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Fifth Circuit Takes U-Turn, But Still Concludes Automotive Supplier Can’t Force SEP Holder to Issue License

by Amol Parikh | Jun 30, 2022 | Antitrust, Patents

In response to a petition for panel rehearing, the US Court of Appeals for the Fifth Circuit withdrew its prior decision finding that an automotive parts supplier did not have constitutional standing to pursue an antitrust lawsuit against owners of standard essential patents (SEPs). The Court issued a new opinion summarily affirming the district court’s original decision finding constitutional standing but dismissed the case based on lack of antitrust standing. Continental Automotive Systems, Inc. v. Avanci, LLC et al., Case No. 20-11032 (5th Cir. June 21, 2022) (Stewart, Ho, Engelhardt, JJ.) (per curiam).

Continental sued several SEP holders and their licensing agent, Avanci, for violation of Sections 1 and 2 of the Sherman Antitrust Act based on Avanci’s refusal to license the SEPs on fair, reasonable and nondiscriminatory (FRAND) terms. Avanci moved to dismiss, arguing that Continental lacked both constitutional standing and antitrust standing. The district court found that Continental had constitutional standing because its lack of success obtaining licenses on FRAND terms was an injury. However, the district court found that Continental lacked antitrust standing and therefore dismissed the lawsuit. Continental appealed.

The Fifth Circuit issued its original opinion in March 2022, finding that Continental’s theory of injury was insufficient to confer constitutional standing. The Court explained that Avanci’s refusal to sell licenses did not result in a cognizable injury to Continental, and that Continental had no rights to enforce FRAND contracts between the individual patent holders and the standard setting organization (SSO) since Continental was not part of the SSO to which the SEP holders belonged. The Court also found that even if Continental was contractually entitled to a license on FRAND terms, the SSO contract had not been breached because the individual patent holders fulfilled their obligations to the SSO by actively licensing Continental’s customer, which meant that the SEP licenses were (derivatively) available to Continental on FRAND terms. Finding that Continental lacked constitutional standing, the Court did not reach the issue of whether Continental lacked antitrust standing.

Continental filed a petition for panel rehearing and rehearing en banc. Numerous third parties, including legal and economic scholars, industry associations and tech companies, also filed amici briefs supporting Continental, arguing that the Fifth Circuit wrongly found that Continental was not an intended beneficiary of the FRAND obligations that the SEP owners made to the relevant SSO.

On June 14, 2022, the Fifth Circuit issued an order withdrawing its March 2022 opinion. A week later, the Court issued a new opinion summarily stating that “[h]aving reviewed the district court’s detailed order, and considered the oral arguments and briefs filed by the parties and amicus curiae, we AFFIRM the judgment of the district court that Continental failed to state claims under Sections 1 and 2 of the Sherman Act.”

Practice Note: Although the ultimate outcome did not change, the Fifth Circuit withdrew its previous finding that third-party beneficiaries to SSOs did not have constitutional standing to file a lawsuit.

Supplier Can’t Complain when SEP Holder Refuses to License

by Amol Parikh | Mar 3, 2022 | Patents

The US Court of Appeals for the Fifth Circuit determined that an automotive parts supplier did not have constitutional standing to pursue an antitrust lawsuit against standard essential patent (SEP) owners that refused to directly license SEPs to the supplier on fair, reasonable and nondiscriminatory (FRAND) terms. Continental Automotive Systems, Inc. v. Avanci, LLC et al., Case No. 20-11032 (5th Cir. Feb. 28, 2022) (Stewart, Ho, Engelhardt, JJ.)

Continental supplies telematic control units that are embedded in connected cars. The telematic control units provide wireless connectivity using 2G, 3G and 4G cellular standards, allowing users to stream music, navigate to destinations and call for emergency assistance directly from cars. Nokia, PanOptis, and Sharp all claim to own or license SEPs essential to the 2G, 3G, and 4G cellular standards set by standard-setting organizations (SSO). In order to facilitate patent licensing, these individual patent holders (along with many others) entered into an agreement with Avanci, which acts as a licensing agent for the patent holders. Under the agreement, Avanci may sell patent licenses only to car manufacturers or original equipment manufacturers (OEMs), both of which are downstream from Continental in the supply chain. The agreement permits the patent holders to individually license their SEPs to suppliers such as Continental at FRAND rates.

Continental unsuccessfully sought a license from Avanci at FRAND rates. According to Avanci, licenses were available to Continental on FRAND terms from individual SEP holders, and Continental did not need SEP licenses since Avanci sells licenses to OEMs that incorporate Continental’s products. Continental sued Avanci and the individual patent holders, arguing that Avanci’s refusal to sell a license to Continental on FRAND terms constituted anticompetitive conduct in violation of the Sherman Antitrust Act.

Avanci moved to dismiss the complaint. As to the threshold issue of constitutional standing, Continental presented two theories of injury that it asserted conferred standing. Continental’s first theory of injury was that if Avanci and the individual patent holders succeeded in licensing the OEMs at non-FRAND rates, the royalties owed on those licenses might be passed through to Continental via indemnity agreements. Continental’s second theory of injury was that Avanci and the individual patent holders declined to provide Continental with a license on FRAND terms, and this denial of property was sufficient injury to establish standing. The district court rejected Continental’s first theory but accepted the second theory, finding that Continental’s unsuccessful attempts to obtain licenses on FRAND terms was an injury that conferred constitutional standing. Even though the district court found that Continental had constitutional standing, it dismissed Continental’s Sherman Act claims for lack of antitrust standing and for failure to plausibly plead certain elements. Continental appealed.

The Fifth Circuit concluded that neither of Continental’s theories of injury were sufficient to confer constitutional standing. As to the first alleged injury, the Court agreed with the district court and found that was too speculative since it depended on several layers of decisions by the OEMs—namely, decisions to accept non-FRAND licenses and then invoke indemnification rights against [...]

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Key Takeaways from MWE International Seminar Intellectual Property Session – January 2020

by Amol Parikh | Feb 13, 2020 | Technology

On January 21 and 22, 2020, the 8th annual McDermott International Seminars took place in Osaka and Tokyo. These seminars focused on cross-border M&A, GDPR, intellectual property, global enforcement and other key topics. Lawyers from McDermott’s US and European offices, including Washington, DC; Chicago; New York; Paris; London; Brussels; and Munich, discussed these topics with Japanese companies operating globally. During the International Seminars, the Intellectual Property team discussed insights around emerging technologies and intellectual property.

What follows are key takeaways from the IP session of the seminar. (See highlights from the full Seminar.)

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