Cont'l Auto. Sys. v. Avanci, LLC
| Decision Date | 11 December 2019 |
| Docket Number | Case No. 19-CV-02520-LHK |
| Parties | CONTINENTAL AUTOMOTIVE SYSTEMS, INC., Plaintiff, v. AVANCI, LLC, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Continental Automotive Systems, Inc., the Plaintiff in this case, seeks licenses for various standard essential patents associated with the 2G, 3G, and 4G cellular standards. Plaintiff believes the twelve defendants in this case have unlawfully conspired to deny such licenses to Plaintiff on fair, reasonable, and non-discriminatory ("FRAND") terms, wherefore Plaintiff brings this multi-count suit. A subset of the defendants in this case have now moved to transfer the case to the Northern District of Texas pursuant to 28 U.S.C. § 1404(a). ECF No. 110. Having considered the parties' briefing, the relevant law, and the record in the case, the Court GRANTS the Motion to Transfer Venue.
Because they are relevant to the Motion to Transfer Venue, the Court briefly summarizes the allegations in Plaintiff's First Amended Complaint ("FAC").
Plaintiff Continental Automotive Systems, Inc. is a Delaware corporation with its principal place of business in Auburn Hills, Michigan. FAC ¶ 16. Plaintiff is in the business of making automotive components, which it sells to car manufacturers. FAC ¶ 103. The car manufacturers, or "OEMs" as Plaintiff calls them, then assemble the components from Plaintiff and their other various suppliers into the finished car. FAC ¶ 103. As relevant here, Plaintiff produces telematics control units ("TCUs"), which offer various "telecommunications, infotainment, and safety features." Id. ¶ 18. These TCUs engage in and rely upon cellular communications in order to function, which means they implement cellular communications standards. Id. ¶¶ 18, 70. Cellular communications standards are technical standards that facilitate communication and compatibility across different devices, providers, and geographies. Id. ¶¶ 70, 71. They are commonly identified by their "generation"—i.e., 1G, 2G, 3G, and 4G. Id. ¶¶ 70-76. Importantly, cellular communications standards are not mandated by law, but rather voluntarily adopted by members of the industry. Hence, industry groups called standard-setting organizations, or "SSOs" evolved to develop and manage these standards. Id. ¶ 71. Among the SSOs implicated in this case are the European Telecommunications Standards Institute ("ETSI"), the Alliance for Telecommunications Industry Solutions ("ATIS"), and the Telecommunications Industry Association ("TIA"). Id.
Although standardization has benefits, it also has the potential for anticompetitive consequences. Id. at 77. That is because standards will often incorporate patented technology, known as standard essential patents ("SEPs"). The holders of those SEPs—who are typically members of the SSOs—would then be able to charge exorbitant royalties from or refuse to license to certain users of the standards. Id. ¶ 123. In other words, each SEP holder acquires monopoly power when their patented technologies become a standard that others must use in order to participate in the cellular communications industry. Id. at 121. To prevent these eventualities, SSOs have intellectual property right ("IPR") policies to which their members must adhere. Id. ¶ 79, 122. According to Plaintiff, the IPR policies of the SSOs involved in this case require SSOmembers "to commit to license their asserted SEPs to firms implementing the standard on [fair, reasonable, and non-discriminatory ("FRAND")] terms and conditions." Id. ¶ 79. Plaintiff believes these IPR policies also "require a SEP holder to license its alleged SEPs on FRAND terms and conditions to any implementer within a given supply chain that uses the standards." Id. ¶ 20.
In the instant case, Plaintiff sues various companies who hold SEPs associated with the 2G, 3G, and 4G standards: Nokia Corporation ("Nokia Corp."); Nokia of America Corporation ("Nokia America"); Nokia Solutions and Networks US LLC ("Nokia Solutions"); Nokia Solutions and Networks Oy ("Nokia Solutions Oy"); Nokia Technologies Oy; Conversant Wireless Licensing SARL ("Conversant SARL"); Optis UP Holdings, LLC ("Optis UP"); Optis Cellular Technology, LLC ("Optis Cellular"); Optis Wireless Technology, LLC ("Optis Wireless"); and Sharp Corporation ("Sharp"). Id. ¶¶ 87-97. Plaintiff alleges that these companies— referred to collectively by Plaintiff as "Defendant Licensors"—have committed to grant licenses to their SEPs on FRAND terms and conditions, in accordance with the IPR policies of the various SSOs of which they are members. Id. ¶¶ 87, 89, 92.
In addition, Plaintiff sues Avanci, LLC and Avanci Platform International Limited ("Avanci PIL"), referred to collectively by Plaintiff as "Avanci." Id. at 1. According to Plaintiff, Avanci is a "licensing platform" that "acts as a licensing agent for a large group of patent owners and traditional patent licensors," including Defendant Licensors. Id. ¶ 107. Suppose a company manufactures a product that implements a cellular communications standard. Id. ¶¶ 111-12. Instead of separately obtaining licenses from each of the SEP holders, that company could obtain a collective license from Avanci to all of the SEPs held by Avanci's members. Id. The customer would pay a "flat" royalty that varied with the type of product implementing the standard, such as a car. Id. ¶ 112. Plaintiff acknowledges that pools or platforms like Avanci "may be efficient by reducing the transactional costs of negotiating separate licenses with individual licensors." Id. ¶ 115. However, Plaintiff believes Avanci is a "collusive vehicle" formed by SEP holders who "wanted to preserve their ability to continue to extract supra-FRAND licensing revenues." Id. at28, ¶ 111. Plaintiff also alleges that not all of the patents included in Avanci's collective license are in fact "essential" for practicing cellular communications standards. Id. ¶ 116-17.
According to Plaintiff, there are three main components to the scheme. First, Avanci's members (including Defendant Licensors) allegedly agreed to "collectively license their asserted SEPs on non-FRAND terms." Id. ¶ 11. Second, Plaintiff believes Avanci's members entered into a "multilateral agreement . . . to offer a collective license to its members' SEPs only to manufacturers at the very end of a supply chain, like car OEMs" and not to upstream suppliers like Plaintiff. Id. ¶ 112. In Plaintiff's view, the purpose of this second agreement is to facilitate Avanci's ability to charge supra-FRAND royalties. That is, Avanci's high royalties "could not be sustained if charged directly to suppliers in the supply chain with much smaller prices and margins." Id. ¶¶ 10, 113. Only manufacturers of expensive end-products with greater margins—such as OEMs—would be willing to pay Avanci's royalties.
Third, to disincentivize individual Avanci members from competing "with each other or with Avanci in offering competitive SEP license terms," Avanci's members are allegedly retrained through an express agreement "from offering a license in competition with an Avanci licensing program in any manner that would hinder Avanci's ability to collect its full stated supra-FRAND royalty" on the collective license. Id. ¶ 129. The problem, according to Plaintiff, is that a fully "exhaustive" license—i.e., a license under which a supplier may "pass through" rights to its customers—would almost always impair Avanci's ability to collect its ordinary royalty on a collective license. Id. ¶¶ 129, 133. Thus, although each Avanci member is technically free to sell individual licenses to suppliers outside of the Avanci platform, "it is practically impossible for members to offer individual licenses to suppliers that are fully exhaustive." Id. ¶ 129.
In support of Plaintiff's allegations regarding the workings of the Avanci conspiracy, the FAC describes Plaintiff's attempts to obtain licenses to Defendant Licensors' SEPs. First, Plaintiff sought to obtain a collective license from Avanci. Plaintiff alleges that, in keeping with the above-described agreements, Avanci indicated "it would only seek authorization from its members to license to Continental if Continental agreed in advance to pay the same inflated ratesAvanci demands from the car OEMs." Id. ¶ 114. In other words, Avanci allegedly required Plaintiff to pay the flat royalty for a car, even though Plaintiff only sought to produce one component of a car (i.e., TCUs).
Plaintiff then contacted each of the Defendant Licensors individually in an effort to obtain licenses to their respective SEPs. Plaintiff alleges that they all "refused to offer a direct license on FRAND terms." Id. ¶ 139. Thus, Plaintiff has been unable to obtain licenses to the relevant SEPs on FRAND terms.
Moreover, Plaintiff further alleges that it is harmed by Avanci's charging of supra-FRAND royalties to car OEMs, which are Plaintiff's customers. According to Plaintiff, Plaintiff and other upstream suppliers in the automotive supply chain actually "bear the artificially elevated cost of Defendants' non-FRAND royalties because the OEMs typically demand indemnity of such licensing costs as a condition of purchasing" from those suppliers. Id. ¶ 11. That is, Plaintiff's purchase agreements with car OEMs contain "indemnification clauses" obliging Plaintiff "to indemnify the respective OEM for any royalties the OEM might pay for using and/or selling" Plaintiff's TCUs as part of a vehicle. Id. at 105.
In Plaintiff's view, Defendant Licensors' actions contravene the commitments that Defendant Licensors made pursuant to the IPR policies of the SSOs of which they are members. For instance, Plaintiff believes Defendant Licensors have reneged upon their obligation "to license their SEPs on FRAND terms and conditions." Id. ¶ 86. Plaintiff further alleges that the IPR policies of the relevant...
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