United States District Court, N.D. California, San Jose Division
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO
DISMISS FIRST AMENDED COMPLAINT [RE: ECF 48]
LAB SON FREEMAN United States District Judge.
Funai Electric Company Ltd., Funai Corporation, Inc., Funai
Service Corporation, and P&F USA, Inc. (collectively,
“Funai”) claim that Defendants LSI Corporation
(“LSI”), Agere Systems LLC (“Agere”),
and Avago Technologies General IP (Singapore) Pte. Ltd.
(“Avago”) lied to two different standard setting
organizations (“SSOs”) as part of a scheme to
monopolize the markets for certain technologies. Defendants
represented that if their technologies were incorporated into
standards for wireless Internet connectivity and video
compression, they would license any standard essential
patents on fair, reasonable, and non-discriminatory
(“FRAND”) terms. Funai contends that Defendants
had no intention of honoring that commitment and, in fact,
not only refused to offer Funai FRAND licenses to three
patents Defendants have asserted are standard essential, but
also sued Funai for infringement of those patents. Funai has
responded by suing Defendants under the Sherman Act and state
move to dismiss a number of claims asserted in Funai's
operative first amended complaint (“FAC”) under
Federal Rule of Civil Procedure 12(b)(6). For the reasons
discussed below, the motion is GRANTED IN PART AND DENIED IN
to Funai, Defendants' scheme to monopolize began with
their misrepresentations to two SSOs: the Institute of
Electrical Electronics Engineers (“IEEE”), which
developed what is now a widely practiced standard for
wireless Internet connectivity known as “WLAN, ”
“Wi-Fi, ” or “802.11”; and the
International Telecommunications Union (“ITU”),
which worked with the International Organization for
Standardization and the International Electrotechnical
Commission (“ISO/IEC”) Moving Picture Experts
Group (“MPEG”) to develop what is now a widely
practiced standard for video compression known as
“H.264, ” “MPEG-4 Part 10, ” or
“AVC.” FAC ¶¶ 26, 30-32, 126, ECF 40.
Misrepresentations to the IEEE (802.11 Standard)
IEEE released the initial 802.11 protocol for wireless
Internet connectivity, “legacy 802.11, ” in 1997.
FAC ¶ 29. A number of amendments were released over the
next fifteen years, culminating in the release of the
“802.11” standard in 2012. Id. During
this period, the IEEE had a policy governing intellectual
property rights (“IPR policy”) which might affect
a standard under consideration. Id. ¶¶
33-36, 44-46. That policy required those involved in a
standard's development to disclose ownership of any
patent or patent application that might be essential to the
standard. Id. ¶ 33. Upon such disclosure, the
IEEE requested Letters of Assurance stating either that the
patentee would not enforce such patents against those
implementing the standard or that the patentee would license
such patents without compensation or on FRAND terms.
Id. ¶ 34. If Letters of Assurance were not
provided, the IEEE would revise the standard to incorporate
alternative technologies or would discontinue work on the
standard altogether. Id. ¶ 36.
2003, Defendant Agere and its predecessor in interest, Lucent
Technologies, Inc., submitted Letters of Assurance to the
IEEE, specifically identifying U.S. Patent Nos. 6, 452, 958
('958 patent) and 6, 707, 867 ('867 patent) as
containing one or more claims that may be required to
practice the 802.11e and 802.11g standards. FAC ¶ 38 and
Exh. 1. The Letters of Assurance stated that Agere was
“prepared to grant a license to an unrestricted number
of applicants on a worldwide, non-discriminatory basis and on
reasonable terms and conditions to comply with the [Proposed]
IEEE Standard.” Id. (alteration in original).
Based on those Letters of Assurance, the IEEE released the
802.11 standard and amendments to that standard which
Defendants assert incorporated their patented technology.
Id. ¶ 39. Absent Defendants' Letters of
Assurance, the IEEE either would have revised the standard to
employ alternative technologies instead of Defendants'
technologies or would have stopped working on the standard.
Id. In reliance on the IEEE's standard setting
process and Defendants' Letters of Assurance promising to
license any standard essential patents on FRAND terms, Funai
incorporated aspects of the 802.11 family of standards into
its products. Id. ¶¶ 42, 61-63.
Misrepresentations to the ITU (H.264 Standard)
and ISO/IEC began developing the current video compression
standard's precursor, H.26X, in the 1990s. FAC ¶ 32.
Several amendments were released over the years, culminating
in the release of the H.264 standard. Id. At the
time the H.264 standard was under consideration, the
ITU's IPR policy requested disclosure of any patent or
patent application that might cover elements of the proposed
standard and the licensing of such patents royalty-free or on
FRAND terms. Id. ¶ 45. If a patentee indicated
unwillingness to commit to a royalty-free or FRAND license,
the ITU could take a number of actions, including revising
the standard to remove the potential conflict. Id.
2002, prior to release of the H.264 standard, Defendant
Avago's predecessor in interest, VideoLocus, submitted a
proposal to the ITU recommending that its technology - which
later was disclosed in U.S. Patent No. 6, 982, 663 ('663
patent) - be incorporated into the standard. FAC
¶ 48. Along with the proposal, VideoLocus submitted
licensing declarations promising to license its granted,
pending, or planned standard essential patents on FRAND
terms. Id. ¶¶ 49-50 and Exhs. 2-3. Based
on those licensing declarations, the ITU released the H.264
standard. Id. 51. Absent the licensing declarations,
the ITU either would have revised the standard to employ
alternative technologies instead of Defendants'
technology or would have stopped working on the standard.
Id. In reliance on the ITU's standard setting
process and Defendants' licensing declarations, Funai
incorporated aspects of the H.264 standard into its products.
Id. ¶ 54.
Commitments to MPEG LA (H.264 Standard)
MPEG LA administers license agreements for pools of patents
that are asserted to be essential to certain standards and
technologies. FAC ¶ 55. An entity that takes a license
for a particular patent pool can manufacture and sell
products using any or all of the pooled patents in exchange
for the payment of royalties. Id. ¶ 56. MPEG LA
collects the royalties for the benefit of the various patent
holders who contribute to the patent pool as licensors.
entity takes a license to a patent pool, such entity is
contractually obligated to grant reciprocal licenses to its
own asserted standard essential patents by either (1)
directly granting such licenses to other licensees to the
patent pool or (2) joining the patent pool as a licensor.
Id. ¶ 57. A licensee who grants such a
reciprocal license either directly or by joining the patent
pool receives the same per-patent rate that other licensors
the patent pools administered by MPEG LA is the AVC Patent
Portfolio License, relating to the H.264 standard. FAC ¶
55. Defendant LSI was a licensee to the AVC Patent Portfolio
License as early as October 2009 and as recently as December
2015. Id. ¶ 58. LSI thus was contractually
obligated to grant reciprocal licenses to its asserted
standard essential patents to other licensees to the patent
pool. Id. Funai alleges that LSI has asserted in
legal proceedings that the claims of its '663 patent are
necessarily infringed by use or implementation of the H.264
standard. Id. ¶ 59. Because LSI has asserted
that the '663 patent is standard essential, LSI had a
contractual obligation to grant a reciprocal license to the
'663 patent to other licensees to the AVC Patent
Portfolio License. Id.
Refusal to Offer FRAND Licenses and Commencement of
refused to grant Funai a reciprocal license to the '663
patent as required under the terms of the MPEG LA license.
FAC ¶¶ 93-94. Defendants likewise refused to grant
Funai licenses to the '958, '867, and '663
patents on FRAND terms as required under their commitments to
the IEEE and ITU. FAC ¶¶ 64-71, 85-89. Defendants
have offered to license the '958, '867, and '663
patents to Funai only upon the conditions that Funai pay
exorbitant royalties and take licenses to many of
Defendants' other patents that are irrelevant to
Funai's products or are invalid. Id.
¶¶ 66-68, 86-88.
March 12, 2012, Defendants LSI and Agere filed a complaint
before the United States International Trade Commission
(“ITC Action”) against a number of respondents,
including Funai, asserting infringement of the '958,
'867, and '663 patents and one other patent, the
'087 patent. FAC ¶ 99 and Exh. 5. Defendants sought
to exclude the respondents' allegedly infringing products
from entry into the United States. Id. On the same
date that they filed the ITC action, Defendants filed suit
against Funai in the United States District Court for the
Central District of California (“District Court
Action”), asserting infringement of the same four
patents at issue in the ITC action. Id. ¶ 98
and Exh. 4. The parties stipulated to stay the District Court
Action pending resolution of the ITC Action. Id.
2013, the Administrative Law Judge (“ALJ”)
presiding over the ITC Action determined that Funai did not
infringe any asserted claims of the '958, '867, or
'663 patents. FAC ¶ 101. In January 2014, while the
ALJ's determination was on appeal, Funai and LSI entered
into a license and settlement agreement under which they
released each other from claims of liability relating to the
'087 and '663 patents as of the execution date of the
license and settlement agreement. Id. ¶ 102.
LSI also granted Funai a license to the '087 and '663
patents through September 30, 2015. Id. Based on the
license and settlement agreement, the district court
dismissed with prejudice all claims relating to the '087
and '663 patents. Id. In March 2014, the full
ITC affirmed the ALJ's findings of non-infringement
regarding the '958 and '867 patents and also found
the claims of the '958 patent to be invalid. Id.
¶ 103. In March 2015, the Federal Circuit upheld the
ITC's finding of no violation based on lack of domestic
industry and declined to reach other liability issues.
Id. ¶ 104.
2015, Defendants filed a first amended complaint in the
District Court Action to (1) add Avago as a plaintiff, (2)
add infringement allegations regarding another patent, and
(3) add counts for “Declaratory Judgment for Future
Infringement” regarding the '087 and '663
patents that previously had been dismissed from the case. FAC
¶ 105. Later the same month, Defendants filed a second
amended complaint in the District Court Action. Id.
¶ 106. In September 2015, the District Court Action was
transferred to the Northern District of California, and in
October 2015 Defendants filed a third amended complaint
alleging actual infringement of the '663 patent.
Id. ¶ 108. In December 2015, Defendants filed a
fourth amended complaint again alleging infringement of the
'663 patent. Id. ¶ 109. In February 2016,
Defendants voluntarily dismissed the District Court Action
without explanation. Id. ¶ 110. Defendants
still refuse to offer Funai licenses to the '958,
'867, and '663 patents on FRAND terms.
filed this action on March 11, 2016, and it filed the FAC as
of right on August 29, 2016. The FAC asserts claims for: (1)
violation of Section 2 of the Sherman Act; (2) violation of
California's Unfair Competition Law (“UCL”);
(3) breach of contract based on IEEE FRAND obligations; (4)
breach of contract based on ITU FRAND obligations; (5) breach
of contract based on licensing agreement with MPEG LA; (6)
promissory estoppel; (7) declaratory judgment for
determination of FRAND rate and order requiring Defendants to
offer FRAND license or declaring Defendants' patents to
be unenforceable against Funai; (8) declaratory judgment of
non-infringement of the '148 patent; and (9) declaratory
judgment of non-infringment of the '087 patent.
move to dismiss Claims 1, 2, 4, 5, 6, and 7 in whole or in
motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief can
be granted ‘tests the legal sufficiency of a
claim.'” Conservation Force v. Salazar,
646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro
v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When
determining whether a claim has been stated, the Court
accepts as true all well-pled factual allegations and
construes them in the light most favorable to the plaintiff.
Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681,
690 (9th Cir. 2011). However, the Court need not
“accept as true allegations that contradict matters
properly subject to judicial notice” or
“allegations that are merely conclusory, unwarranted
deductions of fact, or unreasonable inferences.” In
re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th
Cir. 2008) (internal quotation marks and citations omitted).
While a complaint need not contain detailed factual
allegations, it “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.'” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is
facially plausible when it “allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.” Id.
Claim 1 for Violation of Section 2 of ...