Connected cars

Collision course set for Nokia and Daimler

Current mediation in the connected cars dispute between Nokia and Daimler is of monumental significance - not just for the car industry but for all connected products. The dispute reached the highest political levels. Not only did the EU Commission push the two parties into this unprecedented process, but even the German government, under pressure from the car industry, plans to amend German patent law. And all the while, a bitter row over mobile phone patents rages on.

19 February 2020 by Christina Schulze

Nokia and Daimler The latest clash between Nokia and Daimler sees the companies fight for a licensing model for connected cars ©chesky/ADOBE STOCK

Early January in Munich. The next stage for Nokia and Daimler. In a hotel near the central station, Nokia’s lawyers hurry down corridors and flit between conference rooms. Brief talks in one room, then it’s back to the other room.

The conference rooms are occupied by Daimler and Daimler’s suppliers of connectivity modules. Robert Bosch, Bury Technologies, Continental, Harman Becker, TomTom and Valeo subsidiary Peiker are all involved in the mediation process between mobile communications giant Nokia and Stuttgart car maker Daimler.

An experienced British mediator from the International Chamber of Commerce is apparently presiding over the proceedings. Not much information gets out, except that the mediator is supposedly well-versed in contract law although with limited experience in patent. But, says one participant, perhaps that’s not such a bad thing. After all, a lot of money is at stake.

Rumours of failure

Daimler wants to build connected cars. To do this, the company needs technology protected by Nokia’s standard essential patents. Nokia wants to charge high fees for the use of its patents for mobile phone standards 2G, 3G and LTE. And the emerging technology doesn’t just affect cars. From smart meters to industrial operations, the importance of the dispute for other sectors in which connected products play a role is obvious.

The mediation ordered by the EU is an unusual twist in a patent battle that has already taken many unexpected turns in the past twelve months. It is an attempt between Nokia, Daimler and Daimler’s suppliers to come to an amicable agreement. Even experienced antitrust lawyers in Brussels are surprised with how the case has developed.

There have been reports that mediation failed during a second round of talks. However, this development has not been confirmed by either party. Neither has the mediator been asked to cease talks. But this could all change next week, as EU Commissioner Margrethe Vestager has requested results by the end of February.

Complaint to the EU Commission

The fight over connected cars patents broke out in March 2019, following Nokia’s refusal to grant a licence to Daimler’s suppliers. Daimler claimed this constituted an abuse of a dominant position regarding patents for the mobile phone standards 3G and LTE. As a result, the company filed an antitrust complaint with the European Commission. Daimler wants the Commission to clarify whether the patents are essential for connected cars at all.

Continental, Robert Bosch, Bury and Gemalto joined Daimler’s antitrust complaint shortly afterwards. All are suppliers of connectivity modules.

Nokia then filed a suit against Daimler at three German patent courts over ten standard essential patents (SEPs). Nokia belongs to the patent pool Avanci, which specialises in licensing SEPs for smart products, especially connected cars. By filing these suits, Nokia is trying to increase the pressure on Daimler. A single injunction for patent infringement could work as a great motivation for the car maker to come to a compromise.

It’s good to talk

Then, in early December 2019, the case took a new turn. Under gentle, informal pressure from Margrethe Vestager, EU Commissioner for Competition and Digital Affairs, Nokia offered Daimler and its suppliers the chance to undergo mediation. It is understood that the Commission wants to avoid having to make a decision on Daimler’s complaint at all costs. Both the car and mobile communication industries are too important for the domestic market.

It usually takes years for the European Commission to initiate formal proceedings. In the meantime, the Commission may request documents from the parties and third parties. Critics complain that the long process limits the impact of the procedures. However, until the Commission opens formal proceedings, national antitrust authorities may conduct parallel investigations.

From a purely legal standpoint, Brussels cannot force the parties to engage in mediation. In fact, many observers say this step is unprecedented. Nevertheless, the fact that mediation began before Christmas is probably due to the political pressure. Both companies want to make a good impression with the Commission.

If mediation fails, the parties expect the Commission to decide soon whether to open formal proceedings. But even so, the wheels in Brussels turn slowly. It usually takes years to reach a verdict.

No suspension yet

Brussels expects an interim result by the end of February. However, source tell JUVE Patent that a breakthrough is currently nowhere in sight. It is perhaps telling that Nokia and Daimler have so far not asked the patent courts to suspend the patent proceedings during the mediation process. This is usually the case with out-of-court negotiations.

Daimler therefore still faces the threat of a possible court injunction. In this case, the company would have to either implement a technical workaround by means of a software update or find a quick solution to the licensing issue.

In one of the infringement cases, a verdict from the Munich Regional Court is eagerly awaited on 9 April. Following a twelve-hour hearing last week, observers believe the court will either issue an injunction or suspend it in view of the patent’s validity. The new FRAND rules, which the court published shortly before the hearing, will also play a decisive role in the case.

Furthermore, the Regional Court of Mannheim is set to hear a similar case against Sharp next Tuesday.

High stakes

At first glance, the dispute between Nokia and Daimler appears to be about a simple licence agreement. In reality, however, there is much more at stake than three to 15 US dollars per car. Financially, there is a great deal riding on the fundamental question of which company will become the licensee.

The car manufacturer acknowledges the patent claims, but relies on buying licence-free products from its suppliers. These suppliers, for example Continental, would like to acquire a licence from Avanci. However, patent holder Nokia wants to force Daimler itself into taking a licence. This could have a potentially massive effect on the licence fee.

The fee would be much lower if it was calculated based on the component produced by the supplier, rather than if it was based on an entire car.

The automotive industry wants mobile phone SEP holders to provide a simple and clear licensing model for connected cars. SEP owners lanched the Avanci patent pool at the instigation of Ericsson. Other important licensors include Nokia, Sharp, Qualcomm, InterDigital, Siemens and ZTE, as well as non-practising entities such as Unwired Planet and Conversant.

If additional SEP holders pool their patents with Avanci, the licensing tariff is not affected. At present, the patent pool does not yet include all relevant patents protecting this connectivity technology.

Well-known licensees include Audi, Bentley, BMW, Lamborghini, Mini, MAN, Porsche, Rolls-Royce, Scania, Seat, Skoda and Volvo. VW has so far only taken a licence for 2G and 3G, but is also negotiating with Avanci for 4G.

Monetary value of FRAND

The important patents for mobile phone standards are subject to special rules. The patent holders must offer SEPs to all market participants on fair, reasonable and non-discriminatory terms (FRAND). If they do not,  injunctive relief actions can be considered an abuse of a dominant position.

But what FRAND actually means in euros, pounds and dollars has not been defined. This has caused a good deal of controversy before the patent courts in Europe. On the face of it, a $15 licence fee per car as in the current case doesn’t sound like much. For the automotive industry, however, there is much more to it than this. The current dispute is just the precursor to the licensing agreements for the future 5G standard.

It is no coincidence that Huawei, as a supplier to Daimler’s supplier Continental, also wants to participate in the mediation process. The fact that Nokia is resisting this is also unsurprising.

Avanci has obviously identified manufacturers of other connected products as potential licensees. The licences could thus affect companies of very different sizes and products of very different prices, from household appliances to factories and power stations.

Back in the court room

Infringement proceedings are understandably fierce. Most recently, on 6 February at Munich Regional Court, the 7th Civil Chamber around presiding judge Matthias Zigann heard a suit from Nokia concerning a European mobile phone patent (case ID: 7 O 3890/19).

The counsel for Nokia and Daimler sat opposite each other. The counsel for suppliers Robert Bosch, Bury, Continental, Peiker and TomTom joined them. The infringement cases constantly feature new suppliers. This time it was Renault and Huawei appearing for the first time as Daimler’s co-litigants.

The hearing lasted 12 hours. The first question was whether the property right was rightly granted and whether the telematics units in Daimler’s cars infringe this property right. It is believed Nokia’s patent EP 16 71 505 could withstand any validity attacks from Daimler.

It is quite possible that the court will find Daimler guilty of infringement. In German patent law, this is automatically followed by an injunction.

Cards played close

The parties therefore paid close attention to what Zigann said on the subject. Nokia, of course, claims novelty over its invention. Daimler and its co-litigants say the invention is old. Zigann, as later reported by the lawyers of both parties, did not give much away. He gave no indications regarding suspension and infringement.

If the judges had a clear opinion on whether the patent was rightly granted, or if they thought Daimler had not infringed, it would probably have been clarified at the hearing.

But the court must clarify if the opponents’ licence offers comply with FRAND rules. However, Zigann and his two fellow judges have made it clear that they won’t consider the licence offers of the numerous suppliers. The judges stated that these were not relevant to the assessment of FRAND. Instead, only those of the two main parties are relevant.

Nokia’s lawyers argued that its offer complies with FRAND requirements, that it is not acting in an unlawful manner and that it therefore has a right to injunctive relief against Daimler. Nokia claimed that it was irrelevant if Daimler had made a FRAND-compliant licence offer. This argument caused some surprise within the court.

Daimler argued that its offer was also FRAND compliant and therefore Nokia is not entitled to an injunction. After the hearing there was much to suggest that both offers meet FRAND requirements.

In 2015, the European Court of Justice clarified the obligations for licensor and licensee when FRAND is invoked in patent litigation. However, the CJEU did not consider what a stalemate situation means for an injunctive relief action.

Automatic injunction debate

Currently, the parties expect a verdict on 9 April. According to press reports, Daimler’s lawyers have demanded a security deposit of €4.5 billion in the event of a provisional enforcement of a judgment in Nokia’s favour. In comparison, Qualcomm paid out €670 million when it enforced an injunction against Apple a year ago.

The car industry fears an injunction. Companies like Daimler claim that the infringement of a patent in a connectivity module could stop the production of entire model series. In fact, this has never occurred.

Nevertheless, car manufacturers have been campaigning against paragraph 139a of the German Patent Act since connected cars cases began. Manufacturers are calling for a softening of the automatic injunction. These efforts have finally met with success.

In mid-January, the Federal Ministry of Justice and Consumer Protection published a discussion paper drafting a new patent law. The draft would add a hardship clause to paragraph 139a, which would exclude the right to injunctive relief if its enforcement is disproportionate for the company concerned.

The Ministry would thus be writing the constitutional requirement of good faith explicitly into the Patent Act. This would not weaken the automatic injunction. Rather, it reminds the patent courts of their discretionary power in cases where an injunction would hit a company particularly hard.

Business as usual?

Most patent experts consider this nothing new. The government is only making the current law more explicit. Most patent lawyers are against weakening the injunction. Some of the automotive suppliers sitting on the defendant’s bench in Munich also take a critical view.

Even so, the powerful car industry has successfully brought the issue to the political stage and will continue to push for change. After the government published the draft, the media warned of a nightmare scenario where production lines are brought to a standstill if the automatic injunction isn’t weakened. The automotive industry knows that it is not the Ministry of Justice that has the final say on the law, but the members of parliament.

Nokia and Daimler in court

The market knows which counsel is acting for both parties, as well as which companies are Daimler’s co-litigants. However, only a few details regarding the mediation process have come to light. There is also speculation that the parties are represented by their lawyers from the infringement proceedings. Parties have apparently also called on experienced antitrust lawyers. (Co-author: Mathieu Klos)

For Nokia
Arnold Ruess (Düsseldorf): Cordula Schumacher (lead), Arno Riße; associates: Stefania Parise, Tim Smentkowski
Cohausz & Florack (Düsseldorf): Christoph Walke (patent attorney)
In-house (Munich): Clemens-August Heusch (IPR litigation)

For Daimler
Quinn Emanuel Urquhart & Sullivan (Munich): Marcus Grosch (lead), Johannes Bukow, Jérôme Kommer; associates: Marlen Yan, Jan Axtmann
In-house (Stuttgart): Anja Miedbrodt, Karin Setter

For Continental
Freshfields Bruckhaus Deringer (Düsseldorf): Frank-Erich Hufnagel, Tobias Klose; principal associate: Eva-Maria Herring, Stephan Dorn, Tobias Pukropski; associate: Corin Gittinger, Dominic Divivier
Braun Dullaeus Pannen Emmerling (Düsseldorf): Ulrich Braun-Dullaeus, Ju Min Kim (both patent attorneys)
Maikowski & Ninnemann (Berlin): Gunnar Baumgärtel, Felix Gross, Ralf Emig, Andreas Tanner, Frederick Kramer (all patent attorneys)
In-house (Munich): Roman Bonn

For Huawei
Preu Bohlig & Partner (Berlin): Christian Donle; associate: Til Quadflieg
Braun Dullaeus Pannen Emmerling (Munich): Friedrich Emmerling (patent attorney)
In-house (Munich): Georg Kreuz

For Bosch
Bardehle Pagenberg (Munich): Johannes Heselberger, Sebastian Müller (patent attorney)

For Bury
Gramm Lins & Partner (Brunswick): Hans Joachim Gerstein (patent attorney, Hanover), Stefan Risthaus

For Peiker
Hogan Lovells (Munich): Benjamin Schröer

For TomTom
Bardehle Pagenberg (Munich): Peter Chrocziel, Jan Bösing, Christian Haupt (patent attorney)

Regional Court Mannheim, 2nd Civil Chamber
Holger Kircher (presiding judge)

Regional Court Munich, 21st Civil Chamber
Tobias Pichlmaier (presiding judge)

Regional Court Düsseldorf, 4a Civil Chamber
Tim Crummenerl (presiding judge)

Regional Court Düsseldorf, 4c Civil Chamber
Sabine Klepsch (presiding judge)

Regional Court Munich, 7th Civil Chamber
Matthias Zigann (presiding judge)

All market knowledge.

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