Welcome to Skilled in the Art. I'm Law.com IP reporter Scott Graham. The standard-essential patent wars over connected cars just got more interesting. Telematics supplier Continental Automotive sued Nokia, Conversant and PanOptis, and patent pool Avanci, this morning, accusing them of refusing to license to anyone but auto manufacturers. And they're suing in Silicon Valley, where at least one judge has ruled that SEP holders must negotiate at all ends of the supply chain. More details below. Meanwhile, Judge Alsup makes the case for less secrecy in patent litigation, and Andrei Iancu confirms that the PTO is weighing whether to abandon its 2013 FRAND antitrust guidance. As always feel free to email me your feedback and follow me on Twitter.

Sheppard Mullin partner Stephen Korniczky.

Sheppard Strikes Again on Connected Cars

The war over standard-essential patents for the connected car industry is coming to Silicon Valley.

Telematics supplier Continental Automotive Systems Inc. this morning sued three large holders of patents essential to practicing the 2G, 3G and 4G cellular standards, accusing them of colluding via patent pool Avanci LLC to artificially inflate royalties.

The suit alleges that Avanci, Nokia, Conversant Wireless Licensing and Optis UP Holdings have refused to bargain with Continental, in breach of commitments to license its standard-essential patents on fair, reasonable and non-discriminatory terms. Instead, Avanci will negotiate only with automobile manufacturers, Continental alleges, because a $15 royalty on a $30,000 auto will seem more reasonable than on the $100 unit that implements the patented technology.

“Because Defendants could not justify such exorbitant royalties to the suppliers of components and subsystems in the supply chain, they colluded to maintain their exorbitant royalty rates—and thus their monopoly—by refusing to license Tier 1, Tier 2, or Tier 3 suppliers,” Continental argues in a 63-page complaint signed by Sheppard Mullin Richter & Hampton partner Steve Korniczky.

Continental v. Avanci echoes a FRAND/antitrust suit the same Sheppard team brought earlier this year on behalf of cellular module maker u-blox against InterDigital Inc. in San Diego federal court. But Continental has launched a broader attack that targets multiple patent holders and Avanci, which bills itself as a one-stop solution for licensing Internet of Things technology. Plus Continental is suing in the Northern District of California and requesting an assignment to the San Jose Division, ostensibly on the basis that it operates a large R&D center nearby.

Last fall, U.S. District Judge Lucy Koh of San Jose ruled that Qualcomm's promise to license on FRAND terms obliged it to license other chip suppliers—not just smartphone makers like Apple. “It has been judicially determined,” Continental's complaint notes, that patent holder contracts with standard-setting organizations require them to license “on FRAND terms and conditions to any implementer within a given supply chain that uses the standards, and not merely to the manufacturers of 'end-products.'”

Friday's suit comes as automotive innovation and the role of antitrust have become flash points in SEP licensing. Avanci announced a deal with Volkswagen this weekand has now licensed two of Germany's three biggest automakers. Meanwhile, the Justice Department in December withdrew its 2013 guidance that using injunctions to enforce standard-essential patents may be anticompetitive.

Continental, Ford Motor Co., Toyota Motor Corp. and Volkswagen of Americasigned onto an April 22 letter from numerous technology companies last month urging the Patent and Trademark Office not to follow DOJ's lead. PTO Director Andrei Iancu told a House subcommittee Thursday that the PTO is studying the issue and hasn't made a decision yet.

Avanci was founded by former Ericsson executive Kasim Alfalahi in 2016, promising to bring convenience, predictability and speed to the licensing process for autos, smart meters and connected homes. Ericsson, Qualcomm, Siemens, BlackBerry and Sony are among the companies that have contributed standard-essential patents to the platform.

“Our transparent, open marketplace is accessible to everyone,” Avanci states on its website, “ensuring those companies contributing technologies get a fair return on their investment, and that those using the technologies get a fair price, enabling them to continue developing the future of connected products.”

Continental is a division of Germany-based Continental AG. Known originally for tires, it also supplies products that integrate mobile applications, including GPS, in vehicles and other connected devices. A typical telematics control unit can sell for anywhere from $75 to $100, according to Continental's complaint. Avanci demands “as much as $15 per vehicle” for a license, which Continental says would wipe out its entire profit margin.

The auto industry expects suppliers to clear the IP rights to their products. If auto makers are forced to pay the license, they'll push the cost down on suppliers, Continental contends.

Continental alleges that it's sought licenses from each of the defendants, but they've either refused to offer direct licenses or not responded. Avanci allegedly told Continental it's allowed to license only at the auto manufacturer level, and would seek authorization to license Continental only if Continental agreed in advance to accept Avanci's “inflated and non-FRAND royalty rates.”

Continental contends that Avanci has not behaved consistently with the principles on its website. “Because it will not license all companies who make standard-compliant products, its pricing methodology is not transparent, and the cost of an Avanci license is not at 'a fair price.'”

Sheppard's team also includes partners Martin Bader and Matthew Holder.

Alsup: More Openness Needed on Patent Licensing

Today's practice pointer: Unless you have a really, really, really good reason, don't ask U.S. District Judge William Alsup to reconsider a decision. You're only going to make things worse.

In January, Alsup denied Uniloc 2017's and Uniloc Luxembourg's motion to seal declarations that contained financial data, licensing terms and business plans in its patent dispute with Apple. “The scope of plaintiffs' requests is astonishing,” Alsup wrote, noting that it included material that simply quoted Federal Circuit caselaw.

Uniloc and its business partner Fortress Credit Co. asked Alsup to reconsider. Nearly the same information was submitted under seal in Uniloc's Delaware case against Motorola Mobility, they noted, and U.S. District Judge Colm Connollygranted that request. On closer review, they proposed that just 5 percent of the material remain confidential. That included a list of 109 licenses that Uniloc entered into with third parties. “The confidentiality of this information is vital to these third parties and to Uniloc,” Uniloc's lawyers at Prince Lobel Tye wrote.

Nope, Alsup replied Tuesday. This time he added a clarion call—or, from a patent owner's perspective maybe a tirade—for more openness in patent litigation.

“Because Uniloc's rights flow directly from this government-conferred power to exclude, the public in turn has a strong interest in knowing the full extent of the terms and conditions involved in Uniloc's exercise of its patent rights and in seeing the extent to which Uniloc's exercise of the government grant affects commerce,” Alsup wrote.

He was only getting started. “Patent holders tend to demand in litigation a vastly bloated figure in 'reasonabl[e] royalties' compared to what they have earned in actual licenses of the same or comparable patents,” he wrote. “There is a public need to police this litigation gimmick via more public access.”

The Delaware decision isn't binding on him, and the Third Circuit has different standards for sealing than the Ninth Circuit. “Plaintiffs have no one but themselves to blame for over-designating information as confidential to begin with,” he concluded.

Alsup gave Uniloc and Fortress two weeks to appeal, and granted the Electronic Frontier Foundation's motion to intervene to the extent it wishes to oppose any appeal.

Iancu: Decision Coming 'Soon' on FRAND

The House Judiciary's subcommittee on intellectual property held its annual oversight hearing of the U.S. Patent and Trademark Office on Thursday. Director Andrei Iancu declared patent eligibility a high priority, saying the American patent system “must move beyond the confusion of the past several years when it comes to this most fundamental question.”

He sounded a little conflicted about whether the best way forward is through legislation, as some representatives have proposed, or giving the courts time to warm up to the PTO's new guidance for patent examiners.

“The bottom line is courts are independent and they don't have to follow our guidance, obviously, and our framework. I hope they would, frankly, because it's correct, I believe, and there is broad-based support,” he said. “But they have not yet provided clarity. So bottom line is, if Congress desires to create more certainty, legislation is needed.”

Rep. Zoe Lofgren had a different issue on her mind. “I want to talk about FRAND,” she said. Has the Justice Department asked the PTO to join it in withdrawing their joint 2013 guidance that the use of injunctions to enforce standard-essential patents may be anticompetitive?

“We've received letters from stakeholders and the public, but I haven't seen a letter from the Department of Justice,” Iancu told her.

“That's good news,” Lofgren said. “I assume you'll agree, or you'll tell me if you don't, that fair, reasonable and nondiscriminatory licensing obligations are really critical to the adoption of cutting edge technology, interoperability and giving consumers choices.”

“I agree with that,” Iancu replied.

Of course he would! That's the easy part. Lofgren forgot to ask about how to police those obligations.

“Thank you very much for your restatement of commitment to the 2013 policy statement,” Lofgren told Iancu moments later, though he had done no such thing.

The director, to his credit, set the record straight. “The PTO has not yet made a statement on that,” he said. “We are studying the issue now that the DOJ has withdrawn, and we hope to have a view on that soon.”

Scooting Toward a Circuit Split

Swagway is about the coolest name I can imagine for a hoverboard. Unfortunately, only two letters separate it from Segway's well-known mark on the same merchandise. Despite apparently soft evidence of actual consumer confusion, the Federal Circuit on Thursday agreed with the International Trade Commission that Swagway's mark infringes.

Swagway, which has since adopted the almost-as-cool name Swagtron, had offered to stipulate to a consent judgment at the ITC. It told the Federal Circuit it wanted to avoid issue preclusion in a parallel district court trademark action in Delaware.

No matter, Judge Raymond Clevenger wrote for a unanimous panel in Swagway v. ITC. “We have previously determined that 'Congress did not intend decisions of the ITC on patent issues to have preclusive effect,'” he wrote. “We see no reason to differentiate between the effect of the Commission's patent-based decisions and the Commission's decisions regarding trademarks.”

Ropes & Gray partner Matt Rizzolo points out that the Second Circuit and Fourth Circuit might see things differently. The legislative history underlying Section 337 makes clear that ITC patent-related determinations don't have preclusive effect. “But there's no similar statements from Congress regarding trademark issues,” he says. “This is pointed out in the Second Circuit's Union Manufacturing opinion.”

That's all from Skilled in the Art this week. I'll see you all again on Tuesday.