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From Antitrust Law Daily, March 3, 2015

Capital One may assert monopolization counterclaims against alleged patent troll

By Greg Hammond, J.D.

Capital One Financial Corp. was entitled to amend its second amended answer in a patent infringement suit to add three antitrust counterclaims alleging that a supposed patent troll’s creation and abuse of monopoly power to “hold up” Capital One and other banks violates Section 2 of the Sherman Act and Section 7 of the Clayton Act. In granting Capital One’s motion to amend, the federal district court in Greenbelt, Maryland determined that Capital One’s counterclaims were not barred under the doctrine of res judicata and were sufficiently pleaded (Intellectual Ventures I LLC v. Capital One Financial Corp., March 2, 2015, Grimm, P.).

Background. Intellectual Ventures I LLC and Intellectual Ventures II LLC (collectively, IV) are in the business of purchasing important inventions from inventors and institutions and then licensing the inventions to others. They brought patent infringement claims against defendants Capital One Financial Corp., Capital One Bank (USA), N.A., and Capital One, N.A., claiming that the Capital One companies infringed four patents concerning online banking services and other electronic systems and services. Capital One sought to amend its second amended answer to add monopolization, attempted monopolization, and unlawful asset acquisition counterclaims under Section 2 of the Sherman Act and Section 7 of the Clayton Act. IV opposed the motion, arguing that the counterclaims were barred under res judicata and—in the alternative—were insufficiently pleaded.

Res judicata. IV and Capital One previously faced each other in the federal district court in Alexandria, Virginia, where Capital One filed the same counterclaims under the Sherman and Clayton Acts. However, Capital One argued that it can better support its counterclaims using documents produced in discovery in the earlier case, as well as including allegations that IV did not succeed on any of their original claims; IV filed the instant suit as part of its overall scheme to monopolize; IV’s claims revealed a distinct form of patent aggregation and assertion within that overall scheme; IV’s infringement allegations represented new anticompetitive conduct; and IV admitted that it had no factual basis to allege infringement.

The court concluded that Capital One’s new counterclaims were not barred under the doctrine of res judicata because all of the events giving rise to the counterclaims occurred after the earlier counterclaims were filed and after the Virginia court dismissed those counterclaims. Further, the Virginia court’s judgment in favor of Capital One was an event that Capital One could not have known about until that case concluded.

Monopolization. IV also argued that Capital One’s counterclaims failed because: (1) Capital One did not allege a plausible relevant market; (2) Capital One did not sufficiently allege that IV had monopoly power in that market; (3) none of the supposed unlawful acts of monopolization alleged were actually unlawful; and (4) Capital One lacked standing.

Capital One defined the relevant market as IV’s 3,500-patent financial-services portfolio. The court concluded that this was a plausible relevant market, because Capital One alleged that it had no viable option other than to license the patents at issue from IV and IV had created a single licensing source, thereby eliminating all competition between patentees that would otherwise compete with each other for financial-services licensing opportunities. Further, Capital One already owned products that unknowingly incorporate the allegedly patented products, which cannot be extracted from the online banking systems.

In support of its monopolization and attempted monopolization claims, Capital One alleged that by controlling 100 percent of the market, and due to the absence of any supply-side or demand-side constraints on its power over price, IV had monopoly power. In addition, Capital One alleged high barriers to entry, to demonstrate monopoly power, because current competitors lacked the ability to expand their output to challenge IV’s high prices, and banks could not avoid IV’s demands that they license its portfolio of 3,500 patents related to the financial-services industry. The court concluded that these allegations were sufficient to demonstrate monopoly power.

Allegations that IV’s acquisition of a massive patent portfolio and IV’s alleged concealment of the patent holdings made it virtually impossible for targets like Capital One to assess the portfolio and take steps to avoid patent infringement claims were sufficient to demonstrate that IV willfully acquired monopoly power.

Lastly, Capital One had standing to bring its monopolization and attempted monopolization counterclaims, the court decided. Because Capital One alleged that IV intentionally engaged in anticompetitive practices and that those practices harmed Capital One directly by preventing it from accessing competitively priced commercial banking services technology and forcing it to choose between paying costly litigation expenses or excessive licensing fees, Capital One sufficiently pleaded that the supposed antitrust violations caused antitrust injury. Further, allegations that IV amassed an extensive patent portfolio and demanded large licensing fees to avoid exposure to possible serial patent litigation, thereby hindering Capital One’s business, demonstrated direct and actual injury. The motion to amend was therefore granted with regard to the monopolization and attempted monopolization counterclaims.

Unlawful asset acquisition. IV also opposed Capital One’s unlawful asset acquisition claim under Section 7 of the Clayton Act, alleging that Capital One failed to allege a plausible relevant market or IV’s share of that market. The court rejected this argument, finding that Capital One sufficiently alleged that the extent of IV’s acquisitions of 3,500 financial-services patents was such that their financial-services patent portfolio became its own market, and the effect is that IV has a monopoly in that market, owning 100 percent of it. The motion to amend was therefore granted with regard to the unlawful asset acquisition claim.

The case number is PWG-14-111.

Attorneys: Michael Edward McCabe, Jr. (Funk and Bolton PA) for Intellectual Ventures I LLC and Intellectual Ventures II LLC. Brent P. Ray (Kirkland and Ellis LLP) and Mary Catherine Zinsner (Troutman Sanders LLP) for Capital One Financial Corp., Capital One Bank (USA), N.A., and Capital One, N.A.

Companies: Intellectual Ventures I LLC; Intellectual Ventures II LLC; Capital One Financial Corp.; Capital One Bank (USA), N.A.; Capital One, N.A.

MainStory: TopStory Antitrust MarylandNews

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