Lotes Co. v. Hon Hai Precision Industry Co.
2014 U.S. App. LEXIS 10521
| 2d Cir. | 2014Background
- Lotes, a Taiwanese USB connector manufacturer with Chinese production facilities, sues five competing firms alleging they seek to monopolize USB 3.0 for anticompetitive ends.
- Defendants signed USB-IF Contributors Agreement and Adopters Agreement, which require RAND-Zero licenses for essential patent claims to practice USB 3.0.
- Contributors Agreement contains RAND-Zero licensing obligations and antitrust-compliance provisions; New York law and forum selection clauses exist in the agreement.
- Lotes alleges defendants effaced RAND-Zero licensing by pressuring customers and delaying or denying licenses, and even pursuing patent suits in China to enforce exclusivity.
- Plaintiff contends that the anticompetitive conduct in China will have downstream effects in the United States, affecting prices and competition in USB 3.0 devices.
- District court dismissed under FTAIA as jurisdictional; the Second Circuit overrules and holds FTAIA provisions are substantive and nonjurisdictional, and may be waived neither by contract nor as a matter of jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are FTAIA limitations jurisdictional or substantive? | Lotes relies on Filetech; FTAIA limits are jurisdictional. | FTAIA limits are jurisdictional and jurisdictional analysis governs dismissal. | FTAIA limits are substantive, nonjurisdictional. |
| Has waiver by contract occurred to exempt FTAIA limits? | Contributors Agreement provisions show waiver of FTAIA defenses. | Provisions are standard law/forum clauses and do not waive FTAIA defenses. | No waiver by contract; defendants may still argue FTAIA limits apply. |
| Does foreign conduct have a direct, substantial, and reasonably foreseeable effect on U.S. commerce under FTAIA? | Foreign patent hold-up and licensing refusals will affect U.S. USB markets and downstream prices. | Effects are too attenuated and not sufficiently proximate to U.S. commerce to satisfy FTAIA. | Court adopts proximate causation standard; however, the domestic effect must also give rise to a claim, which it did not here. |
| Does any domestic effect give rise to the plaintiffs claim under FTAIA's second causation requirement? | Domestic price increases and foregone licenses flow to injury in Lotes. | Injury to Lotes is not proximately caused by the domestic effect; the injury precedes the domestic effect and is externally caused. | The domestic effect did not give rise to Lotes's Sherman Act claims; judgment affirmed on alternative grounds. |
Key Cases Cited
- Arbaugh v. Y & H Corp., 546 U.S. 500 (U.S. 2006) (tests for whether a requirement is jurisdictional based on clear statement)
- Empagran S.A. v. Hoffmann-LaRoche, Ltd., 542 U.S. 155 (U.S. 2004) (FTAIA two-part test; 'gives rise to a claim' means 'gives rise to plaintiffs claim')
- Minn-Chem, Inc. v. Agrium, Inc., en banc, 683 F.3d 845 (7th Cir. 2012) (adopts proximate-causation standard for direct effect under FTAIA)
- United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004) (direct effect as immediate consequence; rejected by court here)
- Filetech S.A. v. France Telecom S.A., 157 F.3d 922 (2d Cir. 1998) (precedent treating FTAIA restrictions as jurisdictional (overruled))
- Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (U.S. 2010) (addressed registration/merits in related statutory context)
- Arctic Am. Corp. v. ARC Am. Corp., 490 U.S. 93 (U.S. 1989) (antitrust injury and broad purposes of the Sherman Act)