SAN JOSE, Calif. (CN) – A federal judge advanced an antitrust case involving technology companies involved in internet connectivity and the compression of video files, finding their competitor offered sufficient evidence they lied to regulatory agencies about their patent intentions.
U.S. District Judge Beth Labson Freeman said Funai Corporation, an electronics company headquartered in Japan and California, provided sufficient evidence that their competitor, LSI Corporation and its subsidiaries, misled regulators about intentions to make its technological patents widely available in exchange for royalties and instead prevented competitors from using the patents and sued them for infringement.
“This court finds that Funai adequately has alleged that non-petitioning aspects of defendants’ alleged scheme – specifically, the false FRAND commitments – independently have caused Funai anticompetitive harm,” Freeman wrote in an 18-page order issued on Monday.
The concept of FRAND, which lies at the heart of the case, refers to “Fair, Reasonable and Non-Discriminatory” licensing terms of patents in the technology sector.
The FRAND licensing terms typically relate to aspects of technology that are essential to practice a certain standard and is meant to ensure compatibility across platforms.
In the present case, the Institute of Electrical Electronics Engineers released its industry standards for wireless connectivity, or WLAN or Wi-Fi, which included some patents owned by the defendants in that case.
To ensure those patents would be used in the standards, LSI agreed to allow other companies in the industry access to their patented technology in exchange for a fair and reasonable price.
Funai, however, says that LSI misled the institute and other regulatory agencies when they agreed to the FRAND stipulations and instead have restricted access to standard technology and sued for patent infringement. This, according to Funai, amounts to anticompetitive behavior that harms U.S. and international consumers.
Freeman agreed on Monday that the pleadings, if ultimately found to be true, are sufficient to demonstrate that LSI and others violated the Sherman Trust Act and California’s unfair competition laws.
“Funai alleges that defendants’ refusal to license its technologies on FRAND terms impairs Funai’s ability to compete in the markets for 802.11-compliant and H.264-compliant products and harms consumers of such products because they will pay increased prices when unreasonably high royalties are passed on downstream,” Freeman wrote.
The dispute also relates to standard technology that compresses video files, making them easier to stream, share and use.
The defendants had argued Funai was in effect countersuing after they had sued Funai for patent infringement at the International Trade Commission and later in the Central District of California. The ITC ruled against LSI and Agere – one of the other named defendants in the present case, and the companies withdrew their patent infringement case in February 2016.
The defendants argue the case should be dismissed because the plaintiffs can’t prove those lawsuits were part of sham litigation.
“Defendants mischaracterize Funai’s antitrust claim,” Freeman wrote. “The crux of the claim is Funai’s assertion that defendants lied to the IEEE and ITU in order to induce those SSOs to incorporate defendants’ technologies into the 802.11 standard for wireless Internet connectivity and the H.264 standard for video compression.”
Freeman did, however, dismiss with leave to amend Funai’s claim of promissory estoppel – that the defendants should be barred from breaking their promise to license standard-essential patents on FRAND terms – since the claim is not allowed when a breach of contract claim has also been made.
The parties agreed on the existence of contracts between them, though Freeman said Funai is clear to raise its promissory estoppel argument again should the defendants argue in the future that there weren’t any contracts.