Antitrust
| Pages | 74-82 |
74 Volume 20, October–December 2014 international law update
© 2014 International Law Group, LLC. All rights reserved. ISSN 1089-5450, ISSN 1943-1287 (on-line) | www.internationallawupdate.com
ANTITRUST
In dispute arising from the standards
for USB connectors, Second Circuit
reviews the extraterritorial reach of
U.S. antitrust law
Lotes Co., Ltd. (“Lotes”), a Taiwanese
corporation specializing in the design and
manufacture of electronic components for notebook
computers, including Universal Serial Bus (“USB”)
connectors, alleged that the defendants, a group of
ve companies that compete with Lotes in making
and selling USB connectors, have attempted to
leverage their ownership of certain key patents to
gain control of a new technological standard for
USB connectors and to gain monopoly power over
the entire USB connector industry.
Lotes manufactures USB connectors in factories
located in China and sells them to other Taiwanese
rms with facilities in China known as Original
Design Manufacturers (“ODMs”). ODMs make
and assemble computer products incorporating
USB connectors for many well-known computer
brands that sell them to consumers and businesses
around the world, including the United States.
e dispute arises out of the development of
the industry standard for USB connectors known
as USB 3.0. Common technological standards
like USB 3.0 carry pro-competitive benets and
anticompetitive risks because they enable dierent
rms to produce products that are compatible
with one another. Since they can interoperate with
many other products, standard-compliant products
can be more valuable and provide greater benets
to consumers, which in turn simulate increased
investment from manufacturers. However, the
process of developing standards requires extensive
cooperation and coordination among competitors,
which can be subverted to anticompetitive ends. To
avoid these risks, the standard-setting organizations
restrain the behavior of parties participating in
the standard by contract. ey typically secure
agreements wherein parties who contribute
proprietary technology to the standard promise
to license that technology on reasonable and
nondiscriminatory (“RAND”) terms. Absent such
an agreement, the standard-setting organization
will omit the technology in question from the
standard.
e USB Implementers Forum, Inc. (“USB-
IF”) is the standard-setting organization responsible
for developing the standards for USB connectors.
e parties contributing to the USB 3.0 standard
are required by USB-IF to sign the USB 3.0
Contributors Agreement (the “Contributors
Agreement”), which Lotes and the defendants have
signed. Furthermore, Lotes and the defendants
signed USB 3.0 Adopters Agreement with the
required Adoption Period, which makes them
both contributors to and adopters of the USB 3.0
standard.
Paragraph 3.4 of the Contributors Agreement
“obligates ‘Contributor[s]’ to grant to any ‘Adopter’
a ‘non-exclusive world-wide license under any
Necessary Claim of a patent or patent application
... on a royalty-free basis and under otherwise
reasonable and nondiscriminatory (`RAND-Zero’)
terms....’J.A. 79 (emphasis omitted)”. erefore,
the defendants were obliged to provide RAND-
Zero licenses to Lotes for all patent claims needed
to practice the USB 3.0 standard.
e Contributors Agreement also contains
provisions designed to prevent the USB-IF from
becoming a forum for antitrust violations, a New
York choice-of-law clause and an exclusive choice-
of forum clause providing that all disputes arising
out of the Agreement shall be heard in the state and
Federal courts of New York.
In its complaint, Lotes claims that the defendants
have brazenly outed their obligation to provide
RAND-Zero licenses to adopters of the USB 3.0
standard. Lotes alleged that Hon Hai and Foxconn
(two of the defendants) have contacted Lotes’s
customers and distributors to allege that they had the
sole patent rights on USB 3.0 connectors and would
sue them if they did not buy from Foxconn. Foxconn
reported in a Taiwanese trade press publication that
it was the rst to obtain patents related to USB
3.0 products which would enable it to enjoy a
monopolistic position.
As Lotes attempted to secure a RAND-Zero
license, on March 25, 2011, at Hon Hai’s request, it
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