The Patent Dispute between Nokia and Daimler: Brakes for the “Internet of Things”?

On August 18, 2020, the Regional Court in Mannheim handed a victory to Nokia in its litigation with Daimler, which could allow Nokia to block a large part of Daimler’s car sales in Germany. The ruling found that Daimler is violating a Nokia patent related to mobile communication, used in the telematics units of many Daimler vehicles. Prof. Joachim Henkel of the TUM School of Management researches patent management, technology acquisitions, digitalization, and open innovation. He assesses the verdict in an interview.

Cars, trucks and many other products are increasingly networked. Wireless networking via mobile communication technologies is particularly important, especially via the LTE standard – who are the most important patent holders?

Prof. Henkel: “Standards in communication technology are covered by large numbers of patents. For LTE alone, there are several thousand individual patents in Germany. Important patent holders include Samsung, Qualcomm, Huawei, Nokia, and Ericsson. Anyone who incorporates mobile communications technology into their products requires licences from the patent holders.”

Who is required to take a license?

Prof. Henkel: “This is hotly debated. In most industries, including the automotive industry, it is common for suppliers to take care of the patent licenses necessary for their components. In the case of mobile phones, on the other hand, it is usually the device manufacturer who concludes the licensing agreements. Nokia and other mobile communication patent holders would like to apply the same practice to other industries. They argue that this is the only way to adapt the license fee to the product: More should be paid for a car than for a wireless sensor, they argue, because the mobile phone technology in a car creates a higher value.

Daimler – and ultimately all other car manufacturers as well – feel that their suppliers, such as Continental, should be licensed. They believe that Nokia is legally obliged to offer the suppliers a license. An economic reason for their position is that a car manufacturer’s supply chain would become even more complex if, in addition to the components, it had to take care of the patent rights for those components.

So a very fundamental question…

Prof. Henkel: “Indeed. The German competition authorities, the Bundeskartellamt, had suggested that it be clarified by the European Court of Justice. The same thing happened in 2015, when a German court referred a patent dispute between the Chinese mobile phone companies Huawei and ZTE to the ECJ. In fact, the ECJ ruling on that dispute serves as the basis for the Mannheim court’s criterion of ‘willingness to grant a licence.’ Since, in the opinion of the court, neither Daimler nor the suppliers involved in the dispute were seriously willing to take a license on so-called ‘fair and reasonable’ terms, the question of to whom Nokia would have to offer a license would be moot, so the court argues.”

Does this ruling have repercussions beyond this specific case?

Prof. Henkel: “Absolutely. It goes far beyond the fight between Nokia and Daimler, with implications for the Internet of Things in general. Nokia and other patent holders want to make it the norm for manufacturers of end products such as cars to take patent licenses – even though it is mostly the manufacturers of mobile phone chips such as Qualcomm and Intel who incorporate the patented technologies into their products.

Just like with mobile phones?

Prof. Henkel: “Yes, like with mobile phones. But unlike mobile phone manufacturers, IoT device makers have usually no expertise in mobile communication technology and its patents. To the extent that such competence is required for licensing, it is difficult to negotiate licenses on an equal footing, and it becomes even more problematic if small manufacturers of networked products must take licenses. Like Daimler, they lack the technical competence – but they also lack the money for technical and legal advice.

Moreover, there are about a dozen manufacturers of mobile phone chips, but in the near future there will be thousands or tens of thousands of manufacturers of networked products. Each patent licensor must therefore conclude not a dozen, but thousands or tens of thousands of license agreements. In economic terms, this effort involves very high ‘transaction costs.’ Due to the problematic situation of small device manufacturers, especially young companies, and the high transaction costs, there is a risk that the licensing of end products sought by Nokia and other patent holders will slow down the uptake of the Internet of Things.

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