After Judge Lucy H. Koh of the United States District Court for the Northern District of California granted a motion by the Avanci patent pool to transfer Continental's antitrust case over component-level licensing to the Northern District of Texas, I stopped following the case. Meanwhile, the complaint was amended once, but on Thursday, Chief United States District Judge Barbara Lynn dismissed the entirety of the first amended complaintwith prejudice (this post continues below the document):
20-09-10 Order Dismissing C... by Florian Mueller
The first hurdle for Conti's complaint was Article III standing and ripeness. Judge Lynn did not consider the mere possibility of car makers like Daimler seeking indemnification from Continental to satisfy the ripeness requirement:
"Plaintiff does not allege in the FAC that any OEMs with which it has entered into indemnity agreements have been or will likely be forced to take a non-FRAND license from Defendants. Plaintiff also does not allege that those OEMs will, or even can, pass the costs of those licenses onto Plaintiff through indemnity obligations."
As a litigation watcher I'm in a position to say that Nokia and Sharp (who are among Avanci's co-defendants) are definitely trying hard, through the pursuit of standard-essential patent (SEP) injunctions in Gemany, to coerce Daimler into a license agreement. But I can also understand that the district court would have wanted to see something more than a merely hypothetical possibility of indemnification claims arising from certain Avanci members' unwillingness to license component makers.
What isn't even mentioned in the decision is the fact that Sharp has meanwhile licensed Huawei, which in turn also benefits Continental, but in and of itself shows that
Sharp, unlike Nokia, is willing to extend exhaustive component-level licenses, and
the existence of the Avanci pool indeed doesn't prevent such license deals from being concluded.
The Dallas-based court nevertheless found that Continental had Article III standing on the basis of its allegation that the defendants refused to grant Conti a license. But with indemnification no longer being part of the consideration in the further analysis, the next problem Conti's complaint faced (after easily overcoming the Foreign Trade Antitrust Improvement Act hurdle with respect to foreign patents) was that, in Judge Lynn's opinion, "[t]he anticompetitive conduct allegedly directed at the downstream OEMs does not create an antitrust injury for the upstream TCU suppliers, like Plaintiff." Instead, the court held that OEMs (i.e., car makers in this context) would be the correct parties to complain.
I understand the court's rationale, but I struggle with the result as I find it hard to imagine how a car maker like Daimler could bring an antitrust complaint to the effect of requiring a SEP holder like Nokia to license its suppliers. Daimler could, as it does in Germany, raise an antitrust affirmative defense to infringement cases on that basis. But it's hard to understand how and why the would-be willing licensee (here, Conti) "is not the best entity to bring this antitrust action to vindicate the injury alleged" (which alleged injury, as explained before, was recognized by the court with respect to the refusal to license Conti).
The court's dismissal with prejudice (meaning that Conti can appeal this to the Fifth Circuit, which as the decision notes has limited case law on SEPs, but it's game over in district court now, short of successful defibrillation) is additionally based on a complete disagreement with Conti's federal antitrust theories under the Sherman Act. I'm a frequent critic of Antitrust Assistant Attorney General Makan "Macomm" Delrahim's amicus brief and business review letter campaign favoring SEP abusers and even foreign patent trolls like the Softbank-owned Fortress group, but there's no denying that his activities are impactful. Between the lines of Judge Lynn's decision it's clear that the Justice Department's Antitrust Division strongly influenced the court's thinking and particularly persuaded the judge of the idea that SEP issues aren't really antitrust problems but should be resolved under other laws (contract law, patent law).
The DOJ's statement wouldn't have been needed, however, for the dismissal of Conti's theory that Avanci's members--contrary to what Avanci's contributor agreement actually says--engaged in parallel conduct to the effect of either not licensing component makers or doing so only at the same prices at which the Avanci pool licenses car makers. In this regard, Conti simply had no facts to allege. They wanted a fishing expedition, but by failing at this early stage of proceeding, Conti never got (and probably never will get) the chance to prove that the Avanci group is an anti-component-maker conspiracy.
After dismissing the federal antitrust claims, the court also exercised its discretion not to deal with state claims (contract or state competition law).
Assuming that Conti won't appeal or, more likely, the Fifth Circuit will affirm this dismissal in the event of an appeal by Conti, what does this mean for the automotive patent wars, and for the Avanci pool?
It merely means that a rather ambitious--almost long-shot--attempt by Conti to succeed with a novel attack vector failed.
Neither does this mean that anyone is now going to take an Avanci license as a result of that decision nor that key Avanci members such as Nokia couldn't still face antitrust liability--or simply lose patent infringement actions--over their conduct further down the road.
If Conti's complaint had succeeded, it would have been--depending on what analogy you prefer-- a hole in one or a lucky punch for the automotive industry at large against Avanci. But the automotive industry still has another option: simply to starve Avanci unless and until that pool agrees to grant exhaustive component-level licenses on FRAND terms.
In its current configuration, Avanci must be treated as troll. Don't feed the troll.
Avanci itself can't bring infringement actions. Only its members can--and some are already litigating against Daimler and Tesla. Car makers should just let those Avanci contributors sue, and then defeat them in court. Most of the time, the patents will be invalid or not actually standard-essential. When a patent is held valid and infringed at all, courts will have to adjudicate any FRAND defenses, be they based in contract law (which is how U.S. courts prefer to address the problem) or antitrust law (which is the European way, and the Dusseldorf Regional Court's upcoming referral of key component-licensing questions to the Court of Justice of the EU spells doom for Avanci's current business model). And sometimes the solution will come from negotiation rather than litigation, as Huawei's exhaustive component-level license to Avanci member Sharp's SEPs shows.
Avanci has been around for years, and it only has small-scale license agreements in place. From what I hear, the seemingly largest Avanci deal ever doesn't even include 4G patents. Avanci will be relieved to see the dismissal of Conti's U.S. antitrust action, but that decision doesn't solve a single one of Avanci's fundamental problems.
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