Opinion ID: 6318256
Heading Depth: 2
Heading Rank: 2

Heading: Refusal to License

Text: Continental’s second theory of injury is that Avanci and PatentHolder Defendants have declined to provide Continental with a license on FRAND terms. The district court concluded that Continental pled a sufficient injury under this theory because “[t]he denial of property to which a plaintiff is entitled causes injury in fact.” Cont’l Auto. Sys., Inc. v. Avanci, LLC, 485 F. Supp. 3d 712, 726 (N.D. Tex. 2020) (citing Castro Convertible Corp. v. Castro, 596 F.2d 123, 124 n.3 (5th Cir. 1979); HTC Corp. v. 9 Meanwhile, the district court had no discretion to consider the new indemnity allegations that Continental made in its opposition to the motion to dismiss. As the district court explained: Briefing may clarify unclear allegations in a complaint. Pegram v. Herdrich, 530 U.S. 211, 230 n. 10 (2000). However, “it is axiomatic that a complaint cannot be amended by briefs in opposition to a motion to dismiss.” In re Enron Corp. Sec., Derivative & ERISA Litig., 761 F. Supp. 2d 504, 566 (S.D. Tex. 2011). Plaintiff cannot amend the [amended complaint], which only suggests the possibility that Plaintiff could be required to indemnify OEMs, with new factual allegations in its Response seemingly averring that it has already indemnified or will indemnify them. Cont’l Auto. Sys., Inc. v. Avanci, LLC, 485 F. Supp. 3d 712, 725 (N.D. Tex. 2020). Notably, Continental had the opportunity to request leave to further amend its complaint and incorporate such allegations—an opportunity that it expressly declined, later reconsidered, and ultimately forfeited. See infra note 13. It appears the new allegations in Continental’s opposition suffer from the same infirmities as those in the aforementioned submissions. Regardless, we join the district court in evaluating the harm that Continental actually pled, which is “conjectural and hypothetical.” See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). 9 Case: 20-11032 Document: 00516219884 Page: 10 Date Filed: 02/28/2022 No. 20-11032 Telefonaktiebolaget LM Ericsson, No. 18-CV-243, 2018 WL 6617795, at –5 (E.D. Tex. Dec. 17, 2018); Servicios Azucareros de Venezuela, C.A. v. John Deere Thibodeaux, Inc., 702 F.3d 794, 800 (5th Cir. 2012)). According to the district court, Continental’s alleged unsuccessful attempts to obtain licenses on FRAND terms from Defendants-Appellees comprise an injury in fact conferring Article III standing. 10 Id. at 727. We disagree. Having reviewed the pleadings and relevant caselaw, we cannot conclude that Defendants-Appellees denied Continental property to which it was entitled and that Continental thereby suffered a cognizable injury in fact.
As our sister circuits have recognized, entities that create standardconforming products can be third-party beneficiaries under FRAND contracts between SSOs and SEP holders. See, e.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012) (observing that Microsoft was a third-party beneficiary of the FRAND commitments made by Motorola to SSOs); Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 304, 313–14 (3d Cir. 2007) (observing that Broadcom was a third-party beneficiary of the FRAND commitments made by Qualcomm to SSOs). After all, FRAND obligations exist to protect the parties that must adopt a standard in order to conduct their business. However, Continental is conspicuously different from the parties that our sister circuits have identified as third-party beneficiaries. In Microsoft, 10 Although Continental did not allege an unsuccessful attempt to obtain a FRAND license from Sharp, the district court held that Sharp’s “alleged agreement with the other Defendants to establish prices and refuse to license to Plaintiff at more favorable terms adequately pleads that Plaintiff has been injured by the Sharp Defendant” as well. Avanci, 485 F. Supp. 3d at 726; see also supra note 7. 10 Case: 20-11032 Document: 00516219884 Page: 11 Date Filed: 02/28/2022 No. 20-11032 third-party beneficiary Microsoft was itself a member of the SSOs that had negotiated FRAND contracts with Motorola. See Microsoft Corp. v. Motorola, Inc., 871 F. Supp. 2d 1089, 1092 (W.D. Wash. 2012), aff’d, 696 F.3d 872 (9th Cir. 2012) (“Microsoft and Motorola are both members of the Institute of Electrical and Electronics Engineers (‘IEEE’) and the International Telecommunication Union (‘ITU’).”). Meanwhile, in Broadcom, third-party beneficiary Broadcom was a direct competitor of SEP holder Qualcomm that needed its SEP licenses to operate. See Broadcom, 501 F.3d at 304–05 (noting that both Broadcom and Qualcomm develop chipsets that must license Qualcomm’s FRAND-encumbered SEPs). Continental is not similarly situated to Microsoft and Broadcom. The supplier does not claim membership in the relevant SSOs and, crucially, it does not need SEP licenses from Defendants-Appellees to operate; Avanci and Patent-Holder Defendants license the OEMs that incorporate Continental’s products. No evidence suggests that Patent-Holder Defendants and SSOs intended to require redundant licensing of third parties up the chain, which is unnecessary to effectuate the purpose of the FRAND commitments and reduce patent hold-up. “[A] beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties.” Restatement (Second) of Contracts § 302 (Am. L. Inst. 1981). Continental does not appear to be an intended beneficiary contractually entitled to a license on FRAND terms. And as an incidental beneficiary, it would have no right to enforce the FRAND contracts between the Patent-Holder Defendants and the SSOs. Id.
But assuming Continental is contractually entitled to a license on FRAND terms as a third-party beneficiary, the pleadings reflect that it has suffered no cognizable injury. Put another way, even if Continental has rights 11 Case: 20-11032 Document: 00516219884 Page: 12 Date Filed: 02/28/2022 No. 20-11032 under FRAND contracts, the contracts have not been breached because the SEP holders have fulfilled their obligations to the SSOs with respect to Continental. The supplier acknowledges that Avanci and Patent-Holder Defendants are “actively licensing the SEPs to the OEMs[,]” which means that they are making SEP licenses available to Continental on FRAND terms. As it does not need to personally own SEP licenses to operate its business, it has not been denied property to which it was entitled. And absent a “denial of property to which a plaintiff is entitled,” Continental did not suffer an injury in fact. Avanci, 485 F. Supp. 3d at 726. In support of its holding that the denial of property to which Continental was entitled caused the supplier injury in fact, the district court cited three cases in which courts identified deprivations that conferred Article III standing. See Castro, 596 F.2d at 124 n.3 (observing that the denial of an employer’s alleged right under a group insurance contract to have proceeds paid to a legally correct beneficiary was a sufficient allegation of injury in fact); HTC, 2018 WL 6617795, at –5 (observing that the denial of an OEM’s alleged right to a SEP license on FRAND terms was a sufficient allegation of injury in fact); Servicios, 702 F.3d at 800 (observing that the denial of a corporation’s alleged right to commissions and profits deriving from an exclusive distributorship contract was a sufficient allegation of injury in fact). We certainly do not take issue with these standing determinations and the core tenet of federal jurisdiction that “[i]njuries to rights recognized at common law—property, contracts, and torts—have always been sufficient for standing purposes.” Servicios, 702 F.3d at 800 (citing Erwin Chemerinsky, Federal Jurisdiction § 2.3, at 67–68 (6th ed. 2012)). Rather, we reiterate that Continental, the Plaintiff-Appellant in this case, experienced no such injury. We also note that in none of the cases cited by the district court was there an allegation, like there is here, that the 12 Case: 20-11032 Document: 00516219884 Page: 13 Date Filed: 02/28/2022 No. 20-11032 plaintiff could otherwise receive the benefit of a right conferred by contract even if the contractual right was “denied” directly. 11
On the face of Continental’s complaint, there are no allegations that Patent-Holder Defendants have sued or threatened to sue Continental for infringing their SEPs. To the extent that Continental is alleging PatentHolder Defendants have sued or threatened to sue OEMs for infringement, requiring OEMs to accept an Avanci license on non-FRAND terms, the OEMs may find it easier to establish an injury in fact. See HTC, 2018 WL 6617795 (holding that Ericsson, an OEM, had standing to bring a counterclaim against HTC for breaching its obligation to offer Ericsson a license on FRAND terms); see also Broadcom, 501 F.3d 297 (holding that a deceptive FRAND commitment to a SSO may constitute actionable anticompetitive conduct under the Sherman Act). Similarly, the SSOs may find it easier to establish an injury in fact if Patent-Holder Defendants breached the FRAND contracts that they entered into for incorporation into cellular standards by charging non-FRAND rates. 12 But these are not Plaintiffs-Appellants we have before us. 11 Avanci and Patent-Holder Defendants also argue that not having to take a license may allow Continental to produce its components at a lower cost. See Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 996 (9th Cir. 2020) (observing that a policy of providing “de facto licenses” to component suppliers “allow[s]” Qualcomm’s “competitors to practice Qualcomm’s SEPs (royalty-free) before selling their chips to downstream OEMs”). 12 And to the extent that suing SEP holders is impossible or undesirable, the SSOs could conceivably troubleshoot on the front-end, clarifying FRAND rates and providing explicit enforcement mechanisms in their operating documents. 13 Case: 20-11032 Document: 00516219884 Page: 14 Date Filed: 02/28/2022 No. 20-11032 In sum, the district court erred in holding that Continental had Article III standing to bring its claims. Given that we lack jurisdiction, we do not reach the parties’ arguments as to antitrust standing and the merits. 13