Elon Musk prioritizes Twitter's present over Tesla's future in peace deal with Apple, accepts App Store tax in exchange for ad spend: TSLA investors should keep an eye on this

Long-term Tesla (NASDAQ:TSLA) investors should be concerned about a manifest conflict of interest between Elon Musk's troubled Twitter buyout and his role with the automaker that goes far beyond the enormous distraction that his intense crisis management at the social network entails. A few hours ago, Mr. Musk made a public statement that Apple--Twitter's largest ad customer--has resumed its Twitter ads, which in combination with his visit to Apple Park a few days ago suggests that he gave up his public resistance to Apple's monopoly abuse--which had massive political repercussions--only to secure a short-term cash influx for Twitter.

The day before Mr. Musk confirmed that Apple had resumed its Twitter ads, I already viewed this as one of only two possible explanations for Mr. Musk's recent tweet that it had all been a misunderstanding and Apple never actually considered "removing" Twitter from the App Store:

There are only two possibilities:

Either Apple will reject updates, which they do tens of thousands of times per day and is not literally "removing" an app.

Or Apple will do a deal with Elon Musk under which they spend a lot of advertising $$ on Twitter and he pays the app tax.

— Florian Mueller (@FOSSpatents) December 2, 2022

Now, Matt Stoller reasonably believes that what happened is exactly the bargain I had outlined as the second possibility:

The reason Musk didn’t seek anti-monopoly legislation to bust up Apple’s App Store control is because he didn’t want to break their control. He just wanted them to buy ads. It was just a stick-up. https://t.co/PAUXlQgcDR

— Matt Stoller (@matthewstoller) December 4, 2022

This is unsurprising as Mr. Musk's series of tweets antagonizing Apple started with ad budget allocation and then raised App Store issues. That would have been inconducive to Twitter's credibility in a hypothetical antitrust clash. But it was, as we now know, simply Mr. Musk's agenda to use one as a bargaining chip for the other.

Even if the potential for a Twitter-Apple clash over the App Store monopoly (app tax and app review) lingers on as the rejection of a single major Twitter update by Apple's app reviewers could make the conflict flare up again, Apple has been able to appease Mr. Musk--arguably one of the most formidable App Store opponents--at a critical time. The Congressional term is almost over, so the Open App Markets Act--which the White House would like to see adopted now--may slip into the next term. It's not just about another ten months or so that Apple might be able to delay the OAMA's enactment, and the risk that the next Congress might not do anything about it. There's a lot happening around the globe, with the EU now beginning to implement, step by step, its Digital Markets Act (which I've previously described as the kind of legislative-regulatory intervention that is automakers' only chance to prevent Apple and Google's "carjacking"); with antitrust investigations in various jurisdictions; with the UK's DMU plans; and with the Ninth Circuit working on its Epic Games v. Apple appellate opinion. U.S. legislation would not be a requirement for any of the foregoing to do away with the App Store monoppoly, but would definitely pave the way. At this pivotal juncture, Mr. Musk could have kept up the pressure and maximized the chances of the OAMA being passed into law this very month.

Instead, he sold his birthright for a bowl of stew like a Biblical character. Or as the famous Spanish saying goes, pan para hoy y hambre para mañana (bread for today, hunger for tomorrow).

As long as those who backed Twitter's reprivatization are in favor, there is nothing wrong with Twitter prioritizing today's revenues over tomorrow's app tax load--but what if Mr. Musk either had to promise to Mr. Cook that Tesla, too, would refrain from challenging Apple's platform monopoly abuse or Tesla's strategic interests in combating Apple's "digital carjacking" (before it's too late) were not discussed, but Mr. Musk is restricted in his ability to vigorously defend Tesla's interests because Twitter needs Apple's advertising dollars?

That's where the apparent horse trade between Twitter and Apple becomes a serious problem for Tesla.

No company poses a greater threat to Tesla than Apple. Google is number two, while the aggregate of all other car makers is a distant third: they can only compete (more or less), but they can't leverage monopoly power.

Mr. Musk's repeatedly stated concerns that Twitter might go bankrupt make him personally somewhat dependent on Apple and Google. In the short term, this won't impact Tesla's revenues or earnings. What is at stake, however, is Tesla's ability to defend its turf against a future Apple Car and Tesla's control over the cockpit and all the digital revenue streams in the self-driving vehicles of the future. Moreover, if Mr. Musk strikes a deal with Mr. Cook that gives Twitter a short-term influx of cash but compromises Mr. Musk's ability to defend Tesla's turf and its long-term strategic interests against the mobile operating system duopoly, there is considerable risk that other third parties may also influence Tesla's decisions through their dealings with Twitter.

For the avoidance of doubt, I am not at all saying that Mr. Musk should do what's bad for Twitter because it's good for Tesla, such as waging war on Apple over the app tax because it benefits Tesla in the long run to loosen the duopolists Apple and Google's death grip on their respective mobile ecosystems. The cooncern here is that Mr. Musk had three reasons to fight Apple's and Google's app distribution monopolies, and the third one of them--which is arguably the most important one for the long haul--is all about Tesla. It seems that Twitter, which has huge problems because many advertisers have defected or slashed their spend (which is why Mr. Musk now has to be grateful to those advertisers who return to Twitter), is on intravenous life support from a part of Apple's ad budget, and that this compromises his ability to do what's best for Tesla, given that at the end of the day he can only speak with one voice and even he can't say "I'm wearing Twitter's hat now and we still have an entente with Apple" and subsequently raise issues concerning Apple's monopoly abuse (and the way it is impacting the automotive industry) in Tesla's name.

While Google does secret deals with potential challengers to its app distribution monopoly all the time, Apple has so far given sweetheart terms only to the likes of Amazon. Now Tim Cook has sort of applied Google's "Project Hug" approach to Elon Musk. (I'll talk more about Google's Project Hug later or tomorrow: it also involves advertising, but in a different way.)

Share|

Elon Musk threatened war on Apple's app tax, then deleted his tweet, but the gauntlet is out of the bag: he can win this, just needs to separate antitrust issues from advertising budget allocation

After repeatedly criticizing Apple's app tax and even raising the prospect of a Tesla Phone, Elon Musk crossed an important line yesterday by giving Apple the choice between exempting Twitter from the App Store's usurious app tax or an outright antitrust war. In a series of tweets taking Apple to task over different issues, Mr. Musk shared the following image (but later deleted the tweet):

A near-simultaneous tweet about the app tax can still be found:

Did you know Apple puts a secret 30% tax on everything you buy through their App Store? https://t.co/LGkPZ4EYcz

— Elon Musk (@elonmusk) November 28, 2022

Actually, Mr. Musk was "generous" in the sense that Apple's app tax even exceeds 30% (except for those who fall under the Small Business Program, but that's a negligible share of total App Store revenues). Apple passes on parts of its taxes (which app developers would not owe in most cases if they could transact directly), makes app discovery ever more expensive, and Apple makes billions just with its base developer program fees (charging about four times per year as Google charges Android developers as a one-time fee). And some believe--credibly so--that Apple will soon run its own in-app ad platform on iOS, meaning Apple would take a cut of in-app ad revenues as well (after kneecapping the existing networks).

Mr. Musk can win this war if he has to wage it. There is only one concern--not a huge one, but worth mentioning: conflation of issues can backfire.

Yesterday's tweets addressed a trio of issues: the app tax; Apple's app review (from a freedom-of-speech angle); and Apple's decision to slash its Twitter advertising budget. The first two are reasonably closely related, and would be remedied the same way: by means of alternative app stores and direct installs ("sideloading"). Apple allegedly threatened to Twitter with ejecting its app from the App Store, but didn't clarify over which issue or set of issues:

Apple has also threatened to withhold Twitter from its App Store, but won’t tell us why

— Elon Musk (@elonmusk) November 28, 2022

So I would agree that app review and app tax are manifestations of the same problem of monopoly abuse. But the third issue--ad spend--is the odd man out. It is easy to predict that in a hypothetical scenario where Mr. Musk takes that highway exit to the war zone and seeks a temporary restraining order and preliminary injunction to have the Twitter iOS app reinstated on the App Store, Apple is going to hold it against him that he started his Apple criticism yesterday with a reference to advertising budget allocation:

Apple has also threatened to withhold Twitter from its App Store, but won’t tell us why

— Elon Musk (@elonmusk) November 28, 2022

Apple will then foreseeably tell the court that a few weeks before, Mr. Musk had threatened renegade advertisers with a "thermonuclear name & shame":

Thank you.

A thermonuclear name & shame is exactly what will happen if this continues.

— Elon Musk (@elonmusk) November 4, 2022

Arguably, Apple is now the first company to have been exposed as a company reducing its ad spend on Twitter. Apple may have been Twitter's single largest advertiser until then. But other companies even withdrew entirely.

I'm not saying that Apple could reasonably spin all of this as "he's suing us over the App Store because we exercised our right to advertise where we want." Mr. Musk could point to his long-standing criticism of the app tax. The hypothetical removal of Twitter from the App Store would raise far more important issues, and any judge or juror could easily see what the case is really about: Apple's monopoly abuse. But there would be an unnecessary smokescreen for Mr. Musk's lawyers to deal with.

As an app developer who brought his own complaints over Apple's and Google's tyrannical censorship, I obviously hope there will be further escalation and that Apple (and preferably also Google) will be sued, just like I can't wait to see a cross-platform Microsoft app store compete with the incumbents as well as other future entrants like an Epic Games Store.

The attention that the App Store monopoly would get if Mr. Musk went to war would far exceed what Epic Games' "Project Liberty" achieved in the summer of 2020. Mr. Musk and Epic's founder and CEO Tim Sweeney would be perfect comrades in arms. An anti-monopoly-abuse alliance made in heaven. In fact, after last year's district court judgment, Mr. Musk expressed sympathy for Mr. Sweeney's fight. Where? On Twitter, of course.

Share|

'Autocalypse Now' or Tesla Phone: what can save the digital dilettantes at Volkswagen, Toyota, and other car makers from Apple's and Google's world domination?

The latest edition of Wirtschaftswoche (German for "business week") came out on Black Friday, and there's a great article on pages 32 and 33 (available only to subscribers, at least for the time being) that I'd like to recommend: Autokalypse now (the "k" instead of the "c" is due to the German spelling of "apocalypse"). It's about an issue that this blog has dubbed as "carjacking"--meaning that Apple and Google use their mobile operating system monopolies to take control over connected vehicles:

• Automakers are oblivious to their *only* chance to prevent Apple and Google from digital carjacking

• Key EU politician tells FOSS Patents: maps should fall under Digital Markets Act just like other search engines

• Automotive industry increasingly at Google's mercy

Another term than "carjacking" is "carmageddon" (see The Android-ification of Cars).

The Wirtschaftswoche article starts with a high-profile Mercedes customer: former EU commissioner Guenther Oettinger says he uses Google Maps for navigation because it suggests better routes and more accurately predicts the time of arrival. That's what many of us have experienced with cars of different brands. During his tenure as the EU commissioner in charge of digital industry policy, Mr. Oettinger was already--and rightly--concerned about traditional car makers' share of the future automotive value chain. That concern is shared on Capitol Hill: on November 1, Sen. Elizabeth Warren (D-Mass.) wrote a six-page letter (PDF) to U.S. antitrust enforcers about this threat.

The problem is that the C-level execs, chief lawyers, and lobbyists of automotive companies don't get it. They're sort of aware of the problem, but far from taking the measures that would be required to respond to the threat. Those execs and the "experts" they rely upon would rather downplay the issue than take decisive action outside their comfort zone. Meanwhile,

There is only one outlier: Elon Musk. While he may not have had the chance yet to develop a regulatory strategy and to figure out the full potential of the EU's Digital Markets Act, he is clearly prepared to go to bat. That's a lot more than those traditional automakers can say: it seems to me that most of the decision makers there have no strategy other than hoping that they won't have to deal with the problem before they reach the age of retirement. But that could prove a mistake not only for their companies but even for those decision makers: Wirtschaftswoche quotes a McKinsey partner who says it will be decided in a matter of three to five years who will be in control of the automotive industry (car makers or gatekeepers).

Earlier this week I outlined the three reasons Mr. Musk has to fight Apple's and Google's gatekeeper power: the third one involves Tesla and is no less important than the other two, which are about Twitter in the short term. On Black Friday, Mr. Musk said he didn't rule out making "an alternative phone" if that was the last resort to deal with the mobile gatekeeper problem:

I certainly hope it does not come to that, but, yes, if there is no other choice, I will make an alternative phone

— Elon Musk (@elonmusk) November 25, 2022

Patently Apple reported on it. That's where I first saw the tweet.

I agree with Jim Hanson, who says Mr. Musk should "[f]irst give Apple a good taste of lawfare."

But what would an Elon Phone, Twitter Phone, or Tesla Phone (about which there have previously been rumors) mean for the automotive industry at large?

That depends on interoperability. That new phone (likely based on the open-source code base of Android, but without a Google license and, a as result, without Google Maps, the Google Play Store etc.) could give Tesla another competitive advantage. But it might also be the lesser evil than the "Goopple" duopoly for the digital dilettantes at companies like General Motors, Ford, Volkswagen, Toyota, BMW, and Mercedes. If Mr. Musk made the strategic decision to enable all car makers to provide the same level of integration, it would be an opportunity for the entire industry.

Again, I think the first step is to put pressure on Apple and Google at other levels: policy, regulation, and litigation. Whether Apple and Google will make concessions because of Mr. Musk threatening to enter the smartphone market is doubtful. So far it seems that both mobile gatekeepers only make changes to their terms and policies when they absolutely have to. But anything can happen, and a Tesla Phone is yet more of a possibility than seeing the Facebook Phone rise from the ashes...

Share|

Elon Musk has three reasons to fight Apple's and Google's app store monopolies: Twitter's shift toward subscriptions, free speech, and Tesla's unsustainable resistance to Apple Car Play, Android Auto

Bloomberg's Mark Gurman authored some excellent analysis--published yesterday--of the potential for conflict between Twitter and the mobile platform duopolists. He separately pointed out that Apple's App Store chief (and previously long-time marketing chief) Phil Schiller deactivated his Twitter account that had about 200K followers:

While I expect lots of leeway, there is a real scenario in which Apple/Google remove Twitter because of content moderation issues or because Twitter decides to bypass the 15%-30% cuts. Notably, we appear to now know how Apple’s App Store chief feels about the new Twitter. https://t.co/PCjOEsWA1L pic.twitter.com/LWjFCgxINA

— Mark Gurman (@markgurman) November 20, 2022

Mr. Schiller's decision to quit Twitter may very well have to do with friction between Elon Musk and Apple over the latter's rules, though Tim Cook was still tweeting on Sunday. He has more than 13 million followers.

Elon Musk has repeatedly criticized mobile app stores fees as a "tax on the Internet." Most recently, on Saturday (in response to a Slashdot posting related to the latest revelation from Epic Games v. Google, which is that Google paid Activision Blizzard King $360 million to ensure its loyalty to the Google Play Store):

App store fees are obviously too high due to the iOS/Android duopoly.

It is a hidden 30% tax on the Internet.

— Elon Musk (@elonmusk) November 19, 2022

Resistance to Goopple's mobile app store tyranny usually goes through stages. Virtually every app developer would prefer competition among app stores (such as more than one iOS app store, and a level playing field for rival Android app stores). That would bring down fees, prevent the monopolists from complicating and taxing app discovery, allow a greater diversity of in-app revenue models, and such competitive constraint would also dissuade Apple and Google from imposing and arbitrarily enforcing content rules. But the fewest speak out publicly. I assume that practically every large company that is subjected to the app tax has asked Apple and Google for a more competitive deal, but those conversations are private. Some companies like Epic Games and Spotify started to speak out in public, and later brought antitrust complaints with regulatory authorities and/or (in Epic's case) private antitrust litigation.

Is Elon Musk also contemplating the next step--"a possible standoff with Apple Inc. and Alphabet Inc.’s Google over fees and content" as Bloomberg describes it? Looking at the examples of Epic and Spotify, there definitely is the potential. And Mr. Musk would actually have not only one or two but at least three reasons to challenge the monopolists:

1. The app tax complicates Twitter's shift toward a subscription model ($8 per month for Twitter Blue). It siphons off money that Twitter needs for its turnaround. While Fortnite Mobile would be profitable even if Epic had to pay the app tax (which by the way exceeds 30% in some markets), the app tax alone could make it impossible for Twitter to overcome its current financial crisis. And that would make Twitter a potentially perfect plaintiff.

   Twitter could try to do what Spotify does, which is to take subscriptions only on its website and not in its mobile apps. That would adversely affect conversion rates--and Apple and Google might tell Twitter that it does not meet the criteria for a "reader" (content consumption) app.

2. Elon Musk's promise of free speech may be controversial, but it doesn't mean lawlessness. The key question is whether Apple and Google--the two tyrants--get to determine what social networks are allowed or required to do, or whether we leave that to governments. It's one thing for Thierry Breton, the EU internal market commissioner (and in some Brussels insider's opinion the most influential commissioner at the moment), to say that "in Europe, the bird will fly by [EU] rules" such as the Digital Services act. It's another for Apple and Google to exercise their gatekeeper power and elevate themselves to the ultimate censors. In the COVID tracking context, Apple and Google forced the world's governments to abide by their rules: democratically unaccountable corporations. There even were statistical indications that a number of COVID infections in the UK could have been avoided if Apple and Google had not abused their market power.

3. Tesla arguably has an even more fundamental problem with Apple and Google than Twitter ever did or ever will. It is the last (or at least the last important) company standing: as the "not a tesla app" website notes, Apple Car Play and Android Auto were released in 2014, but "eight years and countless requests later, Tesla still doesn't support CarPlay or Android Auto." The article attributes this primarily to the fact that "[t]he huge benefit that other manufacturers gain by integrating CarPlay just isn't as crucial in a Tesla, which already offers intuitive, responsive software with many features." And that "seamless experience" would not be possible if Car Play and Android Auto were integrated.

   The not a tesla app article predicts that Tesla's "true competitors" will be "powerful tech companies such as Apple and Google" that "not only have strong design and AI foundations but also have access to a large user base and a dominant platform." The article concludes by note that companies like Tesla and Rivian "understand the future of the [electric vehicle], but at the same time, their users are demanding access to CarPlay and Android Auto."

   When I bought my first electric car, I was considering a Tesla, but I'll be perfectly honest: even though I'm a vocal critic of the mobile app store monopolies, I want Android Auto. That was one of two key reasons (the other being availability) why I decided against buying a Tesla. I'm sure I'm not the only one to have made the availability of Android Auto a knockout criterion--and while we are a minority, our number will keep growing, especially with every release of Android Auto (or Car Play for Apple fans) that adds new features. Even though I know that it's bad for consumers if Apple and Google succeed with their digital "carjacking" strategy, I have to choose what suits my need as a customer.

   The question is not whether Tesla will need Car Play and Android Auto at some point, but when and--even more so--on what terms. If the terms ensure that Apple and Google will not be able to use their mobile platform market power to tax Tesla's transactions or to dictate rules that break the Tesla experience or are just generally unfair, there is no reason why Tesla shouldn't provide greater interoperability with Android and iOS. That's what customers demand, and by now virtually every car maker can sell you an electric vehicle.

   Tesla's strategic problem with the Android-iOS duopoly is even more fundamental than what Twitter has to deal with in the short term. I've previously written about car makers' incompetence in responding to the Android-iOS threat:

   • Automakers are oblivious to their *only* chance to prevent Apple and Google from digital carjacking: proactive lobbying (such as on EU Digital Markets Act) and competition enforcement

   • Automotive industry increasingly at Google's mercy: discontinuation of Android Assistant Driving Mode (after Android Auto for phones) reflects and reinforces monopolization--Tesla is the last man standing, but for how much longer?

Both Tesla and Twitter should have filed amicus briefs in support of Epic Games against Apple. There will be future opportunities because no matter what the Ninth Circuit will decide after last week's hearing (I believe a partial reversal and remand is much more likely than wholesale affirmance), the fight will go on. The losing party will most likely request a rehearing en banc. In the meantime, Twitter may become the next major app store antitrust plaintiff, which would indirectly benefit Tesla.

Share|

Automotive industry increasingly at Google's mercy: discontinuation of Android Assistant Driving Mode (after Android Auto for phones) reflects and reinforces monopolization--Tesla is the last man standing, but for how much longer?

Last month I already expressed concern over car makers' structural inability to respond at all levels--including legislation, regulation, and litigation--to Apple's and Google's ongoing "carjacking" effort.

Meanwhile, the EU's Digital Markets Act has been published (the historic moment was yesterday)--a bill that can help automakers, but only if they seize the opportunity. A couple of years ago their lobbyists were incompetent enough not to veto a submission by Germany's big-industry association BDI that (fortunately unsuccessfully) sought to dissuade the Commission from taking the initiative that led to the DMA. The German Automotive Industry Association (VDA) appears to be a hot mess anyway when it doesn't stay in its original lane, as I'll show again further below.

Two weeks ago, the Wall Street Journal reported on the next big battle between Apple and Google being for the "soul" of your car. Philip Elmer-DeWitt, who's been covering Apple since--lo and behold--1983, quoted a few paragraphs from the article. PED's headline sums it up: "Apple or Google: What's on your dashboard?" And his take: "Google's got a head start, but Apple will do a better job and charge more." As someone who just ordered a Google Pixel 7 Pro and would have done so even at price parity with the iPhone, I wouldn't necessarily agree that Apple inherently "do[es] a better job"--but the part about "charg[ing] more" is beyond reasonable doubt.

This week, Google did what it habitually does: it discontinued an offering. As I mentioned in connection with Google's lobbying against Microsoft's acquisition of Activision Blizzard King, there's a digital graveyard named KilledByGoogle. Google's nonchalance about shutting down services is no small part of the reason why its Stadia game streaming service failed: who would invest in anything that isn't Google's core business, i.e., search? TechCrunch wrote: Stadia died because no one trusts Google Some even doubt Google's enduring commitment to its Google Cloud Platform, but count me out: GCP is great, and Google needs a huge cloud operation anyway to run its search engine. For now, I'm sure GCP will make Google a lot of money further down the road.

This week's major Google killing isn't good news for the automotive industry. Google is shutting down its Asisstant-powered Driving Mode for Android. That dashboard--launched only in 2019--is going to be deactivated on November 21, 2022. And it's been only a few months since Google actually killed off Android Auto for phone screens.

As a result, one needs a car with Android Auto, which by now applies to the vast majority of cars out there" and is also a lot safer when driving. In fact, in some countries using Android Auto on a phone screen while driving would be illegal.

Alternatively, one can activate the Assistant Driving Mode in Google Maps (which will hopefully fall under the DMA, as I discussed in September). Google says--and independent commentators seem to agree--that many people preferred the Assistant Driving Mode within Google Maps over the standalone feature anyway.

This pair of killings--within months of each other--is bad news for the auto industry in two ways:

1. It reflects the fact that Google has won: apart from only one major holdout--Tesla--the industry has adopted Android Auto. So Google can easily deactivate certain functionalities on phones as the vast majority of users can--and should--use Android Auto on the built-in screen, which means Google doesn't have to develop for and test on totally different form factors, and drivers are less likely to lose sight of the road that way.

2. It also means that car makers can't just tell customers who use Android--people like me--that we don't need Android Auto as we could just use Android Auto on our phone. Now the only alternative to a car with Android Auto built in is the Assistant Driving Mode in Google Maps: less functionality than the standalone Assistant Driving Mode (even if most people hardly knew it), which in turn wasn't a full substitute for Android Auto on phone screens.

For how much longer will Tesla be able to resist? I want to be honest about this. I was considering buying a Tesla, but I viewed it as a major shortcoming that I wouldn't be able to use Android Auto. My new car will be delivered next month and come with Android Auto like my current one. As a user, I demand Android Auto. As an app developer and a big believer in competition, I have a problem with Google's and Apple's "carjacking" and believe lawmakers and regulators must protect the automotive industry, such as by ensuring that Android Auto and Apple Car Play will be made available on fair, reasonable, and non-discriminatory (FRAND) licensing terms, without the kind of tying that would effectively give Apple and Google control over ever more revenue streams of connected vehicles.

In other words, my attitude toward Android Auto depends on which hat I'm wearing at a given time, the only exeption being the following:

When I activate Android Auto, it always starts Google Podcasts. Owing to Google's self-preferencing (not as bad as Apple's, but almost), one can't easily deactivate or uninstall its own apps. I deleted it from my phone, but that changed nothing about Android Auto's behavior. Really annoying for users, and bad for competition. Others have also criticized that auto-activation (apparently YouTube Music may also start playing music even without users wanting it to happen automatically).

What can the car industry do? Like I've said before, they need to bring in digital policy knowledge (such as by hiring people with a tech industry background). They must work a lot harder and smarter on the legislative, regulatory, and litigation fronts. They failed to understand the potential of the DMA. If they were foresightful and not as narrow-minded as they are, car makers would have supported Epic Games against Apple alongside the DOJ, three dozen U.S. states, professors including the #1 U.S. antitrust scholar, Microsoft, the Electronic Frontier Foundation, and others. Today's app tax is tomorrow's tax on digital services in connected vehicles. They still could support Epic when that case goes to the Supreme Court (whoever loses in the Ninth Circuit--I predict Epic will gain a lot of ground with at least a partial reversal--will be sure to appeal further, even if only after a potential remand).

Instead of tackling the clear and present danger of being reduced to "sheet metal benders" as Volkswagen's former CEO accurately put it, they waste money on standard-essential patent (SEP) policy (for instance, automotive companies supported Continental's absurd U.S. litigation against Avanci that went nowhere and which I criticized already more than three years ago). And the German Automotive Industry Association (VDA) embarrassed itself with a submission to the DOJ that is unworthy of a "professional" lobbying entity:

German Automotive Industry Association (Verband der Automobilindustrie--VDA) embarrasses its members instead of intelligently advocating their digital policy interests

Earlier this year, Germany's Automotive Industry Association (VDA) participated in a U.S. government consultation on SEP policy. The submission itself was well-crafted; presumably it was written by U.S. outside counsel. But look at the accompanying email (click on the link to visit the governmental website where it appeared, or click on the image to enlarge):

1. "Dear Ladies and Gentlemen" is a verbatim translation of "Sehr geehrte Damen und Herren." It's just not how you want to address the DOJ.

2. "Enclosed" is the wrong word--you can attach documents to an email, but can't enclose them in the absence of an envelope or box.

3. It would also have to be capitalized in this instance.

4. There's no "please" or similarly courteous word there.

5. "Statement"--not "statememt." (Word choice is another question.)

6. The dot after "SEP" is incorrect.

7. Let's not even talk about the stylistic issues with "on questions of SEP licensing."

8. "Regards" is not appropriate when writing to the government.

9. "Department Law and Compliance"--they mean the Legal (Affairs) Department, not the "law of departments" (if such a thing exists).

That's a number of Germanisms plus some typos on top.

That industry needs to get its digital policy act together. They failed to soften Germany's strict patent injunction regime as I just explained again in the previous post. They achieved nothing with respect to the licensing level. They proposed a buyers' cartel that would organize group boycotts, which is simply contrary to the rule of (antitrust) law. And they still don't seem to have understood the urgent need to act in the field of digital platform regulation. There may just be too many people in that industry (and its lobbying organizations) who are too close to retirement to care.

Share|

By signing up General Motors, Avanci patent pool reaches milestone with over 50 million connected cars licensed: agreement struck without prior litigation

Less than two months after Volkswagen upgraded its Avanci standard-essential patent (SEP) license to 4G for all of its brands, the patent pool firm has announced a new license agreement with General Motors, the largest U.S. car maker with about 6 million vehicles sold per year between its Chevrolet, Buick, GMC, and Cadillac brands. According to the press release, Avanci has now licensed a total of 37 automotive brands and "[m]ore than 55 million connected vehicles on the world's roads."

To the best of my knowledge, no infringement litigation by any of Avanci's licensors--four dozen SEP holders including some of the largest ones such as Ericsson, Qualcomm, and LG--was pending, so this agreement resulted only from negotiations. If any enforcement action had been needed, GM's exposure in Germany would have been rather limited: GM sold its European brands (Opel, Vauxhall) to PSA Group a few years ago, and its remaining brands are basically operating in a small niche of the European automotive market (for instance, Cadillacs are available through a very few dealerships).

GM has traditionally been very interested in connectivity. Its OnStar subsidiary has been focusing on subscription offerings (such as in-vehicle security and emergency services) for more than a quarter century. It's possible that GM's success in generating incremental revenues from such services gives that company a different perspective on the cost of a pool license ($15 per car is the published rate) vs. the value that automakers can derive from connectivity.

While GM is the first U.S. automaker with whom Avanci has announced an agreement, Tesla was presumably the first one to have taken a license (that's still kept under wraps) as I noted in a recent post. Ford, which makes approximately four million cars annually, is currently defending against SEP infringement actions by five Avanci licensors, one of whom (Korea's Sol IP) just amended its complaint in the Eastern District of Texas by throwing in 16 more SEPs (on top of the previously asserted 5). I have no idea what Ford's envisioned endgame is...

Avanci's GM deal does not fit the narrative of some of the patent pool's detractors who say or suggest that only premium brands from Europe accept its licensing terms. The licensees increasingly include volume brands as the two most recent deals (Volkswagen's 4G upgrade followed by today's GM announcement) show. At last week's Auto IP & Legal conference in Frankfurt, a Continental IP executive said Avanci had yet to offer terms that the automotive industry at large would accept, a demand that is unsupported by the increasing diversity of the licensees and the fast-growing number of licensed vehicles. Conti can't stop the tide as far as I can see.

The German automotive supplier mostly known for its tires is desperately trying to revive its failed U.S. antitrust complaint against Avanci and some of its key licensors such as Nokia. What the automotive supplier wants the United States Court of Appeals for the Fifth Circuit to do is basically to rearrange deck chairs on the Titanic: even if the rehearing en banc modified the panel decision, Conti's case is doomed one way or the other because Avanci's licensors all remain free to license their SEPs to anyone, including to suppliers like Conti or even higher up in the value chain if they so choose. Such deals are not just a theoretical possibility: they have indeed happened (case in point, Sharp's agreement with Huawei).

Avanci and Nokia filed an unopposed request for a 30-day extension to respond to Conti's petition for rehearing en banc, with a major part of the reason being other obligations of their outside lawyers. Avanci is still being represented by Winston & Strawn's Jeffrey Kessler,

Avanci and Nokia filed an unopposed request for a 30-day extension to respond to Conti's petition for rehearing en banc, with a major part of the reason being other obligations of their outside lawyers. Avanci is still being represented by Winston & Strawn's Jeffrey Kessler, who has an amazing track record in antitrust also in a sports context. I recently commented on one of his sports cases because Apple had (prematurely) cited it.

The fact that America's largest car maker accepted Avanci's license terms without litigation may bear some weight with U.S. courts, not only when Conti is the plaintiff but also when Ford is the defendant and criticizing the Avanci model.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Tesla, Toyota, Honda finally file correct amicus brief--which doesn't say that Tesla is presumptive Avanci licensee

Just a quick follow-up to my previous post, which was about Tesla, Toyota, and Honda's failure to file their own amicus curiae brief (in support of Continental's petition for rehearing en banc of the dismissal of its "antitrust" case against Avanci, Nokia, and others), and also addressed the fundamental shortcomings of some other filings.

Tesla, Toyota, and Honda have meanwhile been allowed to submit a brief, and they finally uploaded their own brief as opposed to Thales's (this post continues below the document):

22-04-20 Tesla Et Al. ACTUA... by Florian Mueller

What the brief doesn't say is that Tesla is an Avanci licensee. Now, I don't have definitive knowledge of that. But IAM deduced from the near-simultaneous voluntary dismissal of multiple U.S. patent infringement lawsuits by Avanci licensors against Tesla that those cases were all settled in one fell swoop by taking a car-level 4G license from Avanci. The parallel German cases were also dismissed. And since then, no infringement action by any of Avanci's licensors (a total of 49 companies) against Tesla has become known. As an Apple lawyer once famously said, "I'm old enough not to believe in coincidences anymore." It's not impossible, but practically inconceivable, that Tesla wouldn't have taken an Avanci 4G license--that just hasn't been publicly announced, and all 49 Avanci licensors have apparently honored the NDA that is presumably in place.

It's somewhat strange that Tesla files an amicus brief against a patent pool from which it has a license--a license that bailed it out of multiple infringement actions. Tesla would have been free to pursue bilateral licensing instead.

The arguments in the brief add nothing to what the other amici had said before.

That's not the only mystery related to the amicus briefs filed in that case. A group of professors--including some I actually respect a great deal--made a filing one day ahead of the deadline, but should actually have taken that time to correct some typos and other mistakes that come across as hasty, if not sloppy, making me wonder whether the academics even knew what they were signing (this post continues below the document):

22-04-19 Professors' Ac... by Florian Mueller

The heading of the first section is... well... creative:

"ALL IMPLEMENTERS OF STANDARDS THAT THE RELEVANT SSOs PROMOLGUATE ARE INTENDED THIRD PARTY BENEFICIARIES OF THE SSO MEMBERS' FRAND COMMITMENTS" (emphasis added)

There's also a redundancy between the first two footnotes:

"1 Undersigned counsel for amici curiae certify that this brief was not authored in whole or in part by counsel for any of the parties. No party or party’s counsel contributed money for the brief. No other person contributed money that was intended to fund preparing or submitting the brief." (emphasis added)

"2 This brief is submitted under Federal Rule of Appellate Procedure 29(a). This brief was not authored in whole or in part by counsel for any of the parties. No party or party’s counsel contributed money that was intended to fund preparing or submitting the brief. No other person contributed money that was intended to fund preparing or submitting the brief." (emphasis added)

They also say the brief was "opposed" without stating who opposed it (there are multiple appellees here) and why...

The professors' brief does Conti the favor of elaborating on something that footnote 1 of its petition already stated briefly. The professors seek to reinforce Conti's point with the following passage:

"Moreover, based on a review of ETSI public records, Continental Automotive GmbH (CAG), the parent company of Plaintiff-Appellant, is a full member of ETSI and a CAG representative currently serves on ETSI’s Board of Directors. While CAG is not the named Plaintiff-Appellant in this case, Plaintiff-Appellant is ultimately owned by CAG. Thus, for all practical purposes, Plaintiff-Appellant is a member of at least one relevant SSO."

In antitrust cases it's key to pick the best plaintiff from the start. Footnotes in en banc petitions and amicus briefs don't make a party a plaintiff at this stage of proceeding.

I was wondering from the start how Conti seriously thought (and I'm also saying this with a view to its Delaware case against Nokia) that a U.S. subsidiary could somehow secure a global license for a Hungarian Conti subsidiary. Conti's corporate structure is a jungle of nth-degree subsidiaries. If they think that's cool or smart (as opposed to just unnecessary bureaucracy), that's their choice. But they have to streamline things in antitrust enforcement or they'll run into standing issues like here.

The professors' footnote 15 also makes a point that doesn't withstand scrutiny: with respect to the panel's mentioning of Broadcom being a Qualcomm competitor when those two companies had their seminal FRAND dispute, they say "at least one licensor member of Avanci (LG Electronics) is a direct competitor of Continental in the market for TCUs." But LG joined Avanci only a couple of months ago, making it an irrelevant fact in this case, which they conveniently (euphemism intended) omit.

Even if one took that fact into consideration now, it actually serves to show that even automotive suppliers believe that car-level licensing is workable and that Avanci's terms aren't an issue. Chances are that Conti itself would be an Avanci licensor if it had invested in the kind of research and development that is required to build a SEP portfolio. But Conti's management lacked the competence and foresight to make that investment while there was a window of opportunity with a view to (for instance) 4G. Instead, they wanted to free-ride on other companies' R&D spend. LG has the benefit of being not only a licensee but also a licensor of SEPs. Avanci itself is not a cross-licensing club, but LG can sometimes cross-license directly with other companies, and for the purposes of its internal financial planning LG can offset some of its automotive division's inbound licensing costs with revenues from outbound licensing. But that's not the result of foul play. It's because LG invested in that area, unlike Conti, a company that is more than 150 years old and better at making tires than at contributing to telecommunications standards, so it's trying to devalue other companies' SEPs instead of respecting them.

The Fifth Circuit will almost certainly figure out what's going on. The question is just whether those alarmist amicus briefs by automotive companies and "Apploturfers" will result in the waste of time that a rehearing en banc of that fatally-deficient "antitrust" case would represent.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

#FAIL: Tesla, Toyota, Honda file WRONG amicus brief as auto industry, Apploturfers urge Fifth Circuit to resuscitate Continental's 'antitrust' case against Avanci, Nokia, others

Before I forget, let me remind you of next week's Frankfurt Auto IP conference where various of the players mentioned below will be present, some of them even as keynoters and panelists.

Oh my. Tesla, Toyota, and Honda wanted--but failed miserably--to submit an amicus curiae ("friend of the court") brief in support of Continental's petition for rehearing en banc (full-court review) of a panel decision not to revive Conti's self-described 'antitrust' action against the Avanci patent pool and some of its licensors, most notably Nokia. The deadline was a couple of hours ago (midnight Central Time).

The problem is that instead of filing a Tesla-Toyota-Honda brief, they actually attached to their motion a brief that was separately submitted by French industrial conglomerate Thales (this post continues below the document):

22-04-20 Tesla Honda Toyota... by Florian Mueller

The first seven pages of the PDF are Tesla, Toyota, and Honda's motion for leave to file an amicus brief. And then, starting on page 8, there's a "Brief of amicus curiae Thales in support of Plaintiff-Appellant's petition for rehearing en banc" (which Thales filed in its own name, too). Conti itself also misfiled because it failed to comply with the Fifth Circuit's rules (for example, it forgot to provide a statement of facts).

Not only is it uncertain whether the Fifth Circuit will mercifully allow Tesla and its allies to correct their oversight, but there is a serious issue here that cannot be undone:

This misfiling exposes that what was meant to look like broadbased support for Conti is nothing but a coordinated ploy at worst, or an echo chamber at best. The amicus briefs submitted in support of Conti's petition--which would be duplicative enough even without Tesla and its Japanese friends inadvertently having refiled Thales's brief--can be traced back to orchestration by the automotive industry on the one hand and organizations funded by Apple (to advocate the devaluation of standard-essential patents (SEPs)) on the other hand.

Auto + Apploturfers. That's quite an unholy alliance. By "Apploturfers" (Apple astroturfers) I mean essentially the same bunch of Apple-bankrolled organizations that launched the Save Our Standards campaign (they couldn't come up with a more alarmist name, could they?). I recently exposed SOS's highly deceptive advocacy: they sponsored an "interview" with one of their member companies that untruthfully claimed to be a small app developer having issues with SEP owners, when in reality that company never implemented a standard itself, thus never had to license a SEP!

This has become absurd. They keep making themselves ridiculous. And it's not just because of misfilings and astroturfings. The real issue relates to the substance of this (or lack thereof).

Conti's petition and the amicus briefs filed in its support urge the Fifth Circuit to rearrange deck chairs on the Titanic. All that brouhaha about the alleged need for automotive suppliers like Conti to secure exhaustive component-level patent licenses aside, the Fifth Circuit--one of the nation's busiest appeals courts--would just be wasting its time on a rehearing because Conti's complaint is ripe for dismissal on multiple grounds.

The case has had problems from the start. Judge Lucy Koh in the Northern District of California (now, thankfully, on the Ninth Circuit) denied an antisuit injunction and disposed of that case by dumping it on the Northern District of Texas. There, a very experienced judge--Chief United States District Judge Barbara Lynn--dismissed it for two reasons, any single one of which is sufficient in its own right: lack of antitrust standing, and no Sherman Act claims (neither Section 1 nor 2). Conti apparently didn't fully believe in its appeal as it started a parallel and partly duplicative action in Delaware (Chancery Court). After the Fifth Circuit's panel decision, the complaint is even "deader" than before. As I explained, the panel majority held that Conti didn't even have basic Article III standing to begin with. The single judge in the minority joined the majority for what was a unanimous dismissal, but clarified in a footnote that he'd have simply upheld Judge Lynn's decision.

This means that for Conti even to be allowed to conduct discovery, the judges who have previously looked at the matter would have to be overruled in three ways:

1. Article III standing

2. antitrust standing

3. actionable claims under Sherman Act 1 and/or 2

Even if all of that happened (which would frankly amount to a long shot), does anyone seriously believe that Conti could ultimately win this? That a court would ultimately find that Avanci is responsible for most SEP holders declining to grant a certain type of license to component makers, when the key players among them already had that policy long before Avanci was created and--which makes Conti's case completely meritless--Avanci's contracts don't in any way restrict its licensors' ability to extend such licenses? In fact, some Avanci licensors (Sharp, Conversant) have demonstrably granted exhaustive component-level SEP licenses.

Conti is desperately trying to explain with a conspiracy theory what can be adequately explained with long-standing industry practice.

The en banc petition and the amicus briefs place the emphasis on how certain FRAND licensing pledges should be interpreted for all sorts of reasons. But that's the wrong focus.

I've been watching and criticizing this dumpster fire of an "antitrust" case for almost three years. Conti had some contract law claims based on those FRAND declarations. Judge Lynn declined to entertain them after the federal antitrust claims had died. The 5th Cir. panel's casual remark about Microsoft being a member of the relevant standard-setting organizations (SSOs) in its landmark FRAND case against Motorola and about Broadcom being a Qualcomm competitor in another historically important case doesn't change the fact that Conti failed to establish antitrust, not contract law, standing.

If Conti wants to make a contract-law argument, it can do so in that case it brought in Delaware (and which hasn't been a particularly productive effort either, at least so far).

But where's the antitrust injury? How come none of the five judges who have dealt with the case so far--all five of them being really distinguished federal judges--found Avanci's licensing terms quite as outrageous as Conti and its auto-and-Apple amici claim?

There won't be any such harm until some Avanci licensors prevent Conti from supplying its component to its car-maker customers. But they all leave Conti alone. If they ever were to sue Conti, Conti could raise all sorts of defenses. If Conti's customers are licensed (as some of them like Daimler and Volkswagen are), or can elect to take a license, the whole argument comes down to a conclusory allegation that car makers end up paying more--for the same patents used in the same end product--than component makers. Not only is that (as I said) conclusory, but it wouldn't mean Conti gets treated worse than other suppliers, so if anyone had a problem here, it would be the car makers, and patent law provides ways to defend oneself against excessive royalty demands. If amici like Tesla want to pay less, they have every opportunity in their own cases to dispute the reasonableness of certain royalty rates.

Conti has always just talked about indemnification claims in the abstract. It still can't point to a case where a car maker actually had Conti pick up SEP license fees.

The question of whether Conti lacks Article III standing or "only" antitrust (Sherman Act) standing is really academic. Even whether Conti has any kind of standing is not going to make a difference. The petition and all those amicus briefs fail to convince me that Conti could ever win. On one basis or another, that complaint belongs on the federal judiciary's dustbin.

Automotive suppliers are not even consistent when it comes to their stated desire to secure component-level licenses. Case in point, Thales--which is pursuing its own ill-conceived case against Avanci (in Munich)--points in its amicus brief to its litigation with Philips, which is an Avanci licensor. That dispute is not specific to connected vehicles. And that dispute actually shows that Philips wants Thales to take a license, just that Thales isn't prepared to pay what Philips demands.

The Fifth Circuit panel was pragmatic, and that's what I strive to be, too. Avanci has signed up dozens of SEP holders and has licensed dozens of automotive brands. I was skeptical a few years ago, but in the end you can't argue with success. It works. Has the world descended into chaos as a result of this? The automotive industry has its problems. It has to deal with the transition from combustion engines to electromobility, and with a chip supply shortage. SEP licensing is a non-issue for car makers. Some of them just don't like to pay.

At least one of those amicus briefs stresses the enormous economic importance of 5G. And the Save Our Standards brief (ACT | The App(le) Association, CCIA, and HTIA) states how many patents the members of one of those organizations own. When it comes to 5G patents, Avanci has most of the major contributors--with Huawei and Samsung being the only heavyweights missing from the list (for now)--on board. Those who seek to bring down SEP royalty rates and facilitate hold-out by unwilling licensees may very well be innovative in other fields and own a lot of patents. But their contribution to 5G is either next to nil (automotive industry) or very limited (Apple mostly just acquired such patents from the likes of Intel and Nortel) compared to what those Avanci licensors like Ericsson, Qualcomm, Nokia, and that rising star named OPPO--have brought and continue to bring to the standard-setting table.

If the Fifth Circuit figures out that those amicus briefs are just a campaign that doesn't make Conti's case any more meritorious, then it's possible that the court won't even have to hold a vote.

While this is also unrelated to the merits, I did want to mention something in closing. The Alliance for Automotive Innovation, which claims that its members make 98% of all cars sold in the United States, and the German VDA (Association of the Automotive Industry) submitted a brief that lists one of this blog's recent articles in its Table of Authorities. Below you can find a screenshot of that passage followed by the actual document.

22-04-20 VDA AllianceAutoIn... by Florian Mueller

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Neo Wireless expanding patent enforcement campaign to automotive: actions filed against Ford, Honda, VW, Nissan, GM, Tesla, Toyota with five U.S. district courts

This is the third standard-essential patent (SEP) post in a row. The previous ones discussed patent assertions by some unnamed MPEG LA licensors against their former partner Samsung and some rather interesting developments surrounding Nokia v. OPPO/OPPO v. Nokia.

Non-practicing entity Neo Wireless LLC put itself on the map of U.S. patent litigation through its mid-January filings against Apple, LG, and Dell. As Apple Insider reported, the infringement allegations in the complaint against Apple alleged that Neo Wireless held patents essential to the 4G/LTE and NR/5G cellular telecommunications standards.

Neo has now filed a slew of lawsuits against car makers:

• Eastern District of Texas

  • General Motors Company

  • Tesla

  • Toyota

• Eastern District of Tennessee: Volkswagen Group

• Middle District of Tennessee: Nissan

• Southern District of Ohio: Honda

• Western District of Missouri: Ford Motor Company

The Eastern District of Texas has tremendous expertise in adjudicating patent disputes; the other districts--with the greatest respect--don't. It will be interesting to see whether any venue transfer motions will succeed and/or whether any of those cases will get consolidated.

Neo is not an Avanci licensor, and will likely seek damages that on a per-patent basis dwarf the cost of Avanci license. Some automakers already have that problem with Intellectual Ventures, which is asserting a mix of standard-essential and non-standard-essential patents (1, 2).

Only one of the defendants is a publicly-known Avanci licensee: Volkswagen. Tesla has been rumored to be one ever since multiple enforcement actions by Avanci licensors were withdrawn near-simultaneously in different jurisdictions. The other defendants are presumably among the companies Member of the European Parliament Alfred Sant had in mind when he asked the European Commission three questions concerning the distortion of competition because of some car makers having taken an Avanci license while their competitors from outside of Europe largely haven't.

The asserted patents largely overlap between the different cases, but are not always the same. For example, four of the six patents-in-suit against Toyota are also among the five patents asserted against Apple, but two are not.

The claimed inventions were apparently made by Chinese individuals, but Neo Wireless is a U.S. entity. There was or is another company named Neocific that temporarily owned some or all of those patents.

Finally, here are two sample complaints: the E.D. Tex. one against Toyota and the W.D. Mo. lawsuit against Ford.

22-03-29 Neo Wireless LLC v... by Florian Mueller

22-03-29 Neo Wireless LLC v... by Florian Mueller

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Will the FTC/DOJ divide over antitrust enforcement against standard-essential patent abuse persist under President Biden?

Yesterday, the Federal Trade Commission's Acting Chairwoman Rebecca Kelly Slaughter issued a statement on the fact that the FTC did not file a petition for writ of certiorari (Supreme Court review) in the Qualcomm case. On the decision itself I had already commented a few days ago, with a particular emphasis on the fact that Qualcomm's lawyers are now representing Epic Games against Apple and Google.

The FTC's press release is now the first high-profile statement by a federal government agency on standard-essential patent (SEP) matters since President Biden took office, deserving a closer look.

I totally agree with Mrs. Slaughter that the agency's "staff did an exceptional job presenting the case" at the trial stage. And it's a good thing to give Judge Lucy H. Koh credit. It obviously looks strange that the trial court agreed with the FTC all the way (except for a duty-to-deal theory that the FTC didn't defend on appeal) while the appeals court reversed everything it could and vacated the remainder (the FRAND contract interpretation) as moot. Judge Koh deserved better. The Trump presidency was really bad for her. She had already been nominated to the Ninth Circuit, but her confirmation got derailed by the 2016 presidential election. And then the Antitrust Division of the Department of Justice, under Trump appointee Antitrust Assistant Attorney General Makan Delrahim, fought hard against her ruling--and against the FTC.

It's often easy to be wise after the event, but if there's only one aspect of trial management that Judge Koh could have done better in retrospect, it's that she could have allocated more time to a discussion of the law with counsel. This was a complex case with multiple claims and theories. After all the witnesses had been heard, some more extensive back-and-forth between judge and counsel, partly in writing perhaps, might have helped to reach more solid conclusions--maybe the same result in the end, even on the duty to deal (for a component-level license), but on a more appeals-proof basis. Instead, the parties were basically just viewed as delivery boys: they had to present the facts, but the judge thought she knew all about the law. Then, I also sometimes disagreed with Judge Koh in the Apple-Samsung context (as did the appeals court, the Fedreal Circuit in that case), but all in all she is and remains an impressive judge especially on technology industry issues.

The FTC's Acting Chairwoman didn't concede the battle to Qualcomm without a stern warning to SEP abusers:

"I am particularly concerned about the potential for anticompetitive or unfair behavior in the context of standard setting and the FTC will closely monitor conduct in this arena."

Maybe the automotive SEP licensing and enforcement context would provide the FTC with another bite at the apple that is called component-level licensing. Tesla has apparently just been coerced into an Avanci license. Obviously, Tesla itself would find it hard to enforce the antitrust laws against those who sued it over patents, after just signing a settlement agreement. But the FTC could step in and investigate what happened, and possibly take action. If the FTC won, the Avanci-Tesla agreement might be annulled. Tesla wouldn't have to violate any enforceable agreement because it would simply have a legal obligation to answer the FTC's questions.

In the automotive context, SEP holders can't argue that the industry they're dealing with has traditionally taken licenses at the end-product level. The opposite is the case. And it's a multi-tier supply chain: baseband chips get incorporated into network access devices, which in turn are incorporated into telematics control units, and the TCUs are finally built into cars.

Addressing the component-level licensing issue in the SEP context would help not only Tesla but also other U.S. car makers such as Ford and GM. And, by extension, it would benefit Apple.

But there is a significant roadblock: under the aforementioned Mr. Delrahim, the DOJ cleared Avanci's business model by means of a non-binding business review letter.

That roadblock isn't insurmountable, and as a side effect of helping Tesla, GM, Ford, Apple and especially consumers, a victory over a licensing model designed to coerce OEMs into end-product-level SEP license agreements would be the best way to dedelrahimize U.S. SEP policy.

But what about the Biden DOJ? That question already came up in my podcast a couple of months ago, where I asked DC-based antitrust attorney Jay Jurata of Orrick Herrington Sutcliffe for his thoughts on how U.S. SEP policy might evolve after the transition of power.

Mrs. Kelly Slaughter's statement starts by acknowledging "the significant headwinds facing the Commission in this matter." That passage may or may not hint at a continuing FTC-DOJ divide over this case.

My most optimistic scenario would be that the "new" DOJ will pick up where the Obama Administration left off in terms of SEPs, and the same would ideally happen at the USPTO as well, in which case we could soon return to a better SEP licensing and enforcement framework. In that case, the term "headwinds" might have been limited to the fact that the outcome before the Ninth Circuit was obviously disappointing for the FTC and Qualcomm (through its allies) had succeeded in portraying FTC v. Qualcomm as an Obama case, which wouldn't help when you face a Supreme Court with a 6-3 conservative majority.

A moderately optimistic scenario would be that the FTC talked to the DOJ, as the Solicitor General (the second highest-ranking DOJ official) would represent it before the Supreme Court, and the DOJ discouraged a cert petition not because it still shared Delrahim's positions but because it genuinely believed that chances were slim (such as for the "Obama case" reason I just mentioned, and/or because of the significant challenge that it would have been to come up with a couple of good questions for review).

The pessimistic scenario is that DOJ-ATR and FTC are still far apart on the issue.

It won't take long before we find out. For example, if DOJ-ATR again supported Fortress Investment against Apple and Intel (who recently brought a second amended complaint, with Mr. Delrahim having played a key role in enabling Fortress to get earlier versions dismissed), then there would clearly be the same divide as before.

As an app developer, I'm personally most interested in the FTC and the DOJ combating the abuse of mobile app store monopolies. The decision to abandon the Qualcomm case freed up agency resources.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Three fateful decisions will drive up Tesla's patent licensing costs: Avanci license, Austin factory, and German Gigafactory

I've criticized those old-fashioned German car makers on numerous occasions, and chances are there'll be more reasons further down the road. Now I can't help but offer the prediction that Tesla is going to far outspend, on a per-car basis, everyone else in the automotive industry, and that's because of three decisions its management took without fully considering the ramifications it has for future patent licensing negotiations and infringement disputes.

As the saying goes, you can't argue with success. But Tesla's market capitalization doesn't mean that the company doesn't make mistakes in its operational business that a company like Apple, with its far greater experience in--and more sophisticated and strategic approach to--patent licensing and litigation, would avoid. Tesla is going to pay hefty tuition fees before it will learn how to play this game like the pros in Cupertino.

Avanci license

As IAM (Intellectual Asset Management) reported, industry observers believe that the new Avanci licensee (whose name the patent pool firm behind Avanci, Marconi, hasn't disclosed yet) is none other than Elon Musk's electric vehicle maker.

What gives rise to this speculation is that several lawsuits by Avanci members against Tesla have recently been dismissed in different U.S. federal districts.

Last year, Tesla settled with Conversant (as IAM reported), which was suing Tesla in the Western District of Texas. Actually, Conversant appears willing to license automotive suppliers, as its settlement with Huawei shows. So Tesla should have insisted on Conversant extending a license to its component makers. Then, Conversant's patent portfolio is pretty old and weak, so it might just have appeared cost-efficient to take a direct license, just like Daimler thought when it settled with Sharp. Both settlements--Tesla/Conversant and Daimler/Sharp--unnecessarily endorsed the concept of licensing cellular SEPs at the level of a car. Just like I criticized Daimler's decision in no uncertain terms, I didn't like Tesla's deal with Conversant because of what it means for other automotive SEP disputes. But Daimler has, at least so far, declined to take an Avanci license. Tesla apparently has done just that, and that means it has opened a can of worms and will have to pay off countless patent trolls, but also major operating companies holding patents it infringes.

I've looked up a few U.S. dockets and been able to verify that apparently there are no more cases pending between Avanci members and Tesla. Here's an Optis Wireless v. Tesla stipulation of dismissal from the Eastern District of Texas (this post continues below the document):

21-02-26 Optis v. Tesla Sti... by Florian Mueller

The following screenshot shows a Sisvel v. Tesla dismissal, dated March 2, in the District of Delaware (click on the image to enlarge):

After taking an Avanci license, Tesla is not going to be able to credibly defend itself against other SEP holders by arguing that those patent holders should insteasd talk to Tesla's suppliers.

Austin factory and relocation to Texas

Earlier today I mentioned that the Western District of Texas is the world's #1 hotspot for patent damages, and that is so because companies with a presence there (as opposed to merely having resellers offer its products) can't just move patent cases out of that district under TC Heartland.

Texas is building an Austin factory and even plans to move its HQ to Texas. It's understandable in political terms, because even though I predict Texas will become a blue state in the not too distant future, Texas Democrats may be as centrist as California Republicans, at least in fiscal policy. However, the Western District of Texas effectively imposes a huge patent tax on business.

Gigafactory Berlin-Brandenburg

From a marketing point of view, it made a lot of sense for Tesla to build a "Gigafactory" in Germany. "Made in Germany" has always been, in no small part, about cars. It's a major market. And maybe Tesla hoped to generate political goodwill in the largest EU member state.

However, Germany is exactly the jurisdiction to which patent holders flock in pursuit of injunctions. The judicial district in which you're based there doesn't matter: there's no forcible venue transfer, thus no TC Heartland equivalent either. The problem is that a patent injunction in Germany will not only disrupt Tesla's sales in that particular market, but will force it to halt production in its Gigafactory. Also, Tesla wouldn't be able to circumvent an injunction by exporting the products it makes in Germany to other markets.

Tesla could have built a factory somewhere else in Europe. Just a little bit to the east of its Berlin-Brandenburg site there's Poland. In that jurisdiction it's likely that politicians would immediately take action and protect a major foreign investor against patent injunctions, should the Polish judiciary follow the German example. But in Germany there's no chance: even local players like Volkswagen, Daimler and BMW have failed (partly because their IP lobbying expertise is lacking and wanting) to persuade lawmakers to address the issue. As I explained in my most recent post on the subject, the proposed reform will not affect patent holders who make a licensing offer by the trial date. There won't be a proportionality analysis in such cases. And those are the cases Tesla will be dealing with.

The best cross-jurisdictional patent litigation strategy against Tesla will be to sue them for damages in the Western District of Texas and to seek an injunction in Germany. Maximum leverage.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|