CMA's appalling stalling can't prevent courtroom disaster, reinforces 'closed for business' narrative -- Justice Marcus Smith moves forward swiftly and is unconvinced of agency's market definition

Mr Justice Marcus Smith--the UK's top antitrust-specialized judge (President of the Competition Appeal Tribunal (CATribunal or just CAT)) as well as a technically savvy patent judge--has indeed assigned the highest possible priority to the adjudication of Microsoft's appeal of the Competition & Markets Authority's (CMA) attempt to block Microsoft's acquisition of Activision Blizzard King (ABK, NASDAQ:ATVI). In my previous post I already said that this case--the biggest and highest-profile one in the history of the UK and one of the most important antitrust cases the world has ever seen--could further delay the Optis Wireless v. Apple standard-essential patent (SEP) ruling.

But the CMA is thankless for that effort beyond the call of duty. Much to the contrary, the agency continues to lose credibility at a worrying pace. At yesterday's initial case management conference, the CMA came across as the opposite of a responsible and trustworthy regulator. The CMA is digging itself an ever bigger hole instead of finding a way out of the mess it created because Mr Justice Smith isn't having any of that.

The term "case management conference" is almost a misnomer. Yesterday's court hearing lasted almost four hours, which I covered live in a 128-part Twitter thread. The first tweet of that thread has already been viewed about 200K times. You can click on it and work your way down to find my live commentary, or you can go to a web page generated by the ThreadReader app (though the final tweet of that thread is not shown in full there).

For the CMA and its counsel, it was a total disaster. They should be concerned for institutional reasons, and their lead appellate counsel, Rob Williams KC, not only underperformed his world-class counterparts (Daniel Beard KC for Microsoft and Lord Grabiner KC for Activision (which is seeking, and obviously can't be denied the right, to intervene): Mr. Williams's performance was as abysmal as the insane merger ruling he is trying to defend. He was literally stuttering, and it was not attributable to ab speech disorder (otherwise I wouldn't have mentioned it), but close to one.

What's most shocking is actually the CMA's political insensitivity. They didn't get the law, the technology, and the economics right in the Microsoft-ABK case because they were biased. But now it looks like they can't even read the writing on the political walls. There is that well-founded concern over the UK appearing to be "closed for business" as a result of regulatory hubris and arbitrary excess. Politicians have expressed concerns over the CMA's decision, and Prime Minister Rishi Sunak himself told the CMA via a LinkedIn post that generally addressed the issue of overregulation but also through a formal "strategic steer" document that they should make their decisions reasonably fast because businesses are impacted by protracted uncertainty. And what are they doing now? Stalling. It was unbelievable. There was practically zero substance in what the CMA's counsel said. It was all just about excuses, evasions, and pretexts for slow-rolling the proceedings, in a transparent attempt to buy the U.S. FTC time and betting on a hypothetical failure of Microsoft and Activision to agree on an extension of the merger agreement (the current one expires on July 18).

After 13 years of watching litigations of this kind, I can easily identify stalling. The CMA behaved like companies that know they infringe intellectual property rights and just hope to delay the proceedings to avoid the inevitable. The CMA wants to be saved by the bell, and Mr Justice Smith diplomatically reproached them by saying that he assumes the CMA wants to be a responsible regulator and also do its part so this matter gets resolved swiftly.

The image that the CMA projects on the UK's business environment is terrible. If politicians were concerned just based on the decision, they have even more reasons to be concerned after the CMA's litigation conduct came to light yesterday. Their excuses are ridiculous. For instance, despite the fact that Microsoft announced its intent to appeal the decision right after the decision on April 26, Mr. Williams claimed to have had only a couple of days to familiarize himself with the matter.

The CMA knows that even the wide latitude it enjoys due to the deferential Judicial Review standard won't help in the end. Its decision is not defensible. It is a general rule that lawyers will argue the facts if good for them, otherwise the law, and if neither the facts nor the law are on their side, they'll emphasize policy. The CMA's legal argument appears to come down to nothing more than how deferential the standard of review is (in other words, it's not about right or wrong, but that they believe they can get away even with wrong decisions). The facts are totally against them, and Mr Justice Smith, who has previously shown that he can understand far more complex technical questions just based on reading a patent specification, has already read the decision more than once and still can't see how the CMA arrived at the conclusion that cloud gaming was a market (as opposed to the delivery method that industry players say it is). The CMA can't make a policy argument either, other than big being bad. So it resorts to stalling.

The CMA issued that convoluted ruling in late April hoping that if there's a whole lot of factual stuff in there, the appeals court might just not dare to reverse them. They wanted to create a situation where an appellant would have to raise not just a dozen issues but possibly hundreds. And they wanted to plant so many trees that it would be impossible to see the forest. But that isn't working here, with second-to-none lawyers who know how to identify the weakest links of the chain and how to explain the issues to a court--and a presiding judge who sees through the smokescreens. He appears already to have identified that there is no reason (unless the CMA comes up with a surprise argument) why gamers couldn't just install games locally instead of relying exclusively on cloud streaming.

The other two members of the CATribunal panel have "yet to be appointed" according to Mr Justice Smith. He said that either one of the panel members would be an economist, or if none of the three was an economist, they would be assisted by one of the CAT's economists.

How could the CMA possibly shoot itself in the foot by feeding the "closed for business" narrative with its outrageous stalling tactics?

It is a mystery. On Twitter, someone gave one of the reasons: they just haven't previously been held accountable in court the way they are now, as others abandoned their mergers instead of appealing.

To be honest, this is the first time the CMA has really been challenged like this, Sainsburys/ASDA & Farelogix/Sabre both abandoned thier deal following CMA reports

Following Brexit, the new position the CMA find themselves in, is proving an issues to our international partners

— BigGeordieGeek@warhammer.social (@BigGeordieGeek) May 31, 2023

The CMA tried to deny the obvious, which is that its decision--and not the FTC's resistance, given that the FTC would need a preliminary injunction from a federal district court--is the only reason the deal can't close. Daniel Beard KC explained yesterday that in Canada an investigation is still ongoing, but enough time has passed that Microsoft could close the deal without breaking the law there by now. Mr Justice Marcus Smith can obviously see that the CMA is an outlier (I'll talk about the latest clearance decision further below) and wasn't impressed with the CMA's attempts to stall. He has set another case management conference for June 12, and while Microsoft would have preferred to start the hearing even earlier, it is definitely impressive that the CAT currently plans to hear the case in late July and early August (weeks of July 24 and 31). What they'll discuss on June 12 is, among other things, whether Microsoft may have to forgo some of the opportunities to rely on expert evidence in order to keep the schedule.

The CATribunal will hand down a judgment in the summer. It's hard to see how the CMA could avoid a potentially humiliating defeat. The best they can do now is find an exit from all of this.

I had to update my timeline chart twice yesterday. First there was news from South Korea, with the Korea Fair Trade Commission (KFTC) granting unconditional approval to the purchase. This means the deal has been approved by the regulators in charge of 39 countries with a collective population size of more than 2.4 billion people (more than 36 times the size of the UK) and an aggregative GDP of $44 trillion (14 times the size of the British economy). And then I also wanted to reflect Mr Justice Smith's case management plans. It's interesting that the FTC trial and the CAT hearing may overlap (click on the image to enlarge):

Since the CMA made its absurd decision on April 26, there's only been good news for the transaction. The week in which the EU cleared at the beginning and China toward the end was remarkable, but so was yesterday when the Korean clearance decision was followed by a CAT hearing that was dreadful for the CMA.

The CMA is now basically being a ghost driver who thinks that all the other cars coming in the opposite direction are on the wrong side of the street. It's high time they turned around.

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Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard); GenghisComm sues Toyota over SEPs; updates on Nokia-OPPO, KPN-Ericsson

This is a roundup post that discusses four different standard-essential patent (SEP) disputes and multiple jurisdictions. Quick links:

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

3. Nokia invalidated OPPO patent-in-suit

4. KPN defended one of patents-in-suit against Ericsson earlier this month

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

It's been almost a year since the Optis Wireless v. Apple trial in the High Court of Justice in London, but no decision has come down yet. In a similar case, InterDigital v. Lenovo, it took Justice Mellor similarly long as those FRAND (fair, reasonable, and non-discriminatory) rate-setting cases are incredibly labor-intensive for the courts adjudicating them.

The judge presiding over the FRAND part of the Optis v. Apple case is Mr Justice Marcus Smith, whose reputation extends not only to patent but also competition law: he is the President of the Competition Appeal Tribunal (CATribunal, or just CAT) of the United Kingdom.

It is not unusual for judges to divide their time between two courts. In fact, numerous European patent judges are doing so now between national courts and the Unified Patent Court (UPC). Since a few days ago, Mr Justice Smith is presiding over an antitrust case that is by far the biggest in the CAT's history, not only in terms of what's at stake (Microsoft's $68.7 billion purchase of Activision Blizzard) but also the enormous public and media attention--and on top of all of that, it's a matter that the UK's Prime Minister (who stressed the CMA's responsibility for growth and investment), Chancellor of the Exchequer, and its Parliament's Business and Trade Committee are concerned about.

Microsoft filed its appeal of a Competition & Markets Authority (CMA) merger-blocking decision on Wednesday evening UK time. Mr Justice Smith published the summary of the grounds of appeal (PDF) approximately 48 hours later and scheduled a case management conference for Tuesday (May 30). I already predicted at the beginning of this month that he would personally preside over that ultra-high-profile appeal. After yesterday's publication of the summary of the appeal, I commented on the grounds of appeal in a 40-part Twitter thread and added some further commentary on the comity part.

I'll live-tweet about the case management conference on Tuesday.

The deal has been cleared by the regulators who decided the matter for 38 countries (30 of them European Economic Area member states), with a collective population of 2.4 billion and aggregate GDP of $45 trillion, so if not for the CMA's absurd ruling, the deal could actually close now. But the CMA's leadership would like their agency--which the CAT has to overrule fairly often if one considers the deferential standard of review called Judicial Review--to be the world's policeman for major mergers, especially major tech mergers. There is profound concern in the UK over the CMA's eccentricities and regulatory overreach, and the CAT is now called upon to restore sanity and curb megalomania.

The CMA is now an outlier on the global stage. The only regulator to agree with them is the FTC, which under its current leadership opposes virtually any merger it gets to review and openly admits it doesn't care about losing in court all the time. The CMA decision is so clearly biased and incorrect that more and more people are wondering whether the reason is not just regulatory hubris or a lack of understanding of the technology markets involved, but whether it is even attributable (at least in part) to bad faith. My personal opinion is that a good-faith merger decision where the regulator looks at all of the evidence with an open mind and strives faithfully to apply the law to the facts definitely looks different.

There are mistakes that can be adequately explained with a lack of diligence (the CMA totally embarrassed not only itself but the UK and its government when the provisional findings--the equivalent of the Statement of Objections in the EU--subtracted only one year of costs from five years of benefits. The CMA corrected that mistake after Microsoft pointed it out, and revised the provisional findings. That was almost certainly just a lack of diligence. But the final decision just showed that before the merger review even started in earnest they must have been hellbent on blocking the merger. After they had to give up their primary theory of harm (vertical foreclosure affecting Sony in the videogame console market) and even prior to that realized they had to drop a "conglomerate" theory (involving Windows (an open platform), Azure (an easily substitutable commodity), the Xbox, and Activision Blizzard's games), they simply shoehorned those failed theories of harm into a "cloud gaming" theory of harm.

Weeks before Microsoft filed its appeal, the gamer community had already identified and discussed plenty of issues on Twitter and discussion boards. The decision is not just flawed or extremely wrong. It's a lot worse than that.

Against that background, gamers and other observers of the process can't be blamed for asking questions about the impartiality of the person who according to what a reporter from a major news agency told me "basically made the decision for the CMA": the agency's Senior Director of Mergers, Colin Raftery. Only because I wanted my many Twitter followers with an interest in that merger topic to understand that an unbalanced panel might respond to a historic speech by EU antitrust chief Magrethe Vestager on the same day, I mentioned--and proved based on a LinkedIn screenshot--that Mr. Rafferty started his career and spent seven years at Cleary Gottlieb Steen & Hamilton, a firm that has been consistently adverse to Microsoft for decades and is representing the most vocal critic of the Activision deal--Sony Interactive Entertainment--in its worldwide complaints, also in the UK. Cleary also advises Google, the other (and less vocal) complainant, but not in this context it seems. That factoid was picked up by Windows Central, and other media reported as well. On social media (Twitter, TikTok etc.) there was widespread outrage. My personal opinion is that none of us knows what Mr. Raftery's personal relationship with the Cleary lawyers opposing the deal on Sony's behalf--and with Sony's executives--is, so the truth could be anything from reassuring to mildly disconcerting to problematic.

It turned out that Mr. Raftery was previously instrumental to a merger-blocking decision that favored a former client. And it doesn't look good that the CMA takes an extreme position on a vertical merger now (Microsoft-ActivisionBlizzard) while it allowed Sony to make a horizontal acquisition of particular relevance to the UK market.

It now befalls Mr Justice Smith and his CATribunal to ensure a legally correct outcome and to restore the general public's confidence in the UK regulatory process. The fact that the first case management conference already takes place a few days later suggests that he wants to adjudicate the matter as swiftly as possible, which is in everyone's interest except Cleary and two of its clients, and CMA officials who may hope that the merger will be abandoned before their mistakes and their abuse of power won't be exposed.

People are already talking about a novelization or a documentary about that merger, given that some of what has happened here amounts to truth being stranger than fiction. I guess some of my blog posts and tweets about the case will come in handy if and when that happens. Those of you who have practiced law before Mr Justice Smith, or know him as a colleague, can already think about which Hollywood actor might play him.

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

There isn't much happening anymore in terms of automotive SEP litigation. Avanci has licensed the vast majority of car makers, Continental finally gave up its U.S. federal antitrust litigation against Avanci and some of its licensors (continuing only its Delaware state law action against Nokia), and Telit dropped a lawsuit that had been brought by Thales in Munich against Avanci and Nokia.

While the European Commission doesn't seem to appreciate the contribution of patent pools to the licensing process the way it used to do, Avanci's success has made it part of the solution. Recently even Samsung--one of the world's largest implementers of cellular standards--joined Avanci as a licensor at no extra cost to licensees.

A few SEP holders--some of which are non-practicing entities--still aren't Avanci licensors. One such company is GenghisComm Holdings, which on Wednesday filed a SEP infringement lawsuit in the Eastern District of Texas against Toyota:

When it comes to comparable licenses, Toyota will be able to point to the license it has taken from Avanci, paying $15 per car for the vast majority of 4G SEPs. GenghisComm is presumably suing for the purpose of extracting a substantially higher royalty rate relatieve to the strength of its portfolio. Maybe the plan is to benefit from the unpredictability of patent damages verdicts.

3. Nokia invalidated OPPO patent-in-suit

About two weeks ago I reported on the (appealable) revocation of two Nokia patents as a result of OPPO's challenges. For the sake of complete reporting, I'd like to add that this month a written decision (PDF) also came down in an opposition proceeding in which Nokia has achieved the (equally appealable) revocation of an OPPO patent-in-suit: EP3563600 on "separate configuration of numerology-associated resources." the oral hearing took place on March 23.

4. KPN defended one of its patents-in-suit against Ericsson earlier this month

Here's a follow-up to the post of a few days ago on Ericsson obtaining the invalidation (by the USPTO's PTAB) of one of KPN's patents-in-suit. I hadn't previously commented on that dispute, so now I'd like to provide a bit more context.

Of the three patents-in-suit from KPN's first case against Ericsson in the Eastern District of Texas,

• one (RE'089) was invalidated as I reported,

• one was never challenged through an IPR petition (U.S. Patent No. 8,881,235 on "service-based authentication to a network"), and

• a third one, U.S. Patent No. 9,253,637 on a "telecommunications network and method for time-based network access", was deemed valid by the PTAB in a May 12, 2023 decision (IPR2022-00069).

A second KPN v. Ericsson case is also pending in the same district (i.e., before Judge Rodney Gilstrap):

Koninklijke KPN N.V. v. Telefonaktiebolaget LM Ericsson and Ericsson Inc. (case no. 2:22-cv-282-JRG): July 25, 2022 complaint

According to the docket, the trial will begin on April 1, 2024 with jury selection.

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Ericsson strikes down patent underlying KPN's $32 million jury verdict from August 2022: PTAB invalidates all challenged claims

The patent infringement dispute between Dutch telecommunications carrier KPN and Swedish telecommunications equipment maker Ericsson is unusual because infrastructure makers typically sell products to telcos rather than getting sued by them over patents. What is not that unusual, though, is the fact that Ericsson is on the receiving end of that case. Ericsson and Nokia, while being net licensors, typically have multiple disputes pending at any given time in which someone else wants to collect patent royalties somewhere, most frequently in the United States. That's why those two companies don't take extreme positions when they are on the enforcing side: they know what it's like when the shoe is on the other food, and they know that whatever they say as a defendant may be held against them as a plaintiff (though inconsistencies could only undermine their credibility but in the end all that should matter is the law).

Last August, a jury in the Eastern District of Texas handed down a verdict in KPN's favor and relating to a package of three patents. The verdict form did not distinguish by patent or claim, but merely indicated whether "any" of the claims had been infringed and whether any of the patents were invalid (juries rarely ever invalidated patents, and here they also thought all patents-in-suit were valid):

Koninklijke KPN N.V. v. Telefonaktiebolaget LM Ericsson & Ericsson Inc. (case no. 2:21-cv-113-JRG, E.D. Tex.): Jury Verdict of August 26, 2022

KPN is apparently never going to get the $32 million payout.

One of the three patents-in-suit, U.S. Patent No. RE48,089 on a "method and system for automatic coverage assessment for cooperating wireless access networks", has now been invalidated by the PTAB. Ericsson--represented by the Baker Botts firm--challenged most claims, also including the ones asserted in the Texas infringement action, and prevailed across the board. The PTAB judgment came down yesterday:

Ericsson Inc. v. Koninklijke KPN N.V. (PTAB IPR2022-00079, Patent RE48,089): Judgment (of May 23, 2023) Determining All Challenged Claims Unpatentable

Maybe this decision will pave the way for a settlement between the parties. They should be commercial partners, not adversaries in patent litigation.

Earlier today I commented on USPTO Director Kathi Vidal's proposed PTAB IPR rulemaking reform. Then I saw this interesting PTAB decision.

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USPTO Director Kathi Vidal's reforms of discretionary denial rules are fair and balanced: abuse of all sorts must be curbed, including extortion and circumvention of litigation estoppel

The USPTO under Director Kathi Vidal is on the right track with respect to PTAB IPR reforms, particularly with a view to discretionary denials. Probably many of you will disagree. Many of my esteemed readers are on one side or the other: net licensors (including pure licensing firms) as well as net implementers. I'm sympathetic to either side's legitimate concerns, and I have friends across the whole spectrum. When taking positions, I can't please everyone, nor can policy makers.

I think the USPTO has not had a more balanced Director in quite a while. I have great respect for Andrei Iancu, but his policies very much reflected his firm's predominant--if not exclusive or near-exclusive--client profile, i.e., the interests of the enforcing side. His predecessors in office knew the perspective of actual operating companies, with Michelle Lee coming from a net licensee (Google, which nevertheless considered patents very valuable in its early years) and David Kappos from a net licensor (IBM). Kathi Vidal's most important clients in private practice have been companies like Apple, i.e., PTAB IPR heavy users. But it would not be correct to claim that she was using her current position to just advance her former clients' interests.

I applaud the USPTO for its policy-making efforts, above all for the first section (on petitions filed by certain for-profit entities) of its April 21 advance notice of proposed rulemaking.

In light of the VLSI v. Intel case with the $2.4B verdict, Director Vidal correctly identified discretionary denials as a field in which decisive action was needed. Unfortunately, her predecessor--for the reason discussed above, which is unrelated to his track record as a litigator representing patent holders--had overshot in one way and not taken action against a more blatant form of abuse. That was comparable to pulling some healthy teeth while failing to identify a sore one. The USPTO is now likely to strike a far better balance.

The idea underlying the America Invents Act (AIA) was that patent owners should not get to overleverage their intellectual property rights in litigation. As a litigation watcher with a primary focus on U.S. cases, I can't remember if I've ever seen a case in which a jury held a patent invalid. Juries typically believe that the USPTO got it right. So the PTAB IPR system is important, and I'm in favor of it, but there is abuse from both sides.

Unified Patents' business model does raise serious issues, arguably even bigger ones than OpenSky. OpenSky, in case you don't remember, is the entity that essentially collected a ransom from VLSI in exchange for withdrawing a PTAB challenge that posed a serious threat to the aforementioned verdict. Some described this as "extortion" and I can see why, but if one thinks it through, Unified Patents' business model is way more problematic.

The USPTO has correctly identified that in the VLSI case, the party with a legitimate interest in challenging the validity of the patents-in-suit, Intel, was (at least temporarily) unreasonably restricted in its ability to defend itself, while someone with a business model that the AIA was never intended to enable profited from it. The only sound approach to policy making in such a situation is to address issues arising from an abuse of the system without overshooting to the detriment of actual defendants.

An end-justifies-means argument is not going to help, and the USPTO should not give it any weight. Sure, if a patent shouldn't have been granted in the first place, there must be ways of overturning it, and jury trials won't work. At the same time, well-resourced defendants should not be able to just outspend patent holders, and the purpose of the PTAB is not to give every defendant two bites at the apple, so if a PTAB challenge fails, defendants are reasonably estopped from re-raising the same issues in the related infringement litigation. If the end of defeating invalid patents justifies any means, then we must also celebrate OpenSky as heroes, allow multiple challenges in different fora (i.e., no estoppel), abolish or massively increase page limits for petitions, and so forth. That wouldn't result in good policy.

Here's the USPTO's proposal to curb abuse by entities like Unified Patents:

"The changes under consideration would make clear that the Board would discretionarily deny any petition for IPR or PGR filed by an entity that: (1) is a for-profit entity; (2) has not been sued on the challenged patent or has not been threatened with infringement of the challenged patent in a manner sufficient to give rise to declaratory judgment standing; (3) is not otherwise an entity that is practicing, or could be alleged to practice, in the field of the challenged patent with a product or service on the market or with a product or service in which the party has invested to bring to market; and (4) does not have a substantial relationship with an entity that falls outside the scope of elements (1)–(3). The Office contemplates defining 'for-profit entities' as entities that do not qualify for tax-exempt status with the Internal Revenue Service."

That makes a lot of sense to me. We're not talking about unreasonably restricting the ability of the companies that are Unified "members" to defend themselves: they can bring their own challenges in their own name and will then be reasonably subjected to litigation estoppel.

There are (at least) two key concerns over Unified Patents' business model, and either is enough of a reason in its own right to support the USPTO's proposal:

1. Abusive circumvention of litigation estoppel:

   There simply is no need for the USPTO to condone Unified's business model, given that its "members" can bring their own petitions. The USPTO is not even against a pooling of resources: if you have a joint defense group, why not bring one challenge on behalf of everyone? The problem with Unified is that they say their members don't get to decide which patents they challenge. But obviously it's a pay-to-play system. They're not doing that work pro bono. Disallowing such petitions will increase transparency. Could transparency also be increased in other areas, such as patent ownership? Absolutely, but that is not a reason to tolerate a circumvention of litigation estoppel rules. I also don't think the USPTO should give any weight to claims that this is about singling out just one PTAB filer. It's a business model that others could also adopt.

2. Extortionate effects:

   For the avoidance of doubt, I'm not alleging extortion, but I do see extortionate effects of Unified Patents' business model. Nice patents you have there... too bad if anything happened to them.

   • Philips' membership:

     While Philips does have an operating business, it's actually known as a rather aggressive enforcer of patents, including but not limited to standard-essential patents (SEPs). Philips has precisely the profile of the companies whose SEPs routinely challenges. Why is Philips a member? It cannot be ruled out that they primarily joined so that their patents would be left alone.

   • Unified's expansion into patent pool administration:

     While I've repeatedly given credit to MPEG LA with respect to other pools they run, their joint venture with Unified Patents named Alium has left me unconvinced so far. In particular, I find it hypocritical to say that Unified will help ensure "patent quality" in connection with O-RAN when they are not going to challenge Alium's own patents but only those belonging to patent holders who decline to contribute their patents to that pool. Here, again, you have that "racketeering" effect, presenting companies with a choice of being trolled or making Unified money.

   All of those issues are not unique to Unified Patents: others might implement their business model or similar models, even with a purely extortionate agenda.

There still is time to submit formal comments to the USPTO.

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Avanci Broadcast patent pool adds ETRI, KPN, NEC, NERC-DTV, thereby increasing coverage of ATSC 3.0 standard-essential patent families to 80%

In March, Avanci announced its first non-automotive standard-essential patent (SEP) pool: Avanci Broadcast, a pool for the ATSC 3.0 (also known as NextGenTV) broadcasting standard that is particularly popular in the United States and in South Korea.

At the time of its launch, the pool contained more than 70% of the ATSC 3.0-essential SEP families, and the vast majority of TV sets supporting ATSC 3.0 were licensed from the beginning (though it's important to consider that TV sets are not only the device category to implement ATSC 3.0; there are also set-top boxes, for instance). Some of the licensor are also major implementers, but not all initial licensees were also licensors (Sony is only a licensee).

The ATSC 3.0 pool was the first Avanci pool to announce Samsung as a licensor. Shortly thereafter, Samsung also joined Avanci's automotive SEP pool.

Today Avanci announced the Avanci Broadcast pool's expansion to "over 80% of essential patent families for the ATSC 3.0 broadcasting standard" through the addition of four licensors:

• South Korean research institute ETRI,

• Dutch telecommunications carrier KPN,

• Japanese electronics giant NEC, and

• China's Shanghai National Engineering Research Center of Digital Television (NERC-DTV).

Existing licensees (LG, Samsung, Sharp, Sony) are now automatically licensed to the new licensors' ATSC 3.0 SEPs as well, at no additional cost. That is a feature of the Avanci pools, but also of many other patent pools. In my opinion, the European Commission's recently somewhat negative take on patent pools does not give sufficient consideration to that (and not only to that) fact.

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As of today, Microsoft could consummate the Activision Blizzard purchase without fear of sanctions from a U.S. court: investment bank Macquarie recommends going ahead

Today--Monday, May 22--is a very important day for Microsoft's acquisition of Activision Blizzard King (ABK). This is the earliest legally possible closing date from a U.S. perspective. The U.S. situation is so key because, as Illumina's acquisition of Grail proved, the only 100% reliable way to prevent a U.S.-U.S. merger is a U.S. court order (even Illumina said they'd abide by one, but didn't care about the world's regulators). That's because violating a prohibition by a U.S. court can result in criminal sanctions.

As of today, Microsoft is free to close the deal. Not free without financial, political, and reputational risks. But, to put it bluntly, no one will go to jail over it.

I'm not saying Microsoft will initiate the closing process today--not because they couldn't, but because there still is time under the current merger agreement: well over a month to make further headway and minimize those financial, political, and reputational risks. And they have momentum now, suggesting there'll be further good news. Still, let's not underestimate the significance of this date. Since the announcement of the merger in January 2022, this is now the first day on which the decision makers at Microsoft go to work and they have an important choice. It's just their decision whether or not to trigger the deal-closing process--as Macquarie, one of the world's largest investment banks (Wikipedia page), officially recommends--or to take more time because it appears prudent.

So let's look at where things stand, with last week having been incredibly eventful, and at what's next (click on the image to enlarge):

With the European Commission as well as China's State Administration for Market Regulation (SAMR) having cleared the transaction last week, the deal has been approved by 38 countries with a total population of 2.37 billion people and an aggregate Gross Domestic Product of US$42 trillion, with a caveat concerning South Africa that's also reflected in my timeline chart (the regulator recommended unconditional clearance, and normally that's the outcome, but formally it's a two-step process like in Brazil and the final procedural step is scheduled for June 21).

The aggregate population size of those countries is more than 35 times that of the United Kingdom, and the aggregate GDP is more than 13 times that of the UK.

Not only is the South African process technically still ongoing, but so are a few other regulatory processes. Countries from which we may hear in the days and weeks ahead include, but are not necessarily limited to, New Zealand (deadline: June 9), South Korea, Canada, and Turkey. In Australia the process is currently on hold, but the clock will at some point be restarted.

In fact, the process is technically still open in the UK: as I reported on Twitter, the final decision has not been made yet because the absurdity that they put out on April 26 was just a final report. The CMA is now accepting feedback until June 19 to its draft final decision. While this would normally just represent a formality, the CMA may in the meantime realize that a decision based on the Inquiry Group's irrational report would not be defensible in court, and I also see political dynamics in the UK that suggest the CMA needs an exit strategy. The CMA's leadership got a rough ride in a parliamentary committee, where the CMA's chair readily acknowledged that "the government has levers" if the CMA ignores government policy. The next day, the UK's Chancellor of the Exchequer (arguably the #2 person in the UK government) took a "dig" at the CMA according to the Times (a newspaper that has partly given anti-corporate extremists a platform to comment on this deal). Also, City A.M., the leading financial daily for the London area (as opposed to the Financial Times, which is London-based but an international publication), published an opinion piece that harshly criticizes the CMA.

Losing the appeal in this high-profile case would be the worst scenario for the CMA's leadership, but prior to that the CMA cannot possibly be interested in taking its chances that the deal will be closed regardless.

In a note to clients, Macquarie wrote that closing the deal now over the CMA's objection "would result in a legal battle with the CMA but one we think worth fighting as it is precedent-setting for an acquisitive company to allow one country to block a $75 billion deal."

In financial terms, the hypothetical risk would be in the tens of billions, but any fines would have to be proportionate to the conduct in question, and if the CMA's decision is quashed, there is no basis for anything, at least not for a major fine. So far, the CMA's record fine was $50 million (imposed on Meta for not keeping an acquired company sufficiently separate). By contrast, the breakup fee under the merger agreement with Activision Blizzard is $3 billion, and there are activist investors who would like ABK to collect that one. Also, it's impossible to know today what ABK's shareholders would expect in exchange for an extension of the merger agreement.

It's not just about money, and that's why Macquarie also looks at the downside holistically: if Microsoft abandons the deal, it pays $3 billion, and will find it hard to make any other major acquisition until the regulatory tide in some places turns. I would add another issue: it would look as if Microsoft had tried to make an acquisition for anticompetitive purposes, and seemingly brave regulators thwarted the plan. In reality, it's a procompetitive deal that spurs competition between large corporations in some markets, to the benefit of consumers, workers, and small companies (game makers and other app developers, streaming companies like Nvidia and Boosteroid that are totally in favor of the deal though the CMA claims to understand their market better than they do).

Another negative effect of "caving" would be that Microsoft would make itself a "soft target" for zealous regulators not only in merger but also unilateral conduct cases.

Regulators can't just demand that acquirers respect the law, but they must do so in the first place. We live in times where some regulators go too far. Obviously, despite the valid reasons for which Macquarie suggests closing the deal over the CMA's objection, Microsoft would not want to come across as lawless, and wouldn't want to burn bridges forever with regulators.

The timeline chart I showed further above indicates that there still is time to make further headway and to potentially work out a solution with the CMA. With the FTC, it looks like there is no near-term chance to make it work. According to MLex, Microsoft again offered behavioral remedies to the FTC (after the EU decision), but in vain. I shared my thoughts on that on Twitter. It's possible that Microsoft knew the FTC wasn't going to be receptive, but had to give it a try with a view to the next steps.

What about the U.S.?

It is much more of a psychological-political issue than a legal one that the FTC didn't clear the deal. The FTC is now against any major merger, filing lawsuit after lawsuit, and losing all the time. But the FTC and the CMA are trying to give each other cover: the CMA tells UK politicians that it's not alone in this because the FTC is suing to block the deal, and the FTC can say in the U.S. that an overseas regulators also opposes the transaction.

If the CMA's Inquiry Group had not recommended a prohibition decision, the deal-closing process might already be triggered today or the FTC would already have filed a motion for a temporary restraining order and preliminary injunction last week after EU clearance. No regulator likes to be the last one standing, but it's important to understand the difference between the FTC's lawsuit and the CMA's final report: the FTC would most likely fail to win a preliminary injunction, and then the deal could close, though the FTC could keep on fighting and theoretically, after several years, there might be a forced divestiture. The CMA could already (based on an interim order) impose fines now if the deal was closed over its objection.

On Friday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied a preliminary injunction that class-action lawyers were seeking. In order to give the court enough time to adjudicate that motion, Microsoft had made a commitment not to close the deal before today (May 22). Microsoft acknowledged at a May 12 hearing that it would have been very difficult to close then, but didn't commit to an extension either (and after that hearing, the EU and China cleared the deal). Judge Corley handed down her decision late on Friday, the last business day before the earliest possible closing date.

So if Microsoft told the FTC now that the closing of the deal is imminent, the FTC would have to request a court order that would prevent the deal from closing. It would point to the CMA decision, but that would not be very persuasive. I don't believe the FTC would win a preliminary injunction. But if a judge who is not yet familiar with the matter had to make a decision on a temporary restraining order (TRO) within a few hours, then there is a possibility of the status quo being preserved for another two weeks (after which a TRO either has to be replaced by a PI or it goes away, absent the enjoined party's consent to being enjoined for longer than that).

That's why my timeline chart indicates a potential TRO window: given the Fourth of July holiday, I believe Microsoft would have to trigger the process in late June so that the court would have two weeks to decide if necessary. Otherwise a TRO could extend beyond the closing date in the current merger agreement.

Of course, the parties could also extend that agreement. That would give them enough time to defeat the CMA in the Competition Appeal Tribunal (the standard of review is exacting, but not an insurmountable hurdle, and on remand the CMA would have to decide in accordance with the CAT's guidance). They could also try to defend themselves in the FTC's in-house court, which is statistically not a level playing field to put it mildly. Given how weak the FTC's arguments are, it could be one of those rare cases in which the FTC loses before its own judge, but it could also be yet another case in which the FTC wins in its own court only because it's not an independent court. Also, even if the FTC loses in its own court, the commissioners--the same ones who decided to bring that lawsuit--could decide to block the deal anyway. That process is controversial, and the Supreme Court opened the door to constitutional challenges in federal court with its recent Axon ruling.

If Microsoft does not close the deal by mid July and first awaits a decision by the CAT, there would be a significant risk of a "deadlock" for an extended period of time. It would take time until a CAT ruling, then the CMA could take its time on remand, and if they had to wait for a federal appeals court in the U.S. to overrule a final FTC decision, that could take until late 2024 if not longer. There could be a window for closing the deal before the U.S. process concludes, but there is no guarantee.

Looking at all of the risks for everyone involved, this is a clear case for an agreement between Microsoft and the CMA. For the CMA, a scenario in which it would attempt--but practically fail--to block a merger, and then likely lose in court later, would be terrible. Even if the deal wasn't closed now, but Microsoft and ABK at least take the time to get a CAT decision, the CMA would stand to lose a lot of credibility and influence. Imagine a future parliamentary oversight hearing where the CMA's leadership would have to defend its actions--creating a situation in which the EU and China are more open for business than the UK--after having been proven to have been wrong.

The deal could close any day now, but in a month from now, Microsoft's position will likely be even stronger. At that point, however, they'll be approaching the potential TRO window you can see in my timeline chart further above. The next few weeks will be interesting, but in a month from now things could really heat up--unless the parties prefer to extend the merger agreement and prove the CMA wrong in the CAT before closing the deal.

While a British media report suggested a few weeks ago that the appeal was going to be filed within a matter of days, it hasn't shown up on the court's website nor has there been any announcement.

The CMA revised its provisional findings after a clear mistake was flagged. Maybe the feedback and input that the CMA will receive in the weeks ahead will open the door to a correct decision and constructive solution. If not, I'd like to see Microsoft do what Macquarie considers a perfectly rational choice. That's just my personal preference.

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Former ACT | The App(le) Association policy officer admits small companies don't pay people like him: panel debate on EU SEP Regulation proposal

It speaks volumes about Apple's values that even after Bloomberg exposed ACT | The App(le) Association as an astoturfing operation, they still attempt to fool policy makers--such as European Commission officials--into believing that ACT represents small app developers and IoT startups. They continue to issue statements, to lobby policy makers, to organize events, and to participate in debates--all of that in the name of small companies, even when they actually work against them, such as on App Store issues.

The European Commission should not invite them to events unless Apple sends them to speak on its behalf, which would be the only honest thing to do. But I may be asking for too much.

Bloomberg's investigative journalism was highly effective regardless of whether the EC turns a blind eye to its results. ACT itself was forced to admit that Apple paid for more than half of its funding, and then Bloomberg managed to talk to four former ACT employees (ACT is, by the way, set up as a company) who said that "more than half" was a gross understatement and that ACT simply takes directions from Apple.

A former de facto ACT employee indirectly and inadvertently threw the organization under the bus on Friday: Alexander Prenter, a Brussels-based native New Zealander who is now a policy officer at the Fair Standards Alliance. I wish to make it perfectly clear that Mr. Prenter is well-respected, as is the Fair Standards Alliance (FSA). I am actually happy for him that he joined the FSA in July 2021 after several ears of working for ACT. Whether or not one agrees with the FSA--and I could have various disagreements with them during the EU legislative process that is about to start--they are transparent about their membership as opposed to just claiming to speak for thousands of companies no one has ever seen or heard of.

At a webinar held by the European University Institute on Friday (May 19), the EC's proposed regulation on standard-essential patents (SEPs) was discussed. Professor Jorge Contreras (Utah), Michael Schloegl (Continental), and Alexander Prenter took pro-implementer positions, essentially saying the proposal doesn't go far enough, while Urska Petrovcic (Qualcomm) and Richard Vary (Bird & Bird, a firm that advises and represents not only SEP holders like Nokia but also implementers) believe it goes too far. What came up in several interventions was the lack of hard evidence for the need to legislate on the subject.

While the Commission's Directorate-General for the Internal Market, Industry, Entrepreneurship and SMEs (DG GROW) seeks to justify this bill with the alleged plight of SMEs forced to deal with SEP licensing and litigation, the impact assessment provides anecdotal evidence (apart from being unverifiable, some of it even implausible) at best. In the end the Commission relies on about three dozen SMEs who have provided input (again, this is totally unverifiable, and last year I debunked a totally made-up SME-SEP story that was paid for by the same lobbying entities pushing for an EU SEP law). But only a couple of them ever actually licensed SEPs.

Mr. Prenter attempted to explain away the conspicuous absence of evidence for actual SEP issues faced by SMEs. He said SMEs don't employ someone like him to fill out questionnaires. That was an interesting admission considering that ACT does claim to represent SMEs, does orchestrate submissions by companies claiming to be SMEs facing SEP issues, and Mr. Prenter worked for ACT from 2017 or (at the latest) 2018 until 2021.

In other words, Mr. Prenter conceded that SMEs don't pay for ACT's work (as Bloomberg had also found out).

A 2018 "Study on safety of non-embedded software" refers to an "Interview [with] Brian Scarpelli and Alexander Prenter, ACT, 16 March 2018."

The SME topic also came up at a recent Brussels presentation of two DG GROW-commissioned "studies" by "researchers". Licensing expert Eric Stasik explained that it simply isn't profitable for SEP holders to approach every small implementer and work out a license deal. As Mr. Stasik explained, you'd like to generate that additional licensing income if you're a SEP holder, but you can't economically justify it.

At least a couple of participants in that event agreed that patent pools could actually help get SMEs licensed to a greater extent. By virtue of transactional efficiencies, pools might make it profitable for SEP holders to grant licenses to SMEs. While that particular pool wasn't mentioned, I think Sisvel's recently-launched NB-IoT pool has the potential to prove helpful in this context.

My own position on this topic is somewhere in the middle between the two camps:

• Mr. Stasik is right that SEP licensing is not a practical issue for SMEs, simply because SEP licensing is a high-volume business and SEP enforcement is too expensive. As a litigation watcher, I have yet to see a case where a small company actually gets sued over a SEP. The relatively smallest one I've seen so far is AVM, a company that has a 70% market share in the German WiFi router market. Even AVM is not an SME by the EU's criteria.

• DG GROW should admit that the ones who are really pushing for the EU SEP Regulation are Apple (directly and via entities like ACT) and the automotive industry. They should be honest about it.

• But I also agree with those who say that infringement--even if tolerated for the reason identified by Mr. Stasik--is not a sustainable basis to do business.

• I furthermore agree that SMEs are increasingly implementing FRAND standards.

If the Commission wanted to engage in further outreach to SMEs that implement standards, organize events, hold confidential conversations with SMEs about SEP licensing issues, I'd welcome such initiatives in principle. But why legislate now? Why in that particular form that is unbalanced and poorly-thought-out? The more appropriate thing to do would be to keep an eye on the situation and take incisive action only if and when there is hard evidence for SMEs facing serious problems on a significant scale. It will become known if there's a lot of enforcement activity against small companies (which will probably never be the case). If SMEs ever faced a serious problem, the most important question would be how to help them without putting a thumb on the scales in favor of the likes of Apple to the detriment of those who invest in standards-related innovation and need licensing income to fund that effort.

The dispute resolution mechanisms proposed by the Commission will be too costly even for most SMEs. I would expect the average SME to simply decline to participate in any FRAND conciliation proceeding for cost reasons.

Europe--like the rest of the world--has enough problems that are real. It's better to focus on those issues instead of listening to fake SME organizations or SMEs who may be real but whose SEP stories would be debunked as nonsense or insane exaggerations if only they were scrutinized by experts.

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Will regulators' disregard for legal bounds of merger control lead to more appeals and/or to more Illumina-Grail-style gun jumps?

The Microsoft-ActivisionBlizzard merger reviews set dangerous precedent in some places, not in terms of legal precedent but with a view to what future acquirers of companies may deem the best regulatory strategy. And it's only the most striking case, but the problem goes beyond.

Some competition authorities are not make responsible use of the primary leverage they have. That primary leverage is not that they can block a deal--for which the legal standard is still fairly high--but that they can delay it by forcing companies to appeal blocking decisions, which takes more time than most merger agreements allow. Overleveraging may work for some time. Ultimately, the question is how future acquirers will respond (and what course of action their in-house and outside counsel will recommend).

In recent years I've seen two major tech acquisitions that the acquirers approached conservatively even though there was no legal basis on which anyone could reasonably prohibit those deals. The first one was IBM-RedHat, the second and currently ongoing one is Microsoft-ActivisionBlizzard. In both cases, the merger agreements allowed for an unusually long period of time (about 1.5 years) to obtain the prerequisite approvals. Formal notifications took quite long after the merger announcements, allowing for extensive prenotification talks. In the Red Hat case, the deal was closed well ahead of schedule. In the Activision Blizzard (ABK for "Activision Blizzard King") case, the question is now--incredibly--whether the parties will extend the merger agreement beyond the current July 18 closing date in order to be able to litigate with the CMA (and also the FTC, though if not for the CMA block the U.S. process could be accelerated anytime by creating a situation in which the FTC needs a preliminary injunction, which it most likely wouldn't win).

It's possible that everything still works out. In formal terms, Microsoft's commitment to a U.S. federal district court was only not to close the deal before May 22 (this coming Monday). The CMA's regulatory excess is viewed increasingly skeptical by the ones who ultimately have the power to get the CMA back on track. It would be quite risky for the CMA to take its chances in the Competition Appeal Tribunal (CATribunal, or just CAT): it could suffer a major, potentially even humiliating defeat there, and the politicians it is accountable to or who ultimately control it (the CMA is "independent" until it is not) wouldn't take that lightly. This week, the CMA faced tough questions in the UK Parliament and a warning from the Chancellor of the Exchequer, arguably the second most powerful person in the current UK government and generally very well respected and trusted:

Chancellor Jeremy Hunt says in relation to Microsoft-Activision deal being blocked by UK competition authority that “I think that regulators should understand their wider responsibility for economic growth”…

A bit of a warning shot there

— Ashley Armstrong (@AArmstrong_says) May 17, 2023

The BBC's Business Editor noted the important "but" in the Chancellor's remark:

Jeremy Hunt re: Microsoft/Activision being blocked by UK competition authroities - "I wouldn't want to interfere with their independence BUT they need to understand their wider responsibility"

— Simon Jack (@BBCSimonJack) May 17, 2023

Technically, the CMA case is still open. Today the CMA published three documents related to its request for comments on its proposed final order. I shared the links on Twitter.

It's also possible that the CMA doesn't work out a solution in time for the July 18 closing date. I have no idea what will happen then. Given that the CMA decision is extremely weak, an appeal to the CATribunal may be worth the time and effort. However, it's not a criminal offense to simply close a merger and deal with the consequences. My purely personal opinion is that, clearance decisions in several more jurisdictions provided, the point will come in about a month where unless common ground is found, it might make sense to start the closing process and defeat a preliminary injunction motion by the FTC, and to minimize any potential UK fines by treating the UK cloud-gaming market separately after the merger (such as by not offering ABK games on xCloud in the UK, or maybe no xCloud at all, given that the service is unavailable in many countries anyway, though for infrastructure reasons). I can, however, see reasons why Microsoft might not want to do that.

Whatever happens, the world is watching, and especially future acquirers of companies and their lawyers are watching. I believe that with what has happened so far, different strategies will be needed. A constructive approach to regulators is the right choice as long as regulators are constructive, but some are not and that may not change too soon.

The shortest form in which I can state my concern here is that if regulators don't reciprocate and reward a notifying party's constructive attitude, future parties may be well advised to act less constructively in the first place.

While I commend the EU Commission for having reached a far more reasonable conclusion than the FTC (which according to a new MLex report once again refused to engage in behavioral-remedy discussions, despite the EU outcome) and the CMA, and the EC also gets far more support from the worldwide gamer community, I don't fully agree even with that decision, given that this was a case for unconditional clearance and they imposed remedies. Those remedies are good for consumers, but the end doesn't justify the means.

In other words, even the EC in my opinion overleveraged its regulatory powers here for political reasons. I can't imagine the EC could have defended a blocking decision in court. But Microsoft can't litigate against all of the major regulators at the same time, and at some point wants to close the deal. It is, however, a shame that agencies with much less of a reputation for antitrust regulation actually made far more appropriate decisions, particularly Brazil's CADE and Chile's FNE. They got it right. The Western world's "Big Three" did not (though the EC was less wrong than the other two).

So what's the right regulatory strategy for an acquirer who does a deal that--like Microsoft-ActivisionBlizzard--is legally on the safe side, but there is a regulatory risk for purely political reasons, such as backlash against Big Tech ("techlash")?

The way regulators--even the EC, though primarily the CMA and FTC--have behaved so far in the Activision case, I don't think lawyers can still recommend giving regulators a lot of time prior to formal notification, and hoping that regulators are interested in working out reasonable solutions. One has to prepare for different degrees of unreasonableness in different places.

I see two approaches that are more appropriate for cases that are easy to defend in court but where regulators will act politically and disregard the law or if necessary even the facts:

• Notify ASAP:

  Instead of giving regulators the courtesy of long pre-notification talks that may just turn out a waste of time, it may be better to notify this type of merger at the earliest opportunity. It can be done within weeks of a merger agreement.

  Then there'll be more time for appeals.

  Regulators won't like that. It also makes it harder to get some favorable decisions in reasonable places before the less constructive regulators decide. But in some cases this could still be the best way forward. If a merger agreement comes with a far-off closing date, but notifications are done very early on, regulators know that the strategy is court-centric. Most regulators don't like to lose in court, so this could get them to act more constructively than being nice.

• Illumina-Grail ("gun-jumping"):

  The Fierce Biotech website summed up Illumina's completion of the acquisition of Grail without certain regulatory approvals (they even set aside half a billion dollars or so for the potential fines) as "regulators be damned."

  It's risky in various ways. But the fines--and the underlying merits--are subject to court review. The worst-case scenario is that a merger may have to be undone later, and that is another reason for which Illumina-Grail is an unorthodox outlier. It's just that certain regulators provoke more such cases.

  Breakup fees in agreements on future mergers may rise as a result of the Microsoft-ABK situation. The higher a breakup fee is, the more inclined an acquirer may be to go down Illumina-Grail Avenue.

  Illumina-Grail was an extreme case. They disputed some regulators' jurisdiction over the case. That will not be an option in ABK-style deals. So I'm not saying others would do it exactly the same way. What I could imagine, however, is that some companies may seek as many approvals as possible, focus on the positive outcomes, and then determine that one or two negative decisions are not a reason to cancel the deal.

  The only hard limit for a merger between two U.S. companies is a U.S. injunction. No one would want to bear the consequences of acting in contempt of a prohibitive injunction by a U.S. federal court. The risks outside the U.S. can be calculated if it's a U.S.-U.S. deal.

  In other words, an approach that would have been deemed irresponsibly risky in the past may now make sense in certain situations.

The best solution would be for regulators to act constructively and to apply the law faithfully. The latter apparently works in countries like Brazil and Chile, so why shouldn't it in some larger economies where it used to work until recently?

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UK CMA must regain trust as politicians question wisdom of Microsoft-ActivisionBlizzard block -- inappropriate Twitter statements don't help

The leadership of the United Kingdom's Competition & Markets Authority (CMA) must face the fact that its powers are neither unlimited nor unchecked. The CMA is not a state within the state that chooses its own leaders, determines all of its policies, collects its own taxes, makes its own laws, acts as its own judge. It is nominally independent, but at the end of the day it is simply a non-ministerial government department (NMGD). I'll discuss the limits of the CMA's independence further below.

The Business and Trade Committee of the British Parliament held an oversight hearing yesterday where the CMA's chair Marcus Bokkerink and CEO Sarah Cardell had to answer lawmakers' questions. The chairman of the committee--Labour MP (and tech policy expert) Darren Jones--diplomatically brought up the Microsoft-ActivisionBlizzard merger-blocking decision right at the start, and after Mrs. Cardell gave an initial answer, he also wanted to hear more specifically what the CMA has to say about the remedy question. It was a coincidence that the European Commission issued its conditional clearance decision the day before, accepting exactly the free-streaming-license remedy Microsoft had also proposed to the CMA.

Conservative MP Bim Afolami took the CMA to task. He raised all the right questions and was not prepared to content himself with evasive answers, so he always came back to the core issues. I was live-tweeting about the hearing and would like to refer you to that thread as opposed to summarizing it all again here. The first tweet of that thread already has more than a quarter million views. Let's now focus on what the overall situation looks like for the CMA.

The transaction has now been cleared in 37 countries with more than 950 million inhabitants (more than 14 times the UK's population size) and an aggregate GDP of $24.5 trillion, almost eight times that of the UK. So far the EU, which cleared the deal for its 27 Member States plus three more countries that are not EU Member States but members of the European Economic Area, is the one that got the most attention and bears the most weight. However, the seven non-EEA countries that previously cleared the deal have even more inhabitants (503 million) than the EEA (453 million), and even the non-EEA countries combined have more than 2.5 times the UK's GDP. That's why it would be wrong to make it only an EU-UK question: it's about the increasing isolation of the UK. The U.S. FTC doesn't count, especially because it can't block the deal without help from a court.

Not only are the jurisdictions that greenlighted the deal "OK" with it, but they've actually recognized the procompetitive benefits. They want the deal to close because it's good for consumers and for the competitive process (by the way, the Times of India discusses those positive effects in a new article). Cloud gaming operators like Nvidia and Boosteroid--the companies the CMA claims to protect--are actually in favor of the deal and against the CMA's stance. More clearance decisions will likely follow in the near term. But one UK government agency stands in the way.

The CMA surprisingly took to Twitter to defend its outrageous outlier ruling after the European Commission announced its way more sensible decision. It is probably unprecedented for one competition authority to comment on another's merger decision in that form. Some people thought it was "Trumpian", though the former POTUS would actually have needed only one tweet--not five--to convey the same message.

A majority of the people I polled on Twitter found that this communication style was "totally out of line" and only about 9% deemed it "appropriate conduct":

What do you think of the @CMAgovUK's Twitter thread voicing disagreement with @EU_Competition's Activision Blizzard merger decision?

— Florian Mueller (@FOSSpatents) May 15, 2023

The CMA must realize that what it is doing is viewed unfavorably by far more people than the ones who support the agency. Last year, 75% of the 2,100 submissions to the CMA by members of the public were in favor of the deal. And on Twitter, where members of the worldwide gamer community follow the developments in this case, it's a similar picture. About twelve hours after the European Commission announced its decision (shortly after which the CMA voiced its disagreement), the EC had 1.2 million views versus the CMA's 800K, and especially more than 6,000 likes versus the CMA's 1,300:

After about 12 hours, the @EU_Commission's tweet got 1.2M views vs. the @CMAgovUK's 800K, and--what's more important--6K likes vs. 1.3K. pic.twitter.com/5j0HDLAMSy

— Florian Mueller (@FOSSpatents) May 16, 2023

Even the much older tweet with which the CMA announced its blocking decision on April 26 still has far fewer likes than the Commission's tweet about its ruling.

The limits of the CMA's independence

There are fundamental misconceptions out there regarding the CMA's independence. The first important thing to understand here is the difference between truly independent judges and an agency like the CMA.

Judges are appointed to the UK's higher courts by a special commission, and they can be removed from office only by a vote in both Houses of Parliament. By contrast, the CMA's leaders are simply appointed by the Business Secretary. Not even by the Prime Minister. No vote. Just the Business Secretary.

The Business Secretary herself can be replaced anytime by the Prime Minister, who also has the power to give directions (thus the "strategic steer" I discussed in my previous post on this topic) to government agencies.

Even a ministerial override of CMA merger decisions is possible. It doesn't matter all that much whether that is possible in this case: the Enterprise Act limits the scenarios in which the Business Secretary can simply decide a case. It's totally sufficient that the Business Secretary can replace the CMA's leadership, but it's also wrong to limit the analysis to the Business Secretary: the Prime Minister sets policies, and that enables him, regardless of what the Enterprise Act says about the Business Secretary's right to intervene, to tell the CMA what to do.

It doesn't mean anything that none of that has happened in the three weeks since the CMA issued its merger-blocking decision. It's too early. But the longer it takes, the more jurisdictions clear the deal, and especially if headway is made with the impending appeals by Microsoft and Activision to the Competition Appeal Tribunal (CATribunal, or CAT), the harder it is going to be for the CMA to refuse to be constructive. At some point, the Prime Minister may just say: "The buck stops here."

This is a complex web of interdependencies. Time is not on the CMA's side, unless it hopes that the deal will fall through, a favor that the parties are probably not going to do the CMA anytime soon.

Every "player" participating in this "game" seeks to minimize political and other costs:

A massive intervention by the executive government within a week or two of the CMA's decision would have drawn more criticism than it would at a later stage, after more things have happened. Imagine a scenario in which jurisdictions with collectively billions of inhabitants and a collective GDP that dwarfs the UK Economy have cleared the deal, and/or in which the CATribunal's judges have expressed their skepticism of the CMA's made-up theory of harm and irrational rejection of workable and reliable remedies. In such a situation, some measures that may appear unthinkable today could become reality.

One key milestone is definitely going to be the expiration of the current merger agreement (July 18). While everything the parties have said and done so far suggests they will work it out and see the appeal through, we might see some interesting dynamics in the first of July that could accelerate everything.

The CMA's leaders saw yesterday that there is quite some skepticism of the agency's regulatory excess in the parliamentary committee they're accountable to.

The CMA doesn't have "the power of the purse": its budget is decided by politicians. It can't just finance itself through fees or fines. It needs the Parliament's budgetary support.

Mr. Afolami MP brought up the question of whether it might be a good idea to change the standard of appellate review. The current Judicial Review standard makes it relatively hard--though far from impossible--to get CMA decisions reversed. If that standard was lowered, the CMA would have to be more careful.

Even under the current standard, the CMA wouldn't be able to issue a second blocking decision after losing the first appeal if the CAT pokes major holes into the CMA's argument. The Enterprise Act clearly says that the CMA must "make a new decision in accordance with the ruling of the Competition Appeal Tribunal" (emphasis added).

At this point, the CMA very much wants Parliament to enact the DMCC Bill, the UK equivalent of the EU's Digital Markets Act (DMA). I couldn't help but highlight the contradiction between what the CMA says about rival mobile app stores in its Microsoft-Activision decision and what it said in a statement issued the same day that sought to link its merger ruling to digital platform regulation. In connection with the DMCC Bill, the standard of appellate review is also a topic of discussion. It's not unthinkable that the outcome of the legislative process could be that the DMCC Bill gets enacted, but the standard of review for all of the CMA's decisions is modified at the same time.

The CMA is falling out of favor with politicians and a majority of the gamers it incorrectly claims to protect.

My key takeaways from yesterday's parliamentary committee session are that the CMA has no mandate to behave as if it were "the world's policeman" for mergers (which would be to the detriment of the UK economy), and that it must make some very smart decisions now in order to regain the trust that it has lost. The CMA has gone too far and needs an exit strategy. Twitter threads like the one on Monday--or the claim on April 26 that it was about protecting competition in cloud gaming when Microsoft's competitors like Nvidia and Boosteroid actually support the transaction--are inconducive to the agency's credibility.

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Telit drops antitrust lawsuit against Avanci and Nokia over component-level licensing of standard-essential patents started by Thales in Munich, also withdraws U.S. discovery requests

A few months ago, IoT module maker Telit consummated the acquisition of the cellular IoT products unit of French industrial conglomerate Thales. As a result of the transaction, Telit inherited the antitrust dispute Thales had started in 2021, accusing the Avanci patent pool firm and one of its licensors--Nokia--of violating EU antitrust law by declining to grant exhaustive component-level licenses covering cellular standard-essential patents (SEPs).

From the beginning I had--and expressed--my doubts about the prospects of that complaint, just like I never believed in Continental's U.S. litigation against Avanci, Nokia, and others, a case that indeed went nowhere. At some point a Thales v. Avanci & Nokia trial was scheduled for September 2022, but it didn't take place. There were delays, and with what is known now it's fairly possible that Thales knew Telit--which was in the process of acquiring that business unit--wasn't really interested in pursuing that litigation.

I noticed the withdrawal of the three related U.S. discovery motions earlier this month. Thales was seeking discovery (for use in the Munich proceedings) of Avanci (Northern District of Texas), Ericsson (Eastern District of Texas), and InterDigital (District of Delaware). For instance, on May 4 Thales gave notice that the Delaware action was "dismissed without prejudice, with each party to bear own costs, attorney’s fees, and expenses." The other dismissals were also without prejudice, and there is generally no indication of an agreement having been worked out between the parties along the lines of a license agreement. If anything, there was probably just a procedural agreement to terminate the litigation.

Yesterday afternoon the Munich I Regional Court was able to confirm to me that Thales (Telit) withdrew its antitrust complaint on May 4, 2023. The case was pending before the court's 21st Civil Chamber (Presiding Judge: Dr. Georg Werner).

While Continental was primarily seeking injunctive relief (and is still suing Nokia in Delaware state court, though nothing important has happened there so far), Thales brought a complaint for damages, which was unusual. Whatever the strategy may have been, the net effect is that those automotive supplier lawsuits over component-level SEP licensing are just a waste of resources.

The automotive sector has stepped up its lobbying efforts, which is reflected by the European Commission's proposed SEP Regulation. That bill does not require SEPs to be licensed at a specific level of the supply chain, but the EUIPO may in the end encourage component-level licensing through its recommendations further to the regulation. It is too early to tell whether that will happen, as the legislative proposal is likely to undergo lots of changes in the further process. Given that car-level licensing demonstrably works (by now most car makers have an Avanci license), the case for governmental intervention, even if merely in the form of an official recommendation, is increasingly hard to make. The failure of those lawsuits brought by Conti and Thales also doesn't suggest that there's an actual problem to be solved.

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European Commission focuses on consumers, approves Microsoft's acquisition of Activision Blizzard--subject to commitments--while UK CMA won't be able to defend its miscarriage of justice

As predicted by Reuters and Bloomberg, the European Commission's antitrust division under Executive Vice President Margrethe Vestager has just announced--one week ahead of schedule--its decision to approve Microsoft's acquisition of Activision Blizzard King (ABK) subject to conditions.

Sony's console market theory of harm has been rejected: not a single regulator (other than the FTC) has so far seen any foreclosure risk there. The European Commission has now cleared the transaction based on Microsoft offering free streaming licenses to end users of Activision Blizzard console games and PC games. Technically those are two remedies (one for PC, one for console games), but this is totally consistent with what Microsoft offered to the UK CMA.

Previously, regulators in seven other jurisdictions cleared the transaction unconditionally (in chronological order: Saudia Arabia, Brazil, Serbia, Chile, Japan, South Africa, Ukraine). In late April, an outlier agency--the UK Competition & Markets Authority (CMA)--issued a prohibition decision that goes against the law, the facts, and common sense. Also, the U.S. Federal Trade Commission (FTC) filed a meritless lawsuit in December, but it can't prevent the consummation of the deal without a court order that it realistically won't be able to obtain.

Let's look at the EU ruling first and then discuss what this outcome means in the multijurisdictional scheme of things, particularly with a view to the UK. From here on out, there are various paths to the closing of the deal. If you wish, you can go directly to that part.

EU Commission decision: clearance based on commitments that benefit consumers

The EC's Directorate-General for Competition (DG COMP) conducted a very thorough investigation of the biggest tech acquisition in history. Today's decision is prudent, not paranoid:

After looking at the potential effects of the acquisition on certain markets, the Commission determined that consumers would lose significant benefits if the deal was blocked. In the Commission's assessment, any potential concerns by Microsoft's competitors are more than satisfactorily addressed by Microsoft's commitments, which the EU's competition regulator therefore accepted. That's pragmatic.

In my personal opinion, the seven antitrust authorities that cleared the transaction without requiring any commitments simply got it right. There just is no credible theory of harm here. The games market is and remains highly fragmented. In consoles, Sony is the undisputed market leader and its PlayStation console has several times more exclusive titles than Microsoft's Xbox. Cloud gaming is a means of playing games, and if one wanted to deem it a market, it would at best be a nascent market, a niche for the foreseeable future, and highly dynamic with major new entrants all the time.

But in merger reviews, regulators have one major leverage: time. Even if a blocking decision could be reversed, the closing deadlines typically found in merger agreements cannot be met if additional time is required for an appeal (short of an agreement on an extension).

The commitments that the Commission extracted from Microsoft don't appear onerous. Given that all companies prefer to retain a maximum degree of flexibility, it would be an overstatement to say that DG COMP walked through an open door. That said, those commitments are consistent with Microsoft's public statements about its post-merger intention of bringing more games to more gamers (as opposed to withdrawing games from platforms or withholding them from cloud-gaming services).

What does this mean in the multijurisdictional scheme of things? And particularly for the CMA?

It's hard to overstate the significance of the EU decision. The European Union with its roughly 450 million inhabitants is the third-largest economy in the world (after the U.S. and China), representing approximately one sixth of the global economy. It's about five times as large as the UK economy.

The UK CMA has been investigating such "Texas-size" mergers only for a couple of years (prior to Brexit, the big cases were all handeld in Brussels) while the Commission has been doing so for decades. Another important difference is that DG COMP has multiple industry-focused merger units (org chart (PDF)), one of which (COMP.C.5) focuses on IT, communication, and media industry mergers, while the members of the CMA's Microsoft-ABK inquiry group have zero tech industry background (if anything, they're experts in the financial services industry) and investigate mergers in a wide range of industries.

Experience and expertise clearly make the EU decision a more likely "lodestar" for regulators in other jurisdictions than the one taken by the CMA. The decisions also speak for themselves. The EU ruling reflects pragmatism, a consumer focus, and an open mind. The CMA decision is flawed in law and evidence, biased, arrives at a totally implausible market share for Microsoft in cloud gaming of 70% (even the extremely aggressive class-action lawyers suing Microsoft in San Francisco over this deal did not dare, for fear of sanctions, to claim more than a 40% share). The only beneficiaries of the CMA's unreasonableness are competitors (specifically, complainants Sony and Google) seeking to be shielded from competition.

The European Commission asserts its thought leadership among the world's top three competition watchdogs with today's decision. While the FTC rushed to court in December (hoping to dissuade the EC from working out an agreement with Microsoft) and the CMA issued a blocking decision that won't stand (despite the highly deferential standard of review in the UK), DG COMP has focused on what's the best outcome for competition and innovation. It has demonstrated that if a forceful but constructive regulator negotiates with a constructive acquirer, solutions can be found. The FTC and the CMA try to be part of the problem while the EC strives to be part of the solution.

The Commission is being diplomatic about the EU-UK divergence.

In the build-up to this decision, Mrs. Vestager mentioned at least twice that different jurisdictions could arrive at different conclusions, and she hinted at market-specific differences as a potential reason. But that's just because competition authorities rarely criticize each other's decisions in public. The argument that FIFA Soccer is a particularly popular game in Europe applies to the UK as well.

The net effect is that the CMA looks bad. Extremely bad.

The CMA decision has been--and continues to be--criticized.

There will be even more criticism now that the EU Commission has determined that Microsoft's free-streaming remedy offer is a good one that benefits consumers and protects competition. By contrast, the CMA just wanted to block no matter what and was more focused on competitors with their partly ridiculous claims than on the competitive process (which would actually be its job).

The CMA said it wanted to protect competition in the cloud-gaming market, but companies competing with Microsoft's xCloud in that field would actually like the merger to happen. Nvidia, which is the cloud-gaming market leader with its GeForce NOW service, said after the CMA decision that "cloud gaming providers stand to gain an even deeper catalog of games if Microsoft’s acquisition of Activision is completed." Boosteroid, a European cloud-gaming company, disagrees with the CMA's underlying assumption that Activision Blizzard would make its games widely available on cloud serivces anytime soon and says the CMA is actually slowing innovation.

In a Twitter poll asking gamers who they thought was in the best position to make a legally, economically, and technically accurate decision on this merger, EVP Vestager received 6.5 times as many votes as the CMA's CEO and 7 times as many as the FTC's chair.

I've even lost track of the numerous commentaries in U.S. and UK publications. One article I would like to point to here was written by lawyers from McDermott Will & Emery, a major law firm that is not involved with the case. According to that commentary, the CMA ruling only looks like a traditional foreclosure theory of harm, but in reality it is "the expression of more novel and overall, rather vague concerns over the strengthening of a digital ecosystem" and, above all, "reveals a worrisome stance on behavioral remedies, which have traditionally played an important role in removing vertical concerns."

The real players do not see themselves protected by the CMA decision. The CMA ruling adversely impacts them, resulting in less competition and less consumer choice.

The CMA's approach is met with growing skepticism in the UK.

Reasonable competition enforcement can strengthen an economy. Regulatory excess does the opposite. For instance, for venture investments the most common exit strategy is to sell companies, and the acquirers are often sizable tech companies. Even if they operate internationally, startups tend to have a higher market share in their domestic market, and if you then have a regulator that makes unpredictable and irrational blocking decisions, it's bad for business. Venture investment in London-based companies fell more sharply in the first quarter of this year than in comparable economies:

In the first three months of this year, VC investment in London 🇬🇧 fell 79% to $2.1 billion, according to Dealroom.

Soon UK will be officially closed for business, Thanks to #CMA .#UnblockABK @FOSSpatents #Microsoft #ActivisionBlizzard pic.twitter.com/7FdjGt0fxD

— WolfOfDarkness® (@WolfOfDarknesss) April 30, 2023

Public complaints over the CMA's occasional regulatory overreach were voiced by companies like Motorola Solutions and Deliveroo even before the Microsoft-Activision decision. On Friday, the UK's Prime Minister mentioned the CMA in the wider context of the need for "a regulatory system in the UK that doesn’t get in the way" as British businesses seek to thrive. PM Rishi Sunak said so on LinkedIn, a platform acquired by Microsoft and an example of "Big Tech acquisitions" not necessarily being bad for users.

The "draft strategic steer to the Competition and Markets Authority, 2023" obviously does not allude to particular cases, but the government wouldn't have written it up in the first place if the CMA's leadership had always set the right priorities for Britain's economy. The Sunak Administration wants the CMA to "prioritise outcomes that promote competition, investment, innovation and boost economic growth." Enforcement should focus on markets where there isn't enough competition (obviously a non-issue in gaming) and on "action that addresses cost of living challenges."

Tomorrow (Tuesday) morning, CMA chair Marcus Bokkerink and CEO Sarah Cardell will have to testify before the Business and Trade Committee of the UK Parliament on the CMA's work. I will watch the public part of the meeting and comment on it. Oversight is important, especially when an agency makes aggressive decisions that look like it's out of control. It will be interesting to see how the CMA seeks to justify its outlier decision in the Microsoft-ABK case if questions are asked about that one. It's hard to imagine that the CMA's most controversial decision at the moment would not come up during that hearing.

If that case is indeed mentioned, the CMA can only hope that no one will demand justifications for the unbelievable mistake the agency made in the provisional findings (subtracting only one year of costs from five years of benefits, a mistake the CMA then had to correct by amending its provisional findings). That was an embarrassment not only for the CMA but for the entire UK government: in one of its most important documents ever, a key government agency made a mistake that many eighth-graders would be ashamed of. And after they recognized it, all they did was to import their previously failed theories of harm (a conglomerate/ecosystem theory and a "console gaming services" theory) into the cloud-gaming theory: the epitome of unfairness and irrationality.

It shouldn't take long before the Competition Appeal Tribunal (CATribunal or just CAT) will publish a summary of Microsoft's and Activision Blizzard's appeals.

Microsoft's lead counsel on appeal will be Daniel Beard KC, who has previously defeated the CMA in court, such as in the landmark "Compare the Market" case, where the CMA lost on all grounds but one.

Activision has retained Lord David Pannick KC, a lawyer who represented Queen Elizabeth II and former Prime Minister Boris Johnson ("partygate" scandal). And as The Lawyer reports, Lord Pannick will be supported by Slaughter & May, the firm of which CMA CEO Sarah Cardell used to be a partner.

Presumably the President of the CAT, Sir Justice Marcus Smith (who is also a patent judge), will preside over the appellate proceedings.

I see a very high probability of the CMA decision being quashed on irrationality grounds. It is an irrational decision not only in terms of that being the legal standard for the non-procedural parts of CMA appeals but even in a literal sense. Statistically, the CMA wins 67% of all merger appeals, which means that it does not win the other 33%. Neither is this the average case nor are average lawyers at work. Many merger decisions don't get appealed, or the appeals at least don't reach the decision stage. Regulatory resistance often results in parties changing plans. Here, however, both parties have made unequivocal statements and their actions (the lawyers they've hired) speak louder than words. If they have to extend the merger agreement, they will presumably do so.

There are huge issues with the CMA decisions, and the lawyers representing the appellants are the best in the entire United Kingdom. The CAT will probably overrule the CMA on multiple substantive grounds, in which case it won't even be able to rebuild its (only) theory of harm, given that the CMA cannot ignore the CAT ruling on remand but must heed it. When there are purely procedural decisions, the CMA can arrive at the same result; not so when the issues are substantive and serious.

If the CMA were to act unreasonably on remand, the government could easily overrule it without having to fear the slightest backlash. The CMA is just a government agency. It is not as independent as a court of law.

The EU decision--and the long list of jurisdictions that cleared the merger even unconditionally--won't be precedential for the CAT, but psychologically and politically, it hurts the CMA to be an extremist outlier that claimed to protect competition in cloud gaming but Microsoft's competitors in that field want the CMA decision overturned and the transaction to be consummated.

There are many things that could happen, and many permutations of different scenarios in different jurisdictions, but an isolated CMA is not going to prevent the transaction from consummating. If the CMA had approved the transaction, then after today's EU decision we'd probably have been at a point now where the FTC would have had to seek a preliminary injunction from a federal district court. As Microsoft's U.S. lead counsel acknowledged at a Friday hearing in a class-action-style private litigation, "at this point it would be very difficult to close." She explained to the federal judge that the priority was to get an appellate hearing date. But as jurisdiction after jurisdiction clears the transaction, it's getting lonely around the CMA and its only ally (the FTC).

The CMA can join the competition enforcement mainstream. It can look for an exit strategy. In the alternative, the agency would effectively be working against the Prime Minister's agenda--and the primary beneficiary if companies are scared out of investing in the UK will be the EU. UK politicians are not going to let the CMA's leadership do (more) damage to the country.

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