Yesterday, the 5^th Circuit issued its decision in the Continental v. Avanci Appeal, reversing the district court’s decision that Continental had standing under Article III of the Constitution. The decision finds Continental did not sustain any injury and thus rejects the so-called license-to-all argument that has been raised by auto suppliers recently.

The decision is important because it clarifies that IoT suppliers have no standing to bring so-called “license to all” claims against SEP holders who license at the end device level (OEM level). The court held that “no evidence suggests that Patent-Holder Defendants and SSOs intended to require redundant licensing of third party up the chain, which is unnecessary to effectuate the purpose of the FRAND commitments” (page 11).

“Continental does not appear to be an intended beneficiary contractually entitled to a license on FRAND terms. And as an incidental beneficiary, it would have no right to enforce the FRAND contracts between the Patent-Holder Defendants and the SSOs” (page 11)

“[E]ven if Continental has rights under FRAND contracts the contracts have not been breached because the SEP holders have fulfilled their obligations to the SSOs with respect to Continental” (page 12)

“The supplier acknowledges that Avanci and Patent-Holder Defendants are “actively licensing the SEPs to the OEMs[,]” which means that they are making SEP licenses available to Continental on FRAND terms” (page 12)

The court concluded that the FRAND commitment does not require compulsory licensing on all levels of the supply chain. Continental is not an intended beneficiary of the FRAND commitment. The court found that the defendants already licensed the OEMs, and there was no evidence that ETSI intended for redundant licensing in a supply chain. Accordingly, Continental is an “incidental beneficiary,” not an “intended beneficiary.” However, even if Continental were an intended beneficiary, the court held that SEP holders can make licenses available to Continental licensing its OEM customers.

I plan to continue to review this decision over the next couple of days and may post something more detailed in the near future.

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