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U.S. District Court Grants a Preliminary Injunction Allowing Data Harvesting on LinkedIn’s Public Profiles

By Valerio Cosimo Romano

On 14 August 2017, the U.S. District Court for the Northern District of California (“Court”) granted a motion for a preliminary injunction against the professional social networking site LinkedIn (“Defendant”), enjoining the company from preventing access, copying, and use of public profiles on LinkedIn’s website and from blocking access to such member public profiles.

 

Background

HiQ Labs (“Plaintiff”) is a company which sells information to its clients about their workforces. This information is gathered by analyzing data collected on LinkedIn users’ publicly available profiles, which are automatically harvested by Plaintiff. HiQ is entirely dependent from LinkedIn’s data.

Plaintiff resorted to this legal action after Defendant attempted to terminate the Plaintiff’s ability to access the publicly available information on profiles of Linkedin users (after years of apparently tolerating hiQ’s access and use of its data). Plaintiff contends that Defendant’s actions constitute unfair business practices, common law tort and contractual liability, as well as a violation of free speech under the California Constitution.

 

Irreparable harm and the balance of hardships

First, the Court evaluated the existence of a potential irreparable harm for the parties. The Court concluded that, without temporary relief, hiQ would go out of business and that LinkedIn does not have a strong interest to keep the privacy of its users, who made their respective profiles publicly available on purpose. Therefore, the court recognized that the balance of hardships weighs in hiQ’s favor.

 

Likeliness to prevail on the merits

The Court went on to establish the parties’ respective likeness to prevail on the merits. It considered four claims.

 

Computer Fraud and Abuse Act (“CFAA”)

LinkedIn argued that all of hiQ’s claims failed because hiQ’s unauthorized access to LinkedIn violates the CFAA. The CFAA establishes civil and criminal liability for any person who intentionally accesses a computer without authorization or exceeds authorized access and thereby obtains information from any protected computer. Defendant explicitly revoked the Plaintiff’s permission to acquire data on its systems. According to Defendant, the CFAA is violated when permission has been explicitly revoked by the data’s provider. Plaintiff contended that applying the CFAA to the access of public websites would expand its scope well beyond what was intended by the Congress at the time it enacted the statute since, under Defendant’s interpretation, the CFAA would not leave any room for the consideration of either a website owner’s reasons for denying authorization or an individual’s possible justification for ignoring such a denial.

The Court sided with hiQ, asserting that the CFAA is not intended to police traffic to publicly available websites. According to the Court, a broad reading of the Act would set aside the legal evolution of the balance between open access to information and privacy. Given that the CFAA was enacted well before the advent of the internet, the Court refused to interpret the statute in that manner. The Court further clarified that this does not impair the possibility for a website to employ measures aimed at preventing harmful intrusions or attacks on its servers.

 

California Constitution

According to Plaintiff, LinkedIn also violated California’s constitutional provisions on free speech, which confer broader rights than those provided by the First Amendment. In Pruneyard Shopping Center v. Robbins, the California Supreme Court held that the state free speech right prohibited private owners from excluding people from their property when their property is an arena where constitutionally valuable actions take place, like engaging in political speech or sharing fundamental parts of a community’s life. The internet, hiQ contends, can be therefore interpreted as a “public space”, and thus be subject to such doctrine.

However, The Court found that no court had expressly extended Pruneyard to the internet. Thus, it concluded that no serious question had actually been raised with regard to constitutional rights under the California Constitution.

 

Unfair competition law

HiQ also argued that Defendant’s actions had the anticompetitive purpose of monetizing the data with LinkedIn’s competing product and that this conduct amounted to unfair competition under California’s unfair competition law, which broadly prohibits “unlawful, unfair or fraudulent” practices, including those practices that do not explicitly violate antitrust laws, but threaten the spirit of such laws.

According to Plaintiff, Linkedin is violating the spirit of antitrust laws in two ways: first, it is leveraging its power in the professional networking market to secure advantage in the data analytics market. Secondly, it is violating the essential facilities doctrine, which precludes a monopolist or attempted monopolist from denying access to a facility it controls that is essential to its competitors, by precluding them to enter the market.

The Court concluded that Plaintiff had presented some evidence supporting its assertions, but also remarked that during the proceedings LinkedIn may well be able to prove that its actions were not motivated by anticompetitive purposes.

 

Promissory estoppel

The Court did not recognize any basis for a further common law promissory estoppel claim based on an alleged promise made by Defendant to make the data as public as possible and even available to third parties.

According to the court, there was no proof of such a promise and Plaintiff did not cite any authority applying promissory estoppel made to someone other than the party asserting that claim.

 

Public Interest

Lastly, the Court considered the public interest. Plaintiff argued that a private party should not have the unilateral authority to restrict other private parties from accessing information that is otherwise available freely to all. Defendant, in contrast, argued that if the users knew that this data was freely available to unrestricted collection and analysis by third parties for any purposes, they would be far less likely to make the information available online.

The Court concluded that granting blanket authority to platform owners to block access to information publicly available on their websites may pose a serious threat to the free and fair flow of information on the Internet and that the questions related to antitrust enforcement leaned further in favor of granting the motion for the preliminary injunction.

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ECJ Rules on Excessive Licensing Fees for Copyrights

By Martin Miernicki

On 14 September 2017 the Court of Justice of the European Union (“ECJ”) handed down its decision in AKKA/LAA v. Konkurences padome (C-177/16). The case originated in a fine imposed on the Latvian collective management organization (CMO) AKKA/LAA – which possesses a legal monopoly in Latvia – by the national competition authority. The authority asserted that the CMO had abused its dominant position by charging excessively high license rates. In the following, the Latvian Supreme Court made a reference for a preliminary ruling, asking the ECJ, inter alia,[1]

  1. whether it is appropriate to compare the rates charged by a national CMO to those rates charged by CMOs in neighboring and other member states, adjusted in accordance with the purchasing power parity index (PPP index);
  2. whether that comparison must be made for each segment of users or the average level of fees;
  3. above which threshold the differences between the compared fees indicate abusive conduct; and
  4. how a CMO can demonstrate that its license fees are not excessive.

 

Background

Article 102(a) of the TFEU declares the imposition of “unfair purchase or selling prices” as an abuse of a dominant position. The seminal case for the interpretation of this provision is United Brands v. Commission (case 27/76). Furthermore, the ECJ has repeatedly been asked to gives its opinion on this matter in the context of copyright management services. Relevant case law includes Ministère public v. Tournier (case 395/87), Kanal 5 v. STIM (C-52/07) and OSA v. Léčebné lázně Mariánské Lázně (C‑351/12). In contrast, U.S. antitrust doctrine does not, as a principle, recognize excessive pricing as an antitrust violation.

 

Decision of the court

The ECJ largely referred to the opinion of the Advocate General and confirmed that a comparison of fees charged in other member states, relying on the PPP index, may be used to substantiate the excessive nature of license rates charged by a CMO. However, the reference member states must be selected according to “objective, appropriate and verifiable” criteria (e.g., consumption habits, economic factors and cultural background) and the comparison must be made on a consistent basis (e.g., similar calculation methods). For this purpose, it is, in principle, permissible to refer to a specific segment of users if indicated by the circumstances of the individual case (paras 31-51). With regard to the level license fees, the ECJ ruled that there is no minimum threshold above which a license fee can be considered abusive; yet, the differences between the compared fees must be both significant (not a minor deviation) and persistent (not a temporary deviation). CMOs can justify their rates by reference to objective dissimilarities between the compared member states, such as differing national regulatory regimes (para 52-61).

 

Implications of the decision

The court reconfirmed its approach taken in the former decisions which introduced the comparison of fees charged in different member states as well as the “appreciably higher” standard. In the case at hand, the court further elaborated on this general concept by providing new criteria for the analysis which should assist competition authorities and courts in assessing excessive pricing under the EU competition rules. Clearly, however, it will still be challenging to apply those guidelines in practice. Furthermore, it seems that the ECJ does not consider the method of comparing license fees in other member states to be the only method for the purposes of Article 102(a) of the TFEU (see also paras 43-45 of the AG’s opinion); this might be of special relevance in cases not related to CMOs. In this connection, it is noteworthy that the ECJ expressly permitted authorities to consider the relation between the level of the fee and the amount actually paid to the right holders (hence, the CMO’s administrative costs) (paras 58-60).

Lastly – although the finding of abusive pricing appears to be the exception rather than the rule in European competition law practice – the decision supplements the case law on CMOs which is especially important since the rules of the Collective Management Directive 2014/26/EU (CMD) are relatively sparse in relation to users. Nevertheless, it should be noted that said directive contains additional standards for the CMOs’ fee policies. Article 16(2) states that tariffs shall be “reasonable”, inter alia, in relation to the economic value of the use of the licensed rights in trade and the economic value of the service provided by CMOs. These standards may be, however, overseen by national authorities (CMD article 36) which are not necessarily competition authorities. A coordinated application of the different standards by the competent authorities would be desirable in order to ensure the coherence of the regulatory regime.

[1] Focus is put here on the most important aspects of the decision.

Standards and FRAND Terms in the Post Huawei World

By Giuseppe Colangelo

The judgment of the European Court of Justice (CJEU) in Huawei/ZTE (Case C-170/13)
marked a milestone in the patent war which has characterized standardization activities in the last decade. The CJEU identified the precise steps which standard essential patents (SEPs) owners and users have to follow in negotiating fair reasonable and non-discriminatory (FRAND) royalties. Compliance with this code of conduct will shield IPRs holders from the scrutiny of competition law and, at the same time, will protect implementers from the threat of an injunction and the consequent disruptive effect on sales and production.

In primis, the patent holder must inform the SEPs user about the alleged infringement and make a specific and written FRAND offer, provided the latter has shown willingness to obtain a license on fair and reasonable terms. The exact amount of the royalty and the way in which it has been calculated should be specified in the offer. In case of refusal, the implementer must promptly propose a counter-offer that complies with FRAND requirements. If such counter-offer is also rejected, the alleged infringer must provide appropriate security to continue using the patents, either by providing a bank guarantee or by placing the requisite amount on deposit. In addition, the parties have the option to request that the royalty level be set by an independent third party decision without delay. Patent owners will instead be granted an injunction if the implementer, while continuing to use the patent in question, have not diligently responded to the first licensing offer, in accordance with recognized commercial practices in the field and in good faith, which is a matter that must be established on the basis of objective factors and which implies that there are no delaying tactics. Furthermore, with regard to liability for past acts of use, the CJEU also explained that Article 102 TFEU does not prohibit the SEPs owner from bringing an action for the award of damages or the rendering of accounts. The above requirements and considerations do not, however, deprive the potential licensee of the right to challenge the validity and essentiality of the patent at issue.

Despite the CJEU’s efforts, many shadows still loom on the horizon of the EU standard-setting community. In such a complex context, the recent activity by certain national courts in filling the gaps left by the CJEU and shedding light on some of the thorniest questions is undoubtedly welcome, and deserves the utmost consideration. Among these decisions, the UK judgement Unwired Planet v. Huawei[1] recently delivered by Mr. Justice Birss is of utmost importance.

 

The UK dispute Unwired Planet v. Huawei

Unwired Planet, a U.S. based patent assertion entity that holds a worldwide patent portfolio which includes numerous SEPs to various telecommunications standards, claimed that Huawei was an unwilling licensee. Huawei counterclaimed that Unwired Planet was abusing its dominant position by offering to license its entire global portfolio (SEPs and non-SEPs) and by demanding royalty rates higher than FRAND ones.

On 5 April 2017, the High Court of England and Wales delivered its judgement.

Justice Birss addressed several important topics. First, Birss stated that only one set of licensing terms can be ultimately considered FRAND in a given set of circumstances. From this perspective, the judge disregarded the view of those authors, U.S. judges (e.g. Robart in Microsoft v. Motorola) and perhaps even the CJEU in Huawei, according to whom FRAND may well comprise a range of terms. Indeed, although the Huawei case did not deal with FRAND pricing, yet it acknowledged that parties can make divergent FRAND offers and counter-offers, thereby confirming that there is no unambiguous FRAND point and that several distributional FRAND prices exist.

Furthermore, as a consequence of the single FRAND rate, Birss found that, during the negotiation, the parties could make offers that would not be FRAND. An obligation focused only on making FRAND offers is considered unrealistic since a process of fair negotiation will usually involve some compromise between the parties’ rival offers: if the standard setting organization demands that offers made by a patentee must themselves consist of FRAND terms, then that would condemn patentees to always end up with negotiated rates below a FRAND rate. Therefore, according to the UK Court, it makes much more sense to interpret the FRAND obligation as applicable primarily to the finally agreed terms rather than to the offers.

It seems that Birss aimed to reduce the relevance of the Huawei decision (and of the competition law, in general) also relatively to another point. After recalling the purpose of a FRAND commitment and its alleged contractual nature, the UK judgment concluded that the contractual commitments submitted to the standard setting organization (ETSI) are stricter than antitrust provisions. Indeed, since competition law fines only excessive prices, a rate can be in line with antitrust rules even if it is higher than the FRAND benchmark. In sum, according to the English Court, FRAND commitments can be enforced under contract law without recourse to competition law.

Turning to the process of negotiating FRAND licenses, with respect to the type of behavior that can be considered FRAND, the Court stated that making extreme offers and taking an intransigent approach is not FRAND. In this regard, Huawei was considered unwilling because it insisted on having an offer for just a UK license (instead of a worldwide one).

Moreover, Birss provided useful insights about the determination of FRAND rates. An appropriate way to establish the FRAND royalty would be to determine a benchmark rate governed by the value of the patentee’s portfolio: counting patents and making reference to existing comparable licenses are key steps of the determination process. In the High Court’s words, a patentee who refuses to accept those terms would be in breach of its FRAND undertaking. With respect to the non-discrimination element, the Court rejected a “hard-edged” approach capable of applying to reduce a royalty rate (or adjust any license term in any way) which would otherwise have been regarded as FRAND. On the contrary, the Court endorsed a “general” approach, which requires that rates cannot differ based on the licensee but only on the value of the portfolio licensed.

The UK judgement demonstrates that after Huawei there are still several pending questions. It is not surprising that the European Commission has recently intervened to announce a Communication in order to fill the gaps by complementing existing jurisprudence through best practice recommendations.[2]

[1] [2017] E.W.H.C. 711 (Pat).

[2] European Commission, Roadmap towards a Communication on ‘Standard Essential Patents for a European digitalised economy’, 2017, 2, available at https://ec.europa.eu/info/law/better-regulation/initiatives/ares-2017-1906931_en.

Tenth Circuit holds IPRs defense available to rebut a refusal to deal antitrust claim

By Valerio Cosimo Romano

On 31 October 2016, the United States Court of Appeals for the Tenth Circuit (the “Court of Appeals”) held that the invocation of IPRs is a presumptively valid business justification sufficient to rebut a refusal to deal claim.

The case involved a dispute between a software company and the developer of aviation terminal charts (which provide pilots with the information necessary to navigate and land at a specific airport). The developer holds copyrights for portions of its charts, which use a proprietary format. The parties negotiated and executed a license and cooperation agreement under which the developer would waive its standard licensing fee and grant the software company access to proprietary products that facilitate the integration of the developer’s terminal charts into third-party systems. In exchange, the software company would create a data management reader that works in conjunction with an e-book viewer. After the execution of the agreement, the software company registered with Apple as a software application developer and requested the necessary toolkit from the developer to develop an app. The developer did not provide the toolkit. Rather, it announced it had created its own app, offered to its customers at no additional cost beyond their terminal chart subscription fee.

The software development company sued the developer. The district court granted summary judgment for developer on the antitrust claims but denied summary judgment on the remaining claims for loss of profits, awarding more than $43 million in damages. The developer appealed, challenging only the district court’s ruling related to the loss of profits. The software company cross-appealed, challenging the dismissal of its antitrust claims, alleging a single anticompetitive conduct consisting in a refusal to deal, in violation of § 2 of the Sherman Act.

To determine whether a refusal to deal violates § 2, the Court of Appeals first looked at market power in the relevant market, in which the court assumed that the developer enjoyed monopoly power. Second, the Court of Appeals looked at the use of the product, and concluded that the assertion of IPRs is a presumptively rational business justification for a unilateral refusal to deal. In its legal reasoning, the Court of Appeals relied on the approach taken by both the First and Federal Circuits in Data General and Xerox, respectively. In Data General, the First Circuit held that while exclusionary conduct can be pursued by refusing to license a copyright, an author’s desire to exclude others from use of its copyrighted work is a presumptively valid business justification for any immediate harm to consumers. In Xerox, a Federal Circuit declined to examine the defendant’s motivation in asserting its right to exclude under the copyright laws, absent any evidence that the copyrights were obtained by unlawful means or used to gain monopoly power beyond what provided for by the law. Quoting Novell and Trinko, the Court of Appeals also recognized the existence of a limited exception, available only where the plaintiff can establish the parties had a preexisting, voluntary, and presumably profitable business relationship, and its discontinuation suggests a willingness to forsake short-term profits to achieve anti-competitive ends. On this last point, the Court of Appeals held that the software developer did not present any evidence.

Therefore, it concluded that the developer did not have an independent antitrust duty to share its intellectual property with the software company. Consequently, it reversed and vacated the jury’s award of lost profits, but affirmed the partial summary judgment on software company’s antitrust claims.

Samsung alleges that Huawei used FRAND promises to monopolize smartphone technology

By Nicole Daniel

In an ongoing dispute, Samsung accused Huawei of breaching its patent licensing commitments in order to gain control over the market for commonly used cellular technologies.

In May 2016 Huawei sued Samsung in the U.S. and in China for infringing 11 standard essential patents for smartphones. The technology covered by these patents is allegedly used in almost all of Samsung’s cell phones. Huawei seeks damages in the U.S. proceeding; however merely seeks injunctions in the Chinese proceeding. In this regard, it must be noted that Chinese courts are becoming increasingly involved in patent disputes between big technology companies.

In July 2016 Samsung in turn sued Huawei in China for infringing six of its patents. In August 2016 Samsung responded to the U.S. lawsuit and filed antitrust counterclaims. Samsung accuses Huawei of breaching its promise to license the patents on FRAND terms thereby getting an unlawful monopoly over 3G and 4G wireless device technology. Furthermore, Samsung accused Huawei of patent infringement for 11 smartphone patents that may already be or may become essential to cellular technologies. Samsung also argued that two of Huawei’s patent infringement claims should be dismissed, since the underlying intellectual property are unpatentable math formulas.

Samsung further argued that Huawei merely sued for injunctions in China to gain leverage in licensing negotiations in other areas of the world.

Samsung is seeking damages as well as injunctions to block the injunctions sought by Huawei.

At a court hearing on 13 September 2016 in San Francisco, District Judge William Orrick said that he was not inclined to break up the patent and antitrust dispute between the companies to allow Huawei to seek a court-ordered global FRAND license rate for its patent portfolios prior to litigation over the alleged patent infringement and Samsung’s antitrust counterclaims. However, Judge Orrick allowed Huawei to argue for bifurcation by filing a five-page brief within the next week.

Judge Orrick then set a case schedule for a trial starting in two years on 17 September 2018. He also urged the opponents to settle the dispute sooner than that, noting that their plan to delay mediated settlement talks until deeper into the litigation proceedings was counterproductive. Furthermore, filing numerous lawsuits against each other to resolve their differences “is not the wisest way of dealing with the problem” that the companies have with each other.

Google formally investigated on Android operating system and applications

By Gabriele Accardo

On 20 April 2016, the European Commission issued a statement of objections (see also the fact sheet, and infographic) to Google and its parent company, Alphabet, based on the preliminary view that Google has implemented a strategy on mobile devices to preserve and strengthen its dominance in general internet search, allegedly in breach of Article 102 of the Treaty on the Functioning of the European Union that prohibits the abuse of a dominant position that may affect trade and prevent or restrict competition, substantially upholding what the Commission had stated when it opened the investigation (for additional background, see Newsletter issue 2/2015, p. 6).

According to the Commission’s preliminary findings, Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system, with more than 90% market share in each of these markets.

The allegedly abusive practices carried out by Google are three-fold:

  • requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as the default search service on their devices, as a condition to license certain Google proprietary apps;
  • preventing manufacturers from selling smart mobile devices running on competing operating systems based on the Android open source code;
  • giving financial incentives to manufacturers and mobile network operators on the condition that they exclusively pre-install Google Search on their devices.

Besides consolidating Google’s dominant position in general internet search services, these practices may affect the ability of competing mobile browsers to compete with Google Chrome, and hinder the development of operating systems based on the Android open source code and the opportunities they would offer for the development of new apps and services.

This investigation is distinct and separate from the Commission’s ongoing formal investigation under EU antitrust rules on other aspects of Google’s behavior in the EEA, including the favorable treatment by Google in its general search results of its own other specialized search services (see Newsletter issue 2/2015, Newsletter 1/2014Newsletter 5-6/2013Newsletter No. 2/2013Newsletter 2/2010, for additional background), and concerns with regard to the copying of rivals’ web content (known as ‘scraping’), advertising exclusivity and undue restrictions on advertisers.

Italian Competition Authority investigates alleged abuse in the market for professional legal software

By Gabriele Accardo

On 20 May 2016, the Italian Competition Authority (ICA) launched an investigation (text only in Italian) against Net Service, holding that the company may have carried out allegedly abusive practices in the market for software applications used to create and manage online legal documents and files on the online civil proceedings platform, in breach of Article 102 of the Treaty on the Functioning of the European Union.

The ICA found that Net Service had been granted the contract (extended in various instances until today) to build, manage and service the infrastructure used to manage online civil proceedings, and as a result, the company gained a dominant position (a monopoly) in such (upstream) market.

Besides being the exclusive service provider of that online platform, Net Service also develops software applications that are used to create and manage online legal documents and files on the platform for online civil proceedings. In such (downstream) market, Net Service holds a 30-35% market share.

According to the ICA, Net Service has put in place certain allegedly abusive practices on the downstream market against competing developers of software applications, leveraging its dominant position held in the upstream market for the management of the platform, ultimately seeking to foreclose competing software applications providers.

In particular, Net Service did not provide its competitors all the technical information required in a timely and complete fashion to ensure full interoperability between the online platform and the software applications that can run on such platform.

In addition, Net Service had made available a model office (that is a working prototype of the product that shall be used for testing) to competitors different from the one Net Service uses to develop its own software applications.

Finally, Net Service either installed patches without informing competitors about the problems the patches would fix, or did not even inform about the existence of the patches altogether.

As a result of such practices, competing software application developers would only be able to develop a final functioning version of their own applications after Net Service has released its own products. This entails an advantage in terms of marketing of about one year since Net Services releases its products, whereas in practice, professional users of legal software applications appear to consider Net Services as the most reliable provider of such software applications.

The ICA considers that Net Service has an obligation to share the same technical information on which it relies on to develop its own software applications, so that competitors are able to offer new and reliable products, thus allowing consumers a wider and better choice of products.