The Backstory
A chase for SEP licenses travels around the world and finally lands in Delaware.
We discussed this Continental v. Nokia opinion last week, but we thought it was worth another comment, because this is a fascinating case at the epicenter of a global FRAND battle. Even more interesting: this opinion illustrates a widening divide between American, UK, and Chinese courts in their comfort level with setting global FRAND rates.
A FRAND Dispute of the Hold-Up Variety
At its core, this is a dispute between German and Finnish companies, via and including their American subsidiaries. Continental asked a U.S. court to determine a fair licensing payment for their use of Nokia’s patented 2G, 3G, and 4G technologies, claiming that Nokia engaged in “hold-up” misbehavior by first refusing to license its technology and then demanding unreasonable royalties.
This Delaware filing is not Continental’s first attempt to hunt down a FRAND license for this technology from Nokia either. The germ of this dispute has been tumbling through Germany’s courts, the Northern District of California, the Northern District of Texas, and has been complicated by a licensing deal between Nokia and one of Continental’s customers: Daimler.
Nokia won in Germany by gaining an anti-antisuit-injunction injunction (AAII) against Continental’s parent company, which required Continental’s parent company to ensure that Continental withdraw its fully-briefed US motion for anti-suit injunction in the Northern District of California. Continental withdrew its motion, and successfully relocated the antitrust-styled FRAND case to Northern District of Texas. (Continental Automotive Systems, Inc. v. Avanci, LLC, et al., C.A. 19-2520-LHK, D.I. 110 (N.D. Cal. Dec. 11, 2019).
But the case in Northern District of Texas was dismissed for lack of subject matter jurisdiction, lack of personal jurisdiction, and failure to state a claim under Rules 12(b)(1), (2), and (6). The antitrust claims were dismissed with prejudice, leaving no federal question claims left to fuel supplemental jurisdiction over Continental’s remaining declaratory judgment, breach of contract, promissory estoppel, and unfair competition claims—so these were dismissed for lack of subject matter jurisdiction. (Continental Automotive Systems, Inc. v. Avanci, LLC, et al., C.A. 3:19-cv-02933-M, D.I. 316 (N.D. Tex. Sep. 10, 2020).
The Global License Chase Lands in Delaware
That’s why this FRAND case landed in Delaware’s Chancery Court, styled as a nearly-pure breach of contract dispute. (Continental Automotive Systems, Inc. v. Nokia Corp., et al., C.A. 21-345-MN, D.I. 1, Ex. A (D. Del. Mar. 5, 2021). Continental also included a declaratory judgment claim, and we explained our analysis of that last week, as this case was remanded back to the Chancery Court after being removed to the District Court. Nokia’s attempt to transfer venue back to Northern District of Texas was also rejected. (Id. at D.I. 52).
This remand is a clear interim victory for Continental, which seems to be relying on Delaware’s contract law to adjudicate the global FRAND terms. U.S. courts can set global FRAND rates if all parties to the U.S. litigation consent to the rate-setting, but I’m aware of only two cases in which U.S. courts have actually done it: Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015); In re Innovatio IP Ventures, LLC, 2013 U.S. Dist. LEXIS 144061 (N.D. Ill. Sep. 27, 2013).
Consent to Set Global FRAND Rates
The question is: will Nokia also consent to U.S. Courts, and specifically Delaware courts, setting the FRAND rates? So far, the only courts in the world that have assumed the authority to set global FRAND rates without consent of all parties to the litigation are the UK Supreme Court and China's Guangdong Higher People's Court. Will the U.S. be next?
In August 2020, Unwired Planet v. Huawei ignited the issue in when the UK Supreme Court held that UK courts can force a defendant to choose between an injunction to prevent further infringement in the UK—or accept the global FRAND terms that the UK court set. [2020] UKSC 37.
Part of the UK Supreme Court's reasoning relied on the fact that the Chinese courts had not established their jurisdiction to set global FRAND license terms. Perhaps in response, in August 2021, the China's Intellectual Property Tribunal of the Supreme People's Court affirmed the Supreme People's Court holding in Sharp Corp. v. OPPO that Chinese courts can set global FRAND license terms too, where willingness of the parties to set a global license is one factor considered.
Since then, we've also seen the UK confirm its courts as a forum for setting global FRAND terms, covering foreign patents, even where defendants challenge the jurisdiction. Nokia v. Oneplus [2021] EWHC 2952 (Pat). Incidentally, the claimants in that most recent UK case (decided on November 4, 2021) are also defendants in this Continental v. Nokia litigation in Delaware.
Contract vs. Antitrust Lenses
Framing FRAND disputes through a contract lens, as Continental has done here, may fare better in American courts than the antitrust approach which failed Continental in Munich, N.D. Cal., and N.D. Tex. See Continental Automotive Systems, Inc. v. Avanci LLC, C.A. 3:19-cv-2933-M at 14 (N.D. Tex. Sep. 10, 2020) (citing FTC v. Qualcomm Inc., 969 F.3d 974,997 (9th Cir. 2020) (describing reasons for caution in using the "hammer of antitrust law . . . to resolve FRAND disputes when more precise scalpels of contract and patent law are effective.").
According to Judge Noreika's decision to remand the case back to Chancery Court, it looks like this dispute is going to use only the scalpel of contract law, not patent law, since the court found that patent exhaustion is a defense, not an affirmative claim—and therefore does not raise any federal question.
My impression is that this Delaware filing leans into the American view that FRAND issues fall primarily within the purview of contract law. Contra Lenovo v. Interdigital. This approach is distinctly different from the approach employed by the German courts, for example, which tend to view FRAND issues through competition and antitrust lenses, more than contract law.
The contract-law-focus employed by Continental's complaint (D.I. 1-1 (Exh.A)) also plays toward the heavy contractual analysis in Unwired Planet, in which the UK Supreme Court said: "[i]t is the contractual arrangement which [the standard-setting-organization] has created in its IPR Policy which gives the [English] court jurisdiction to determine a FRAND license and which lies at the heart of these appeals," said the UK Supreme Court.
This is a Case to Watch
Could Delaware's Court of Chancery be next to set global FRAND terms, even binding defendants that do not consent to its jurisdiction? If so, this Continental v. Nokia case could become the next landmark FRAND case, placing the U.S. alongside the UK and China in the small number of countries currently willing to set global FRAND terms for unwilling defendants.
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