Court Dismisses NPE s Group Boycott Claims Against RPX, Motorola, Samsung, and Others

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1 THIS WEEK S CONTRIBUTING AUTHOR IS M. BRINKLEY TAPPAN EDITED BY KOREN W. WONG-ERVIN JANUARY 21-25, 2013 PATENTS Court Dismisses NPE s Group Boycott Claims Against RPX, Motorola, Samsung, and Others On January 24, a California federal court dismissed with leave to amend Cascades Computer Innovation s claims that RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung Electronics formed a group boycott not to license its patents. Cascades, a non-practicing entity (NPE) whom the defendants accused of being a patent troll, holds rights to a portfolio of 38 patents relating to technology that optimizes the use of the Android operating system employed in certain mobile phones and computer tablets. Defendant RPX is also an NPE, but it is a defensive patent aggregator or anti-troll, formed to protect its members from NPEs that file infringement claims. RPX, which is funded by its more than 110 members, frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses. Cascades alleged that RPX and the manufacturing defendants (who are members of RPX) formed a buyers cartel through which they agreed that they would jointly refuse to license Cascades patents; none would negotiate a license with Cascades independently; and all would infringe on Cascades patents without paying royalties. The court granted the defendants motions to dismiss on the grounds that the complaint failed to allege a plausible antitrust conspiracy, failed to allege harm to the competitive process in a relevant market, failed to allege antitrust injury, and lacked economic sense. First, the court concluded that Cascades failed to meet the pleading requirements under Twombly, stating: Cascades alleges that the Manufacturing Defendants conspired, but does not answer [any of] the basic questions: who, did what, to whom (or with whom), where, and when? (Order Granting MTD at 10 (internal citations omitted).) Cascades alleged that the manufacturing defendants conspired, combined and/or entered into agreements with RPX, joint defense agreements, NPE insurance, common counsel, meetings, phone calls, s, and -1-

2 discussions with RPX and otherwise to agree to not accept licenses from Cascades. (Complaint at 39.) As to when this alleged conspiracy formed, Cascades alleged that after negotiations with Cascades ended, RPX and the other defendants conspired. (Id. 28.) Cascades also alleged that RPX withdrew its offer when its members agreed to boycott Cascades. (Id. 37.) The court concluded that, [o]ther than Cascades allegation that negotiations with RPX broke down when one or more RPX members would not agree to fund the deal, all Cascades has alleged is parallel behavior. (Order Granting MTD at 10.) Second, the court held that, to the extent that Cascades s claims are analyzed under the rule of reason, Cascades failed to allege an unreasonable restraint of trade because it failed to identify specifically what it considers to be the relevant market. (Id. at 15.) In its complaint, Cascades avoids its pleading obligations with subterfuge, it defines the relevant product market broadly as licenses, the Android market, and mobile phones and tablets that use the Android operating system; and narrowly as Cascades patents, licenses for Cascades patents, and products that use Cascades patented technology.... While Cascades does not need to limit its antitrust allegations to a single market or submarket, it does need to specify the market or markets in which the allegedly anticompetitive acts occurred. Third, the court concluded that, (Id. at 17.) due to Cascades vague allegations of a group boycott, Cascades has not alleged sufficient facts to show that the injury Cascades has suffered flows from the Defendants unlawful conduct. All of the harm alleged loss royalties, depressed market value for the patents, litigation expenses, loss of business growth derive from Cascades inability to license its patents. However, Cascades has provided insufficient facts from which to plausibly infer that the reason it suffered this harm is due to a conspiracy in a particular market, rather than due to individual business disputes between individual actors. Fourth, the court also dismissed the complaint with leave to amend on the grounds that it made no economic sense. The court stated that, among other things, Cascades will need to provide specific facts to clarify why, absent a conspiracy, it is economically irrational for the Manufacturing Defendants who are being sued by Cascades for infringement of one patent, the 750 Patent to decline an offer to license Cascades entire portfolio of 38 patents. (Id. at ) The court further stated that, without clarification and specificity, it would not presume economic rationality where the circumstances giving rise to the lawsuit plausibly suggest nothing more than a tactical ploy to regain economic leverage that Plaintiff lost in the licensing negotiations. (Id. at 20.) Lastly, the manufacturing defendants contended that the lawsuit is based on protected litigation conduct of defending against patent infringement charges brought by Cascades, and that Noerr- -2-

3 Pennington immunity applies because their alleged cooperative conduct began only after they were either charged with or sued for patent infringement. The court denied without prejudice this basis for dismissal stating that, [a]s a consequence of Cascades failure to plead the necessary specifics of the alleged conspiracy, the Court cannot determine at this time whether Defendants are immune from suit. (Id. at 23.) Determining whether the alleged conspiracy preceded the alleged joint litigation conduct necessarily requires an inquiry into the timing of the conspiracy itself, the timing of any perceived threats of litigation, the scope of any such perceived threat, etc. (Id.) Sources: Cascades Computer Innovation LLC v. RPX Corp. et al. (Order Granting Defendants Motion to Dismiss the Complaint with Leave to Amend), available at Scott Flaherty, Samsung, HTC, Others Duck Antitrust Suit Over NPE Boycott, Law360 (Jan. 24, 2013), available at ETSI Participants Move To Create Injunction Safe Harbor for SEPs At meetings in France last week, members of the European Telecommunications Standard Institute (ETSI) made progress toward creating a set of safe harbor provisions that would create a mechanism for determining whether licensing terms proposed by owners of standardessential patents (SEPs) are fair, reasonable, and non-discriminatory (FRAND). In preparation for revisions to ETSI s IP rights policy, which could be implemented as soon as March, the members discussed a dispute resolution framework that could prevent parties from resorting to seeking injunctions over SEPs. In addition, ETSI members are considering amendments that would require SEP holders to impose FRAND commitments on any party purchasing a FRANDencumbered patent. Both measures have been endorsed by U.S. and European competition authorities. Source: Matthew Newman and Lewis Crofts, Smartphone Makers Approach Consensus on Patent Injunctions, Licensing, Mlex (Jan. 25, 2013), available at Federal Circuit Rejects Heightened Pleading Standard for Design Patents On January 25, the Federal Circuit held that a lower court erred in dismissing a plaintiff s patent infringement complaint for failure to identify new, original and ornamental aspects of his design patent for a Tote Towel (a large towel with binding around all the edges, zippered -3-

4 pockets at both ends, and an angled cloth loop in the middle). The Federal Circuit held that claim construction is not an essential element of a patent infringement complaint, and that neither the Federal Rules nor the Supreme Court s precedents in Twombly and Iqbal require such allegations. Furthermore, held the court, the district court erred in its view of design patent law because infringement of a design patent is based on the design as a whole, not on any points of novelty. (Opinion at 7.) The court explained that the ordinary observer test applies, under which the criterion is if, in the eye of the ordinary observer, giving such attention as a purchaser usually gives, two designs are substantially the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other. (Id. at 7-8 (internal citations omitted).) Sources: Roger J. Hall v. Bed Bath & Beyond Inc. (Opinion), available at Ryan Davis, Design Patent Plaintiffs Have Low Bar, Fed. Circ. Says, Law360 (Jan. 25, 2013), available at Federal Circuit Chief Judge Rader Criticizes Supreme Court s Analysis of IP Issues In the keynote address at the New York State Bar Association s annual meeting, Chief Judge Randall Rader criticized recent Supreme Court jurisprudence, asserting that the Court relies too heavily on judge-made law, rather than on the language of the Patent Act. In particular, Judge Rader criticized the Supreme Court s analysis in Mayo v. Prometheus and ebay v. MercExchange. In Mayo, the Court determined that certain blood tests were not patentable, based, according to Judge Rader, on principles manufactured outside the statute. In ebay, the Court held that infringing products should be enjoined only where a four-factor test is met. According to Judge Rader, injunctions should be granted more liberally, pursuant to the purpose of the Patent Act. In both cases, according to Judge Rader, the Supreme Court failed to consider the language of the Patent Act in context. Source: Ryan Davis, Rader Calls Out High Court s Activism in IP Law, Law360 (Jan. 22, 2013), available at -4-

5 PHARMACEUTICALS FTC Files Supreme Court Brief in Watson Reverse- Payments Case On January 22, the FTC and the Solicitor General filed their brief in the government s case against Watson Pharmaceuticals, Solvay Pharmaceuticals, Parr Pharmaceutical Companies, and Paddock Laboratories. In the brief, the government contends that patent infringement lawsuit settlements that involve a reverse payment should be treated as presumptively anticompetitive under a quick look rule of reason analysis. (Brief at 17.) The government s brief suggests that the presumption should be rebuttable only by evidence that the reverse payment was for something other than delayed entry into the market by the generic company, such as consideration for unrelated property or services or litigation costs that the brand-name manufacturer would have borne had the parties failed to settle. (Id.) According to the FTC and Solicitor General, treating reverse-payment agreements as presumptively unlawful serves the purposes of competition law, patent law, and the Hatch-Waxman Amendments. The Supreme Court will hear oral arguments in the case on March 25. Sources: Brief for Petitioner, available at Supreme Court docket, available at ewer.aspx?filename=monthyargumentcalmar2013.html Jonathan Randles, FTC Tells Justices Pay-For-Delay Presumptively Unlawful, Law360 (Jan. 23, 2013), available at c26c14eb19db&utm_source=newsletter&utm_medium= &utm_campaign=competiti on Ethypharm Lacks Standing to Pursue Antitrust Claims Against Abbott On January 23, the Third Circuit held that Ethypharm S.A. France lacks standing to bring antitrust claims against Abbott Laboratories based on agreements Abbott entered into with Reliant Pharmaceuticals, the U.S. distributor for Ethypharm s drug Antara. Ethypharm alleged that such agreements impaired the ability of Antara to compete against Abbott s drug, TriCor. The court held that Ethypharm lacked standing because it did not enter the United States market and receive the required FDA approval to market Antara, but instead licensed the drug and passed on to the licensee the expense and risk of obtaining FDA approval. The court held that Ethypharm did not suffer antitrust injury because it does not and indeed cannot compete in the -5-

6 United States fenofibrate market, unless and until it acquires the required FDA approval to do so. (Opinion at 30.) According to the court, Ethypharm wants to have it both ways: it wants to pass on to the licensee the expense and risk of qualifying to compete in the United States pharmaceutical market, but, when that arrangement fails to achieve success, Ethypharm seeks to avail itself of the United States laws protecting fair competition. The rules of antitrust standing do not permit that tactic. (Id. at 28.) The court stressed that it is not the general arrangement of the manufacturer and distributor that is problematic; it is the fact that Ethypharm cannot sell Antara in the United States because of legal barriers particular to the pharmaceutical market. (Id.) Sources: Ethypharm S.A. France v. Abott Labs (Opinion), available at Keith Goldberg, 3 rd Circ. Shuts Down Ethypharm Antitrust Suit Against Abbott, Law360 (Jan. 23, 2013), available at COPYRIGHTS EU Court AG Says Photocopying Extends to Scan-and- Print In a nonbinding opinion, a EU court advocate general stated that scanning pages from a book and then printing them should be given the same treatment in copyright law as straightforward copying, so long as the scan and print is performed by the same person in a single operation. The AG stated that, while the opinion is intended to clarify the principles on which countries should handle disputes involving copyright levies, national courts have considerable discretion in how to apply the rules. The nonbinding opinion relates to a German dispute between VG Wort, a society that collects copyright royalties, and a number of consumer-electronics firms (including HP and Fujitsu) over whether levies apply to printers. Source: Magnus Franklin, Photocopying extends to scan-and-print in copyright law, says EU court AG, MLex (Jan. 24, 2013), available at

7 THE TECNNOLOGY SECTOR California Congresswoman Prepared to Introduce Legislation Regarding the FCC s Authority to Enforce Open Internet Rules Speaking at a conference on January 22, Congresswoman Anna Eshoo (D-Cal) stated that she is prepared to introduce legislation clarifying the FCC s authority to ensure a free and open Internet while preventing the use of Internet fast lanes or other discriminatory rules, should the D.C. Circuit agree with claims made by Verizon that the FCC s Open Internet rules exceed the agency s authority. The FCC s Open Internet rules, also known as the net neutrality regulations, were adopted by the agency in 2010 to prevent Internet service providers from using their power to block or impede online access. Verizon filed a lawsuit in September 2011 alleging that the regulations exceed the agency s authority. Source: Doug Halonen, Senior lawmaker vows backing for FCC s net neutrality rules, MLex (Jan. 22, 2013), available at UPCOMING PROGRAMS IP Fundamentals for Antitrust Attorneys February 22, 2013 Noon-1:15PM Eastern In this first of a two-part series of joint programs hosted by the ABA Section of Antitrust Law and the ABA Section of Intellectual Property Law panelists will cover the fundamentals of intellectual property law for antitrust attorneys. Panelists will explore such matters as the basics of patent, copyright, and trademark law, including how you determine the bounds of a patent right, what is claim construction, what is functional language and why are software patents so controversial, what rights do copyrights and trademarks provide, and what is the difference between the ITC and federal court. To register and receive dial-in information, please visit A special thanks to Debbie Bellinger and Ian Horkley for their weekly contributions to tidbits. -7-

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