U.S. District Court dismisses antitrust claims on licensing arrangements for SD Cards

On 25 August 2011 the U.S. District Court for the Northern District of California dismissed claims by Samsung that standardization activities and licensing arrangements concerning Secure Digital Memory Cards (”SD Card”) were anti-competitive.

Samsung claimed that Panasonic, SanDisk and Toshiba unlawfully gained monopoly power in the market for SD Card technology by undermining existing open standard-setting efforts and, instead, forming their own group (SD Group) and creating a proprietary standard (SD Card) artificially formulated to be covered by the patent rights of the SD Group’s members. In addition, Samsung claimed that the companies unlawfully maintain and exploit the acquired monopoly power by licensing the essential technologies exclusively through a joint entity (SD-3C LLC) under terms that raise costs of rival producers of SD Cards and reduce their incentives to create alternative SD Card technologies. According to Samsung these agreements do not constitute legitimate standard-setting or patent pooling and violate Sections 1 and 2 of the Sherman Act.

In its decision, the court did not address the antitrust claims in substance, because the court found them to be time-barred. However, the court gave Samsung the opportunity to amend its complaint to state a claim that subsequent acts of Samsung and SD-3C caused new antitrust injury not barred by the statute of limitations.

The court also dismissed Samsung’s claim that charging royalties based on the total price of a finished product constitutes patent misuse as royalties are collected on parts of the cards (memory capacity) not covered by the granted license. The court explained that charging royalties for unlicensed features does not meet the current requirements for patent misuse established by the Federal Circuit and can be distinguished from U.S. Supreme Court case law concerning royalties demanded for unpatented, rather than unlicensed, products. According to the court, charging royalties based on a percentage of the price of a finished product is a widely accepted method of calculating royalties for products that include parts or components covered by other patents or are unpatented. [Juha Vesala]