Making False Representations to Standard Setting Organization and Bringing Patent Infringement Litigation in China Does Not Support Antirust Action Based on Claim of U.S. Injury

The World in U.S. Courts: Summer 2013 - Antitrust/Competition | May.14.2013

Lotes Co. v. Hon Hai Precision Indus. Co. (U.S. District Court, S.D.N.Y. May 14, 2013)

A district court in New York concluded that a Chinese manufacturer of USB 3.0 connectors that alleged that its competitors failed to license its patents, and that had sued it in China, could not show that the court had subject matter jurisdiction over the case pursuant to the “domestic injury exception” to the Foreign Trade Antitrust Improvement Act (“FTAIA”).

Facts

Plaintiff Lotes Co. (“Lotes”), a Chinese manufacturer of USB 3.0 connectors, supplies those connectors to manufacturers of motherboards in China. The motherboards are sold to original equipment manufacturers in China which manufacture finished computers for name-brand computer manufacturers in China. The computers are then shipped to the U.S. for sale.

A standard-setting organization (“SSO”) called USB Implementers Forum (“USB-IF”) evaluated relevant patent and IP owned by various USB 3.0 connector manufacturers and incorporated some into an industry-wide standard. The defendants, Chinese manufacturers of USB 3.0 connectors that compete with Lotes, contributed technology to the SSO and agreed to license that technology on reasonable and non-discriminatory (“RAND”) terms.

Lotes filed a civil action under U.S. antitrust laws, alleging that it had been injured by the defendants’ refusal to issue RAND licenses and their having brought patent enforcement proceedings in China to prevent Lotes from using their technology. The defendants moved to dismiss.

Analysis

The court dismissed the case, holding that it did not have subject matter jurisdiction under the FTAIA. The Court first found that the FTAIA set up jurisdictional requirements, rejecting authority in other courts of appeals that the FTAIA merely affected the substantive requirements for an action to succeed. Then, it found that Lotes had not alleged conduct that, as required by the FTAIA, had a direct, substantial or reasonably foreseeable effect on commerce in the U.S. In the court’s view, any increase in computer prices or decrease in competition in the U.S. that resulted from the defendants’ foreign conduct was “simply too attenuated to establish the proximate causation required by the FTAIA.” Interestingly, in a footnote, the court stated that even if it had jurisdiction, it would consider dismissing Lotes’s antitrust claims as a matter of international comity.

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