Round 2: Fifth Circuit Dismisses Antitrust Claims Against Standard-Essential Patent Holders, Withdrawing Prior Opinion Finding Plaintiff Lacked Standing
Antitrust Litigation
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  • Round 2: Fifth Circuit Dismisses Antitrust Claims Against Standard-Essential Patent Holders, Withdrawing Prior Opinion Finding Plaintiff Lacked Standing

    On June 21, 2022, the United States Court of Appeals for the Fifth Circuit affirmed a decision dismissing Plaintiff Continental Automotive Systems’ claims challenging the alleged refusal of certain standard-essential patent holders and their licensors to issue the supplier patents on fair, reasonable, and nondiscriminatory (“FRAND”) terms under Section 1 and 2 of the Sherman Act.  Continental Automotive Sys., Inc. v. Avanci, L.L.C., No. 20-11032 (June 21, 2022).

    Plaintiff Continental Automotive Systems is an auto-parts supplier that offers automotive components utilizing cellular standards (such as 3G and 4G) to facilitate wireless music streaming, navigation, etc.  Defendant Nokia Corporation and related entities hold certain patents needed to comply with the cellular standards (“standard-essential patents” or “SEPs”).  These patent holders entered into an agreement with standard-setting organizations (“SSOs”) to license their standard-essential patents on FRAND terms.  Defendant Avanci is an agent that helps license out these standard-essential patents.  Avanci — similarly bound to license the standard-essential patents on FRAND terms — only licenses the patents to car manufacturers (which are downstream from Continental), although individual patent holders may directly license suppliers like Continental.

    Though the car manufacturers were able to obtain standard-essential patent licenses on FRAND terms, Continental claims that defendants refused to give it licenses directly on such terms.  On this basis Continental brought antitrust claims, along with other state-law claims, in federal court.  The district court dismissed those claims.

    The district court dismissed Continental’s Section 1 claims because a licensing pool’s agreement to establish royalty rates does not unreasonably restrain trade if customers still have a realistic opportunity to obtain individual licenses outside of the pool.  Because the Avanci agreement allowed the licensor defendants to independently license the standard-essential patents outside of the platform, the district court concluded that the opportunity for separate licensing defeated any Section 1 argument.

    The district court also dismissed Continental’s Section 2, monopolization claims.  The court noted that monopoly power alone is not illegal unless it is acquired or maintained through anticompetitive conduct.  The court further noted that it is not a violation of antitrust law for a patent owner to use price discrimination to maximize the patent’s value.  Further, a violation of a FRAND obligation did not automatically amount to an antitrust violation.

    Likewise, the district court held that Continental had not alleged a conspiracy to monopolize because the alleged conduct was not anticompetitive.  Continental alleged that defendants had made fraudulent FRAND declarations to the SSOs to include defendants’ SEPs in their standards.  The court reasoned that the use of deception to obtain higher prices normally has no tendency to exclude rivals and thereby diminish competition.  Therefore, the court concluded that the alleged fraudulent declarations did not constitute anticompetitive conduct.

    In its initial review of the district court’s decision, the Fifth Circuit issued an opinion on February 28, 2022 which vacated the district court’s judgment and remanded the matter with instructions to dismiss the case for lack of standing.  At the time, as discussed in our prior post, a majority of the Fifth Circuit panel held that Continental could not adequately prove the injury in fact necessary for Article III standing, and so the case should have been dismissed for lack of standing without reaching the merits.

    Following Continental’s request for rehearing, the Fifth Circuit withdrew its initial opinion and released a short, three-page revised opinion affirming the district court’s judgment that Continental had failed to state a claim.

    Though the revised opinion still dismisses the case, the consequences of the dismissal for Continental are less severe than they would be had the initial opinion stood.  Without the holding that they cannot demonstrate Article III standing, the Court of Appeal has left open the possibility for Continental to revive certain contract claims that would have been precluded under its original opinion.  Regardless of the viability of any contract claims, both the original and revised opinions are clear that the antitrust claims could not survive.  Even so, with the Fifth Circuit providing no additional reasoning and leaving the new decision unpublished, it is unlikely to have any weight as precedent.

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