Tuesday, June 14, 2022

Fifth Circuit panel will straighten out its Continental v. Avanci opinion: Conti is still going to lose--this much is certain

In its litigation with Avanci and some of its licensors (most notably Nokia) over the availability of component-level licenses to standard-essential patents (SEPs), Continental keeps going in circles, just like its rubber tires--the key difference being that the circular motion of its wheels makes a car move forward, while Conti's litigation tactics are unproductive, tireless but tiresome, and just clog up the court system.

In Delaware, Conti's case against Nokia (which it brought after the dismissal--and after filing that Fifth Circuit appeal--of its Texas case) was removed from the Chancery Court (a state court of equity) to a federal district court, and then remanded to the state court. As far as I've been able to find out, nothing substantive has happened there. Now Conti is going in circles before the United States Court of Appeals for the Fifth Circuit:

After denying Conti's motion to file--outside the procedural framework established by the Fifth Circuit--a reply brief in support of its petition for rehearing en banc, but still yesterday, the appeals court has determined how to deal with Conti's petition: instead of Conti getting a rehearing in front of the full court, which would be a total waste of time, the same three-judge panel that issued the original appellate opinion a few months ago will simply straighten it out in a way that moots Conti's petition.

Here's the court order, which withdraws the original opinion, explains that Conti's petition for rehearing en banc is simply treated as a petition for a rehearing by the original merits panel, and announces that a revised opinion is forthcoming (apparently without further briefing or another hearing--the panel judges will simply create a "Version 2.0" of their decision):

I think this is a very wise procedural decision. As I noted yesterday, it's not that one can't (almost always) ask questions or raise issues. Version 1.0 of the panel opinion contained an unfortunate, oblique reference to Microsoft v. Motorola (noting that Microsoft was a member of the same standard-setting organizations as Motorola, which is true but wasn't relevant) and Broadcom v. Qualcomm (a case pitting two direct competitors). Conti and its amici--simply other organizations pursuing the devaluation of SEPs--way overstated the relevance of that passage as if it meant that only those who are members of the same SSOs or direct competitors of SEP holders were contractually entitled to a FRAND license.

Avanci, Nokia, Sharp, and Optis (a licensing firm whose UK FRAND trial against Apple just started yesterday) have made it clear that their reading of the panel opinion is reasonable, and the FRAND sky wasn't falling. But apparently all that amicus activity had at least some of Fifth Circuit judges concerned that the ruling could have unintended consequences.

The thing is that Conti is still not going to win this. Theoretically, Panel Opinion 2.0 could have a different outcome and--for instance--remand the case to the United States District Court for the Northern District of Texas with the instruction to allow Conti to amend its complaint again. Circuit Judge Carl Stewart (a former Chief Circuit Judge) asked questions at last year's appellate hearing that suggest he at least wanted to know for sure that leave to amend wasn't warranted.

But an about-face is not realistically going to happen. Instead, these are the options for the Fifth Circuit panel to up the ante for a renewed petition for rehearing en banc in a way that the next petition would most likely be rejected in no time:

  1. They could just edit a few parts, such as those Microsoft and Broadcom references, which were unnecessary to reach the (right) conclusion. But Judges Stewart and Engelhardt would still hold that Conti lacked basic standing (Article III standing), with no need to reach the question of antitrust standing, much less of antitrust pleading standards (Conti's Sherman Act Sec. 1 & 2 claims). Judge Ho didn't "dissent-dissent"--but he did express, in a footnote, his preference for simply affirming the district court's judgment that Conti lacked antitrust standing and that its Sec. 1 & 2 claims weren't actionable.

    This would be doable. It wouldn't involve much effort. And all three judges could just stand by their February conclusions.

    It would, however, foreseeably lead to a renewed petition for rehearing en banc, with Conti and its amici still arguing that someone who believes to be a third-party beneficiary of a FRAND pledge by a patent holder to a standard-setting organization should at least have Article III standing. And Conti being Conti, they'd try to get the Supreme Court interested in that question. But the revised panel opinion might make it even clearer that implementers may have Article III standing, just that in Conti's case there was simply no injury as its customers (the automakers) had access to licenses that also enabled Conti to go about its business.

  2. V2 of the panel opinion could be like an "extended mix": after determining with a 2-1 majority, and after some optimization of the reasons, that Conti lacked basic Art. III standing, the new version could go on to explain that, in any event, the district court was (as Judge Ho already made clear last time) right that Conti lacked antitrust standing and that its antitrust claims were deficient (Twiqbal standard etc.).

    In that case, the panel would strengthen the argument made by Avanci and its licensors that Conti was going to lose one way or the other. A renewed petition for rehearing would then have to tackle all three hurdles (or maybe two, if the panel just addressed antitrust standing, but not the antitrust claims). It's doubtful that Conti could present a compelling petition, also in light of formal and de facto page limits, in that scenario. With multiple hurdles in place, Conti would also find it much harder to get the Supreme Court interested (for the same reasons).

  3. The panel could simply drop the Art. III part and unanimously affirm the district court (ideally with respect to antitrust standing and the Sherman Act Sec. 1 & 2 claims, or maybe just one of those parts), with a strong opinion that Conti would find very hard to challenge.

    In that case, Conti would still try a cert petition, but it would find it much harder to portray the proposed question for review as being fundamentally important. It could no longer make it sound like this was about the essence of the FRAND licensing commitment and stuff like that.

The amount of work for the court would be minimal in the first case, while there wouldn't be much of a difference between the second and third options. The second option would be the most comprehensive one, though I personally believe the third option--and then based on both antitrust standing and the pleading standard for the Sec. 1 & 2 claims--would be the safest choice, with four judges (the district judge--who is a very well-respected one--and all three circuit judges) converging on the very same reasons for dismissal. There would be nothing bold about it, but that could be a virtue, especially when you see all those amici obsessed with the devaluation of SEPs just waiting for some opportunity to get the Supreme Court interested in a SEP matter.

Given that I find it inconceivable that Conti's complaint would not be dismissed one way or the other, I can only repeat what I wrote at the end of my previous post on this matter: It's a dead lawsuit walking.

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