Wednesday, July 6, 2022

Continental bothers Fifth Circuit again with petition for rehearing en banc and makes false representation of practical effects of Avanci patent pool agreement

The United States Court of Appeals for the Fifth Circuit has done everything it possibly could to make automotive supplier Continental realize that its "antitrust" complaint against the Avanci patent pool and some of its licensors (Nokia, Sharp, Optis) is not going to be revived. The court didn't even formally deny Conti's motion for an extension of time to file another petition for rehearing en banc. The deadline was yesterday. Conti's counsel--instead of giving up a strategically lost position--worked over a long weekend (Monday was Independence Day) and filed its second petition for rehearing in the same case, even at risk of being sanctioned for abuse of procedure.

So here's the new petition, on which I'll share a couple of observations further below:

The fundamental problem is still the same: Conti is wasting the judges' time as it won't win regardless of the "issues" the tireless, tiresome tire company purports to raise. While the panel didn't explicitly affirm the district court's holding that Conti lacked antitrust standing, it didn't reverse that part either. A lack of standing could also have been the basis--or part of the reason--for concluding that Conti had failed to state claims. All that the revised panel opinion said that was that "Continental failed to state claims under Sections 1 and 2 of the Sherman Act"--as opposed to saying there's no Article III standing (which is not specific to antitrust but broader) like in the first version. It's not definitively clear whether the district court was affirmed all the way or only with respect to the final part of its analysis. Therefore, Conti's interpretation is not necessarily right, and Conti would have to show in a hypothetical continuation of the process that it had antitrust standing.

Even the lack of Article III standing (the panel's original holding) could come up again, though it's less likely, given that the panel itself withdrew its original decision. At least antitrust standing continues to be a serious issue not addressed by Conti's petition. With a view to antitrust standing it's also important to keep in mind that Conti is simply not the right plaintiff.

The panel opinion 2.0 merely affirms the district court without further analysis, so the district court's decision (almost two years old by now) is all that Conti can attack. Just like after the first panel opinion, what Conti does is to take particular statements out of context--so they look really broad--and to suggest that if those statements were reversed or narrowed, Conti would all of a sudden have a case. Not so. For instance, Conti's petition ignores footnote 15 of the district court's judgment. The context is that Conti says the relevant patent holders defrauded the standard-setting process by making FRAND promises they never intended to keep in the first place, thereby excluding other technologies belonging to right holders who would have complied with FRAND. The district court found that a Section 2 monopolization claim requires an allegation of harm to the competitive process itself, not just to competitors. The district court indeed held that even if some other companies' technologies had not been included in the standard, that would not be anticompetitive unless the competitive process itself was harmed (which is simply settled antitrust law). But it also expressed doubts in a footnote about whether Conti--even if one applied a different legal standard or assumed that Conti had shown harm to the competitive process--had even made a sufficient pleading as to the exclusion of competitors:

"The Court is also skeptical that such exclusion has been properly alleged. Plaintiff only includes conclusory allegations that alternatives were presented and rejected by the SSOs for the 3G and 4G standards and that if there were no alternatives to a given technology, the SSOs would have been obligated to abandon those parts of the standard. [...]. There is no indication of what these potential alternatives were, that they were alternatives to any of Defendants’ SEPs, or that they were excluded because of Defendants’ allegedly fraudulent FRAND declarations. Even if the SSOs had known that the Licensor Defendants did not intend to comply with their FRAND obligations, the SSOs may nevertheless have adopted the Licensor Defendants’ SEPs and chosen to insure compliance based on the Licensor Defendants’ contractually binding FRAND commitments, which are enforceable regardless of any alleged deception by the Licensor Defendants."

So Conti's Section 2 claim is defective in more than one way. Conti makes it sound like the district court is fine with just any deception of an SSO, but in reality, the district court just explained that it takes more than Conti's pleadings to make it an antitrust issue. One major issue with the alleged "fraud" is that it's not about a violation of SSO rules (such as failing to disclose an essential patent): the accusation is that patent holders like Nokia never intended to comply with FRAND when they made a FRAND promise. That notion is absurd.

Conti points to three recent cases in which the Fifth Circuit granted rehearing en banc of unpublished decisions. Still, the fact that the decision was designated as unpublished and non-precedential makes it most likely that the petition will be rejected. Last time the court asked the defendants for a reply; that may not even happen this time around.

Conti's Section 1 argument is that despite the Avanci patent pool agreement explicitly allowing contributors to grant bilateral licenses (to car makers, suppliers, anybody), licenses at the component level were not "fully" and "realistically" available to Conti--and they blame Avanci for it. The petition misrepresents the situation: it's not just that the Avanci agreement doesn't preclude patent holders from engaging in bilateral licensing, but Avanci licensors have granted bilateral licenses on various occasions. Nokia granted one to Daimler last year, and shortly thereafter announced that a second (unnamed) car maker had taken a direct license, too. Sharp and Conversant granted component-level licenses to Huawei.

Those real-world bilateral licenses belie, inter alia, the following passage from Conti's renewed petition:

"Moreover, a provision in the Avanci agreement that merely pays lip service to the possibility of individual licenses cannot defeat a § 1 claim if the provision has no practical effect."

The fact that patent pools can increase efficiency in licensing doesn't make them or their contributors antitrust offenders. There may very well be patent holders who tell a licensee that they prefer to license their patents through the Avanci pool. But that doesn't amount to a conspiracy any more than some car makers' decision to conclude a pool license rather than negotiate with (and potentially face litigation from) approximately 50 different patent holders. Licensors and licensees alike just want to reduce transaction costs.

The most likely next step is that the Fifth Circuit will reject this petition (the worst-case scenario for Conti being that the court will additionally impose sanctions for abuse of procedure). It's pretty clear that Conti is hell-bent to exhaust all appeals, so we'll probably see them file a cert petition with the Supreme Court in a matter of months...