Breach of Duty to Offer RAND Licensing Terms?

A lawsuit brought against a patent owner based on an alleged failure to offer a patent license on reasonable and nondiscriminatory (RAND) terms has largely survived the patent owner’s motion to dismiss.  Realtek Semiconductor Corp. v. LSI Corp., No. C-12-03451 RMW (N.D. Cal. Oct. 10, 2012).

The defendants, who contended that the patents at issue were essential for practicing the IEEE 802.11 “Wi-Fi” wireless networking standard, had instituted an International Trade Commission proceeding against the plaintiff, Realtek.  Before the 802.11 standard was released, the patent owner had submitted to the IEEE “Letters of Assurance” that it would grant RAND licenses.  However, the defendants had offered to license their patents to Realtek, allegedly in exchange for a royalty that would have exceeded the selling price of Realtek’s products.  Realtek also alleged that the defendants breached their RAND obligations by licensing their patents to other parties for royalties that did not exceed the selling prices of those parties’ products.

Realtek had stated a cause of action for breach of contract, asserting that the defendants’ initial license offer had to be on reasonable and nondiscriminatory terms, a theory rejected by the court in Microsoft v. Motorola, No. C10-1823JLR (W.D. Wash. Feb. 27, 2012).  Nonetheless, the court held that Realtek’s allegations survived under liberal pleading standards, noting that “there is sufficient factual matter to render Realtek’s claim plausible.”  The court added that “Realtek’s allegations, as a whole, resemble those made by other plaintiffs claiming a breach of RAND obligations.”

Further, the court rejected the defendants’ argument that Realtek’s breach of contract claim was not ripe. While “[a]s a matter of patent rights, whether and how much Realtek must pay is not determined until issues of infringement, invalidity, and reasonable royalty have all been resolved,” the court saw “no rule that any one of those issues must be decided before the others.”  Accordingly, Realtek could “simultaneously pursue a determination of the RAND royalty rate while denying infringement or asserting invalidity, even though those issues may ultimately obviate the need for a license.”

The court was also influenced by the fact that the defendants had brought the ITC action. An ITC action offers no possibility of money damages, and “courts have questioned whether injunctive relief is appropriate where a patent is encumbered by RAND licensing obligations.”  Because the defendants had chosen to bring their enforcement action in a forum that did not provide for money damages, “there appears even less reason for this court to wait before determining the reasonable royalty rate, which is all defendants are initially entitled to.”

In short, the court denied the defendants’ motion to dismiss Realtek’s breach of contract claim, as well as a promissory estoppel claim.  A declaratory judgment claim survived because “the determination of a reasonable royalty is part of a live controversy between the parties over defendants’ claims of patent infringement, which is independent of whether defendants breached the alleged contract.”  However, a claim for unfair competition under unfair competition under Cal. Bus. & Prof. Code § 17200 was dismissed because Realtek failed to allege harm to competition.

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