Aaron T. Chiu and Danayit Musse
Latham & Watkins LLP
In July 2018, Plaintiffs Wi-LAN Inc., Wi-LAN USA, Inc., and Wi-LAN Labs, Inc., (collectively, “Wi-LAN”) brought a patent infringement action against Defendants LG Electronics, Inc., LG Electronics U.S.A., Inc., and LG Electronics Mobilecomm U.S.A., Inc., (collectively, “LG”) alleging that LG’s wireless communications products that are compliant with the 3rd Generation Partnership Project 4G LTE standard (3GPP LTE) directly infringed four of Wi-LAN’s patents. Wi-Lan Inc., et al. v. LG Elecs., Inc., et al., — F. Supp. 3d —-, No. 18-cv-01577-H-BGS, 2019 WL 1586761, at *1 (S.D. Cal. Apr. 12, 2019). Wi-Lan was once a company that engaged in research and development of various wireless technologies but now primarily focuses on licensing patent portfolios owned by others. LG, in response, asserted various counterclaims relating to the unenforceability of Wi-LAN’s purported standard-essential patents and, particularly, claims for (1) monopolization and attempted monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. §2; (2) unfair business practices under Section 17200 of the California Business and Profession Code, Cal. Bus. & Prof. § 17200; and (3) declaratory judgment of unenforceability of U.S. Patent No. 8,867,351 (“the ’351 patent”) under a theory of infectious unenforceability.
Wi-LAN moved for judgment on the pleadings, seeking dismissal of LG’s monopolization, attempted monopolization, UCL, and infectious unenforceability counterclaims. Id. On April 12, 2019, the district court issued an order denying Wi-LAN’s motion to dismiss LG’s monopolization and UCL counterclaims. The district court, however, granted the motion with respect to LG’s infectious unenforceability counterclaim, dismissing the claim with prejudice. The action is set to proceed on the remaining claims and counterclaims.
LG’s Monopolization and Unfair Competition Counterclaims
The crux of LG’s antitrust and unfair competition counterclaims is that Wi-LAN engaged in anticompetitive practices to induce the adoption of the IEEE 802.16 and 3GPP LTE wireless technology standards, which are covered by the purported Wi-LAN patents that LG allegedly infringed. LG alleged that following the standardization of these technologies on the basis of Wi-LAN’s conduct, Wi-LAN has been able to extract supra-competitive royalties from those whose products implement these wireless technology standards. Specifically, LG asserted two competing theories of anticompetitive conduct:
- The “Failure to Disclose IPR Theory”: The first is that Wi-LAN intentionally failed to disclose certain intellectual property rights (IPRs) to induce the relevant standard-setting organizations (SSOs) to adopt the standard as one incorporating Wi-LAN’s patents. Had Wi-LAN disclosed its IPRs to the SSOs, LG alleges, the SSOs would have adopted an alternative standard that did not incorporate the patents-in-suit.
- The “Fraudulent FRAND Declarations Theory”: The second, alternative theory is that Wi-LAN intentionally misrepresented to the relevant SSOs that it would license the standard essential patents covered by the IEEE 802.6 and 3GPP LTE standards on fair, reasonable and non-discriminatory (FRAND) terms, despite an intention never to do so. LG alleged that Wi-LAN made these misrepresentations to induce the relevant SSOs to adopt the very standards that would incorporate Wi-LAN’s patents.
Wi-LAN contended that LG had failed to allege claims for monopolization and attempted monopolization under Section 2 of the Sherman Act because it had failed to plead that: (1) Wi-LAN has monopoly power in a cognizable relevant market; (2) Wi-LAN engaged in anticompetitive conduct; and (3) that LG had suffered antitrust injury. The district court rejected these arguments and concluded that LG’s allegations adequately alleged these elements.
Monopoly Power: The court concluded that LG plausibly alleged that Wi-LAN had monopoly power in a relevant market for “Wireless Technologies,” defined as “the various markets for technologies that—before the implementation of the IEEE 802.16 the 3GPP LTE standards—were competing to perform each of the various functions covered by each of Wi-LAN’s purported essential patents for the IEEE 802.16 standard and 3GPP LTE standard.” Id. at *3. Because the patents-in-suit were those that Wi-LAN claimed covered technology incorporated into the relevant IEEE 802.16 and 3GPP LTE standards, LG alleged that Wi-LAN could unilaterally raise prices (the royalties of its patents) and exclude competition in the relevant market for these wireless technologies, which already experienced high barriers to entry because of the “post-standardization lock-in effect” given that alternative technologies are no longer viable substitutes given the adoption of the standard. LG further alleged that Wi-LAN can extract royalties for those patents that “greatly exceeded what it could have obtained before the IEEE and 3GPP standardized the technologies that Wi-LAN claims are covered” by the patents-in-suit. Id. Citing Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) and Apple Inc. v. Samsung Electronics Co., Ltd, No. 11-cv-01846, 2012 WL 1672493 (N.D. Cal. May. 14, 2012), the court held that these allegations were sufficient to allege that Wi-LAN had monopoly power in a cognizable relevant market.
Anticompetitive Conduct: The court also found that LG’s competing theories of anticompetitive conduct sufficed to state a claim. As for the “Failure to Disclosure IPR Theory,” the court concluded that LG satisfied the heightened pleading standards under Federal Rule of Civil Procedure 9(b) by alleging with particularity the specific alternative technology that the relevant SSOs could have adopted were it not for Wi-LAN’s failure to disclose the IPRs that it owned relating to the IEEE 802.16 and 3GPP LTE standards. Further, the court rejected Wi-LAN’s argument that it could not be held liable under antitrust law for the alleged actions of the previous patent owners, finding LG alleged “specific conduct and specific representations made by Wi-LAN to the SSOs, not just representations by the prior patent owners.” Id. at *4.
Regarding LG’s “Fraudulent FRAND Declarations Theory,” the court concluded that LG had alleged “specific facts providing the who, what, where and which patents of the alleged false FRAND declarations,” and sufficient facts to allege Wi-LAN had the requisite specific intent. Id. at *5. The court found unpersuasive Wi-LAN’s argument that LG’s allegations conflicted with allegations regarding its failure to disclose IPR theory, as Rule 8 allows parties to plead inconsistent factual allegations in the alternative.
Antitrust Injury: The court also concluded that LG adequately alleged antitrust injury given the allegations that Wi-LAN’s conduct unlawfully excluded competitors from “the manufacture and sale of downstream wireless communications devices that implement the IEEE 802.16 and 3GPP LTE standards.” Id. at *6. LG further argued that Wi-LAN’s conduct “chill[s] competition to develop and sell innovative new IEEE 802.16 and/or 3GPP LTE-compliant products,” and results in “increased prices and decreased quality and innovation.” Id. at *6, 15.
Given the allegations that supported LG’s monopolization claims, the court further concluded that LG had adequately alleged a claim for attempted monopolization under Section 2 given the additional allegation that Wi-LAN had engaged in such anticompetitive conduct “with the specific intent to acquire and maintain market power in … the relevant Wireless Technologies Market and to destroy competition therein.” Id. at *7 (citing Counterclaim ¶ 17; Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 926 (9th Cir. 1980)). The allegations that supported LG’s Section 2 claims were also adequate to state a claim under the UCL’s unfair and unlawful prongs. Id. at *7 (citing Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163 (1999); Toranto v. Jaffurs, 297 F. Supp. 3d 1073, 1100 (S.D. Cal. 2018)).
LG’s Infectious Unenforceability Counterclaim
LG’s infectious unenforceability counterclaim, however, did not fare as well. LG claimed that one of the patents-in-suit, Wi-LAN’s ’351 patent is unenforceable under the doctrine of infectious unenforceability because the individuals involved in the prosecution of the parent patent of the ’351 patent—the ’435 patent—had committed inequitable conduct during the prosecution of the ’435 patent. Id. at *8. Infectious unenforceability requires showing that: “(1) an individual associated with the filing and prosecution of a patent application made an affirmative misrepresentation of a material fact, failed to disclose material information, or submitted false material information; and (2) the individual did so with a specific intent to deceive the PTO.” Id. (quoting Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009)). LG alleged that “during the prosecution of the ’435 patent, the named inventor and his counsel failed to disclose the International Search Report, the Emanuel reference (U.S. Patent Pub. No. 2002/032788), Emanuel’s foreign counterparts, a First Examination Report, and a Second Examination Report.” Id. The court rejected the theory for the following reasons:
- The prosecution history for the ’435 patent actually demonstrated that the inventor and his counsel disclosed the International Search Report at issue to the PTO, directly contradicting LG’s assertion to the contrary.
- LG relied on section 609.03 of the USPTO’s Manual of Patent Examining Procedure to argue that the mere submission of a search report in a national stage application was not an information disclosure statement complying with 37 C.F.R. 1.98, and that the inventor of the ’435 patent was required to include copies of the Emanuel reference in the application, which he failed to do. While LG was correct that there were no copies of the Emanuel reference in the application, Section 609.3’s requirement does not apply if the missing reference is a U.S. patent or a U.S. patent application. The court held the International Search Report’s identification of the Emanuel reference was sufficient disclosure under Section 609.03.
- The court rejected as irrelevant LG’s argument that the failure to list the Emanuel reference on the PTO-892 form constituted inequitable conduct, because Section 609.03 states that references properly disclosed through an international search report are not required to be listed on a PTO-892 form.
- The court rejected LG’s argument that the inequitable conduct counterclaim should survive based on the inventor and his counsel’s failure to disclose Emanuel’s foreign counterparts and the two examination reports. The court explained that the additional references would have been cumulative of the Emanuel reference, and thus immaterial to patentability.
- The court found it unreasonable to infer specific intent to deceive the PTO because the inventor and his counsel disclosed the International Search Report, which included a description of the Emanuel reference, to the PTO.
On this basis, the court dismissed LG’s infectious unenforceability counterclaim for the ’351 patent with prejudice.