Tuesday, June 7, 2022

Avanci, Nokia explain why Fifth Circuit would waste its time granting Continental's petition for rehearing: issue raised by Conti can't change outcome

The United States Court of Appeals for the Fifth Circuit is one of the nation's busiest federal appeals courts. If every appellant seeking to revive a fatally flawed complaint were to get a full-court review of a well-considered panel decision, the resolution of numerous other cases would also be delayed. At some point there must be closure. Continental's "antitrust" action against the Avanci patent pool and several of its licensors (Nokia, Sharp, Optis) is just a waste of time. Presumably owing to an entire echo chamber of amicus briefs orchestrated by those constantly advancing a notorious agenda of devaluing standard-essential patents (SEPs), the Fifth Circuit invited Avanci to reply to Conti's petition.

I'll keep this post brief because I already explained the logic of the Fifth Circuit decision--and the various other grounds on which Conti's complaint is never going to succeed--three months ago. Let me show you Avanci's reply, and then I'll share a couple of quick observations:


Conti's petition and the amicus briefs supporting it make a fuss about the Fifth Circuit panel allegedly having held that most implementers of standards aren't intended third-party beneficiaries under the FRAND pledges of standard-setting organizations. Not only do Conti's petition and the amicus briefs blow things out of proportion but the truth is that it doesn't even matter:

Avanci and its licensors explain in their reply that Conti's petition "is academic; resolution of the issue that it presents could not alter the outcome in this case." Starting near the bottom of page 11 of the panel opinion at issue, there is a passage that makes it clear the dismissal of Conti's case is independent of whether or not it's an intended third-party beneficiary:

"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 under FRAND contracts, the contracts have not been breached because the SEP holders have fulfilled their obligations to the SSOs with respect to Continental."

Simply put, Conti's petition for rehearing tells the Fifth Circuit that it may be able to get over the first hurdle, but (now quoting Avanci's reply) "pleaded no facts plausibly suggesting that"

  • "[Conti] needs to conclude direct licenses to manufacture and sell its components to OEMs"

  • "a patent owner has ever sued, threatened to sue, or is likely to sue Continental for infringement of the relevant patents"

  • "[Conti's] failure to conclude direct licenses from Avanci or its members impeded sales of its components to any OEM"

  • "[Conti's] lack of direct licenses has prevented it from pursuing any other business opportunity"

All that is left then is the hypothetical scenario of indemnification, but speculative injury doesn't count.

The above deficiencies have been understood by the district court and by all three judges on the Fifth Circuit panel. This may be slightly oversimplified, but essentially all judges who have looked at Conti's complaint so far have identified the same shortcomings, and the only question is whether the fact that Conti can sell its telematics control units (TCUs) to car makers, many of whom already have an Avanci license, means that Conti has no antitrust standing or no standing whatsoever (Article III standing).

Conti refuses to face certain realities. In late April, Conti's SEP exec Michael Schloegl ("Schlögl" in German) spoke at a Frankfurt conference and asserted that Ford was not going to take an Avanci license anytime soon. That prediction didn't age well: a few weeks later, Ford did take that license. Conti was a third-party intervenor in certain cases brought by Avanci licensors against Ford. But to date no Avanci licensor has sued Conti itself over the alleged infringement of SEPs by its TCUs. Conti may not be grateful to Avanci for what it's doing, but it has no reason to complain.

In their reply, Avanci and its licensors state in no uncertain terms that the Fifth Circuit panel opinion cannot be interpreted as "a bright-line rule automatically denying third-party beneficiary status to all component suppliers." That should give Conti and especially its amici comfort. The sky isn't falling.

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