False Promise to Standards-Setting Organization Sufficient to Plead Monopolization Claim: D. Del. | Practical Law

False Promise to Standards-Setting Organization Sufficient to Plead Monopolization Claim: D. Del. | Practical Law

In Microsoft Mobile Inc. v. InterDigital, Inc., the US District Court for the District of Delaware denied InterDigital, Inc.'s motion to dismiss Microsoft Mobile Inc.'s antitrust claim, holding that Microsoft had adequately plead the elements of a monopolization claim based on InterDigital's assertion of standard-essential patents that are subject to a FRAND licensing obligation.

False Promise to Standards-Setting Organization Sufficient to Plead Monopolization Claim: D. Del.

by Practical Law Intellectual Property & Technology
Published on 15 Apr 2016 • USA (National/Federal)
In Microsoft Mobile Inc. v. InterDigital, Inc., the US District Court for the District of Delaware denied InterDigital, Inc.'s motion to dismiss Microsoft Mobile Inc.'s antitrust claim, holding that Microsoft had adequately plead the elements of a monopolization claim based on InterDigital's assertion of standard-essential patents that are subject to a FRAND licensing obligation.
On April 13, 2016, in Microsoft Mobile Inc. v. InterDigital, Inc., the US District Court for the District of Delaware denied InterDigital Inc.'s motion to dismiss Microsoft Mobile Inc.'s antitrust claim, finding that Microsoft had adequately plead the elements of a monopolization claim ( (D. Del. April 13, 2016)).
In August 2015, Microsoft brought an action against InterDigital alleging unlawful monopolization under Section 2 of the Sherman Act (15 U.S.C. § 2). The claim concerns certain InterDigital patents that cover technologies that are essential to industry standards developed in part by the European Telecommunications Standards Institute (ETSI), which are known as standard-essential patents (SEPs). ETSI:
  • Promulgates standards that cellular devices must use to effectively communicate with wireless network infrastructures.
  • Seeks an irrevocable commitment from SEP holders to license their patents on fair, reasonable, and non-discriminatory (FRAND) terms, which prevents SEP holders from demanding exorbitant royalties.
In this case, Microsoft alleged that InterDigital:
  • Falsely promised to license its SEPs on FRAND terms in order to induce ETSI to use InterDigital's patented technology in the 3G and 4G standards, and but for this deception, ETSI would have used alternate technologies in the standards or not specified any technology at all.
  • Unlawfully acquired monopoly power through this standards-setting process.
  • Exploited its monopoly power by:
    • refusing to honor its FRAND obligations by transferring SEPs to related entities to double dip royalty demands;
    • tying US patent licenses to foreign patent licenses;
    • tying SEP licenses to non-essential patent licenses; and
    • requiring royalties on worldwide sales.
  • Pursued baseless infringement actions and demands for injunctive relief and exclusion orders against Microsoft to increase Microsoft's costs and coerce it to capitulate to InterDigital's unreasonable non-FRAND licensing demands.
InterDigital filed a motion to dismiss arguing that Microsoft failed to adequately plead a monopolization claim under Section 2.
The court denied InterDigital's motion to dismiss and held that Microsoft adequately stated a monopolization claim. The court explained:
  • A monopolization claim requires that the plaintiff show:
    • possession of monopoly power in a relevant market;
    • anticompetitive conduct on the part of the possessor; and
    • a causal connection between the antitrust violation and the actual damage suffered.
  • Microsoft's allegations were sufficient to show monopoly power, including that InterDigital:
    • had the power to extract supracompetitive prices;
    • possessed a dominant market share in the market for technologies that are essential, or allegedly essential, to the 3G and 4G cellular standards; and
    • the market had entry barriers.
  • In the context of a consensus based private standards-setting environment, a patent holder's false promise to license on FRAND terms followed by a breach of that promise, as Microsoft alleged, is sufficient to show anticompetitive conduct.
  • Microsoft's allegation that it is harmed by InterDigital's lawsuits and threats does not defeat the underlying antitrust claim based on InterDigital's false promise and breach of FRAND obligations because Microsoft also alleges additional harms including downstream market injury, loss of product image and goodwill, and other irreparable harm to its line of cellular devices.
The court also held that InterDigital's litigation conduct is causally connected to its deceptive conduct with ETSI and therefore is properly included in an anticompetitive scheme allegation, explaining that:
  • InterDigital's lawsuits are causally connected to its alleged anticompetitive scheme.
  • The entire scheme would not be effective without the threat of litigation.
Finally, the court dismissed InterDigital's arguments that Microsoft's:
  • Fraud claims did not meet the FRCP 9(b) pleading standard.
  • Claims were time-barred by a four-year statute of limitations.