Dusseldorf appeals court narrowly avoids divergent outcomes in Via v. TCL patent cases concerning Sisvel v. Haier FRAND defense, deems TCL unwilling either way

There are two key reasons for which cases with overlapping issues get consolidated in the U.S. (if necessary, this may even involve a venue transfer). The first one is that divergent decisions are highly undesirable. The second is efficiency (for the court and the parties). Not so in Germany, where each patent is litigated separately unless two or more patents are from the same patent family. Inconsistent rulings by German courts are possible for another reason: judges aren't bound by precedent (no stare decisis etc.).

With respect to standard-essential patents (SEPs), there was a period of a few months during which one patent litigation division of the Mannheim Regional Court--the Second Civil Chamber under Presiding Judge Dr. Holger Kircher--applied EU case law (Huawei v. ZTE) differently from the other--the Seventh Civil Chamber under Presiding Judge Dr. Peter Tochtermann. I declared myself in agreement with the latter, but then came the first of two Sisvel v. Haier decisions by the Federal Court of Justice, and Judge Kircher as well as his colleagues in Munich "won."

There still was--and maybe even is--a pocket of resistance to Sisvel v. Haier in Dusseldorf. Judge Dr. Thomas Kuehnen ("Kühnen" in German), who presides over one of two patent-specialized divisions of the Dusseldorf Higher Regional Court (regional appeals court), made no secret of his disagreement with Sisvel v. Haier, and Judge Sabine Klepsch, who presides over one of three patent-specialized divisions of the lower Dusseldorf court, made a preliminary reference to the European Court of Justice in Nokia v. Daimler one part of which effectively called into question the Sisvel v. Haier approach to the FRAND defense. But Nokia and Daimler settled (by now, another car maker has taken taken a vehicle-level license from Nokia, like Daimler but without litigation). The preliminary reference was inevitably withdrawn. And earlier this month, Judge Dr. Daniel Voss ("Voß" in German), who presides over another patent-specialized division of the lower Dusseldorf court, appeared to be speaking on his entire court's behalf when he said at a top-notch Mannheim conference that they wouldn't seek a review of Sisvel v. Haier by the ECJ anymore.

But is there a possibility of the Dusseldorf appeals court at some point challenging Sisvel v. Haier by way of a request for a preliminary ECJ ruling? I'd be extremely surprised if such a preliimnary reference came from the appellate division under Presiding Judge Ulrike Voß ("Voss" in German, and to my knowledge the various "Vosses" in the German patent judiciary are from different families). About Presiding Judge Dr. Kuehnen I'm not so sure. He's always considered himself smarter and more qualified than the patent-specialized division of the Federal Court of Justice. His book on German patent infringement proceedings is cited over and over--it's almost as influential in German patent law as Areeda/Hovenkamp is in U.S. antitrust law.

I may be wrong, but my guess is that Judge Kuehnen will make a preliminary reference if and when the right case along before his retirement in a few years. A set of cases brought by Via Licensing pool contributors against Chinese electronics company TCL (or, more specifically, a TCL subsidiary named TCT), however, would be the wrong vehicle for that purpose because of TCL's dilatory tactics in negotiations with the patent holders.

I already reported on that set of cases two months ago, without knowing the names of the parties. In fact, I had obtained all of my information from a Bardehle Pagenberg article.

Meanwhile, the appeals court has spoken: not in the form an appellate judgment, but TCL's motions to stay the enforcement of Dolby's and Philips's injunctions were denied. That outcome is another victory for Eisenfuhr Speiser's Dr. Tilman Mueller ("Müller" in German), who is an outlier in a purely geographic sense among German patent litigators--he's based in Hamburg--but whose cases sometimes shape the development of German patent case law. The first time I took note of his work was when the Munich I Regional Court referred a question relating to the availability of preliminary injunctions over battle-untested patents to the ECJ.

It's now rather likely that TCL will settle and take a pool license from Via. Therefore, it's doubtful that we'll get to see an appellate opinion in those Via v. TCL cases (just to avoid any misunderstanding, Via Licensing doesn't own those patents, thus can't sue; but Philips and Dolby are Via contributors, so I chose that simplified--albeit slightly imprecise--caption).

That said, the appeals court's decisions denying TCL's motion to stay are interesting, if for no other reason because they show that the Dusseldorf appeals court may be internally divided over Sisvel v. Haier:

• Judge Kuehnen's panel entered its order on July 14, mentioning Sisvel v. Haier (by its official caption, "FRAND-Einwand" ("FRAND affirmative defense")) only once on a total of seven pages (and not in a particularly important context), while Judge Voss's decision, handed down six days later, cites to both Sisvel v. Haier decisions a total of 19 times (spread out over 16 pages).

• Judge Kuehnen chose to duck Sisvel v. Haier: he found TCL to be (not his words, but from what I read between the lines) a typical case of an unwilling licensee even under the pre-Sisvel v. Haier standard, where the hurdle was actually low for a defendant to reach the point where the courts would have analyzed a SEP holder's licensing offer from a FRAND angle. The lower court had made the injunction particularly appeal-proof by determining that TCL was an unwilling licensee under Sisvel v. Haier as well as the standard under the previous application of Huawei v. ZTE by the German courts. For the plaintiffs, that's the strongest basis imaginable: it's like having not only a castle, but also a moat around it.

• Judge Ulrike Voss sort of ducked and embraced Sisvel v. Haier at the same time, which may sound like an impossible combination (like "have your cake and eat it"), but let me tell you how she did it: her panel decided that it cannot possibly have been clearly erroneous for the lower court (Judge Dr. Daniel Voss) to apply Sisvel v. Haier (i.e., Federal Court of Justice case law). In other words, even if one agreed with Judge Kuehnen that Sisvel v. Haier is not a proper application of EU case law, the standard of review for staying an injunction in Germany is that there must be clear reversible error, and following the nation's highest court (with respect to almost every patent case, as it's very rare that any issues reach the Federal Constitutional Court) can't constitute a clear error.

  Without stating on a totally definitive basis that she recognizes Sisvel v. Haier, Judge Voss found that in connection with a motion to stay enforcement, she did not have to reach the question of whether her colleague Judge Kuehnen or the Federal Court of Justice was right. (It would be different situation if TCL kept on holding out and an actual appellate ruling became necessary.)

  On that basis, Judge Voss then rejects a variety of TCL's appellate arguments by citing to the Sisvel v. Haier pair of decisions. One example (of many) is that the Federal Court of Justice had found in Sisvel v. Haier that it's not a get-out-of-jail-free card if a defendant makes a deposit.

The TCL cases didn't force the Dusseldorf appeals court to come clean on Sisvel v. Haier at the motion-to-stay stage, and most likely won't have that effect should there even be full-blown appellate proceedings. But at some point there may be another SEP injunction case that serves as a litmus test: it would have to be a case that clearly has to be decided in defendant's favor under the pre-Sisvel v. Haier standard but similarly clearly must be decided in plaintiff's favor under Sisvel v. Haier I & II. If such a case is assigned to Judge Voss's panel, I guess the decision will be made in accordance with Sisvel v. Haier, though she--while serving on the lower court--made the preliminary reference in Huawei v. ZTE (the only Dusseldorf trial I ever attended). Should a "litmus test" type of case land on Judge Kuehnen's desk, and should he be reasonably confident that the parties won't settle, then a preliminary reference--as maybe his last act of rebellion against the Federal Court of Justice prior to his retirement--is a possibility. How likely it is that such a case is heard by Judge Kuehnen is hard to say. Most SEP holders prefer the Munich and Mannheim courts anyway.

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InterDigital's hole-in-one in UK court builds tremendous pressure on Lenovo (Motorola Mobility) to take global cellular SEP license pursuant to Unwired Planet

This the second SEP news today. The first one was Nokia's vehicle-level license deal (as industry sources meanwhile agree) with a car maker. And again, a standard-essential patent (SEP) holder has scored a breakthrough victory: InterDigital against Lenovo and its Motorola Mobility handset division.

With all that's going on, a rational analyst can't help but be bullish about the near-term and mid-term outlook for SEP holders. Car-level licensing and royalty rates consistent with the Avanci pool rate are the inevitable outcome of the "automotive SEP wars." And while Apple may be able to avoid taking a global portfolio license from non-practicing entity Optis unless the deal is right, Apple is what it is: unique. I'm a big Apple critic, but there's nothing else quite like Apple. By contrast, Lenovo's Motorola Mobility has far less brand loyalty, there's no shortage of Android-powered substitutes, and you're not going to see the likes of Vodafone lobbying the UK government for an amendment to the country's patent or antitrust laws only to bail out Motorola. They're probably not even going to inconvenience themselves and buy Moto phones abroad. If Lenovo decided to leave the UK market, it would lose almost all of its UK sales.

So I venture to guess that Lenovo will soon fold and pay InterDigital after today's ruling by Judge Richard Hacon, who is the Presiding Judge of the UK's Intellectual Property Enterprise Court (IPEC) and sitting by designation on the High Court of Justice. This is a high-ranking and specialized judge whose decision will have persuasive weight in other jurisdictions.

Further to a technical trial that took place in March, Judge Hacon found that Lenovo's phones infringe InterDigital's EP2485558 on a "method and apparatus for providing and utilizing a non-contention based channel in a wireless communication system" because it is valid and essential to the 4G (LTE) cellular communications standard.

This was just "the first in a series of trials concerning five patents." A hole-in-one for InterDigital. As a Motorola Mobility (oh, the irony!) expert wrote about a decade ago, "it only takes one bullet to kill." That SEP enforcement truth now comes back to haunt Motorola Mobility's current owner, Lenovo (temporarily the company belonged to Google).

The High Court's conclusion is that "[t]he Patent is valid, essential to Release 8 of LTE and is infringed. InterDigital’s conditional application to amend the Patent falls away." As a result, a FRAND trial will take place. Thereafter, according to the UK Supreme Court's Unwired Planet case law, Lenovo will either have to take a license to InterDigital's global 4G SEP portfolio on the court-determined rate or it will be enjoined and effectively forced out of the UK market.

I learned from InterDigital's celebratory press release that the FRAND trial is "scheduled for January 2022." So an injunction will come down next spring, and the question is just what the license fee will be. The patent will remain in force until 2026, so InterDigital has ample opportunity to enforce this patent not only against Lenovo (Motorola Mobility) but also against other companies it may elect to sue over it. And again, this was just the first of the five UK technical trials in InterDigital v. Lenovo. Like a first-round knockout. I'd be surprised if the FRAND trial really had to be held next year.

The winning lawyers are Douglas Campbell QC, Joe Delaney and Maxwell Keay (instructed by Gowling WLG).

Plaintiff-friendly SEP enforcement rules are settled case law not only in the UK after Unwired Planet but also in Germany, where Sisvel v. Haier I & II is a pair of rulings that the lower courts won't challenge anymore. Case in point, just this week it became known that one of the two patent-specialized divisions of the Dusseldorf Higher Regional Court (regional appeals court), under Presiding Judge Ulrike Voss ("Voß" in German), faithfully applied the Sisvel v. Haier case law in a dispute between Sisvel and TCL. German courts, like their UK counterparts, require losing defendants to take global portfolio licenses. The difference is that German courts don't set the rate, at least not beforehand.

InterDigital is embroiled in a parallel SEP dispute with Xiaomi, and that dispute involves litigation in Germany, where the U.S.-based licensing company secured an anti-antisuit injunction (and anti-anti-anti-antisuit injunction, or "A4SI") earlier this year. A web search pointed me to an SEC filing according to Item 8.01 of which the injunction patent is also one of three patents InterDigital asserted against Xiaomi in Munich this spring. The Munich court is in no way bound by the UK decision, but I do know that the Munich judges--and other German judges--are generally very interested in UK validity determinations. The fact that Judge Hacon held the patent to be valid, after a multi-day technical trial (while German infringement courts don't analyze invalidity defenses in full), makes it highly unlikely that the Munich I Regional Court would stay the German case against Xiaomi. The hurdle is basically that Xiaomi would have to convince the Munich court that the UK decision is clearly erroneous.

SEP licensing rates are going to up this year in light of 5G and favorable case law. The Biden Administration's implementer-friendly policies may make the United States less attractive a jurisdiction for SEP enforcement (though there may be zero impact on the ITC, which can order import bans and has previously given InterDigital leverage). Short of a global SEP agreement at the WTO/WIPO level, there's nothing the U.S. government can do to weaken SEP enforcement in the UK and Germany.

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Daimler reloaded: another automotive company takes patent license from Nokia, which consistently insists on end-product-level licensing

There's a big "See I told ya so" waiting for you toward the end of this post as far as patent licensing to car makers is concerned, but let's look at this news in a logical sequence of steps:

Nokia just sent out its earnings release for the second quarter (and the first half) of 2021. Irrespectively of how strongly I've sometimes disagreed with their positions in litigation, I always read their statements and have an active subscription to their news releases. What immediately struck my attention in today's announcement is this passage:

"Nokia Technologies continues to scale with two licensing agreements with automotive manufacturers including Daimler." (emphasis added)

That "including" part suggests they're not going to disclose the name of the other party than Daimler. Nokia's victory over Daimler--getting the Mercedes maker to take a car-level license after more than two years of litigation and nearly three years after Daimler's EU antitrust complaint over the question of where in the supply chain standard-essential patents (SEPs) should be licensed--was announced in early June.

The following part of Nokia's "Q2 2021 Investor presentation" (PDF) doesn't state the second name either, so unless someone leaks something, or whenever it gets mentioned in open court (because of the non-discrimination part of FRAND), we're not going to know (click on the image to enlarge):

It's not just highly unlikely but even unthinkable that Nokia, despite getting its way in the largest-scale and highest-profile automotive SEP dispute ever, would have changed course and granted an exhaustive and otherwise unrestricted license to an automotive supplier. The most plausible scenario is that after Daimler's defeat someone else decided that hold-out was just going to cost a ton of legal fees, for nothing.

You can't argue with success. Or, as investors often say, the trend is your friend.

If it were up to me, I'd prefer Avanci and all of its members (as some do) to offer an exhaustive component-level license at the chipset, network access device (NAD), and telecommunications control unit (TCU) level. But I don't get to decide. Marconi, the company behind Avanci, can do only what its members are able to agree upon. Apart from a few hold-outs, car-level patent licensing is now uncontroversial. It's a fact of life.

I doubt that those automotive patent deals are large enough to be a key factor behind this bullet point of today's earnings release:

"Considering our strong start to 2021, we revise our full year 2021 Outlook, including net sales expected to be EUR 21.7bn to 22.7bn (previously EUR 20.6bn to EUR 21.8bn) with comparable operating margin in the range of 10-12% (previously 7-10%)."

However, patent licensing in general seems to be working out well for them. The Daimler dispute cost a lot of money, but appears to effectively dissuade others from picking that kind of fight. By contrast, Daimler wasted tens of millions of euros--and the result is just that anyone else can sue them now and force them to take a car-level license, which sooner or later will make an Avanci license look cheap.

What does Nokia's announcement of not one but two automotive patent license deals mean for the wider automotive patent licensing debate?

"See, I told ya so." Joint licensing negotiation groups (LNGs) are not necessary to work out license agreements between cellular SEP holders and automotive companies. No matter how hard Volkswagen and some of its allies may be pushing for the legalization of otherwise highly anticompetitive buyers' cartels, the market keeps proving them wrong. Today's announcement doubly debunks Volkswagen's LNG story:

• Deals keep falling into place without LNGs, so the plot is thickening that the real issue is a group boycott by unwilling licensees (from which more and more companies are defecting).

• Avanci members like Nokia are not only contractually and theoretically, but in every practical sense, free to enter into direct license agreement with automotive industry players. That means Avanci is truly just one additional option, a one-stop option for more than three dozen portfolios, but not a licensors' conspiracy.

As a regulatory authority or policy maker, I would find it a very clear case to politely decline any invitation to authorize a buyers' cartel likely to slow down the licensing process and organize group boycott (as the Japanese government noted earlier this week) when there is not only a Business Review Letter by the USDOJ but also hard real-world evidence--actions speak louder than words--of there being no licensors' cartel that would have to be counterbalanced (apart from the fact that two wrongs don't make a right, so even if there were a sellers' cartel, the solution would not be to allow a buyers' cartel). Who would want to turn antitrust law on its head against all the empirical evidence from the market--and knowing that it takes only one major jurisdiction to break up a cartel?

It always feels good to see one's analysis validated. It feels even better when it happens so quickly. It's just one deal with an unnamed car maker, but previously BMW had taken an Avanci license in 2017, Volkswagen had taken a limited one (and has otherwise continued to infringe, so I wonder when they'll get sued), Tesla according to rumor settled multiple parallel lawsuits by means of an Avanci license, and Daimler took a car-level license from Nokia. And now another deal happened, without litigation because otherwise we'd know.

I'll ask around to find out more and will do a follow-up post if and when warranted. But there may already be news deals and/or new lawsuits by the time I find out the licensee's name. Also, I guess Huawei will continue to make headway with its automotive patent licensing efforts.

One thing I try hard not to be is obtuse. Opinionated I am, but that's another word starting with the same letter. Rationality forces me to recognize what has happened and where things are going. This is an unstoppable wave. Licensing--not lobbying--is the answer.

If you haven't previously read my thoughts on collective licensing negotiation groups, here are the links to all parts of my recent trilogy:

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

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

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

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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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Mannheim Regional Court schedules first three Nokia v. Oppo patent infringement trials for March and May 2022: one patent-in-suit carried the day against Daimler

Just like the previous post, which discussed a key decision in a standard-essential patent (SEP) case, this one relates to proceedings before the Mannheim Regional Court's Second Civil Chamber under Presiding Judge Dr. Holger Kircher.

The court's press office has been able to provide the case numbers, patents-in-suit, and trial dates of three Nokia v. Oppo cases. Nokia is suing Oppo in--if I didn't miss anything--seven countries. The dispute broke out three weeks ago after a multi-year patent license agreement expired.

In Germany, Nokia lodged complaints with three regional courts: Mannheim, Munich, and Dusseldorf. Interestingly, Nokia filed almost as many in Mannheim alone as in the other German venues combined. For three of those eleven cases, I've now been able to obtain the following data points:

• Case no. 2 O 73/21 over EP1700183 on a "method for secure operation of a computing device" (apparently non-standard-essential), trial scheduled for May 3, 2022;

• case no. 2 O 73/21 over EP1704731 on a "method and apparatus for indicating service set identifiers to probe for" (a WiFi patent, potentially standard-essential), trial scheduled for May 31, 2022; and

• case no. 2 O 75/21 over cellular standard-essential patents EP2981103 and EP3220562 on an "allocation of preamble sequences", trial scheduled for March 29, 2022.

The '103 patent--one of the two patents-in-suit in the third case listed above--won Nokia an injunction against Daimler last August. Daimler, Continental, and TomTom challenged the validity of that patent. While Daimler--as one would have thought--withdrew all of its challenges to Nokia patents after the recent settlement, Continental and TomTom are still active nullity complainants against many Nokia patents. Together with other suppliers, they're also pursuing EPO opposition proceedings against some other Nokia patents. But very shortly before the Federal Patent Court's nullity hearing on the '103 patent, Continental and TomTom withdrew their complaints. Also, there were some interesting developments regarding the Nokia v. Daimler case over the '103 patent in the Karlsruhe Higher Regional Court, and I plan to take a look at the "remnants" of Nokia v. Daimler in the near term. For now, suffice it to say that the proceedings involving the '103 patent deserve some further analysis.

Early first hearings in at least some--if not all--of the seven cases Nokia brought against Oppo in Munich will likely be held before those Mannheim trials. The Mannheim court typically decides after one trial, while according to the Munich court's Patent Local Rules there is an early first hearing (remotely comparable to a U.S. Markman hearing on claim construction), subsequently to which both parties get the chance to further develop their argument, and judgments normally come down only after the second hearing, which is the actual trial.

In other Oppo-related news, patent licensing firm Sisvel today announced the settlement of a SEP dispute with Oppo. The parties agreed on a 3G/4G license. Another Chinese smartphone maker, Xiaomi (which is now selling more phones per year than Apple according to Bloomberg), took a license from Sisvel last month.

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