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From Antitrust Law Daily, April 15, 2019

Monopolization counterclaims survive motion to dismiss in wireless technologies patent infringement case

By Robert B. Barnett Jr., J.D.

LG Electronics adequately pleaded counterclaims for monopolization and attempted monopolization in a case in which Wi-FAN alleges that LG infringed its patents in the wireless technologies market.

In a patent infringement suit in the wireless technologies market in which the defendant LG Electronics has asserted antitrust counterclaims alleging that plaintiff Wi-LAN engaged in deceitful conduct that resulted in its patented wireless technology being incorporated into the wireless communication standards, Wi-LAN’s motion to dismiss the antitrust counterclaims was denied where the federal district court in San Diego concluded that LG satisfied its pleading requirements for asserting monopolization and attempted monopolization claims under §2 of the Sherman Act. The court also denied Wi-FAN’s motion to bifurcate the patent infringement and the antitrust claims, calling the motion "premature." The court, however, granted Wi-FAN’s motion to dismiss LG’s counterclaim for infectious unenforceability of one of Wi-FAN’s patents, ruling that LG failed to adequately allege a "failure to disclose material information" and failed to adequately allege specific intent (Wi-LAN Inc. v. LG Electronics, Inc., April 12, 2019, Huff, M.).

Wi-LAN sued LG, alleging that LG’s wireless communications products that were 4G-compliant infringed four Wi-LAN patents. LG answered and counterclaimed for, among other things, monopolization and attempted monopolization under the Sherman Act, unfair business practices under California law (essentially, antitrust violations under the California equivalent of the Sherman Act), and unenforceability of one of the patents because of activities involving a different patent. Wi-LAN moved for a judgment on the pleadings, asking for dismissal of those four counterclaims.

Monopolization. The gist of LG’s antitrust counterclaims was that Wi-LAN engaged in conduct (mostly, by remaining silent) that caused the two new wireless communication standards to be based on technology for which Wi-LAN held the patents, thus giving Wi-LAN a virtual monopoly over the gateway to wireless communications. Thus, anyone wanting to adopt the standards, which is to say everyone in the wireless communications industry, would have to pay Wi-LAN for the privilege. LG argued that, if Wi-LAN had been forthright, the standards-setting bodies could have incorporated similar but different technology that would not have triggered Wi-LAN’s patents. In any event, to survive the antitrust motion for monopolization in violation of Sherman Act §2, LG’s counterclaim was required to assert (1) monopoly power (2) willfully acquired (3) that caused antitrust injury. Wi-LAN challenged all three elements.

Monopoly power. LG alleged that the relevant markets were the various technology markets that existed before the two standards containing Wi-FAN technology were implemented. After implementation, LG argued, Wi-LAN now holds monopoly power. As a result, Wi-LAN can extract royalties or other licensing terms that greatly exceed what it could have obtained before the standards were implemented. These allegations, the court said, were sufficient to establish monopoly power for pleading purposes.

Anticompetitive conduct. As for anticompetitive conduct, LG alleged both that Wi-LAN failed to disclose it intellectual property rights and that Wi-LAN made a false FRAND (fair, reasonable, and nondiscriminatory) declaration. As for the failure to disclose, LG alleged that Wi-LAN’s nondisclosure excluded viable alternative technologies. LG then detailed each specific alternative technology that the standards bodies could have adopted. As a result, the court ruled, LG met its pleading obligations under the Sherman Act for establishing anticompetitive conduct. LG’s fraudulent FRAND declarations theory argued that Wi-LAN made false declarations that induced the standards body to incorporate standards that included Wi-LAN-patented technology. LG also argued that Wi-LAN’s failure to tell the standards bodies that it would not meet its commitments under the FRAND declarations was intentional and it was made to deceive them. Those allegations were sufficient to meet LG’s pleading requirements. The fact that LG asserted contradictory assertions—silence under one theory and false statements under the other—was perfectly acceptable under Fed. R. Civ. P. 8(d)(2).

Antitrust injury. LG alleged that Wi-LAN’s conduct chilled competition, threatened to exclude other LG competitors, and increased royalties and other costs. As a result, prices in the industry will go up, quality will go down, and innovation in downstream products will go down. These allegations, the court said, were sufficient to plead antitrust injury. The court, therefore, ruled that LG’s monopolization claim was adequately pleaded.

Attempted monopolization. With attempted monopolization, LG had to plead (1) specific intent to destroy competition, (2) anticompetitive conduct to accomplish that intent, (3) a dangerous probability of achieving monopoly power, and (4) antirust injury caused by the conduct. Wi-LAN contended that LG failed to establish specific intent. According to the Ninth Circuit, the "specific intent" required can be inferred from proof of predatory or anticompetitive conduct constituting an unreasonable restraint of trade (Ernest W. Hahn v. Codding, 615 F.2d 830, 845 (9th Cir. 1980)). LG’s counterclaims, the court said, contain sufficient allegations of anticompetitive conduct, willfully undertaken. As a result, the court inferred specific intent and upheld the attempted monopolization claim.

Unfair business practices. The California Supreme Court has ruled that the "unfair" prong of California’s Unfair Competition Law requires the same proof as federal antitrust violations. An adequate Sherman Act claim, therefore, will also be an adequate claim under the "unfair’ prong. As a result, the court ruled that because LG adequately stated a Sherman Act claim, it adequately stated an unfair business practice claim under California law.

Bifurcation. The court denied Wi-FAN’s motion to bifurcate the patent infringement claims from the antitrust counterclaims. The court dismissed the motion without prejudice, ruling that it was prematurely filed, given that no fact discovery had begun.

Patent unenforceability. LG alleged that one of the patents was unenforceable because Wi-FAN committed "inequitable conduct" in the pursuit of a related patent. Such a claim required both (1) an affirmative misrepresentation and (2) specific intent to deceive. LG, however, was never able to establish either one. The court concluded that a review of the history of the effort to obtain the related patent revealed no withholding of material information, as LG alleged. The party obtaining the patent (Wi-FAN’s predecessor), for example, did disclose the International Search Report to the patent office. References within that document to other documents satisfied the notice requirements for disclosing the other documents, even if those documents were not actually provided directly to the patent office. As for specific intent, the court refused to infer from the facts that the parties seeking the patent had any specific intent to deceive the patent office. As a result, the court granted Wi-FAN’s motion to dismiss the counterclaim for patent unenforceability.

This case is No. 3:18-cv-01577-H-AGS.

Attorneys: Christopher M. First (Heim, Payne & Chorush LLP) and Victor M. Felix (Procopio Cory Hargreaves and Savitch LLP) for Wi-LAN Inc., Wi-LAN USA, Inc. and Wi-LAN Labs, Inc. Benjamin Gilford (Greenberg Traurig, LLP) and Joseph S. Leventhal (Dinsmore & Shohl, LLP) for LG Electronics, Inc., LG Electronics U.S.A., Inc. and LG Electronics Mobilecomm U.S.A., Inc.

Companies: Wi-LAN Inc.; Wi-LAN USA, Inc.; Wi-LAN Labs, Inc.; LG Electronics, Inc.; LG Electronics U.S.A., Inc.; LG Electronics Mobilecomm U.S.A., Inc.

MainStory: TopStory Antitrust StateUnfairTradePractices CaliforniaNews

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