Magistrate Judge Fallon recently Recommended Dismissing competition law counterclaims brought by TCT Mobile (TCT) against Godo Kaisha IP Bridge 1 (IP Bridge) and Panasonic and Judge Bataillon has now Adopted that ruling.  Those counterclaims were based on alleged improper conduct relating to standard essential patents (SEPs)  on European Telecommunications Standards Institute (ETSI) 2G, 3G and 4G wireless standards that IP Bridge acquired from Panasonic after those standards were adopted.  While the standards were under development, Panasonic had committed to license the SEPs on fair, reasonable and non-discriminatory (FRAND) terms.  TCT’s competition law counterclaims generally concerned allegations that:

  • Panasonic made FRAND commitments it did not intend to keep in order to induce the standards body to keep Panasonic’s technology in the standards;
  • After the standards were adopted, Panasonic transferred the patents to IP Bridge which offered to license the patents on terms that were not FRAND and
  • There was some type of improper concerted action between Panasonic and IP Bridge (this aspect is fairly redacted and unclear).

This case presents an interesting nuance of competition claims against a party (IP Bridge) that acquired SEPs from an original owner (Panasonic) who made a FRAND commitment.  In this case, TCT alleged that something about the transfer of the patents to IP Bridge was meant to circumvent Panasonic’s FRAND commitment (but the details of those allegations are redacted in the public court documents).

This case also indicates that an antitrust injury-in-fact cannot arise solely from a patent owner filing an infringement lawsuit on FRAND-committed SEPs.  That’s because a successful FRAND defense by the accused infringer will lead to remedies consistent with the FRAND commitment and, in any event, any relief ultimately granted by the court would be lawful.

The decision also has a unique procedural posture.  This is a decision by a magistrate judge that recommends to the presiding district court judge how to rule on the issue.  Such magistrate judge recommendations are common in patent  cases.  The presiding district court judge usually adopts a magistrate judge’s recommendation, but is not required to do so.  So we will await the district court judge’s decision whether to adopt Judge Fallon’s recommendation here.

Further, this decision concerns a Rule 12(b)(6) motion to dismiss causes of action based on the initial pleadings.  Such motions are difficult to win because of the tremendous deference the court must give to the challenged pleading — e.g., the court considers whether TCT states a “plausible” claim if the court assumes (without deciding) that all factual allegations TCT raises are true and draws all reasonable inferences in TCT’s favor.   And courts are even more reluctant to grant a Rule 12(b)(6) motion against competition law claims, which may be factually complex and require information in the hands of the alleged wrong-doer that can be obtained only in discovery.   In this case, however, TCT apparently had almost a year of discovery and two attempts to plead its competition law claims, which may have provided the court more comfort in its dispositive ruling here.


The three alleged SEPs at issue originally were owned by Panasonic.  Panasonic commited to license them on FRAND terms for  ETSI’s 2G, 3G and 4G telecommunications standards.  Later, after the standards were adopted, Panasonic transferred the patents to IP Bridge.  Details surrounding the transfer are redacted in the public versions of the court filings.

In 2015, IP Bridge sued TCT and TCL Holdings, alleging that the SEPs were infringed by TCL Holding’s mobile phones and tablets that implement W-CDMA and LTE standards.  IP Bridge’s Amended Complaint alleges that it sent at least four letters to TCL Holdings asking to enter FRAND licensing negotiations, but TCL Holdings did not respond.

TCT filed an Answer and Counterclaims for breach of contract, violations of Sections 1 and 2 of the Sherman Act and patent misuse based on allegations that IP Bridge refused to license its SEPs on FRAND terms.

In February 2017, Magistrate Judge Fallon issued a Report and Recommendation to dismiss TCT’s counterclaims, but with leave to amend them to correct deficiencies.  Judge Fallon recommended dismissing TCT’s claims for the following reasons:

  • Breach of Contract Claims:  Delaware law requires pleading damages in contract actions, but TCT failed to identify a specific harm caused by IP Bridge’s alleged breach of the FRAND commitment.
  • Section 1 Sherman Act Claim:   TCT failed to allege that IP Bridge acted with someone else to form a conspiracy (e.g., it had not alleged IP Bridge acted with Panasonic to avoid Panasonic’s commitment to license the patents on FRAND terms).
  • Section 2 Sherman Act Claim:  IP Bridge acquired the patents after the standards were adopted and the court would not extend the Third Circuit’s Broadcom v. Qualcomm decision, concerning failure to disclose patents during standardization, to alleged post-standardization violations of FRAND commitments.  The court rejected the U.S. Federal Trade Commission’s (FTC) analysis that extended competition law to post standard adoption activity in the FTC’s Motorola Mobility/Google consent decree (see our July 24, 2013 post and related posts on that consent decree).  Further, TCT failed to clearly define the relevant market.
  • Patent Misuse Claim:  TCT’s patent misuse claims — demanding too high a royalty, requiring a patent portfolio license and having licensing obligation persist even if patents held invalid–were based on an unconsummated license, but a patent misuse claim requires a consummated agreement (i.e., TCT must have accepted and entered the offered license before a patent misuse claim would arise).

In March 2017, district court Judge Robinson issued an Order adopting Mag. Judge Fallon’s Report and Recommendation.

In April 2017, after almost a year of discovery, TCT filed Amended Counterclaims  limited to just Section 1 and Section 2 Sherman Act claims (i.e., TCT dropped the breach of contract and patent misuse claims).  IP Bridge again moved to dismiss TCT’s counterclaims, which motion is the basis for the court’s recommended ruling here.


Mag. Judge Fallon ruled that TCT failed to state causes of action under the Sherman Act for several reasons, discussed below.

Relevant Market and Market Power

TCT had the burden to plead facts establishing (1) the relevant product market and (2) the relevant geographic market. (Op. at 9).  TCT plead that the relevant market is as follows:

Relvant Technology Markets represented by the 2G, 3G [i.e., W-CDMA], and 4G [i.e., LTE] telecommunications standards when 3GPP and ETSI incorporated Panasonic’s SEPs, including the [patents-in-suit]. [Op. at 10]

Judge Fallon ruled, however, that “standards are not markets and do not represent particular products”  and TCT “fails to identify any products, explain the geographic market for such products, the products’ interchangeability, or any cross-elasticity of demand.”  (Op. at 10-11).   Judge Fallon also rejected TCT’s argument that it need only show that “the patent was declared essential by an SSO” [Note:  Standards bodies generally do not declare a patent to be essential.  What may have been meant here is that the prior patent owner Panasonic filed a declaration with the standards body declaring that these patents may be essential to the standard and/or IP Bridge may have asserted that the patents actually are essential.]:

TCT improperly aggregates all three telecommunication standards together with no explanation of how devices complying with one of the identified standards would be in the same market (or interchangeable) as devices complying with another identified standard, or a combination thereof.  Nor does TCT allege that the relevant market is congruent with the patents-in-suit. [Op. at 12]

 Judge Fallon also rejected TCT’s conclusory assertion that the patent owner “automatically has market power with respect to entire standards comprising thousands of technologies based on ownership of three SEPs.” (Op. at 13).

[T]here are no allegations of the purported role that Panasonic’s SEPs have in conferring market power in TCT’s alleged market.  The amended counterclaims do not explain the specific connection between the alleged market and Panasonic’s SEPs, or indicate how Panasonic’s SEPs relate to any other products within the alleged market. [Op. at 12-13]

No Anticompetitive Behavior

Judge Fallon explained that antitrust injury must be “to competition itself” and “not just a single competitor.” (Op. at 13).  Under the Third Circuit’s Broadcom standard, actionable anticompetitive conduct occurs upon showing:

  1. in a consensus-oriented private standard-setting environment,
  2. a patent holder’s intentionally false promise to license essential proprietary technology on FRAND terms,
  3. coupled with a standards body’s reliance on that promise when including the technology in a standard, and
  4. the patent holder’s subsequent breach of that promise. [Op. at 13]

Judge Fallon observed that the court’s prior grant of the first motion to dismiss rejected TCT’s argument “that the very act of demanding non-FRAND royalties for use of a SEP and/or seeking an injunction for infringement of such a patent may give rise to anticompetitive harm.” (Op. at 13).  Further, “IP Bridge did not make any false promises to ETSI,” but acquired the patents after the standard was adopted.  The court would not “expand the Broadcom decision to reach violations of FRAND commitments occurring after the standard’s adoption.”  Finally, TCT did not allege “that Panasonic dictated the terms IP Bridge offered to license the patents after the patent transfer.”  Judge Fallon, therefore, concluded that TCT failed to allege “any anticompetitive behavior that harmed competition under the Sherman Act.” (Op. at 14-15).

Section 1 of the Sherman Act

TCT was required to plead two elements for its Section 1 Claim:

  1. that the alleged wrong-doer was a party to a contract, combination or conspiracy; and
  2. that the conspiracy imposed an unreasonable restraint on trade. [Op. at 15]

Action by just the alleged wrong-doer (“unilateral activity”) is not sufficient; TCT must show “a unit of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement” between the alleged wrong-doer and at least one other entity.

This portion of Judge Fallon’s decision is fairly redacted with respect to whatever TCT alleged was a conspiracy between IP Bridge and Panasonic.  Judge Fallon concludes that “TCT does not identify any agreement to conspire, any exercise of market power by the conspiracy, or how the conspiracy allegedly exercised such power in an anticompetitive manor.” (Op. at 17).  Judge Fallon ruled that allegations that IP Bridge was seeking “a supra-FRAND rate” “cannot constitute anticompetitive activity under Section 1 because it is, at most, unilateral action on the part of IP Bridge.”

Section 2 of the Sherman Act

TCT was required to plead two elements for its Section 2 Claim:

  1. the possession of monopoly power in the relevant market, and
  2. a showing that the monopolist achieved monopoly power through anticompetitive conduct.   Anticompetitive conduct generally is conduct to obtain or maintain monopoly power as a result of competition on some basis other than the merits and does not include conduct that merely harms competitors without harming the competitive process itself. [Op. at 18-19]

TCT alleged that Panasonic made FRAND licensing commitments that it did not intend to keep.  But there was no allegation that IP Bridge made such commitments and the court already ruled that it would not expand the Broadcom decision to cover alleged FRAND violations by IP Bridge that occurred after the standards were adopted. (Op. at 20).

Moreover, TCT failed to allege specific facts showing fraud:

TCT simply assumes that Panasonic’s declarations to ETSI were fraudulent.  TCT does not make any allegations that Panasonic ever refused to license the patents on FRAND terms, nor colluded with IP Bridge to do so. [Op. at 21]

No Injury In Fact

To sustain a Sherman Act claim, TCT was required to plead an antitrust injury in fact showing:

  1. harm of the type the antitrust laws were intended to prevent; and
  2. an injury to TCT which flows from that which makes the alleged wrong doer’s acts unlawful. [Op. at 22]

Judge Fallon found that TCT failed to allege an injury in fact because either TCT’s FRAND defense will prevent a supra-FRAND award or, if TCT’s FRAND defense fails, then any remedy by the court or jury “would be lawfully awarded.”  “Either way, there is no antitrust injury.” (Op. at 22).

The court agrees with IP Bridge that “TCT appears to rely on the court or jury creating an antitrust injury in the context of this litigation through the award of a supra-FRAND damages award.”  However, if TCT is successful with its FRAND defense, then TCT will not be awarded any damages at greater-than-FRAND rates.  Or, if the court or jury imposes damages at higher than FRAND rates, then such damages would be lawfully awarded.  Either way, there is no antitrust injury.

TCT argues that IP Bridge and Panasonic have engaged in a “hold up,” forcing TCT to defense itself in this suit.  However, this is not an injury.  If TCT’s FRAND defense is valid, then no supra-FRAND damages will result.  If TCT’s FRAND defense is invalid, then the court can only impose lawful relief. [Op. at 22]

At this point, Magistrate Judge Fallon’s recommendation is not binding on the parties.  TCT will have the opportunity to challenge the ruling before the district court judge, who will then decide whether to adopt or modify the recommendation.