Antitrust Law Daily Wrap Up, ANTITRUST NEWS: LSI charged with monopolization of Wi-Fi, video compression technology markets, (Mar 14, 2016)

By Linda O’Brien, J.D., LL.M.

Semiconductor manufacturer LSI Corporation has obtained monopoly power in the input technology market by making false and deceptive commitments during the intellectual property rights standard-setting process, according to a complaint filed in the federal district court in San Jose, California (Funai Electric Co., Ltd. v. LSI Corporation, March 11, 2016).

Funai Electric Co., Ltd. is a Japanese manufacturer and supplier of consumer electronics and computers. LSI Corporation designs semiconductors and software that accelerate storage and networking in data centers, mobile networks, and client computing.

Funai’s complaint states that LSI holds U.S. Patent Nos. 6,452,958 (the '958 patent) and 6,707,867 (the '867 patent) and claims that these patents are “essential” to a widely practiced standard for wireless Internet connectivity known as “WLAN,” “Wi-Fi,” or “802.11.” LSI also holds U.S. Patent No. 6,982,663 (the '663 patent) and claims that this patent is essential to a widely practiced standard for video compression used by the MPEG-4 codec known as the “H.264” standard.

The Institute of Electrical and Electronics Engineers (IEEE) promulgates technical standards in various fields, including telecommunications. Prior to the release of the 802.11 or WLAN protocols, LSI submitted Letters of Assurances to the IEE, guaranteeing that any essential patents they held would be licensed under “fair, reasonable, and non-discriminatory” (FRAND) terms. In reliance on these Letters of Assurances, the IEEE released the 802.11 standard which LSI asserted incorporated its patented technology, the complaint alleges.

The complaint also claims that the International Telecommunications Union (ITU) and ISO/IEC Moving Picture Experts Group maintain a common patent policy to ensure compatibility of technologies and systems on a worldwide basis. Prior to the release of the H.264 standard, LSI submitted a licensing declaration to the ITU, which included a promise to license the identified patents on FRAND terms.

According to the complaint, Funai invested substantial resources and developed products compatible with WLAN connectivity in reliance on LSI’s commitment to seek royalties on reasonable and non-discriminatory terms. Funai also invested substantial resources and developed products compatible with the H.264 standard in reliance on LSI’s commitment to seek royalties on reasonable and non-discriminatory terms. However, LSI has refused to license the '958 patent, '867 patent, or '663 patent unless Funai agrees to pay royalties on unreasonable and exorbitant terms. Additionally, LSI has filed patent infringement actions with the ITC and in federal district court, in breach of its commitments to license those patents on FRAND terms. After four years of litigation, LSI voluntarily dismissed the district court without any justification. After a hearing, ITU determined that Funai did not infringe any asserted claim of the '958 patent, '867 patent, or '663 patent.

Prior to the adoption of the 802.11 and H.264 standards, alternative technologies existed. Had LSI disclosed its unwillingness to abide by its FRAND obligations with respect to the '958 patent, '867 patent, and '663 patent, the IEEE and ITU would have decided to standardize an alternative technology to perform relevant functions. LSI has obtained monopoly power to raise prices in the input technologies market by failing to live up to its FRAND commitments, the complaint states.

Funai asserts claims for breach of contract, promissory estoppel, unlawful monopolization, and unfair competition in violation of Section 2 of the Sherman Act and California’s Unfair Competition Law. The action seeks declaratory and injunctive relief, an accounting, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:16-cv-01210-NC.

Attorneys: Kevin W. Kirsch (Baker & Hostetler LLP) for Funai Electric Co., Ltd.

Companies: Funai Electric Co., Ltd.; LSI Corporation

News: Antitrust CaliforniaNews