[Guest post] How much is that SEP in the window? 5 Themes from the IPKat/LSE Nokia v Daimler seminar

 

Remember April?  We had not yet experienced the torrential rains of May or the Dominic Cummings revenge tour.  We also still had a referral pending at the Court of Justice of the European Union (CJEU) in Nokia v Daimler.  The IPKat also hosted its joint-panel with LSE with stakeholders on all sides and at all levels of the issues then before the CJEU aimed at cutting through the noise to get to the heart of the commercial origins of the dispute and what may be the commercial solutions.   But then, of course, in a statement published on 1 June, the two companies said they have signed an agreement under which Nokia will license mobile telecoms technology to Daimler. meaning no answers from the CJEU.  The social media posts that morning were of course riddled with congratulatory messages greeting the settlement, with some seizing the moment to declare that the settlement meant the end of component-level licensing arguments, while others pointed to the contrary, not least because no one knows the terms of the settlement.  Settlement, after all, means both parties have to make compromises and with a cloak of confidentiality, the questions and issues remain and we will have to wait a bit longer for clarity on questions relating to licensing of standard essential patents (SEPs). Continental still has its complaint against Nokia pending with the European Commission that may address these questions and provide greater guidance for companies using connected technologies, or that similar questions will be addressed in other pending cases.  So, while we wait, what can we learn from the IPKat/LSE discussion back in April to find a solution.   

Friend of the Kat and moderator extraordinaire, James Nurton reports from the event (which he also chaired) on the 5 key takeaways from.  Over to James:

"There was a lively debate about the issues raised in the Nokia referral at the IPKat/LSE Seminar on “The CJEU’s billion-dollar questions – who gets a SEP licence and when should an injunction be granted?”, which was held online on 21 April 2021, before the Nokia and Daimler settlement announcement. The panel was packed with diverse expertise and included representatives of patent owners and implementers as well as lawyers from various jurisdictions, an academic and a former judge. They discussed the questions referred in the Nokia v Daimler case, and the broader issues around standards, supply chains and FRAND licensing.

The Nokia case (reference C-182/21 at the CJEU) concerned the licensing of a SEP for use in connected cars. Nokia argued essentially that Daimler had refused to take a licence and was infringing the patent. Daimler’s case was that its suppliers should be entitled to license the patent. The two questions referred were multi-faceted and can be read in full here (PDF). In summary, they concerned, first, whether the patent owner is obliged to offer a licence to component suppliers and, second, how rigidly the CJEU framework in Huawei v ZTE (Case C-170/13) should be applied.

As the European Commission said in its IP Action Plan, published the day before the Nokia referral on 25 November 2020, SEP licensing continues to be a source of tension for many businesses, and often leads to disputes – as anyone who scans court calendars and reports can testify. The Commission observed that SEP licensing is (or will become) relevant in the health, energy, smart manufacturing, digital and electronics ecosystems as well as the automotive sector, so the arguments, and the CJEU judgment, are likely to generate wide interest. Our panel tackled some of the general legal and policy issues raised by the referral. It comprised:

• Pat Treacy, competition partner, Bristows and Deputy High Court Judge
• Dr Roman Bonn, Global Head of IP, Continental AG
• Alexandra Yang, Partner, Fangda Partners
• Rebekka Porath, Global IP Policy Director, Intel
• Eeva Hakoranta, EVP and Chief Licensing Officer, InterDigital
• Sven Volcker, Partner, Latham & Watkins
• Tim Syrett, Partner, WilmerHale
• Luke McDonagh, Assistant Professor, LSE

I introduced and moderated the discussion. Thanks also to Frantzeska Papadopoulou,  Professor, Stockholm University, and Annsley Merelle Ward of IPKat for their help in organising the webinar.

The discussion lasted two hours, so it would be impossible to do justice to all the nuances in this summary. Here are five key themes:

1 What is justice?

Sven Volcker elevated the level of the debate by referring to John Rawls’ A Theory of Justice and asking: what solutions would a Rawlsian world of patent licensing come up with? This raises questions such as: what does FRAND mean in practice commercially? What is the best solution to ensure a fair outcome? And what is the legal definition of a supply chain? To set the scene, the discussion started not with the questions referred but with the real world of supply chains and IP licensing, with insights from the industry representatives on the panel.

In the automotive industry at least, the issue is complicated by the many players and the long-standing custom whereby multiple tiers of suppliers provide components with warranties to vehicle manufacturers, as Roman Bonn explained. Rebekka Porath added that component-level licensing occurs in other industries too, depending on the nature of supply chains. Should a FRAND licence therefore be available to anyone who requests it, regardless of their place in the supply chain? That is essentially what the Court will have to tackle in answering the first Nokia question.

However, patent owners argue that it would be unjust for an implementer to be able to point to a supplier and be spared the consequences of their infringement: it would be too easy for everyone to blame someone else and patent owners would not receive the royalties they are due. Eeva Hakoranta also mentioned the idea of “hold out”, saying there are cases where licensors have reached out to offer licences over a long period (seven years in one case she mentioned), without receiving a response from the manufacturer/alleged infringer.  "Hold up" is the idea whereby an SEP licensor refuses to licence either at all, on FRAND terms, or slows negotiations by refusing to provide information to evaluate the portfolio.  

A consideration of justice also provides a perspective on one of the trickiest topics in the SEP debate – the availability of injunctions (something that is particularly sensitive in the auto sector where the “products” being injuncted retail for tens of thousands of dollars). Pat Treacy said the answers to the second Nokia question should illuminate this by addressing issues including: if the implementer commits to entering into a FRAND licence, is that sufficient to avoid an injunction? And what is the impact of a delay in responding?

Patent owners see the threat of an injunction as a vital weapon in the patent owner’s armoury, even if their preference is always to grant a licence. As Eeva put it, if a potential licensee, who is already making the infringing product, refuses to negotiate, what leverage does the IP holder have other than to go to court and ask for it to be stopped?

But in the US, where injunctions in patent cases have only been available in exceptional circumstances since the eBay case in 2006 (547 U.S. 388), Tim Syrett said that the prevailing view is that the leverage of an injunction distorts the bargaining position of the parties. Instead, courts (and juries) provide remedies in the form of assessed damages and ongoing royalties. He said injunctions are not inconceivable but “the SEP holder has a high hill to climb. It’s rare to get over it.”

Alexandra Yang said that injunctions are also very rarely granted in China: there have been just two in more than 20 SEP cases. She added that courts in general are reluctant to issue injunctions unless bad faith has clearly been shown.

2 What is equipment?

Professor Sir Robin Jacob, who was in the virtual audience, raised the interesting question about whether a component constitutes “equipment” under the ETSI IPR Policy, and whether that might answer the question about component licensing. "Equipment" is defined at 15(4) of the ETSI IPR Policy as:

"EQUIPMENT" shall mean any system, or device fully conforming to a STANDARD.

Sir Christopher Floyd’s provisional view was that it could do so, based on the Policy’s definition of “equipment” as “system or device”. However, Eeva disagreed, stating that in her view the ETSI principle was to license end products and that was how IPR holders had always understood it. ["Mais où est-il mentionné dans le guide ETSI IPR ou le "Policy?" queries the French IPChat].  The Avanci patent pool offers patent licences to OEMs, not component makers.

This question led to discussion issues around the policies and membership of ETSI, and other standards-setting bodies such as IEEE (which has recently revised its policy). Which highlighted...

3 Understanding standards

Do IP lawyers understand standards? And, for that matter, do standard setters understand IP law? As Luke McDonagh pointed out, ETSI exists “in its own sphere”; patent offices and the courts exist in another; and the European Commission – which determines competition policy – in yet another. That makes for a complicated landscape, even before you consider jurisdictional issues (and Brexit), or the approaches of different courts.

The panel agreed that standards have been and are very important in delivering technological advances, particularly in cellular technology. But standards systems are complex and no one pretends they work perfectly. And of course in most cases they lack enforcement mechanisms and specialised arbitration procedures. So what do you do when parties don’t have the same understanding of what the policy requires and what they have signed up to?  [Lord Justice Arnold would argue that arbitration could solve it, says Merpel].  

4 Get real!

One response to the standards challenges is to say: you have to look at the specific circumstances in the relevant sector, which for the automotive industry involves supply chains with several hundred OEMs, a much smaller number (up to 20) suppliers of TCUs and a handful of chip set suppliers. Pat said the first Nokia question invited the CJEU to address issues including whether SEP owners are obliged to license component suppliers or whether they can choose who to license, and consequential points such as custom and practice in the industry, and exhaustion of rights.

Sir Christopher predicted that, in general, courts will try to understand and interpret industry behaviour and issue judgments taking it into account: “Judges are going to be very interested in what happens on the ground in practice.” In the Unwired Planet litigation, for example, the UK courts accepted that it was standard practice to grant licences that were portfolio-based and worldwide, and it would make no sense to do otherwise. But some of the panellists questioned whether all courts favour such a commercial approach. The Nokia answers might have provided clear guidance for judges, although there were also concerns they might have been too focused on the specific customs in the automotive industry.

5 More guidance please!

On balance, the panel were optimistic about the referral. They generally agreed that further clarification of Huawei v ZTE, and especially what is required of licensors and licensees in negotiations, would be welcome. As Rebekka said: even if we don’t agree with the decision, legal certainty helps companies to do business.

However, Sir Christopher sounded a note of caution, pointing out that Huawei v ZTE effectively provides a safe harbour in competition law, but does not redefine what is a breach of Article 102. That might have made it difficult for the CJEU to answer the second question referred.

The settlement means these questions will remain open for now. But they may arise again – in some form – in future litigation, given the number of disputes currently pending. One thing at least is certain: the IPKat will bring news and analysis of further developments in this fascinating area as it develops!"