Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Technology developer charged with abusing standard-setting process to license its SEPs at supra-competitive prices, (Apr 16, 2015)

By Linda O’Brien, J.D., LL.M.

A developer of wireless technologies has exploited its monopoly power through the abuse of the standard-setting process and has made false and misleading representations to standard setting organizations in order to induce the adoption of standards relating to its patents and then leveraging those patents to charge supra-competitive licensing fees, according to a complaint filed in the federal district court in San Jose, California (ASUS Computer International v. Interdigital, Inc., April 15, 2015).

Taiwan corporation ASUSTeK Computer, and its domestic subsidiary, ASUS Computer International are technology companies that design and develop information technology products such as smartphones, personal computer components, notebooks, tablets, and servers. InterDigital (IDC) develops wireless technologies by acquiring U.S. and foreign patents and entering into licensing agreements with wireless companies. InterDigital’s business strategy is to focus on licensing their patents that have contributed to standards for communication technology.

The European Telecommunications Standardization Institute (ETSI) sets standards for cellular telecommunications and the Institute of Electrical and Electronics Engineers Standards Association (IEEE) standardizes wireless local area networks and other communication technology.

The complaint states that patent rights covering technologies that standard-setting organizations (SSOs) adopt as the standard create the potential for anticompetitive behavior in the standard-setting process. Specifically, a company that purports to own one or more standard essential patents (SEPs) and is free from an effective constraint on its licensing has the potential to exercise monopoly power in the technologies covered by its patents. Once a patent becomes essential to a standard, a prospective licensee has no alternative to licensing the patent and the SEP owner can demand exorbitant prices in excess of any actual contribution of its patented technology to the licensed patent.

According to the complaint, IDC is a member of ETSI and IEEE and has actively participated in standard setting. As a result of its concerted efforts within SSOs, IDC holds thousands of declared SEPs. Along with its participation in standard setting, IDC has declared that it will license its patents on fair, reasonable, and nondiscriminatory (FRAND) terms. In reliance on the integrity of the SSO process and on the commitment made by IDC, ASUS began developing and selling compatible products and implementing off-the-shelf chips used by mobile device manufacturers that incorporate telecommunications and wireless standards.

The complaint also alleges that IDC has exploited its market power obtained through the standard-setting process by refusing to honor its FRAND commitment and to provide licenses under fair and reasonable terms and conditions. Furthermore, IDC’s licensing demands of ASUS are discriminatory by conducting licensing negotiations in secret and requiring that potential licensees enter into nondisclosure agreements in order to keep secret the terms of its licenses.

Recently, IDC’s litigation efforts have exposed its licensing conduct and that its representations to ASUS were false and misleading. Specifically, in October 2013, the Guangdong High Court of China rules that IDC was a monopolist by demanding supra-competitive royalties, illegally bundling essential and nonessential patents, illegally demanding a royalty free cross license, and illegally threatening injunctive relief.

The plaintiffs assert claims for breach of contract, promissory estoppel, waiver, fraudulent inducement to contract, and violations of Section 2 of the Sherman Act and California’s Unfair Competition Law. The action seeks declaratory relief, disgorgement, treble and punitive damages, interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:15-cv-01716.

Attorneys: Brian R. Nester, M. Patricia Thayer, and Richard A. Cederoth (Sidley Austin LLP) for ASUS Computer International and ASUSTeK Computer Incorporated.

Companies: ASUS Computer International; ASUSTeK Computer Incorporated; InterDigital, Inc.; InterDigital Communications, Inc.; InterDigital Technology Corporation; IPR Licensing, Inc.; InterDigital Patent Holdings, Inc.

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