US-based Handal and Associates has filed an amendment to its national class action lawsuit against the 4C Patent Group consisting of Sony Corporation (SNE), Philips Electronics (PHG), LG Electronics of South Korea, and Pioneer Corporation (PIO), in the United States District Court for the Southern District of California. The lawsuit was filed after the 4C Group refused to issue a license to the plaintiff, China-based Wuxi Multimedia.
The amended complaint has been expanded from seven to nine causes of action and is far more specific in its allegations of unlawful conduct by the 4C Patent Group. The latest causes include violations of the Sherman Act for acts in restraint of trade as well as the unlawful collection of mandatory royalties for expired or invalid patents.
Among other allegations, the amended complaint states that the defendants are guilty of: a) licensing invalid and unenforceable patents; b) patents that are feature-specific but not necessary for the manufacture of a simple DVD player; and c) patents that do not relate to DVD (such as VCD, karaoke, CD and parental controls). Since manufacturers are required to take a license to all-or-none of the patents, Philips and its co-conspirators are unreasonably fixing the price of DVD players by preventing manufacturers from licensing only those patents that are essential for use in their particular product.
The amended complaint highlights the alleged dealings of the defendants in their quest to monopolize the DVD player business. The defendants are believed to have used the power of their patents to control the creation of DVD standards so that it would be virtually impossible for competing standards to emerge. The amended complaint describes how the defendants have eliminated competition between themselves in the area of licensing patents. It is alleged that if the defendants were pure competitors, they would advance new and different standards in competition with each other and offer them at lower prices in order to gain acceptance of their own technology. By combining horizontally, however, they eliminated competition between themselves, which ultimately causes market deficiencies that harm consumers.
The plaintiffs also lay out how Philips used its market power to force IC manufacturers, Optical Pick Up manufacturers, and DVD player manufacturers as well as importers and distributors to enter into restrictive one-sided contracts. These contracts require those within the DVD player industry to relinquish to defendants any patents they have created which may compete with the defendants' patents. Those forced into these contracts are also prevented from suing the Defendants for patent infringement. In addition, these contracts preclude any licensee from doing business with any entity that is not licensed by the defendants, thus furthering their grip on the DVD industry. The amended complaint purports that these acts are done in furtherance of a conspiracy to monopolize the DVD industry. The plaintiffs warn that allowing the defendants to continue this anticompetitive behavior would result in the perpetuation of the monopoly into new technologies such as high definition DVD.
Damages are estimated to be in the several hundreds of millions of dollars and the Plaintiffs will request the Court to order a tripling of damages upon a finding of malicious conduct by the 4C Group.