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Avanci patent pool outlines how it seeks to duck Continental’s U.S. antitrust action going for its throat

Continental, the Avanci patent pool, and the Avanci members named as co-defendants (mostly Nokia and patent assertion entities that hold formerly Nokia-owned patents) yesterday filed a joint case management statement with Judge Lucy H. Koh’s court in the Northern District of California (this post continues below the document):

19-08-15 Joint Case Managem… by Florian Mueller on Scribd

The next important date in this case is August 21. That’s when Judge Koh will hold the case management conference (in preparation of which the above statement was filed), and it’s also the deadline (no coincidence, obviously) for the parties to file a briefing schedule for a consolidated motion to dismiss by all defendants. The motion to dismiss will be accompanied, simultaneously or near-simultaneously, by a motion to stay discovery. Surprise, surprise: Continental will oppose those motions.

While Continental accurately notes that the defendants put a whole lot of substantive stuff into this case management statement, I’m actually glad they did, as this gives all of us a better idea of the issues that Avanci and its co-defendants will put front and center.

This litigation has barely begun, and there already are some questions on the table for Judge Koh to resolve. The defendants would like to escape her jurisdiction by means of a transfer to the Northern District of Texas, and Continental’s motion for an antisuit injunction has been fully briefed (in other posts I discussed Nokia’s German anti-antisuit injunction and Continental’s reply brief, which mentions five German Sharp v. Daimler patent infringement cases).

A transfer from San Jose to Dallas would help Avanci avoid unfavorable (to SEP abusers) case law in the Northern District of California, but ideally they want to get rid of this U.S. antitrust case altogether. That’s why they’re preparing the aforementioned motion to dismiss. Yesterday’s joint case management statement provides an outline of the key theories underlying the forthcoming motion.

Some of those theories are about personal jurisdiction, disputing that various parties have sufficient close ties with the United States in general and the Northern District of California in particular to be sued there. Similarly, Avanci notes that it doesn’t hold any patents itself–only its members do. Relatively speaking, the case for dismissal may be strongest with respect to the Optis entities. Defendants argue that “[b]ased on the information Continental provided, both parties agreed that there was nothing to negotiate because Continental stated that it was using CDMA2000, which is not part of the Optis Entities’ mapped holdings.” Other than that, I’m unconvinced of those jurisdictional arguments, at least for now.

What needs to be analyzed on the basis of further briefing by both sides is the defendants’ assertion that “[t]he Court lacks subject matter jurisdiction over this action under Article III of the Constitution because Continental has not alleged that it has suffered or will suffer an imminent and non-hypothetical injury-in-fact caused by Defendants’ alleged conduct.” Here, Avanci and its co-defendants argue that they aren’t seeking royalties from Continental–only from its customers, “which hypothetically might assert a claim for indemnification against Continental,” but that hasn’t actually happened yet.

In other disputes, the refusal to honor an obligation to extend a SEP license on FRAND terms was deemed a sufficient basis for a complaint with an Article III court. In this case, there can be no doubt that Continental is economically affected (and would be even if without an obligation to indemnify customers) by SEP holders collecting royalties on cars that come with Continental’s telematics control units. Given that Judge Koh is well aware of such commercial dynamics, the hurdle that Avanci and its co-defendants are talking about appears surmountable. What I certainly find weak is that they claim Continental voluntarily entered into an indemnity obligation: it’s simply a business reality that this is expected of component suppliers in many cases, especially in the automotive industry.

In a somewhat related context, the defendants note that Avanci, Nokia, and those patent assertion entities wielding former Nokia patents would have been willing to grant licenses to Continental. However, the complaint doesn’t say that they weren’t going to do business on even the most prohibitive terms. Instead, the complaint is about Continental’s desire for exhaustive licenses on FRAND terms, and notes that Avanci’s pool license of $15 per car is supra-FRAND, given that this is roughly the price point of a baseband chip, and even the telematics control units in question sell at approximately $100 per unit. The royalty base is going to be outcome-determinative.

Unless Avanci and its members somehow manage to get rid of this case, be it by means of a dismissal or by coercion (based on leverage over Continental’s customers, such as Daimler, as a result of injunctions that German courts grant far more readily than their U.S. counterparts), this dispute will shed a lot of light–and possibly some very harsh light–on Avanci’s business model and the intentions of its contributors. In a nonjudgmental sense, this case is about a conspiracy theory. An alleged conspiracy to leverage FRAND-pledged SEPs in un-FRAND-ly ways, for the benefit of Avanci and its contributors.

This is Avanci’s rosy depiction of its business model and raison d’être:

“The Avanci platform was created in response to product developers’ need for an open and efficient way to access the licenses needed for the latest wireless technology. Prior to the creation of the Avanci platform, it was difficult for product developers to know what technology rights they might need, and how to get them, from the many different owners of SEPs. An Avanci platform license covers the entire SEP portfolio of the patent owners who participate in the platform, plus the SEPs of new patent owners who subsequently choose to participate.”

The first sentence of that paragraph is a ridiculous example of fake altruism. Those patent holders pursue only one goal: to monetize their portfolios as aggressively and profitably as possible. They don’t give a damn about what “product developers” need or want. Whether Avanci comes down to an anticompetitive and collusive scheme will have to be proven. But that’s what Continental alleges, and as of now the theory doesn’t appear entirely implausible.

The second sentence doesn’t make much more sense. There still is a lot of uncertainty about what SEPs are truly essential and valid, and Avanci doesn’t change that. Nor does Avanci cover all SEPs that its licensees need. Avanci’s members collectively command a fairly high percentage of all cellular SEPs, but it’s not like anyone would have legal certainty and peace of mind after taking an Avanci license.

I’ve heard different numbers as to the coverage provided by Avanci versus patents that belong to other entities. I may share some of that information on another occasion.

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