Auto-Parts Supplier Lacks Standing To Bring Antitrust Claims Against Standard-Essential Patent Holders And Licensors Of Vehicular Wireless Connection Technology
03/23/2022On February 28, 2022, the United States Court of Appeals for the Fifth Circuit held that an upstream auto-parts supplier lacked Article III standing to bring an antitrust suit challenging the alleged refusal of certain standard-essential patent holders and their agent to license the supplier patents on fair, reasonable, and nondiscriminatory (“FRAND”) terms. Cont’l Auto. Sys., Inc. v. Avanci, LLC et al., No. 20-11032 (5th Cir. Feb. 28, 2022).
Plaintiff Continental Automotive Systems is an auto-parts supplier that offers automotive components utilizing cellular standards (such as 3G and 4G) to facilitate wireless music streaming, navigation, etc. Defendant Nokia Corporation and related entities hold certain patents needed to comply with the cellular standards (“standard-essential patents”). These patent holders entered into an agreement with standard-setting organizations (“SSOs”) to license their standard-essential patents on FRAND terms. Defendant Avanci is an agent that helps license out these standard-essential patents. Avanci—similarly bound to license the standard-essential patents on FRAND terms—only licenses the patents to car manufacturers (which are downstream from Continental), although individual patent holders may directly license suppliers like Continental.
Though the car manufacturers were able to obtain standard-essential patent licenses on FRAND terms, Continental claims that defendants refused to give it licenses directly on such terms. On this basis Continental brought antitrust claims, along with other state-law claims, in federal court. The district court dismissed those claims, concluding that Continental had failed to state a claim for which relief could be granted. A majority of the Fifth Circuit panel saw it differently, concluding that Continental lacked Article III standing to bring the claims, and thus did not reach the merits.
Article III standing requires a plaintiff to show that he (i) suffered an injury in fact, (ii) that is fairly traceable to the defendant’s challenged conduct, and (iii) that is likely to be redressed by a favorable decision. Continental presented two theories of injury. First, it contended that it might have to pay non-FRAND rates if defendants charged car manufacturers such rates through a convoluted indemnity-agreement theory. The Fifth Circuit rejected this theory as far too hypothetical and speculative.
Second, Continental alleged it was injured by defendants’ refusal to directly license standard-essential patents to it on FRAND terms. The Fifth Circuit acknowledged that, in some cases, entities manufacturing standard-conforming products have standing to challenge a FRAND agreement with an SSO. But, in those cases, the challenging entity was either itself a member of the SSO or a direct competitor of the patent holder. The Fifth Circuit noted that Continental was neither; moreover, it did not need the requested licenses to operate its business. Accordingly, the court held that Continental was not an intended third-party beneficiary of the FRAND agreement and lacked standing to challenge a purported violation.
The Fifth Circuit further held that, even if Continental was a third-party beneficiary it would have lacked a cognizable injury. Avanci and the patent holders were actively licensing the patents on FRAND terms to car manufacturers. This was sufficient for Continental, who did not need to personally own the licenses to operate its business and may have lower costs as a result. Concluding that Continental lacked Article III standing, the Fifth Circuit remanded to the district court with instructions to dismiss the case.
The decision represents the second Court of Appeals’ rejection of an antitrust challenge to a defendant licensor’s “OEM-only” licensing policy after the Ninth Circuit’s 2020 decision in FTC v. Qualcomm. Despite its win in the district court in that case, the FTC chose not to seek Supreme Court review of the Ninth Circuit’s decision. It will be interesting to see whether the plaintiff here pursues that route in this case.