Court: District Court, S.D. California; April 12, 2019; Federal District Court
The court ruled on two motions filed by Plaintiffs Wi-LAN Inc. and its affiliates against Defendants LG Electronics, Inc. and its subsidiaries. Wi-LAN's motion to dismiss LG's antitrust and unfair competition counterclaims was denied, while their motion to dismiss LG's unenforceability counterclaim was granted.
Wi-LAN initiated the lawsuit on July 11, 2018, claiming patent infringement related to several patents against LG's 4G LTE-compliant products. In response, LG counterclaimed on various grounds, including non-infringement, patent invalidity, and antitrust violations. Specifically, LG sought declaratory judgments regarding the unenforceability of the patents due to non-disclosure to standard-setting organizations and asserted claims of monopolization under the Sherman Act and unfair business practices.
The court conducted hearings and reviewed the motions filed under Federal Rule of Civil Procedure 12(c), which allows a party to seek judgment on the pleadings once the pleadings are closed but before the trial begins. The legal standards for such motions were noted to be governed by the procedural law of the regional circuit. Ultimately, the court's decisions are based on the merits of the counterclaims presented by LG.
Judgment on the pleadings is granted when all allegations in the complaint are accepted as true, no material facts are disputed, and the moving party is entitled to judgment as a matter of law, as established in Chavez v. United States. The Ninth Circuit treats motions for judgment on the pleadings under Rule 12(c) similarly to motions to dismiss under Rule 12(b)(6). A complaint must contain sufficient factual allegations to support a plausible claim for relief, as per Bell Atlantic Corp. v. Twombly, and must allow reasonable inferences of the defendant's liability, following Ashcroft v. Iqbal. Generic labels or bare assertions without factual support do not meet this standard. Courts may dismiss claims lacking a legitimate legal theory or adequate factual basis, as indicated in Mendiondo v. Centinela Hospital Medical Center. In assessing a Rule 12(b)(6) motion, courts accept factual allegations as true and draw reasonable inferences in favor of the plaintiff but do not accept legal conclusions as true. Courts may also consider documents referenced in the complaint and matters subject to judicial notice.
LG's counterclaim for monopolization under Section 2 of the Sherman Act alleges that Wi-LAN should be dismissed for failing to adequately plead such a claim. To establish a monopolization claim under Section 2, a plaintiff must demonstrate that the defendant has monopoly power in the relevant market, has willfully acquired or maintained that power through exclusionary conduct, and has caused antitrust injury, as outlined in MetroNet Services Corp. v. Qwest Corp. and Somers v. Apple, Inc.
The Court evaluates the elements of monopoly power and anticompetitive conduct in LG's claims against Wi-LAN under the Sherman Act. Wi-LAN contends that LG has not adequately alleged that it possesses monopoly power. To establish a valid claim, a plaintiff must demonstrate the existence of a relevant market and the defendant's market power therein. The Court notes that whether a relevant market exists is generally a factual question that can withstand a Rule 12(b)(6) motion unless it is clear from the complaint that the market definition is fundamentally flawed. LG claims that the relevant markets pertain to technologies competing prior to the implementation of the IEEE 802.16 and 3GPP LTE standards, which it refers to as the 'Wireless Technologies Markets.' LG asserts that Wi-LAN holds monopoly power in these markets, contingent upon the validity and enforceability of Wi-LAN's patents. It argues that if Wi-LAN’s patents are indeed essential to these standards, Wi-LAN can raise prices and limit competition, particularly due to high entry barriers and the post-standardization lock-in effect. LG's allegations suggest that Wi-LAN has extracted excessive royalties due to its asserted patents. These claims are deemed sufficient to establish that Wi-LAN has monopoly power.
Regarding anticompetitive conduct, Wi-LAN argues that LG has not plausibly alleged such conduct. However, LG contends it has sufficiently pleaded antitrust conduct through theories related to Wi-LAN's failure to disclose intellectual property rights, its false FRAND commitments, and its use of sham litigation.
To establish anticompetitive conduct based on a failure to disclose intellectual property rights (IPR), a plaintiff must demonstrate that the patent holder's non-disclosure influenced a standards-setting organization (SSO) to adopt a standard that included the essential patent. The plaintiff must allege the existence of an alternative technology that the SSO would have chosen if aware of the patent holder's IPR. Since this theory involves fraud, it must meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires detailed allegations including the specifics of the misconduct. Wi-LAN's argument that LG's claims are insufficient is countered by LG's detailed allegations regarding viable alternative technologies that were excluded due to Wi-LAN's non-disclosure.
Additionally, LG must show that Wi-LAN, not just prior patent owners, engaged in specific conduct related to these allegations. The court finds that LG has adequately alleged antitrust conduct by Wi-LAN under the failure to disclose IPR theory.
Regarding the theory of fraudulent FRAND declarations, courts recognize that such declarations can constitute monopolistic behavior. Similar to the failure to disclose theory, allegations based on fraudulent FRAND declarations must also comply with Rule 9(b)'s requirements. Wi-LAN contends that LG's claims lack specificity regarding misrepresentations. However, LG's counterclaims include sufficient details about the alleged false FRAND declarations, fulfilling the requirements of Rule 9(b).
Wi-LAN contends that LG's claims regarding Wi-LAN's intent are inadequate. LG asserts that Wi-LAN intentionally misled the IEEE, ETSI, and 3GPP by failing to disclose its inability to meet FRAND commitments, aiming to influence the inclusion of its patented technologies in standards. This allegation meets the intent pleading standard set by Rule 9(b), which allows for general allegations of intent. Wi-LAN also argues that LG's antitrust theory contradicts its intellectual property rights claims, but Rule 8 permits alternative or inconsistent factual allegations. Consequently, LG can pursue multiple theories of antitrust liability, including claims based on false FRAND declarations and failure to disclose intellectual property rights.
Regarding antitrust injury, Wi-LAN claims LG has not sufficiently demonstrated harm. For an antitrust claim, a plaintiff must show injury to competition, as established in relevant case law. LG alleges that Wi-LAN's actions threaten to exclude competitors and increase costs in the market for wireless devices, leading to higher prices and reduced innovation—sufficient to establish antitrust injury. LG's counterclaim for monopolization under Section 2 of the Sherman Act is upheld by these allegations.
Additionally, LG has filed a counterclaim for attempted monopolization, which requires demonstrating four elements: specific intent to control prices or eliminate competition, predatory conduct aimed at that goal, a significant chance of achieving monopoly power, and resulting antitrust injury. These elements are grounded in established legal precedents.
Wi-LAN's motion to dismiss LG's counterclaim for attempted monopolization is rejected, as LG has sufficiently alleged a violation of Section 2 of the Sherman Act. Wi-LAN's claim that LG fails to demonstrate specific intent for attempted monopolization is also dismissed. Specific intent can be inferred from predatory conduct that restrains trade, and LG's allegations of Wi-LAN's anticompetitive behavior in the Wireless Technologies Market support this inference. The Court finds LG's claims for attempted monopolization adequately alleged.
Regarding LG's counterclaim for unfair business practices under California Business and Professions Code § 17200, Wi-LAN argues that it should fail alongside LG's antitrust claims. However, the California Supreme Court has established that conduct threatening an antitrust violation constitutes unfair business practices. Since LG has sufficiently alleged monopolization and attempted monopolization under the Sherman Act, it has also adequately stated a claim under California’s UCL. Consequently, the Court declines to dismiss LG's counterclaim for unfair business practices.
Wi-LAN's motion to sever LG's antitrust counterclaims argues for bifurcation and a stay to promote judicial economy and reduce jury confusion. LG opposes this request, deeming it premature given the early stage of the litigation. Federal Rule of Civil Procedure 42(b) allows for separate trials to avoid prejudice and expedite proceedings, but the court retains discretion in such decisions. Bifurcation of patent and antitrust claims is common but not mandatory. The court finds Wi-LAN's request premature, noting that fact discovery has just commenced, the claim construction hearing has yet to occur, expert discovery is pending, and the trial date is a year away. As a result, the court declines to bifurcate LG's antitrust counterclaims, allowing Wi-LAN the opportunity to renew its motion later.
Regarding LG's counterclaim for unenforceability of the '351 patent, LG alleges that inequitable conduct occurred during the prosecution of its parent patent, U.S. Patent No. 7,333,435, rendering the '351 patent unenforceable under the doctrine of infectious unenforceability. Wi-LAN contends that LG's allegations are insufficient to prove inequitable conduct. Inequitable conduct, which can bar patent enforcement if proven, requires proof of a material misrepresentation or failure to disclose, coupled with intent to deceive the Patent and Trademark Office (PTO).
A claim for inequitable conduct necessitates proof of both materiality and intent to deceive, as established by the Federal Circuit in Therasense. The intent to deceive cannot be inferred solely from materiality, and a misrepresentation is deemed but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed information. The specific intent to deceive must be the most reasonable inference from the evidence; if multiple inferences exist, the claim fails. Under Federal Rule of Civil Procedure 9(b), inequitable conduct claims must be pled with particularity, detailing the specific who, what, when, where, and how regarding the misrepresentation or omission. Although knowledge and intent can be generally averred, specific underlying facts must be provided to indicate that a particular individual knew of and withheld material information with intent to deceive the PTO. Wi-LAN contends that LG's allegations of withholding material information to support its unenforceability counterclaim are untrue, citing a review of the prosecution history. To establish unenforceability due to inequitable conduct, LG must allege that someone associated with the patent application made a material misrepresentation, failed to disclose, or submitted false information. LG claims that during the prosecution of the '435 patent, key documents were not disclosed, including the International Search Report and the Emanuel reference. However, Wi-LAN asserts that the prosecution history shows the International Search Report was disclosed, which the Court agrees with based on judicial notice of the prosecution records. The prosecution history confirms that the International Search Report, which identifies the Emanuel reference, was indeed provided to the PTO.
LG's allegations concede that the inventor and his counsel submitted an International Search Report (ISR) to the PTO, which confirmed its inclusion in the application file. This contradicts LG's claim that the ISR was undisclosed. LG contends that its counterclaim is based on the inventor's failure to disclose the Emanuel reference and its foreign counterparts, along with two examination reports. However, the prosecution history indicates that the ISR, which included the Emanuel reference as a U.S. patent application, was indeed disclosed.
LG argues that the ISR submission does not fulfill the duty to disclose under PTO regulations, specifically citing MPEP § 609.03 and 1893.03(g). MPEP § 609.03 states that for a PCT national stage application, the examiner will consider documents cited in the ISR only if both the ISR and the referenced documents are present in the national stage file. LG notes that the PTO's acceptance form for the '435 patent only indicates the ISR's presence and does not mention the inclusion of the Emanuel reference copies.
Despite this, MPEP § 609.03 clarifies that listing the Emanuel reference in the ISR is sufficient for PTO consideration, particularly since U.S. patents or applications do not require submission of copies per 37 CFR § 1.98. The Emanuel reference is categorized as a U.S. patent application publication, exempting it from the requirement for a legible copy. Thus, the references listed in the ISR, including the Emanuel reference, are deemed considered by the PTO under the relevant MPEP provisions.
The submission of the international search report, which included the Emanuel reference as a published U.S. patent application, sufficiently disclosed this reference to the PTO under section 609.03. LG argued that the examiner did not consider Emanuel as listed on the PTO-892 form for the '435 patent, but this is irrelevant since section 609.03 does not require such listing if a reference is disclosed via an international search report. Additionally, LG claimed inequitable conduct based on the failure to disclose Emanuel’s foreign counterparts and two examination reports; however, LG did not adequately explain how these references would be non-cumulative to the Emanuel reference. According to 37 C.F.R. § 1.56(b), information is only material if it is not cumulative of what is already on record. The court referenced case law indicating that a patentee is not obliged to disclose cumulative references.
Moreover, LG failed to adequately allege the intent necessary for inequitable conduct claims, which requires sufficient factual allegations that allow for a reasonable inference of specific intent to deceive the PTO. The prosecution history indicates that the inventor and counsel disclosed the International Search Report, including the Emanuel reference, and were not required to submit a separate copy of this reference under 37 C.F.R. § 1.98. The examiner did not inform the inventor or counsel that the Emanuel reference would not be considered or that an information disclosure statement was necessary. Therefore, it cannot be inferred that there was an intent to deceive regarding the Emanuel reference. Ultimately, LG did not properly state a counterclaim for unenforceability of the '351 patent, leading the court to dismiss LG’s counterclaim for a declaratory judgment of unenforceability due to infectious unenforceability.
The Court dismisses LG's counterclaim for unenforceability of the '435 patent with prejudice, ruling that the defects cannot be remedied through amendment, as supported by the prosecution history. The dismissal is based on the precedent set in Telesaurus VPC, LLC v. Power, which allows courts to deny leave to amend if no additional facts could correct the deficiencies or if the plaintiff has previously failed to amend. Wi-LAN's Rule 12(c) motion to dismiss LG's antitrust and unfair competition counterclaims is denied, while the motion to dismiss LG's infectious unenforceability counterclaim regarding the '351 patent is granted, also with prejudice. The case will continue with the remaining claims. Wi-LAN points out inconsistencies in LG's allegations concerning patent infringement, which do not affect the proceedings due to Federal Rule of Civil Procedure 8 permitting alternative and inconsistent pleadings. The Court further emphasizes that LG's allegations concerning antitrust conduct are sufficient to support its monopolization counterclaim, thus deferring additional arguments from Wi-LAN regarding sham litigation. The prosecution history of the '435 patent is deemed relevant under the incorporation by reference doctrine, as LG's counterclaims rely heavily on it, despite not being attached to the complaint. The Court concludes that the prosecution history does not indicate that the patent examiner provided specific notice regarding certain procedural guidelines.
