Electronic Newsletter of the

Intellectual Property Committee

ABA Section of Antitrust Law

December 7, 2001

We are now pleased to bring you an update on the Soundview litigation prepared by John S. Martin, a partner with Hunton & Williams's Richmond Virginia office. Jack does a wonderful job of concisely explaining a number of issues that have arisen in the Soundview litigation. Finally, please let me know of any cases or resources that we should include on our standard setting resource list.

In 1996, Congress mandated that all television sets sold after January 2000 contain "V-Chip" technology that would permit the blocking of violent and pornographic programming. This mandate gave rise to a series of patent and antitrust decisions last summer from the District of Connecticut which may be of interest.

Upon passage of the V-Chip mandate, an industry association of television manufacturers -- known as Electronic Industries Alliance or EIA -- began to study patents covering the technology they would have to incorporate. During these meetings, the parties discussed possible terms under which they would license the patents. One of the more important patents belonged to Soundview Technologies, Inc., which was a member of the association but did not overtly participate in the relevant meetings.

Soundview subsequently offered patent licenses to EIA and its members. Instead of purchasing the licenses, however, the EIA and its members filed a declaratory judgment action against Soundview, and Soundview counterclaimed for patent infringement and antitrust violations. EIA and the manufacturers moved for summary judgment and to dismiss the counterclaims, and in June and July 2001 the district court denied each of these motions in three separate opinions. The court held that 1) Soundview had sufficiently pleaded a monopsonistic conspiracy to fix licensing fees, 2) the manufacturers did not receive an implied patent license from the government mandate, and 3) Soundview had sufficiently pleaded inducement by EIA.

After holding that there was no higher pleading standard for antitrust cases, and construing an affidavit from earlier litigation that it held to be part of the pleadings, the Court held that Soundview had alleged a conspiracy by the manufacturers to fix license prices at artificially low levels. Sony Electronics, Inc. v. Soundview Technologies, Inc., 157 F.Supp. 2d 180, 184 and 188 (D. Conn. 2001). The court then discussed the economic theory of a monopsonistic conspiracy by purchasers to drive input prices down, noting that, while it could reduce consumer prices, it could nevertheless harm the competitive marketplace by causing suppliers to exit. Id. at 185. The Court recited caselaw holding that "monopsonistic schemes" involving conspiracy between horizontal competitors "may violate the antitrust laws," id. at 187, and held that "a motion to dismiss is not the appropriate procedural vehicle to decide these complex questions," id. at 185.

The Court also held that dismissal at this stage of the proceedings could not be based on the a Noerr Pennington doctrine, holding that an alleged "conspiracy to pay a maximum price" and "group boycott" went well beyond "mere litigation or joint action to challenge a patent."Id. at 189.

The government had been granted a non-exclusive, royalty-free license to use the relevant patent "with the power to grant licenses for all governmental purposes." Sony Electronics, Inc. v. Soundview Technologies Inc, 157 F.Supp. 2d 172, 176 (D. Conn. 2001). In their motion to dismiss, the manufacturers argued that the decision to require V-Chips in all television sets was a "governmental purpose" and that passage of the V- Chip mandate conferred upon them an implied license. The court first noted that "’judicially implied licenses are rare,’" id. at 175 (quoting Wang Laboratories, Inc. v. Mitsubishi Electronics America, Inc., 103 F.3d 1571, 1581 (Fed. Cir. 1997). The court then rejected this argument on the ground that the V-chip legislation did not mandate use of the specific patented technology at issue; to the contrary, the standards had been set by the industry itself. Id at 176.

The court also rejected the manufacturers’ argument that Soundview’s statements before the FCC indicated it would not enforce its patents and therefore estopped it to enforce them now. The Court found neither sufficiently explicit statements by Soundview nor reliance by the manufacturers. Id. at 178-79.

Soundview also counterclaimed against EIA for inducing its members to infringe the patent. The court rejected EIA’s motion to dismiss, applying liberal notice pleading standards and holding that Soundview had alleged "acts of inducement" in EIA’s patent search, patent analysis, proposal for strategies to avoid royalty demands and other conduct, as well as EIA’s knowledge of the patent at the time it took these actions. Sony Electronics, Inc. v. Soundview Technologies Inc, 157 F.Supp. 2d 190, 196 and 197-98 (D. Conn. 2001).

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Mr. Martin is a partner in the Richmond Virginia Hunton & Williams . He may be reached at (804) 788-8774, jsmartin@hunton.com

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