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Apple's Antitrust Claims Against Samsung Dismissed

Tuesday, October 25, 2011

Alexandra Kay | Bloomberg Law Apple Inc. v. Samsung Electronics Co., Ltd., No. 11-CV-01846-LHK, 2011 BL 268464 (N.D. Cal. Oct. 18, 2011) Apple Inc.'s counterclaims alleging that Samsung Electronics Co. violated the Sherman Act and California's Unfair Competition Law by failing to disclose its intellectual property rights to a wireless industry standard-setting organization and by making misleading statements about its intent to license patents were dismissed by the U.S. District Court for the Northern District of California. The court held that Apple's failure to allege sufficient monopoly power or that Samsung acted in concert with another party warranted dismissal of its antitrust counterclaims. The court also granted Samsung's motion to strike certain counterclaims as duplicative.

Apple and Samsung Intellectual Property Litigation Leads to Antitrust Claims

Apple brought this action against Samsung alleging that Samsung's galaxy cell phones and computer tablets infringed Apple's trade dress, trademarks, and utility and design patents. Samsung asserted counterclaims against Apple alleging that Apple's products infringed upon 12 of Samsung's patents. In response, Apple asserted additional counterclaims alleging that Samsung violated federal and state antitrust laws and the California Unfair Competition law by defrauding the standard-setting organization (SSO) that sets universal mobile telecommunications standards (UMTS), inducing the SSO to adopt Samsung's declared-essential patents, and refusing to license its declared-essential patents on fair, reasonable, and non-discriminatory (FRAND) terms. As the court explained, SSOs play an important and pro-competitive role in the wireless communications industry by developing technical standards across the industry which facilitates compatibility across products and networks. Apple and Samsung are both members of an SSO involved in setting the standards for mobile wireless carrier technology, including the UMTS standard. Under the terms of the SSO's policy, Samsung had a duty to disclose its intellectual property rights in the technology that was essential, or might be essential, for the standards that it proposed. According to Apple, Samsung failed to disclose its intellectual property rights during the standard-setting process for UMTS and proposed a UMTS standard that incorporated its patented technology. Apple also alleged that Samsung falsely agreed to license its declared-essential patents on FRAND terms, thereby inducing the SSO to adopt Samsung's patents into its proposed standard. Apple claimed that Samsung subsequently refused to license its declared-essential patents on FRAND terms. Thus, according to Apple, the SSO relied upon Samsung's failure to disclose in adopting the Samsung-proposed standards – and absent Samsung's fraudulent behavior, the SSO would not have adopted the standard proposed by Samsung. Samsung moved to dismiss Apple's counterclaims in reply.

Apple Fails to Establish Monopoly Power

Apple argued that Samsung obtained monopoly power by: (1) failing to disclose its intellectual property rights in the declared-essential patents and (2) affirmatively misrepresenting its intent to license its declared-essential patents on FRAND terms. According to Apple, Samsung used this monopoly power to harm competition. The court evaluated these two theories of monopoly power and determined that Apple's pleading was deficient. Although intentionally fraudulent declarations to standard-setting organizations regarding licenses with FRAND terms may give rise to actionable Section 2 claims, the court found that Apple's allegations failed to meet the heightened pleading standard for fraud claims. Apple did not identify who made the allegedly fraudulent declarations, when, or for which patents the declarations were made. Thus, Apple's first theory was deficient. The court observed that under Apple's intellectual property rights theory, Apple must allege that there was an alternative technology that the SSO was considering and that it would have adopted the alternative standard had it known of Samsung's intellectual property rights. The court concluded that Apple pleaded with sufficient particularity facts supporting Samsung's alleged anticompetitive conduct with respect to its nondisclosure of intellectual property rights. But Apple only offered conclusory allegations that, had Samsung properly disclosed its intellectual property rights, the SSO would have adopted a viable alternative technology or declined to incorporate Samsung's proposal into its standard. The allegations therefore failed to meet the pleading standards set forth in Fed.R.Civ.P. 8, and thus dismissal was warranted.

Antitrust Injury Adequately Alleged

Although Apple's monopoly conduct pleading deficiencies warranted dismissal, the court nevertheless considered Samsung's additional argument that Apple failed to allege antitrust injury, in the event Apple amended its claims. Disagreeing with Samsung, the court found that Apple alleged harms to it as a competitor as well as alleged harm to competition. Apple claimed, inter alia, that Samsung's conduct unlawfully threatened to exclude rivals from the manufacture and sale of downstream wireless communication devices that implement the UMTS standard, which would chill competition, increase prices, and decrease quality and innovation. Thus, at this stage, Apple had alleged facts sufficient to support a plausible theory of anticompetitive harm.

Apple Fails to Allege that Samsung Acted in Concert

Apple's Section 1 claims failed, the court ruled, because "[a]n allegation that Samsung unilaterally subverted a collaborative standard-setting process in order to restrain trade is not the equivalent of an allegation that Samsung contracted with, combined with, or conspired with other members of the collaborative body to restrain trade." Apple at 11. Apple's Section 1 claim failed to allege that Samsung acted in concert with another party, and this deficiency was fatal to its Section 1 claim. Apple's reliance upon Helix milling Co. v. Terminal Flour Mills Co., 523 F.2d 1317 (9th Cir. 1975) and Spectators' Commun. Network Inc. v. Colonial Country Club, 253 F.3d 215, 222 (5th Cir. 2001) for the proposition that the second party need not be a "willing" participant in the alleged conspiracy was misplaced, according to the court. Helix did not address the situation presented here, where the SSO was allegedly defrauded and therefore necessarily did not know it was engaging in the conduct alleged to harm competition. Similarly, Spectators was distinguishable because it did not address whether "the unilateral and fraudulent actions of an individual may be sufficient to establish a concerted action between two parties as is required for a Section 1 claim." Id. at 12.

California UCL Claims Fail

To state a claim under Cal. Bus. & Prof. Code § 17200, the court wrote, Apple must allege that Samsung's conduct violated a predicate statute or law, was fraudulent, or unfairly harmed competition. Because the court found Apple's UCL claim was not materially different from Apple's federal antitrust claims, the court granted Samsung's motion to dismiss.

Court Grants Samsung's Motions to Strike Two of Apple's Counterclaims

Samsung also moved to strike three of Apple's counterclaims as duplicative and unnecessary in light of the affirmative defenses and other counterclaims raised by Apple. The court disagreed as to Apple's claim seeking a declaratory judgment that Apple is licensed to Samsung's declared-essential patents and a determination of the applicable royalty rate of the licenses. These issues may not necessarily be determined in the course of adjudicating the other claims, according to the court, and thus the motion to strike that claim was denied. The court granted Samsung's motion to strike two of Apple's other declaratory judgment claims, finding that they "offer no useful purpose, separate and apart from the 'mirror image' affirmative defenses already contained elsewhere in Apple's counterclaims." Id. at 14. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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