Context: Six months ago, ip fray already explained that any issues that small and medium-sized enterprises (SMEs) allegedly face with respect to intellectual property are not specific to standard-essential patents (SEPs) (March 7, 2024 ip fray article). In that context, but even more so in connection with lobbying efforts behind the proposed EU SEP Regulation, the lobbying practices of ACT | The App Association, a self-proclaimed representative of SMEs that is funded by large corporations, have been discussed (February 22, 2024 ip fray article).
What’s new: SEP-related lobbying activities resume in different jurisdictions as many decision makers return from the main vacation season of the year. ACT has put out some new writeups that make spurious arguments for legislative and/or regulatory intervention. It appears that Apple has reduced its financial commitment to ACT, and the organization may have to operate on a smaller budget now. Tire maker Continental has recently joined as a sponsor, apparently to use ACT for its advocacy efforts against Avanci.
Direct impact: Policy makers, regulators and the IP and antitrust communities at large should not take an organization seriously that says it represents small companies while acknowledging that those small companies pay no membership dues as the likes of Apple and Continental bankroll the organization.
Wider ramifications: While ip fray obviously focuses on ACT’s advocacy concerning patents (particularly SEPs), ACT’s astroturfing is even more problematic in connection with mobile app ecosystems where Apple and app developers have fundamentally divergent interests on such matters as the “app tax” and the app review tyranny.
When ACT talks about its membership, it means thousands of companies, only a few dozen of which have ever been listed anywhere (and a high percentage of those are simply service providers). The ones who pay the astroturfing piper and pick the deceptive tune are the corporate sponsors. The following passage from ACT’s “membership” webpage is an insult to human intelligence:
“The App Association works with sponsors like Amazon, Apple, Continental, Intel, Verisign, and Verizon to provide a no-cost membership for the small and medium-sized businesses that want to be involved in advocacy and have their voice heard when it is all too often ignored. Our policy priorities reflect the opportunities and challenges today’s small business app developers and Internet of Things (IoT) innovators face […]” (emphased added)
It makes no sense that ACT would truly prioritize the interests of so-called members who have no control over the organization (it’s a corporation, not a club) and can’t even vote with their wallets by defunding an organization that works against some fundamental SME interests. It’s the sponsors who set the agenda.
The new name on the sponsor list is Continental (commonly referred to as “Conti”), a tire maker that also supplies telecommunications control units (TCUs) and other electronic components to automakers. It must be attributable to this new member that ACT is now getting involved in the debate over automotive SEP licensing, a topic that is objectively irrelevant to an “App Assocation.”
Given that ACT is accountable only to its corporate sponsors and not its so-called members, it’s hard to find out about its financial situation. Theoretically, Conti could have joined to provide some additional funding. But it’s also possible that Apple has reduced its commitment, and possibly to a far greater extent than the new sponsorship fees ACT receives from Conti.
After Bloomberg exposed Apple as ACT’s largest backer and as being effectively in control of the organization, Apple appeared unwavering in its continued support of the lobbying entity. The CEO of a company adverse to Apple told ip fray‘s founder the following:
“ACT is such a weird organization for Apple to prop up since everyone knows it’s an Apple astroturfing front and Apple knows everyone knows it’s an Apple astroturfing front. I suspect it maintains its identity to give politicians plausible deniability that they didn’t know they were paid to pass or block legislation directly by Apple, but by a group representing developers.”
It’s possible that Apple is on the way out, or at least cutting back on its financial support so that future media reports won’t be able to quote sources according to which Apple provides far more than just a majority of ACT’s funding. One sign of ACT not being in great shape is shown in the following screenshot:
First, they don’t have a “2024 Press Releases” section yet (when this article was written), and they put a February 2024 press release into the 2023 section, which looks unprofessional and not well-resourced.
In the past, ACT used Apple’s money to hire the likes of Charles River Associates. Again, this is just an impression from the outside, but it appears that ACT is now forced to increasingly produce its own content with only a limited budget for professional services.
For example, ACT put out a statement on the England & Wales Court of Appeal’s (EWCA) recent InterDigital v. Lenovo decision (for commentary on the case itself, see this July 14, 2024 ip fray article). While ACT acknowledges that the EWCA awarded InterDigital a per-unit royalty far below the one it was seeking, that ACT statement attempts to argue that there’s an urgent need for UK policy makers to regulate SEP licensing and enforcement. The UK Intellectual Property Office (IPO) is, however, very prudent and increasingly skeptical of whether those claiming to represent SMEs really advocate SME interests in this context. When the UK IPO conducted a survey, only a few dozen companies participated, suggesting anything but a widespread SEP problem facing SMEs.
ACT’s analysis of the UK decision is contorted, contrived and confused. For example, they say there is “[n]o statute of limitation” for SEP infringement damages. But there still is. The EWCA did not repeal a statute. The judges simply found that a willing licensee has to pay back-royalties for past use in order to avoid an injunction for being an unwilling licensee, and that is not even a UK-specific doctrine.
Budget constraints could also be the reason for the similarly low quality of a paper ACT uploaded to SSRN: “Admissions Confirm Avanci’s Rigged Game”
Authored by two ACT staffersand a professor, it’s rather short by ACT’s standards (nine pages) and it’s actually an achievement to fill nine pages with virtually no meaningful content. ACT argues that Avanci and one of its licensors, InterDigital, made “admissions” in the Tesla v. InterDigital & Avanci case recently thrown out by a UK judge and now subject to an appeal (September 3, 2024 ip fray article).
The choice of the term “admissions” is peculiar. There was no testimony in court. All that was discussed was a jurisdictional challenge.
The “anticompetitive characteristics” the paper criticizes are the following ones:
- “it reimburses litigation costs” (which is pretty common for patent pools),
- “maximizes royalties” (which is also what any patent pool will do),
- “discourages bilateral licenses” (though it’s a fact that various Avanci licensors have entered into bilateral license agreements, and Tesla told the court that it already had one bilateral licensed from an Avanci licensor), and
- “sets up a ‘shell’ game to avoid FRAND commitments” (discussed below).
Here’s the paragraph that sums up the alleged “shell” game:
“Licensees, in short, face Avanci’s ‘shell’ game. They cannot pursue a FRAND determination against Avanci, which purports not to be bound by FRAND. But at the same time, they may not be able to sue individual licensors, who dictate if and where jurisdiction may be established. The court here recognized this, stating that ‘the rate set by Avanci may not be capable of effective
challenge in a FRAND determination.’”
What member of an “App Association” would even want to sue an Avanci licensor? None. Small app makers aren’t automakers. But on LinkedIn, ACT links to that paper and incredibly states the following:
“The game is rigged, and small businesses are paying the price.”
What small businesses are paying for an Avanci Automotive pool license? It’s nonsensical. It’s as much of an insult to human intelligence as the claim that they represent small companies but are bankrolled by Big Tech, telcos and a tire maker.
At the moment, there isn’t much happening with respect to the proposed EU SEP Regulation. But this is a new legislative term in the EU, and organizations like ACT will push for a piece of legislation that is structurally flawed while other approaches, such as an amicus curiae brief by the European Commission’s Directorate-General for Competition, could move the goal posts (August 4, 2024 ip fray article). Lobbyists like ACT’s owners and employees are not going to be satisfied with anything. They’ll advocate legislative intervention in the EU, UK and outside of Europe. Policy makers should be aware of what ACT really is about. SEPs are not a priority topic for SMEs, but a non-issue for more than 99.9% of all SMEs.
When was Apple an SME? For a very short period after being founded in the 1970s. And Conti? Never in its history. That company was founded in the 1870s with substantial resources, bringing in a bankruptcy estate.