Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: Zenith, Panasonic, Philips unable to dodge monopolization, conspiracy claims, (Feb 11, 2015)

By Greg Hammond, J.D.

A consumer electronics producer accused of infringing various patents has stated sufficient antitrust counterclaims against Zenith Electronics, LLC, Panasonic Corp., U.S. Philips Corp., and MPEG LA, LLC to survive a motion to dismiss. The federal district court in Los Angeles has determined that the counterclaims were adequately pleaded, and were not barred by the statute of limitations (Zenith Electronics, LLC v. Sceptre, Inc., February 5, 2015, Kronstadt, J.).

Zenith, Panasonic, Philips, and MPEG claimed that Sceptre, Inc. violated four patents that are allegedly essential for practicing certain Advanced Television Systems Committee, Inc. (ATSC) standards, which were largely adopted by the Federal Communications Commission (FCC) for the transmission and reception of digital television. Sceptre contends that the patents are invalid and are not infringed. It further brought counterclaims against Zenith, Panasonic, Philips, and MPEG, alleging that the four companies—through false representations made during the ATSC Standard setting process, and through pooling, licensing, and enforcement of the patents—engaged in monopolization, a conspiracy to maintain a monopoly, and concerted action that unreasonably restrained trade. The four counterclaim-defendants moved to dismiss.

Monopolization. Sceptre alleged that the counterclaim-defendants unlawfully monopolized the “upstream” market for ATSC Standard essential technology by falsely promising to the ATSC and FCC that they would license patents on a fair, reasonable and nondiscriminatory (FRAND) basis. Although antitrust laws do not typically prohibit monopolies granted by patents, the court noted: (1) in a consensus-oriented private standard-setting environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on FRAND terms, (3) along with the ATSC’s and FCC’s reliance on that promise when including the technology in a standard, and (4) the patent holders’ subsequent breach of that promise, is actionable anticompetitive conduct.

In addition, the court rejected the counterclaim-defendants’ arguments that Sceptre lacked standing, and that its monopolization counterclaim was barred by the statute of limitations. Specifically, the court found that Sceptre sufficiently alleged that the counterclaim-defendants—as a result of their false promises to the FCC and the resulting monopolization of essential intellectual property rights for the ATSC standard—have been able to seek supra-competitive royalties, cause customers to cease doing business with the counterclaim-defendants, and impose costs of defending this lawsuit without first offering a FRAND license. Lastly, Sceptre’s claim was brought well within the four-year statute of limitations, which began running on the counterclaim-defendants’ first alleged act of extracting the claimed supra-competitive royalty from Sceptre.

Conspiracy to monopolize. In support of its conspiracy to monopolize counterclaim, Sceptre alleged that Zenith, Panasonic, Philips, and MPEG expressly conspired and agreed to pool and license their alleged standard essential patents on non-FRAND terms to unlawfully acquire or maintain monopoly power. Although the court was uncertain whether the counterclaim-defendants would actually gain monopoly power greater or different from what they obtained as a result of the standard-setting process, it determined that it was plausible that the alleged agreement was a mechanism to maintain monopoly power by enhancing the counterclaim-defendants’ ability to exploit the alleged improperly obtained monopolies. The motion to dismiss the second counterclaim was therefore denied.

Price fixing. Sceptre also alleged that the counterclaim-defendants agreed not to compete on pricing for the royalty rate for the ATSC patent pool and to set a non-FRAND royalty rate for the pooled patents, constituting concerted action that unreasonably restrained trade. The court noted that although this type of price setting is not a per se violation of Section 1 of the Sherman Act, the arrangement may be subject to attack under the rule of reason. In addition, the court concluded that Sceptre sufficiently pleaded the facts underlying the counterclaim with particularity. The motion to dismiss this claim was consequently denied.

Cross-motions to bifurcate. In a separate order, the court denied Sceptre’s and the counterclaim-defendants’ cross-motions to bifurcate. Sceptre argued that the court should first decide the FRAND rate for the entire ATSC patent pool. However, Sceptre did not admit that it practices the patents at issue or that they are essential to the ATSC standard, so any determination of a FRAND rate could be entirely academic, the court found. Similarly, the counterclaim-defendants sought to postpone the state law and antitrust counterclaims until after the conclusion of the patent infringement case. The court, however, determined that the issues raised by the counterclaims could assist the finder of fact in separating the value of the technology from the value of its inclusion in the standard.

The case number is 2:14-cv-05150-JAK-AJW.

Attorneys: Baldassare Vinti (Proskauer Rose LLP) for Zenith Electronics, LLC, Panasonic Corp., and U.S. Philips Corp. Christine Hwang Yang (S J Christine Yang Law Offices) and Shari Mulrooney Wollman (Manatt Phelps and Phillips LLP) for Sceptre, Inc.

Companies: Zenith Electronics, LLC; Sceptre, Inc.; Panasonic Corp.; U.S. Philips Corp.; MPEG LA, LLC

Cases: Antitrust CaliforniaNews