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In re Qualcomm Litigation

United States District Court, S.D. California

November 8, 2017

IN RE QUALCOMM LITIGATION,

         ORDER REDACTED ORDER: (1) GRANTING IN PART AND DENYING IN PART APPLE'S MOTION TO DISMISS COUNT X OF QUALCOMM'S FIRST AMENDED COUNTERCLAIMS (2) GRANTING QUALCOMM'S MOTION FOR PARTIAL DISMISSAL OF APPLE'S FIRST AMENDED COMPLAINT (3) GRANTING QUALCOMM'S MOTION FOR PARTIAL DISMISSAL OF CONTRACT MANUFACTURERS' COUNTERCLAIMS

          Hon. Gonzalo P. Curie, United States District Judge

         Presently before this Court are: (1) Apple's Partial Motion to Dismiss Qualcomm's First Amended Counterclaims (Dkt. No. 77); (2) Qualcomm's Motion For Partial Dismissal of Apple's First Amended Complaint (Dkt. No. 100); and (3) Qualcomm's Motion for Partial Dismissal of the Contract Manufacturer's[1] Counterclaims (Dkt. 116, Case No. 3:17-cv-1010-GPC-MDD). These motions have been fully briefed. On October 13, 2017 the Court heard oral argument as to all three motions to dismiss.

         For the reasons set forth below, the Court will: (1) GRANT in part and DENY in part Apple's Motion to Dismiss Count X of Qualcomm's Counterclaims with Leave to Amend; (2) GRANT Qualcomm's Motion to Dismiss the Additional Patents-in-Suit in Apple's First Amended Complaint with Leave to Amend; (3) GRANT Qualcomm's Motion to Dismiss the Additional Patents-in-Suit in the Contract Manufacturers' Counterclaims with Leave to Amend.

         I. PROCEDURAL HISTORY

         On July 21, 2017, Counterclaim-Defendant Apple Inc. (“Apple”) filed its Partial Motion to Dismiss Count X of Counterclaim-Plaintiff Qualcomm's First Amended Counterclaims. Dkt. No. 77 (“MTD-1”). Qualcomm filed an opposition on August 9, 2017, and Apple filed its reply on September 5, 2017. Dkt. Nos. 112, 131.

         On August 8, 2017, Defendant Qualcomm filed a Motion for Partial Dismissal of Apple's First Amended Complaint which seeks to dismiss for lack of declaratory judgment jurisdiction nine patents-in-suit that were added in Apple's First Amended Complaint and are described in Paragraphs 148-56. Dkt. No. 100 (“MTD-2”). Plaintiff Apple filed an opposition on August 18, 2017 and Qualcomm filed a reply on September 1, 2017. Dkt. Nos. 119, 127. On August 8, 2017, Counterclaim-Defendant Qualcomm filed a Motion for Partial Dismissal of the Contract Manufacturers' Counterclaims, which seeks to dismiss for lack of declaratory judgment jurisdiction the same nine patents-in-suit at issue in their Dkt. No. 100 motion to dismiss. Dkt. No 116, Case No. 3:17-cv-1010-GPC-MDD (“MTD-3”). The Contract Manufacturers, the Counterclaim-Plaintiffs, filed a response on September 1, 2017. Dkt. No. 129, Case No. 3:17-cv-1010-GPC-MDD. Qualcomm filed a reply on September 13, 2017. Dkt. No. 146.[2]

         On January 20, 2017, Apple filed its Complaint. Dkt. No. 1. The Court denied Qualcomm's motion for an anti-suit injunction seeking to stay international litigation on September 7, 2017. Dkt. No. 141. The Court also denied Qualcomm's request for a preliminary injunction against the Contract Manufacturers. Dkt. No. 138, Case No. 3:17-cv-1010-GPC-MDD. On September 13, 2017, the Court granted Apple's motion to consolidate the case with Case No. 3:17-cv-01010. Dkt. No. 144.

         II. MOTION TO DISMISS STANDARD

         a. 12(b)(1)

         Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a defendant may seek to dismiss a complaint for lack of jurisdiction over the subject matter. The federal court is one of limited jurisdiction. See Gould v. Mutual Life Ins. Co. v. New York, 790 F.2d 769, 774 (9th Cir. 1986). As such, it cannot reach the merits of any dispute until it confirms its own subject matter jurisdiction. See Steel Co. v. Citizens for a Better Environ., 523 U.S. 83, 95 (1998). Plaintiff, as the party seeking to invoke jurisdiction, has the burden of establishing that jurisdiction exists. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).

         A case that lacks Article III standing must be dismissed for a lack of subject matter jurisdiction. See Maya v. Centex Corp., 658 F.3d 1060, 1066-67 (9th Cir. 2001). Since standing is essential to a federal court's subject matter jurisdiction, the issue of standing is properly raised in a Rule 12(b)(1) motion to dismiss. Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010).

         a. 12(b)(6)

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is proper where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balisteri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To survive a motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). While a plaintiff need not give “detailed factual allegations, ” a plaintiff must plead sufficient facts that, if true, “raise a right to relief above the speculative level.” Id. at 545. “[F]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content, ' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

         In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions, however, need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Moreover, a court “will dismiss any claim that, even when construed in the light most favorable to plaintiff, fails to plead sufficiently all required elements of a cause of action.” Student Loan Mktg. Ass'n v. Hanes, 181 F.R.D. 629, 634 (S.D. Cal. 1998).

         III. Apple's Motion to Dismiss Qualcomm's First Amended Counterclaims

         Apple seeks to dismiss Count X of Qualcomm's First Amended Counterclaims pursuant to Rule 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and California Business & Professions Code Section 17204. MTD-1.

         A. Background

         On September 16, 2016, Apple released two versions of the iPhone 7. Qualcomm's First Amended Counterclaims (“Counterclaims”), ECF No. 70 ¶ 238.[3] Each iPhone contains a baseband processor chipset, which allows the iPhone to connect to cellular networks. Id. ¶¶ 134, 136-37. iPhone 7's on certain networks such as AT&T have Intel chipsets. Id. ¶¶ 239, 246. iPhone 7's on other networks such as Verizon have Qualcomm chipsets. Id. From 2007 to 2010, Apple relied exclusively on chips made by Infineon, which Intel acquired in 2011. Id. ¶ 136. Between 2011 until Fall 2016, Qualcomm was the only cellular chipset supplier for new iPhones. Id. ¶ 239. The Qualcomm-based iPhone 7 can reach download speeds up to 600 megabits per second. Id. ¶ 240. The Intel-based iPhone 7 can only reach download speeds up to 450 megabits per second. Id.

         Qualcomm alleges that in order to create “artificial parity” between the Qualcomm-based iPhone 7 and the Intel-based iPhone 7, Apple decided not to utilize capabilities in the Qualcomm-based phones that could increase download speeds by 25% or 150 megabits per second. Id. ¶ 241. Due to this decision, Qualcomm-based iPhone 7's run at speeds closer to Intel-based iPhone 7's, but Qualcomm-based iPhone 7's appear to still perform better than Intel-based iPhone 7's. Id. ¶¶ 241, 244. Qualcomm asserts that the decision not to use the enhanced features prevented a more capable iPhone 7 from reaching the market, thereby potentially impeding efficiency of other users on the network leading to an inefficient allocation of bandwidth across a cellular network. Id. ¶ 242.

         Qualcomm asserts that Apple made explicit threats to force Qualcomm not to reveal the disparity between the iPhones. Apple “made clear to Qualcomm” that disclosure of the chip set disparity would jeopardize Qualcomm's business prospects of selling future chipsets to Apple, and would “severely impact Qualcomm's standing as a supplier to Apple.” Id. ¶ 243. In an August 2016 call, an Apple executive allegedly told a Qualcomm executive that Apple would use its marketing organization to “retaliate against Qualcomm” if Qualcomm publically compared the performance of the Qualcomm-based and Intel-based iPhones. Id.

         Further, Qualcomm alleges that independent studies showed significant performance disparities between the Intel and Qualcomm versions of the iPhone 7. Id. ¶ 245. A November 18, 2016 Bloomberg article[4] reported that the Verizon iPhone 7, which uses Qualcomm's X12 chipset, was faster than the Intel-based AT&T version of the iPhone 7, but was still “not as fast as it could be.” Id. ¶ 246. The same article found that the Samsung Galaxy S7, which utilizes the full capabilities of the Qualcomm X12 chipset, is twice as fast as a Qualcomm-based iPhone 7. Id. ¶ 247.

         Apple publically denied the performance disparity stating that “there [were] no discernible difference[s] in the wireless performance of any of the models.” Id. ¶ 248. Qualcomm asserts that absent Apple's conduct, their chipsets would be in higher demand and Qualcomm would have been able to sell more chips to Apple to meet that demand. Id. ¶ 250.

         B.UCL - Standing and Actual Reliance

         “[T]o state a claim for a violation of the [California UCL], a plaintiff must allege that the defendant committed a business act that is either fraudulent, unlawful, or unfair.” Levine v. Blue Shield of Cal., 189 Cal.App.4th 1117, 1136 (2010). Each adjective captures a “separate and distinct theory of liability.” Rubio v. Capital One Bank, 613 F.3d 1195, 1203 (9th Cir. 2010) (internal marks omitted). The UCL is “intentionally broad to give the court maximum discretion to control whatever new schemes may be contrived, even though they are not yet forbidden by law.” People ex. rel. Renne v. Servantes, 86 Cal.App.4th 1081, 1095 (2001). A claim “grounded in fraud” must satisfy the heightened pleading requirements to plead with particularity under Rule 9(b). Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir. 2003). In cases where some fraudulent and some non-fraudulent conduct is alleged, only the allegations of fraud are subject to Rule 9(b)'s heightened pleading requirements. Id. at 1104.

         The UCL imposes an actual reliance requirement on plaintiffs who bring a UCL action based on a fraud theory, because “reliance is the causal mechanism of fraud.” Heartland Payment Sys., Inc. v. Mercury Payment Sys., LLC, No. 14-cv-0437-CW, 2015 WL 3377662, at *6 (N.D. Cal. Feb. 24, 2015). Plaintiffs must allege their own reliance on alleged misrepresentations, rather than the reliance of third parties. See, e.g., O'Connor v. Uber Techs., Inc., 58 F.Supp.3d 989, 1002 (N.D. Cal. 2014) (“UCL fraud plaintiffs must allege their own reliance-not the reliance of third parties-to have standing under the UCL.”)

         In Count X, Qualcomm alleges that Apple violated the UCL through three theories- (1) attempting to cover up performance differences between Qualcomm and Intel-based iPhone 7's; (2) publicly claiming there was “no discernible difference” between these models; and (3) threatening Qualcomm to prevent consumers from insisting on the superior Qualcomm-based iPhones. Counterclaims ¶ 383. In its opposition, Qualcomm appears to have narrowed its claim only to the third assertion that Apple threatened Qualcomm with retaliation and relies tangentially on the other assertions as support for the threat theory. Opp-1 at 1, 7-8.

         The Court finds that Qualcomm's first two bases for a UCL claim, to the extent they remain at issue, are “premised on a fraud theory” involving misrepresentations and omissions. See, e.g., Counterclaim ¶ 243 (“Apple concealed the superiority of the Qualcomm-Based iPhone 7”); id. ¶ 248 (“an Apple spokesperson falsely claimed that there was no difference between the Qualcomm-based iPhones and the Intel-based iPhones.”). Consequently, Qualcomm must allege reliance “irrespective of whether the claims are asserted under the fraud prong or the unfair prong of the UCL.” L.A. Taxi Cooperative v. Uber, 114 F.Supp.3d 852, 867 (N.D. Cal. 2015).

         Qualcomm has not adequately pled with specificity facts indicating its own reliance on any alleged Apple omission or misrepresentation. Qualcomm was always aware of the superiority of its chips before the launch of the iPhone 7 and discussed public disclosure of this fact with Apple before the iPhone 7's launch date. Counterclaims ¶¶ 239-240, 243, 248. As a result, because Qualcomm has not plead its own reliance on a misrepresentation and cannot rely on the third-party reliance of Apple's customers, Qualcomm lacks standing under the UCL to bring these claims. See L.A. Taxi, 114 F.Supp.3d at 866-87.

         However, the Court finds that Qualcomm's UCL claim based on Apple's alleged threats is not based in on a theory of fraud because it does not involve a misrepresentation or omission. See Vess, 317 F.3d at 1103 (for a claim to sound in fraud, the claim must allege a misrepresentation (false representation, concealment, or nondisclosure)); id. (finding that Plaintiff's allegations did not rely entirely on unified fraudulent course of conduct and that specific claims were not “grounded in fraud”). As a result, the Court will analyze whether Apple's alleged threats to Qualcomm were “unfair” under California's UCL.[5] The Court will also assess whether Qualcomm has adequately alleged statutory standing under California Business and Professions Code Section 17204.

         Accordingly, the Court GRANTS Apple's Motion to Dismiss Count X as to the theories that (1) Apple attempted to cover up the performance differences between the Qualcomm and Intel phones and (2) Apple publically misrepresented that there was no “discernible difference” between the phones.

         C. Statutory Standing Under Section 17204

         To satisfy statutory standing, a party must (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim. Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 322 (2011) (citing California Business and Professions Code § 17204). Proposition 64 established the requirement that plaintiffs alleging UCL claims must demonstrate some form of economic injury. Id. at 323. The California Court has held that there are “innumerable ways in which economic injury from unfair competition may be shown.” Id. The quantum of injury necessary to satisfy this requirement requires only that plaintiff “allege some specific ‘identifiable trifle'” of injury. Id. (citations omitted). The notion of “lost money” under the UCL is not limited and “loss of business to a competitor as a result of unfair competition is a paradigmatic, and indeed the original, variety of loss contemplated by the UCL.” AngioScore Inc. v. TriReme Medical, LLC, 70 F.Supp.3d 951, 962 (2014) (citing Law Offices of Mathew Higbee v. Expungement Assistance Servs., 214 Cal.App.4th 544, 561 (2013)). At the pleading stage, general allegations of injury resulting from the defendant's conduct are sufficient because on a motion to dismiss the court “presume[s] that general allegations embrace those specific facts that are necessary to support the claim.” Kwikset, 51 Cal.4th at 328. See also Hinojos v. Kohl's Corp., 718 F.3d 1098, 1104-05 n.4 (9th Cir. 2013); A.P. Deauville, LLC v. Arion Perfume & Beauty, Inc., No. C14-03343 CRB, 2014 WL 7140041, at *5 (N.D. Cal. Dec. 12, 2014).

         The requirement that the party asserting standing under the UCL lose money or property as a result of unfair competition “imposes a causation requirement.” Lorenzo v. Qualcomm Inc., No. 08CV2124 WQH LSP, 2009 WL 2448375, at *5 (S.D. Cal. Aug. 10, 2009) (citing Hall v. Time Inc., 158 Cal.App.4th 847, 855 (2008)). “The phrase ‘as a result of' in its plain and ordinary sense means ‘caused by' and requires a showing of a causal connection or reliance on the alleged misrepresentation.” Hall, 158 Cal.App.4th at 855.

         Apple argues that Qualcomm has not sufficiently alleged loss of money or property as a result of Apple's unfair conduct. MTD-1 at 8, 11-12. Apple argues that Qualcomm's primary assertion of injury-“[a]bsent Apple's conduct, Qualcomm's chipsets would be in higher demand, and Qualcomm would be able to sell more chips to Apple to meet that demand”-is conclusory because Qualcomm has failed to show that any consumers would or could have purchased a Qualcomm-based iPhone 7 over a Intel-based iPhone 7. Counterclaims ¶ 383. In particular, Apple challenges that Qualcomm has not alleged sufficient facts to assert any injury because consumer choice is also informed by a consumer's choice of carrier such as AT&T and Verizon. See MTD-1 at 18. Qualcomm responds that its allegations of a loss of customers, as well as its “loss of goodwill and product image, and loss of business relationships” constitute allegations sufficient to support standing under the UCL. Opp-1 at 10.

         Given the nature of the UCL's “expansive standing doctrine, ” the Court finds that Qualcomm has adequately alleged statutory standing. See AngioScore, 70 F.Supp.3d at 962. Qualcomm need only allege an “identifiable trifle” of injury and has sufficiently done so by alleging it has lost customers, goodwill, and the loss of business relationships. See Kwikset, 51 Cal.4th at 324; Storm Mfg. Grp., Inc. v. Weather Tec Corp., 2013 WL 5352698, at *7-8 (C.D. Cal Sep. 23, 2013) (plaintiffs had statutory standing where they alleged that unfair conduct caused the loss of customers, damaged goodwill, and diminished their product's value); Obesity Research Inst., LLC v. Fiber Research Int'l, LLC, 165 F.Supp.3d 937, 948 (S.D. Cal. 2016) (finding standing where plaintiff alleged lost sales, market share, and goodwill); AngioScore, 70 F.Supp.3d at 962 (loss of business is a paradigmatic form of UCL injury). Counterclaims ¶¶ 383. See also Id. ¶ 385 (alleging loss of goodwill and product image, and loss of business relationships). Contrary to Apple's assertion, because generalized allegations of injury suffice, Qualcomm is not required to plead specific facts indicating injury. See Kwikset, 51 Cal.4th at 328. What Apple alleges is missing from Qualcomm's claim-for example, an assertion that specific customers would have changed carriers from AT&T to Verizon to obtain higher speed Qualcomm-based iPhones if Qualcomm had not been threatened by Apple-is the type of specific fact that the California Supreme Court and Ninth Circuit have held need not be pled at the motion to dismiss stage. See id.; Hinojos, 718 F.3d at 1104; A.P. Deauville, 2014 WL 7140041, at *5.

         Qualcomm must also show that its economic injury is the result of Apple's unfair business practice. Kwikset, 51 Cal.4th at 322. There is a sufficiently direct chain of causation. Here, Apple's alleged threats to stop using Qualcomm as a supplier and to retaliate against Qualcomm with its marketing organization led Qualcomm not to reveal the iPhone 7 speed disparity to the public. As Qualcomm stated at oral argument implicit in that chain of causation is that customers would switch carriers if they knew of the speed disparities between the phones. See Dkt. No. 162 at 43. As a result, consumer demand for their chipsets was lower than it would have been if the disparity would have been revealed. Accordingly, Qualcomm's allegations of lost potential sales to Apple, goodwill, and business relationships sufficiently support a finding of statutory standing. See, e.g., Luxul Tech, Inc. v. Nectarlux, LLC, 78 F.Supp.3d 1156, 1174 (N.D. Cal. 2015) (finding standing where defendants alleged unfair conduct consisted of defamatory statements to customers questioning the validity of plaintiff's patents and resulted in lost customers and potential sales revenue); Overstock.com, Inc. v. Gradient Analytics, Inc. 151 Cal.4th 688, 716 (2007) (finding standing under UCL where plaintiff pled that defendant's unfair business practice-intentional dissemination of false negative reports-resulted in diminution in value of plaintiff's assets and decline in market capitalization).

         The Court will DENY Apple's motion to dismiss on this basis.

         D.Unfair” Prong of the UCL

         Prior to Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 184 (1999), California courts determined whether a practice was “unfair” in the direct competitor context by applying a balancing test “weigh[ing] the utility of the defendant's conduct against the gravity of the harm to the alleged victim” or by assessing whether a practice “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” In Cel-Tech, the California Supreme Court rejected these tests in the direct competitor context as “too amorphous” because they “provide[d] too little guidance to courts and businesses.” 20 Cal.4th at 185. Accordingly, the California Supreme Court held that for direct competitors an “unfair” practice is one that “threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significant threatens or harms competition.” Id. at 187.

         However, California law is unsettled with regard to the correct standard to apply to non-competitor consumer suits. Lozano v. AT&T Wireless Services, Inc., 504 F.3d 718, 735 (9th Cir. 2007); Bardin v. Daimlerchrysler Corp., 136 Cal.App.4th 1255, 1273-74 (2006) (discussing the split between California Courts of Appeal). This confusion arises in part because the Cel-Tech Court expressly limited its holding refining the test to only claims brought by a business competitor alleging anticompetitive practices. Cel-Tech, 20 Cal.4th at 187 n.12.

         There are three primary consumer tests: (1) the “tethering test, ” which requires that the “public policy which is a predicate to a consumer unfair competition action under the ‘unfair' prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions, ”; (2) the “balancing test, ” which examines whether the challenged business practice is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers and requires the court to weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim, ” In re Adobe Systems, Inc. Privacy Litigation, 66 F.Supp.3d 1197, 1226 (N.D. Cal. 2014); and (3) the FTC test which requires that the alleged consumer injury must be substantial; must not be outweighed by any countervailing benefits to consumers or competition; and must be an injury that consumers themselves could not reasonably have avoided. See Camacho v. Automobile Club of Southern California, 142 Cal.App.4th 1394, 1403 (2006). Pending resolution of the issue by the California Supreme Court, the Ninth Circuit has approved the use of either the balancing or tethering tests in consumer actions. Ferrington v. McAfee, Inc., No. 10-cv-01455, 2010 WL 3910169, at *12 (N.D. Cal. Oct. 5, 2010) (citing Lozano, 504 F.3d at 736).[6]

         1. Cel-Tech Test

         As an initial matter, this Court must determine whether to apply the Cel-Tech test to the instant case by assessing the nature of the relationship between Qualcomm and Apple.

         Qualcomm argues that the Cel-Tech test does not apply because Qualcomm and Apple are not direct competitors. Opp-1 at 2. Qualcomm asserts that it does not make and sell consumer cellular devices and is merely a chip supplier. Opp-1 at 14. Apple responds in a footnote that “Qualcomm would have the Court treat it - the dominant supplier of baseband chipsets - as if it were a consumer” and that such a result would “open the courts to UCL claims any time two companies in a vertical business relationship entered into negotiations resulting in economic losses.” Reply-1 at 5 n.3.

         In Levitt v. Yelp! Inc., 765 F.3d 1123 (9th Cir. 2014) the Ninth Circuit recognized that the Cel-Tech test was not limited strictly to direct competitors. There, several business owners sued the online review company Yelp alleging that Yelp created negative reviews and manipulated content to induce the business owners to purchase advertisements on the site. Id. at 1127. The Court applied the Cel-Tech test and held that “[a]lthough this case is not a suit involving unfairness to the defendant's competitors, as Yelp does not compete with the business owners, the crux of the business owners' complaint is that Yelp's conduct unfairly injures their economic interests to the benefit of other businesses who choose to advertise with Yelp.” Id. at 1136 (internal citations and marks omitted). Here, it can be similarly said that “as [Apple] does not compete with [Qualcomm], the crux of [Qualcomm's] complaint is that [Apple's] conduct unfairly injures [its] economic interests to the benefit of [Intel].” See Id. See also Sun Microsystems, Inc. v. Microsoft Corp., 87 F.Supp.2d 992, 999 (N.D. Cal. 2000) (finding Sun Microsystems, a vertical supplier, to be direct competitors with Microsoft); Watson Labs., Inc. v. Rhone-Poulenc Rorer, Inc., 178 F.Supp.2d 1099, 1117-18 (C.D. Cal. 2001) (viewing contractually obligated supplier and plaintiff as “ostensible competitor[s]” and applying strict Cel-Tech test); Nat'l Rural Telecommunications Co-op. v. DIRECTV, Inc., 319 F.Supp.2d 1059, 1076 (C.D. Cal. 2003), on reconsideration in part (June 5, 2003) (applying Cel-Tech test where DIRECTV disputed that it was not a competitor with plaintiff).

         The Court finds the relationship between Qualcomm and Apple-which is akin to that of direct competitors-is such that the Cel-Tech test is the best fit under the facts of this case. Qualcomm and Apple are sophisticated corporations with an ongoing business relationship. The primary bases of Qualcomm's UCL claim-that Apple threatened its status as a supplier and threatened marketing retaliation-sounds of an accusation of anticompetitive conduct between two competitors. See Cel-Tech, 20 Cal.4th at 187 (applying Cel-Tech test where competitor alleged “anticompetitive practices”); Reply-1 at 5 (asserting that the parties are “sophisticated corporations, and the gravamen of Qualcomm's counterclaim is that Apple chose a competitor's chipset) (emphasis in original). See also Dkt. 162 at 38 (statement by Apple at oral argument that “obviously the Qualcomm-Apple relationship is not a competitor relationship, but the Qualcomm-Intel relationship is a competitor relationship”). Consequently, the Apple-Qualcomm relationship is far closer to a competitor relationship than a consumer relationship.

         Accordingly, under the Cel-Tech test Qualcomm must show that Apple's conduct “threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.” Qualcomm has not adequately pled that Apple's alleged threats threaten an incipient violation of any antitrust law or the spirit or policies of those laws. Broad references to telecommunications policy and the policy of consumer choice are entirely tangential to the focal point of its UCL claim-commercial harm to Qualcomm-not the broader public or consumer good. See, e.g., Opp-1 at 20-21.

         Moreover, Qualcomm has not shown that Apple's conduct “significantly threatens or harms competition.” If anything, Apple's actions have benefitted competition by promoting the development of Intel as an alternative chip supplier. See Cel-Tech, 20 Cal.4th at 185 (cautioning against the “enjoining of pro competitive conduct”) (emphasis in original).

         Accordingly, the Court will GRANT Apple's motion to dismiss based on the Cel-Tech test. In the alternative, the Court will also consider the tethering and balancing tests below. See Worldwide Travel, Inc. v. Travelmate US, Inc., 2015 WL 1013704, *12 (S.D. Cal. Mar. 9, 2015) (applying the Cel-Tech, tethering, and balancing tests where parties had disagreement whether plaintiffs were “competitors” or “consumers”).

         2. Tethering Test

         Under the Tethering test, an unfair act or practice “predicated on public policy” requires that the public policy that serves as the predicate to the action must be “‘tethered' to specific constitutional, statutory, or regulatory provisions.” See Gregory v. Albertsons, Inc., 128 Cal.Rptr.2d 389, 395 (Ct. App. 2002); Smith v. Specialized Loan Servicing, LLC, No. 16CV2519-GPC(BLM), 2017 WL 1711283, at *9 (S.D. Cal. May 3, 2017); Drum, 182 Cal.App.4th at 257 (describing the tethering test as a consumer test that is similar to the Cel-Tech test). Qualcomm's UCL claim is not “predicated” on the public policy of telecommunications statutes, but rather on Apple's threats to retaliate against Qualcomm. See Opp-1 at 15. Qualcomm's policy arguments that Apple's conduct violates the public policies underlying cellular and wireless communication statutory and regulatory provisions related to the “inefficient allocation of bandwidth to iPhones” do not form the core of its complaint. Accordingly, under this test Qualcomm's claim fails for the reasons stated above with respect to competitor cases-plaintiff fails to allege a plausible violation or incipient violation of any statutory or regulatory provision. See Drum, 182 Cal.App.4th at 257.

         3. Balancing Test

         Finally, the Court will consider the balancing test. Apple argues that the Court should reject the balancing test because it is outdated and not viable post Cel-Tech given (1) the need for a standardized definition of “unfair” for consumer and competitor cases and (2) because it is a vague and amorphous test. MTD at 18 n.3 (citing Stern, Rutter Group Practice Guide: Business & Professions Code Section 17200 § 3:119). While the Ninth Circuit in Lozano observed that “Cel-Tech effectively rejects the balancing approach, ” it went on to affirm the district court's use of the balancing test. Lozano, 504 F.3d at 736 (“In the absence of further clarification by the California Supreme Court, we endorse the district court's approach to the law as if it still contained a balancing test.”). While the Court observes that the test has been criticized, it is also apparent that some federal district courts and some of the California Courts of Appeal have continued to apply the “balancing” test. See, e.g., Ferrington v. McAfee, Inc., 2010 WL 3910169, *13 (N.D. Cal. Oct. 5, 2010); McKell v. Washington Mut., Inc., 142 Cal.App.4th 1457 (2006); Aguilar v. General Motors, LLC, 2013 WL 5670888, at *6 (E.D. Cal. 2013) (stating that the traditional balancing test “has been used more widely and analyzed more thoroughly by California courts.”); S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal.App.4th 861, 886 (1999).

         The Court takes this opportunity to clarify the apparent origins of two related approaches that have both been construed as the “balancing test.” Some California appellate courts have interpreted the test to require only that the court “weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim.” Id. Other courts have applied a second version of the balancing test, which mandates that plaintiffs show that a practice is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” Bardin v. Daimlerchrysler Corp., 136 Cal.App.4th 1255, 1260 (2006).

         In Cel-Tech, the court considered these two tests as separate tests. See Cel-Tech, 20 Cal.4th at 184 (separately describing the tests); Gregory, 104 Cal.App.4th at 852 (same). The first test (“Motors, Inc. Test”), requires an examination of the practice's impact on its alleged victim, balanced against the reasons, justifications, and motives of the alleged wrongdoer. State Farm Fire & Cas. Co. v. Superior Court, 45 Cal.App.4th 1093, 1103-04 (1996) (citing Motors, Inc. v. Times Mirror Co., 102 Cal.App.3d 735, 740 (Ct. App. 1980)). In contrast, the second line (“Sperry & Hutchinson Test”), finding a practice “unfair” when it “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, ” originates from People v. Casa Blanca Convalescent Homes, Inc., 159 Cal.App.3d 509, 530 (1984) which in turn cited FTC guidelines sanctioned by the Supreme Court in FTC v. Sperry & Hutchinson, 405 U.S. 233 (1972).

         Confusion as to what constitutes the pre-Cel-Tech “balancing test” arises because later case law melded the Motors, Inc. balancing test and Sperry & Hutchinson test together in the consumer context, defining “unfair” as “prohibiting conduct that is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim.” Smith v. State Farm Mutual Automobile Ins. Co., 93 Cal.App.4th 700, 718-19 (2001). See also McKell v. Washington Mut. Inc., 142 Cal.App.4th 1457, 1473 (2006) (“A business practice is unfair within the meaning of the UCL if it violates established public policy or if it is immoral, unethical, oppressive, or unscrupulous and causes injury to consumers which outweighs its benefits.”); South Bay Chevrolet, 72 Cal App. 4th at 887 (citing both tests but applying only the Motors, Inc. balancing test). Federal district courts, relying on California case law, have similarly applied a melded definition as the “balancing test.” See, e.g., Backhaut v. Apple, Inc., 74 F.Supp.3d 1033, 1050 (N.D. Cal. 2014); Ferrington, 2010 WL 3910169, at *13.

         Given the historical origins of the two tests as separate analyses, the Court will treat the “balancing test” as a two-factor analysis, first considering whether or not the unfair conduct as issue was “immoral, unethical, oppressive, unscrupulous or substantially injurious” to the harmed party.[7] Next, the Court will weigh the practice's impact on its alleged victims against the reasons, justifications, and motives of the alleged wrongdoer. By doing so, the Court assesses not only ...


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