Shah v. Qualcomm Incorporated et al
Filing
59
ORDER denying 40 Defendant's Motion to Dismiss. Signed by Judge John A. Houston on 3/18/2019. (jpp)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
SOUTHERN DISTRICT OF CALIFORNIA
10
11
12
In re Qualcomm Incorporated Securities
Litigation,
Case No.: 17cv00121 JAH-WVG
ORDER DENYING DEFENDANTS'
MOTION TO DISMISS [Doc. No. 40]
13
14
15
16
17
INTRODUCTION
18
19
Plaintiff Rasesh Shah originally filed a complaint on January 23, 2017. On March
20
24, 2017, Sjunde Afonden and Metzler Asset Management GMBH sought appointment as
21
lead plaintiff, approval of their counsel and consolidation of the action with related
22
actions.1
23
consolidated class action complaint asserting violation of federal securities laws against
24
Qualcomm Inc., Derek K. Aberle, Steven R. Altman, Donald J. Rosenberg, William F.
25
26
27
28
The Court granted the unopposed motion.2
Thereafter, Plaintiffs filed a
Shah v. Qualcomm Inc., 17cv121 JAH-WVG and Feenstra v. Qualcomm Inc., 17cv155
JAH-WVG.
2
Two other motions for appointment as lead plaintiff were withdrawn.
1
1
17cv00121 JAH-WVG
1
Davidson, Jr., Paul E. Jacobs, and Steven Mollenkopf. Plaintiffs allege Defendants made
2
a “false representation that it licensed its standard-essential patents on a non-discriminatory
3
basis to the entire cellular communications industry” but, instead, exploited its position and
4
drove competitors out of business. Complaint ¶ 1, 6, 10. Anti-competition regulators
5
charged or found Qualcomm liable for violating competition law based on its actions
6
resulting in its stock price plummeting 33% and causing investors to incur billions of
7
dollars in damage. Id. ¶ 2, 12, 16.
8
In response, Defendants filed a motion to dismiss the complaint for failure to state a
9
claim. Plaintiffs filed a response and Defendant filed a reply. Finding the motion suitable
10
for disposition on the papers, the Court vacated the hearing and took the matter under
11
submission. After a review of the parties’ submissions and for the reasons discussed below,
12
the Court DENIES Defendants’ motion to dismiss.
13
LEGAL STANDARD
14
Defendants seek dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6).
15
Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732
16
(9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a
17
cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th
18
Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) (“Rule 12(b)(6) authorizes
19
a court to dismiss a claim on the basis of a dispositive issue of law.”). Alternatively, a
20
complaint may be dismissed where it presents a cognizable legal theory yet fails to plead
21
essential facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not
22
give “detailed factual allegations,” he must plead sufficient facts that, if true, “raise a right
23
to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545
24
(2007).
25
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
26
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
27
556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially
28
plausible when the factual allegations permit “the court to draw the reasonable inference
2
17cv00121 JAH-WVG
1
that the defendant is liable for the misconduct alleged.” Id. In other words, “the non-
2
conclusory ‘factual content,’ and reasonable inferences from that content, must be
3
plausibly suggestive of a claim entitling the plaintiff to relief. Moss v. U.S. Secret Service,
4
572 F.3d 962, 969 (9th Cir. 2009). “Determining whether a complaint states a plausible
5
claim for relief will ... be a context-specific task that requires the reviewing court to draw
6
on its judicial experience and common sense.” Iqbal, 556 U.S. at 679.
7
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the
8
truth of all factual allegations and must construe all inferences from them in the light most
9
favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002);
10
Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal
11
conclusions need not be taken as true merely because they are cast in the form of factual
12
allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003); Western Mining
13
Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss,
14
the Court may consider the facts alleged in the complaint, documents attached to the
15
complaint, documents relied upon but not attached to the complaint when authenticity is
16
not contested, and matters of which the Court takes judicial notice. Lee v. City of Los
17
Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). If a court determines that a complaint fails
18
to state a claim, the court should grant leave to amend unless it determines that the pleading
19
could not possibly be cured by the allegation of other facts. See Doe v. United States, 58
20
F.3d 494, 497 (9th Cir. 1995).
21
22
DISCUSSION
Defendant seeks dismissal of the complaint with prejudice for failure to state a claim
23
for violation of sections 10(b) and 20(a) of the Exchange Act.
24
I. Section 10(b) Claim
25
Defendants contend Plaintiffs fail to allege a misrepresentation or a misleading
26
omission with particularity and fail to allege scienter to assert a claim for violation of
27
Section 10(b). Section 10(b) of the Exchange Act makes it unlawful, in connection with
28
the purchase or sale of any security, (1) to engage in fraud; (2) to make an untrue statement
3
17cv00121 JAH-WVG
1
regarding a material fact; or (3) to make a misleading statement by omitting a material fact.
2
15 U.S.C. § 78j; 17 C.F.R. § 240.10b-5. Thus, the basic elements of a claim are: (1) a
3
material misrepresentation or omission of fact; (2) scienter; (3) a connection with the
4
purchase or sale of a security; (4) transaction and loss causation; and (5) economic loss.
5
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341 (2005).
6
In order to survive a motion to dismiss, claims brought under Section 10(b) must
7
satisfy three pleading standards: (1) the general requirement of a “short and plan statement
8
of the claim” established by Federal Rule of Civil Procedure 8(a); (2) the particularity
9
requirements of Rule 9(b) of the Federal Rules of Civil Procedure; and (3) the heightened
10
pleading requirements of the Private Securities Litigation Reform Act of 1995 (“PSLRA”).
11
See In re Daou Systems, Inc., 411 F.3d 1006, 1014 (9th Cir. 2005)(citing Semegen v.
12
Weidner, 780 F.2d 727, 729 (9th Cir. 1985); Neubronner v. Milken, 6 F.3d 666, 671 (9th
13
Cir. 1993). Under the PSLRA, a securities fraud complaint must now “specify each
14
statement alleged to have been misleading, the reason or reasons why the statement is
15
misleading, and, if an allegation regarding the statement or omission is made on
16
information and belief, the complaint shall state with particularity all facts on which that
17
belief is formed.” Gompper v. VISX, Inc., 298 F.3d 893, 895 (9th Cir. 2002) (citing 15
18
U.S.C. 78u-4(b)(1)).
19
A. Materially False or Misleading Statements or Omissions
20
Defendants contend Plaintiffs cannot base a securities claim on Defendants’ failure
21
to accuse themselves of wrongdoing, Plaintiffs fail to plead that any of the statements they
22
challenge are misleading, and each one of the challenged statements is an inactionable
23
statement of “puffery” or opinion.
24
Plaintiffs argue they sufficiently allege numerous actionable statements and
25
omissions. Specifically, Plaintiffs argue Defendants misled investors that Qualcomm
26
offered licenses to the entire cellular industry, including Defendants’ assertions that:
27
28
4
17cv00121 JAH-WVG
1
Qualcomm “make[s] [its patents] available to the industry through its licensing
program. . . . It allows more and more competition to get into the marketplace where
there is no way they would be able to otherwise.” Complaint ¶¶157-58.
2
3
“[W]e figured out that the right business model was to actually focus on licensing
the inventions, essentially through the standards bodies so that the entire market
could play, instead of practicing the inventions ourselves. . . .” Id. ¶¶168-69.
4
5
6
“[W]e broadly license our portfolio of U.S. and foreign patents to virtually every
manufacturer in the mobile industry.” Id. ¶¶136-37.
7
8
We license “to interested companies on terms that are . . . free from unfair
discrimination.” Id. ¶¶138-39, 151-52.
9
10
Qualcomm “created this unique business model of not holding our patents to
ourselves to advantage our own products, but creating a product of them and broadly
licensing them on a pro-active basis.” Id. ¶¶161-62.
11
12
13
Plaintiffs contend the statements were false, misleading, and omitted material facts
14
because Qualcomm refused to license its patents to an entire segment of the industry,
15
namely rival chipset manufacturers, while touting its “non-discriminatory” licensing to the
16
industry.
17
1. No duty to Accuse Itself of Wrongdoing
18
Defendants maintain, in this circuit, a defendant does not have an affirmative duty
19
to accuse itself of wrongdoing, rather, the law provides that a defendant’s culpability need
20
not be disclosed until it is at least charged or proven. Defendants contend the complaint
21
contains no allegation that Defendants failed to disclose any dispute concerning
22
Qualcomm’s compliance with the antitrust laws or FRAND3 commitments. Instead, they
23
24
25
26
27
28
According to Plaintiffs, wireless industry participants required Qualcomm to commit to
the industry’s standard-setting bodies that they would license Qualcomm’s patents
essential to the Code-Division Multiple Access (“CDMA”) standard to all companies on
a “fair, reasonable, and non-discriminatory basis” and Qualcomm and its executives
made and reaffirmed this commitment, known as the “FRAND” commitment, prior to
3
5
17cv00121 JAH-WVG
1
maintain, Plaintiffs build their case around the idea that Defendants disclosed the
2
allegations against them but were also required to disclose that the allegations were true at
3
some point before. Defendants argue, even if Qualcomm had committed any of the
4
relevant violations, they had no duty to disclose any potentially illegal conduct the instant
5
it was committed. Defendants argue Plaintiffs’ purported securities claim, which was
6
created by cherry-picking and misconstruing the disclosures Plaintiffs challenge and by
7
applying meaning to those statements that is not reasonably supported, should be rejected.
8
Plaintiffs argue Defendants incorrectly claim Plaintiffs allege a duty to admit to
9
antitrust violations. Plaintiffs maintain they allege that Defendants, in touting Qualcomm’s
10
licensing practices, were required to do so in a truthful and non-misleading manner,
11
including by disclosing Qualcomm’s policy of refusing to license competitors. Therefore,
12
they argue, Defendant inaccurately represented its business practices to investors.
13
In reply, Defendant contends Plaintiffs’ approach that Defendants had to disclose
14
certain business practices fails because the business practices are relevant to investors only
15
because Plaintiffs believe the practices are unlawful. Because Plaintiffs offer no argument
16
as to why Qualcomm had to disclose it was committing antitrust violations when it believed
17
it was not, Defendants argue, the complaint fails.
18
In the complaint, Plaintiffs allege Defendants falsely represented it licensed its
19
standard-essential patents on a non-discriminatory basis and did not “bundle” the terms of
20
its license and chipset agreements, but, instead, it exploited its position to suppress
21
competition, drive out its rivals and extract supra-competitive royalties by refusing to offer
22
licenses and doling out royalty relief to those that agreed to purchase its chipsets.
23
Complaint ¶ 1, 5-7, 10, 11, 13-15, 50, 51, 64-66, 69-74, 76, 77, 79, 80, 83, 84, 86-90, 96,
24
100-103, 106-112, 120, 130, 131, 133, 135-187, 220. They further allege regulators
25
26
27
28
adopting Qualcomm’s CDMA as a cellular standard to allow cellular devices and cellular
networks to interact. Complaint ¶¶ 4, 5.
6
17cv00121 JAH-WVG
1
brought enforcement actions against Qualcomm for its anti-competitive licensing model
2
resulting in the stock price plummeting. Id. ¶ 2, 12, 80, 92, 93, 95, 121-126, 129, 211, 213,
3
216, 217, 221, 224, 225, 229, 230, 232-234.
4
A company is not required to accuse itself of wrongdoing. In re Volkswagen “clean
5
Diesel” Marketing, Sales Practices, and Products Liability Litigation, 258 F.Supp.3d 1037
6
(N.D.Cal. 2017) (citing In re Citigroup, Inc. Securities Litigation, 330 F.Supp.2d 367
7
(S.D.NY. 2004). However, a defendant who chooses to tout positive information to the
8
market is obligated to do so in a manner that will not mislead investors. Schueneman v.
9
Arena Pharmaceuticals, Inc., 840 F.3d 698, 706 (9th Cir. 2016) (citations omitted); see also
10
In re Providian Financial Corp. Securities Litigation, 152 F.supp.2d 814, 824-25
11
(E.D.Penn. 2001) (Reasoning that, while the defendant had no duty to disparage its
12
business practices, when it put the issue of its success in play by making statements
13
attributing its success to a certain business practice, it was required to disclose information
14
concerning the source of its success).
15
The Court finds Plaintiffs do not seek to impose liability for Defendants’ failure to
16
accuse itself of wrongdoing.
17
statements regarding their business practices of providing licenses in a non-discriminatory
18
manner were false.
19
2. False or Misleading
Rather, the allegations claim Defendants’ affirmative
20
Defendant contends none of Plaintiffs’ four categories of alleged misstatements, (a)
21
broad and non-discriminatory licensing practices, (b) decades long practices, (c) separate
22
businesses, (d) competitiveness, is false or misleading to a reasonable investor, particularly
23
when considered fairly and in context.
24
a. Broad and Non-discriminatory Licensing Practices
25
Defendants maintain their statements are accurate on their face and the public
26
statements made it clear to investors that Qualcomm does not license chipset makers.
27
Specifically, they contend the statement that Qualcomm makes its patents available to the
28
industry through its licensing program is consistent with its statements describing its
7
17cv00121 JAH-WVG
1
practice of licensing device makers and offering rights to chipset makers that provide
2
freedom of operation with respect to their business. Additionally, they contend the terms
3
“broadly” and “non-discriminatory” do not mean Qualcomm licenses all firms or all types
4
of firms, and Plaintiffs plead no facts suggesting otherwise. They further contend
5
statements that Qualcomm shares its IP with an undefined market or industry do not say
6
anything about whom specifically Qualcomm licenses. Defendants argue Plaintiffs read
7
detail into their general statements that is not there. They maintain a reasonable investor,
8
reading their statements in context, would not have understood them to mean that
9
Qualcomm licenses chipset makers.
10
Defendants also argue Plaintiffs’ challenge to Defendants’ statements about the
11
Company’s “non-discriminatory” licensing practices fares no better. They maintain the
12
statement that Qualcomm will offer to license its essential patents on a FRAND basis is
13
neither untrue nor misleading. Additionally, to the extent Plaintiffs assert that Qualcomm
14
breached its FRAND commitments, Plaintiffs allege, at most, a breach of contract which
15
does not constitute federal securities fraud under section 10(b).
16
Plaintiffs maintain Defendants’ contention that their statements that Qualcomm
17
licenses to the entire industry were accurate because the wireless industry supposedly
18
excludes chipset makers is belied by the allegations of the complaint.
19
Defendants, in reply, argue Plaintiffs misquote Defendants and the actual statements
20
are accurate and do not support Plaintiffs’ contention that Defendant mislead investors to
21
believe they license chipset makers. They also argue Plaintiffs’ rely on statements made
22
prior to the class period. They further maintain they made it clear to investors they had
23
separate arrangements with chipset makers from license agreements they offered to device
24
and equipment makers.
25
Plaintiffs’ allegations suggest Defendants’ statements that they “broadly license…to
26
virtually every manufacturer in the mobile industry”, they offer to license on a “basis free
27
from discrimination”, they facilitate competition, make their patents “broadly” available,
28
and promote a highly competitive wireless industry are false because they refused to license
8
17cv00121 JAH-WVG
1
chipset manufacturers. See Complaint ¶¶ 137-141, 145, 149-187. As noted by Plaintiffs,
2
the allegations of the complaint assert the telecommunications industry includes chipset
3
makers. See id. ¶¶4, 33. While some of the quoted statements appear to be incomplete,
4
Plaintiffs allege numerous statements that are not challenged as inaccurate by Defendant
5
and are alleged to have been made during the class period. Assuming the truth of the
6
allegations, the industry at issue includes chipset manufacturers and Defendants’ alleged
7
statements about its broad, fair and non-discriminatory licensing practices are false in that
8
context.
9
statements regarding its broad and non-discriminatory licenses practices.
10
As such, Plaintiffs sufficiently allege Defendant made false or misleading
b. Decades-long Practices
11
Plaintiffs allege Defendants misled investors when they stated that Qualcomm’s pro-
12
competitive licensing practices have been maintained for almost two decades because,
13
Qualcomm revised its licensing model in 2008, and refused to license chipset makers, and
14
bundled license and chip-sale agreements. See Complaint ¶¶ 173, 174. Defendants argue
15
this claim fails because none of the statements Plaintiffs challenge refers to chipset
16
licensing. Rather, Defendants maintain, the statements refer to the practice of licensing
17
device makers and charging device-level royalty rates for those licenses, and Plaintiffs do
18
not contest this practice has been used by Qualcomm for decades. Defendants also argue
19
the claim fails because they have repeatedly disclosed that they do not license chipset
20
makers.
21
Plaintiffs argue the allegations show Defendants misled investors into believing
22
Qualcomm had not changed its licensing practice for decades, but instead, broke from its
23
licensing policy in 2008, and began refusing to license rival chipmakers. They maintain
24
the statements were made to investors who were focused on allegations of Qualcomm
25
engaging in anti-competitive behavior by refusing to license competitors.
26
27
In reply, Defendant contends the statements challenged would not mislead investors
because they relate to licensing device makers only.
28
9
17cv00121 JAH-WVG
1
In the complaint, Plaintiffs allege Defendants stated their licensing practices which
2
have been maintained for almost two decades were pro-competitive. Complaint ¶ 173.
3
Plaintiffs allege this statement was misleading because Qualcomm revised its licensing
4
model in 2008 and maintained a policy of refusing to license competitor chipset
5
manufacturers.
6
Defendant’s licensing model of sharing intellectual property, which had been effect for
7
decades, has enhanced competition. Id. ¶ 177. Plaintiffs assert the statement was false
8
because the licensing model was revised in 2008 to refuse to license competitor chipset
9
manufacturers. Id. ¶ 178. They also allege Defendant Rosenberg stated that “‘[w]hen we
10
charge our license, it will be fair, reasonable and non-discriminate. We have done that for
11
30 years.’” Id. ¶181. They assert the statement was false because since 2008, the Company
12
had discriminated against, and refused to license its standard-essential patents to, an entire
13
segment of the industry—namely, its competitor chipset manufacturers. Id. ¶ 182.
14
Id. ¶ 174.
They further allege Defendant Rosenberg stated that
Plaintiffs sufficiently allege Defendants misled investors when it made statements
15
about its licensing practices being decades old.
16
c. Separate Businesses
17
Plaintiffs allege Defendants made false and misleading statements when they told
18
investors that Qualcomm keeps their licensing business and chipset business separate
19
because Qualcomm bundled the two and refused to license competitors to their chipset
20
business. Id. ¶¶ 142, 143, 146, 147. Defendants maintain they actually said they “tend to”
21
and “try to” keep the businesses separate and argue, that on their face, the statements are
22
not guarantees in that there are no points of contact between the two. At most, Defendants
23
argue, the statements disclose that they aim to keep the businesses separate and Plaintiffs
24
do not allege that is untrue.
25
Plaintiffs argue the complaint details how Qualcomm bundled the negotiations and
26
terms of its license and chipset deals which demonstrates the misleading nature of
27
Defendants’ statements that they did not bundle and kept the two separate. Additionally,
28
they argue Defendants’ contention that they actually said “tend to” or “try to” ignores
10
17cv00121 JAH-WVG
1
statements made by Defendants Aberle and Mollenkopf that definitively express
2
Qualcomm does not bundle their licenses with chipset agreements. Plaintiffs also argue
3
whether reasonable investors understood Qualcomm’s actual licensing practices cannot be
4
resolved at this stage of the proceedings.
5
In support of their claims, Plaintiffs allege Defendant Aberle stated Qualcomm
6
“tend[ed] to” keep the business separate. Id. ¶ 143. However, they also allege Defendant
7
Aberle told investors during an investor conference that Qualcomm keeps licensing and
8
the chip business separate and does not bundle, and Mollenkopf specifically stated the
9
business were separate. Id. ¶¶142, 146. Plaintiffs allege, with sufficient specificity, that
10
Defendants misrepresented that Qualcomm did not bundle and kept the licensing business
11
and chipset business separate.
12
d. Competitiveness
13
Defendants contend Plaintiffs’ allegation that Defendants described their business
14
model as pro-competitive when they adopted licensing policies that stifled competition to
15
achieve market dominance is unsupported. Specifically, Defendants argue Plaintiffs allege
16
Qualcomm dominated the chipset market but the alleged misleading statements about
17
competition only refer to the wireless industry.
18
Plaintiffs contend wireless chipset makers are part of the wireless industry. They
19
further contend the attempt to advance a unilateral interpretation of the contours of the
20
wireless industry raises, at most, a factual dispute not properly resolved at the pleading
21
stage.
22
Defendants’ argument suggests the chipset market is separate and distinct from the
23
telecommunications or wireless industry. However, the allegations of the complaint asserts
24
Defendants’ allegedly anticompetitive conduct resulted in chipset manufacturers exiting
25
the telecommunications industry and wireless industry. Id. ¶¶ 4, 10, 70. Accordingly,
26
Plaintiffs sufficiently allege false or misleading statements regarding Defendants’
27
competitiveness.
28
//
11
17cv00121 JAH-WVG
1
3. Expressions of Puffery or Opinion
2
Defendants argue Plaintiffs’ challenges to Defendants’ statement regarding (a) broad
3
and non-discriminatory licensing, (b) decades-long practices, (c) separate versus bundled
4
businesses, and (d) competitiveness in the industry fail because they are statements of
5
puffery or opinion that do not give rise to liability.
6
Generalized or vague statements of opinion constitute “puffery” and are not
7
actionable because a reasonable investor cannot be expected to rely on the statements. See
8
Glen Holly Entertainment, Inc. v. Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003).
9
“‘Puffing’ concerns expressions of opinion, as opposed to knowingly false statements of
10
fact.” Oregon Public Employees Retirement Fund v. Apollo Group, Inc., 774 F.3d 598,
11
606 (9th Cir. 2014).
12
a. Broad and Non-discriminatory Licensing Practices
13
Defendants contend terms like “broad” and “non-discriminatory” are not precise
14
terms capable of objective verification and are, therefore, not actionable. Additionally,
15
they contend their statements describing Qualcomm’s licensing as non-discriminatory is
16
done in the context of its FRAND commitments and whether a practice is non-
17
discriminatory under the FRAND commitments is a legal opinion. Defendants maintain
18
Plaintiffs do not allege that Defendants disbelieved their own statements about acting in a
19
“non-discriminatory” manner or disclosed any untrue facts as the basis for those
20
statements. They further maintain that they believe their statements about acting in non-
21
discriminatory manner does not require the licensing of all for all purposes.
22
Plaintiffs maintain Defendants ignore the fact that a court may not assess statements
23
in a vacuum. They argue Defendants not only stated they licensed broadly and in a non-
24
discriminatory manner, they also specifically stated they broadly license their patents to
25
“virtually every manufacturer in the mobile industry” and they make their licenses
26
available to “the entire market.” Pla’s Opp. at 11 (citing Complaint ¶¶ 136, 168). Plaintiffs
27
also argue Defendants’ statements were representations of fact not opinions as they do not
28
reference the speaker’s subjective attitude and admitted no uncertainty. Additionally, they
12
17cv00121 JAH-WVG
1
argue the statements are not legal opinions, and even if they were, they are still actionable
2
because they omitted the critical fact that Qualcomm refused to license to a key segment
3
of the industry.
4
The Court rejects Defendants’ invitation to remove the terms “broad” and “non-
5
discriminatory” from their context in the complaint in determining whether Defendants’
6
statements amounted to mere puffery. This Court may not assess the statements listed in
7
the Complaint in a vacuum, “plucking the statements out of their context to determine
8
whether the words, taken per se, are sufficiently ‘vague’ so as to constitute puffery, but
9
[must] examine the entire statement and its circumstances to determine if it is actionable.”
10
Mulligan v. Impax Labs., Inc., 36 F. Supp. 3d 942, 966 (N.D. Cal. 2014) (citing Scritchfiled
11
v. Paolo, 274 F.Supp.2d 136, 176 (D.R.I 2003)); see also Casella v. Webb, 883 F.2d 805,
12
808 (9th Cir. 1989) (“What might be innocuous “puffery” or mere statement of opinion
13
standing alone may be actionable as an integral part of a representation of material fact
14
when used to emphasize and induce reliance upon such a representation.”). In the
15
complaint, Plaintiff allege Defendants made statements that they license patents broadly
16
on non-discriminatory terms including statements that Defendants promote competition by
17
licensing to the entire industry. Complaint ¶¶ 70, 136, 138, 140, 149, 153. In reviewing
18
the allegations in the light most favorable to the non-moving party, the Court finds the
19
statements do not reflect an opinion but assert facts about Qualcomm’s business practices.
20
To the extent any of the statements may suggest an opinion as to the successful business
21
practices, they are not “so obviously unimportant to a reasonable investor that reasonable
22
minds could not differ on the question of their unimportance” and, therefore, are not
23
properly dismissed at this stage of the proceedings. In re Ford Motor Co. Sec. Litig., Class
24
Action, 381 F.3d 563, 570 (6th Cir. 2004).
25
b. Decades-long Practices
26
27
Defendants also argue vague statements about practices or models that have been
maintained for decades are too subjective to be actionable.
28
13
17cv00121 JAH-WVG
1
Plaintiffs contend there is nothing too subjective about Defendants’ representations
2
that Qualcomm maintained the same licensing model and practices for two decades.
3
Specifically, Plaintiffs contend Defendants’ statements created a false impression that
4
Qualcomm’s practice of licensing to anyone had not changed to investors who were
5
focused on regulators’ allegations that Qualcomm engaged in anti-competitive conduct.
6
Plaintiffs allege Defendants issued a press release in response to a regulators report
7
that claimed Qualcomm suppressed market competition by excluding competitors, and
8
stated the allegations in the report were not supported by facts and that Qualcomm
9
continued its pro-competitive licensing practices for almost two decades. Complaint ¶ 71.
10
The Court finds the statements regarding their decades long practices were not expressions
11
of opinion amounting to mere puffery but rather representations of fact that their broad
12
licensing practices remained unchanged.
13
c. Separate Businesses
14
Defendants argue their statements that they “try” or “tend” to keep their licensing
15
business and chipset business separate are, by their nature, subjective and must be rejected
16
as not objectively verifiable. Additionally, they argue whether a firm “bundles” is a legal
17
determination that is based on subtle and complex legal judgment and opinion which does
18
not provide a basis for securities fraud. Defendants further argue Plaintiffs fail to allege
19
Defendants disbelieved their own statements or disclosed any untrue facts as the basis for
20
the statements.
21
As discussed above, Plaintiffs allege Defendant Aberle told investors during an
22
investor conference that Qualcomm keeps licensing and the chip business separate and
23
does not bundle, and Defendant Mollenkopf specifically stated the businesses were
24
separate. Id. ¶¶142, 146. These statements are representations of fact not opinions as to
25
whether Defendants keep their business separate.
26
d. Competitiveness
27
Defendants contend Plaintiffs’ claim that reasonable investors were misled by
28
Qualcomm’s statements about the degree of competitiveness in the wireless industry fails
14
17cv00121 JAH-WVG
1
because courts regularly consider statements characterizing “competitiveness” to not be
2
actionable under the securities laws. They further argue the statements are protected to the
3
extent they are opinions expressed by Defendants.
4
5
Plaintiffs argue courts hold competition statements are actionable when, like here,
the defendant allegedly engaged in anti-competitive behavior.
6
In support of their argument Defendants cite Kmiec v. Powerwave Tech. Inc., 2013
7
WL 261365 (N.D.Cal. Jan. 25, 2015) and In re Software Publ’g Sec. Liti., 1994 WL 261365
8
(N.D.Cal. Feb. 2, 1994).
9
competitiveness and were found to be puffery because they were vague and provided no
10
specific details regarding the companies’ performance. The court in In re Software Publ’g
11
Sec. Liti., found optimistic statements about the companies’ ability to compete were not
12
actionable. The statements in those cases differ from those Plaintiffs allege Defendants
13
made here. Defendants are alleged to have touted their pro-competitive licensing model
14
while engaging in policies that actually blocked competition. 130, 132, 133, 144, 145, 159,
15
160, 166, 167, 173, 174, 175, 176, 199. These statements amount to more than vague
16
optimistic representations of the companies’ competitiveness in the market. They allege
17
Qualcomm represented that it provided licenses to competitors to promote competition in
18
the market while actually practicing anti-competitive conduct.
19
statements actionable.
20
e. Opinion
Kmiec involved statements promoting the companies’
The Court finds the
21
Defendants also argue Plaintiffs’ statements of opinion are not actionable because
22
they were surrounded by meaningful cautionary language that informed investors expressly
23
that Qualcomm faced antitrust and FRAND risk.
24
Plaintiffs argue Defendants’ contention that they warned investors that Qualcomm
25
could be subject to future regulatory action is a red herring. They maintain their claims are
26
focused on the inadequacy of Defendants’ disclosures about Qualcomm’s actual licensing
27
practices, not whether it faced antitrust and FRAND risk. They further maintain none of
28
Defendants’ cautionary language mentions that Qualcomm altered its licensing program,
15
17cv00121 JAH-WVG
1
refused to license competitors, and bundled its chipset and license deals, all of which was
2
vital information that was kept hidden from investors. Upon review of the complaint, the
3
Court agrees with Plaintiffs.
4
B. Scienter
5
Defendants argue Plaintiffs’ claims fail because they fail to sufficiently plead that
6
Defendants acted with scienter. The PSLRA requires complaints alleging federal securities
7
fraud to “state with particularity facts giving rise to a strong inference that the defendant
8
acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). Therefore, a private
9
securities plaintiff “must allege that the defendants made false or misleading statements
10
either intentionally or with deliberate recklessness.” Daou, 411 F.3d at 1015 (citing In re
11
Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974 (9th Cir. 1999)). The strict pleading
12
standard for scienter is the same standard applied in pleading falsity because “‘falsity and
13
scienter in private securities fraud cases are generally strongly inferred from the same set
14
of facts,’ and the two requirements may be combined into a unitary inquiry under the
15
PSLRA.” Id. (citing In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1091 (9th Cir. 2002)).
16
Defendant contends Plaintiffs’ “over-arching theory of scienter”, that Defendants
17
knew or were deliberately reckless as to the fact they were violating antitrust law, fails
18
because the only inference is that Defendants did not know this as they have been fighting
19
against allegations of antitrust violations for years. They further contend Plaintiffs fail to
20
plead scienter as to the individual defendants. Additionally, they contend Plaintiff’s
21
alleged seventeen bases for scienter are actually a few overlapping and unsuccessful
22
theories, namely (1) core operations; (2) Defendants admitted to FRAND commitments
23
and antitrust violations; (3) non-disclosure provisions of their contractual terms; (4) and
24
Defendants’ motive of a financial incentive and they all fail.
25
Defendants maintain many of Plaintiffs’ allegations rest on the same theory: because
26
licensing is significant to Qualcomm, Defendants must be presumed to have known that
27
their statements about licensing were false. Defendants argue this theory fails because
28
nothing in the complaint suggests that Defendants’ statements were false, and no matter
16
17cv00121 JAH-WVG
1
how significant certain operations may be, it is only false statements concerning those
2
operations that can ever lead to a presumption of scienter. Defendants further argue, even
3
if Plaintiffs have alleged a false statement, they fail to allege that it would be absurd to
4
suggest that management was without knowledge of the matter, and Plaintiffs’ related
5
allegations that Defendants’ positions in the Company and understanding of Qualcomm’s
6
business fail to bolster their theory. Defendants contend their knowledge of Qualcomm’s
7
business practices is irrelevant. What is relevant, they contend, is whether Plaintiffs plead
8
facts suggesting Defendants believed they were lying to investors and, they argue,
9
Plaintiffs fail to do so.
10
Defendants maintain Plaintiffs allege that Defendants admitted they do not license
11
competitors and have publicly acknowledged, or, alternatively, should have known, that
12
refusing to license competitors violates FRAND commitments and antitrust law.
13
Defendants assert they clearly and repeatedly disclosed Qualcomm does not license
14
competitors and deny they violated FRAND commitments. Defendant contend Plaintiffs
15
cite to two statements in support of this proposition that are outside the Class Period and
16
simply suggest Defendants understood that FRAND commitments do not allow a
17
wholesale refusal to license or discriminating against similarly situated firms.
18
Defendants also contend Plaintiffs allege that Qualcomm’s use of contractual terms
19
with the express purpose of silencing parties from reporting to authorities is evidence of
20
scienter. But, they argue, the inference Plaintiffs attempt to draw has nothing to do with
21
Plaintiffs’ allegations.
22
challenge” provisions in Qualcomm’s agreements with device makers have no silencing
23
effect on issues related to unlicensed chipset makers. Additionally, they argue a company’s
24
legitimate desire to secure confidentiality does not state a claim for securities fraud.
They maintain Plaintiffs’ allegations regarding so-called “no
25
Defendants also argue Plaintiffs attempt to establish motive based on Defendants’
26
purported financial incentive to conceal their actual licensing model fails because the
27
allegations are vague and unavailing. Specifically, they argue simple allegations of
28
pecuniary motive do not raise an inference of scienter and allegations that Defendants’ pay
17
17cv00121 JAH-WVG
1
was heavily weighted on stock awards and other incentive compensation fail to provide the
2
correlation between compensation and Qualcomm’s bottom line. Additionally, they argue
3
there is no evidence of insider trading or stock price abnormalities, and incentive-based
4
competition is commonplace and favors shareholders.
5
Plaintiffs maintain Defendants admit in their motion that they knew Qualcomm’s
6
actual licensing practices, which included its refusal to license competitor chipmakers.
7
Having done so, Plaintiffs argue, they cannot now feign ignorance of them. Moreover,
8
Plaintiffs argue the complaint contains abundant, particularized allegations that
9
collectively give rise to a strong inference of scienter, including that Defendants had direct
10
and personal roles in Qualcomm’s licensing and chipset practices as the architects of the
11
licensing program, and leading and active negotiators of its license and chipset deals.
12
Additionally, Plaintiffs assert Defendants’ misstatements concerned matters of such
13
prominence to Qualcomm’s business that it would be absurd to suggest that Defendants
14
were without knowledge of Qualcomm’s true licensing practices when speaking on the
15
subject.
16
Plaintiffs also argue the scienter inference is strengthened because Defendants made
17
their statements at a time when regulators were investigating whether Qualcomm engaged
18
in the very licensing practices at issue, making it particularly implausible that Defendants
19
did not know that Qualcomm, in fact, engaged in these practices. Furthermore, Plaintiffs
20
argue, Defendants, as the chief architects of Qualcomm’s licensing program, made
21
repeated and specific representations to investors about the program, and the repeated
22
touting of the program without disclosing the adverse information raises a strong scienter
23
interest. They also argue Defendants’ deliberate effort to interfere with an ongoing
24
regulatory investigation by attempting to block Apple from disclosing their anti-
25
competitive practices reinforces the scienter inference.
26
Plaintiffs maintain Defendants are mistaken in their argument that Plaintiffs must
27
allege they believed Qualcomm was violating antitrust law because whether they believed
28
in good faith their licensing practices were lawful is beside the point. Instead, they argue,
18
17cv00121 JAH-WVG
1
it’s the failure to disclose issues and concerns that matter. Contrary to Defendants’
2
contention, Plaintiffs maintain they are not required to demonstrate Defendants believed
3
they were lying to investors because a defendant who recklessly turned a blind eye to
4
impropriety is equally culpable conduct under Rule 10b-5. They further argue, even if
5
evidence were required that Defendants “actually knew” its practices violated its
6
commitment to license in a non-discriminatory manner, there is such evidence in this case.
7
In reply, Defendants argue Plaintiffs’ allegations of scienter suggest Defendants
8
knew of the licensing practices, which, they argue is not enough. Instead, they maintain,
9
Plaintiffs must plead that not disclosing the practices was highly unreasonable omission
10
which is an extreme departure from the standards of ordinary care, and which presents a
11
danger of misleading buyers or sellers that is either known to the defendant or is so obvious
12
that he must have been aware of it. Defendants contend Plaintiffs assert Defendants
13
underlying impropriety is that certain Qualcomm licensing practices violated antitrust laws
14
and FRAND commitments, but Defendants’ public statements made clear that Defendants
15
did not turn a blind eye to the risk of antitrust liability and, instead, repeatedly disclosed
16
the material allegations against it, and contested every allegation.
17
As an initial matter, Defendant argues Plaintiffs fail to allege scienter because they
18
fail to allege any false statements. As discussed in depth above, the Court finds Plaintiffs
19
sufficiently allege false statements by Defendants.
20
Defendants publicly acknowledged that refusing to license competitors was discriminatory
21
and in violation of FRAND commitments, the purported commitment to non-
22
discriminatory licensing was a critical company policy, and that their refusal to license
23
competitors was unprecedented. Complaint ¶¶ 190 - 193. They further allege the executive
24
defendants were directly and extensively involved in developing and maintaining the
25
licensing model and sales agreements, the executive defendants participated in and
26
supervised negotiations that tied together technology licensing and chipset sales, the
27
executive defendants also made statements to investors about the licensing model, and
28
issued specific denials about the anticompetitive practices in response to questions from
Furthermore, Plaintiffs allege
19
17cv00121 JAH-WVG
1
analysts and investors. Id. ¶¶ 195 – 198. Additionally, they allege Defendants continued
2
to deny and conceal Qualcomm’s true licensing practices even after regulators raised
3
concerns, they knew investors were focused on their licensing model, and they certified
4
they license on a fair, reasonable and non-discriminatory basis. Id. ¶¶ 199 – 201. Plaintiffs
5
also allege the anti-competitive practices were directed at their biggest customers and
6
competitors, industry participants and key customers complained to the executives about
7
their refusal to license competitors, which was a serious violation of the law. Id. ¶¶ 202 –
8
204. Furthermore, Plaintiffs allege Defendants’ policy of refusing to license competitors
9
enabled them to establish market dominance. Id. ¶ 205. Plaintiffs further allege the
10
executive defendants insisted that their contractual counterparties accept “gag orders” and
11
“no challenge” provisions in their agreements to shield the Company’s anti-competitive
12
practices, they were financially motived to conceal the licensing model and they capitalized
13
on their misleading statements by disposing of personally held shares at artificially inflated
14
prices. Id. ¶¶ 206 – 208.
15
16
17
18
19
20
The Court finds the allegations, which include actions by the individual defendants
give rise to a strong inference that Defendants acted with the required state of mind.
Accordingly, Defendant’s motion to dismiss the section 10(b) claim is DENIED.
II. Section 20(a)
Because the Court finds Plaintiffs sufficiently allege a claim under section 10(b),
Defendant motion to dismiss the section 20(a) claim on the same grounds fails.
21
22
CONCLUSION AND ORDER
Based on the foregoing, IT IS HEREBY ORDERED, Defendants’ motion to dismiss
23
is DENIED.
24
DATED:
25
26
March 18, 2019
_________________________________
JOHN A. HOUSTON
United States District Judge
27
28
20
17cv00121 JAH-WVG
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?