Vestager's next move in Nokia antitrust probe might hinge on 'sovereignty' debate

EU antitrust chief Margrethe Vestager is facing her first major policy test in her double role as competition commissioner and digital regulator as she weighs whether to start a formal investigation into Nokia’s licensing of mobile technology used in Internet-connected cars.

Interest in the case has heightened as France and Germany argue for a new approach to competition rules. These governments want the European Commission to adapt the bloc's competition rules so that they reflect a true European industrial policy that’s fit to compete with the US and China.

This policy should be based on protecting and promoting the EU’s “technological sovereignty” in key industries — including mobile communications. In that way, the EU will avoid becoming dependent on foreign companies in sectors such as cloud computing, microelectronics, batteries and artificial intelligence.

The theme of boosting European companies — particularly Nokia and Ericsson — was raised last week by a German government official, who argued that European sovereignty means that “we are able to build up our own systems and we are not dependent on other parts of the world.”

In addition, Thierry Breton, the incoming EU industry commissioner, said in a written reply to European Parliament questions that “Europe cannot make its digital and green transition happen without establishing technological sovereignty. This is not a protectionist concept, it is simply about having European technological alternatives in vital areas where we are currently dependent.”

Vestager’s decision on whether to pursue a case against Nokia has been pending since German carmaker Daimler and auto-parts makers filed formal complaints earlier this year.

Taking on the case, which could lead to changes in the way patents are licensed, could have major financial ramifications for Nokia and Ericsson — the EU’s only suppliers of gear for the next generation of high-speed mobile networks, or 5G.

An antitrust case could also tackle the thorny issue of how patent holders should license their technology for a vast array of new connected devices — from coffee machines and refrigerators to electronic sensors and monitors in “smart” or connected homes.

— Vestager’s dilemma —

Vestager is confronting these conflicting industrial interests just as a new commission is expected to take office, which may be as soon as Dec. 1, when she’ll expand her formidable antitrust powers and take on new responsibilities as executive vice-president to make “Europe fit for the digital age.”

Vestager’s dilemma can thus be seen as an internal struggle at the EU executive over protecting the interests of Nokia and Ericsson that gave Europe an edge in the mobile industrial 25 years ago but are now facing stiff competition from Chinese rival Huawei.

These three companies are the major suppliers for radio access network equipment that is key for 5G mobile services. While 5G is expected to be a boon for equipment makers, Finland’s Nokia has recently cut its 2019 and 2020 profit outlook, sending its share price down 23 percent, saying profits will come under pressure as it spends more to compete in the 5G networks business.

At the same time, Europe’s automotive industry, which employs 13.8 million people, and the makers of communication devices for connected and autonomous cars, including France’s Valeo and Dutch chipmaker Gemalto and Germany’s Continental and Bury, argue that Nokia’s licensing practices are violating EU competition rules.

At issue is whether Nokia is breaking EU antitrust rules by refusing to license standard-essential patents to car parts makers under fair, reasonable and non-discriminatory, or Frand, terms. Daimler argues that it should not have to license the technology to connect a Telematics Control Unit — the brains of a connected car that manages the connectivity — and that the makers of these devices should pay royalties.

Nokia insists that automakers — the end-user of the technology — should be the ones licensing its cellular technology.

Daimler first lodged its complaint with the commission in mid-March and was later joined by the car-part makers, which would like to strike licensing deals with Nokia. The commission then sent questionnaires to patent holders and carmakers, seeking feedback on whether Nokia’s patent-licensing practices are holding up research and development investment among makers of automotive components.

— German patent lawsuits —

While there are no deadlines in antitrust probes, there’s some speculation that Vestager may be under pressure to reach a decision soon on whether to start a formal probe because of pending patent lawsuits in Germany. The Finnish company has asked German judges to stop Daimler selling certain models of its cars as part of its patent infringement claims against the carmaker. Hearings in those cases began this month.

The German judges may suspend the patent lawsuits if the European Commission starts a formal antitrust case. However, the commission could intervene at a later stage in the legal procedure, such as during the appeal stage.

Vestager is under no obligation to start a formal probe because of the German cases. In the past, the commission has started investigations involving SEPs while a German court was considering Motorola Mobility's pursuit and enforcement of an injunction against Apple.

Another element weighing in the background is the commission's policy dilemma concerning SEP licenses for Internet-connected devices. A year ago, the commission’s industry department convened an expert group to look at these issues, and Vestager may be interested in holding off a decision in the Nokia case until she receives advice.

The commission’s competition department is also reviewing its guidelines on “horizontal cooperation agreements’’ — a key document that could spell out obligations on SEP holders and whether they are obliged to license to any company in the value chain. A 2011 version made references to licensing to “all third parties,’’ but SEP holders and patent licensee are deeply divided if this phrase means that patent holders must license to any company along the value chain.

Clarity on licensing obligations could come from an antitrust case against Nokia or a policy recommendation, or both, at roughly the same time.

The added political complexity over the debate on industrial and competition policy, as well as uncertainty over the commission’s stance on SEPs and licensing, most likely means Vestager will hold off any major decision in the Nokia case early in the new mandate.

But with such high stakes for Europe's mobile communications, car industry and the bloc's "technological sovereignty," no matter how the Danish commissioner handles the Nokia probe her next move will resonate from Paris to Berlin and from Beijing to Washington.