Context: Earlier this year, Netgear brought a lawsuit against Huawei in the Central District of California, raising a mix of claims ranging from antitrust to contract to racketeering claims over Huawei’s enforcement of WiFi 6 standard-essential patents (SEPs) (February 4, 2024 ip fray article). That one was geopolitically charged and full of unproven conspiracy theories described as if they were facts.
What’s new: On Friday (June 14, 2024), Huawei responded to the complaint through two simultaneously-filed motions: a motion to strike some parts and another to dismiss others. If the motion to dismiss was granted to the full extent, Netgear could still pursue a U.S. case, but the scope would be narrowed: no more antitrust, racketeering, fraud, negligent misrepresentation and promissory estoppel claims under federal or state law. The case would come down to a FRAND contract dispute with a small component under California Unfair Competition Law (UCL).
Direct impact: Given how wild and conjectural the core parts of Netgear’s complaints are, and considering the very high hurdle in the U.S. in general and the Ninth Circuit in particular for antitrust claims surrounding patent enforcement, ip fray would be surprised if Netgear’s complaint survived in full. Also, a discovery stay appears likely, given the likelihood of success of those motions. At this point, Huawei has yet to obtain a patent injunction against Netgear, but that is a question of when, not if, given Huawei’s recent successes that led to settlements with Amazon (March 5, 2024 ip fray article) and AVM (April 15, 2024 ip fray article). The Unified Patent Court’s (UPC) Munich Local Divisionrecently postponed a Huawei v. Netgear SEP trial to the last two days of October.
Wider ramifications: The FRAND contract part, which is not targeted by the motions, poses the risk of Netgear being deemed an unwilling licensee in other jurisdictions.
It is difficult to make sense of Netgear’s “a good offense is the best defense” kind of strategy against Huawei:
- There will almost certainly be one or more injunctions that Huawei can enforce in Europe (and possibly also China, but ip fray does not know about the case schedules there) before any FRAND contract decision will be made by a U.S. court (not even counting appeals). If Netgear sought an antisuit injunction in the U.S., it would be slapped with an anti-antisuit injunction (and an anti-anti-anti-antisuit injunction) in Germany.
- Were Huawei a notorious SEP abuser, one could see why Netgear would want to call them out. But Huawei is also a major implementer of standards (on a far larger scale than Netgear, in fact) and known in the patent licensing community as not being nearly as demanding as various others. Companies like Amazon took a license, and most actually did so without any litigation. Amazon also faced enforcement actions in Germany, defended itself there, and settled. That validates the licensing terms. Looking at the facts and the circumstances, it’s hard to believe that Netgear is being more sophisticated than Amazon in this context.
- If Netgear hopes that the hypothetical possibility of a major U.S. damages verdict (which wouldn’t become final for many years) and inflated litigation costs are going to give the router maker leverage in settlement talks, the flaw in its thinking may be that Huawei is not going to undermine its credibility as a fair, reasonable and particularly non-discriminatory licensor by giving Netgear an advantage over its competitors.
It’s already clear that Huawei is defending vigorously against Netgear’s U.S. complaint. Huawei is being represented by a Susman Godfrey team led by Kalpana Srinivasan and J. Hoke (Trey) Peacock. That’s the opposite of a low-budget defense. It’s what someone does who’s not going to back down and who knows that top-notch litigators are able to defuse that U.S. sideshow despite the geopolitical environment.
Huawei filed not only a motion to dismiss (which was expected; in fact, the antitrust part alone made it a given) but also a motion to strike. Let’s start with the latter because it’s simpler, and also because if the motion to strike succeeds, it becomes (even) harder for Netgear to back up its theories with allegations that satisfy the legal requirements.
1. Motion to strike subtly hints at potential violation of Netgear lawyer’s professional ethics obligations
Here’s the motion to strike:
The motion to strike takes aim at passages on which Netgear relies with respect to its Racketeer Influenced and Corrupt Organizations (RICO) Act claim and its fraud (more specifically, IP misappropriation) claim.
It’s all about Netgear relying on material from other cases: pleadings from other SEP cases and also the United States’ “Third Superseding Indictment” (which is being litigated in the Eastern District of New York, with a trial only in 2026).
As for pleadings from other cases involving non-government entities, it’s about ADVA (a German company), Verizon, Harris/L3Harris and T-Mobile. Those lawsuits were all settled. This means Netgear is not referring to established facts.
The ADVA-related part of the motion raises a potentially serious issue between the lines:
“Netgear may argue that because Netgear’s counsel in this case, Blair Jacobs, was ADVA’s counsel in the ADVA case, it can therefore rely on ADVA’s pre-suit investigation as if it were Netgear’s own. But critically, Netgear does not plead that it relied on information other than what is stated on the face of the ADVA complaint (such as information gleaned from ADVA’s pre-suit investigation). For good reason. All such information may be, and likely is, encumbered with and shielded from disclosure by one or more confidentiality obligations, ethical duties, or privileges (to ADVA and/or others) that Mr. Jacobs cannot unilaterally disregard. See, e.g., Cal. Bus. & Prof. Code § 6068(e)(1); Cal. R. Prof. Conduct 1.6. […]
This essentially reminds Netgear’s counsel of his professional obligations. His work for ADVA must be kept separate from what he’s now doing on Netgear’s behalf. He can’t just bring an allegation based on his subjective and self-serving interpretation of whatever he saw as part of discovery in ADVA.
2. Motion to dismiss: patent-related antitrust claims haven’t succeeded in the U.S. in a long time, and the hurdle for RICO claims is also high
Here’s the motion to dismiss:
Netgear must have had its reasons for choosing the Central District of California (Los Angeles and surroundings; geographically already Southern California), but this means they’re in the Ninth Circuit and that’s one of the appellate circuits in the U.S. (the other one being the Fifth) where there have recently been decisions that don’t bode well for Netgear’s patent-related antitrust claims. The Ninth Circuit overturned the district court in FTC v. Qualcomm all the way, essentially saying (the judges stated it almost like that at the hearing) that if you have a problem with SEPs, you should deal with it under patent law, maybe contract law, but not invoke antitrust law. That is now a far more important SEP-related antitrust decision than Broadcom, which is arguably even irrelevant by now.
For antitrust claims in the U.S. (and in some other fields of law), the “Twiqbal” standard applies: that’s a portmanteau of Twombly and Iqbal. The short version is that the pleadings must make it plausible that the claims will succeed. It’s not just enough to plead something and argue that it hypothetically could succeed.
Huawei says Netgear’s market definition is wrong and its monopolization claim is also lacking and wanting. At this stage, ip fray believes a correct application of Ninth Circuit law makes it very difficult for Netgear to prevail on its antitrust claims, but may discuss it in more detail after Netgear has filed its opposition brief.
Then Huawei tackles the RICO claim, saying it’s about criminal enterprises, not about whether someone maybe breaches a contract by seeking allegedly supra-FRAND royalties. Huawei also disputes that Netgear has RICO standing and that it adequately alleged a pattern of RICO predicate acts. They also say there’s no RICO enterprise here and Netgear hasn’t stated a RICO conspiracy claim.
Speaking in the abstract, RICO is a far more aggressive type of theory than alleging an antitrust violation, and once you essentially get into criminal law, the pleading and evidentiary standards are extremely high. With respect to not only (but also) RICO, Huawei notes that Netgear’s pleadings generally lack particularity, evidenced by the fact hat its complaint refers to “information and belief” 112 different times. Therefore, Huawei says Netgear doesn’t have a fraud claim either.
The list of theories based “on information and belief” that Huawei provides at the end of its complaint in the form of an Appendix A spans 13 pages. It quotes 109 passages from Netgear’s complaint, but some of them contain “on information and belief” more than once, which is why there are 112 occurrences of that term, which is another way of conceding that Netgear can’t really plead its ambitious claims on a sufficiently strong basis.
Without antitrust, RICO and fraud claims under federal law, Huawei’s lawyers argue the state UCL claim fails as well. Now, sometimes courts do find that state UCL has scope for more than federal law (Epic Games v. Apple, where an injunction granted under California UCL is now at the heart of an enforcement dispute, i san example), but it’s unlikely that Netgear could get much mileage out of a state UCL claim here if its federal claims failed.
Finally, Huawei also makes a Noerr-Pennington argument (litigation being off limits for antitrust or RICO claims.