Godo Kaisha IP Bridge 1 v. TCL Communication Technology Holdings Limited et al

Filing 194

REPORT AND RECOMMENDATIONS re 74 MOTION to Dismiss for Failure to State a Claim and pursuant to Fed. R. Civ. P. 12(b)(1) - Plaintiff Godo Kaisha IP Bridge 1's Motion to Dismiss Counterclaims of Defendants TCT Mobile (US), Inc. and TCT Mob ile, Inc. filed by Godo Kaisha IP Bridge 1. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 3/16/2017. Signed by Judge Sherry R. Fallon on 2/27/17. (cak)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
GODO KAISHA IP BRIDGE 1,
Plaintiff,
V.

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)
)
)
)

Civil Action No. 15-634-SLR-SRF

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TCL COMMUNICATION TECHNOLOGY)
HOLDINGS LIMITED, a Chinese
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Corporation, TCT MOBILE LIMITED, a )
Hong Kong Corporation, TCT MOBILE
)
(US), INC., a Delaware Corporation, and
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TCT MOBILE, INC., a Delaware
Corporation,
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Defendants.
)

REPORT AND RECOMMENDATION
I.

INTRODUCTION
Presently before the court in this patent infringement action is plaintiff Godo Kaisha IP

Bridge 1's ("IP Bridge") motion to dismiss the counterclaims of defendants TCT Mobile (US),
Inc. and TCT Mobile, Inc. (D.I. 74) For the following reasons, I recommend that the court grant
the motion to dismiss without prejudice, and afford TCT the opportunity to amend its
counterclaims.
II.

BACKGROUND

A. Procedural History
IP Bridge filed this action on July 24, 2015 against TCL Communication Technology
Holdings Limited ("TCL Holdings"), TCT Mobile Limited ("TCT Mobile"), and TCT Mobile
(US), Inc. (collectively, together with TCT Mobile, Inc., "defendants"), asserting causes of

action for the alleged infringement of three of its patents owned by assignment. 1 (D .I. 1) The
patents-in-suit are directed to technology declared essential to the global 2G, 3G, and 4G
telecommunications standards established by the European Telecommunications Standards
Institute ("ETSI"). (D.I. 68 at 9, ~ 4) On December 11, 2015, TCT Mobile (US), Inc. answered
the complaint (D.I. 16), and TCT Mobile and TCL Holdings filed a motion to dismiss for lack of
personal jurisdiction pursuant to Rule 12(b)(2) (D .I. 17). While the motion to dismiss for lack of
personal jurisdiction was pending, IP Bridge filed an amended complaint on July 14, 2016,
adding TCT Mobile, Inc. as a defendant. (D.I. 63) The parties stipulated that this amendment
would have no bearing on the substance of the Rule 12(b)(2) motion to dismiss. (D.I. 62) The
amended complaint alleges that defendants infringed the patents-in-suit by designing,
manufacturing, using, marketing, importing, offering for sale, and selling mobile phones and
tablets under the brands "Alcatel OneTouch" and "TCL" (the "Accused Products"). (D.I. 63

at~

7) TCT Mobile (US), Inc. and TCT Mobile, Inc. filed an answer to the amended complaint on
August 3, 2016, adding counterclaims for breach of contract, violations of the Sherman Act, and
patent misuse. (D.I. 68)
On August 17, 2016, this court issued a Report and Recommendation, which
recommended denial of the motion to dismiss. (D.I. 72) The court entered a Memorandum
Order adopting the Report and Recommendation on September 29, 2016. (D.I. 103) IP Bridge
filed the instant motion to dismiss the counterclaims asserted by TCT Mobile (US), Inc. and TCT
Mobile, Inc. (together, "TCT") on August 22, 2016. (D.I. 74)

The patents-in-suit include United States Patent Nos. 7,373,295 ("the '295 patent"), 8,351,538
("the '538 patent"), and 8,385,239 ("the '239 patent") (collectively, the "patents-in-suit").

1

2

B. Factual Background
IP Bridge's predecessor-in-interest, Panasonic Corporation ("Panasonic"), committed to
licensing the patents-in-suit on "fair, reasonable and non-discriminatory terms" ("FRAND") as
essential patents to the global 2G, 3G, and 4G cellular telecommunications standards. (D.I. 68 at

if 4)

Panasonic made this commitment to ETSI in return for inclusion of the patents on ETSI's

roster of "standard essential patents" ("SEPs"). (Id. at ilil 11-13)
Prior to filing the original complaint, IP Bridge attempted to engage in licensing
negotiations with TCL Holdings. (D.I. 63 at ilil 18-26) According to IP Bridge, defendants
failed to respond to IP Bridge's repeated attempts to license its patent portfolio on FRAND
terms. (Id.) TCT contends that Panasonic's contractual commitments with ETSI to license the
technology on FRAND terms were binding on IP Bridge as successor-in-interest. (D.I. 68 at ilil
19-20) TCT pleads that IP Bridge has breached its obligations by attempting to license its entire
patent portfolio for more than a FRAND royalty. (Id. at ilil 6-9)

III.

LEGAL STAND ARDS
A.

Rule 12(b)(l)

Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a complaint for lack of
jurisdiction over the subject matter, or if the plaintiff lacks standing to bring its claim. Motions
brought under Rule 12(b)(l) may present either a facial or factual challenge to the court's subject
matter jurisdiction. See Lincoln Ben. Life Co. v. AEI Life, LLC, 800 F.3d 99, 105 (3d Cir. 2015)
(quoting Common Cause of Pa. v. Pennsylvania, 558 F.3d 249, 257 (3d Cir. 2009)). In
reviewing a facial challenge under Rule 12(b)(l), the standards relevant to Rule 12(b)(6) apply.
In this regard, the court must accept all factual allegations in the complaint as true, and the court
may only consider the complaint and documents referenced in or attached to the complaint. See

3

Church of Universal Bhd. v. Farmington Twp. Supervisors, 296 F. App'x 285, 288 (3d Cir.
2008); Gould Elec. , Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000). In reviewing a
factual challenge to the court's subject matter jurisdiction, the court is not confined to the
allegations in the complaint. See Mortensen v. First Fed. Sav. & Loan Ass 'n, 549 F.2d 884, 891
(3d Cir. 1977). Instead, the court may consider evidence outside the pleadings, including
affidavits, depositions and testimony, to resolve any factual issues bearing on jurisdiction. See
Gotha v. United States, 115 F.3d 176, 179 (3d Cir. 1997). Once the court's subject matter
jurisdiction over a complaint is challenged, the plaintiff bears the burden of proving that
jurisdiction exists. See Lincoln, 800 F.3d at 105; Mortensen, 549 F.2d at 891.

B.

Rule 12(b)(6)

Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim
upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6)
motion to dismiss, the court must accept as true all factual allegations in the complaint and view
them in the light most favorable to the plaintiff. Umland v. Planco Fin. Servs., 542 F.3d 59, 64
(3d Cir. 2008). "[C]ourts use the same standard in ruling on a motion to dismiss a counterclaim
under Rule 12(b)(6) as they do in assessing a claim in a complaint." Identix Pharms., Inc. v.
Gilead Sciences, Inc., C.A. No. 13-1987-LPS-CJB, 2014 WL 4222902, at *5 (D. Del. Aug. 25,
2014) (citing Tyco Fire Prods. LP v. Victaulic Co., 777 F. Supp. 2d 893, 898-99 (E.D. Pa.
2011)).
To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint
must contain a "short and plain statement of the claim showing that the pleader is entitled to
relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the
complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that

4

is plausible on its face." Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft
v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations
allow the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged. Iqbal, 556 U.S. at 663 ; Twombly, 550 U.S. at 555-56.
When determining whether dismissal is appropriate, the court must take three steps. 2 See
Santiago v. Warminster Twp., 629 F.3d 121 , 130 (3d Cir. 2010). First, the court must identify
the elements of the claim. Iqbal, 556 U.S. at 675. Second, the court must identify and reject
conclusory allegations. Id. at 678. Third, the court should assume the veracity of the wellpleaded factual allegations identified under the first prong of the analysis, and determine whether
they are sufficiently alleged to state a claim for relief. Id. ; see also Malleus v. George, 641 F .3d
560, 563 (3d Cir. 2011). The third prong presents a context-specific inquiry that "draw[s] on
[the court' s] experience and common sense." Id. at 663-64; see also Fowler v. UPMC
Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). As the Supreme Court instructed in Iqbal, "where
the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged - but it has not 'show[n]' - 'that the pleader is entitled to
relief.'" Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
The court' s determination is not whether the non-moving party "will ultimately prevail,"
but whether that party is "entitled to offer evidence to support the claims." United States ex rel.
Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir. 2011). This "does not impose a
probability requirement at the pleading stage," but instead "simply calls for enough facts to raise

2

Although Iqbal describes the analysis as a "two-pronged approach," the Supreme Court
observed that it is often necessary to "begin by taking note of the elements a plaintiff must plead
to state a claim." 556 U.S. at 675, 679. For this reason, the Third Circuit has adopted a threepronged approach. See Santiago v. Warminster Twp., 629 F.3d 121 , 130 n.7 (3d Cir. 2010);
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).
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a reasonable expectation that discovery will reveal evidence of [the necessary element]."
Phillips, 515 F.3d at 234 (quoting Twombly, 550 U.S. at 556). The court's analysis is a contextspecific task requiring the court "to draw on its judicial experience and common sense." Iqbal,
556 U.S . at 663-64.

IV.

DISCUSSION
A. Breach of Contract Counterclaim
In support of the pending motion to dismiss, IP Bridge alleges that TCT' s breach of

contract counterclaim fails to allege any injury or damages, as required pursuant to Rules
12(b)(l) and (b)(6). (D.I. 75 at 7) In response, TCT contends that IP Bridge breached
Panasonic' s agreement by seeking a non-FRAND royalty. (D.I. 80 at 4) According to TCT, the
damage from IP Bridge's breach is the difference between a FRAND royalty for the asserted
patents and any higher royalty, or costs flowing from an injunction, if IP Bridge prevails. (Id. at
5)
I recommend that the court dismiss without prejudice TCT' s counterclaim for breach of
contract. To state a claim for breach of contract under Delaware law, a counterclaimant must
plead: "(1) the existence of the contract, whether express or implied; (2) the breach of an
obligation imposed by that contract; and (3) the resultant damage to the [counterclaimant]."
Avaya Inc., RP v. Telecom Labs, Inc., 838 F.3d 354, 390 (3d Cir. 2016) (quoting VLIW Tech.,
LLC v. Hewlett-Packa.rd Co., 840 A.2d 606, 612 (Del. 2003)). TCT's counterclaim alleges that
IP Bridge breached its contractual commitments with ETSI, 3GPP, and their respective members
"by refusing to agree to a FRAND rate to its identified patents under reasonable rates, with
reasonable terms, and on a non-discriminatory basis, and by failing to provide separate rates for
each of the 2G, 3G, and 4G standards." (D.I. 68 at if 22) Nowhere does the counterclaim

6

identify the resultant injury from this purported breach. 3 See Phunware, Inc. v. Excelmind Grp.

Ltd. , 117 F. Supp. 3d 613, 627 (D. Del. 2015) ("A breach of contract complaint may be
dismissed where the plaintiffs' claims are not tied to any damages.") (citation and internal
quotation marks omitted).
At oral argument, TCT directed the court to paragraphs 44 and 22 of the counterclaims to
demonstrate the injury suffered from IP Bridge's purported breach of its FRAND obligations.
(12/7/16 Tr. at 32:5-14) Paragraph 6 of the counterclaims states that IP Bridge intends to "seek
more than [FRAND] royalty," and IP Bridge challenges TCT's eligibility to license the patentsin-suit at FRAND rates. (D.I. 68 at if 6) Paragraph 22 of the counterclaims asserts that "IP
Bridge breached these contracts by refusing to agree to a FRAND rate to its identified patents
under reasonable rates, with reasonable terms, and on a non-discriminatory basis." (Id. at if 22)
Neither of these paragraphs contains sufficient allegations to put IP Bridge on notice of the
alleged injury suffered because they discuss the basis for the purported breach without
identifying the specific harm caused by that breach.
TCT' s reliance on Research In Motion Ltd. v. Motorola, Inc. does not compel a different
result. 644 F. Supp. 2d 788, 797 (N.D. Tex. 2008). Unlike the circumstances before the court in

3

TCT's allegation in its answering brief that " [t]he damage from IP Bridge' s breach is the
difference between a FRAND royalty for the asserted patents and any higher royalty, or costs
flowing from an injunction, should IP Bridge prevail," is insufficient to plead an injury because
"[i]t is axiomatic that the complaint may not be amended by the briefs in opposition to a motion
to dismiss." Commonwealth of Pa. ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d
Cir. 1988) (internal quotation marks and citations omitted).
4
Although counsel cited to paragraph 4, counsel discussed language that appears at paragraph 6
of the counterclaim. (12/7/16 Tr. at 32:5-14) (noting that the paragraph "says that IP Bridge will
seek more than a FRAND royalty, that TCT is no longer eligible for such a FRAND royalty.")
This is confirmed by counsel's subsequent reference to paragraph 6. (Id. at 33:2-4) ("So this
counterclaim is based on positions that IP Bridge is taking in this case, referring again to
counterclaim Paragraph 6. ")
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the present case, the Research In Motion court addressed whether the plaintiff "suffered any
damages." Id. (emphasis added). The complaint at issue pleaded that, "[a]s a result of these
multiple contractual breaches, [the plaintiff] has been injured in its business or property, and is
threatened by imminent loss of profits, loss of customers and potential customers, and loss of
goodwill and product image." (N.D. Tex. C.A. No. 08-284, D.I. 1 at ii 166) In contrast, the
issue presently before the court is whether injury or damages were pleaded at all in connection
with the breach of contract counterclaim, as required under Delaware law. See Avaya, 838 F.3d
at 390. Consequently, the facts before the court are distinguishable from the circumstances
presented in Research In Motion. For the foregoing reasons, I recommend that the court dismiss
the breach of contract counterclaim without prejudice.
IP Bridge further contends that the breach of contract counterclaim must be dismissed for
lack of standing and ripeness under Rule 12(b)( 1) because TCT cannot demonstrate any nonspeculative injury where, as here, TCT has not yet paid a super-FRAND rate. (D.I. 75 at 7; D.I.
94 at 2) In its answering brief, TCT does not address IP Bridge's standing or ripeness arguments
with respect to the breach of contract counterclaim. At oral argument, TCT alleged that the
breach currently affects potential licensing negotiations and the course of this litigation. (12/7/16
Tr. at 32:22-35:10)
TCT's breach of contract counterclaim cannot survive under Rule 12(b)(l) for the same
reasons it fails the Rule 12(b)(6) analysis. TCT' s cause of action for breach of contract is not
ripe and does not confer standing where, as here, TCT has failed to plead damages resulting from
the breach. See Kaymak v. AAA Mid At/. , Inc., 529 F. App'x 222, 225 (3d Cir. 2013) (affirming
dismissal under Rule 12(b)(l) where the plaintiff failed to establish a concrete or imminent
injury). TCT's reliance on Thomas v. Union Carbide Agricultural Products Co. during oral

8

argument 5 is inapposite because the appellees in that case "allege[d] an injury from EPA' s
unlawful conduct," whereas in the present case, TCT has not alleged any injury resulting from
the purported breach of contract. 473 U.S. 568, 581-82 (1985).

B. Antitrust Counterclaims
IP Bridge next contends that TCT' s antitrust counterclaim should be dismissed for failure
to state a claim under Sections 1 and 2 of the Sherman Act. (D.I. 75 at 8-10) Specifically, IP
Bridge argues that TCT failed to allege a conspiracy or an unreasonable restraint on trade as
required by Section 1, and failed to define the relevant market or establish injury to competition
in the general market as required by Section 2. (Id.) In response, TCT alleges that IP Bridge's
patents are essential, and the telecommunications standards define the relevant market. (D.I. 80
at 7) Moreover, TCT contends that the act of demanding a non-FRAND remedy for use of a
standard-essential patent is anticompetitive conduct. (Id. at 8)

1. Section 1 of the Sherman Act
Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of
trust, or conspiracy in restraint of trade." 15 U.S.C. § 1. Courts construe Section 1 to prohibit
unreasonable restraints on trade. West Penn Allegheny Health Sys. , Inc. v. UPMC, 627 F.3d 85,
99 (3d Cir. 2010). To properly plead a Section 1 claim, a plaintiff must plead two elements: (1)
"that the defendant was a party to a contract, combination ... or conspiracy;" and (2) "that the
conspiracy to which the defendant was a party imposed an unreasonable restraint on trade." In

5

TCT addressed IP Bridge's standing and ripeness arguments for the first time at oral argument.
(12/7/16 Tr. at 33:10-35 :10) TCT failed to address these arguments in its answering brief. The
court notes that TCT, as the party opposing a Rule 12(b)(l) motion, bears the burden of proving
that the jurisdictional requirements are met. See Princeton Digital Image Corp. v. Office Depot
Inc. , C.A. No. 13-239-LPS et al., 2016 WL 1533697, at *7-8 (D. Del. Mar. 31, 2016) (citing
Dev. Fin. Corp. v. Alpha Housing & Health Care, 54 F.3d 156, 158 (3d Cir. 1995)).
9

re Ins. Brokerage Antitrust Litig., 618 F .3d 300, 315 (3d Cir. 2010) (internal citations and

quotation marks omitted). The Supreme Court has explained that the party asserting a Section 1
claim must show "a unity of purpose or a common design and understanding, or a meeting of
minds in an unlawful arrangement." Am. Tobacco Co. v. United States, 328 U.S. 781, 810
(1946). "Unilateral activity by a defendant, no matter the motivation, cannot give rise to a
section 1 violation." Inter Vest, Inc. v. Bloomberg, L.P., 340 F.3d 144, 159 (3d Cir. 2003).
TCT raises no arguments in support of its Section 1 counterclaim in its answering brief.
During oral argument, TCT identified paragraphs 4 and 10 through 14 in support of its Section 1
claim, explaining that, while the counterclaim contains no allegation of a conspiracy, it satisfies
the first prong of the Section 1 analysis by alleging the existence of a contract. (12/7/16 Tr. at
35:11-36: 17) ("I don't think we're specifically alleging any conspiracy in this one."). However,
the existence of a contract is not sufficient absent an allegation of collusion. See Apple Inc. v.
Samsung Elecs. Co., Ltd., 2011 WL 4948567, at *7 (N.D. Cal. Oct. 18, 2011) ("A Plaintiff

cannot state a claim under section 1 absent an allegation that it acted in concert with another
party; it is not sufficient to allege that it acted alone in a collaborative forum."); Vizio, Inc. v.
Funai Elec. Co. Ltd., 2010 WL 7762624, at *6 (C.D. Cal. Feb. 3, 2010) (concluding that Section

1 claim was sufficiently pleaded where a patent owner and its predecessor-in-interest acted in
concert to circumvent a FRAND commitment to a standard setting organization). The
counterclaim paragraphs cited by TCT do not identify any other entity involved in IP Bridge's
alleged efforts to circumvent its FRAND obligations. (D.I. 68 at iii! 4; 10-14; 23-26) There is no
allegation, as in Vizio, that IP Bridge schemed with its predecessor-in-interest, Panasonic, to
avoid the FRAND commitment. See Vizio, 2010 WL 7762624, at *6 (upholding pleading which
alleged that patent owner and predecessor-in-interest agreed to fix prices by charging a second

10

royalty for the standard essential patents and splitting the profits). TCT' s failure to plead that IP
Bridge acted in concert with another entity is fatal to its Section 1 cause of action.
Consequently, I recommend that the court dismiss TCT' s counterclaim under Section 1 of the
Sherman Act without prejudice.

2. Section 2 of the Sherman Act
Liability under Section 2 of the Sherman Act requires: (1) the possession of monopoly
power in the relevant market, and (2) a showing that the monopolist achieved monopoly power
through anticompetitive conduct. Verizon Commc 'ns Inc. v. Law Offices of Curtis V Trinko,
LLP, 540 U.S. 398, 407 (2004). Defining the scope of the market is a question of fact on which
the counterclaimant bears the burden of proof. Broadcom Corp. v. Qualcomm Inc., 501 F.3d
297, 307 (3d Cir. 2007) (citing Queen City Pizza, Inc. v. Domino 's Pizza, Inc., 124 F.3d 430, 436
(3d Cir. 1997); Weiss v. York Hosp. , 745 F.2d 786, 825 (3d Cir. 1984)). Anticompetitive conduct
"is generally defined as conduct to obtain or maintain monopoly power as a result of competition
on some basis other than the merits." Broadcom, 501 F.3d at 308 (citing LePage 's Inc. v. 3M,
324 F.3d 141, 147 (3d Cir. 2003)). "Conduct that merely harms competitors ... while not
harming the competitive process itself, is not anticompetitive." Id. (citing Brooke Group Ltd. v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993)).
I recommend that the court grant IP Bridge' s motion to dismiss TCT's counterclaim
brought under Section 2 of the Sherman Act. The counterclaim states that, "[b]y asserting to
ETSI and 3GPP that the asserted patents ... are standard-essential patents, IP Bridge has
established itself in a position of monopoly power in the Relevant Technology Market," and
" [b ]y refusing to license the asserted patents to TCT US on FRAND terms, should it prevail in
this litigation, IP Bridge has abused that monopoly power and engaged in uncompetitive conduct

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toward TCT US." (D.I. 68 at iii! 24-25) TCT's allegation that IP Bridge "engaged in
uncompetitive conduct toward TCT US" does not adequately plead the requisite anticompetitive
harm. (D.I. 68 at ii 25) To state a claim under Section 2 of the Sherman Act, Third Circuit
precedent requires that an intentionally false promise be made to a standard setting organization
("SSO"), and the SSO must rely on the false promise when including the technology in the
standard. See Broadcom, 501 F .3d at 314 (holding that "a patent holder's intentionally false
promise to license essential proprietary technology on FRAND terms ... coupled with an SDO' s
reliance on that promise when including the technology in a standard, and ... the patent holder's
subsequent breach of that promise, is actionable anticompetitive conduct."); s(!e also Microsoft

Mobile Inc. v. lnterdigital, Inc., C.A. No. 15-723-RGA, 2016 WL 1464545, at *1 (D. Del. Apr.
13, 2016) (noting that the patentee "falsely promised to license its SEPs on FRAND terms," and
"[b]ut for IDC's deception ... ETSI would have included in the standards alternate technologies
or not specified any technology at all.").
In the present case, the counterclaims allege that Panasonic, as the predecessor-in-interest
to IP Bridge, made "public and binding commitments to the international community" to license
the technology on FRAND terms. (D.I. 68 at ii 4) The transfer of the patents-in-suit from
Panasonic to IP Bridge occurred after Panasonic entered into the agreement with ETSI. (Id.)
TCT' s Section 2 claim against IP Bridge cannot survive because IP Bridge did not reach the
agreement with ETSI, and its actions therefore did not cause anticompetitive harm in the context
of Section 2 of the Sherman Act. See Vizio, Inc. v. Funai Elec. Co. Ltd., 2010 WL 7762624, at
*4 (C.D. Cal. Feb. 3, 2010) (dismissing Section 2 antitrust claim where, as here, the predecessorin-interest to the patent-in-suit entered into the FRAND agreement with the SSO); see also

Broadcom, 501 F.3d at 314 (holding that Section 2 liability requires "a patent holder's

12

intentionally false promise to license essential proprietary technology on FRAND terms" to an
SSO who must rely on the false promise).
At oral argument, TCT acknowledged that the relevant court cases involve a patent
holder who enters into an agreement with the SSO with the intention of violating its FRAND
commitment, but questioned whether the intent must be present at the time of the standard's
adoption to be deemed anticompetitive. (12/7/16 Tr. at 38:15-40:12) In support of its position,
TCT evaluated the Federal Trade Commission ("FTC") analysis in In re Motorola Mobility LLC
& Google Inc., File No. 121-0120, for the proposition that the FTC has the authority to "reach

opportunistic conduct that takes place after a standard is adopted that tends to harm consumers
and undermine the standard-setting process." (Id at 41 :3-42:8) (citing Federal Trade
Commission, Analysis ofProposed Consent Order to Aid Public Comment, In re Motorola
Mobility LLC & Google Inc., FTC File No. 121-0120, at 4 (Jan. 3, 20.13)). The court is not
bound by the FTC's analysis, and declines to recommend expansion of the Third Circuit's
decision in Broadcom to reach violations of FRAND commitments occurring after the standard's
adoption. 501 F.3d at 314 (requiring "a patent holder's intentionally false promise to license
essential proprietary technology on FRAND terms."); see also Vizio, 2010 WL 7762624, at *4
(C.D. Cal. Feb. 3, 2010) (dismissing Section 2 antitrust claim where, as here, the predecessor-ininterest to the patent-in-suit entered into the FRAND agreement with the SSO).
TCT also relies on Research In Motion in its answering brief to establish that the owner
of a SEP may cause anticompetitive harm by seeking a non-FRAND royalty after making a
commitment to do so. (D.I. 80 at 8) However, Research In Motion does not adequately support
TCT's position because the pleading in that case expressly stated that the SSOs relied on
Motorola's false promises that it would license its patents on FRAND terms, and Motorola

13

gained anticompetitive advantage by misrepresenting its intentions to the SSOs at that time. 644
F. Supp. 2d at 796. Therefore, Research In Motion is consistent with Broadcom, Vizio, and other
decisions holding that a Section 2 claim exists when the SSO relies on a patent holder's false
promise that it will license its patents on FRAND terms. For the foregoing reasons, I
recommend that the court dismiss TCT' s cause of action under Section 2 of the Sherman Act
without prejudice.
TCT' s amended Section 2 counterclaim should clearly define the relevant
telecommunications standard. In Broadcom, "[t]he Complaint defined the relevant market as the
market for Qualcomm's proprietary WCDMA technology, a technology essential to the
implementation of the UMTS standard." Broadcom, 501 F.3d at 315. In contrast, TCT's Section
2 counterclaim references the Relevant Technology Market without defining the term in its
counterclaims. (D.I. 68) Paragraph 4 of TCT's counterclaims describes the patents-in-suit as
essential to the global 2G, 3G, and 4G telecommunications standards, but does not expressly
define these standards as the "Relevant Technology Market." (D.I. 68 at if 4) "The Court is not
unmindful of the inherently factual nature of defining the relevant markets. But a litigant must
adumbrate in each counterclaim an intelligible definition of the elements of its antitrust claim,
even under the liberal notice pleading requirements of the Federal Rules of Civil Procedure."
CCPI Inc. v. Am. Premier, Inc., 967 F. Supp. 813, 819 (D. Del. 1997) (emphasis added).
C. Patent Misuse Counterclaim

According to IP Bridge, the act of demanding a non-FRAND royalty rate is not sufficient
to state a claim for patent misuse. (D.I. 75 at 11) IP Bridge further contends that portfolio
licensing does not constitute patent misuse. (Id. at 12-13) In response, TCT alleges that the
basis for its patent misuse claim is the same as its antitrust claim, and IP Bridge's refusal to

14

license the three asserted patents absent an agreement to license its entire patent portfolio is an
improper tying arrangement constituting patent misuse. (D.I. 80 at 9)
Patent misuse is "the patentee's act of impermissibly broadening the physical or temporal
scope of the patent grant with anticompetitive effect." Princo Corp. v. Int'! Trade Comm 'n, 616
F.3d 1318, 1328 (Fed. Cir. 2010) (internal quotation marks omitted). "The courts have identified
certain specific practices as constituting per se patent misuse, including so-called 'tying'
arrangements in which a patentee conditions a license under the patent on the purchase of a
separable, staple good and arrangements in which a patentee effectively extends the term of its
patent by requiring post-expiration royalties." Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860,
869 (Fed. Cir. 1997) (internal citation omitted). However, under§ 271(d), "in the absence of
market power, even a tying arrangement does not constitute patent misuse." Id In US. Philips
Corp. v. Int'! Trade Comm 'n, the Federal Circuit held that package licenses are not per se patent
misuse, because a "package license is thus not anticompetitive in the way that a compelled
purchase of a tied product would be." 424 F.3d 1179, 1189-90 (Fed. Cir. 2005) (finding that
there was "no evidence that a portion of the royalty was attributable to the [nonessential]
patents" and, thus, no basis to support the conclusion that "a hypothetical licensing fee would
have been lower if Philips had offered to license the patents on an individual basis or in smaller
packages.").
TCT' s counterclaim for patent misuse cannot withstand IP Bridge's Rule 12(b)(6)
motion. TCT asserts three bases for its patent misuse counterclaim:
(1) demanding a royalty higher than the FRAND royalty that its predecessor
agreed to seek and by refusing to license the asserted patents to TCT US on
FRAND terms; (2) conditioning any agreement to license the asserted patents on
TCT US's agreement to license IP Bridge's entire patent portfolio; and (3)
asserting license obligations that would, according to IP Bridge, persist even if the
asserted patents are determined to be invalid.
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(D.I. 68 at if 28) However, all three asserted bases illustrate that TCT's patent misuse
counterclaim is premised on an offer to license which has not been consummated. "Many courts
have concluded that mere offers cannot constitute patent misuse unless they are ultimately
consummated." On Track Innovations Ltd. v. T-Mobile USA, Inc. , 106 F. Supp. 3d 369, 404
(S.D.N.Y. 2015); see Va. Panel Corp., 133 F.3d at 871 (concluding that an offer which was not
consummated could not constitute per se tying or patent misuse). TCT has offered no authority
to the contrary, and acknowledged during oral argument that "[w]e don't think that is a
competitive harm that is going on right now." (12/7/16 Tr. at 43 :21-22) Instead, TCT expressed
its concern that "we would be waiving our right to raise questions about competitive effects
under the misuse case law . .. if we were to sign off on the agreement under their terms." (Id. at
44:7-11) This reasoning does not overcome the case authorities requiring a claim for patent
misuse to be based on a consummated agreement.
Moreover, TCT's patent misuse counterclaim does not allege that IP Bridge's portfolio
licensing restricts the use of the patents-in-suit in a specific way that falls outside the broad scope
of the patent grant. See Princo Corp. , 616 F.3d at 1329 ("While proof of an antitrust violation
shows that the patentee has committed wrongful conduct having anticompetitive effects, that
does not establish misuse of the patent in suit unless the conduct in question restricts the use of
the patent . . . outside the otherwise broad scope of the patent grant."); US Philips Corp. , 424
F.3d at 1192-93. Pursuant to 35 U.S.C. § 271(d)(5), conditioning the license ofrights to a patent
on the acquisition of a license to rights in another patent is not misuse unless "the patent owner
has market power in the relevant market for the patent . .. on which the license or sale is
conditioned." Consequently, I recommend that the court dismiss TCT's counterclaim for patent
misuse without prejudice.
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V.

CONCLUSION
For the foregoing reasons, I recommend that the court grant IP Bridge's motion to

dismiss TCT' s counterclaims. (D.I. 74) I recommend that TCT be permitted to amend its
counterclaims in accordance with this ruling within thirty (30) days of resolution of any
objections to this Report and Recommendation.
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(l), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy of this Report and Recommendation.
Fed. R. Civ. P. 72(b)(2). The objections and responses to the objections are limited to ten (10)
pages each. The failure of a party to object to legal conclusions may result in the loss of the right
to de novo review in the District Court. See Sincavage v. Barnhart, 171 F. App'x 924, 925 n.1
(3d Cir. 2006); Henderson v. Carlson, 812 F.2d 874, 878-79 (3d Cir. 1987).
The parties are directed to the court' s Standing Order for Objections Filed Under Fed. R.
Civ. P. 72, dated October 9, 2013 , a copy of which is available on the court' s website,
http://www.ded.uscourts.gov.

Dated: February 27, 2017

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