bethesda games was clarified by the European Commission when MLex reached out. It's not that the FTC had lied, but it had blown things out of proportion and misled people by making it sound as if Microsoft had reneged on a commitment, formal or informal.

On Monday, the EC's Directorate General for Competition (DG COMP) published a policy paper on how to address digital mergers (PDF). What's typically European is that the first section focuses on interoperability--a priority that I agree with and that I believe is increasingly recognized in the U.S. as well. Interoperability is obviously a non-issue with respect to Microsoft-ActivisionBlizzard. The paper also says: "Under the Commission’s long-standing policy, divestiture commitments are the best way to eliminate competition concerns resulting from horizontal overlaps." There's no divergence in that regard, and it's not an Activision Blizzard issue either. What about vertical mergers, though?

"[T]he Commission’s recent decisional practice shows that many mergers in the digital and tech sectors involve players active in vertically-related or neighbouring markets, which can mean that a divestiture may not always be the most appropriate method to solve competition concerns. If competition concerns can be removed by targeted, clear-cut and enforceable changes to market practices, non-divestiture remedies can allow, and have allowed, the Commission to intervene in a proportionate manner to address non-horizontal concerns."

Remedies are not a binary question. There are behavioral remedies and there are divestitures, but besides divestitures there can be other structural remedies--such as long-term license deals. That is something the FTC should be more receptive to.

Analyst Ben Thompson published a very interesting article on Microsoft-ActivisionBlizzard, most of which is a walk down memory lane all the way back to the first video games and the Atari 2600 console. The article makes a lot of valid points, though I don't even see a threat to Sony's market leadership in any scenario, and I consider it a non sequitur that there should be any obligations on the acquirer as this is, by traditional legal standards, a case for unconditional clearance. But those are questions on which reasonable people can disagree. I did, however, chime in to defend the FTC against an accusation of doing nothing about mobile app store abuse because it seems to me that there is simply an inter-agency agreement that the Department of Justice would deal with that part (and its support of Epic's case against Apple is a very significant first step) while the FTC focuses on other problems:

I agree with 90%+ of this analysis and I, too, started with an Atari 2600. While I agree 100% that the FTC is on the wrong track, it is however unfair to blame the FTC for not doing enough about the Apple-Google app tax: the DOJ is working on that and supporting Epic in 9th Cir. https://t.co/ejeVBv2KmT

— Florian Mueller (@FOSSpatents) December 13, 2022

That said, I do agree with Ben Thompson that "the real threat to gaming today is the dominance of storefronts that exact their own tax while contributing nothing to the development of the industry." Apple makes more money with games than any other company, without actually making games. It's a clear case of a monopolist (here, a single-brand aftermarket monopolist) simply leveraging a monopoly in one market to impose unfair conditions on actors in other markets.

A Bloomberg article that came out yesterday reminded not only me but also other people of Microoft's plans to use the popularity of Activision Blizzard King's mobile games to compete with the incumbent mobile app stores. In order for that to happen, it takes merger clearance on the one hand but also demonopolization of mobile app markets on the other hand. The fact that there is meaningful progress concerning the latter makes the former even more relevant. Bloomberg's Mark Gurman reported that Apple is working on features in iOS 17 that will enable third-party app stores as mandated by the EU's Digital Markets Act (DMA) by early 2024.

To give further credit to the author who got that scoop, let me show you a couple of Mr. Gurman's tweets here:

If similar laws are passed in additional countries, Apple’s project could lay the groundwork for other regions. But the company’s changes are designed initially to just go into effect in Europe.

— Mark Gurman (@markgurman) December 13, 2022

Let me repeat this: "If similar laws are passed in additional countries, Apple’s project could lay the groundwork for other regions." This means U.S. consumers might actually get the benefit later. But it's now increasingly unlikely that Congress will adopt the OAMA during the remainder of the lame-duck period. Next year, I'm sure the bill would be reintroduced, but things would take time. In the end, it could be that the schedule set by the EU then effectively also becomes the one for the U.S. market--and in a worst-case scenario, Europe would open up the market while the U.S. would continue to listen to Apple's and Google's lobbyists. I still hope the OAMA will be passed into law ASAP.

Whether Apple will comply with the EU DMA in good faith is rather questionable. As Bloomberg notes, Apple still plans to charge developers for access to iOS, even if their apps were to be installed directly ("sideloading") and not through Apple's App Store. There will be issues, and Apple is probably going to litigate or create situations in which the enforcers have to. But the noose is tightening.

It's also possible that the timing of Apple's revelation of working on those changes has to do with an imminent decision in the EU's Spotify case or some other App Store investigation.

The best solution for determining fair compensation for Apple would be to let Apple try to enforce its intellectual property against app developers who bypass the App Store. As I explained a while ago, there's no way that IP enforcement would earn Apple a commission in the 30% range, and there would actually be quite a possibility that Apple would get zero. Would that be unfair? No, because Apple makes enough money with those devices. Microsoft doesn't charge Windows developers. Apple isn't collecting anything from Mac app makers who bypass the App Store. And consoles are a different product category.

A Twitter user who according to his profile "loves [...] Apple"--but doesn't seem to love competition and the benefits it brings--warned against "all kinds of [unspecified] dangers." The tweet with which I responded has already received more than 200 likes even though it was not retweeted by a power user with hundreds of thousands (or even millions) of followers:

Apple loyalists will remain free to just install apps from Apple's then-demonopolized App Store.

— Florian Mueller (@FOSSpatents) December 13, 2022

Some people's fundamental misconception is to argue that a restriction of choice by Apple constitutes consumer choice. They argue that app developers--including some who make apps that people really want or even have to use--will then have a choice to avoid Apple's fees and rules. But the solution is, again, competition: if Apple made reasonable rules and didn't impose unreasonable fees, why would any maker of a major app (and only those apps are "must have" apps) not be prepared to offer it on the App Store (even if maybe not exclusively)?

Apple's (and Google's) app review guidelines are simply optimized for the purposes of locking in end users, keeping end users in the dark (anti-steering), and taxing and tyrannizing developers. It would be up to Apple to compete on the merits. If Apple decided not to do that, then users should blame Apple, not developers or alternative app stores.

I can see why some people--such as Apple-dependent journalists--rush to Apple's defense and even make nonsensical arguments, such as denying the difference between portable general-purpose devices (that for large parts of the day are the only device we have available) and niche products like video game consoles (which are used in a setting where we have alternatives at hand), ignoring that hardly anyone will carry an iOS and Android device at the same time, describing Android as a fundamental alternative when users are locked in and face high switching costs (and Android app distribution faces largely the same problems anyway since alternative distribution methods exist but are fundamentally disadvantaged). But none of their arguments withstands scrutiny. In the end, if any Apple fans want to live in an Apple tyranny, just like there were a few lunatics in West Germany who preferred to live on the other side of the Iron Curtain, that option will always exist: just install 100% of your apps from the App Store.

It's funny how Apple fans and people who have a professional interest in currying favor with Apple try to criticize the EU DMA's enablement of alternative app stores as less choice -- when it's undoubtedly about more choice, especially if Apple is ready to compete on the merits.

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Microsoft's ten-year Call of Duty offer to Sony includes subscription services, eliminating key concern of some antitrust enforcers over Activision Blizzard acquisition: Bloomberg

Bloomberg has just reported something that further increases the likelihood of regulatory approval of Microsoft's $69B acquisition of Activision Blizzard King: Microsoft's offer to keep Call of Duty available on Sony's PlayStation also includes that Sony may add the game to its subscription service.

Sony is the only vocal complainant. The leading gaming console maker argues that Microsoft would later engage in vertical foreclosure, claiming that Call of Duty is a must-have title and that hardly anyone besides Activision Blizzard can make "AAA" titles at all. Apart from that argument not making economic sense--as a think tank explained--Microsoft is ready to extend a ten-year license to Sony, but Sony's only desire is to torpedo the transaction.

In last week's FTC complaint as well as statements by other competition authorities, vertical foreclosure theories are not limited to video game consoles but also involve subscription services. In my analysis of the FTC complaint, I criticized a market definition that focuses on how gamers pay (such as a monthly $10-20 fee for access to multiple games vs. "freemium"--which most online games are--or a one-time purchase price of typically $60-70 for console games). In any event, some observers believe that regulators may be even more concerned about competition among multi-game subscription services than in the console market.

The fact that Microsoft is prepared to make a far-reaching concession with a view to subscription services ups the pressure on Sony. Competition authorities can't withhold clearance (much less litigate for many months) when the key complainant is simply not being constructive and continues to refuse a deal that would actually address the stated concerns.

Investors were underwhelmed by the FTC complaint, and today ATVI's stock price gained approximately 3%, largely because of the Bloomberg article on Microsoft's preparedness to make Call of Duty available to Sony's subscription service. But this was not the only piece of good news for the transaction: the UK Competition & Market Authority (CMA) published the response (PDF) of a "Market Participant A" to its Issues Statement. That company--presumably a large game maker--explains that--and why--Microsoft's acquisition of Activision Blizzard is procompetitive, with the submission specifically also mentioning Microsoft's app store plans. That company declares itself in support of reasonably strong competition enforcement in the technology industry, and generally--with just this exception here--welcomes the CMA's approach to the technology industry. (As do I.)

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Google appeals certification of consumer class seeking $4.7 billion in damages for Google Play app tax: valid questions about pricing of apps and in-app purchases put before Ninth Circuit

Epic Games and Match Group (Tinder) have made some progress lately in their Google Play antitrust litigation in the Northern District of California. Three dozen U.S. states are also suing Google over its Google Play practices. Then there is also a consumer class action seeking $4.7 billion in damages, claiming that this is the amount by which U.S. consumers overpaid for Android apps and in-app purchases due to the app tax.

I don't doubt that Google's terms and policies for the distribution of Android apps harm not only app developers but also consumers. It is, however, not trivial to determine what portion of the app tax developers would actually have passed on to consumers in the form of lower prices. Google argues that the class action lawyers went too far, and on that basis has appealed to the Ninth Circuit the district court's decision to certify a consumer class:

Ninth Circuit appeal no. 22-80140; Mary Carr, et al v. Google LLC, et al; Petition for Permission to Appeal

This is an interlocutory appeal, and the first decision for the Ninth Circuit to make is whether to grant the petition and hear the case at this stage. In its efforts to get the appeals court interested, Google has provided an outline of why it believes its appeal is meritorious:

• The central legal question here is whether a class can be certified if more than a de minimis number of its members have not actually been injured. Google's petition acknowledges a circuit split in this regard.

  Google cites Supreme Court precedent according to which the predominance requirement for class certification (that issues common to the claims of all class members outweigh the questions relating to individual members' claims) is not satisfied when "[q]uestions of individual damage calculations will inevitably overwhelm" common questions.

  I'm not fully convinced by Google's argument that there should be no class certification at all, but--despite my harsh and frequent criticism of Google's Android app distribution practices--I agree with Google that the class action lawyers' damages calculation is unrealistic.

• Google argues that developers would typically not lower prices if an adjustment did not take the price down to a distinct focal point. For instance, if an in-app purchase costs $0.99, and the reduction of the app tax would allow the developer to charge only $0.82, it's likely that the developer would keep the price at $0.99 because psychologically the two prices are about the same, so demand wouldn't change much and the developer would leave money on the table.

• Google reasonably criticizes the consumer plaintiffs' expert's "one minus share" formula. The expert's starting point is reasonable: the more competition an app faces, the more of the app tax (if it could be saved) would be passed on as savings to consumers. A monopolist will probably just increase its profits; in a fiercely competitive segment, prices will gravitate toward a reduction that more or less amounts to the app tax. But the consumer plaintiffs' expert simply looks at a given app's share in one of the 35 categories to which Google lets developers assign their apps. That is a coarse segmentation. Without substitution, there are no competitive dynamics, and Google reasonably argues that "[e]ven though the children’s game Thomas the Tank Engine and the adult game Doom are in the same 'games' category, they are clearly not competitors, are not marketed to the same consumers, and are not perfect substitutes such that if the price of one increased, consumers would switch to the other in proportion to the app’s share of the category."

  I would actually go even further: even if two games are in the same category, there may be zero substitution for in-app purchases, especially if those are impulse purchases. For instance, if someone plays Candy Crush and wants to spend money to master a level, such as by paying for some extra moves, it doesn't matter that there are literally thousands of other Match Three games out there that may sell five more moves at a lower price.

My take on Google's interlocutory appeal (at this stage): Judge James Donato

• was definitely right that consumers must have a chance to recover damages (especially in light of the Supreme Court's Pepper decision),

• may be right that a class action is the appropriate vehicle, but

• the class certification decision has been based in part on the acceptance of economic theories that Google rightly criticizes and that I, as an app maker, would equally disagree with.

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EU Parliament VP arrested for corruption charges served on Big Tech astroturfing operations' boards, one of which partnered with Apple's ACT | The App Association and Apple-Google-funded CCIA

These days, the #1 topic in EU politics is that "European Parliament Vice President Eva Kaili has been arrested in an investigation into suspected bribery by a Gulf state" (BBC). "Cash worth about €600,000 ($632,000; £515,000) was seized by Belgian police in 16 searches in Brussels on Friday."

Eva Kaili is, of course, innocent until proven guilty. Even if those accusations were ultimately proven to be correct, some people would go to jail only because they did in secret--with bags of cash--what many hundreds, if not thousands of Members of the European Parliament have lawfully done. Corruption is not prohibited in the EU Parliament as long as it is officially declared as a "job" or a "consultancy." A leading German constitutional scholar criticized that practice as "legalized corruption"--with one particularly controversial example having been an MEP who was--at the same time as he was a parliamentarian--the head of media conglomerate Bertelsmann's EU lobbying office.

Today, Politico published an opinion piece by a professor, proposing various reforms in light of the Kaili scandal. In response to Politico's tweet about that article, Sebastiano Toffaletti--Secretary General at the European DIGITAL SME [small and medium-sized enterprise] Alliance--said the arrested vice president of the EU Parliament "is clearly linked to at least two of the 'SME or startup associations' accused of being linked to #bigtech":

Great ideas! How do you suggest to tackle the issue of astroturfing? Eva Kaili is clearly linked to at least two of the "SME or startup associations" accused of being linked to #bigtech. https://t.co/2oTTMLtaXr

— Sebastiano Toffaletti (@sebastianobxl) December 11, 2022

There are various so-called SME or startup associations out there that are just astroturfing for certain Big Tech companies. In October, three well-respected Members of the European Parliament with a focus on digital industry policy filed formal complaints with the European Commission. And indeed, at least two of the organizations in question--Allied for Startups and SME Connect--also secured Mrs. Kaili's services (though I'm sure they did it legally, not with bags of cash).

First, SME Connect on Sunday still listed Mrs. Kaili as a board member (click on the image to enlarge):

The following screenshot is from Allied for Startups' annual report, and on the right you can see Mrs. Kaili's picture as she served on that organization's advisory board (click on the image to enlarge):

Allied for Startups lobbied against the Digital Markets Act (DMA) and the Digital Services Act (DSA), and in those contexts signed statements with CCIA, which has been funded by Google for a long time and is now also supported by Apple, as well as ACT | The Appl(le) Association, which as Bloomberg revealed in September receives most of its funding from--and takes directions from--Apple. The following two screenshots prove the connection (click on an image to enlarge):

I agree with Mr. Toffaletti that the EU should take action against astroturfing, but the European Commission even condones it from time to time. On Tuesday, ACT | The App(le) Association will get to lobby for Apple while claiming to represent small app developers and IoT device makers at an event (How Standards help Small and Medium-Sized Enterprises (SMEs) to Innovate, Compete, and Grow) that is co-organized by the European Commission's Directorate-General for the Internal Market (DG GROW) and the United States Department of Commerce. Someone forgot to invite Mrs. Kaili though. Or maybe they did invite her, but under the circumstances she can't participate...

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FTC complaint over Microsoft-ActivisionBlizzard is so weak that ATVI is trading at pre-lawsuit level and European Commission clarified that Microsoft didn't walk back on any ZeniMax/Bethesda commitment

I'm not one of those antitrust minimalists who would even like to abolish the FTC (in terms of reintegrating it into the DOJ Antitrust Division). That's why I'm even more disappointed in what's going on now, with the FTC wasting resources and losing credibility only because of some decision makers' desire to be seen as boldly anti-Big Tech. And it isn't even really anti-Big Tech because Microsoft's proposed acquisition of Activision Blizzard (NASDAQ:ATVI) has the potential to contribute enormously to a level playing field in mobile app distribution, ultimately benefiting the little guys.

The following chart shows how Activision Blizzard King's stock has moved in the aftermath of the FTC decision on Thursday afternoon:

ATVI was at approximately $75 when the FTC meeting finished. It temporarily went down after the decision leaked and was then formally announced. After trading hours on Thursday, the public redacted version of the complaint became available. If that one had contained a smoking gun or an impressive legal theory, ATVI would have tanked further. Not so: on Friday it basically returned to where it was before the decision (with only a minor after-hours adjustment). Wall Street largely expected that decision, but again: the complaint fails to convince analysts.

Yesterday I explained various shortcomings of the FTC complaint. Some people may believe that the FTC isn't going to district court yet to obtain a preliminary injunction (which it needs because the transaction could otherwise just be consummated regardless of pending litigation) because the merger is still being reviewed in other jurisdictions whose approval is required, and that may be a factor, but if and when the FTC tries, how can it possibly show a likelihood of success on the merits? Of course, the shorter the period between the PI motion and the expected resolution of its in-house adjudicative proceeding (with an evidentiary hearing (i.e., trial) scheduled for August 2) is, the better the chances that the district court will give less weight to the likelihood of success on the merits--but if the district court sees practically no merit in the case, how can a judge enjoin Microsoft and Activision Blizzard even for a short period of time?

Here's a recording from Jim Cramer's CNBC show where they talk about investor sentiment:

The key points are that the complaint is weak (as this blog said), that there is no economic data or analysis (this blog also noted that there is no theory of harm and the allegations are unsubstantiated), and that the FTC is going to lose. There also isn't too much concern over the EU process as Wall Street believes the European Commission will approve the deal with some remedies. The big question mark is the UK Competition & Market Authority (CMA), whose decisions--they say--are harder to appeal. Again, I wish to emphasize that this depends on the merits. It's yet easier to overturn a baseless CMA decision than a well-considered DG COMP or FTC ruling.

Not only is the FTC coming across as a regulatory agency that doesn't prioritize the legal merits of a case but there is even a risk of the FTC being exposed as a source of fake news. Having live-tweeted from a lengthy FTC trial in 2019, where the FTC staff did a really great job, I'm dismayed.

There are various articles out there now (example: wccftech, Microsoft Didn’t Lie to the EU on ZeniMax Deal Like the FTC Said, According to Sources) that report on a clarification the European Commission provided to the MLex subscription service, which apparently wanted to know whether it was true that Microsoft reneged on what it had promised the EC in connection with the acquisition of ZeniMax/Bethesda Softworks. In yesterday's analysis of the complaint, I explained that the FTC hasn't lied here--but it is fair to say that the FTC, which is hard pressed to find any argument for blocking a totally lawful and even procompetitive merger, has misled a lot of people into thinking that Microsoft walked back on a promise on which the clearance of a previous game studio acquisition depended.

Microsoft published a document (PDF) that explains what exactly happened around that acquisition: Microsoft kept its word.

The EC apparently pointed out that Microsoft's acquisition of ZeniMax/Bethesda was cleared unconditionally. If there were no commitments that the approval of the deal hinged on, Microsoft obviously couldn't renege on any in the first place. The clearance decision did not even rely on any informal commitments (public statements). The Commission simply found that the games industry would still be fragmented enough after the deal that other platforms would not have a shortage of input in terms of game titles.

In an earlier post I already showed the following table from a Microsoft filing with the UK CMA concerning its track record with ZeniMax/Bethesda titles on PlayStation (click on the image to enlarge):

All that the FTC can reasonably say is that a minority of Microsoft game titles in the future may still be Xbox exclusives--which Call of Duty won't be as a 10-year deal with Nintendo is in place, a similar commitment regarding Steam was made (and Steam operator Valve doesn't see a need to contractualize it as it knows it can rely on Microsoft), and Sony has a standing ten-year offer.

Instead of telling things in a way that no reasonable person would be likely to misunderstand, the FTC acted irresponsibly. For litigation purposes, it created a false impression that appeared to be an allegation or at least insinuation, and which threatened to hurt Microsoft's reputation. The FTC's mission is "protecting America's consumers" as opposed to "damaging America's companies"...and now the European Commission has to protect a major American company's reputation against the FTC. That's counterintuitive to put it diplomatically.

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Ericsson and Apple settle 5G patent dispute during Texas and ITC trials, agree on global cross-license; $400 million one-off payment plus ongoing royalties at unknown rate

While one major litigation started less than 24 hours ago (FTC v. Microsoft-ActivisionBlizzard, see my analysis of the complaint), another one has come to an end: Ericsson and Apple have made peace. Another important patent cross-license agreement was announced earlier today by Huawei and OPPO.

I wish to thank a number of readers for reaching out to me about today's Ericsson-Apple settlement. The reason I didn't get to write about it immediately was purely logistical: I was not at my desk, and didn't have a portable computer with me either. I did, however, share the news within a couple of minutes on Twitter as well as on LinkedIn. I strongly encourage readers to follow my feeds there, especially the one on LinkedIn, a platform that is becoming ever more relevant for purposes like sharing and commenting on news. And when I've already shared the news on social media, I'm in less of a hurry to share my further thoughts via this blog.

Major patent disputes typically settle right before or somewhere between trials. It is not unheard of for settlements to fall into place during a trial, such as between Qualcomm and Apple in 2019 (I was at the federal courthouse in San Diego when the news suddenly broke). However, Ericsson v. Apple may be the first patent dispute in history to have settled during two simultaneous trials: a FRAND trial in the Eastern District of Texas (Presiding Judge: Chief Judge Rodney Gilstrap) and an Apple v. Ericsson evidentiary hearing (a trial by any other name) in the United States International Trade Commission (USITC, or just ITC) (Presiding Judge: Administrative Law Judge (ALJ) Monica Bhattacharyya.

Here are the minutes of the final trial day in Texas, which was rather short owing to the settlement:

Ericsson v. Apple, Minutes for Jury Trial Day No. 5 Held Before U.S. District Judge Rodney Gilstrap (December 9, 2022)

The press release does not state the exact length, but it is a "multi-year" agreement. The last one had a seven-year term and ended in January.

Last year, Ericsson settled with Samsung within only a few months of expiration of the previous agreement. Even the settlement with Apple took less than a year from the point where infringement actions started (mid-January 2022).

I actually told Swedish financial daily Dagens Industri last week that I thought a settlement would make sense before the Texas trial. It was simply a logical point in time. For whatever reason, they couldn't make it work, so the Texas trial had to start, but there won't be a jury verdict anymore.

In a quote contained in the press release, Ericsson's Chief Intellectual Property Officer touts the "strategic importance [of the new agreement with Apple] to [Ericsson's] 5G licensing program." Ericsson has renewed its license agreements with the world's two leading consumer electronics makers: Apple and Samsung. It is unknown whether there any other agreements have recently expired or are about to expire. In any event, whoever has yet to work things out with Ericsson for 5G now knows that the company has another important license to point to as a comparable agreement with a view to the "ND" in "FRAND"--and the settlement of the earth-spanning dispute with Apple has freed up litigation resources in case they are needed.

Given that no injunction was currently being forced or imminent, neither Apple nor third parties can easily convince a court or a jury that the terms of the new Ericsson-Apple agreement were attributable to "hold-up."

I believe Ericsson would have been very likely to gain significant leverage in 2023, above all through its patent assertions in the Munich I Regional Court. Maybe also in Mannheim and/or the ITC, or maybe some other countries like the UK or Colombia (where a preliminary injunction had been lifted, but various cases were still pending). With a view to 2023 I was, however, most optimistic about Munich. Mannheim is an increasingly unpredictable venue for plaintiffs, which I regret to say (because I really like that court just like sports fans like certain venues), but it is a fact that plaintiffs sometimes run into unforeseen issues there, which I've heard it from a top-notch litigator who was not involved with the Ericsson-Apple dispute and has not recently filed any cases there for that very reason.

It didn't look like Apple's countersuits were likely to move the needle.

The financial terms are, as always, confidential. In a note to clients, Arete's Richard Kramer said "[t]he real question for Ericsson will be about the ’23 and onwards guidance for IPR income, whether it can keep or improve on the SEK8bn run rate." For now it is known--according to Arete--that a one-off payment from Apple amounts to SEK 5.5-6 billion in the current quarter, which must relate to back royalties for 2022 and may also include "pre-payments to reduce ongoing liabilities." but that is the big question: how much of the $400 million that Apple pays upon signing of the agreement was related to 2022, and how much of it just serves to reduce ongoing payments in the years ahead. According to Arete, Apple paid an estimate of $225 million per year under the old agreement "[s]ince losing Apple in the mix took Ericsson IPR payments down from SEK 8.1bn for ’21 (when Apple was a 4G licensee) to a run-rate of SEK 5.75bn [in the aggregate of the first three quarters of 2022]."

My guess is that this is a reasonably good outcome for both sides, and that also appears to be Mr. Kramer's take (he assumes it's "a sensible result"). But again, there is limited visibility, so it's more of an educated guess than anything else.

What I liked about this Ericsson-Apple dispute was that the dots were connected between Apple's arguments in App Store antitrust cases (such as on iOS-Android switching costs) on the one hand and Apple's positions on patent licensing terms on the other.

Finally, I'd like to mention some of the lawyers. At this week's Texas trial, it appears that WilmerHale's Joseph J. "Joe" Mueller was effectively Apple's lead counsel. He had been on "Team Apple" in various patent cases before this one, but this was the first high-profile dispute where he did most of the work at a key trial. Ericsson's lead U.S. counsel, Alston & Bird's Theodore "Ted" Stevenson, had largely prevailed on the structure of the Texas case--and he had previously scored a key victory there (and in the Fifth Circuit) for Ericsson against HTC. Ericsson v. Apple was a clash of titans.

In the German cases, the firm of Kather Augenstein--with name partner Dr. Christof Augenstein having the lead--thoroughly impressed me. I must admit I didn't have a similarly favorable view of them before, but that was largely because I never saw them in action and just had some disagreements with some of those lawyers on social media. Their performance in those German cases was top-notch. In Colombia, Carlos Olarte, name partner of Olarte Moure, made history with the aforementioned preliminary injunction. I believe Colombia is now on the radar of more patent holders than ever.

The big question is now the status of Apple's patent license agreement with Nokia. I thought it would expire this year (based on the term of a previous agreement), but I am not so sure anymore.

For now, I wish to congratulate both Apple and Ericsson on having put their dispute behind them!

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