In the context of renewed efforts to reach convergence with U.S. antitrust policy, best exemplified by the recently inaugurated EU-U.S. Joint Technology Competition Policy Dialogue, the United States’ recent return to an antitrust policy approach singularly focused on curbing potential single firm abuses by SEP holders may also influence the EU’s competition law enforcement intentions.
Even as Europe and the rest of the world continued to face the unprecedented challenges of the COVID-19 pandemic in 2021, the development of 5G and other Standard Essential Patent (SEP)-enabled technology standards has continued at an unabated pace. While the year has not yet ended, more than 100,000 technical contributions have already been submitted at 3GPP meetings for 2G, 3G, 4G and 5G in 2021 – a near-record yearly contribution count (figure 1).
The invention and standardization of massive, complex communication technologies continues to generate significant numbers of SEPs. According to IPlytics data, the cumulative number of self-declared SEP families has surpassed 72,000 in 2021, indicating a five-fold increase in just 10 years (figure 2).
When considering the SEP holders that have self-declared at least 10 patent families over the past 10 years, the number of unique companies (considering only the highest parent of larger corporate groups) has risen from 99 in 2010 to 261 in 2021 (by factor 2.6x). The uptick in the number of new SEP holders is largely driven by market entrants from China, Taiwan and South Korea, which develop smartphones, network devices, computer chips, semiconductors and audio and video technology.
Simultaneously, the deployment of 5G networks in Europe is picking up steam. After industry reports in 2020 warned that Europe’s 5G implementation was running several years behind those of other advanced economies, in particular in East Asia and North America, the European Commission in its Digital Compass defined ambitious goals for the rollout of 5G. In the Compass, the Commission articulates the vision of a “Digital Decade” enabled by robust digital infrastructures, including 5G networks. By March 2021, 5G networks had been rolled out in 24 of the 27 EU Member states, and the number of subscriptions is rapidly increasing.
While more and more users begin to experience 5G connection speeds in their phones, other industries are preparing for the Internet of Things (IoT) industrial revolution. Accordingly, SEP licensing negotiations, debates, and disputes increasingly focus on IoT applications.
The Battle for Automotive SEPs
The auto industry is one of the first sectors outside of the smartphone and computer device industry to rely on connectivity standards, such as 4G/5G or Wi-Fi. The broader transport sector will make extensive use of connectivity for dynamic traffic management, intelligent parking and infrastructure to support the integration of autonomous vehicles into road traffic. The questions of how and by whom new connectivity-based revenue sources will be generated and monetized are some of the most critical issues facing the automotive industry today. The answers to these are particularly challenging due to the differences in industry norms between communication technology industries and traditional incumbents in the traditional automotive value chain, which have historically had different approaches to intellectual property, business models and value distribution.
In this context, German courts have been a major “automotive battlefield” of SEP litigation. The main disagreement between SEP holders, the licensors, and the standards implementers, the auto industry, was about where in the value chain SEPs should be licensed. Most SEP owners aim to sign licensing agreements with original equipment manufacturers (OEMs), while several major automakers and their suppliers would prefer patent licensing issues to be addressed further up in the supply chain. Because of these different players’ diverging views, royalty payments for SEPs (e.g. for patents that are essential to a connectivity box sold by a tier 1 supplier to an automotive OEM), were not adequately reflected in the pricing negotiations in the automotive supply chain. Now the question is, who will have to pay SEP royalties? The OEM or its suppliers?
In this regard, Daimler and Continental have urged the European Union’s antitrust regulator to step in and stop what they consider violations of EU competition law, and the German cartel office encouraged German courts to seek guidance from the European Court of Justice on where in the value chain patented technology that is part of a standard should be licensed.
One of the highlights in SEP litigation this year was the Nokia and Daimler settlement of all global litigation in connected cars dispute in July 2021. The litigation began in 2019, when Nokia sued Daimler for infringement of several SEPs at the regional courts of Düsseldorf, Mannheim and Munich. At the last count in 2021, Daimler had 10 lawsuits pending before German courts. As part of the settlement of this dispute after more than two years of infringement litigation, Daimler agrees to take a car-level patent license, but questions remain regarding component-level SEP licensing. On one hand, the deal with Daimler is poised to strengthen Nokia’s bargaining position with respect to other OEMs in the automotive industry, as the argument that end product level licensing is unworkable in the automotive industry appears increasingly fragile. On the other hand, Continental, a tier 1 Daimler supplier, argues that this settlement has little if any impact on its efforts to obtain a supplier level exhaustive FRAND license. As Continental supplies also other automotive companies that similar to Daimler may also not have signed a licensing deal with Avanci, controversy regarding the level of licensing in the automotive value chain continues. Avanci – a joint licensing initiative – offers a fixed rate of $15 for the use of 4G (including 2G/3G and eCall) in vehicles. This offering is however only available for automotive OEMs and not its suppliers. Continental’s appeal against a district court decision to dismiss its antitrust lawsuit against Avanci for refusing to negotiate remains pending.
The point is also made that these disputes are about more than just cars, since the principle of supplier licenses is also relevant to other sectors. This is particularly relevant with 5G on the horizon, which was excluded from the Nokia/Daimler settlement, and which is also not part of the current Avanci SEP license offering. There are also other cases, such as Huawei’s antitrust complaint in Germany, that could lead to the Court of Justice of the European Union questions in Nokia/Daimler being reanimated in some form.
Worldwide License Terms
In the wake of the Unwired Planet v Huawei decision, the UK also continues to serve as an important venue for high-profile SEP litigation cases. The UK courts’ resolve to determine licensing terms for worldwide SEP licenses has faced a significant challenge this year when Apple sought to withhold a commitment to accept worldwide licensing terms determined by a UK court in its litigation with Optis Wireless; and temporarily threatened to withdraw from the UK market.
Even though this stand-off was (at least for now) resolved to the advantage of the UK courts, larger players are moving to the front. Chinese courts are increasingly actively pursuing jurisdiction over SEP licensing disputes; further fueling conflicts over the appropriate venues for resolving SEP licensing conflicts. This evolution has led to an increasing number of anti-suit-injunctions, anti-enforcement injunctions, or anti-anti-suit-injunctions being requested and issued by courts in different countries. One noteworthy example is an anti-anti-suit injunction issued by the district court in Munich in March 2021, enjoining Huawei from seeking an anti-suit injunction in Chinese courts to prevent Japanese patent fund IP Bridge to bring patent infringement lawsuits in Germany.
In parallel to a busy year in European courts, there have been significant evolutions on the Regulatory front. The European Commission, which published in late 2020 an IP Action Plan stressing the “need for a much clearer and more predictable framework” for the licensing of SEPs, moves forward with its announced plans, including support for industry-led initiatives and possible reforms. As part of these activities, the European Commission awarded a contract for an Economic Impact Assessment on Standard-Essential Patents to a consortium led by the authors of this article, and will soon release a public consultation. The Commission’s public consultation will follow on the heels of recently published public consultations in the UK and the US.
In designing its initiative, the Commission can build on the numerous proposals of the members of the Commission’s “Group of Experts on Licensing and Valuation of Standard Essential Patents”. The SEP Expert Group delivered its ‘Contribution to the Debate’ in January 2021, including 79 proposals made by individual members of the group.
The Action Plan, the Expert Group’s Contribution, and communications from the Commission over the year signal a focus on transparency and licensing transaction costs, as well as an ambition to reduce the number of SEP litigations. This relatively narrow policy focus appears to contrast somewhat with the Commission’s ambitious goals laid out in the Digital Compass, and the IP Action Plan’s envisioned role for the EU to act as an international norm-setter in IP protection.
Debates surrounding transparency on declared (potential) SEPs and the conduct of SEP licensing negotiations have also surrounded the European Commission’s review of its Horizontal Guidelines. The responses to the Commission’s initial public consultation, published in March 2020, overall indicated satisfaction with the Guidelines’ provisions on standardization agreements; nevertheless, there were diverging views on whether the Horizontal Guidelines should encourage or require greater efforts on SEP transparency and increased clarity regarding FRAND licensing terms. In a further public consultation from July to October 2021, the Commission sought feedback on various policy options, including stakeholders’ experience with different SEP disclosure obligations, and their views on licensee negotiation groups.
Stakeholder responses and the public debate indicate strongly diverging views on the issue of licensee negotiation groups, with SEP holders being particularly concerned about the potential anticompetitive effects of facilitating implementer coordination during licensing negotiations with SEP holders. Also worth watching are DG Comp’s next steps on standards development organizations’ (SDOs’) SEP disclosure obligations. There seems to be an increasing divergence between the standards applicable to ETSI, which requires an onerous disclosure of individual potential SEPs, and many other SDOs, which merely require blanket licensing statements in lieu of disclosure. These differences are at risk of being exacerbated by potential European regulations placing even further increased disclosure and transparency obligations on declarants of potential SEPs. Furthermore, SEP holders increasingly face the risk that courts hold their SEPs unenforceable if these patents were not specifically disclosed to ETSI by a specific date. By reserving its safe harbor provisions to those SDOs providing at least some transparency on the number and identity of potential SEPs, the European Commission in its revision of its Horizontal Guidelines may at least partly contribute to level the playing field between SDOs.
The European Commission’s next steps on the review of its Horizontal Guidelines will also be closely watched for indications of future EU competition policy and enforcement practices in the realm of SEPs. The Digital Markets Act and related pronouncements have widely been viewed as indicators of tightening European competition policy in the field of high-tech industries. In the context of renewed efforts to reach convergence with U.S. antitrust policy, best exemplified by the recently inaugurated EU-U.S. Joint Technology Competition Policy Dialogue, the United States’ recent return to an antitrust policy approach singularly focused on curbing potential single firm abuses by SEP holders may also influence the EU’s competition law enforcement intentions.
German Patent Reform
In the field of patent law – while the Unitary patent continues inching forward – the major focus in 2021 was the reform of Germany’s patent law. In June 2021, the German Parliament passed certain amendments to the German Patent Act (“PatG”), including an amendment on the rules on injunctive relief in cases of patent infringement. Germany currently serves as a major venue in which SEP holders may pursue injunctions against unwilling SEP licensees (the recent joint statement by DOJ, USPTO and NIST suggests that SEP holders’ chances of being granted injunctions against SEP infringers in the US remain dim). In this context, the prospect that patent reform in Germany may introduce significant limitations on patent holders’ access to injunctive relief thus generated significant controversy, with implications far beyond Germany. Experts argue however that the amendment, as adopted, has little effect on the availability of injunctive relief in SEP cases. European competition law already stipulates that injunctive relief against infringers of SEPs is available only if the infringer is unwilling to enter into a FRAND license. Injunctions that are permissible under this “Huawei v ZTE” standard could hardly be seen as disproportionate under the clarified standard under the revised German patent law.
These SEP licensing disputes and discussions of regulatory or legislative reform took place in the context of larger discussions about how SEPs should be licensed outside of the smartphone world. The European industry has significant stakes on both sides of the SEP licensing market, and will closely observe further disputes, court decisions and regulation in the European market.
Europe Charts Its Own Path on SEPs
Future evolutions in Europe are also significant in the context of a larger geopolitical competition for influence over the global SEP licensing ecosystem; exemplified by foreign courts’ challenges to the jurisdiction of EU Member States’ courts. While the EU’s strategy in this regard is still relatively restrained by comparison to the United States (where Export Administration Regulations imposed by the previous administration against major Chinese tech companies remain in place, and the National Institute of Standards and Technology is currently evaluating further steps that the United States may take to curb Chinese influence over ICT standards development), EU’s recent initiatives in the digital era signal the EU’s resolve to “strengthen its digital sovereignty and set standards, rather than following those of others”.