Thursday, December 22, 2016

Apple brings antitrust action against Acacia over patents obtained from Nokia


PatentlyApple has a post Apple Files a Major Antitrust Case against Acacia Research Corporation Pointing to a Conspiracy with Nokia Corporation which presents a complaint filed by Apple in federal ND Cal against Acacia (and others) asserting antitrust violations.

The action involves "standard essential patents" acquired by non-practicing entities (also known as patent assertion entities [PAE]) from Nokia which were the subject of FRAND agreements:


This conduct is all the more pernicious because it unfairly and anticompetitively evades binding commitments that Nokia made to license declared standard essential patents ("SEPs") on fair, reasonable, and non-discriminatory ("FRAND") terms. Nokia positioned itself to claim that its patents cover technologies included in telecommunications standards by repeatedly assuring standard-setting organizations that it would license its patents fairly. Yet Acacia and Conversant are now conspiring with Nokia in a scheme to diffuse and abuse such patents and, as the PAEs and Nokia fully intended, monetize those false promises by extracting exorbitant non-FRAND royalties in ways Nokia could not.



Apple's complaint has five counts:


Count #1: Breach of FRAND Contract



Count #2: ACACIA-NOKIA, CORE WIRELESS-NOKIA AGREEMENTS to Restrain Competition in Cellular Technology Licensing (Section 1 of the Sherman Act).



Count #3: Unlawful Asset Acquisition (Section 7 of the Clayton Act)



Count #4: Conspiracies to Monopolize the SEP TECHNOLOGY MARKETS (section 2 of the Sherman Act)



Count #5: Unfair Competition under Cal. Bus. & Pro. Code § 17200



The relief requested includes:



E. That all contracts or agreements that Nokia, on the one hand, and or Acacia or Conversant, on the other, entered into in violation of the Sherman Act, Clayton Act, Cal. Bus. Prov. Code § 17200, et seq., or in breach of Nokia's FRAND undertakings be declared void and the patents covered by those transfer agreements be transferred back from Acacia and Conversant (or their respective subsidiaries) to Nokia;



F. That all patents transferred by Nokia to, or acquired by, Acacia or Conversant (or their respective subsidiaries) in violation of the Sherman Act, Clayton Act, Cal. Bus. Prof. Code § 17200, et seq., or in breach of Nokia's FRAND undertakings be declared unenforceable;



On 21 December 2016, Joe Mullin wrote on Ars Technica:


Just yesterday, Apple filed an antitrust lawsuit (PDF) against Nokia in federal court in San Jose. In it, Apple accused the Finnish company of transferring "massive numbers of patents" to patent assertion companies like Acacia. Nokia reached a deal with "each of its PAE co-conspirators" to separately enforce a diffused patent portfolio, "to maximize the aggregate royalties that can be extracted from product companies," Apple lawyers allege. "Nokia and those PAEs have thereby increased market power and created or enhanced monopoly power associated with those patents."

Apple claims that Nokia's strategy of working with PAEs to stack up big royalty payments is a violation of US antitrust laws, as well as a breach of contract. The breach of contract claim says that Nokia violated its commitments to license certain standard-essential patents on a FRAND (fair, reasonable, and non-discriminatory) basis.



As to "market power" and "monopoly power," the Apple complaint acknowledges that Nokia and the PAEs are not producing participants in the cell phone market:


Acacia's and Conversant's illegal conduct takes place against the backdrop of Nokia's failure as a supplier of cell phones. In 2011, Nokia remained a major supplier of cell phones, but, due to its failure to innovate, was facing business prospects so dire that Nokia ultimately exited the cell phone market. As Nokia's CEO had announced to employees the previous year, Nokia was standing on "a burning platform." Unable to compete with innovative companies such as Apple—which had developed a revolutionary hardware and software platform—Nokia quickly transformed itself. It changed from a company focused on supplying cell phones and other consumer products to a company bent on exploiting the patents that remain from its years as a successful cell phone supplier. In its changed form, Nokia has sought to extract exorbitant patent royalties from Apple and other cell phone makers, and Acacia and Conversant have been its willing conspirators to that end.



Some background discussion of SEPs and FRAND can be found in

**
http://www.cardozo.yu.edu/what-%E2%80%9Cfrand%E2%80%9D-all-about-licensing-patents-essential-accepted-standard

http://www.iam-media.com/intelligence/IAM-Yearbook/2016/Country-by-country/Latest-developments-in-FRAND-and-SEP-litigation

**

Note the Microsoft/InterDigital matter.
link: http://www.essentialpatentblog.com/2016/04/judge-andrews-permits-microsofts-sep-based-antitrust-claims-interdigital-proceed-microsoft-v-interdigital/

Some relevant issues were discussed in CSU v. Xerox, wherein CSU had alleged a Section 2 Sherman Act violation:

The CAFC interpreted prior case law and Section 271(d) of the Patent Act, 35 U.S.C. 271(d),3 to establish that a patent holder generally has no obligation to license or sell its intellectual property, and that privilege is not negated by the antitrust laws. The CAFC did note three exceptions. First, a suit to enforce the statutory right to exclude is not exempt from the antitrust laws if the infringement defendant shows that the patent was obtained through fraud on the Patent and Trademark Office. Second, an infringement defendant may avoid liability by demonstrating that the infringement suit is a sham to cover an attempt to interfere with the business relations of a competitor. Third, the court of appeals noted (id. at 8a) that, in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 457, 479-480 n.29 (1992) (Kodak), this Court stated that "power gained through some natural and legal advantage such as a patent, . . . can give rise to liability if a seller exploits his dominant position in one market to expand his empire into the next."

In the Apple/Acacia case, Acacia is not a competing producer of phones, nor, at the moment, is Nokia. There is no assertion in the complaint that fraud on the patent office happened. The CAFC-noted exceptions don't apply. Recall also that the Supreme Court in Illinois Tool had noted: "a patent does not necessarily confer market power upon the patentee."

The issue turns on the FRAND obligations undertaken by Nokia which devolved to Acacia. Is this simply a contract case? Or does a violation of an obligation under FRAND transform this to a federal antitrust case?


***

Of relevant past cases, note

* Apple v. Motorola, 2011 U.S. Dist. LEXIS 72745 (WD Wisc)


To state a claim for patent misuse, Apple must allege facts showing that Motorola has employed anticompetitive practices in an effort to extend its patent grant beyond its statutory limits. USM Corp. v. SPS Technologies, Inc., 694 F.2d 505, 510 (7th Cir. 1982); see also Princo Corp. v. International Trade Commission, 616 F.3d 1318, 1328 (Fed. Cir. 2010) ("What patent misuse is about, in short, is 'patent leverage,' i.e., the use of patent power to impose overbroad conditions on the use of the patent in suit that are not within the reach of the monopoly granted by the Government.") As explained in the context of Apple's antitrust claims above, Apple's allegations support an inference that the license Motorola seeks to impose on Apple extend beyond the reach of a lawful patent monopoly. This is sufficient to state a claim for patent misuse.

To survive a motion to dismiss on a promissory estoppel claim, Apple must plead that Motorola made a promise that it should have reasonably expected to cause Apple to change its position, and that the promise caused Apple to change position in such a manner that injustice can be avoided only by enforcing the promise. Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683, 693-94 133 N.W.2d 267, 273-74 (1965). Motorola contends that Apple's promissory estoppel claim should be dismissed as inadequately pleaded because Apple has not alleged that Motorola made any promise to Apple. I disagree.

Apple alleges that Motorola made promises to the standards setting organizations through its commitments that it would license any essential patents under fair, reasonable and non-discriminatory terms. Apple's Cpt., dkt. #1, ¶¶ 27-45; 118. Apple alleges that the intended purpose of Motorola's promises was to induce reliance and that Motorola "knew or should have reasonably expected that this promise would induce sellers of mobile wireless devices, like Apple, to develop products compliant with the relevant standards." Id. ¶ 119. Apple alleges that it "invested billions of dollars in the applicable technology and developed and marketed its products and services in reliance on Motorola's (and others') promises . . . including designing its products and services to be compliant with adopted standards." Id. ¶ 120. Finally, Apple alleges that it has been harmed as a result of its reasonable reliance on Motorola's promises and is threatened by loss of profits, customers, goodwill and product image, uncertainty in business planning and uncertainty among customers and potential customers. These facts are sufficient to state a claim for promissory estoppel.



* Multimedia Patent Trust v. Apple, 2012 U.S. Dist. LEXIS 167479 (SD Cal, opinion by Judge MARILYN L. HUFF)


MPT moves for summary judgment of Apple and LG's affirmative defense of standards settings organizations estoppel. (Doc. No. 426 at 13.) Specifically, MPT argues that Apple and LG have failed to present evidence showing which entity or entities owed an alleged duty of disclosure to a standard setting organization. (Doc. No. 426 at 13.) In response, Apple and LG argue that they have presented evidence showing that MPT's predecessors-in-interest were members of standards setting bodies relating to the MPEG-2 standard and the H.264 standards. (Doc. No. 478 at 12-14.)

"A member of an open standard setting organization may be equitably estopped or may have impliedly waived its right to assert infringement claims against standard-compliant products." Hynix Semiconductor Inc. v. Rambus Inc., 645 F.3d 1336, 1347-48 (Fed. Cir. 2011). To establish an affirmative defense of waiver or estoppel in the standard setting organization context, a defendant must satisfy two elements: "(1) the patentee had a duty of disclosure to the standard setting organization, and (2) the patentee breached that duty." Id. at 1348.

In response to MPT's motion, Apple and LG have presented evidence from which a reasonable inference could be drawn that MPT's predecessors-in-interest were members of the standards setting bodies for the MPEG-2 and H.264 standards and participated in standards setting activity for those two standards. (Doc. No. 478, Declaration of Justin Barnes Exs. H-I.) Apple and LG also have also presented evidence from which a reasonable inference could be drawn that those two standard setting bodies required their members to disclose patents that might reasonably be necessary to practice those standards. (Id.) Therefore, Apple and LG have presented sufficient evidence to allow their defense of standards setting organization estoppel to survive summary judgment.




Of law review articles, note

* Daryl Lim, PATENT MISUSE AND ANTITRUST: REBIRTH OR FALSE DAWN?, 20 Mich. Telecomm. Tech. L. Rev. 299 (2014) :



Patent misuse is an extension of the equitable doctrine of unclean hands where courts exercising their discretion will deny enforcement even if infringement is found. n25 It acts as a public injunction against abuses of the privilege granted under patent law, and balances public and private interests. n26 [p. 309] Examples of patent misuse include tying, n27 package licensing, n28 and horizontal price-fixing n29 and territorial allocations n30 under the guise of sham patent licenses. n31

A judge finding patent misuse has the discretion to withhold damages or injunctive relief even if the patents themselves have not yet been enforced. n32 The patents in question are rendered unenforceable until the effects of the misuse have been purged. n33 Purging requires patentees to show that they have completely abandoned the misconduct, and that their "baleful effects" have dissipated. n34



* Daryl Lim, MISCONDUCT IN STANDARD SETTING: THE CASE FOR PATENT MISUSE, 51 IDEA 559 (2011).

Lim states of acknowledgements: I am grateful to William Kovacic, Hugh Hansen, Stuart Loh, Mark Lemley, and Herb Hovenkamp for their helpful comments and encouragement.

From footnote 197


See, e.g., Apple Inc.'s Second Amended Answer, Defenses, and Counterclaims, Nokia Corp. v. Apple, Inc., No. 2011 WL 495957 (D. Del., February 11, 2011) ("Nokia's demand for a reciprocal 'grantback' license to Apple's non-standards-essential patents as a condition for licensing Nokia's purported essential patents at a F/RAND royalty rate constitutes misuse of Nokia's purported essential patents."); see also Oliver, supra note 153, at 67 ("It would appear that neither subsequent enforcement of patent A minus the grantback obligation nor subsequent enforcement of patent B would constitute patent misuse under Princo, although the conduct might constitute an antitrust violation.")



Within Lim's conclusion:


Patent misuse is ultimately a judge-made doctrine, and its vitality rests upon the will of those shaping it. The antitrust analysis placed upon the patent misuse doctrine by the Federal Circuit provides a principled and robust means of developing the doctrine according to contemporary economic analysis to curb anticompetitive conduct. At the same time, patent misuse's origins in patent policy endows it with sufficient suppleness in the hands of the expert judicial panels at the Federal Circuit to craft it within clearly defined guidelines and preserve an equitable instrument well attuned to the needs of the patent community and the wider public which it serves.



*Cole, Horton and Vacca, FOOD FOR THOUGHT: GENETICALLY MODIFIED SEEDS AS DE FACTO STANDARD-ESSENTIAL PATENTS, 85 U. Colo. L. Rev. 313 (2014)


A standard, most often seen in technology-based industries, is "any set of technical specifications that either provides or is intended to provide a common design for a product or process." n247 Standards serve useful purposes because they encourage interoperability, facilitate competition in replacement parts, and even promote social welfare. n248

(...)

Before SSOs [Standard Setting Organizations] adopt standards covered by SEPs, they frequently require the owners of those patents to commit to licensing their patents under reasonable and non-discriminatory (RAND) terms. n260 This is because adoption of an SEP could endow the patent owner with disproportionate market power and permit it to "extract unreasonably high royalties from suppliers [and users] of standard-compliant products and services." n261 Requiring RAND licensing protects adopters and users of the standard from paying extraordinarily high fees when there are no realistic opportunities to produce the product or provide the service without infringing the patent. n262 This RAND licensing requirement is commonplace. n263

But not all standards are created by SSOs. n264 De facto [*351] standards may also emerge as a result of consumer preference. n265 If a de facto standard emerges and is covered by a patent, then the patent becomes a de facto standard-essential patent (de facto SEP). The owner of the de facto SEP, like the owner of the de jure SEP, may have increased market power.

There should be no difference between the rights and responsibilities that arise from the creation of a de jure SEP and a de facto SEP. In particular, where patented technology necessary for the satisfaction of a human need reaches SEP status, a license should be implied between the patentee and those users who cannot practicably fulfill the need without infringing the patent. This type of implied license would, like other licenses, be an affirmative defense. n266 If established, this implied license would remove the possibility of inflating damages for deterrent or punitive effect and remove the possibility of granting injunctions.


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