Ericsson refutes false claim by EU Parliament rapporteur Walsmann in plenary debate on SEPs—and there’s more

The European Parliament publishes transcripts (called “verbatim reports”) of plenary debates. The February 27, 2024 debate on patent policy (concerning the SEP Regulation as well as a bill relating to supplemental protection certificates) can be found here (with each speech in the language in which it was delivered).

Mrs. Walsmann, who started her political career pretending to be a “Christian Democrat” while actually being a puppet of East Germany’s dictatorship, spoke twice. In her final remarks (even after the commissioner’s part), she said the following:

“Meine Damen und Herren, Nokia und Ericsson haben selbst für eine Regelung plädiert, als sie noch Handys produziert haben.”

unofficial translation:

“Ladies and Gentlemen, Nokia and Ericsson themselves advocated for a regulation while they were still making mobile phones.”

That statement struck ip fray as hard to believe. Nokia and Ericsson obviously faced a different situation when they were new entrants and needed licenses from incumbents such as Motorola, and Nokia at some point formally complained to the EU Commission about Qualcomm’s business terms. But prior to Mrs. Walsmann’s speech, no one ever reported or claimed that they had asked for a legislative measure concerning SEPs. Therefore, ip fray reached out to both companies and requested comment. Nokia declined to comment. Ericsson was initially hesitant to comment, but finally sent the following official answer:

We have no idea what MEP Walsmann is talking about. Ericsson has in the past 30 or even 40 years worked on many proposals to gradually and in consensus improve the system, but that has never included the kind of sweeping and radical change that the Parliament has just approved. It is true that we are not selling mobile phones since 2001 (and the JV with Sony [the Sony-Ericsson joint venture] is also no longer there), but that fact is irrelevant in the current discussions as we are still one of the largest European implementers through our network business, one of the largest contributors to cellular standardization and one of the largest patent holders in our industry.

What ip fray‘s founder recalls is that in 2004 (at a time when Ericsson was still selling mobile phones through its joint venture with Sony), he personally attended a Brussels event at which a high-ranking Ericsson representative (potentially Ericsson’s IP chief at the time) spoke out in favor of robust patent protection in connection with the EP’s proposed directive on the patentability of computer-implemented inventions. At the same time, Nokia was taking the same pro-IP position through a Brussels representative named Tim Frain.

Also, both Nokia and Ericsson are still licensors and licensees. The unit volume of mobile base stations is obviously far lower than that of end-user devices, but those companies regularly face royalty demands and patent assertions in court. The consequences of shutting down networks are arguably even more grave than a sales ban of moblie phones. Case in point, OPPO was on the winning track with at least one and potentially two 5G SEP countersuits against Nokia (January 17, 2024 ip fray article) shortly before the parties settled. Nokia and Ericsson are routinely embroiled in SEP litigation on the defensive side, facing the carriers using their network equipment, as there are indemnification clauses in those supplier agreements. Their outbound licenses are a very important revenue stream as their financial reports indicate, but they still make many billions of euros/dollars with network equipment, a business that would be endangered if SEPs were abused some of the proponents of the SEP Regulation suggest.

A rapporteur should not play fast and loose with the facts.

Let’s now look at some of the other incorrect and questionable things Mrs. Walsmann said in plenary:

“In bestehende Verträge wird nicht eingegriffen. Sie werden auch nicht verändert. Das ist schlicht eine falsche Behauptung.”

unofficial translation:

“Existing contracts will not be interfered with. Nor will they be changed. That is simply a false claim.”

If she meant existing license agreements, that is a strawman argument as those contracts will obviously remain binding and no one suggested otherwise. There are, however, contract-like FRAND licensing commitments that were made during past standardization processes. The meaning of FRAND would be modified by the proposed regulation, such as by enabling an extra year of hold-out and imposing all sorts of obligations that were not foreseeable at the time of those processes.

” Es wird weidlich der Gerichtsstandort in Europa gerne genutzt, weil die Gerichtsverfahren sehr lange dauern. Das hat nichts mit Effizienz zu tun.”

unofficial translation:

“Some are indulging in the use of European courts because proceedings take very long. That has nothing to do with efficiency.”

That is false and the only explanation is that she knows nothing about what she’s talking about. If she knew that it’s false, that would make it worse in another way.

Various incredibly incorrect things were said in different EP debates about the SEP Regulation, and the Internal Market Committee’s (IMCO) amendments were partly at the level of what is called hallucination in connection with Generative Artificial Intelligence (where AI systems arrange words in a grammatically correct but nonsensical way). But nothing was more incorrect and nonsensical than the above.

The primary jurisdiction in Europe in which SEP lawsuits are filed is, as everyone knows, Germany (for details on the German situation, see ip fray’s March 1, 2024 article). The reason plaintiffs go there is because it doesn’t take long to go from complaint to injunction. For instance, Nokia obtained its first two Mannheim injunctions against OPPO (one of them over two SEPs) in the spring of 2022 within considerably less than a year of bringing the complaints.

In connection with Germany’s 2021 patent reform, the German government (lest we forget, that’s Mrs. Walsmann’s country) and everyone in the German federal parliament working on the matter agreed that Germany was an attractive patent litigation venue because of, inter alia, its speedy proceedings.

She then went on to argue that if there are no impementers, there’s no opportunity for SEP licensing, thus the proposed regulation would “strengthen patent protection.” Actually, that’s the wrong way to put it. Apart from there being no evidence of implementers being discouraged from making products (the European Commission’s impact assessment study explicitly confirmed the absence of evidence), the market opportunity for patents is a different question from their enforceability.

“Meine Damen und Herren, bitte lassen Sie nicht die Huaweis und Qualcomms dieser Welt bestimmen, was mit unseren europäischen SEPs geschehen soll. Lassen Sie uns das selbst bestimmen und für einen gesünderen und wettbewerbsfähigen Markt sorgen”

unofficial translation:

“Ladies and Gentlemen, please do not let the Huaweis and Qualcomms of this world decide what happens with our European SEPs. Let us make that decision ourselves and ensure a healthier and more competitive market.”

Huawei and Qualcomm control their own SEPs, but no one else’s. Qualcomm has not asserted a European SEP in approximately 20 years, and court rulings indicate that Huawei only goes after companies that engage in extreme hold-out over protracted periods of time. Huawei is, in fact, a much larger implementer of SEPs than any European company, and its unit volume may even exceed the collective unit volume of the top 5 or even top 10 European SEP implementers. Qualcomm with its chips is also a huge implementer.

At the start of her first speech (of two), she told the made-up story of a small European company that makes smart meters and then faces royalty demands from a non-EU patent holder. She then said:

“Nun weiß das KMU bestenfalls, dass es sich bei SEPS um die Abkürzung von standardessenziellen Patenten handelt und dass es sich bei 5G, welches ein intelligentes Messgerät zum Funktionieren benötigt, um einen Standard handelt.”

unofficial translation:

“Now the SME will, at best, know that SEPs is an acronym for standard-essential patents and that 5G, which a smart meter depends on, is a standard.”

That is also just outlandish. First, no patent holder would send a demand letter that just uses SEPs as an acronym without stating that they believe to hold patents that are essential to a specified standard. Second, if a company makes smart meters, which are the combination of a rather simple metering function and cellular connectivity, they obviously do know more than “the meaning of SEPs and of 5G. In fact, they have to make a choice. They might use 4G (where they even have the choice between different narrowband variants that are suitable for IoT purposes) or WiFi instead.

It’s just not reasonable to argue that those companies are, or should be, naive about standards and the need to take SEP licenses. That doesn’t mean to say that they are as sophisticated as companies that have been in the SEP business for much longer and have greater resources. Anyone with an interest in helping those underrresourced SEPs is invited to take a look at ip fray‘s proposal to solve the specific problem of SMEs (February 10, 2024 ip fray article), with the clarification that what is meant by licensing negotiation groups in that proposal is merely a joint defense group to split the cost of certain proceedings and to exchange technical information.

“Die Lizenznehmer, die zu etwa 85 Prozent aus KMU bestehen, …”

unofficial translation:

“Licensees, 85% of whom are SMEs, …”

That’s absolutely incorrect. Even if some may argue that 85% of all implementers are SMEs (a number for which it would be interesting to see the exact derivation), there’s not a lot of SMEs that have a SEP license. Recent court rulings from the UK that discuss large numbers of license agreements (as comparables) did not mention any company that is currently an SME, and only one of those companies was an SME (though already at the upper end of the EU’s SME definition) when it took its license. And again, ip fray has outlined how to enable more SMEs to take licenses on FRAND terms, a proposal that is SME-friendlier than anything anybody in the EU Parliament or any stakeholder or advocacy group has put on the table.

“Im Fall von 5G sind schätzungsweise nur 15 Prozent der als essenziell erklärten SEPs auch tatsächlich standardessenziell.”

unofficial translation:

“In the case of 5G, only an estimated 15% of declared-essential patents are actually standard-essential.”

That is just a fact-free claim. To the extent that 5G SEPs have been asserted in the courts of EU member states, most have actually been deemed essential, though many faced serious validity challenges. So far, every SEP holder who has asserted at least a few 5G SEPs has either won cases or was on the winning track at settlement time.

The discussion in the EP was never about the actual issues. Only talking points, some of them just made-up such as the notion that plaintiffs go to sue where litigation is most protracted, when the very opposite is the case (in the EU and also in other jurisdictions) and most European SEP cases are filed where patentees get quick decisions.

It’s hard to understand why the EP decided to take a position that goes against Europe’s interest in digital sovereignty and the ability of Nokia and Ericsson to innovate. It’s no less disconcerting that the EP’s rapporteur made a false allegation about those companies’ past positions. No proposal along the lines of the current SEP Regulation was ever on the table, and prior to the current process there was never any idea for a European SEP law floating around.