A few weeks ago, we posted about ViewSonic’s FRAND-related counterclaims against Zenith, Panasonic and Philips (collectively, “Manufacturing Plaintiffs”), as well as its FRAND-related Third-Party claim against MPEG LA. On Monday, December 16, the Manufacturing Plaintiffs and third-party MPEG LA filed a motion to dismiss with prejudice ViewSonic’s FRAND-related counterclaims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
Sherman Act Section 2 Claim. The Manufacturing Plaintiffs assert that, to state a viable monopolization claim under Section 2 of the Sherman Act, ViewSonic must allege facts showing that each Manufacturing Plaintiff has monopoly power in the relevant market for ATSC compatible televisions. However, “[t]he only allegation of monopoly power . . . is [that] ‘ViewSonic is informed and believes … that Manufacturing Plaintiffs and the other manufacturing members of the ATSC Pool have market power in the relevant market, as together they account for a large percentage of the televisions sold in the United States.” The Manufacturing Plaintiffs argue that, not only is this allegation conclusory and bereft of any factual heft, it is not even directed at each Manufacturing Plaintiffs’ individual alleged monopoly power.
The Manufacturing Plaintiffs also argue that ViewSonic’s monopoly counterclaim fails because it does not plead facts showing that the allegedly deceptive FRAND commitments made by the Manufacturing Plaintiffs to the ATSC constitutes the exclusory conduct required to state a Section 2 claim. “[A] deceptive FRAND commitment constitutes ‘exclusionary conduct’ only when the standard setting organization (‘SSO’) relied on that deceptive FRAND commitment to choose that technology over competing alternative technologies that were under consideration – which ViewSonic does not allege was the case here.” Indeed, ViewSonic’s “[c]ounterclaim contains no facts regarding Zenith’s and Philips’ alleged statements to the SSOs,” let alone whether those alleged statements were deceptive.
Finally, the Manufacturing Plaintiffs argue that ViewSonic fails to plead the requisite element of antitrust injury to participants in the relevant market. “[T]he Counterclaim does not identify any TV competitors that have been excluded” from the market. “As the Counterclaim concedes, a license for more than 100 essential patents in the ATSC Standard is available to anyone and everyone for $5 per ATSC compatible TV.” ViewSonic has simply refused to “enter into a pool license.” In fact, ViewSonic admits that it has not been excluded from selling ATSC compatible TVs. “ViewSonic concedes that it has been manufacturing and selling ATSC compatible TVs presumably at a cost advantage over its competitors who, unlike ViewSonic, have paid for a license for the IP utilized in their products.”
Sherman Act Section 1 Claim. The Manufacturing Plaintiffs argue that ViewSonic’s conspiracy claim fails because it contains no “factual allegations supporting its claims that Zenith, Panasonic, Philips and MPEG LA agreed to limit ViewSonic’s access to ATSC licenses at FRAND rates.” “[T]he Counterclaim avers no allegations of conversations between and among the allegedly colluding parties or where or when they took place.” “These same defects taint ViewSonic’s claims that Zenith, Panasonic and Philips agreed not to license on FRAND terms, to demand unreasonable royalties, refuse to offer individual licenses on the patents at issue, and demand a license for patents despite failing to demonstrate essentiality.”
The Manufacturing Plaintiffs also argue that “the alleged conspiracy to fix prices for ATSC compatible TVs is simply implausible.” This is because the Manufacturing Plaintiffs constitute only three of the “multitude of manufacturers” that make ATSC compatible TVs. “Absent the participation of virtually all of the TV manufacturers, Zenith, Panasonic and Philips could not feasibly fix prices as they would be undersold by the companies who were not party to the conspiracy.”
MPEG LA argues that the Section 1 claim against it should be dismissed because, as ViewSonic concedes, “MPEG LA is not a ‘horizontal competitor’ in the relevant ATSC compatible TV market, but rather a licensing administrator ‘acting on behalf of each of the Counter-Defendants’ solely in that capacity.”
Finally, the Manufacturing Plaintiffs argue that ViewSonic cannot, as a matter of law, plead that it has suffered antitrust injury as a result of the alleged conspiracy because ViewSonic is a horizontal competitor of the Manufacturing Plaintiffs. “[A] competitor who is not part of the price-fixing conspiracy can undersell the ‘fixed’ price, and thus is ‘benefited,’ not ‘injured,’ by the alleged illegal price-fixing.” That is what ViewSonic is doing here: “[b]y refusing to enter into a license, but continuing to sell ATSC compatible TVs, ViewSonic is able to undercut its competitors who pay royalties for the ATSC Standard IP in their products.”
FRAND Breach Claim. ViewSonic’s counterclaim for alleged breach of the Manufacturing Plaintiffs’ FRAND obligations should be dismissed because ViewSonic has not alleged that they have failed to offer it a license: “ViewSonic simply does not like the offer terms.” In fact, Viewsonic is trying to “obtain a rate that discriminates in its favor” when compared to the license fee paid by other licensees to the MPEG LA pool. “This is an argument properly left for the jury which will assess Plaintiffs’ reasonable royalty damages when ViewSonic’s patent infringement defenses fail.” In other words, ViewSonic’s FRAND-related arguments are “a defense to the amount of damages it owes the Plaintiffs,” not a “standalone cause of action sounding in contract.”
The Manufacturing Plaintiffs also assert that ViewSonic’s breach claim fails because it does not allege facts demonstrating that ViewSonic is a third-party beneficiary of the Manufacturing Plaintiffs’ alleged commitments to the ATSC. “ViewSonic makes no supporting allegations that it is” a member of ATSC “with standing to enforce” the alleged contract between the Manufacturing Plaintiffs and the ATSC. ViewSonic has only conclusorily alleged that it is a beneficiary.
ViewSonic’s claim that the Manufacturing Plaintiffs breached their FRAND obligations by refusing to offer an individual patent license (as opposed to a license to the entire MPEG LA pool) fails to state a claim because ViewSonic “does not specify which Manufacturing Plaintiffs supposedly failed to offer individual licenses, instead only averring that ‘some’ have not.” The Manufacturing Plaintiffs’ alleged failure to offer individual licenses or take into consideration that patents in the ATSC Pool will soon expire, and alleged inclusion of nonessential and foreign patents in their license offers has “nothing to do with any obligation alleged to have been part of the purported contractual commitment to [ATSC to] license essential ATSC patents on FRAND terms.” “In the absence of such supporting facts, these allegations cannot plausibly be enforced as the basis for a breach of contract claim independently of the reasonable royalty determination at issue in [the Manufacturing] Plaintiffs’ infringement action.”
Finally, ViewSonic fails to plead facts showing that it has suffered breach of contract damages. “A disagreement over the ultimate [FRAND royalty] rate does not state a claim for contract damages” and “ViewSonic cannot make out a breach of contract based on a purported obligation to offer a specific FRAND rate that ultimately turns out to be the correct rate after trial.” Specifically,
“ViewSonic fails to point to anything in any contractual commitment or otherwise that plausibly supports imposing what would effectively be a fundamentally unfair penalty on an essential patent holder if an infringer disagrees that the FRAND rate is fair and reasonable and the jury awards a different rate than what the essential patent holder offered after infringement is proven.”
“This is particularly true here, where ViewSonic is attempting to dispute infringement and validity, and has not indicated it will agree to take a license at a rate set by the Court or jury, leaving [the Manufacturing] Plaintiffs no choice but to assert infringement claims.” The appropriate FRAND rate will be determined by the jury if it concludes that ViewSonic infringes, but that amount does not constitute breach of contract damages for ViewSonic.
Promissory Estoppel Claim. As with ViewSonic’s breach of FRAND claim, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim fails because it does not specifically identify what FRAND promises were made by which Manufacturing Plaintiff, when they were made, and to whom they were made. Finally, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim should be dismissed because it fails to plead facts showing that they justifiably relied upon the alleged promises in manufacturing ATSC compatible TVs. Indeed, ViewSonic asserts that it had no knowledge of the alleged SEPs, but then also claims that it received offers to license those patents.
ViewSonic will have to either oppose the motion to dismiss or attempt to amend its counterclaim in an effort to remedy the alleged deficiencies identified in the motion.