Antitrust Law Daily Wrap Up, ANTITRUST—D. Del.: Microsoft’s monopolization claims stand against wireless technologies company, (Apr 14, 2016)

By Greg Hammond, J.D.

Microsoft Mobile Inc. has sufficiently alleged monopoly power, anticompetitive conduct, and antitrust injury to support claims that a wireless technologies company engaged in unlawful monopolization with regard to its standard-essential patented technology incorporated in 3G and 4G standards. The federal district court in Wilmington consequently denied the wireless technologies company’s motion to dismiss the Sherman Act monopolization claims (Microsoft Mobile Inc. v. InterDigital, Inc., April 13, 2016, Andrews, R.).

Microsoft alleged that InterDigital and its affiliated companies induced the European Telecommunications Standards Institute (ETSI)—a standard-setting organization that promulgates standards with which cellular devices must comply in order to effectively communicate with wireless network infrastructure—to incorporate InterDigital’s patented technology into the 3G and 4G standards by falsely promising to license its standard-essential patents (SEPs) on fair, reasonable, and non-discriminatory or “FRAND” terms. Instead, Microsoft claimed that InterDigital unlawfully acquired monopoly power and exploited this power by refusing to honor its FRAND licensing obligations, double dipping royalty demands, tying U.S. patent licenses to foreign patent licenses, tying SEP licenses to non-essential patent licenses, and requiring royalties on worldwide sales. InterDigital moved to dismiss.

Monopoly power. Allegations that InterDigital’s technology was not interchangeable with or substitutable for other technologies, adherents to the relevant standard have become “locked in,” InterDigital had the power to extract supracompetitive prices, it possessed a dominant market share, and the market had entry barriers, were sufficient to allege monopoly power. Microsoft defined the relevant markets as the markets for technologies covered by the InterDigital patents that are essential, or alleged to be essential, to the 3G and 4G cellular standards, together with all other alternative technologies to the InterDigital patents that could have been used in the cellular standards.

Anticompetitive conduct. Microsoft also adequately showed anticompetitive conduct by alleging that InterDigital made an intentional false promise that it would license its technology on FRAND terms, on which promise ETSI relied in choosing the technology for inclusion in the relevant standards; that this conduct induced ETSI to adopt a technology that they would not have considered absent a FRAND commitment; and that InterDigital refused to comply with its FRAND licensing obligations.

Antitrust injury. The complaint sufficiently alleged antitrust injury, the court next decided. Microsoft claimed that: (1) InterDigital’s wrongful conduct prevented Microsoft from obtaining access to necessary technology in the relevant markets; (2) there is a substantial threat that Microsoft will be forced to capitulate to InterDigital’s supra-competitive licensing demands; (3) the artificial imposition of higher costs on Microsoft threatens further loss of market share, as does the threat of an exclusion order; (4) the downstream market is injured in the form of higher prices, reduced innovation, and more limited choices for such standard-compliant products; (5) an exclusion order creates uncertainty as to Microsoft’s line of cellular devices, which threatens to erode customer loyalty, brand recognition, and customer goodwill; and (6) Microsoft is threated with additional harm in the form of the loss of customers and potential customers, the loss of product image and goodwill, and other irreparable harm to its line of cellular devices.

Causal connection. Concluding that InterDigital’s deceptive conduct before ETSI suffices to make out a Section 2 monopolization claim with injury tied to that deception, the court next determined that InterDigital’s litigation conduct was “causally connected” to that behavior and therefore properly included in an anticompetitive scheme allegation. InterDigital’s suits to enforce its purported SEPs were part of the way in which InterDigital accomplished its alleged anticompetitive scheme, the court stated.

The allegations also were pleaded with sufficient particularity under Federal Rule of Civil Procedure 9(b), according to the court, because the 19 declarations that InterDigital submitted to ETSI identified when the false FRAND declarations were made, by whom, and for which patents. Lastly, because the complaint alleged misrepresentations that occurred as late as September 2014 and that InterDigital is engaged in an ongoing scheme that has resulted in continuing injury, InterDigital’s statute of limitations argument—that the claims accrued more than four years prior to filing—failed.

The case is No. 15-723-RGA.

Attorneys: Francis Digiovanni (Drinker Biddle & Reath LLP) for Microsoft Mobile, Inc. and Microsoft Mobile Oy. Eve H. Ormerod (Smith, Katzenstein, & Jenkins LLP) for InterDigital, Inc., InterDigital Communications Inc., and InterDigital Technology Corp.

Companies: Microsoft Mobile, Inc.; Microsoft Mobile Oy; InterDigital, Inc.; InterDigital Communications Inc.; InterDigital Technology Corp.

Cases: Antitrust DelawareNews