United States District Court, S.D. California
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
Gonzalo P. Curiel United States District Judge
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 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.
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
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.
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.
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.
MOTION TO DISMISS STANDARD
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).
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.
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).
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.
Apple's Motion to Dismiss Qualcomm's First Amended
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.
September 16, 2016, Apple released two versions of the iPhone
7. Qualcomm's First Amended Counterclaims
(“Counterclaims”), ECF No. 70 ¶
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.
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.
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.
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 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.
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.
UCL - Standing and Actual Reliance
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.
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.”)
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.
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).
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
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
The Court will also assess whether Qualcomm has adequately
alleged statutory standing under California Business and
Professions Code Section 17204.
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
Statutory Standing Under Section 17204
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).
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
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.
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.
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
Court will DENY Apple's motion to
dismiss on this basis.
“Unfair” Prong of the UCL
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.
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
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
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.
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.
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
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.
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.
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
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
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.
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).
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).
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).
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.
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. 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 the
utility of the defendant's conduct and the gravity of the
harm to the alleged victim, but also the nature of the
conduct at issue.
Apple's conduct cannot be reasonably construed as
“immoral, unethical, oppressive, unscrupulous, or
substantially injurious” to Qualcomm. Apple's
alleged threats challenging Qualcomm's status as a
supplier are justified by Apple's right to choose with
whom it does business. See, e.g., United States
v. Colgate & Co., 250 U.S. 300, 308 (1919); Pac.
Bell Tel. Co. v. Linkline Commc'ns, Inc., 555 U.S.
438, 448 (2009); cf. Drum v. San Fernando Valley Bar
Ass'n, 182 Cal.App.4th 247, 253 (Cal App. 2010) (bar
association's unilateral refusal to sell its ...