Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Microsoft sues InterDigital over abusive licensing practices for 3G and 4G cellular technologies, (Aug 21, 2015)

By Linda O’Brien, J.D., LL.M.

Technology patent holder and licensor InterDigital has engaged in an anticompetitive scheme to acquire and exploit monopoly power over technology necessary for companies to manufacture third-generation (3G) and fourth-generation (4G) cellular devices, according to a complaint filed by Microsoft in the federal district court in Wilmington, Delaware (Microsoft Mobile, Inc. v. InterDigital, Inc., August 20, 2015).

InterDigital develops wireless technologies for mobile devices, networks, and services worldwide, and focuses on licensing its patents that have been contributed to standards. Microsoft Mobile is a multinational mobile phone and mobile computing device manufacturing company based in Finland and a wholly owned subsidiary of Microsoft Corp.

According to the complaint, cellular telephones and other cellular devices must comply with the technical standards promulgated by European Telecommunications Standards Institute (ETSI), a standard setting organization (SSO). The ETSI promulgates cellular standards as drafted by its members acting through consensus. Patents, such as InterDigital’s patents, that cover these standards are referred to as “standard essential patents” (SEPs). Because a device that is in compliance with the standard has to practice each and every SEP, the owners of SEPs can, unless restrained, demand exorbitant royalties for the use of their patents.

To protect against abuses of monopoly power that SEPs provide, the ETSI’s Intellectual Property Rights (IPR) Policy mandates an irrevocable commitment by owner of potential SEPs to grant licenses on fair, reasonable, and non-discriminatory (FRAND) terms. If an ETSI participant is unwilling to commit to licensing its patents on FRAND terms, the ETSI IPR Policy makes that a dispositive consideration in whether the participant’s technologies should be considered for inclusion in the standard, the complaint states.

Microsoft alleges that, although InterDigital was aware of the consequences of a refusal to commit to license its declared SEPs on FRAND terms pursuant to ETSI IRP Policy, InterDigital falsely promised to license on FRAND terms in order to deceive ETSI members into incorporating its technologies. InterDigital’s false promises correspondingly manipulated the standard setting process to exclude alternate technologies. Although InterDigital participated in the cellular device standard setting process, InterDigital does not make or sell products that practice the resulting standards. Instead, InterDigital’s revenues are derived almost entirely from licensing its patents, the complaint claims.

After deceiving the SSO and its members, InterDigital allegedly exploited its unlawfully acquired monopoly power against Microsoft by (1) refusing to honor the commitment to license its patents on FRAND terms; (2) demanding excessive royalties from companies that sell 3G and 4G devices; (3) tying access to its U.S. patents to foreign patents along with a requirement that licensees pay royalties on global sales; (4) tying access to its SEPs to the licensing of non-essential patents; (5) misappropriating technical information submitted by other standards members to obtain patents in its name from technologies created by others; and (6) pursuing baseless infringement actions with the International Trade Commission.

The complaint also alleges that, by its practices and conduct, InterDigital has unlawfully monopolized the relevant technology markets. As the sole supplier in these markets, InterDigital has excluded all competition and has the power to charge supracompetitive prices. InterDigital’s actions are alleged to have injured competition by excluding alternate technologies and imposed unjustified costs on Microsoft and other companies that are consumers of the technologies.

The plaintiff asserts claims for monopolization in violation of Section 2 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-00723.

Attorneys: David T. Pritikin (Sidley Austin LLP), Francis DiGiovanni and Paul H. Saint-Antoine (Drinker Biddle & Reath LLP), and T. Andrew Culbert for Microsoft Mobile, Inc. and Microsoft Mobile Oy.

Companies: Microsoft Mobile, Inc.; Microsoft Mobile Oy; InterDigital, Inc.

News: Antitrust DelawareNews