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IBiquity, Continental Fight Over Licensing

OEM supplier tries to get federal court involved, while iBiquity says it’s a state matter

IBiquity Digital is trying to get a patent case filed by Continental Automotive GmbH and Continental Automotive Systems, Inc. dismissed.

In a motion to dismiss filed in U.S. District Court for the Northern District of Illinois, Eastern Division, iBiquity attorneys claim the court lacks jurisdiction to hear the case, which is a lawsuit relating to a contract dispute over an intellectual property agreement that is being adjudicated in Circuit Court in Montgomery County, Md.

The developer of HD Radio technology tells the court the basic dispute between iBiquity and Continental boils down to an interpretation of an IP license agreement. “Despite Continental’s assertion that its complaint invokes substantial questions of patent law, the only valid and ripe issues arise under state contract law,” states iBiquity in a court filing.

IBiquity is saying Continental’s claims of patent exhaustion and patent misuse are not proper claims, but, rather, are defenses to a hypothetical patent infringement suit. The auto parts maker’s claim, notes, iBiquity, leaves out the fact that more than a month before Continental filed its complaint, iBiquity filed a breach of contract suit in Maryland against the manufacturer. “Viewed in that context, it becomes clear that Continental’s complaint is an attempt to manufacture federal … jurisdiction to evade iBiquity’s first-filed state law claims,” states iBiquity.

The issue began in 2005, when iBiquity licensed its receiver technology to Continental predecessor Siemens VDO Automotive Corp. and Siemens was supposed to pay iBiquity every quarter. Continental acquired Siemens in 2007.

Continental told the court that for the first eight years of the license, it paid iBiquity royalties based on the price of the entire receiver. That stopped in Q3 of 2013.

IBiquity filed a breach of contract suit this February, seeking to recover monetary damages.

Continental filed a motion to stay the Maryland case in March, pending resolution of its federal lawsuit.

What’s clear from the paperwork that Continental filed with the court is that the parts manufacturer didn’t like the agreement it inherited from Siemens, telling the court that Continental was seeking an action preventing iBiquity from asserting infringement of one or more patents the tech developer considers to the HD Radio standard. Continental asserts iBiquity has misused its patents “through its attempts to improperly expand the scope of its patent monopoly by demanding royalties over components not within the scope of the patent claims, or both.”

Among other things, Continental is seeking monetary damages for what it considers to be unjust enrichment from overpaying in the past and an injunction forbidding iBiquity from telling Continental head-end unit component suppliers or customers that Continental is not an iBiquity licensee any more.

Continental is an OEM for automobile manufacturers; its head-units have several functions, including, navigation, Bluetooth, telematics and multimedia playback functions such as DVD and CD as well as receiving AM/FM radio and receiving and decoding HD Radio signals. Continental has purchase agreements with third-party component manufacturers to buy HD Radio semiconductor components for use in Continental’s head-end units.

Receiver makers either build HD Radio receivers from scratch or buy certain components and combine those, as Continental does. One advantage of the latter is the product can be finished faster, iBiquity has told RW over the years.

The OEM supplier says its current license agreement with iBiquity expires June 29; iBiquity already considers the license expired because the two companies couldn’t reach an agreement after Continental’s payments stopped.

Continental tells the court it stopped paying iBiquity because the company recently determined that iBiquity’s interpretation of the license agreement and royalty payment calculations were incorrect and “its royalty demands and threats of termination and possible patent litigation resulted in Continental paying a royalty to iBiquity that was wholly unrelated to the value” of the receiver and not “reasonable.”

According to Continental, iBiquity bases the royalty payment on the price of the entire head-end unit, instead of basing it on the components of the receiver implementing HD Radio-related patents. Therefore, the tech developer is trying to expand the scope of its “patent monopoly” to include receiver components that are not patented, claims Continental.

The OEM supplier tells the federal court it calculates it has overpaid iBiquity by more than $1 million dollars. It wants that money, plus a new licensing agreement based on iBiquity’s patented receiver components only.

Continental wants the federal court to make iBiquity stop telling suppliers that Continental is no longer an HD Radio receiver supplier and seeks a jury trial, according to court documents signed by Michael Stolarski, Kyle Davis, Bryan Clark and Macy Skulman for Lathrop & Gage in Chicago.

In summary, iBiquity lawyers tell the court: “Continental’s complaint is a transparent and baseless attempt to recast its defenses to iBiquity’s state law breach of contract action into affirmative claims ‘arising under’ federal patent law,” write attorneys David Van Dyke and Emily Bennett of Howard & Howard in Chicago and Jay Juarta and David Smith of Orrick, Herrington & Sutcliffe in Washington.