Thursday, October 27, 2011

Apple Fails to State Antitrust Claims Against Samsung for Standards Setting Abuse

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

The federal district court in San Jose, California held on October 18 that Apple, Inc. failed to allege sufficient facts to support its claims that rival Samsung Electronics Ltd. violated Section 2 of the Sherman Act by abusing a private standard setting process for mobile wireless technology.

The court dismissed Apple’s claims under Section 1 of the Sherman Act as incompatible with its allegations supporting its section 2 claims. Apple’s California Unfair Competition Law claim predicated on Samsung’s Sherman Act violations also was dismissed.

Global Patent War

The ruling was the first blow to Apple in the U.S. in its global war with Samsung regarding several utility and design patents related to both parties' mobile device technologies. Cases are pending in at least ten countries. The Federal Court in Sydney, Australia issued an October 13 temporary ban on the sale of Samsung's Galaxy 10.1 tablets. In August, a court in Dusseldorf, Germany temporarily halted sales of Galaxy 10.1 tablets, while a court in The Hague banned sales of the South Korean company’s Galaxy S, S II smart phones.

According to the district court, Apple failed to allege sufficient facts to meet Fed.R.Civ.Pro. 9(b)’s heightened pleading standard in support of its Sherman Act monopolization claim. Apple contended that Samsung fraudulently induced the European Telecommunications Standards Institute (ETSI), a standard setting organization (SSO) for mobile wireless carrier technology, to adopt a standard incorporating a Samsung patent as essential technology.

Specifically, Samsung allegedly failed to disclose intellectual property rights in its patent and breached a promise to license its essential technology on fair, reasonable, and non-discriminatory (FRAN) terms to ESTI members.

Anticompetitive Conduct

In order to establish anticompetitive conduct for failure to disclose intellectual property rights, a plaintiff must show that there was an alternative technology that the SSO was considering during the standard setting process and that the SSO would have adopted an alternative standard had it known of the patent holder's intellectual property rights.

The court found that Apple failed to allege sufficient facts to support a plausible inference that if Samsung had disclosed its intellectual property rights to the ETSI, a viable alternative technology performing the same functionality would have been incorporated into the UMTS standard, or that the relevant functionality would not have been incorporated into the standard at all.

False Declarations

Apple's allegations that Samsung submitted false FRAND declarations were not sufficient to put Samsung on notice of the particular misconduct that created the basis of the alleged fraud, in the court’s view. Apple did not set forth facts establishing when the alleged false FRAND declarations were made, by whom they were made, or with regard to which patents were they made. The court granted Apple leave to amend its Sherman Act sec. 2 claims.

The court dismissed Apple’s restraint of trade claim under Section 1 of the Sherman Act without leave to amend. To state a violation under Section 1, a plaintiff must show a unity of common purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.

Unilateral Conduct

Apple’s allegation that Samsung unilaterally subverted ETSI’s collaborative standard-setting process in order to restrain trade was not reconcilable with its allegation that Samsung contracted with, combined with, or conspired with ETSI or is members to restrain trade, according to the court. Apple necessarily failed to allege a concerted action between Samsung and ETSI necessary to state a claim under Section 1, the court held.

The decision in Apple Inc. v. Samsung Electronics Co. Ltd., 11-CV-01846-LHK, will appear in CCH Trade Regulation Reporter and CCH Guide to Computer Law.

Further details regarding CCH Trade Regulation Reporter appear here. Details regarding CCH Guide to Computer Law appear here.

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