Dr Enrico Bonadio and Dr Luke McDonagh argue that 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.
Published (Updated )
By Dr Enrico Bonadio and Dr Luke McDonagh (The City Law School)
(From an article first published in The Conversation on January 16th 2020)
Thanks to cutting-edge digital technology, cars are increasingly like “smartphones on wheels”, so manufacturers need to have access to the latest patented 4G and 5G technologies essential to navigation and communications.
But often the companies that hold the patents are reluctant to license them because manufacturers will not accept the high fees involved, which leads to patent disputes and licensing rows.
Such rows are now commonplace, but in the past, large car manufacturers often shied away from expensive litigation or formal complaints when issues of patent infringement arose, opting instead to settle out of court. But times have changed.
Car makers and their suppliers are becoming more conscious of the role of competition authorities and the legal options available if patent owners abuse their monopolistic rights. In the EU there is a robust body of competition law designed to fight cartels and monopolistic behaviours.
Nokia v everyone
One such battle involves Nokia, a Finnish telecoms company, over licences for patented technologies that are essential to standards for navigation, vehicle communications and self-driving cars.
Specifically, a group of 27 companies, including Daimler, Ford, BMW, Dell, Cisco, Continental, Lenovo and Sky, has complained to the European Commission about alleged abuses of the patent system that jeopardise the development of self-driving vehicles and connected devices.
Although the complaint did not mention Nokia by name, it clearly pointed the finger at the Finnish multinational and its refusal to license its standard essential patents to car companies and component suppliers on acceptable terms.
Refusals to license intellectual property rights are not a new phenomenon; when they have occurred in the past, EU competition authorities have been strict in imposing big fines on companies that unreasonably refuse to share their technologies.
Nokia owns several patents protecting technologies on which current mobile phone standards are based, such as wifi, 3G, 4G, and the latest 5G. This means that companies requiring these technologies for their products must obtain a licence from the Finnish company. Nokia’s patent enforcement strategy appears to be quite aggressive; it has begun several legal actions, particularly against Daimler, claiming patent infringement on the basis that the defendants were using its patented technology without a licence.
Nokia’s refusal to license such patents has been disputed by a variety of industry players. Complaints have been lodged with the European Commission by Daimler, electronics company Bury Technologies, automobile parts manufacturer Continental as well as automotive supplier Valeo and digital security company Gemalto. All claim that Nokia has refused to license their patents on the principle of “fair economic conditions”, which means they believe the licensing fees demanded by Nokia are too high and unfair, amounting to an illegal abuse of its dominant position and violating EU competition rules.
Some commentators have argued that an investigation into Nokia’s licensing scheme could have a negative impact on Europe’s strategic autonomy when it comes to 5G, as Nokia and its competitor Ericsson are Europe’s major 5G players. However, the EC may soon begin a formal competition procedure aimed at shedding light on Nokia’s practices.
Competition v consumers
As highlighted in the letter sent by the 27 companies to the EC, the practice of some patent owners to grant licences only to certain entities prevents companies across the Internet of Things from investing in research and development.
It is a practice – the letter argues – that stifles innovation, discourages newcomers to the market and ties suppliers to existing customers, which means European companies and consumers may be exposed to higher prices than they would be in a more competitive market.
The existence of such patents – and associated litigation – has potentially disruptive 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 that the Internet of Things industry can develop.
Striking a fair balance
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 the other complainants claim Nokia is failing to do.
But patent holders of standard technologies are required to give an irrevocable undertaking that they are prepared to grant competitors licences on terms that are fair, reasonable, and non-discriminatory. Daimler and its suppliers argue that Nokia’s licensing behaviour doesn’t comply with these obligations, which is why they have filed antitrust complaints with the European Commission.
As the EC has severely condemned refusals to share intellectual property with competitors in the past, it is now possible that Nokia will face a similar fate. In the seminal 2015 case Huawei v ZTE, the EU’s top court found that every player is entitled to obtain a patent licence for standard technology on fair and reasonable terms.Perhaps fearing a negative reaction by the European Commission, in November 2019, Nokia declared that it was in talks with Daimler and the other complainants about settling the controversy via mediation.
If no settlement guaranteeing the right of Daimler and the other complainants to access these essential technologies is reached, Nokia could risk being sanctioned for anti-competitive behaviour.