The French Connection: Thales is third industrial giant from France to intervene in Nokia v. Daimler standard-essential patent dispute

The Dusseldorf Regional Court's preliminary reference to the European Court of Justice asks the top EU court to opine on certain questions of antitrust law with respect to the availability of standard-essential patent (SEP) licenses to component makers. Daimler argues that Nokia actually owes its suppliers an exhaustive license that would, by extension, cover the Mercedes maker.

In late 2018, Daimler filed with the European Commission's Directorate-General for Competition (DG COMP) a complaint over Nokia's refusal to license its suppliers. About two years ago, Nokia started a patent infringement litigation campaign against Daimler that has so far failed to give the former handset maker decisive leverage.

Daimler notified its tier 1 (direct) suppliers of those cases and the possibility of indemnification claims. Certain suppliers such as Peiker, a German subsidiary of a French company named Valeo, intervened (in support of defendant Daimler) early on. Last year it became known that even French automotive company Renault is technically a supplier to Daimler, by virtue of making a car for Daimler under a cooperation agreement. Renault may not have intervened in all Nokia v. Daimler cases, but in at least a couple of Munich lawsuits.

By now, Valeo and Renault are no longer the only two French companies to have skin in the Nokia v. Daimler game: I've recently found out that Thales, a French industrial giant with 80,000 employees, finally elected to intervene in the Dusseldorf case that gave rise to the ECJ referral. Almost two years after the filing of the complaint, Thales apparently didn't want to miss this opportunity to try to influence the proceedings in Europe's highest court.

Thales is not a direct supplier to Daimler, but a tier 2 supplier (one degree removed) through its customer TomTom. Similarly, Huawei is a tier 2 supplier through such telematics control unit (TCU) makers as Continental and Harman (a Samsung subsidiary).

With a belated filing on February 20, 2021, Thales--represented by Simmons & Simmons antitrust attorney Dr. Jens Steger--attempted to persuade the Dusseldorf court to refer a set of alternative or additional questions to Luxembourg. As far as I can see, the Dusseldorf court shows no signs of being inclined to do so. It will stick to its original set of questions.

In addition to unilateral-conduct issues under Art. 102 TFEU, Thales sought to raise a couple of cartel questions (Art. 101 TFEU):

• In one of its proposed questions, Thales points out that the FRAND licensing pledge companies like Nokia made to ETSI was key to the European Commission's approval of "the ETSI agreements"--and on that basis suggests that Nokia violates Art. 101 by refusing to license component makers.

• In another question Thales takes aim at an Avanci contract clause according to which that patent pool reimburses its members' SEP enforcement costs. Thales calls into question that a pool covering more than 60% of the patents essential to a given standard. Apart from the fact that this percentage is merely based on Avanci's own estimates (which are inconsistent with various independent studies), collective ownership percentages of SEPs aren't relevant from a competition law point of view as even a single truly essential patent confers market power upon its holder.

While it's important never to forget that what makes SEPs so powerful is horizontal cooperation, which would raise serious cartel issues without a FRAND licensing obligation, I welcome the fact that the focus will remain on unilateral conduct (monopoly abuse) questions. After all, that's what makes this preliminary reference a seamless continuation of Huawei v. ZTE with a special focus on component-level licensing. Thales aspired to make creative contributions to the process, but the new theories it espouses aren't quite so compelling as to warrant a modification of the referral order, much less at this procedural stage.

Where Thales does, however, still have every opportunity to make a positive impact is by lobbying the French government--which will have the opportunity to submit written observations (comparable to an amicus curiae brief, except that the ECJ doesn't allow private non-parties to make submissions). Thales could also lobby the French EU commissioner, Thierry Breton, who has so far been more sympathetic to Nokia and Ericsson's patent monetization interests than the concerns of the automotive and wider IoT industry over SEP abuse. As internal market commissioner, Mr. Breton has responsibility for the European economy at large (and European consumers), but that doesn't mean he has to act forever as if he were Finland's permanent representative (ambassador) to the European Union. Europe has far more to gain from component-level SEP licensing: its strong automotive sector is reason enough all by itself, and its growth potential in IoT makes it an even smarter choice for the future.

Thales declined to sign Nokia's non-disclosure agreement, and I applaud them for that. However, the need to withhold certain confidential business information from them may slow down its lawyers' access to the record. Unfortunately, German litigation procedures are antiquated, so Thales can't just be provided with access to digital documents. Instead, the court has to provide the original paper documents, and the formal referral to the ECJ can take place only after Thales has had its opportunity to make copies or scans.

Subsequently to the formal referral, the CJEU can start the translation process. The deadline for the written observations to be filed by the European Commission and the governments of the EU member states (to the extent they do so) will be a couple months later--in the late summer, presumably.

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Mannheim Regional Court stays Nokia v. Daimler case over likely invalid patent -- and two Munich trials have been vacated due to corona

Most of the time, Nokia signs license agreements without having to sue, and when they sue, they typically manage to settle quickly. That's why the Finnish company's standard-essential patent (SEP) portfolio is largely untested. The former handset maker that still sells cellular network infrastructure (base stations) touts the size of the portfolio, but has yet to prevail on a single SEP in court. Maybe they won a SEP case a long time ago, but I can't remember such an outcome during the ten-year history of this blog.

Three SEP assertions by Nokia have been adjudicated in Germany so far. There's this saying that "two out of three ain't bad," but Nokia's score for the time being is ZERO out of three, and that is arguably not "bad" but more accurately described as a disastrous score.

After losing a case against ViewSonic earlier this decade and its first case against Daimler two months ago, Nokia has just suffered another de facto defeat as it felt forced to stipulate to a stay of case 2 O 36/19 over EP2145404 on a "method and apparatus for providing control channels for broadcast and paging services," which was originally scheduled to go to trial on March 17.

Presiding Judge Dr. Holger Kircher stayed the case--with Nokia's consent--pending the Federal Patent Court's adjudication of nullity actions (complaints seeking the invalidation of the patent) by Daimler and an intervening supplier, TomTom. Those proceedings before the Federal Patent Court typically take years, and the vast majority of patents in this area are either declared invalid in their entirety or they end up being narrowed. A narrowing of the claim scope has the potential to render a declared-essential patent clearly non-essential.

It's constructive of a patentee to stipulate to a stay after the court has indicated a strong inclination to order a forcible stay in the alternative. It simply conserves court resources as a stipulated stay doesn't require a written rationale. Still, it's a concession that a patent was weak in the first place.

Originally, it looked like the period between December 2019 and May 2020 was going to be an extremely busy one for the Nokia v. Daimler patent assertion campaign. But the combination of Daimler defending itself (with help from its intervenors) very well and that force majeure that starts with a "c" has so far prevented Nokia from getting leverage. What's much worse for Nokia is that its dismal track record against Daimler so far will be held against it in future licensing negotiations (with smartphone makers as well as the car industry):

• Besides the two Mannheim cases of which Nokia lost one and had to stipulate to a stay in the other, a third one was already scheduled to go to trial in December, but then Nokia made a mediation offer and the court pushed the trial date back to March 17. However, shortly before that new trial date, Nokia modified its infringement theory, which is not a sign of strength. That trial got vacated.

• A Munich ruling was scheduled for tomorrow (April 9), but has been postponed to May 20.

• Two Munich trials scheduled for April 22 (the related first hearings took place on October 30, 2019) have been vacated due to the coronavirus crisis. New trial dates have yet to be determined.

Theoretically, "it only takes one bullet to kill" as another SEP holder once told a court. However, with every single Nokia case that goes nowhere--and stipulating to a stay is tantamount to throwing the towel--its portfolio-based royalty demands lose credibility. What's happening to Nokia's SEPs here is not much different from what other SEP holders have experienced. The hit rate is very low. The only factor that makes it a little more surprising in Nokia's case is that the patent litigation knowledge they have in-house (including lawyers as well as litigation-savvy engineers) is second to none, and it goes without saying they hire some of the very best firms to represent them. With so much expertise, how come they can't find stronger SEPs? They picked ten patents for the campaign against Daimler, some if not all of which they previously asserted against Apple (though that dispute got settled prior to any trial). They apparently thought those ten were the best they had. And look what's happening...

Policy makers must take the following into account: SEP holders (and Nokia is just one example of many) always want to talk about portfolio royalties rather than about merit, but that is a recipe for overcompensation that results in a misallocation of resources and has quite the opposite effect of incentivizing innovation. When a defendant like Daimler doesn't bow to coercion of whatever kind and lets the judges do their job, it turns out time and again that it's one thing to declare thousands of patents to be essential to cellular standards and another to prove in court that those patents are valid and, actually, essential.

Nokia's greed--they want Daimler and other car makers to pay a multiple of the per-unit royalty they get from smartphone makers--has given rise to this dispute, which now threatens to devalue Nokia's SEP portfolio, with severe implications on Nokia's current and future licensing negotiations.

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Munich I Regional Court postpones Nokia v. Daimler patent ruling from April 9 to May 20, 2020

BREAKING NEWS

In light of the coronavirus crisis, I double-checked with the Munich I Regional Court's (Landgericht München I) press office and found out that the Nokia v. Daimler standard-essential patent ruling scheduled for this week's Thursday (April 9) has been pushed back to May 20, 2020.

The court did not cite any particular reason for the postponement. A postponement of a ruling date is not unheard of in complex cases, and this is a big one in every respect. It's always better if courts take their time than to rush to judgment.

Without speculating on whether this has anything to do with corona, it's simply a fact that the Free State of Bavaria has not imposed any new restrictions in more than two weeks. The current rules (social distancing, partial lockdown) will be in force until at least April 19, 2020. Presently, courts can hold hearings and trials they deem time-sensitive, and they are free to announce decisions, with the presiding judge of a given panel determining courtroom modalities such as a minimum distance to keep between any two persons.

What's more relevant now than court-internal reasons is the impact on parallel proceedings in other places. This gives the European Commission's Directorate-General for Competition (DG COMP) more time to decide on whether to launch formal investigations into Nokia's refusal to license automotive suppliers. DG COMP resumed its preliminary investigations last month after a couple of rounds of mediation had failed.

DG COMP won't necessarily be the only competition authority in the world to take a closer look at this in the near term.

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How many times can a patent holder violate EU antitrust law in a single litigation? (Nokia v. Daimler)

Last week the Munich I Regional Court's press office confirmed to me that the Nokia v. Daimler ruling scheduled for this week's Thursday (April 9) had not been postponed. The government of the federal state of Bavaria has not imposed any additional corona-based restrictions since. From what I hear, Presiding Judge Dr. Matthias Zigann is the only member of the court's 7th Civil Chamber to go to the courthouse almost every day, while his side judges are working from home. German courts have sometimes postponed patent rulings on very short notice, but for now the operating assumption is that a decision (which may or may not be a final judgment) will come down on Thursday.

With the automotive industry being hit so hard by the coronavirus crisis, Nokia's pursuit of an injunction--while there are plenty of willing licensees (Daimler and a number of suppliers)--is ethically questionable, though there is a possibility of the injunction not having immediate effect in practical terms. So much for corona and ethics; let's also not talk today about the enormous strength of Daimler's invalidity contention, or about proportionality under Art. 3 IPRED and its political ramifications (a Nokia "win" on Thursday--an injunction against entire cars over one of thousands of tiny features of a single cellular standard--would give the whole German patent reform debate new impetus). Now I'll just focus on the antitrust implications of what might happen.

If Nokia obtained and enforced that injunction, it would likely set a new record in the number of EU antitrust violations a patent holder can commit in connection with a single patent infringement case...

The Court of Justice of the EU made it clear in Huawei v. ZTE that a standard-essential patent (SEP) holder violates Art. 102 TFEU (the abuse-of-dominant-position paragraph of EU law) by refusing to grant a FRAND license to an implementer. A license is a license, and not a "have made" right or a contractual arrangement under which a component maker merely becomes a payment processor for the car maker.

There's a number of implementers in that Nokia v. Daimler case whom Nokia has refused to license, yet it seeks to shut down products containing their components. At a minimum:

• Continental (which even made Nokia a proactive offer though EU case law firstly requires Nokia to make one)

• Huawei (which is even suing Nokia in Dusseldorf in order to be made a FRAND offer, on a basis that at least two of Germany's highest-ranking patent judges endorse)

• Bosch

• TomTom

• Valeo subsidiary Peiker

• BURY Technologies

The six companies I just listed are intervenors in the Munich case. There's even a seventh intervenor: Renault, which makes a car for Daimler. Presumably Nokia is not unwilling to license Renault as it makes entire cars (even when wearing the hat of a Daimler supplier), so in order to know whether Nokia violated the antitrust laws with respect to Renault, one would need to know the status of licensing negotiations between those two organizations. It's hard to imagine that Nokia would want a lower per-unit royalty from Renault than from Daimler, so there likely is another violation, albeit one that requires a quantitative analysis.

So there are six or seven antitrust violations in the vertical supply chain. But Nokia also appears to be violating EU antitrust law with respect to Daimler even if one ignores the suppliers for a moment as the CJEU held in Huawei v. ZTE that the only scenario in which a SEP holder steers clear of an abuse of a dominant position under Art. 102 TFEU involves the combination of two factors, neither of which is present in this case (click on the image to enlarge; this post continues below the image):

Nokia wants the Munich court to interpret the above paragraph in an absurd way. The top EU court said that a SEP injunction is warranted only after a SEP holder made a FRAND offer while the implementer failed to make a good-faith counteroffer. (A blatantly non-FRAND counterproposal would not suffice to avert an injunction.)

The CJEU gave implementers two chances to avoid being enjoined: they can show that the SEP holder's offer was not FRAND, or they can make a diigent good-faith counteroffer without delaying tactics. They can also meet both criteria at the same time, but they don't have to.

Countless articles have been authored on Huawei v. ZTE. I'll just give one example written by a major U.S. law firm (Morrison & Foerster):

"Only if the SEP holder has followed those steps and the alleged infringer continues to use the SEPs in question, and fails to make a FRAND counter-offer and provide security, may the SEP holder seek an injunction. Otherwise, doing so may constitute an abuse of the SEP holder’s dominant position [...]"

In the February trial, the court showed an inclination to agree with Nokia because "the SEP holder hasn't committed any wrongdoing if its own offer is FRAND." That's wrong, however. The CJEU ruling means that the SEP holder commits a wrongdoing either by not making a FRAND offer or by failing to continue to negotiate despite a diligent, good-faith, timely response by the implementer. One could also simplify it like this: if the SEP holder's offer is not FRAND, that's a violation, end of story; but even if it is, the SEP holder can still violate EU antitrust law by rejecting a FRAND counteroffer.

Nokia seeks to convert the two hurdles for SEP holders into two opportunities for them. In order to achieve this, they effectively suggest that Europe's highest court is inarticulate: in the world according to Nokia, "and" doesn't mean "and" when "or" suits Nokia's agenda, as if the judges in Luxembourg didn't know what "and" means.

The "and" in question has a blue background in the screenshot further above. Three L's way against Nokia's attempt to turn the CJEU ruling on its head: language, logic, and layout.

"And" means "both of." So much for the language.

"And" is a logical conjunction.

From a linguistic and logical point of view, it's made even clearer by the fact that the second one of the two parts makes reference to the first by saying "that offer" (I put a green rectangle around the relevant occurrence of "that" in the screenshot). "[T]hat offer" is the SEP holder's initial offer, and interpreting the second part as if it (more precisely, the implementer's failure to fulfill its obligations under it) could independently legalize a SEP injunction simply pulls the rug (the precondition of there already being a FRAND offer on the table) from under its feet.

Finally, the text layout would make the logical conjunction clear in its own right. In the screenshot, I applied an orange background color to the words "as long as," and a blue one to "where" a few lines below. Nokia's suggestion that the SEP holder could meet either the first or the second criterion is also nonsensical because "as long as" is before a colon followed by two bullet points, while "where" comes after the second of the two bullet points. If the two bullet points were alternative requirements for Nokia to satisfy (as they aren't anyway, for the reasons explained before), "as long as" would have to come after the first bullet point (just to the left of "prior to bringing that action"). But in the CJEU's ruling, "as long as" simply ranks higher than "where," so the two just can't be considered interchangeable.

Seeking an injunction against a willing SEP licensee constitutes only one antitrust violation vis-à-vis a given party. But here, Nokia is practically doing so against seven or eight parties. And against one of them--Daimler--Nokia is apparently violating Huawei v. ZTE even twice as it (i) seeks an injunction despite Daimler having given a diligent, good-faith, and timely response, while (ii) Nokia is demanding a fairly high multiple of the per-unit royalty from Daimler that it gets from major smartphone makers. That higher per-unit fee is even more discriminatory when considering that people use smartphone connections for far more hours per day than their cars are online (while one must not actively use a smartphone while driving, virtually no one turns it off either, so the period during which a smartphone has a cellular connection is pretty much a true superset of the hours when the car is connected).

Anything could happen on Thursday. In some other courts I'd offer a 90% prediction that the case would be stayed over serious doubts concerning the validity of the patent-in-suit. In that regard, Munich is "special" because the court rarely stays cases. But Munich, too, is part of the EU.

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BREAKING NEWS: Nokia makes antitrust mediation with Daimler and automotive suppliers over standard-essential patent licensing fail

[HAPPY NEW YEAR -- AND BREAKING NEWS]

Nokia wanted to keep its EU antitrust mediation with Daimler and various automotive suppliers strictly confidential. Nice try, but I've been able to obtain reliable and mutually-corroborating information from more than one source. (I obviously protect my sources.)

On Friday (January 10) and Saturday (January 11), Nokia--represented by Bird & Bird's Richard Vary (formerly head of litigation at Nokia) and Roschier's Niklas Östman--met with Daimler and various suppliers (Bosch, BURY Technologies, Continental, Harman, Peiker, and TomTom) at a recently-opened Munich hotel. But nothing came out of a whole series of meetings moderated by a British mediator and two British lawyers appointed by the International Chamber of Commerce. The mediator will communicate with the parties by telephone in the days ahead and make a procedural decision. Theoretically, there could be another series of meetings on the 22nd and the 23rd. However, based on how these past two days went, it would be a total waste of time to reconvene.

In practical terms, it's already clear that mediation is pointless for two reasons that made the Munich meetings fail, neither of which comes as a surprise:

• Mediation would only have made sense if Nokia had departed from its dogged refusal to extend a true and exhaustive standard-essential patent (SEP) license to Daimler's tier 1 (= direct) suppliers. Continental had made Nokia a binding offer to take such a license before mediation began, but Nokia remains unwilling to grant any such thing as a true license to component makers. It proposes a "have made" right, which is just an extended-workbench type of arrangement as opposed to a component-level license.

• Furthermore, the meetings inevitably proved unproductive because Nokia refused to make it existing cellular SEP licensing agreements (such as the one with Huawei) available to the other parties. Nokia's excuse was that those agreements allegedly weren't relevant (not only U.S. courts but even some--if not all--German courts would disagree). Therefore, Nokia's counterparts would have had to negotiate without having the slightest idea of what Nokia's existing licensees actually pay for those SEPs.

  At best, Nokia is willing to disclose an obscure and highly atypical license agreement with a car maker who apparently accepted--but only for a transitional period and with the right to terminate as per the end of 2019--a "have made" right. That same car maker is likely to sign an Avanci pool license in the near term based on what I heard.

The information I've obtained suggests that Nokia has not been constructive, neither structurally (exhaustive license vs. "have made" right) nor procedurally (disclosure of existing SEP license agreements). If Nokia had agreed to grant component-level licenses (real licenses, not "have made" rights), and if it had then presented its existing SEP licensing agreements, mediation could have worked in theory. But no one could seriously have expected it to happen, which is why I predicted the failure of this mediation effort before. By now it's failed for all practical purposes, whether or not the mediator will order another series of meetings later this month.

EU competition chief Margrethe Vestager said last month that she expected an update on mediation by mid-February. She's not going to get any good news out of mediation, that's for sure.

What I've found out about the way the talks were structured is that the first day consisted of bilateral talks between Nokia and each of Daimler's suppliers. The suppliers invited to mediation included the ones intervening in the German infringement cases, plus Samsung subsidiary Harman, but not Huawei, which wanted to join but Nokia wasn't willing.

On the second day, Nokia might have hoped to drive a wedge between Daimler and its suppliers. Daimler met separately with each supplier (for antitrust reasons, they couldn't just all sit at the same table and discuss numbers), but neither Daimler nor the suppliers were prepared to agree with Nokia that the problem could simply be solved by Daimler reaching an agreement with each supplier on how to split the outrageous, supra-FRAND royalties Nokia demands.

The European Commission's Directorate-General for Competition (DG COMP) will have to make a decision. They hoped to avoid it, but it was clear that there's a binary, structural question at issue. Either the suppliers get a license and can make components they are free to sell not only to Daimler but also to others (in case they end up sitting on some excess quantities, for instance), or it's not a license.

The next Nokia v. Daimler SEP infringement trial is scheduled for January 21 and will take place in Mannheim unless the court decides to push the trial date back. Another Mannheim trial, originally scheduled for December, was postponed on short notice, but I heard from more than one source that the patent-in-suit in that one was so ridiculously weak that the court likely wouldn't have reached the FRAND defense anyway...

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Game changer in automotive patent wars? Huawei brought antitrust complaint against Nokia in German court to get exhaustive module-level SEP license

The Munich I Regional Court scheduled a Nokia v. Daimler "double-header" for today: first hearings (several months after which there will be trials followed by decisions) in two of the Finnish company's ten patent infringement cases pending against the German car maker.

The wireless standard-essential patents-in-suit are EP1388234 and the related German patent DE60240446C5 on a "hybrid automatic repeat request (HARQ) scheme with in-sequence deliver of packets" as well as EP2797239 on "a method and a telecommunication device for selecting a number of code channels and an associated spreading factor for a CDMA transmission." On June 5, the same court held a hearing on Nokia's infringement action against Daimler over EP1671505 on a "redundancy strategy selection scheme," and indicated a strong inclination to rule in Nokia's favor, unless things change when the actual trial takes place on February 6, 2020.

A number of suppliers of telematics control units (TCUs) to Daimler are intervening in the infringement case on the automotive company's behalf: Continental (which tried twice, but unsuccessfully so far, to shield Daimler from Nokia's lawsuits by means of a U.S. antisuit injunction), BURY, Bosch, TomTom (world-famous for its navigation systems), and Valeo subsidiary Peiker. Another intervenor, Huawei, makes cellular communications modules that are at the heart of many TCUs made by others; Huawei is also known to offer TCUs, but its counsel mentioned only its connectivity modules today.

Another factor that sets the Chinese mobile technology company apart from the other intervenors is that Huawei is presently obtaining several times more SEPs--and has a far higher share of existing 4G patents--than Nokia. By contrast, the TCU makers intervening in this case largely don't own cellular SEPs. What lends this particular importance is that it shows it's about product-focused innovators (car makers, TCU makers, and the likes of Huawei, Samsung, and LG) versus companies like Nokia and Ericsson, whose current product business is a shadow of its former self, so they increasingly focus on patent monetization.

Something I had heard through the grapevine was finally confirmed today:

Huawei has recently filed an antitrust complaint against Nokia with the Dusseldorf Regional Court, asking the court to order Nokia to make a FRAND licensing offer to Huawei--which (as was also mentioned today) already has a license agreement in place with Nokia for its end products (phones, tablets etc.)--that would result in an exhaustive SEP license covering Huawei's cellular connectivity modules.

Huawei is more likely than not to succeed with its Dusseldorf antitrust action. Presiding Judge Dr. Thomas Kuehnen ("Kühnen" in German), who chairs one of the two patent-specialized "senates" (divisions) of the Dusseldorf Higher Regional Court and is the principal author of the leading German reference work on patent infringement proceedings, published an article this year in the periodical of the German Association for the Protection of Intellectual Property (GRUR). In that article, Judge Dr. Kuehnen explained why implementers at all levels of the supply chain are entitled to an exhaustive FRAND license--and after analyzing various procedural avenues, he concluded that the most practical approach is for the implementer to ask a court--as Huawei is doing now--to obligate the SEP holder to make a FRAND offer. That appears more reasonable than a prayer for relief over a specific set of terms, given that a SEP owner has more information available to make a FRAND offer that complies with the criteria laid out by the Court of Justice of the European Union (CJEU) in Huawei v. ZTE.

Huawei's counsel in the Dusseldorf antitrust action--and representing Huawei to the extent it is an intervenor in Nokia's patent infringement actions--is Preu Bohlig's Professor Christian Donle. Preu Bohlig is one of Germany's oldest IP law boutiques. In the smartphone patent wars that firm successfully defended HTC against a couple of Apple patents. When I heard of Professor Donle's component licensing antitrust action, I invited him to speak at my Brussels conference on November 12 (that's already the week after next), and he thankfully accepted, so he will share a panel with Bristows' Pat Treacy, BakerBotts' Paul Lugard, and Orrick's Jay Jurata. But back to the German cases:

If at the end of Huawei's antitrust action Nokia is required to grant an exhaustive module-level SEP license on FRAND terms (and a real license as opposed to an "extended workbench" type of deal under which the de facto licensee would still be the car maker, with the component supplier merely acting as a licensing agent on the OEM's behalf), Nokia's patent infringement actions against Daimler will, to the extent they involve Daimler cars that come with a then-licensed Huawei component, be not only meritless, but even downright unlawful.

For that reason, Huawei has intervened in the German Nokia v. Daimler cases, requesting that--to the extent Huawei is affected--the cases be severed and stayed. I don't know what percentage of Daimler cars come with a cellular communications module from Huawei--all that has been mentioned so far is that Continental is one of Huawei's various customers among TCU makers, so the percentage could be extremely high.

In today's first hearing, the Munich court (I'll comment separately on their attitude toward antitrust defenses to patent infringement cases) basically said that since Nokia has chosen to sue Daimler, they are for now inclined to be ignorant of the issues raised by Huawei--though we're simply talking about the very (il)legality of what Nokia is doing by refusing to license Huawei while suing its (indirect) customer, Daimler. But it was just a first hearing, so there still is a chance for Huawei to obtain a stay even from the Munich court (which is an outlier court even within Germany in this specific context), or maybe it won't even be necessary in case Nokia fails to prevail on infringement and/or cases get stayed over validity concerns.

I've quickly drawn up a few diagrams to explain the relationship between the different parties and cases. First, here's a hypothetical scenario in which Nokia would--which it probably won't unless forced to--finally honor its FRAND pledge and extend an exhaustive SEP license to Huawei, which would in turn supply TCUs (which it may or may not do, but definitely could do anytime) to Daimler (click on the image to enlarge):

Patent exhaustion works downstream, so the net effect is that Daimler, as the end-product maker, would find itself fully licensed. While an argument was made today about exhaustion under German law requiring that the first licensed sale already involves a product practicing all claim limitations, Nokia did not--as I'm convinced it could not--make an argument that its SEPs claim cars, and Huawei's connectivity modules are full-featured communications devices that--to put it in a slightly oversimplified way--contain all the hardware you find in a phone apart from a screen.

Patent exhaustion works across any number of levels of a supply chain. Here's the second of my three charts--the present commercial reality of Huawei supplying its modules to Continental, which in turn sells a TCU to Daimler, but with the assumption of Nokia finally (which is not the case yet) granting a component-level license to Huawei (click on the image to enlarge):

The third and final chart combines the two previously-shown paths down the supply chain with Nokia's ongoing (allegedly unlawful) patent litigation campaign against Daimler and Huawei's Dusseldorf antitrust action against Nokia (click on the image to enlarge; this post continues below the diagram):

The chart mentions the basis for the Huawei v. Nokia antitrust case: Art. 102 TFEU, the unilateral-conduct (abuse of dominant position) paragraph of EU law.

Daimler and four other suppliers (Continental, Valeo, BURY, and Gemalto) filed EU antitrust complaints against Nokia earlier this year. Huawei would be in its right to do so, but no such filing is known. What is known by now is the Dusseldorf antitrust case, and just like Huawei v. ZTE started in that same town, where I attended the January 2013 trial that resulted in the referral of various SEP injunction-related questions to the CJEU, Huawei v. Nokia, too, has the potential to make EU antitrust history.

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