Brazilian Competition Authority Entertains Thoughts of Doing Something About SEP Abuses
- Marta Beckwith
- 1 day ago
- 7 min read
Recently, I have been focusing on why competition law authorities should pay more attention to standard setting, SEP licensing, SEP litigation, and SEP sales. Well, it turns out that the Brazilian competition authority has decided to do just that.
Brazil is a jurisdiction that grants (near) automatic injunctions, including preliminary injunctions, for patent infringement, regardless of whether the patent is a SEP. Brazil also is the largest market in South America for certain products. Consequently, it has become a regional hub for SEP-related infringement lawsuits over the last decade or so. These Brazilian lawsuits are not generally standalone cases. Instead, in all (or nearly all) cases, the Brazilian lawsuit is just one cog in the asserting SEP holder’s global SEP litigation campaign.
The global campaign waged by the Swedish company Telefonaktiebolaget LM Ericsson (“Ericsson”) against Lenovo and its Motorola Mobility subsidiary is a case study of this type of behavior.
Ericsson is one of the top five 5G SEP owners.[1] It also is a top ten Wi-Fi 6 SEP holder[2] and a Wi-Fi FRAND holdout (see, e.g. The ISO Holdouts: The "Nordic Companies" and Wi-Fi (Part 6 in Convergence and Competition – A Tale of Two Standards)). Ericsson also is one of the largest 5G cellular base station makers in the world.[3] In other words, Ericsson owns a lot of 5G SEPs, a lot of Wi-Fi SEPs, and they have market power in the 5G cellular base station market (particularly in countries such as the U.S. with bans on Huawei, the other major 5G base station maker).
Ericsson also is well-known for its aggressive licensing and litigation strategies. For example, Ericsson currently is suing the Chinese smartphone maker Trannsion in the Unified Patent Court as well as in Brazil, Morocco, India, Nigeria, South Africa, Thailand, Vietnam and the Phillippines. Ericsson was “compelled to take legal action against Transsion.”[4]
This “compulsion” apparently forced the Swedish Ericsson to file lawsuits in just about every jurisdiction except Transsion’s home jurisdiction of China or in the U.K., jurisdictions that famously have declared that they have the authority to decide global FRAND licenses. In other words, in the Transsion matter, Ericsson chose to bypass jurisdictions that could have determined a global FRAND license. Instead, Ericsson chose to file lawsuits in multiple jurisdictions that routinely issue injunctions, but do not make FRAND determinations.
In the Motorola/Lenovo matter, Ericsson similarly filed multiple suits in multiple jurisdictions against Motorola/Lenovo, including our jurisdiction of the moment – Brazil. Ericsson sought preliminary injunctions (for example, it filed 31 ex parte actions in Colombia seeking preliminary injunctions), permanent injunctions, and exclusion orders as available in the jurisdiction.
In Brazil, the court issued a preliminary injunction stopping Motorola from selling 5G handsets in Brazil (with a similar outcome in Colombia as well). A bit more than a year later, the U.K. Court of Appeal granted Lenovo a full 5G portfolio interim license.[5] The U.K. Court of Appeal found (para. 124) that Ericsson used these alternate courts that do not determine FRAND rates because:
To put it at its lowest, Ericsson must perceive that there is at least a material risk that the English courts will determine that Ericsson’s October 2023 Offer was not FRAND, whether on its own terms or with reference to the correct interpretation of the 2011 MM Licence, and that FRAND terms for the cross-licence are closer to those offered by Lenovo, and Ericsson must be determined to avoid that risk. In my judgment, this is indeed the true explanation for Ericsson’s conduct.
The Court consequently found that the Ericsson entities were “in breach of their obligation of good faith under clause 6.1 of the ETSI IPR Policy by pursuing claims for injunctions and equivalent remedies in foreign courts and tribunals despite Lenovo having undertaken to enter into a licence on the terms determined by the Patents Court to be FRAND (subject to adjustment on any appeal) and having offered to submit to determination of FRAND terms by the EDNC.” Less than two months later, Lenovo and Ericsson settled their dispute.
Despite the settlement, the Brazilian competition authorities recently have begun an investigation into whether Ericsson acted in an anticompetitive manner in Brazil by its litigation and licensing behavior. According to published reports, Brazil’s competition authority, the Administration Council for Economic Defense (“CADE”), has sent formal requests for information to both Ericsson and Motorola/Lenovo. These requests ask some pretty interesting questions which can be found here: Brazil’s Antitrust Authority Sends Letters to Ericsson and Lenovo on 5G Patent Licensing Conduct – Investigation Continues After Settlement | LinkedIn.
Rather than repeat those questions, below is my analysis of some of the issues with which I believe CADE is grappling that underlie its questions:
If a SEP owner seeks an injunction on a small number of SEPs in a jurisdiction that does not claim to be able to determine FRAND portfolio licenses (such as Brazil), does it satisfy the SEP owner’s FRAND obligation if they only offer a portfolio license and not a FRAND license to the patents-in-suit? This is a really good question that most courts and competition authorities have not considered. If the SEP holder is seeking individual determinations on its national SEPs, why is it not obligated to give individual SEP offers on those patents? Is it an abuse of the FRAND obligation in such circumstances to seek an injunction on a handful of patents when no FRAND offer for those patents has been made?
[Side note: An additional question this brings up for me is, if one of these courts is making a decision on only a handful of patents, and holds itself out to be incapable of making a portfolio FRAND determination, then how can that court determine whether the FRAND obligation has been met if all that is before it is a portfolio FRAND offer?]
Are SEP owners wasting local court resources in multiple countries by filing these cases when, in fact, the SEP owner does not want individual patent licenses to the patents-in-suit but instead is seeking a portfolio license which these courts are unable to grant?
Once the U.K. court began its determination of a global FRAND rate, was it an abuse of competition for Ericsson to continue to enforce the Brazilian injunction?
How much is a license to the patents-in-suit actually worth? And the more important follow-up question: does the harm from enforcement of such an injunction vastly outweigh whatever the FRAND license rates would have been for that handful of patents?
CADE also is investigating why Ericsson’s allegedly FRAND royalty rates vary so widely. Now, there can be legitimate reasons why there are disparities in SEP portfolio license rates. For example, most IoT applications do not use anywhere near all of the cellular functionality, even if they implement cellular connectivity. This was elucidated by Graham Bell in his guest post, "Essentiality" and IoT - Guest Post by Graham Bell (and see also IoT - They Are Coming for You Next). So, charging them less for a portfolio license because they use less of the patented technology in that portfolio would make sense.
But there are many other potentially anti-competitive and discriminatory reasons why companies might charge different license rates to different implementers. For example, SEP owners with both Wi-Fi and cellular portfolios might charge less for Wi-Fi portfolio licenses from companies that also take cellular portfolio licenses. For instance, if the SEP owner wants $4/device from each implementer regardless of method of connectivity, it might charge a large company that sells a lot of cellular products $3.50 for the cellular license and $0.50 for a Wi-Fi license. But, that same SEP owner might charge a company that implements only Wi-Fi and not cellular $4 for a Wi-Fi only license. I often wonder how much Netgear (with only Wi-Fi products) paid in settlement of the Huawei cases, and whether this issue was at play there.
In another example, companies might charge their own customers or their own suppliers less for licenses than they charge non-customers/non-suppliers. Ericsson makes cellular base stations that include chips from various chipmakers. Does Ericsson charge the chip makers that supply it cellular chips less (or anything at all) for licenses? Ericsson in turn sells its cellular base stations to various telecommunications companies. Does Ericsson even approach these customers to license its cellular SEPs? If it does, does Ericsson give its customers or at least its high-dollar customers better SEP license rates than non-customers or less significant customers?[6]
In addition, standard setting often involves vertical as well as horizontal competitors. Many upstream and downstream companies participate in cellular standard setting. So do Ericsson's competitors. Does Ericsson give better license rates to entities that participate in standard development as compared to those that do not?
Of course, a disparity based on these types of behavior could be considered discriminatory, thus violating the non-discriminatory aspect of the FRAND obligation. It might even rise to the level of being anti-competitive, particularly if engaged in by a company that owns a great deal of SEPs and also has significant market share.
Conclusion
The lack of transparency for SEP licensing makes it difficult to know whether or to what extent particular SEP owners such as Ericsson are engaging in these types of behavior. Competition authorities, however, have broad power to require SEP owners to provide their licenses and explain their standard setting, litigation and licensing behaviors. There are lots of important questions such as those above that could be answered if sufficient information was gathered.
I hope that CADE acts to collect the necessary information to answer these, and its other important questions, and look forward to seeing the results of the investigation.
[4] Ericsson compelled to take legal action against Transsion; Ericsson v. Transsion SEP litigation reaches Morocco - International law firm with offices across the Middle East and Germany»International law firm with offices across the Middle East and Germany.
[6] Here I mean licenses that the suppliers/chipmakers would need for components/chips sold to non-Ericsson entities and licenses to Ericsson customers for their purchases/sales/implementation of products and services from non-Ericsson entities.
