Qualcomm Incorporated v. Compal Electronics Inc. et al

Filing 138

ORDER Denying 35 Motion for Preliminary Injunction. Signed by Judge Gonzalo P. Curiel on 9/7/17. (dlg)

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Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6352 Page 1 of 31 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA 2 3 QUALCOMM INCORPORATED, 4 5 6 7 8 9 Plaintiff, v. 12 13 14 17 18 21 22 23 26 27 28 ECF No. 35-1 Counterclaimants, v. QUALCOMM INCORPORATED, Counter Defendant. COMPAL ELECTRONICS, INC., FIH MOBILE LTD., HON HAI PRECISION INDUSTRY CO., LTD., PEGATRON CORPORATION, and WISTRON CORPORATION, 24 25 (Redacted version) COMPAL ELECTRONICS, INC., FIH MOBILE LTD., HON HAI PRECISION INDUSTRY CO., LTD., PEGATRON CORPORATION, and WISTRON CORPORATION, 19 20 ________________________________ Defendants. 15 16 ORDER DENYING PRELIMINARY INJUNCTION COMPAL ELECTRONICS, INC., FIH MOBILE LTD., HON HAI PRECISION INDUSTRY CO., LTD., PEGATRON CORPORATION, and WISTRON CORPORATION, 10 11 Case No. 3:17-cv-01010-GPC-MDD Third-Party Plaintiffs, v. APPLE INC. Third-Party Defendant. 1 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6353 Page 2 of 31 1 Before the Court is a motion for preliminary injunction filed by Plaintiff 2 Qualcomm Incorporated (“Qualcomm”) against Defendants Compal Electronics, Inc. 3 (“Compal”), FIH Mobile Ltd. and Hon Hai Precision Industry Co. (together “Foxconn”), 4 Pegatron Corporation (“Pegatron”), and Wistron Corporation (“Wistron”), collectively 5 “Defendants” or “Contract Manufacturers.” Dkt. No. 35-1. The motion has been fully 6 briefed. Defendants filed an opposition on July 18, 2017, as did Third-Party Defendant, 7 Apple Inc. (“Apple”). Dkt. Nos. 72, 80. Qualcomm filed a reply on August 1, 2017. 8 Dkt. No. 100. Based upon a review of the moving papers, the applicable law, and for the 9 foregoing reasons, the Court hereby DENIES Qualcomm’s motion. 10 I. INTRODUCTION 11 This case arises from a dispute over royalty payments owed under license 12 13 agreements that Defendants attack as illegal and anticompetitive. Each Defendant is a customer of Qualcomm. They buy Qualcomm’s baseband 14 processor chips, which provide connectivity to cellular networks, in order to manufacture 15 cellular devices. Each Defendant is also a licensee of Qualcomm. In exchange for using 16 Qualcomm’s intellectual property to manufacture and sell cellular devices, each 17 Defendant has entered into a license agreement that entitles Qualcomm to a percentage of 18 the net selling price of all devices sold by Defendants. 19 Apple is the largest customer of each Defendant. Apple designs cellular devices 20 and outsources the manufacturing of those devices to Defendants. Apple, however, is not 21 a licensee of Qualcomm, meaning, Apple does not directly pay Qualcomm for permission 22 to use its intellectual property. Instead, Apple pays royalties to Qualcomm through 23 Defendants. For each iPhone or iPad produced by Defendants for Apple, Apple pays for 24 the cost of the device, which includes Qualcomm’s baseband processor chips, and for the 25 royalties owed to Qualcomm under Defendants’ licensing agreements. 26 The value of these royalty payments, flowing to Qualcomm from Apple through 27 Defendants, adds up to billions of dollars annually. The royalty cash flow, however, does 28 not stop with Qualcomm. As part of a separate agreement entered into between Apple 2 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6354 Page 3 of 31 1 and Qualcomm, Qualcomm remits back to Apple, on a quarterly basis, a portion of the 2 royalties paid on Apple’s devices. Put differently, Qualcomm provides Apple with 3 royalty rebates. 4 Beginning in September 2016, Qualcomm began withholding royalty rebates. Soon 5 thereafter, Apple began to withhold royalty payments. Then, in January 2017, Apple 6 filed suit against Qualcomm alleging that Qualcomm’s licensing practices and royalty 7 provisions violate anti-trust laws, U.S. patent law, public policy, and Qualcomm’s 8 commitment to license its intellectual property on fair, reasonable, and nondiscriminatory 9 (“FRAND”) terms. Subsequently, in April 2017, Apple informed Defendants and 10 Qualcomm that it will cease making royalty payments until its lawsuit challenging 11 Qualcomm’s licensing and royalty arrangement has been resolved. 12 This lawsuit followed in May 2017. In it, Qualcomm alleges that each of the 13 Defendants has breached its licensing and master software agreements with Qualcomm 14 by failing to make the royalty payments owing under each Defendants’ respective 15 contract. Consequently, Qualcomm asks this Court to (1) find that Defendants have 16 committed material breaches; (2) award Qualcomm compensatory and consequential 17 damages, as well as attorneys’ fees; and, most importantly for present purposes, (3) 18 enjoin Defendants from violating the terms and conditions of their licensing agreements. 19 The Contract Manufacturers countersued Qualcomm in July 2017. In their prayer 20 for relief, they ask the Court, in pertinent part, to decree that (1) Qualcomm has engaged 21 in an illegal contract in restraint of trade in violation of Section 1 of the Sherman Act; (2) 22 Qualcomm is liable for breach of its contractual obligation to offer its standard-essential 23 patents at a FRAND rate; (3) Qualcomm breached its license agreements with the 24 Contract Manufacturers; and (4) Qualcomm’s license agreements are unenforceable 25 under California law. The Contract Manufacturers also request, among other relief, that 26 the Court award restitution to them for excessive license fees that they have paid to 27 Qualcomm and enjoin Qualcomm from further unlawful actions. 28 3 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6355 Page 4 of 31 1 2 The Court is mindful of the stakes presented by this suit. The parties dispute billions of dollars in royalty payments. In fact, 3 These are weighty 4 sums; and the Court does not doubt the significance of these payments to Qualcomm’s 5 enterprise. 6 The scales of equity, however, do not bend for dollar amounts alone no matter how 7 great. In requesting a preliminary injunction, it is Qualcomm’s burden to demonstrate 8 that it will endure “irreparable harm” if the Court does not flex its discretionary powers 9 and enjoin any further breaches by Defendants pending this Court’s decision on the 10 merits. And while Qualcomm offers a number of general arguments why it will be 11 irreparably harmed by Defendants’ breaches, the Court does not find any of Qualcomm’s 12 arguments persuasive as to why it will be irreparably harmed by Defendants’ alleged 13 breaches while this case unfolds and before it proceeds to trial. 14 Qualcomm will have its opportunity to argue that Defendants must either make 15 their royalty payments or stop making Apple devices, but it has offered no legally 16 sufficient reason why this request must be granted before the Court can hear evidence and 17 issue a decision on the merits. Accordingly, and because the Court finds that Qualcomm 18 has not demonstrated a likelihood that it will be irreparably harmed in the absence of a 19 preliminary injunction, the Court denies Qualcomm the relief it seeks. 20 II. BACKGROUND 21 Qualcomm is a world-leading innovator in cellular technologies and other 22 advanced mobile technologies. Dkt. No. 35-1 at 6. It has created and brought to market 23 cellular technologies, such as the 2G, 3G, and 4G systems, that allow our smartphones to 24 work. Id. Currently, Qualcomm owns a portfolio of 130,000 patents, thousands of which 25 are essential to various cellular standards (cellular standard-essential patents or “SEPs”). 26 Id. at 11. Qualcomm also owns patents that are essential to other industry standards 27 (“non-cellular SEPs”), as well as patents that are not essential to any industry standard 28 (“NEPs”). Id. Stated in practical terms, Qualcomm’s patent technology is fundamental 4 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6356 Page 5 of 31 1 to every modern cellphone. Id. at 10. In fact, not only do all modern cellphones rely on 2 Qualcomm’s patented technology, but many also incorporate cellular baseband chips and 3 associated software that are designed by Qualcomm through Qualcomm Technologies, 4 Inc. (“QTI”). Id. at 11. 5 Compal, Foxconn, Pegatron, and Wistron make and sell wireless products (e.g., 6 phones and tablets) that comply with 3G and 4G LTE cellular standards. Id. at 7. “As a 7 result,” Qualcomm explains, “each Defendant makes and sells devices that necessarily 8 practice Qualcomm cellular SEPs” and that also happen to incorporate Qualcomm’s 9 NEPs. Id. Each Defendant pays for the right to use Qualcomm’s intellectual property 10 pursuant to a patent license agreement referred to as a Subscriber Unit License 11 Agreement (“SULA”). Dkt. No. 35-1 at 7; Dkt. No. 72 at 14. Defendants also pay 12 Qualcomm for its baseband processor chips, which Defendants use to assemble cellular 13 devices. Dkt. No. 72 at 13. Defendants, therefore, are both direct licensees of 14 Qualcomm’s intellectual property and customers of Qualcomm’s baseband chips. See id. 15 Each of the Defendants has a chip supply agreement and a licensing agreement 16 with Qualcomm. Id. at 11. The license agreements, which are the subject of the current 17 dispute, require Defendants to pay royalties to Qualcomm for every device sold by 18 Defendants. Dkt. No. 35-1 at 7. Specifically, the license agreements state that all 19 Defendants, with the exception of Compal, 20 21 Dkt. No. 133-1 at 11 22 (under seal). To facilitate these payments, Defendants send Qualcomm royalty reports 23 that specify the amount owed for the quarter and then pay the corresponding amount. See 24 Dkt. No. 35-1 at 7. To date, Defendants have paid royalties under these license 25 26 27 28 1 5 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6357 Page 6 of 31 1 agreements for between three and fifteen years. Id. at 11 (Compal has paid for fifteen 2 years, Foxconn for eleven, Pegatron for seven, and Wistron for three). 3 The overwhelming majority of devices manufactured by Defendants are sold to 4 other companies that rebrand the devices and sell them directly to consumers. Id. at 7. 5 Defendants manufacture devices for 6 Apple. Dkt. No. 133-1 at 12 (under seal). Apple contracts Defendants to create and 7 assemble devices, like iPhones and iPads, that Apple designs. See Dkt. No. 72 at 11. 8 Apple does not manufacturer its own devices. Dkt. No. 35-1 at 7. As such, Defendants 9 are responsible for manufacturing virtually every iPhone and iPad sold worldwide. Id. 10 The devices that Defendants create for Apple incorporate Qualcomm’s patented 11 technology and baseband processor chips. See Dkt. No. 72 at 13-14. Apple, however, 12 does not have a patent license from Qualcomm. Dkt. No. 35-1 at 7. Instead, Apple relies 13 on Defendants’ licenses with Qualcomm to provide it with the permission it needs to 14 create products incorporating Qualcomm’s technology. Id. at 7-8. Apple, in turn, pays 15 Defendants for the royalties that Defendants owe to Qualcomm under Defendants’ 16 respective license agreements. Id. Notwithstanding the fact that Apple pays Defendants’ 17 contractual royalty obligations, Defendants’ license agreements are kept confidential 18 from Apple. Dkt. No. 80 at 10. , but their largest cellular customer is 19 Although Apple and Qualcomm do not have a license agreement, Apple and 20 Qualcomm have other bilateral business agreements. One of these agreements, the 21 Strategic Terms Agreement (“STA”) came about once Apple began procuring Qualcomm 22 chips and licensing-associated software for use in its fourth-generation iPhone. See Dkt. 23 No. 35-1 at 12. Because Qualcomm “faced fierce competition for those (and later) 24 sales,” id., Qualcomm 25 26 27 Dkt. No. 133-1 at 12 (under seal). 28 6 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6358 Page 7 of 31 1 2 3 Id. at 12-13, n.2 (under seal). Another agreement entered into between Qualcomm and Apple is the Business 4 Cooperation and Patent Agreement (“BCPA”). Dkt. No. 80 at 10. The BCPA contains a 5 provision that requires Qualcomm to make payments to Apple that effectively constitute 6 royalty rebates. Id. Qualcomm and Apple entered into the BCPA on January 1, 2013 and 7 it expired on December 31, 2016. Id. at 10-11. The BCPA, which has been submitted 8 under seal, also contains a provision that essentially provides that Apple may not litigate 9 or induce litigation concerning whether Qualcomm’s licensing model violates its FRAND 10 obligations or whether Qualcomm charges its licensees for exhausted patents. Id. at 12- 11 13. Apple states that it conceded to this provision “because it had no suitable alternative 12 suppliers for chipsets at the time.” Id. at 12. Apple emphasizes, however, that the 13 provision does not prevent Apple from responding freely to a request or inquiry from 14 governmental authorities. Id. at 13. 15 A dispute between Apple and Qualcomm arising out of the BCPA precipitated the 16 current lawsuit between Qualcomm and the Contract Manufacturers. On September 16, 17 2016, Qualcomm withheld the rebate payment, amounting to $963 million, that it owed to 18 Apple for the second calendar quarter of 2016. Dkt. No. 80 at 14, 16. When Apple 19 inquired into why Qualcomm had failed to make the required payment, Qualcomm stated 20 that its actions were due to “legal issues” associated with a hearing held before the Korea 21 Fair Trade Commission. Id. at 14. 22 In 2015, the Korea Free Trade Commission (“KFTC”) had opened an investigation 23 into Qualcomm’s chipset licensing practices. Dkt. No. 72 at 17-18. Apple, in turn and at 24 the request of the KFTC, participated in the investigation by giving a presentation to the 25 KFTC, on August 17, 2016, concerning Qualcomm’s alleged monopoly power, 26 exclusionary conduct, the competitive effects of that conduct, and the proper remedy. 27 Dkt. No. 80 at 14. Once news of Apple’s participation in the hearing reached Qualcomm, 28 7 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6359 Page 8 of 31 1 Qualcomm withheld the $963 million in royalties that it owed Apple under the BCPA. 2 See id. 3 Qualcomm refused to make its royalty rebate payments to Apple again on October 4 9, 2016, citing Apple’s interactions with regulators. Id. According to Qualcomm, that 5 Apple had spoken with regulators violated “the terms and spirit of the BCPA” because it 6 had “affirmatively advocated for governmental authorities to disturb Qualcomm’s 7 business.” Id. at 15 (quoting Exhibit 6 at 1). 8 9 This dispute under the BCPA then led to another. During the fourth quarter of 2016, Apple deducted $963 million — that is, the exact amount Apple believed 10 Qualcomm owed it under the BCPA — from the total royalty payments that Apple 11 indirectly owed to Qualcomm through the Contract Manufacturers. See Dkt. No. 35-1 at 12 8. Consequently, the Contract Manufacturers did not pay Qualcomm. Id. By the end of 13 the fourth quarter of 2016, Foxconn owed Qualcomm 14 owed more than 15 16 17 , Wistron more than in royalties, Pegatron , and Compal owed Dkt. No. 133-1 at 18 (under seal); Samimi Decl. ¶ 22, Dkt. No. 133-7 at 6 (under seal). Although the Contract Manufacturers’ non-payment “appeared to be a one-time 18 event” arising from Apple and Qualcomm’s dispute under the BCPA, that turned out not 19 to be the case. Dkt. No. 35-1 at 8. On January 20, 2017, Apple filed a lawsuit against 20 Qualcomm, Apple Inc. v. Qualcomm Inc., 3:17-cv-00108-GPC-MDD (S.D. Cal. 2017) 21 challenging, among other issues, the enforceability of Qualcomm’s royalty provisions 22 with Defendants. Contemporaneously, Apple notified Qualcomm that it would not remit 23 any royalties to Qualcomm for the first quarter of 2017 and would not make future 24 royalty payments “until the litigation between Apple and Qualcomm is resolved.” Id. at 25 14. Around that same time, Apple also instructed Defendants not to pay Qualcomm any 26 royalties for Apple products and agreed to indemnify Defendants for any breach that 27 Defendants might face under their license agreements with Qualcomm. Id. at 14-15. 28 8 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6360 Page 9 of 31 1 2 As a result, by the end of the first quarter of 2017, Defendants additionally owed Qualcomm approximately in royalties. Dkt. No. 133-1 at 15 (under seal). 3 III. LEGAL STANDARD 4 “A preliminary injunction is an extraordinary remedy never awarded as of right.” 5 Winter v. Natural Resources Def. Council, 555 U.S. 7, 24 (2008). “In each case, courts 6 must balance the competing claims of injury and must consider the effect on each party 7 of the granting or withholding of the requested relief.” Id. (citing Amoco Prod. Co. v. 8 Gambell, 480 U.S. 531, 542 (1987) (internal citations omitted)). As such, the “grant of a 9 preliminary injunction is a matter committed to the discretion of the trial judge[.]” Evans 10 v. Shoshone-Bannock Land Use Policy Comm’n, 736 F.3d 1298, 1307 (9th Cir. 2013). 11 This discretion allows courts to properly evaluate when it is appropriate to grant 12 preliminary relief in light of the “infinite variety of situations which may confront it.” 13 A.L.K. Corp. v. Columbia Pictures Indus., Inc., 440 F.2d 761, 763 (3d Cir. 1971). 14 District courts exercise this discretion according to a four-factor test mandated by 15 traditional principles of equity. eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 16 (2006). The test requires a plaintiff to demonstrate (1) a likelihood of success on the 17 merits, (2) a likelihood of irreparable harm in the absence of preliminary relief, (3) that 18 the balance of equities tips in the plaintiff’s favor, and (4) that an injunction is in the 19 public interest. Winter, 555 U.S. at 20. 20 IV. DISCUSSION 21 Qualcomm has moved for a preliminary injunction enjoining Defendants, that is, 22 Apple’s Contract Manufacturers, from violating the terms and conditions of their license 23 agreements during the pendency of this litigation. Qualcomm argues that the Defendants 24 have clearly breached their license agreements by withholding royalty payments from 25 Qualcomm. Dkt. No. 35-1 at 20. As such, Qualcomm contends that Defendants should 26 either continue making royalties payments in accordance with their obligations under the 27 license agreements or stop selling Apple products. Id. 28 9 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6361 Page 10 of 31 1 In response, the Contract Manufacturers and Apple argue that Qualcomm’s motion 2 seeks to “short circuit” an adjudication on the merits. Dkt. No. 72 at 11. They argue that 3 Qualcomm’s preliminary injunction is an improper attempt to enforce immediate 4 compliance with the license agreements, and immediate payment of disputed royalty fees, 5 without first resolving the legal challenges raised in Defendants’ countersuit, here, and 6 Apple’s stand-alone suit against Qualcomm in related Case No. 3:17-cv-00108. Id. 7 Accordingly, they argue, preliminary injunctive relief should be denied. 8 A. Preliminary injunctions in the Ninth Circuit 9 While there is no doubt that Winter’s four-factor test governs this dispute, the 10 parties disagree as to whether some lesser or higher standard of the Winter test applies. 11 Qualcomm argues that the Court must apply the Ninth Circuit’s sliding scale standard 12 and in so doing conclude that Qualcomm “need show only some likelihood of irreparable 13 harm[.]” Dkt. No. 35-1 at 21 (emphasis in original). Apple and the Contract 14 Manufacturers, in reply, aver that this Court should apply the “doubly demanding” 15 mandatory injunction standard disfavored by the Ninth Circuit. Dkt. No. 72 at 20-21. 16 The Court will address each of these contentions in turn. 17 1. Sliding scale standard 18 Qualcomm repeats throughout its briefing that it only needs to show “some 19 likelihood of irreparable harm” in order to demonstrate that it is entitled to a preliminary 20 injunction because “it is highly likely to succeed on the merits.” Dkt. No. 35-1 at 21; 21 Dkt. No. 100 at 17 (“Because Qualcomm is highly likely to succeed on the merits, a 22 lesser showing of irreparable harm is needed.”). Qualcomm bases this assertion on its 23 interpretation of the Ninth Circuit’s sliding scale approach, which, according to 24 Qualcomm, allows a weaker showing on one prong of the Winter test to be offset by a 25 stronger showing on another. Dkt. No. 35-1 at 16. The Court, however, finds that this 26 view is misplaced as Qualcomm’s citations to dicta and footnotes misstate the law. 27 28 As the parties are well aware, the Supreme Court’s decision in Winter altered the preliminary injunction standard in the Ninth Circuit. Previously, the Ninth Circuit had 10 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6362 Page 11 of 31 1 held that the possibility of irreparable harm was sufficient, in certain circumstances, to 2 justify a preliminary injunction if and when there was a strong showing of a likelihood of 3 success on the merits. Winter, 55 U.S. at 21 (“the Ninth Circuit [ ] held that when a 4 plaintiff demonstrates a strong likelihood of prevailing on the merits, a preliminary 5 injunction may be entered based only on a ‘possibility’ of irreparable harm”); see also 6 Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32 (9th Cir. 2011). After 7 Winter, however, the mere “possibility” of irreparable harm was no longer sufficient to 8 warrant a preliminary injunction. Cottrell, 632 F.3d at 1131 (“Under Winter, plaintiffs 9 must establish that irreparable harm is likely, not just possible, in order to obtain a 10 11 preliminary injunction.”) (emphasis in original). Winter’s holding, therefore, called into question the “continuing validity of the 12 ‘sliding scale’ approach to preliminary injunctions” long employed by the Ninth Circuit. 13 Id. Under that approach, the Cottrell court explained, “the elements of the preliminary 14 injunction test are balanced, so that a stronger showing of one element may offset a 15 weaker showing of another.” Id. The Cottrell court further emphasized that one such 16 iteration of that “sliding scale” approach, known as the “serious questions test,” 17 specifically allows for a “stronger showing of irreparable harm” to “offset a lesser 18 showing of likelihood of success on the merits.” See id. 19 The Cottrell court specifically held that the “serious questions” test remains valid 20 post-Winter. See id. at 1139. As such, parties seeking a preliminary injunction in this 21 circuit must now “meet one of two variants of the same standard.” Alliance for the Wild 22 Rockies v. Pena, 865 F.3d 1211, 1217 (9th Cir. 2017). Either a plaintiff may satisfy the 23 traditional Winter standard, or, the plaintiff may satisfy the “sliding scale” variant of the 24 Winter standard which states that “if a plaintiff can only show that there are serious 25 questions going to the merits . . . then a preliminary injunction may still issue if the 26 balance of hardships tips sharply in the plaintiff’s favor and the other two Winter factors 27 are satisfied.” Id. (emphasis in original) (citations omitted). “Serious questions are 28 ‘substantial, difficult and doubtful, as to make them a fair ground for litigation and thus 11 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6363 Page 12 of 31 1 for more deliberative investigation.’” Gilder v. PGA Tour, Inc., 936 F.2d 417, 422 (9th 2 Cir. 1991) (citations omitted). 3 The “sliding scale” approach that Qualcomm is advocating for does not find 4 support in Cottrell. Although Cottrell did recognize, in dicta, that the Ninth Circuit’s 5 “sliding scale” standard generally allowed for a strong showing on one element to offset a 6 weaker showing on another, the Cottrell court only held that one variant of the sliding 7 scale standard — that is, the “serious questions” test — survived Winter. Qualcomm, 8 therefore, does not stand on solid ground when it asserts that it is nonetheless appropriate 9 to award preliminary relief when there is only some likelihood of irreparable harm, but a 10 stronger showing of a likelihood of success on the merits. 11 In fact, neither of the cases relied upon by Qualcomm stand for the proposition that 12 the Ninth Circuit’s sliding scale approach tips the other way, that is, when there is a lesser 13 showing of irreparable harm and a stronger likelihood of success on the merits. See 14 Greater Yellowstone Coal. v. Timchak, 323 F. App’x 512, 514 n.1 (9th Cir. 2009) 15 (recognizing that the “sliding scale” approach likely survived Winter but declining “to 16 define the sliding-scale formulation’s precise post-Winter contours”); see Leiva-Perez v. 17 Holder, 640 F.3d 962, 964 (9th Cir. 2011) (citing to Cottrell in evaluating a noncitizen’s 18 request to stay removal pending adjudication on petition for review). Indeed, it is not 19 surprising that Qualcomm has failed to produce a case holding that only “some likelihood 20 of irreparable harm” may be shown where there is a high likelihood of success on the 21 merits, as it is entirely unclear how “some” likelihood of irreparable harm (or any 22 “lesser” showing) is any different from the mere “possibility” of irreparable harm 23 rejected by Winter. Accordingly, the Court rejects Qualcomm’s assertion that it only 24 needs to demonstrate “some” “lesser” showing of irreparable harm. An unqualified 25 likelihood of irreparable harm is required. 26 2. Mandatory injunctions 27 The Contract Manufacturers, and Apple, argue that a heightened standard applies 28 to Qualcomm’s request for a preliminary injunction because Qualcomm seeks a 12 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6364 Page 13 of 31 1 mandatory injunction. Mandatory injunctions, the CMs argue, are disfavored in this 2 circuit because they compel a party to take action and, therefore, should not be granted 3 unless “extreme or very serious damage will result.” Dkt. No. 72 at 20. Qualcomm 4 contests that it has requested a mandatory injunction. Dkt. No. 100 at 9-11. 5 When a party requests a “mandatory injunction” the standard is “doubly 6 demanding.” Garcia v. Google, 786 F.3d 733, 740 (9th Cir. 2015) (en banc). In such a 7 case, it is not enough for the movant to demonstrate that he or she is likely to succeed, but 8 rather, the movant must show that “the law and facts clearly favor her position.” Id. 9 (emphasis in original). The Google court describes a mandatory injunction as one that 10 requests the responsible party to take affirmative action. Id. The Google court goes on to 11 explain that a mandatory injunction “goes well beyond simply maintaining the status quo 12 pendente lite and is particularly disfavored.” Id. (quotations and brackets omitted). 13 Accordingly, whether or not Qualcomm has requested a mandatory or prohibitory 14 injunction depends upon what the Court construes as the status quo. The status quo refers 15 to the last uncontested status which preceded the pending controversy. N.D. ex rel. 16 Parents v. Haw. Dep’t of Educ., 600 F.3d 1104, 1112 n.6 (9th Cir. 2010). Put differently, 17 the status quo refers to the “legally relevant relationship between the parties before the 18 controversy arose.” Ariz. Dream Act Coal. v. Brewer, 757 F.3d 1053, 1060 (9th Cir. 19 2014) (emphasis removed). 20 As it turns out, deciphering the “last uncontested status” or the last “legally 21 relevant relationship” between the parties before this dispute arose is no straightforward 22 task. A complex weave of contractual agreements govern the parties’ legal relationships, 23 and the royalty payments in particular, and reasonable minds can differ over where to fix 24 the status quo. Qualcomm, of course, wants the Court to find that the status quo reverts 25 back to when Apple and the Contract Manufacturers were making timely royalty 26 payments. The CMs and Apple, by contrast, want the Court to conclude that the 27 appropriate status quo relates back to when Apple, and the CMs, stopped making royalty 28 payments in response to Qualcomm’s failure to rebate royalties under the BCPA. 13 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6365 Page 14 of 31 1 The Court, however, need not settle this disagreement because Qualcomm’s 2 request for a preliminary injunction fails even under the less demanding, traditional 3 preliminary injunction standard articulated in Winter. It is, therefore, unnecessary to 4 determine whether the “doubly demanding” standard reserved for mandatory injunctions 5 applies. 6 B. Irreparable harm and the adequacy of legal remedies 7 Notwithstanding Qualcomm’s arguments to the contrary, the Court is not 8 persuaded that the monetary harm posed by Defendants’ non-payment of royalties passes 9 the threshold of irreparable injury. As the Supreme Court has stated, “The key word in 10 this consideration is irreparable. Mere injuries, however substantial, in terms of money, 11 time and energy necessarily expended . . . are not enough. The possibility that adequate 12 compensatory or other corrective relief will be available at a later date, in the ordinary 13 course of litigation, weighs heavily against a claim of irreparable harm.” Sampson v. 14 Murray, 415 U.S. 61, 90 (1974) (addressing irreparable harm in context of stay) (internal 15 citations omitted). For this reason, “monetary injury is not normally considered 16 irreparable” in the context of a preliminary injunction. L.A. Mem’l Coliseum Comm’n v. 17 Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 1980). 18 Qualcomm nonetheless argues that it has rebutted the presumption that monetary 19 damages are not “normally considered irreparable.” Specifically, Qualcomm contends 20 that it is “virtually certain to suffer immense irreparable harm” because it faces: (1) 21 “ongoing, indefinite non-payment of very large amounts of royalties”; (2) “injury to 22 Qualcomm’s core licensing business, and loss of goodwill among other licensees that 23 also make smartphones”; (3) loss of research and development opportunities; and (4) 24 “potential difficulties in collecting future damages” due to the fact that Defendants are 25 foreign companies. Dkt. No. 35-1 at 21, 27. 26 Yet for the reasons that follow, the Court is unconvinced that any of these 27 contentions demonstrate that Qualcomm faces a likelihood of irreparable harm in the 28 absence of preliminary relief. Preliminary injunctive relief is justified only when a court 14 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6366 Page 15 of 31 1 cannot make a plaintiff whole after an adjudication on the merits. Accordingly, and 2 because Qualcomm has failed to demonstrate that the remedies this Court can afford 3 upon conclusion of these proceedings are insufficient, the Court is not convinced that 4 there is any likelihood that Qualcomm will suffer irreparable injury while litigation is 5 pending. 6 1. “Ongoing, indefinite non-payment” of royalties 7 First, Qualcomm stresses that it has shown irreparable harm because Defendants’ 8 alleged misconduct “could continue indefinitely[.]” Dkt. No. 35-1 at 21. Unlike in a 9 normal breach of contract case, Qualcomm asserts, where an entity can “terminate its 10 license agreement if a licensee refuses to pay royalties,” here, 11 12 Dkt. No. 133 at 22 (under seal) 13 Accordingly and because Defendants “plainly intend to continue breaching the license 14 agreements going forward,” Qualcomm argues that it is left “with no recourse, other than 15 indefinite, multiple, serial lawsuits[.]” Dkt. No. 35-1 at 22. Qualcomm, therefore, seeks 16 a preliminary injunction in order to ensure that it does not “experience repeated 17 nonpayment of nearly 18 future.” Dkt. No. 133 at 22 (under seal). 19 , on average, every calendar quarter into the indefinite This irreparable harm argument, however, is flawed because it is untethered to any 20 discussion of the adequacy of legal remedies. “The basis of injunctive relief in the 21 federal courts is irreparable harm and inadequacy of legal remedies.” L.A. Mem’l 22 Coliseum, 634 F.2d at 1202 (emphasis supplied). An injury is not irreparable if it can be 23 compensated by the court when, and if, the plaintiff prevails on the merits. Id. Stated 24 differently, “only harm that the district court cannot remedy following a final 25 determination on the merits may constitute irreparable harm.” Metro-Goldwyn-Mayer 26 Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197, 1211 (C.D. Cal. 2007) (internal 27 citations omitted). 28 15 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6367 Page 16 of 31 1 2 Qualcomm argues that it will be irreparably harmed by Defendants’ continuing breach of their license agreements. It emphasizes that the STA 3 Consequently, Qualcomm asserts, it 4 is in an “untenable position” because “Qualcomm is receiving no compensation for 5 Defendants’ and Apple’s [licensed] use of its intellectual property.” Dkt. No. 35-1 at 9, 6 15 (brackets added). It follows, therefore and according to Qualcomm, that if the Court 7 does not order the Contract Manufacturers to comply with their license agreements, 8 Qualcomm will be left with no remedy other than to seek damages every quarter the 9 Defendants fail to pay their royalties. 10 Although neither Apple nor the Contract Manufacturers briefed what, if any, effect 11 the STA — a contract executed by Qualcomm and Apple — should have on the equitable 12 remedies available to Qualcomm here, there is little doubt that the STA affects the state 13 of play. Qualcomm has raised valid questions regarding the impact of the STA on the 14 legal options available to Qualcomm. Indeed, should the Court eventually hold that the 15 disputed royalty provisions are enforceable, the Court would necessarily consider 16 whether an award of only monetary damages would provide an adequate remedy in light 17 of the STA and the threat of continued breach. 18 What Qualcomm’s argument fails to demonstrate, however, is why Qualcomm 19 faces a likelihood of irreparable harm if the Court does not grant preliminary injunctive 20 relief now as opposed to permanent injunctive relief at the conclusion of trial. “[T]he 21 only injury that counts is injury that cannot be prevented after a more complete hearing at 22 the next stage of litigation.” Douglas Laycock, The Death of The Irreparable Injury 23 Rule, 103 Harv. L. Rev. 687, 729 (1990). 24 Qualcomm asserts that other courts have found irreparable harm where the nature 25 of the defendant’s misconduct threatens to burden the plaintiff with continuous breach. 26 In trespass cases, for example, there is a possibility that the “constant recurrence” of 27 trespassing can render the remedy at law inadequate because every subsequent trespass 28 will require a separate enforcement action. See Donahue Schriber Realty Grp., Inc. v. Nu 16 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6368 Page 17 of 31 1 Creation Outreach, 181 Cal. Rptr. 3d 577, 587 (Cal. Ct. App. 2014). Likewise, in 2 copyright infringement cases, there is a formidable risk that, absent a preliminary 3 injunction, a plaintiff will have to file multiple lawsuits every time an infringing act 4 occurs. See Grokster, 518 F. Supp. 2d at 1219 (“Indeed, the very need to file multiple 5 lawsuits as a consequence of Streamcast’s inducement [of infringement] is itself 6 supportive of an irreparable harm finding.”); see also Louis Vuitton Malletier, S.A. v. 7 Akonoc Sols., Inc., 2010 WL 5598337, *18 (N.D. Cal. Mar. 19, 2010) (citing Grokster). 8 9 But these concerns do not apply in this context. The harm caused by continuous trespass or infringement stems not from the fact that a defendant is continuously 10 breaching, but from the fact that a court’s judgment cannot remedy that continuous 11 breach. Defendants who are repeat violators threaten a court’s ability to render 12 meaningful relief. This is so because a defendant intent on trespassing on property or 13 distributing copyrighted material will often not be deterred merely by the possibility that 14 a court will find one of those many violations unlawful. See Laycock, Death of 15 Irreparable Injury, at 714-15 (stating that damages might not deter repeated violations 16 and mounting litigation costs might deter plaintiff from suing before they deter defendant 17 from violating the law). Accordingly, and in the interest of ensuring that a court can 18 provide meaningful relief, it may be necessary to enjoin repeated violations while a trial 19 is pending. 20 This is not the case here. The Contract Manufacturers and Apple are withholding 21 royalty payments because they aver that the royalty provisions contained in the license 22 agreements are unenforceable under FRAND and other anti-competition laws. Thus, 23 while it may be true that Defendants are currently engaged in “continuous breach,” 24 Qualcomm has given the Court no reason to conclude that it cannot remedy these 25 breaches after a trial on the merits. See E. St. Louis Laborers’ Local 100 v. Bellon 26 Wrecking & Salvage Co., 414 F.3d 700, 704 (7th Cir. 2005) (“Thus, even repeated and 27 ongoing violations of a CBA [collective bargaining agreement] do not warrant a 28 preliminary injunction if each violation may be remedied[.]”). 17 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6369 Page 18 of 31 1 If and when this Court holds that the Defendants’ licensing provisions are 2 enforceable, the Court will evaluate whether it is proper to grant permanent injunctive 3 relief, e.g., specific performance, or damages. See Tamarind Lithography Workshop, Inc. 4 v. Sanders, 193 Cal. Rptr. 409, 412-13 (Cal. Ct. App. 1983) (finding specific 5 performance appropriate where there is risk of continuous breach of contract). Yet that 6 specific performance may be an appropriate remedy at the conclusion of trial does not 7 mean that it is necessary to compel specific performance now, before the merits of the 8 case have been heard. See Sampson, 415 U.S. at 90 (“The possibility that adequate 9 compensatory or other corrective relief will be available at a later date, in the ordinary 10 course of litigation, weighs heavily against a claim of irreparable harm.”). Qualcomm 11 has offered no persuasive rationale why the legal remedies available to it at the 12 conclusion of trial will not be sufficient to make it whole. Accordingly, the Court 13 declines to find that a likelihood of irreparable harm may be demonstrated merely by 14 pointing out that the Defendants’ breaches are ongoing. 15 16 17 2. Injury to Qualcomm’s core licensing business, reputation, and loss of goodwill among other licensees The “essence” of Qualcomm’s business involves inventing cellular technologies, 18 patenting them, and licensing those patents to cellular device manufacturers. Dkt. No. 19 35-1 at 24. As such, Qualcomm avers, any misconduct that adversely affects the integrity 20 of Qualcomm’s business relationships with its licensees irreparably harms Qualcomm’s 21 reputation, core business, and goodwill. See id. 22 The Court is well aware that damage to a plaintiff’s reputation, goodwill, and core 23 business can be enough to demonstrate a likelihood of irreparable harm. As Qualcomm 24 points out, courts often take such adverse effects into consideration when deciding 25 whether to enjoin a defendant in copyright or patent infringement cases. 26 A copyright plaintiff, for instance, may establish irreparable harm by 27 demonstrating that, without a preliminary injunction, a defendant’s infringement will 28 exponentially dilute the exclusivity of plaintiff’s copyright while awaiting a trial on the 18 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6370 Page 19 of 31 1 merits. Warner Bros. Entm’t Inc. v. WTV Sys., Inc., 824 F. Supp. 2d 1003, 1012 (C.D. 2 Cal. 2011) (granting preliminary injunction and concluding that defendant’s infringement 3 on plaintiff’s copyright threatened to irreparably harm plaintiff’s relationships with 4 licensees who distribute plaintiff’s copyright); Fox Television Stations, Inc. v. 5 BarryDriller Content Sys., PLC, 915 F. Supp. 2d 1138, 1147 (C.D. Cal. 2012) (“if 6 Defendants can transmit Plaintiffs’ content without paying a fee, Plaintiffs’ existing and 7 prospective licensees will demand concessions to make up the loss of viewership to non- 8 paying alternatives, and may push additional players away from license-fee paying 9 technologies and toward free technologies like Defendants’.”); Hand v. Nail Harmony, 10 Inc. v. ABC Nail & Spa Prods., 2016 WL 3545524, *7 (C.D. Cal. June 28, 2016) 11 (granting preliminary injunction and finding that defendants’ counterfeiting activities 12 diminished the value of plaintiffs’ distributorships and encouraged plaintiffs’ customers 13 to carry and distribute other branded products). 14 A plaintiff may also demonstrate the requisite likelihood of irreparable harm by 15 showing that the defendant’s breach of contract will erode at the plaintiff’s customer base 16 while a full adjudication is pending. See NaturaLawn of Am., Inc. v. W. Grp., LLC, 484 17 F. Supp. 2d 392, 396-402 (D. Md. 2007) (granting preliminary injunction where plaintiff 18 and defendant were direct competitors and defendants’ breach of non-compete clause was 19 infringing on plaintiff’s customer base). And finally, a court may also find irreparable 20 harm where a plaintiff shows that a defendant’s continuing, infringing activities preclude 21 the patent holder from licensing their invention while awaiting an adjudication on the 22 merits. See Roper Corp. v. Litton Sys., Inc., 757 F.2d 1266, 1273 (Fed. Cir. 1985); see 23 also Commonwealth Scientific & Indus. Research Org. v. Buffalo Tech. Inc., 492 F. Supp. 24 2d 600, 604-07 (E.D. Tex. 2007) (granting permanent injunction because defendants’ 25 infringement of plaintiff’s patent prevented plaintiff, whose business relied on licensing 26 patents and not practicing them, from being able to license its intellectual property). 27 28 Qualcomm points to these, and other, cases as support for its contention that Defendants’ breach can and will cause Qualcomm irreparable harm. Yet that loss of 19 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6371 Page 20 of 31 1 reputation, customer goodwill, and core business may, under certain circumstances, be 2 sufficient to demonstrate irreparable harm (in the absence of a preliminary injunction), 3 does not mean that such reasons are sufficient in all cases. Each of the cases cited by 4 Qualcomm had a plausible theory of irreparable harm that led the court to conclude that 5 the plaintiff would endure irrevocable injury without preliminary relief from the court. 6 Qualcomm’s theories of irreparable harm here, however, are not plausible and are not 7 otherwise supported by the record before the Court. 8 9 Apart from citing to dicta and generalities in the above-mentioned cases, Qualcomm offers two main reasons why Defendants’ non-payment of royalties will 10 irreversibly affect Qualcomm’s reputation, customer goodwill, and licensing business. 11 First, it argues that it will lose goodwill among its licensees because Defendants, and 12 Apple, have “improperly secured” more favorable terms under their license agreements 13 (the “goodwill argument”). Second, it contends that Defendants’ breach will cause 14 irreparable harm by emboldening other licensees to improperly seek to breach or 15 renegotiate their licensing agreements (the “contagion argument”). For the following 16 reasons, the Court finds neither of these arguments convincing. 17 a. Goodwill argument 18 Qualcomm contends that Defendants’ breaches threaten to irreparably harm 19 Qualcomm’s goodwill with its licensees because their non-payment means that they are 20 being treated more favorably than Qualcomm’s other licensees. Dkt. No. 35-1 at 24 21 (“Qualcomm strives to treat similarly situated licensees fairly and to maintain consistency 22 in its licensing program. Without a preliminary injunction, Defendants, under the 23 direction of Apple, threaten to undo that work.”). As such, the argument goes, 24 Defendants’ non-payment of royalties will lead to irreparable customer dissatisfaction. 25 This line of argument is perplexing to the Court. Qualcomm is not treating Apple 26 or the Contract Manufacturers more favorably than its other customers. Apple and the 27 Contract Manufacturers have unilaterally stopped paying royalties because they have 28 sued Qualcomm over the enforceability of Qualcomm’s licensing provisions. Qualcomm 20 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6372 Page 21 of 31 1 has not offered the Contract Manufacturers more favorable terms. Qualcomm has not 2 agreed to more favorable terms. As such, the Court finds it implausible that the Contract 3 Manufacturers’ temporary non-payment of royalties will irrevocably undo Qualcomm’s 4 relationships with its other licensees. 5 Moreover and more importantly, even if this Court were to conclude that such a 6 theory of harm is plausible, the Court would not find that it contributes to any finding of 7 irreparable harm, here, because Qualcomm has made no particularized showing 8 demonstrating that Qualcomm’s goodwill with its licensees is likely to be irrevocably lost 9 in this way. Qualcomm’s goodwill argument relies exclusively on no more than two 10 paragraphs in a declaration submitted by Alex Rogers, the executive Vice President and 11 President of Qualcomm Technology Licensing. See Rogers Decl. ¶¶ 8-9, Dkt. No. 35-4 12 at 3-4 (stating in part “Qualcomm has spent decades in relationships with numerous 13 licensees around the world. In order to develop goodwill Qualcomm strives to treat 14 similarly situated licensees fairly and maintain consistency in its licensing program.”). 15 Such conclusory assertions about the importance of goodwill to Qualcomm’s enterprise 16 are not enough to demonstrate that it is likely to be irreparably harmed by the loss of 17 goodwill caused by the Contract Manufacturers’ non-payment of royalties. See Goldie’s 18 Bookstore, Inc. v. Superior Court of State of Cal., 739 F.2d 466, 472 (9th Cir. 1984) 19 (stating that district court erred by finding that plaintiff would lose customer goodwill 20 when plaintiff’s argument was “not based on any factual allegations” and was 21 “speculative”). Accordingly, the court rejects Qualcomm’s goodwill argument. 22 b. Contagion argument 23 Relatedly, Qualcomm next argues that Defendants’ actions threaten Qualcomm’s 24 business relationships with its licensees because “other licensees may use Defendants’ 25 non-payment as leverage” to either not pay royalties or renegotiate their contracts. Dkt. 26 No. 35-1 at 24. Indeed, in its reply brief, Qualcomm asserts that 27 28 21 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6373 Page 22 of 31 1 Dkt. No. 137 at 21 (filed under seal). While the 2 Court finds this theory of irreparable harm more plausible than the goodwill theory, the 3 Court is likewise unpersuaded that such a threat of harm justifies the equitable relief that 4 Qualcomm seeks. As an initial matter, the law of contract governs Qualcomm’s relationships with its 5 6 licensees, as is the case with the Contract Manufacturers. If other licensees similarly 7 choose to stop performing under their license agreements (i.e., stop paying royalties) they 8 will expose themselves to liability for damages. That Qualcomm has a legal remedy 9 against a non-paying licensee lessens, if not extinguishes, the likelihood that any non- 10 payment of royalties owed by another licensee would or should constitute irreparable 11 harm. 12 Yet more importantly, Qualcomm has failed to make a sufficient evidentiary 13 showing to buttress its assertion that “other licensees may use Defendants’ non-payment 14 as leverage” to either not pay royalties or renegotiate their contracts. Qualcomm’s 15 contagion argument is grounded in the declaration of Alex Rogers. The Rogers 16 declaration, however, is remarkably general and speculative. Rogers Decl. ¶ 10, Dkt. No. 17 35-4 at 4 (“If Defendants’ non-payment of royalties continues, other licensees may use 18 Defendants’ non-payment as leverage to improperly argue that they may also decline to 19 pay under their respective agreements, or use the non-payment as leverage in 20 renegotiations, so long as Apple and Defendants continue to refuse to pay.”); id. ¶ 11 21 (“Defendants’ continued non-payment of royalties also may harm Qualcomm’s ability to 22 enter into new agreements. Prospective licensees are aware of competitors’ practices 23 . . . . If a major competitor is not paying at all . . . a prospective licensee could claim it is 24 disadvantageous to sign a license agreement with Qualcomm.”). But as stated above, 25 such speculative and general assertions do not constitute the factual basis needed to 26 support an irreparable harm finding. See Goldie’s Bookstore, 739 F.2d at 472 (stating 27 that district court erred by finding that plaintiff faced likelihood of irreparable harm when 28 supporting statement was “not based on any factual allegations” and was “speculative”). 22 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6374 Page 23 of 31 1 Qualcomm’s evidentiary showing becomes even less weighty in light of other facts 2 contained within the record. For instance, during Qualcomm’s Q3 2017 earnings call to 3 the investing public, the president of Qualcomm, Derek Aberle, specifically assured 4 stockholders that there was no indication that the Contract Manufacturers’ failure to make 5 royalty payments would influence others to do the same. See Exhibit 39, Lavely Reply 6 Decl., Dkt. No. 100-2 at 194 (“I think on the question of contagion . . . I don’t think, as 7 we sit here, we have any indication that this is somehow going to result in a bunch of 8 other licensees deciding not to report and pay royalties.”); see also id. (“[W]e’ve had 9 disputes with licensees, large and small, going back all the way to even with Nokia where 10 they had 40% to 50% of the market and were not paying us for a period of time. And that 11 did not translate into our other licensees stopping payment.”). In fact, when an analyst 12 asked a question suggesting that such contagion was happening, Aberle emphatically 13 disagreed and said “No. That’s not what’s happening. We have a dispute with Apple and 14 their contract manufacturers, and we have a dispute with one other licensee.” Id. at 195. 15 That Qualcomm’s own president has stated to the investing public that he does not 16 believe that there is any merit to the contagion argument belies the plausibility and 17 credibility of the argument made to the Court. Consequently, the Court concludes that 18 Qualcomm has failed to show, based upon the record before the Court, that it faces any 19 likelihood of irreparable harm flowing from the contagion effect. 20 Furthermore, the Court concludes that Qualcomm’s argument in its reply brief that 21 “one significant licensee” has, in fact, “underpaid the royalties it owed to Qualcomm 22 under its license agreement” does not alter this conclusion. See Rogers Reply Decl. ¶¶ 6- 23 7, Dkt. No. 100-3 at 4. For one, Qualcomm’s own declaration demonstrates that 24 25 26 See id., Dkt. No. 137 at 4 (under seal). And two, the referenced licensee stopped making 27 payments to Qualcomm before President Aberle’s July 19, 2017 statement, wherein 28 Aberle specifically dismissed the significance of that licensee’s actions. See Lavely 23 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6375 Page 24 of 31 1 Reply Decl. ¶¶ 6-8, Dkt. No. 102; see also Qualcomm’s Letter, August 18, 2017, Dkt. 2 No. 126-1 (clarifying that the other licensee “had stopped paying prior to Mr. Aberle’s 3 remarks in July.”). Accordingly, the Court’s conclusion remains unaltered and 4 Qualcomm’s contagion argument fails to carry any weight. 5 3. Lost research and development opportunities 6 Loss of research and development opportunities may also result in irreparable 7 injury and warrant preliminary injunctive relief. See, e.g., Buffalo Tech., 492 F. Supp. 2d 8 at 603 (delays in research can result in competitive disadvantage that cannot be 9 compensated with damages); Vanda Pharm. Inc. v. Roxane Labs., Inc., 203 F. Supp. 3d 10 412, 435 (D. Del. 2016) (finding that lost research and development funds, among other 11 factors, were irreparable harms calling for a preliminary injunction). Thus, Qualcomm 12 argues, it faces a likelihood of irreparable harm because Defendants’ non-payment of 13 14 15 16 17 in royalties each year will adversely affect Qualcomm’s ability to invest in research and development. Dkt. No. 137 at 23 (“the impact of withholding nearly from a company that spends $5 billion per year on R&D (more than 20% of its revenue) is obvious.”) (under seal). That Qualcomm asserts that the harm flowing from lost research and development 18 opportunities is “obvious” belies the strength of its argument. Notwithstanding 19 Qualcomm’s contentions to the contrary, Qualcomm has offered nothing but conclusory 20 assertions regarding the effect of Defendants’ breaches on their research and 21 development program. Notably, the declaration of Alex Rogers dedicates just one 22 paragraph to the issue. Rogers Decl. ¶ 7, Dkt. No. 35-1 at 3. (“In order to remain a leader 23 in the industry, it is essential for Qualcomm to commit significant resources and funding 24 to R&D of new technologies. This is especially true given the changing landscape of 25 companies seeking to innovate in the field of wireless technology. It is Qualcomm’s 26 ongoing investment in R&D that allows it to invent the cellular technologies critical to 27 the function of cellular networks and devices.”). Conclusory assertions, however and as 28 stated above, are not an enough to support a finding of irreparable harm. See Oakland 24 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6376 Page 25 of 31 1 Tribune, Inc. v. Chronicle Pub. Co., Inc., 762 F.2d 1374, 1377 (9th Cir. 1985) (faulting 2 plaintiff for not providing any evidence in support of its irreparable injury argument); 3 Am. Passage Media Corp. v. Cass Commc’ns Inc., 750 F.2d 1470, 1473 (9th Cir. 1985) 4 (“We can think of a myriad of examples of the type of evidence necessary to bolster a 5 finding of irreparable harm under these circumstances. We search the record in vain for 6 that evidence.”); Goldie’s Bookstore, 739 F.2d at 472 (disregarding irreparable injury 7 argument because it was “not based on any factual allegations” and was therefore 8 “speculative); see also L.A. Mem’l Coliseum, 634 F.2d at 1202-03. 9 What is more, Qualcomm’s evidentiary assertions regarding lost research and 10 development opportunities are not only lacking, but they are overwhelming contradicted 11 by the record before the Court. During the quarterly earnings call that took place on July 12 19, 2017, just two months after the instant motion was filed, Steven Mollenkopf, 13 Qualcomm’s CEO and Director, assured investors that the company was still poised to 14 “invest ahead of the industry.” Exhibit 39, Lavely Reply Decl., Dkt. No. 100-2 at 185 15 (“Our breadth of technologies and products continues to benefit from our ongoing 16 strategy to invest ahead of the industry.”); see also id. at 184 (“Despite the near-term 17 financial impact to our business by the actions of a small number of powerful industry 18 players, the long-term outlook for our licensing business continues to remain strong . . . . 19 And for many years to come, the licensing business will continue to be a significant 20 revenue and profitability generator for the company longer term.”). And during a Q2 21 fiscal earnings presentation held on April 19, 2017, just a month prior to this motion 22 being filed, Qualcomm stated that “We will continue to protect the value of our 23 technologies, which enables today’s robust mobile communications ecosystem, and 24 invest in R&D that will drive the leading edge of mobile computing and connectivity for 25 decades to come[.]” Exhibit 4, Lo Decl., Dkt. No. 72-2 at 54. That Qualcomm made 26 such assurances to its shareholders immediately before and after this motion was filed, 27 weighs heavily against any finding that Defendants’ non-payment of royalties will have 28 25 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6377 Page 26 of 31 1 an irreparable effect on Qualcomm’s research and development activities while litigation 2 is pending. 3 Lastly, the Court will address an assertion made for the first time during this 4 Court’s August 18, 2017 hearing. At oral argument, Qualcomm claimed for the first time 5 that the Contract Manufacturers’ non-payment of royalties will specifically affect 6 Qualcomm’s ability to contribute to the pending 5G standard. Transcript of August 18, 7 2017 Hearing, Dkt. No. 127 at 18. The Court observes, however, that this assertion is 8 wholly unsupported by Qualcomm’s evidentiary submissions to the Court. The 9 declaration of Alex Rogers, which is the only declaration cited to support Qualcomm’s 10 contentions regarding research and development, does not mention 5G whatsoever. The 11 Court, therefore, will not conclude that Qualcomm faces a likelihood of irreparable harm 12 caused by lost opportunities for researching and developing the 5G standard. 13 In sum, and absent a particularized evidentiary showing demonstrating that 14 Defendants’ withholdings are likely to have an irreversible effect on research and 15 development, the Court declines to find that Defendants’ breach is likely to cause 16 irreparable harm in the absence of a preliminary injunction. See Eli Lilly & Co. v. Am. 17 Cyanamid Co., 82 F.3d 1568, 1578 (Fed. Cir. 1996) (“If a claim of lost opportunity to 18 conduct research were sufficient to compel a finding of irreparable harm, it is hard to 19 imagine any manufacturer with a research and development program that could not make 20 the same claim and thus be equally entitled to preliminary injunctive relief.”); see also 21 Braintree Labs., Inc. v. Citigroup Global Mkts. Inc., 622 F.3d 36, 41 (1st Cir. 2010) (“An 22 investor could always claim that she could put money to better use than simply letting it 23 accrue interest at the prevailing rate. An asserted injury so ubiquitous cannot serve as the 24 basis for the issuance of a preliminary injunction. . . . Rather, if a claim of irreparable 25 injury tied to outperforming the market could ever be recognized, it could only be on the 26 basis of a substantial evidentiary showing.”). 27 //// 28 //// 26 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6378 Page 27 of 31 1 4. Potential difficulties in collecting future damages 2 Finally, Qualcomm contends that “settled U.S. law” states that “the difficulty of 3 pursuing collection of [a damages] award in international legal systems” is sufficient on 4 its own to show irreparable harm. Dkt. No. 100 at 24; Dkt. No. 35-1 at 29. As such, 5 Qualcomm argues that it faces a likelihood of irreparable injury because Defendants are 6 non-U.S. companies with primary assets located overseas. Dkt. No. 35-1 at 29. 7 As an initial matter, three citations to three unpublished sources do not establish 8 “settled law” in this or any other circuit. See Pharmacia & Upjohn Co. v. Ranxbury 9 Pharm., Inc., 85 F. App’x 205, 214-15 (Fed. Cir. 2003) (observing that the district court 10 was entitled to consider “the difficulty of pursuing collection” of a damages award in 11 “international legal systems” as factor weighing in favor of irreparable harm); see also 12 Cordelia Lighting, Inc. v. Zhejiang Yankon Grp. Co., 2015 WL 12656241, *7 (C.D. Cal. 13 Apr. 27, 2015); Aevoe Corp. v. Shenzhen Membrane Precise Electron Ltd., 2012 WL 14 1532308, *5-6 (D. Nev. May 1, 2012). 15 Yet even if Qualcomm had cited to cases that were binding or persuasive authority 16 in this circuit, the Court would still decline to find that such a consideration weighs in 17 favor of granting preliminary injunctive relief. The defendants in Cordelia Lighting and 18 Aevoe, unlike Defendants and Apple, had no legal or business relationship with the 19 plaintiff. See Cordelia Lighting, 2015 WL 12656241, at *1 (plaintiff held patent for 20 “heat-dissipating LED light fixture” and defendants sold allegedly infringing products); 21 Aevoe, 2012 WL 1532308, at *1 (defendant manufactured and sold screen protectors for 22 electronic devices and plaintiff owned the patent for touch screen protectors). The 23 Cordelia Lighting and Aevoe defendants also lacked any subsidiaries or substantial assets 24 in the United States. Cordelia Lighting, 2015 WL 12656241, at *9; Aevoe, 2012 WL 25 1532308, at *5. By contrast, here, the parties have extensive and sophisticated business 26 relationships that belie any uncertainty regarding the collection of damages. Each of the 27 Defendants has subsidiaries in the United States and each has been indemnified by Apple 28 for any damages owing to Qualcomm under the license agreements. Each Defendant is 27 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6379 Page 28 of 31 1 also bound by Taiwanese law, which explicitly recognizes the validity of foreign 2 judgments. Dkt. No. 72 at 29 (“Each Defendant is headquartered in Taiwan, which has 3 an explicit statutory provision [Taiwan Code of Civil Procedure Article 402] that 4 recognizes foreign judgments.”). Accordingly and in light of these distinctions, the Court 5 declines to conclude that the mere fact that Defendants are foreign entities, and that it 6 may theoretically be difficult to enforce a judgment, are reasons alone to find that 7 Qualcomm is likely to face irreparable harm. 8 C. The remaining Winter factors 9 Notwithstanding Qualcomm’s insistence that the remaining Winter factors 10 decidedly weigh in its favor, the Court is also unconvinced that any of the three 11 additional Winter factors warrant granting preliminary relief. In an effort to make the 12 equities appear in the light most favorable to Qualcomm, Qualcomm has oversimplified 13 the legal issues before the Court. Yet upon close inspection of the competing claims of 14 the likelihood of success on the merits, the balance of hardships, and the public interest, 15 the Court concludes that the outstanding three Winter factors do not weigh in favor of a 16 preliminary injunction either. 17 With regards to the likelihood of success on the merits, Qualcomm contends that it 18 is “highly likely to succeed on the merits of its claims” because there is no dispute that it 19 has a valid license agreement with each of the Contract Manufacturers or that the 20 Contract Manufacturers deliberately withheld royalty payments under the license 21 agreements. Dkt. No. 35-1 at 17-18. 22 This assertion, however, fails to persuade because it is one-sided. Qualcomm 23 would have the Court conclude that the only merits questions presented by this lawsuit 24 are Qualcomm’s claims of breach. But that is simply not the case. The Contract 25 Manufacturers’ have asserted a number of valid defenses and counterclaims, which 26 include allegations that Qualcomm has breached the parties’ license agreements, 27 breached its FRAND commitment, and that Qualcomm has placed anticompetitive 28 provisions in their licensing agreements and otherwise caused harm to competition and 28 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6380 Page 29 of 31 1 customers in the cellular industry. See generally CM’s Answer & Defenses; 2 Counterclaims, Dkt. No. 84. Qualcomm’s motion, however, is completely silent as to 3 these claims. In reply, Qualcomm responds to the merits of some of the Contract 4 Manufacturers’ allegations, but in the Court’s view, the reply arguments are too cursory 5 and overstated to demonstrate that Qualcomm is nonetheless likely to succeed on the 6 merits.2 Dkt. No. 100 at 13-17. Qualcomm’s assertions regarding the balance of hardships and public interest 7 8 similarly ignore the validity of the Contract Manufacturers’ defenses and counterclaims. 9 According to Qualcomm, it is simply asking the Court to order Defendants to comply 10 with their licensing contracts just as they have been doing for years. Dkt. No. 35-1 at 29. 11 Thus, Qualcomm argues, the CMs do not face any risk of harm. See id. Such a 12 contention, however, is undermined by the allegations in Defendants’ countersuit. 13 Defendants argue that Qualcomm’s business model, including its licensing agreements 14 and chipset practices, have anticompetitive consequences on the CMs and on the cellular 15 telecommunications market at large. Specifically, Defendants argue that they have been 16 and continue to be financially injured by Qualcomm’s unfair and anticompetitive royalty 17 charges. See CM’s Prayer for Relief, Dkt. No. 84 at 262-66. Because these allegations 18 are “competing claims of injury,” the Court is required to consider them when assessing 19 the propriety of a preliminary injunction. See Winter, 555 U.S. at 24. Accordingly, the 20 Court disagrees that Qualcomm is the only party facing hardship. Granting Qualcomm 21 the relief that it seeks would effectively require the Contract Manufacturers to make 22 royalty payments that they dispute as illegal and anticompetitive. The Court therefore 23 finds that, at most, the parties’ competing claims of hardship are in equipoise. 24 25 26 27 28 For instance, in its reply brief, Qualcomm assertively argues that FRAND, as a matter of law, “is not a valid basis for abrogating an existing license agreement.” Id. at 13-14. Yet the only legal support that Qualcomm cites for this position is a single decision by a British court. Such attempts to pass off legal issues as “settled” when there is no binding authority to support the proposition, do not convince the Court that Qualcomm is likely to succeed on the merits. 2 29 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6381 Page 30 of 31 1 The Court likewise concludes that the competing claims of public interest are also 2 in equipoise. Qualcomm asserts that a preliminary injunction would serve the public 3 interest by protecting intellectual property rights. Dkt. No. 35-1 at 30. Defendants 4 counter that a preliminary injunction would injure the public’s strong interest in the 5 preservation of market competition. Dkt. No. 72 at 35. Qualcomm would have this 6 Court conclude that the public’s interest in protecting intellectual property rights trumps 7 the public interest in market competition. Such a finding, however, is inappropriate at 8 this juncture. Both parties offer valid points and as this case proceeds, the Court will be 9 in the position to evaluate these competing positions. But in the meantime, the Court is 10 not prepared to conclude that the public interest weighs in favor of a preliminary 11 injunction. As such, the Court rejects Qualcomm’s argument. 12 V. CONCLUSION 13 The stakes presented by this lawsuit are towering. Qualcomm has sued to enforce 14 license agreements that entitle it to billions of dollar in royalties for products 15 incorporating its intellectual property. The Contract Manufacturers, on the other hand, 16 have sued to prevent Qualcomm from continuing to profit from their allegedly illegal 17 business model and from continuing to inflict anticompetitive harm on the 18 telecommunications industry. These opposing claims present complex and novel legal 19 issues that the Court will deliberately and expeditiously address as this litigation unfolds. 20 But the present issue before the Court is distinct. By bringing this motion for 21 preliminary injunction, Qualcomm has asked the Court to take the extraordinary step of 22 granting Qualcomm relief before the Court has had the opportunity to make a decision on 23 the merits. Yet the Court is not convinced that such extraordinary and equitable relief is 24 warranted given the facts before it. Qualcomm has failed to demonstrate that it faces a 25 likelihood of irreparable harm that cannot be remedied by this Court’s adjudication on the 26 merits. Qualcomm has also failed to demonstrate that the remaining Winter factors 27 apply. For these reasons, the Court DENIES Qualcomm’s motion for preliminary 28 injunction. 30 3:17-cv-01010-GPC-MDD Case 3:17-cv-01010-GPC-MDD Document 138 Filed 09/07/17 PageID.6382 Page 31 of 31 1 IT IS SO ORDERED. 2 3 Dated: September 7, 2017 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 31 3:17-cv-01010-GPC-MDD

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