Microsoft Mobile, Inc. et al v. InterDigital, Inc. et al

Filing 27

MEMORANDUM ORDER Denying 16 MOTION to Dismiss and Motion to Strike. Signed by Judge Richard G. Andrews on 4/13/2016. (nms)

Case 1:15-cv-00723-RGA Document 27 Filed 04/13/16 Page 1 of 10 PageID #: 876

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

MICROSOFT MOBILE INC. and
MICROSOFT MOBILE OY,
Plaintiffs;
V.

INTERDIGITAL, INC., INTERDIGITAL
COMMUNICATIONS, INC.,
INTERDIGITAL TECHNOLOGY
CORPORATION, INTERDIGITAL PATENT
HOLDINGS, INC., INTERDIGITAL
HOLDINGS, INC., and IPR LICENSING,
INC.,

Civil Action No. 15-723-RGA

Defendants.
MEMORANDUM ORDER

Presently before the Court is Defendants' Motion to Dismiss and Motion to Strike (D.I.
16). Defendants (collectively "JDC") request dismissal pursuant to Fed. R. Civ. P. 12(b)(6) and
move to strike pursuant to Fed. R. Civ. P. 12(f). The issues have been fully briefed. (D.I. 17, 20,
21). The Court heard oral argument on March 1, 2016. (D.I. 26). For the reasons set forth
herein, IDC's motion to dismiss and to strike is DENIED.
On August 20, 2015, Plaintiffs (collectively "Microsoft") filed this suit, alleging unlawful
monopolization under § 2 of the Sherman Act. (D .I.· 1). Microsoft's claim relates tO JDC' s
interactions with a standard-setting organization and the enforcement of certain standardessential patents ("SEPs") that JDC claims to hold. The European Telecommunications
Standards Institute ("ETSI") promulgates standards with which cellular devices must comply in
order to effectively communicate with wireless network infrastructure. (Id.

if 26). ETSI, in

choosing which technologies are incorporated into the standard, may incorporate patented

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technologies that then become "essential" to the standard. (Id.

ifif 3, 28.).

Holders of these SEPs

may, absent adequate safeguards, demand exorbitant royalties in a so-called "patent hold-up."
(Id.

ifif 29, 30).

To combat this problem, ETSI seeks an irrevocable commitment from owners of

potential SEPs to license SEPs on fair, reasonable, and non-discriminatory ("FRAND") terms.
(Id.

ifif 32, 34).
Microsoft alleges that IDC, in order to induce ETSI to incorporate IDC's patented

technology into the 3G and 4G standards, falsely promised to license its SEPs on FRAND terms.
(Id.

ifif 4, 42, 44-45, 52). But for IDC's deception, Microsoft alleges, ETSI would have included

in the standards alternate technologies or not specified any technology at all. (Id.

if 46).

Microsoft alleges that, through this standard-setting process, IDC unlawfully acquired monopoly
power, and further, that IDC has exploited this power by refusing to honor its FRAND licensing
obligations, transferring SEPs to related entities to "double dip" royalty demands, tying U.S.
patent licenses to foreign patent licenses, tying SEP licenses to non-essential patent licenses, and
requiring royalties mi worldwide sales. (Id.

ifif 6, 56-69). Additionally, Microsoft alleges that

IDC has "pursued baseless infringement actions and baseless demands for injunctive relief and
exclusion orders designed to increase Microsoft's costs and thereby coerce Microsoft to
capitulate to InterDigital's unreasonable, non-FRAND demands." (Id.

ifif 6, 70-79).

In its motion to dismiss, IDC argues that Microsoft has failed to adequately plead a § 2

monopolization claim. To state a claim for monopolization, the plaintiff must plead the
possession of monopoly power in a relevant market and anticompetitive conduct on the part of
the possessor. Broadcom Corp. v. Qualcomm Inc., 501F.3d297, 306-08 (3d Cir. 2007).
Monopoly power may be shown through "direct evidence of supracompetitive prices and
restricted output" or it may be "inferred from the structure and composition of the relevant

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market." Id. at 307. "To support an inference of monopoly power, a plaintiff typically must
plead and prove that a firm has a dominant share in a relevant market, and that significant entry
barriers protect that market." Id. (quotation marks omitted). "Anticompetitive conduct may take
a variety of forms, but it is generally defined as conduct to obtain or maintain monopoly power
as a result of competition on some basis other than the merits." Id. In Broadcom, the Third
Circuit stated that, when patented technology is incorporated into a standard, "measures such as
FRAND commitments become important safeguards against monopoly power." Id. at 314.
Therefore, in the context of "a consensus-oriented private standard-setting environment," "a
patent holder's intentionally false promise to license essential proprietary technology on FRAND
terms, ... coupled with [a standard-setting organization'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." Id.
Here, it is difficult to discern any material differences between Microsoft's complaint and
the complaint which the Third Circuit found sufficient in Broadcom. 1
The Court first addresses monopoly power. The complaint defines the relevant markets
as "the markets for technologies covered by the InterDigital patents ... that are essential, or
alleged to be essential, to the 3G and 4G cellular standards ... , together with all other alternative
technologies to the InterDigital patents that could have been used in the cellular standards." (D.I.

1

IDC argues that, as suggested in Rambus Inc. v. FTC, 522 F.3d 456, 466 (D.C. Cir. 2008), the Third
Circuit's decision may be in tension with the Supreme Court's decision in NYNEX Corp. v. Discon, Inc.,
525 U.S. 128, 135-37 (1998) (holding that a plaintiff must allege and prove harm to the competitive
structure itself). First, the District of Delaware sits in the Third Circuit and is bound to follow its
decisions. Second, I do not read Broadcom to be inconsistent with NYNEX The plaintiff in Broadcom
alleged that the standard-setting organization would not have adopted Qualcomm's technology but for
Qualcomm's promise to license on FRAND terms. Broadcom recognized this and held that when a
standard-setting organization "reli[es] on that promise when including the technology in a standard," there
"is actionable anticompetitive conduct" which harms the competitive structure of the relevant markets.
Broadcom, 501 F.3d at 314.

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1 ifif 26, 38-39; compare id. with D.I. 20, Ex. A if 59). This "technology was not interchangeable
with or substitutable for other technologies and adherents to the [relevant] standard have become
locked in." Broadcom, 501 F.3d at 315 (citations omitted); (D.I. 1ifif3, 26-27, 39, 41-42, 46, 54;
compare id: with D.I. 20, Ex. A ifif 7-8, 48, 58-59). IDC "had the power to extract

supracompetitive prices, it possessed a dominant market share, and the market had entry
barriers." Broadcom, 501 F.3d at 315 (citations omitted); (D.I. 1ifif3, 29-31, 41, 45, 53-54;
compare id. with D.I. 20, Ex. A ifif 9-10, 13-14, 58, 82, 86-109). These allegations are sufficient

to show monopoly power. Broadcom, 501 F .3d at 315; see also Apple, Inc. v. Samsung Elecs.
Co., 2012WL1672493, at *4-7 (N.D. Cal. May 14, 20l2);Apple, Inc. v. Motorola Mobility,
Inc., 2011 WL 7324582, at *12-14 (W.D. Wis. June 7, 2011).

The Court next addresses anticompetitive conduct. The complaint alleges that IDC made
an "intentional false promise that [it] would license its ... technology on FRAND terms, on
which promise [ETSI] relied in choosing the ... technology for inclusion in the" relevant
standards. Broadcom, 501 F.3d at 315 (citations omitted); (D.I. 1ifif3-4, 40, 42, 45, 52, 54;
compare id. with D.I. 20, Ex. A irif 9, 82, 84-85, 99, 140). This conduct "induced" ETSI to adopt

a technology "that they would not have considered absent a FRAND commitment." Broadcom,
501 F.3d at 315 (citations omitted); (D.1. 1ifif4, 41-42, 45-46, 52; compare id. with D.I. 20, Ex.
A ifif 3, 42, 140). Following the incorporation of its technology, the complaint alleges, IDC
refused to comply with its FRAND licensing obligations. (D.I. 1ifif6, 56-63, 65-66, 70-79;
compare id. with D.I. 20, Ex. A ifif 3, 12, 13, 86, 87-109). These allegations are sufficient to

show anticompetitive conduct. Broadcom, 501 F.3d at 315; see also Research In Motion Ltd. v.
Motorola, Inc., 644 F. Supp. 2d 788, 793, 796 (N.D. Tex. 2008); Apple, Inc. v. Samsung Elecs.
Co., 2012 WL 1672493, at *4-7.

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IDC also contends that Microsoft has failed to adequately allege injury. A plaintiff in a§
2 case "must prove a causal connection between [the antitrust violation] and actual damage
suffered." Ste/wagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267, 1273 (3d Cir. 1995).
Microsoft must plead more than injury to itself, however; it must show that IDC's conduct harms
competition. See Brunswick Corp. v. Pueblo Bowl-0-Mat, Inc., 429 U.S. 477, 488-89 (1977).
The injury issue is entwined, to some degree, with IDC's argument that Microsoft's claims are
barred by the Noerr-Pennington doctrine. (D.I. 17 at pp. 10-13 (citing Prof'! Real Estate lnv'rs,

Inc. v. Columbia Pictures Indus., 508. U.S. 49, 56, 66 (1993) (barring antitrust claim premised on
assertion of copyright lawsuit))). IDC asserts that the only harms alleged by Microsoft are the
"litigation fees and costs necessary to avoid the payment of supra-competitive licensing terms
and exclusion from the marketplace for Standard-compliant products." (D.I. 17 at p. 19 (quoting
D.I. 1 if 84)). Since its litigation activity is protected by Noerr-Pennington, IDC argues,
Microsoft's antitrust claim is barred.
IDC's assertion that Microsoft's complaint is "predicate[d] ... on an allegation that
InterDigital seeks to enforce its patents against Microsoft via lawsuits and 'threats'" is
inaccurate. (D.I. 17 at p. 11). Aside from any attorneys' fees or litigation costs, Microsoft's
complaint includes allegations that IDC's wrongful conduct "prevented Microsoft from obtaining
access to necessary technology" in the relevant markets; that "there is a substantial threat that
Microsoft will be forced to capitulate to InterDigital's supra-competitive licensing demands;"
that "the artificial imposition of higher costs on Microsoft threatens further loss of market share,
as does the threat of an exclusion order;" that the "downstream market" is injured in the form of
"higher prices, reduced innovation, and more limited choice[s] ... for such Standard-compliant
products;" that "an exclusion order creates uncertainty as to Microsoft's line of cellular devices,"

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which "threaten[s] to erode customer loyalty, brand recognition, and customer goodwill;" and
that Microsoft "is threatened with additional harm in the form of the loss of customers and
potential customers, the loss of product image and goodwill, and other irreparable harm to its
line of cellular devices." (D.I. 1irir80-81, 83, 85-86, 90). For purposes of a motion to dismiss,
these are sufficient allegations of antitrust injury. See, e.g., Research In Motion, 644 F. Supp. 2d
at 793-96 ("[S]tandards, without the proper safeguards, are inherently anticompetitive. It follows
that when an entity side-steps these safeguards in an effort to return the standard to its natural
anti-competitive state, anti-competitive effects are inevitable. Motorola's breach of the
commitments to IEEE and ETSI, as a result, is harmful to competition."); Hynix Semiconductor,

Inc. v. Rambus, Inc., 527 F. Supp. 2d 1084, 1098 (N.D. Cal. 2007); Apple Inc. v. Samsung Elecs.
Co., 2011 WL 4948567, at *6 (N.D. Cal. Oct. 18, 2011); Apple, Inc. v. Motorola Mobility, Inc.,
2011 WL 7324582, at *14. As a leading treatise notes: "ifthe antitrust violation is intentional
deception of the standard-setting organization, the fact that one of the ways that causes harm is
that the patentee sues adopters and seeks an injunction shouldn't defeat the antitrust claim based
on conduct before the standard-setting organization." Herbert Hovenkamp et al., IP and

Antitrust§ 35.5b2 (2d ed. Supp. 2013).
Since Microsoft's complaint adequately alleges injury, the complaint cannot be dismissed
on that basis. The Court must still determine, however, whether IDC's litigation conduct may be
included as conduct which violates the antitrust laws. LePage 's Inc. v. 3M, 324 F.3d 141, 162
(3d Cir. 2003) (en bane) (Antitrust liability depends on "the monopolist's conduct taken as a
whole rather than; .. each aspect in isolation."); (D.I. 1 if 4; D.I. 17 at pp. 11-13; D.I. 20 at 1718). To strip a defendant of its Noerr-Pennington immunity for litigation activity, a plaintiff

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must generally show either (1) "sham litigation" or (2) a Walker Process violation.2 See
TransWeb, LLCv. 3M Innovative Props. Co., 812F.3d1295, 1311 (Fed. Cir. 2016) (citing
Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1071-72 (Fed. Cir. 1998));
Magnetar Techs. Corp. v. Six Flags Theme Parks Inc., 2011WL678707, at *2-3 (D. Del. Feb.

18, 2011). Microsoft has argued that IDC engaged in sham litigation. Since I conclude that
IDC's litigation conduct may be included as part of the overall scheme regardless of whether it is
sham litigation, I will assume, for purposes of this motion, that IDC's conduct is not sham
litigation. Circuit courts have reached different conclusions on the question of whether-in the
absence of showing sham litigation or Walker Process fraud-litigation may be included as a
component of a scheme to violate the antitrust laws. Compare Ansul Co. v. Uniroyal, Inc., 448
F.2d 872, 882 (2d Cir. 1971) (suits may be included as part of unlawful scheme only when
frivolous and thus not immune under Noerr-Pennington) with Kobe, Inc. v. Dempsey Pump Co.,
198 F .2d 416, 425 (10th Cir. 1952) (petitioning activity could be included as part of scheme,
despite Noerr-Pennington immunity). While there are no cases from the Federal Circuit directly
on point, at least one district court has concluded that the Federal Circuit would choose a middle
ground "causal connection" test. Hynix, 527 F. Supp. 2d at 1095-97; see also id. at 1088-91;
Zenith Elecs., LLC v. Sceptre, Inc., 2015 U.S. Dist. LEXIS 33661, at *18 n.2 (C.D. Cal. Feb. 5,

2015). The court held "that before otherwise protected litigation can be part of an
'anticompetitive scheme' claim, the court must first find that the other aspects of the scheme

2

The parties dispute whether Federal Circuit law or Third Circuit law applies to the question of NoerrPennington immunity. (D.I. 20 at 22 n.5; D.I. 21 at 12 n.4). "[W]hether conduct in procuring or '
enforcing a patent is sufficient to strip a patentee of its immunity from the antitrust laws is to be decided
as a question of Federal Circuit law." Nobelpharma AB v. Implant Innovations, Inc., 141F.3d1059, 1068
(Fed. Cir. 1998). This applies "to all antitrust claims premised on the bringing of a patent infringement
suit." Id. Since this dispute centers on whether IDC's patent litigation activities are protected by NoerrPennington, I conclude that Federal Circuit law applies to the question of whether Noerr-Pennington
immunity exists.

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independently produce anticompetitive harms," and upon so concluding, "the court should ask
whether the accused patent litigation was causally connected to these anticompetitive harms."

Hynix, 527 F. Supp. 2d at 1097. The Court finds the reasoning in Hynix persuasive. Having
concluded that IDC's deceptive conduct before ETSI suffices to make out a§ 2 monopolization
claim (with injury tied to that deception), the Court now concludes that IDC's litigation conduct
is "'causally connected' to that behavior and therefore properly included in an 'anticompetitive
scheme' allegation." Id. at 1098. IDC's suits to enforce its purported SEPs are part of the way
in which IDC accomplishes its alleged anticompetitive scheme. The entire scheme "is
ineffective without the threat of litigation." Id.
While the Hynix opinion noted that it took a view contrary to that of Professors
Hovenkamp, Janis, and Lemley, 3 it is worth noting that those treatise authors have since stated
that the outcome in Hynix "makes sense." Herbert Hovenkamp et al., IP and Antitrust§ 11.4f
(2d ed. Supp. 2013). Specifically, the treatise notes that "the only difference between Hynix and
the Second Circuit approach is one of damages: a plaintiff that can prove an antitrust violation
without the use of protected petitioning can recover damages caused by that petitioning as well
as damages by the conduct that proved the violation." Id.
IDC argues that Microsoft has failed to plead fraud with the particularity required by Fed.
R. Civ. P. 9(b). Microsoft's claim is that IDC entered into a FRAND commitment with the

3

The opinion also recognized that "[a] district court opinion ... endorsed [the treatise's] conclusion when
considering an alleged scheme of antitrust misconduct iilcluding patent litigation." Id. at 1097 (citing
Abbott Labs. v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408, 428-30 (D. Del. 2006)). That decision,
decided before Hynix, simply rejected the approach of Kobe and its progeny, finding it inconsistent with
the Supreme Court's ruling in Professional Real Estate. Abbott Labs., 432 F. Supp. 2d at 428-30. Hynix
also rejected Kobe, but found that the Federal Circuit would conclude that "good faith patent litigation"
could be included "as part of the anticompetitive scheme" only when "causally connected" to other
aspects of the scheme which produce independent anticompetitive harms. Hynix, 527 F. Supp. 2d at
1095-97.

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intent not to comply with that commitment. Since this claim sounds in fraud, it must meet the
Rule 9(b) pleading standards. Apple Inc. v. Samsung Elecs. Co., 2011WL4948567, at *4 n.5;

see also Broadcom, 501 F.3d at 315 n.9 (noting the issue, but not deciding it). Rule 9(b) may be
satisfied by pleading the "date, place or time" of the fraud. Board o/Trs. a/Teamsters Local 863

Pension Fund v. Foodtown, Inc., 296 F.3d 164, 172 n.10 (3d Cir. 2002). Microsoft's complaint
includes nineteen declarations that IDC submitted to ETSI. Since these declarations identify
"when the false FRAND declarations were made, by whom, and for which patents," they are
sufficient under Rule 9(b). Apple Inc. v. Samsung Elecs. Co., 2012 WL 1672493, at *7; see also

Apple, Inc. v. Motorola Mobility, Inc., 2011WL7324582, at *14.
IDC briefly argues that Microsoft's claim is barred by the four-year statute oflimitations
in 15 U.S.C. § 15b. (D.I. 17 at p. 24). IDC contends that to the extent any claims accrued before
August 20, 2011 (four years prior to filing), they should be time-barred. See Pa. Dental Ass'n v.

Med. Serv. Ass'n ofPa., 815 F.2d 270, 277-78 (3d Cir. 1987). This argument fails under_the
continuing violation doctrine, which provides that "each overt act that is part of the violation and
that injures the plaintiff ... starts the statutory period running again." Klehr v. A.O. Smith Corp.,
521 U.S. 179, 189 (1997). Since the complaint alleges misrepresentations that occurred as late
as September 2014, and that IDC is engaged in an ongoing scheme that has resulted in
continuing injury, IDC's statute of limitations argument fails.
IDC moves to strike prayers for relief C, D, and F from the complaint. In those prayers,
Microsoft requests a declaration that the U.S. patents IDC has declared to be essential are
unenforceable, a declaration that all contracts and agreements entered in furtherance of its
unlawful conduct are void, and injunctive relief requiring IDC to make a non-confidential license
on FRAND terms available to Microsoft and to disclose the terms of its other licenses and offers

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to license.· The Court is not persuaded that there is any value in granting IDC's motions to strike.
The Court may strike from a pleading, pursuant to Fed. R. Civ. P. 12(f), any "immaterial" or
"impertinent" matter. Delaware Health Care v. MCD Holding Co., 893 F. Supp. 1279, 1291-92
(D. Del. 1995). "Immaterial matter is that which has no essential or important relationship to the
claim for relief or the defenses being pleaded," while "[i]mpertinent matter consists of statements
that do not pertain, and are not necessary, to the issues in question." Id. (quoting SA Charles A.
Wright & Arthur R. Miller, Federal Practice and Procedure § 1382 (2d ed. 1990)). While a
court has "broad discretion" under Rule 12(f), "striking a party's pleadings is an extreme·
measure, and, as a result, ... [such motions] are viewed with disfavor and are infrequently
granted." Stanbury Law Firm v. IRS, 221F.3d1059, 1063 (8th Cir. 2000) (quotation marks
omitted). Since I do not find that the prayers for relief are immaterial or impertinent, I think
IDC's attempt to eliminate the requested relief is premature.
For the reasons stated above, IDC's motion to dismiss and to strike (D.I. 16) is DENIED.

It is SO ORDERED this

l1

day of April, 2016.

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