Apple Inc. v. Qualcomm Incorporated, No. 3:2017cv00108 - Document 737 (S.D. Cal. 2018)
Court Description: ORDER Granting 616 Qualcomm's Motion for Partial Dismissal of Apple's First AmendedComplaint and the CMs' Counterclaims. Signed by Judge Gonzalo P. Curiel on 11/20/18. (dlg)
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Apple Inc. v. Qualcomm Incorporated Doc. 737 Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64529 Page 1 of 16 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA 9 10 IN RE: QUALCOMM LITIGATION Case No.: 3:17-cv-108-GPC-MDD 11 ORDER GRANTING QUALCOMM’S MOTION FOR PARTIAL DISMISSAL OF APPLE’S FIRST AMENDED COMPLAINT AND THE CMS’ COUNTERCLAIMS 12 13 14 15 16 [ECF No. 616] 17 18 19 20 21 22 23 24 25 26 27 28 Before the Court is Qualcomm’s Motion for Partial Dismissal of Apple’s First Amended Complaint and the CMs’ Counterclaims. ECF No. 616. Apple and the CMs have brought 56 claims for declaratory relief relating to nine patents-in-suit. According to Qualcomm, in order to streamline the issues in this ligation, Qualcomm has promised Apple and the CMs that it will not assert those nine patents-in-suit. In light of that promise, Qualcomm moves to dismiss the declaratory judgment claims that depend on the nine patents-in-suit, asserting that the Court does not have subject matter jurisdiction over such claims given that Qualcomm will not enforce those patents against Apple. Apple posits that Qualcomm is just trying to avoid having its patents put to the test. More relevant to this motion, Apple counters that Qualcomm’s promise does not moot claims such as Qualcomm’s contract and tort claims or Apple’s own claims against 1 3:17-cv-108-GPC-MDD Dockets.Justia.com Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64530 Page 2 of 16 1 Qualcomm for its unlawful business practices of seeking and obtaining licensing fees for 2 patents that are unenforceable due to exhaustion. The motion has been fully briefed and 3 the Court heard oral argument on October 26, 2018. Having reviewed the parties’ 4 arguments and applicable law, the Court finds that given the language of the Covenant 5 Not To Sue, Apple and the CMs have not met their burden of demonstrating that the 6 Court continues to maintain subject matter jurisdiction over the declaratory judgment 7 claims for noninfringement, invalidity, unenforceability due to exhaustion and the 8 FRAND rates as set out in the 56 counts. Accordingly, the Court will grant Qualcomm’s 9 motion as to these 56 counts. 10 11 I. BACKGROUND A. 12 Factual Background Qualcomm has entered into licensing agreements, called Subscriber Unit License 13 Agreements or “SULAs,” with each of the Contract Manufacturers (“CMs”). Qualcomm 14 sells baseband chips to the CMs, who build the chips into the Apple products they make 15 and sell to Apple. Pursuant to the SULAs, the CMs are required to pay upfront licensing 16 fees and also royalties to Qualcomm. Apple previously had provided the CMs with the 17 funds to pay for the entirety of the cost of the chipset and the royalties for Apple 18 products. Qualcomm claims that in 2017, Apple told the CMs that it would not make any 19 more royalty payments and that Apple instructed the CMs to withhold from Qualcomm 20 the royalties. Qualcomm Second Amended Counterclaims (“SACC”), ECF No. 469. 21 B. 22 Procedural History Qualcomm has brought breach of contract claims against the CMs, alleging that the 23 CMs breached the licensing agreements by failing to pay royalties, failing to cooperate 24 with Qualcomm’s royalty audits, and manipulating the sales information for the products 25 they sell. Qualcomm Compl., 3:17-cv-01010, ECF No. 1. Qualcomm also brought 26 claims against Apple arising from the SULAs. In Count I of Qualcomm’s SACC, 27 Qualcomm brings a claim for tortious interference with Qualcomm’s license agreements 28 with the CMs. SACC, ECF No. 469 at 145. Qualcomm claims that Apple has interfered 2 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64531 Page 3 of 16 1 with the SULAs by inducing the CMs not to pay the royalties due under the license 2 agreements. Id. at 146. Qualcomm further alleges that Apple obstructed Qualcomm’s 3 right to audit the CMs and directed the CMs to misstate the sales information of the 4 devices sold to Apple. Id. ¶¶ 291, 294. 5 Apple has also brought a bevy of claims against Qualcomm based upon contract 6 law, patent law, and the UCL. Count LIX of Apple’s First Amended Complaint (“FAC”) 7 seeks a declaration of unenforceability of the patents-in-suit due to exhaustion. Apple 8 FAC, ECF No. 83 at 134. Apple claims that Qualcomm’s sale of chipsets to the CMs 9 exhausts Qualcomm’s “patent rights” with respect to all patents substantially embodied in 10 Qualcomm chipsets. Id. Apple contends there exists a controversy 11 regarding the exhaustion of Qualcomm’s patent rights with respect to patents substantially embodied in baseband processor chipsets sold by Qualcomm to Apple’s CMs. .... To the extent that any of the Patents-in-Suit are actually essential to any Apple-practiced 3G/UMTS and/or 4G/LTE standard and infringed by Apple, such patents are substantially embodied in the Qualcomm baseband processor chipsets used in Apple products and, therefore, exhausted by Qualcomm’s authorized sales. . . . Apple requests a judicial declaration that the sale of Qualcomm’s baseband processor chipsets to Apple’s CMs exhausts Qualcomm’s patent rights for patents substantially embodied in those chipsets, and that any of the Patents-in-Suit, which are actually essential to any Apple-practiced 3G/UMTS and/or 4G/LTE standard and infringed by Apple, are unenforceable as against Apple due to patent exhaustion. 12 13 14 15 16 17 18 19 20 21 22 23 24 Id. ¶¶ 590-92. Apple requests a declaration that Apple does not infringe and has not infringed any claim of the nine patents-in-suit.1 Apple also requests a declaration that the nine patents- 25 26 27 28 1 Apple FAC Counts V, VIII, XI, XIV, XVII, XX, XXIII, XXVI, XXIX. 3 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64532 Page 4 of 16 1 in-suit are invalid.234 Citing California Civil Code sections 1598-99, Count LXI of 2 Apple’s FAC seeks a declaration that the SULAs are unenforceable as against public 3 policy to the extent the agreements seek license fees on exhausted patents. Apple FAC at 4 141. Count LXIII advances a claim for violation of California Unfair Competition Law 5 (“UCL”). Id. at 153. Apple alleges that Qualcomm violated the UCL and engaged in 6 unlawful conduct by “seeking and obtaining license fees . . . for patents that are 7 unenforceable due to exhaustion.” Id. at 154. 8 9 On September 14, 2018, Qualcomm executed a covenant-not-to-sue (“Covenant”) with regard to the nine patents-in-suit. ECF No. 616-3. This Covenant states: 10 Qualcomm, for and on behalf of itself, its subsidiaries, divisions, and affiliates, as well as any of their predecessors, successors, assigns, directors, officers, employees, agents, distributors, attorneys, and representatives, hereby unconditionally and irrevocably covenants to refrain from making any claim(s) or demand(s) against Apple or the CMs or any of their parents, subsidiaries, divisions, and affiliates, as well as any of their predecessors, successors, assigns, directors, officers, employees, agents, distributors, attorneys, and representatives (collectively, “the Plaintiffs”), and all customers of each of the foregoing (whether direct or indirect), based on any possible cause of action arising under the patent laws of the United States, relating to any claim of the Patents-in-Suit, with respect to any product made, used, sold, offered for sale, or imported by the Plaintiffs, regardless of whether the products are made, used, sold, offered for sale, or imported before, on, or after the Effective Date of this Covenant. 11 12 13 14 15 16 17 18 19 20 Id. 21 22 23 24 25 26 27 28 2 Apple FAC Counts VI, IX, XII, XV, XVIII, XXI, XXIV, XXVII, XXX. The CMs also brought the same claims for declaratory relief for exhaustion, invalidity, and noninfringment. 3:17cv1010, ECF No. 88. For conciseness purposes, the Court will only refer to Apple’s claims, as Apple and the CMs claims are the same in substance. 4 Apple and the CMs also requested a declaration of FRAND royalties for the nine patents-in-suit. Qualcomm moved to dismiss these declaratory judgment claims, and Apple and the CMs do not oppose dismissal of such claims. The Court will dismiss Counts VII, X, XIII, XVI, XIX, XXII, XXV, XXVIII, and XXXI of Apple’s FAC, and Counts XV, XVIII, XXI, XXIV, XXVII, XXX, XXXIII, XXVI, XXXIX of the CMs counterclaims, 3:17cv1010, ECF No. 88. 3 4 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64533 Page 5 of 16 1 Qualcomm now moves pursuant to Federal Rule of Civil Procedure 12(b)(1) to 2 dismiss all of Apple’s declaratory judgment claims for non-infringement, invalidity, and 3 exhaustion. Qualcomm asserts that the Covenant eliminates the possibility that 4 Qualcomm will enforce the patents against Apple of the CMs, therefore divesting the 5 Court of subject matter jurisdiction over these declaratory relief claims. 6 7 II. DISCUSSION A. Legal Standard 8 1. 9 “It is a fundamental principle that federal courts are courts of limited jurisdiction.” Motions to Dismiss for Lack of Subject Matter Jurisdiction 10 Stock W., Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 11 (9th Cir. 1989) (quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 12 (1978)). Under Federal Rule of Civil Procedure 12(b)(1), a party can move a court to 13 dismiss an action for lack of subject matter jurisdiction. In such a motion, the party 14 asserting jurisdiction bears the burden to establish jurisdiction. See Kokkonen v. 15 Guardian Life Ins. Co. of America, 511 U.S. 375 (1994) (“It is to be presumed that a 16 cause lies outside [federal court] jurisdiction . . . and the burden of establishing the 17 contrary rests upon the party asserting jurisdiction.”) (internal citations omitted). On a 18 motion to dismiss for lack of subject matter jurisdiction pursuant to 12(b)(1), “the district 19 court is not restricted to the face of the pleadings, but may review any evidence, such as 20 affidavits and testimony, to resolve factual disputes concerning the existence of 21 jurisdiction” without converting the motion into one for summary judgment. McCarthy 22 v. United States, 850 F.2d 558, 560 (9th Cir. 1988). 23 2. 24 The Declaratory Judgment Act provides that “[i]n a case of actual controversy Declaratory Judgment Jurisdiction 25 within its jurisdiction . . . any court of the United States, upon the filing of an appropriate 26 pleading, may declare the rights and other legal relations of any interested party seeking 27 such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 28 2201(a). The plaintiff seeking the declaratory judgment bears the burden of showing the 5 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64534 Page 6 of 16 1 existence of an “actual controversy” sufficient to confer Article III jurisdiction. Organic 2 Seed Growers & Trade Ass’n v. Monsanto Co., 718 F.3d 1350, 1354 (Fed. Cir. 2013). 3 An actual controversy must be present at all times in the litigation. Preiser v. Newkirk, 4 422 U.S. 395, 401 (1975). 5 To determine whether there is declaratory judgment jurisdiction, the Court assesses 6 whether “the facts alleged, under all the circumstances, show that there is a substantial 7 controversy, between parties having adverse legal interests, of sufficient immediacy and 8 reality to warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. 9 Genentech, Inc., 549 U.S. 118, 127 (2007). A litigant may not use a declaratory 10 judgment action to “obtain piecemeal adjudication of defenses that would not finally and 11 conclusively resolve the underlying controversy.” Id. at 128 n.7 (citing Calderon v. 12 Ashmus, 523 U.S. 740, 749 (1998)). Further, for a declaratory judgment action to satisfy 13 the case or controversy requirement, the dispute must “admi[t] of specific relief through a 14 degree of a conclusive character.” Id. at 127 (citing Aetna Life Ins. Co. v. Haworth, 300 15 U.S. 227 (1937)). 16 B. Analysis 17 Qualcomm contends that its Covenant moots: 1) Apple’s claim for declaratory 18 relief regarding exhaustion; 2) Apple’s claim for a declaratory judgment that the nine 19 patents-in-suit are invalid; and 3) Apple’s claim for a declaratory judgment that it does 20 not infringe on the nine patents-in-suit. “A patentee defending against an action for a 21 declaratory judgment of invalidity and unenforceability can divest the trial court of 22 jurisdiction over the case by filing a covenant not to assert the patent at issue against the 23 putative infringer with respect to any of its past, present or future acts.” Spicy Beer Mix, 24 Inc. v. New Castle Beverage, No. CV 14-00720 SJO JEMX, 2014 WL 7672167, at *5 25 (C.D. Cal. Aug. 1, 2014) (citing Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 26 F.3d 1054, 1058 (Fed. Cir. 1995), overruled on other grounds, MedImmune, 549 U.S. 27 118. “However, a covenant not to sue does not always divest the trial court of 28 jurisdiction over the case.” Enplas Display Device Corp. v. Seoul Semiconductor Co., 6 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64535 Page 7 of 16 1 Ltd., No. 13-CV-05038 NC, 2015 WL 7874323, at *3 (N.D. Cal. Dec. 3, 2015). 2 “Whether a covenant not to sue will divest the trial court of jurisdiction depends on what 3 is covered by the covenant.” Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 4 1294, 1297 (Fed. Cir. 2009). 5 Apple responds that the Covenant is “narrow” and “carefully worded.” Apple 6 correctly notes that the Covenant prevents Qualcomm from suing for relief “under the 7 patent laws.” The Covenant therefore does not necessarily moot claims brought under 8 other areas of law. According to Apple, the Covenant does not prevent Qualcomm from 9 making claims about these patents to support Qualcomm’s demand for royalties under the 10 license agreements and from using the patents to demonstrate the value of Qualcomm’s 11 patent portfolio. Apple thus maintains that the issues of exhaustion, invalidity, and 12 noninfringement are still live controversies in this case. 13 1. 14 As a threshold issue to Apple’s exhaustion claim, there seems to be a dispute 15 amongst the parties as to what patents are encompassed by this claim. Apple’s position is 16 that its exhaustion claim seeks a declaration regarding the nine patents-in-suit and 93 17 standard essential patents (“SEPs”) that Qualcomm has disclosed in this litigation. 18 Qualcomm served opening technical expert reports opining that 93 specifically identified 19 patents are essential to 3G, 4G, and 5G standards. Apple’s Chart of Qualcomm’s 20 Opening Expert Reports, ECF No. 553-10. 21 Apple’s Declaratory Judgment Claim for Exhaustion On the other hand, Qualcomm contends that the exhaustion claim is limited to the 22 nine patents-in-suit. Qualcomm further alleges that to the extent the declaratory relief 23 claim “addressed that broad, unspecified set of patents, the claims would plainly be 24 nonjusticiable.” Reply, ECF No. 673 at 9. The Court does not find Qualcomm’s 25 argument persuasive. Apple’s position is that it seeks declaratory relief for a specific set 26 of patents: the nine patent-in-suit and the 93 SEPs that Qualcomm has specifically 27 identified. 28 7 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64536 Page 8 of 16 1 For that reason, Broadcom Corp. v. Qualcomm, Inc., No. 08cv1829 WQH(LSP) 2 2009 WL 684835 (S.D. Cal. Mar. 12, 2009), is distinguishable. In that case, Broadcom’s 3 complaint sought a judicial declaration that “the patents that are or have been 4 substantially embodied by Qualcomm chipsets and/or substantially embodied by SULA- 5 licensed handsets” are unenforceable. Id. at *2. The Court noted that the grounds for 6 declaratory relief was premised on the court finding that Qualcomm patents “have been 7 substantially embodied by the chipsets that Qualcomm sells,” however, Broadcom did 8 not “identify with any specificity the patents which it requests that the Court declare 9 exhausted.” Id. at *6. Here, however, Apple has identified 93 specific patents, and seeks 10 a declaration that Qualcomm’s sale exhausts “Qualcomm’s patents rights for” those 93 11 patents. The Court will therefore consider Apple’s claim for declaratory relief of 12 exhaustion as to seeking a declaration for the nine patents-in-suit and the 93 SEPs. 13 a. 14 Patent Exhaustion “The longstanding doctrine of patent exhaustion provides that the initial authorized 15 sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. 16 v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). “Patent exhaustion is an affirmative defense 17 to a claim of patent infringement.” Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370, 18 1373 (Fed. Cir. 2013). But it is “not a cause of action.” ExcelStor Tech., Inc. v. Papst 19 Licensing GMBH & Co. KG, 541 F.3d 1373, 1376 (Fed. Cir. 2008). Qualcomm therefore 20 contends that because it has covenanted not to sue Apple for patent infringement of the 21 nine patents-in-suit, Apple’s exhaustion declaratory judgment claim is moot. Apple 22 disagrees. Apple responds that the Covenant does not change the fact that numerous 23 disputes – the value of Qualcomm’s portfolio, whether the SULAs are enforceable, and 24 whether Qualcomm violates UCL – still depend on a finding of exhaustion.5 25 26 27 28 5 Qualcomm’s counsel stated at the hearing on the motion that “[e]xhaustion will absolutely, undoubtedly, be part of this trial.” Hr’g Tr., ECF No. 718 at 33. 8 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64537 Page 9 of 16 1 b. Enforceability of the SULAs 2 Apple posits that Qualcomm has brought claims against Apple and the CMs that 3 depend on the threshold issue of whether the SULAs, which include the patents-in-suit, 4 are enforceable. And Apple further contends that the SULAs are unenforceable because 5 the patents are exhausted; therefore, a controversy remains as to whether these patents are 6 exhausted. 7 The claims Apple refers to are Qualcomm’s breach of contract claims against the 8 CMs for failing to pay royalties and the tortious interference claim against Apple for 9 inducing the CMs to stop paying royalties. As a defense to these claims, Apple counters 10 that the SULAs are unenforceable because the patents are exhausted. Apple Answer, 11 ECF No. 84 at 17th defense. Apple contends that Qualcomm’s sales of chipsets to the 12 CMs exhausts Qualcomm’s patent rights with respect to all patents that are substantially 13 embodied in Qualcomm’s chipsets. Apple Opp., ECF No 644 at 13. Apple takes the 14 position that it and the CMs should not owe any license fee on exhausted patents because, 15 under the doctrine of exhaustion, Qualcomm is entitled to receive only one reward for the 16 patents – either the sale of chipsets or the licensing royalty. Id. at 14. 17 Because Qualcomm’s SULAs demand both, so the argument goes, the SULAs are 18 unenforceable against the CMs, and Qualcomm’s breach of contract claims against the 19 CMs fail. Furthermore, Apple contends that it cannot be liable to tortious interference of 20 contract because the contract is unenforceable. Apple has taken this argument even one 21 step further and seeks restitution for the money it paid pursuant to the CMs’ license 22 agreements for patents that were purportedly exhausted. Apple FAC, ECF No. 83 at 141- 23 42. 24 In support of its position, Apple points to Impression Products, Inc. v. Lexmark 25 International, Inc., 137 S. Ct. 1523 (2017). But a careful examination of what Lexmark 26 held (and did not hold) reveals that Lexmark is of no help to Apple here. In that case, 27 Lexmark designed, manufactured, and sold ink toner cartridges, and owned patents that 28 covered these cartridges. Id. at 1529. Lexmark created a “Return Program” through 9 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64538 Page 10 of 16 1 which customers could purchase a cartridge at a lower price. Id. at 1530. In exchange 2 for the discount, the customer was required to sign a contract, or “single-use/no-resale 3 restriction,” agreeing to use the cartridge only once and to refrain from transferring the 4 empty cartridge to anyone but Lexmark. Id. Lexmark installed a microchip on each 5 Return Program cartridge that prevented reuse once the toner ran out. Id. However, 6 remanufacturers acquired Return Program cartridges and developed ways to get around 7 the planted microchips. Id. 8 9 Lexmark then sued one such remanufacturer, Impression Products, “for patent infringement.” Id. Lexmark claimed that Impression Products “infringed the Lexmark 10 patents when they refurbished and resold them.” Id. Impression Products countered that 11 Lexmark’s sales exhausted its patent rights in the cartridges. Id. The Supreme Court 12 agreed, concluding that “Lexmark exhausted its patent rights in theses cartridges the 13 moment it sold them.” Id. at 1531. The Court made sure to clarify, on the other hand, 14 that “[t]he single-use/no-resale restrictions in Lexmark’s contracts with customers may 15 have been clear and enforceable under contract law.” Id. (emphasis added). Lexmark 16 could not bring its “patent infringement suit against Impression Products to enforce the 17 single-use/no-resale provision accompanying its Return Program cartridges,” but rather, 18 “whatever rights Lexmark retained” in the sold Return Program “are a matter of the 19 contracts with its purchasers, not the patent law.” Id. at 1533. 20 Lexmark thus makes clear that sales exhausts patent rights, which is distinct and 21 not dispositive of contract rights. Lexmark brought a patent infringement claim against 22 Impression Products, with whom Lexmark had not contracted. This case is much 23 different. As Apple’s pleadings make abundantly clear, Qualcomm’s SULAs with the 24 CMs “require [the CMs] to pay upfront licensing fees and quarterly royalty payments.” 25 Apple Opp., ECF No. 644 at 3. These are contract terms. Qualcomm’s breach of 26 contract claim against the CMs, which Qualcomm contracted with, for nonpayment of the 27 royalties is just that: a claim based on contract terms and contract law and not based on 28 patent infringement. See Kenall Mfg. Co. v. Cooper Lighting, LLC, No. 17 C 4575, 2018 10 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64539 Page 11 of 16 1 WL 3046935, at *5 (N.D. Ill. June 20, 2018) (“Kenall alleges that Cooper has failed to 2 make . . . royalty payments required by the License Agreement. . . . Cooper’s obligation 3 to pay certain sums as royalties at particular times is a creature of contract. . . so Kenall’s 4 remedy for nonpayment is in a breach of contract action, not a patent infringement suit.”). 5 Those contract terms also provide the foundation for Qualcomm’s tortious interference 6 claim against Apple. Under Lexmark, Qualcomm’s patent rights are not determinative of 7 Qualcomm’s contract rights. Apple has not demonstrated that a declaration that 8 Qualcomm’s “patent rights” were exhausted would finally and conclusively resolve 9 Qualcomm’s contract claims. 10 Notwithstanding the clarification in Lexmark, Apple invokes exhaustion to 11 advance other legal theories. In Count LXI of its FAC, Apple contends that under 12 California Civil Code sections 1598-99, the licensing agreements are unenforceable as 13 against public policy to the extent they seek license fees on exhausted patents. FAC at 14 141. Count LXIII of the FAC claims Qualcomm violates California UCL. FAC at 153. 15 Apple claims that Qualcomm engaged in unlawful conduct by seeking license fees for 16 patents that are unenforceable due to exhaustion. Id. at 154. 17 The Court is mindful that Apple, as “the party seeking to invoke the jurisdiction of 18 the federal court” for its declaratory relief claim, “has the burden of establishing that 19 jurisdiction exists.” Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1285 (9th 20 Cir. 1977). Apple has not shown that declaratory relief as to exhaustion would finally 21 and conclusively resolve the underlying controversy as to whether Qualcomm can 22 enforce its licensing agreements. 23 In AbbVie Inc. v. MedImmune Ltd., the parties were engaged in a licensing 24 agreement governed by British law. 881 F.3d 1334, 1335 (Fed. Cir. 2018). This 25 agreement was entered into in 1995, and licensed AbbVie to practice patents, including a 26 ‘516 patent. Id. The agreement required AbbVie to pay royalties until the last patent 27 expired, or until fifteen years after the first commercial sale, whichever is later. Id. 28 AbbVie wanted to end its royalty obligations, so it sought a declaratory judgment that the 11 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64540 Page 12 of 16 1 ‘516 patent was invalid. AbbVie argued that a declaration of the patent’s invalidity 2 would constitute its expiration for the purposes of the agreement, thus making the royalty 3 obligations expire sooner. Id. MedImmune argued that the district court lacked 4 jurisdiction, and the trial court agreed. Id. The Federal Circuit affirmed: 5 6 7 8 9 The 1995 agreement, which is governed by British law, pegs the end of AbbVie’s payments to the expiration of the ‘516 patent. It is an open question whether British courts would consider the invalidation of a patent to be tantamount to its expiration for purposes of this agreement. Without a resolution to this question, the parties’ contractual dispute would persist. Id. at 1338. 10 The same logic applies here. It is an open question whether California courts 11 would consider a contract unenforceable as against public policy or against UCL because 12 the contract calls for payment of royalties for exhausted patents. Without a resolution to 13 that issue, Qualcomm’s breach of contract claims (and Apple’s enforceability defenses to 14 such claims) would persist, even if it was declared that the patents were exhausted. 15 Assume for illustrative purposes that the Court were to enter a declaratory judgment that 16 the patents have been exhausted. That would only be one step in the process of getting to 17 the final conclusion that the SULAs are unenforceable under California law. Apple 18 would still have to show more under the facts and law to resolve the underlying 19 controversy whether the CMs are obligated to pay royalties to Qualcomm. That, by 20 definition, is piecemeal adjudication of defenses. 21 Apple has provided nothing to the Court in its opposition to demonstrate otherwise. 22 Apple repeatedly maintains in its opposition that the exhaustion issue is “relevant” to 23 other claims. But the test for declaratory judgment jurisdiction is not whether the 24 requested declaratory relief is relevant to another legal issue, but whether the declaration 25 would be of “conclusive character.” In fact, Apple seems to concede that the declaratory 26 relief for exhaustion would only result in piecemeal adjudication of its public policy and 27 28 12 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64541 Page 13 of 16 1 UCL claims. 6 Apple asserts that if the Court “holds that Qualcomm’s patent rights are 2 exhausted, then an important predicate will be established for” Counts LXI and LXIII of 3 Apple’s FAC. Apple Reply to MSJ, ECF No. 670 at 9. In other words, only part of these 4 claims will be established, but there will not be a final and conclusive resolution. Apple 5 has not shown that a declaratory relief on the exhaustion of the patents would finally and 6 conclusive resolve whether Qualcomm can enforce the SULAs. 7 c. FRAND 8 Apple asserts that Qualcomm’s requests for declarations that Qualcomm complied 9 with its FRAND obligations implicate exhaustion. Count II of Qualcomm’s SACC seeks 10 a declaration that the SULAs do not violate FRAND, and Count IV seeks a declaration 11 that Qualcomm’s offer to Apple was FRAND. Apple contends that Qualcomm relies on 12 the value of its portfolio to support Qualcomm’s argument that the SULAs and offers to 13 Apple were FRAND. According to Apple, declaratory relief as to exhaustion is still 14 relevant to the dispute over whether Qualcomm has satisfied its FRAND commitments 15 because if these patents are exhausted, then Qualcomm cannot use them to show the 16 purported value of its patent portfolio.7 17 As Apple makes clear in its opposition, both the SULAs and Qualcomm’s offer to 18 Apple are “portfolio-driven.” Apple Opp., ECF No. 644 at 5; see also id. at 4 (“SULAs 19 require payment for entire portfolios”); id. at 5 (“Qualcomm insisted on negotiating a 20 license for all of its cellular SEPs together.”). And this portfolio consists of tens of 21 thousands of patents. Apple has not alleged, let alone shown, that declaring the nine 22 23 24 6 25 26 27 28 With respect to Apple’s UCL claim, Apple’s counsel stated at the hearing on the motion: “If we were able to prove [exhaustion], I think the rest of the proof under the UCL claim is pretty straightforward, but we would still have to go through whatever elements exist.” Hr’g, Tr., ECF No. 718 at 21 (emphasis added). 7 To the extent Apple attempts to bootstrap subject matter jurisdiction for its declaratory judgment claims to Qualcomm’s FRAND declaratory judgment claims, the Court will note that Apple has taken the position that the Court lacks subject matter jurisdiction over Qualcomm’s FRAND claim with respect to the offer to Apple. Apple Mot. For Partial Judgment on the Pleadings, ECF No. 593-1 at 2. 13 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64542 Page 14 of 16 1 patents-in-suit and 93 SEPs as exhausted would have any material effect on the value of 2 that large portfolio. In other words, Apple has not shown that a declaration that a 3 miniscule fraction of Qualcomm’s portfolio is exhausted would finally and conclusively 4 resolve the underlying controversy “given the limited number of patents at issue in 5 comparison with the larger portfolio of thousands of patents that are licensed under the 6 agreement.” Order, ECF No. 167 at 44. Apple has not demonstrated the Court has 7 subject matter jurisdiction over its claim for a declaratory judgment of exhaustion. This 8 claim will be dismissed. 9 10 2. Apple’s Declaratory Judgment Claim for Invalidity of the Nine Patents in Suit 11 Apple argues that the claims for a declaratory judgment that the nine patents-in- 12 suit are invalid still remain a live controversy. Apple alleges that Qualcomm’s SULAs 13 with the CMs seek royalties for invalid patents, and that no such royalty is owed for these 14 invalid patents. Looking to the language of the SULAs, this Court has already found that 15 “the amount of royalties that the CMs owe to Qualcomm are not dependent on whether 16 the Additional Patents-in-Suit are valid or infringed.” Order, ECF No. 167 at 41. The 17 Court thus concluded that “[b]ecause the royalty rates in the SULA are not contingent on 18 patent invalidity or noninfringment, there is no case or controversy because any 19 declaration of the Nine Additional Patents-in-Suit would not conclusively resolve the 20 dispute regarding royalties owed to Qualcomm.” Id. at 44. 21 The Court sees no reason to depart from its previous ruling. The royalties the CMs 22 owe to Qualcomm based on the SULAs are not dependent on whether the patents-in-suit 23 are valid or not. For that reason, Apple’s reliance on Esoterix is misplaced, because the 24 obligation to pay royalties under the license agreement in that case “depend[ed] on 25 whether the underlying patents are valid or invalid.” Esoterix Genetic Labs. LLC v. 26 Qiagen Inc., No. 14-cv-13228-ADB, 2016 WL 4555613, at *5 (D. Mass. Aug. 31, 2016). 27 Such is not the situation here. Apple’s argument that the CMs would not owe a royalty 28 for invalid patents is unpersuasive. 14 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64543 Page 15 of 16 1 Apple also argues that the validity of the patents-in-suit remains a live controversy 2 because it is relevant to Qualcomm’s intention to rely of the alleged value of its portfolio 3 to support Qualcomm’s position that the SULAs and its offers to Apple were FRAND. 4 But similar to as discussed above, a finding of invalidity of the nine patents-in-suit would 5 not affect the legal relationship between the parties, “given the limited number of patents 6 at issue in comparison with the larger portfolio of thousands of patents that are licensed 7 under the agreement.” Order, ECF No. 167 at 44. Apple does not allege, nor has shown, 8 that a finding of invalidity of the nine patents-in-suit would have any material bearing on 9 whether Qualcomm satisfied its FRAND commitments with respect to its licensing 10 agreements and offer to Apple. Apple has not met its burden of demonstrating subject 11 matter jurisdiction for the claims for a declaratory judgment that the nine patents-in-suit 12 are invalid. These claims will be dismissed without prejudice for lack of subject matter 13 jurisdiction. 14 3. 15 Finally, Apple contends that Qualcomm’s Covenant does not moot Apple’s claim Apple’s Declaratory Judgment Claim for Noninfringement 16 for a declaratory judgment that it does not infringe the nine patents-in-suit. Apple argues 17 that infringement is relevant to whether Qualcomm’s SULAs and offer to Apple was 18 FRAND. Apple explains that Qualcomm alleges that Apple and the CMs require a 19 license to the patents, and Qualcomm uses that allegation to support its position on the 20 value of its portfolio, which then supports its argument that the SULAs and offer to 21 Apple was FRAND. As discussed above, similar to how Apple has failed to meet its 22 burden regarding exhaustion and invalidity, Apple has not demonstrated that a 23 declaration that Apple does not infringe on the nine patent-in-suit would conclusively 24 resolve whether Qualcomm’s offer of its entire portfolio is FRAND. Apple therefore has 25 not demonstrated that the Court has subject matter jurisdiction of these claims, and these 26 claims will be dismissed. 27 28 III. CONCLUSION For the foregoing reasons, the Court orders that: 15 3:17-cv-108-GPC-MDD Case 3:17-cv-00108-GPC-MDD Document 737 Filed 11/20/18 PageID.64544 Page 16 of 16 1 1. 2 3 Qualcomm’s Motion for Partial Dismissal of Apple’s First Amended Complaint and the CMs’ Counterclaims is GRANTED; 2. Counts V-XXXI and LIX of Apple’s First Amended Complaint are 4 DISMISSED WITHOUT PREJUDICE for lack of subject matter 5 jurisdiction; and 6 3. Counts XIII-XXXIX and LXVII of the Contract Manufacturers’ 7 Counterclaims, ECF No. 3:17-cv-01010, are DISMISSED WITHOUT 8 PREJUDICE for lack of subject matter jurisdiction. 9 10 IT IS SO ORDERED. Dated: November 20, 2018 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 3:17-cv-108-GPC-MDD
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