The opinion of the court was delivered by: Hayes, Judge
The matter before the Court is the Motion to Dismiss Broadcom's Complaint (Doc. # 25) filed by Defendant Qualcomm Incorporated.
This action arises out of allegations that Defendant Qualcomm Incorporated ("Qualcomm") used exhausted patents as leverage to control post-sale use of products in the wireless-communications device industry and to suppress competition in the wireless industry. On October 7, 2008, Plaintiff Broadcom Corporation ("Broadcom") initiated this action by filing the Complaint, which is the operative pleading in this case (Doc. # 1).
A. Factual Allegations of the Complaint
Broadcom is a supplier of semiconductor chipsets for wired and wireless broadband communications. Complaint, ¶ 12. Qualcomm is also a supplier of chipsets for mobile wireless communications. Id. ¶ 13. Qualcomm possesses over six thousand U.S. patents and patent applications relating to wireless technology, including patents with claims covering wireless chipsets and handsets. Id., Exhibit B, p. 3.
Qualcomm is in the business of developing and selling its own chipsets to wireless handset makers. Id. ¶ 16. Qualcomm chipset sales are made pursuant to "Component Supply Agreements," which require that handset makers pay Qualcomm an agreed-upon price for the chipsets sold by Qualcomm, and that buyer-handset makers may only incorporate the chipsets purchased from Qualcomm into fully assembled handsets that are the subject of a Subscriber Unit License Agreement ("SULA") between Qualcomm and the handset maker. Id. ¶ 17. The SULA limits the ultimate use of the chipsets "to incorporation into Qualcomm-licensed handsets." Id. Under the SULAs, "Qualcomm receives a royalty on the handset sale, and/or other consideration. Qualcomm thereby receives both the sales price of a chipset and a royalty on the handset into which the chipset is incorporated." Id. ¶ 18.
In addition to making its own chipsets, Qualcomm is also in the business of licensing a portfolio of patents to other chipset manufacturers pursuant to Application Specific Integrated Circuits Patent License Agreements ("APLAs"). Id. ¶ 19. "An APLA between Qualcomm and another chipset manufacturer typically provides the chipset manufacturer with the right to make or have made its own chipsets incorporating Qualcomm's intellectual property;" and grants the chipset manufacturer the right to sell the chipsets made pursuant to the license. Id. ¶ 20. The APLAs provide that the chipsets may only be sold to "Authorized Purchasers," which are handset manufacturers that themselves have a license from Qualcomm through a SULA. Id.
The chipset-manufacturer licensees thus must agree, as a condition of the license, to funnel chipsets sold under the license into Qualcomm's double-recovery scheme--with Qualcomm paid twice for any patents substantially embodied in the APLA licensee's chipsets. First, the chipset manufacturer pays a royalty (or provides other consideration) under the APLA. Second, the handset maker pays a royalty (or provides other consideration) under the SULA. Id. ¶ 21.
"A basic premise of Qualcomm's licensing model is that when Qualcomm authorizes sales of chipsets--including by selling chipsets itself--no Qualcomm patents are exhausted by these sales." Id. ¶ 22. However, this "basic premise is false;" Qualcomm's authorized sales of chipsets do "exhaust all rights to all patents substantially embodied by those chipsets." Id. ¶ 23. Qualcomm has over-asserted its patent rights through relying on its exhausted patent rights to collect royalties on chipsets, and by asserting its exhausted patent rights through infringement actions against other non-Qualcomm-licensed chipset manufacturers such as Broadcom. Id. ¶¶ 23-28.
Qualcomm has impermissibly broadened the scope of its patent rights, both with regard to its own chipsets and with regard to other companies' chipsets incorporated into SULA-licensed handsets. In so doing, Qualcomm has created anticompetitive effects in the chipset and handset markets. Id. ¶ 29. "[A]t least certain SULA licenses contain discriminatory terms that favor use of Qualcomm's chipsets over its competitors' chipsets," which "influences handset manufacturers' chipset purchases, moving them away from companies such as Broadcom and toward Qualcomm." Id. ¶ 30. Qualcomm has also "placed a cloud of potential infringement claims over Broadcom's chipset business, which . . . has harmed Broadcom's chipset business." Id. ¶ 31. "Qualcomm has presented Broadcom with an unfair and coercive choice between accepting Qualcomm's chipset-manufacturer license terms -- and thereby participating in Qualcomm's illegal double-recovery scheme -- or conducting business under the shadow of potential infringement suits by Qualcomm." Id. ¶ 33.
The Complaint asserts the following claims for relief: (1) declaratory judgment of patent misuse; (2) declaratory judgment of patent exhaustion; (3) declaratory judgment of patent unenforceability and license unenforceability.
In support of the first claim for relief, the Complaint alleges that "Qualcomm has engaged, and continues to engage in, misuse of the Qualcomm patents that are exhausted by Qualcom-authorized sales of chipsets (including by Qualcomm itself) or handsets (by Qualcomm's SULA licensees)." Id. ¶ 35. The first claim for relief requests a judicial declaration that (1) "Qualcomm has misused its claimed patent rights to obtain market benefits beyond what inheres in the statutory patent right, with significant anticompetitive effects;" (2) "Qualcomm has misused, and continues to misuse, Qualcomm patents that are exhausted by the sale of Qualcomm chipsets and/or exhausted by the sale of SULA-licensed handsets;" (3) "the patents that are or have been substantially embodied by Qualcomm chipsets and/or ...