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)

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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JAH-WVG and Feenstra v. Qualcomm Inc., 17cv155 JAH-WVG. 2 Two other motions for appointment as lead plaintiff were withdrawn. 1 1 17cv00121 JAH-WVG 1 Davidson, Jr., Paul E. Jacobs, and Steven Mollenkopf.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

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