Thursday, December 12, 2019

Avanci, Nokia win transfer of Continental's FRAND/antitrust case from San Jose to Dallas

The Avanci patent pool firm and its co-defendants--most notably, Nokia--never wanted Judge Lucy H. Koh of the United States District Court for the Northern District of California, famous for (among other high-profile cases) FTC v. Qualcomm, to adjudicate Continental Automotive Systems' FRAND/antitrust complaint. The first challenge they brought related to intra-district assignment. The N.D. of Cal. has multiple divisions, the two most important ones of which are San Jose (Judge Koh's location) and San Francisco. Avanci and Nokia (as well as some other, less significant defendants) asked for the case to be handled in San Francisco rather than San Jose, but that request was declined, and subsequently the case was assigned to Judge Koh.

The difference between San Jose and San Francisco is a one-hour drive under perfect conditions, though it's taken me up to four hours.

The defendants brought a motion to transfer venue in the summer--which has just been granted. They argued that the Northern District of Texas, where some Avanci U.S. entities are based, was the more convenient forum. In late August, Continental filed a very thoroughly-researched opposition brief. I thought it was great, and didn't expect a venue change. My predictions have a very high hit rate, but there were two weaknesses here that Judge Koh identified and one of which I couldn't have seen at the time while the other wasn't easy to spot:

  • After that opposition brief that appeared strong, Continental filed its initial witness disclosures, and various players whose location would have favored the Northern District of California didn't appear on that list. Judge Koh did the only right thing to do, which was to ignore in the convenience context any witnesses Conti didn't even have on its list anymore. For example, Conti had pointed to the location of Apple witnesses, but ultimately named none.

  • What has been a structural problem all along (especially in the antisuit context) is Conti's extremely compex corporate structure. In an amicus curiae brief recently filed with the Ninth Circuit in FTC v. Qualcomm, Conti explained how Michigan-based Continental Automotive Systems relates to the German group parent, and it's like a great-great-grandchild. When arguing its close connection to the Northern District of California, Conti discussed some operations there, but those are different corporate entities. Once again, the question is whether Conti's decision to have only Continental Automotive Systems (and not some other Conti entities as well, starting with the German group parent) sue Avanci and some Avanci members was a good one. It unnecessarily complicates any antisuit motion, and now it has also adversely impacted the opposition to Avanci and Nokia's venue transfer motion.

All things considered, Judge Koh found that the Northern District of Texas was the more convenient forum, especially for non-party witnesses (whose logistics are more relevant in this context than those of party witnesses, and where counsel is based doesn't matter). Also, the interest of a given district in resolving a case is generally highest where the alleged actions occurred, and that's Avanci's location in this case. Conti had pointed to Silicon Valley's stroing interest in SEP licenses for IoT businsses, and named various companies, but that was too thin for Judge Koh's taste. She might have afforded that argument some weight, but it would have had to be underpinned with some hard evidence, given that the issue is a global one as Conti itself had written at some point.

What's more important now than the basis on which Judge Koh exercised her discretion is what this means for the wider dispute:

  • Texas is in the Fifth Circuit, and SEP antitrust law there isn't favorable, but that's irrelevant to the extent that Conti makes arguments under contract law.

  • The Fifth Circuit isn't bad for Conti with respect to a possibly renewed motion for an antisuit injunction. I believe the Munich appeals court will overturn Nokia's German anti-antisuit injunction in a few hours, so Conti will then be free to try again. Generally, the Fifth, Seventh and Ninth Circuits--and some also say the First Circuit--are considered to be the most permissive circuits in the antisuit context. The Ninth would be preferable over the Fifth, but again, the Fifth isn't considered exceedingly restrictive.

  • The bigger problem Conti faces with respect to an antisuit motion is that it will take some time before the new court is up to speed on the case and in a position to adjudge that kind of motion.

  • While the Ninth Circuit's decision in FTC v. Qualcomm (the hearing will be held in February) isn't formally binding on a court in the Fifth Circuit, there will be some persuasive impact.

  • Judge Koh didn't stay anything, so it's possible that even in Dallas a trial could take place in (late) 2021 (Judge Koh had scheduled it for October 2021).

  • Nokia, which is suing Daimler over 10 SEPs in Germany, pretended to be constructive, though the only two outcomes of mediation by the International Chamber of Commerce as Daimler's surrender (which wouldn't help Conti and other suppliers) or simply no deal. But the European Commission won't launch formal investigations into Nokia's refusal to license component makers (though those components come with all the same hardware as phones, which Nokia does license, apart from a screen) in the meantime. And the Mannheim court postponed this week's trial to March, making it a possibility that the Munich I Regional Court will enter an injunction against Daimler before the Mannheim court might have taken a more favorable position on component-level licensing. So there have recently been setbacks for Conti on three fronts where it could have inched closer to an exhaustive component-level license: its EU antitrust complaint; its U.S. contract and antitrust case; and Mannheim (though that case was obviously brought by Nokia, it represented an opportunity for Conti).

  • Here's what I would advise Conti to do in light of the current landscape and recent--not final but nevertheless hurtful--blows: Conti either has to push far harder and smarter (they have great lawyers in Germany, but the problems they face are 100% political, 0% legal) for getting Nokia investigated by the European Commission's Directorate-General for Competition (DG COMP) or if they don't want or don't know how to do that (Nokia certainly does play the game holistically, but Daimler and Conti are employing 19th-century methods against an agile, clever, no-holds-barred rival in the 21st century), they should bring a Dusseldorf lawsuit against Nokia as Huawei did. At this point they might even still get a Dusseldorf case merged for case management purposes (though technically retaining a separate case number) with Huawei's case.

Finally, here's Judge Koh's order, which is the end of the California road for this case:

19-12-11 Order Granting Ava... by Florian Mueller on Scribd

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