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Continental brings complaint against Nokia in Delaware state court: new U.S. FRAND litigation strategy may protect Daimler

Automotive supplier Continental brought FRAND litigation against the Avanci pool and several of its contributors, particularly Nokia, in 2019. But its federal lawsuit was transferred from the Northern District of California to the Northern District of Texas (i.e., Dallas), and in September it was dismissed. Continental has appealed the dismissal to the Fifth Circuit. But “Conti” (as the company is commonly referred to in the automotive industry) isn’t just waiting for the appellate proceedings to unfold (a decision will likely take about a year from now). Instead, Conti has now brought a new complaint specifically against Nokia in Delaware state court, and that one has the potential to become one of the most interesting FRAND cases worldwide (this post continues below the document):

21-01-25 Continental v. Nok… by Florian Mueller

Conti issued a press release about this case, which says the automotive supplier is “seeking to hold Nokia to its promise to license telecommunications patents based on fair, reasonable and non-discriminatory (FRAND) terms” and nevertheless pursues antitrust claims against Avanci, Nokia and others in its federal case that is on appeal, “upholds its complaint with the European Commission against Nokia’s abusive refusal of a FRAND license,” and they’re looking forward to the Court of Justice of the EU’s decision on Nokia’s obligations to grant exhaustive component-level SEP licenses (Nokia appealed the referral, but unsuccessfully so far).

The first question I asked myself was whether there was any overlap between this separate Delaware action against Nokia and the case that got dismissed in Texas, but might still be revived by the Fifth Circuit. It turns out that the FRAND contract claims (based on Nokia’s FRAND pledges to ETSI, ATIS, and TIA) do, but in order to understand what that means, a clear distinction is key: the case dismissed in Dallas involves a mix of federal (antitrust) and state (mostly contract) claims. What the Dallas court dismissed with prejudice was the federal part–and that dismissal basically took the state law claims with it because a federal court won’t hear a state claim unless there’s a related federal claim in the same case. Should Conti’s appeal succeed (too early to tell, but I don’t expect it to be a cakewalk for them), some claims might be brought back to life, but by then the Delaware proceedings would already be fairly advanced and Conti could just drop such claims from the Texas action.

Should Conti obtain a FRAND license, its customers such as Daimler would be protected against Nokia’s patent assertions.

Facing a FRAND case in the Court of Chancery of the State of Delaware is a blast from the past for the Finnish company, which sued Qualcomm there more than a decade ago in order to obtain a SEP license on FRAND terms, taking positions diametrically opposed to where it stands now that it’s exited the handset business. Later, Nokia sued Apple in federal court in Delaware (not only, but also, over SEPs). In its dispute with Apple, Nokia described Delaware as its “corporate home in the United States,” which Conti’s complaint mentions in what might be a pre-emptive strike against any objections by Nokia to that particular venue.

I just mentioned Qualcomm, and the agreement that resulted from Nokia’s Delaware action against Qualcomm could now set a ceiling for Nokia’s FRAND royalty demands. First, a covenant not to sue triggers patent exhaustion in the U.S. under the Supreme Court’s Quanta decision, and Conti is a Qualcomm customer. Second, “Nokia promised to offer certain royalty rates to Qualcomm’s customers.” That license agreement didn’t explicitly mention telematics control units (TCUs) like the ones Conti supplies to Daimler. So there’ll have to be some discussion about whether Nokia’s maximum-royalty promise applies. If it does, Nokia won’t be able to base its royalty demands on the price of a car (or the value Nokia claims cellular connectivity adds to a car).

The question of whether a TCU is the equivalent of a mobile handset for SEP licensing purposes is also going to come up in the CJEU case over component-level licensing.

After California and Texas, Delaware–also known as The First State–is now the third U.S. state in which Conti is going after Nokia. Geographically speaking, the dispute has traveled from coast to coast, eastbound. I disagreed with some of what Conti did in California; I didn’t follow the Texas case in detail, and the dismissal wasn’t totally surprising; but this Delaware action–in what is probably the best state court in the U.S. to focus on commercial litigation–looks truly interesting. They’re making good use of the time that it takes in the Fifth Circuit to defibrillate (which may or may not work out) the original Avanci case. And its own history in that venue will now come back to haunt Nokia, potentially resulting in royalties far below what it’s seeking from Daimler.

Just looking at the extreme lengths to which Conti has to go to obtain a license from Nokia, I can’t help but find it absurd how any German judge could deem a Conti customer like Daimler to be an unwilling licensee. There’s an unwilling licensor here, Nokia, and figuratively speaking, Conti is chasing that one across the USA. Delaware may be the final destination in that regard.

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