Thanks to cutting-edge digital technology, cars are increasingly like “smartphones on wheels”. Therefore, manufacturers’ access to the latest 4G and 5G technologies is essential to navigation and communications. Notably however, such technologies are often protected by patents. These so-called standard essential patents (SEPs) frequently raise serious competition issues. In particular, we have witnessed an explosion in disputes over the appropriate remuneration to be paid to SEP-holders by those wishing to implement the patented technology in their products.
Implementers of standardised technologies, including carmakers, are becoming more conscious of competition rules and the restrictions it may impose on licensing strategies. As is well-known, in the EU there is a robust body of competition law designed to fight anticompetitive behaviours. More precisely, Articles 101 to 109 TFEU and Protocol No 27 on the internal market and competition aim at guaranteeing that a regime of fair competition is an integral part of the internal market architecture, as provided by Article 3(3) TEU.
Nokia v Daimler (and others)
One such battle concerns licences for patented technologies that are essential to standards for navigation, vehicle communications and self-driving cars. Nokia, a Finnish telecom company, argues that Daimler, a German carmaker, has infringed its patent rights. The case is before the Düsseldorf Regional Court in Germany, which in late November decided to stay the national proceedings and refer a set of questions focused on SEPs licensing strategies (especially, refusal to license) to the Court of Justice of the European Union (CJEU).
Before mentioning the questions referred by the German court, two remarks are in order. First, it is worthwhile to remember that the European Commission has been investigating Nokia’s refusal to license SEPs to Daimler and its suppliers separately in a (still) pending investigation. Such refusal had indeed been disputed by a variety of industry players. Back in 2019, complaints were lodged with the Commission by Daimler, electronics company Bury Technologies, automobile parts manufacturer Continental as well as automotive supplier Valeo and digital security company Gemalto. All claimed that Nokia refused to license their patents on terms that are fair, reasonable, and non-discriminatory (FRAND), which means they believe the licensing fees demanded by Nokia were too high and unfair, thus amounting to an abuse of its dominant position under Article 102 TFEU.
Indeed, it should be remembered that patent holders of standard technologies are required to give an irrevocable undertaking that they are prepared to grant competitors licences on FRAND terms. Yet, the German carmaker and its suppliers argue that Nokia’s licensing behaviour does not comply with these obligations, which is why they have filed complaints with the Commission.
EU institutions indeed do take this behaviour seriously. In the seminal 2015 case Huawei v ZTE, the CJEU found that an SEP owner that has committed to license its patent on FRAND terms may in certain circumstances abuse its dominant position under Article 102 TFEU by seeking an injunction against a potential licensee (the Court identified a detailed procedure to be followed in SEP patent licensing negotiations).
The case referred by the Düsseldorf court is likely to be the CJEU’s most important one on SEPs since Huawei v ZTE. Among other issues, the CJEU will clarify whether owners of these patents should give licences on FRAND terms to any company that actually wants them, or if they may be free to choose as licensees the end-product manufacturers in order to increase profits.
Daimler argues that Nokia just wants to give the licence to Daimler, but not to its suppliers – thus violating its commitment to license its SEP. Nokia replies that suppliers cannot be considered as having a right to a licence – they would just be able to merely access the technology. To clarify these and other issues, the Court of Düsseldorf referred a set of key questions to the CJEU, including the following:
- Does it constitute an abuse of a dominant position if a SEP holder, e.g. Nokia, refuses to grant a supplier a licence, but instead takes a patent infringement action against the final product manufacturer, e.g. Daimler, and asks for an injunction?
- Can SEP owners choose which company in the supply chain to bring to court for patent infringement, with the purpose of obtaining an injunction; is there a fixed set of criteria?
- Can SEP owners choose to grant FRAND licences just to companies at a certain stage in the manufacturing chain?
Refusal to license and “networked” products
Refusals to share intellectual property are not a new phenomenon. When they have occurred in the past, the CJEU and the Commission have been strict in condemning such behaviours as abuse of dominant positions. This occurred in Volvo v Veng (C-238/87) and CICRA v Renault (C-53/87) (both in relation to designs for spare parts), Magill (C-241-242/91) (on copyrighted TV program listings), IMS Health (C-418/01) (in relation to brick structure to develop sales data on pharmaceuticals), Microsoft v Commission (T-201/04) (on information for software interoperability). The latter case is well-known as a big fine was imposed on Microsoft. The CJEU will likely refer to some of these cases when deciding the referral in Nokia v. Daimler and provide further clarifications on SEPs licensing practices and strategies, thus complementing its guidelines in Huawei v ZTE.
As a general remark, the refusal to licence intellectual property rights can be particularly disruptive, as it may stifle innovation, discourage newcomers to the market and tie suppliers to existing customers, which means companies and consumers may be unfairly and arbitrarily exposed to higher prices than they would be in a more competitive market. It should also be kept in mind that the very existence of standard essential patents – and associated litigation – in certain circumstances has potentially negative consequences for the manufacture, marketing and distribution of complex “networked” products that include a variety of functions developed and patented by different companies – for example, smartphones that incorporate camera, video, web browser, wireless, text messaging and so on. By enforcing these patents, owners can often stymie competitors (and their suppliers) and prevent them from launching products that use the same standards. This raises serious concerns over competition in the marketplace and the need to ensure interoperability within networked industries.
While patent owners’ rights to enforce their monopolistic rights against alleged infringers is undoubtedly the raison d’être of the patent system, an appropriate balance must be reached that ensures that there are still incentives for companies like Nokia to keep developing new technologies (meaning they can still make decent profits), while allowing fair competition and consumer protection. This can be achieved by the endorsement of fair licensing practices on the part of the patent owner, which is what Daimler and other standard implementers claim Nokia is failing to do. The CJEU has now a chance to bring more clarity, which will be certainly welcome by the many players of such an important sector of the European economy.