Texas District Court Finds Foreign Patent Holder Properly Served Through U.S. Subsidiary in Antitrust Dispute Over Standards Essential Patents
On July 5, 2020, Chief Judge Barbara M.G. Lynn of the United States District Court for the Northern District of Texas, Dallas Division denied Sharp Corporation’s (“Sharp Japan”) motion to dismiss claims that Sharp Japan colluded with other technology companies in refusing to license their standard essential patents (“SEPs”) on fair, reasonable, and non-discriminatory (“FRAND”) terms. Continental Auto. Sys., Inc. v. Avanci, LLC, No. 3:19-cv-02933-M (N.D. Ill. July 5, 2020).
Plaintiff Continental Automotive System, Inc. manufactures and supplies automotive components, including telematics control units that allow cars to have cellular connectivity. Plaintiff’s complaint alleges that several defendants, including Sharp Japan, hold SEPs necessary for the implementation of cellular connectivity that are the subject of FRAND commitments with certain standard setting organizations (“SSOs”). To avoid licensing at these FRAND rates, Defendants allegedly pooled their licenses to co-defendant Avanci, LLC, who purports to offer “one-stop” access to the SEPs necessary for cellular connectivity, and agreed to require that Avanci license their SEPs only to automotive original equipment manufacturers (“OEMs”). By refusing to deal with non-OEMs, defendants were allegedly able to charge royalty rates that far exceed FRAND rates. Plaintiff alleges, among other things, that this conduct violates Sections 1 and 2 of the Sherman Act.
Sharp Japan asked the court to dismiss plaintiff’s claims against it on the grounds that service of the complaint on Sharp Japan through its subsidiary Sharp Electronics Corporation (“Sharp USA”) was invalid as to Sharp Japan. The parties did not dispute that plaintiff properly served Sharp USA.
The court denied Sharp Japan’s motion to dismiss, finding that Sharp USA qualified as a “general manager” for Sharp Japan under California law. Under California law, a general manager includes any agent of the corporation “of sufficient character and rank to make it reasonably certain that the defendant will be apprised of the service made.” Here, the court found that Sharp Japan was properly served because it was undisputed that Sharp Japan established Sharp USA for the purposes of expanding into the United States and that Sharp USA is a “U.S. sales and marketing subsidiary” for Sharp Japan. The court also found that Sharp USA uses Sharp Japan’s trademarks, jointly enforces Sharp Japan’s patents, and serves as Sharp Japan’s “hub for sales, marketing and warehousing in the Western United States.” Sharp USA is also “Sharp Japan’s point of contact within the United States for product development, product and warranty support, and the provision to customers of English product manuals.”
The court dismissed Sharp Japan’s argument that Sharp USA’s operations do not relate to the licenses and patents at issue in plaintiff’s antitrust claims. To the contrary, the court found that Sharp USA actively manages Sharp Japan’s intellectual property by collaborating with Sharp Japan to enforce Sharp Japan’s patent rights. The Court further found that this type of collaboration between Sharp Japan and Sharp USA makes it likely that Sharp Japan would receive notice of service.
The court also dismissed Sharp Japan’s argument that service was improper because Sharp USA is not a citizen of California either by incorporation or by having its principal place of business there. The court found that California law allows service on a general manager of a foreign corporation even if the general manager is not in California.
While foreign defendants without a U.S. general manager or other agent can generally be served with an antitrust complaint overseas through the Hague Convention, this process, depending on the jurisdiction, can be time consuming and sometimes unpredictable. The practical import of this case is to reinforce that foreign patent holders subject to antitrust claims under U.S. law can be more easily and expeditiously brought into U.S. courts if they use U.S. subsidiaries to assist in licensing and enforcement of their intellectual property rights and otherwise represent them in the U.S., and that a plaintiff will not need to meet the more arduous requirements of piercing the corporate veil or alter ego liability in order to do so.