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From Antitrust Law Daily, December 5, 2013

Mobile device makers not entitled to dismissal of antitrust claims over collective patent negotiations

By Jeffrey May, J.D.

The federal district court in Oakland, California, has denied a motion to dismiss boycott and monopsonization claims brought by a purported “patent troll” against mobile device manufacturers and their patent aggregator. However, unless the plaintiff can convince the court otherwise, the case will be stayed pending a determination of the merits of underlying patent claims currently proceeding in the federal district court in Chicago (Cascades Computer Innovation LLC v. RPX Corp., December 3, 2013, Rogers, Y.).

Cascades Computer Innovation LLC—which controls a portfolio of patents, one of which allegedly optimizes the operation of the Android operating system for smartphones and tablet computers (U.S. Patent No. 7,065,750 or ‘750 Patent)—brought the antitrust claims against HTC Corporation, Motorola MobilityHoldings, Inc., and Samsung Electronics Co. Ltd. These defendants manufacture a high percentage of all Android-compatible devices sold in the United States. Cascades alleged that the manufacturers agreed to negotiate licenses for Cascades-controlled patents only through RPX Corporation. RPX is a purported “defensive” patent aggregator or “anti-troll,” which was formed to protect member manufacturers from allegedly baseless patent infringement claims brought by “non-practicing entities” (NPEs), commonly called patent trolls.

In January, the court dismissed Cascades’ original complaint because the allegations consisted “primarily of threadbare recitals of conspiracy” and because Cascades failed to provide a coherent market definition. Cascades was granted leave to amend.

In its amended complaint, Cascades alleged facts sufficient to infer the plausible existence of a “hub-and-spoke” conspiracy that unreasonably restrained trade, according to the court. In addition, Cascades’ monopsonization claim was not dismissed for failure to allege market power and market share.

Cascades alleged a plausible hub-and-spoke conspiracy to force sub-competitive pricing for Cascades’ patent licenses. According to Cascades, RPX was the hub and the manufacturers were the spokes.

The court rejected the defendants’ arguments that (1) the challenged conduct was more plausibly explained by Cascades’ overvaluation of the underlying patents than by any collusive activity; (2) Cascades alleged mere parallel conduct, falling short of pleading a horizontal agreement or “rim” between the defending manufacturers and (3) Cascades failed to plead a vertical conspiracy or “spokes” because the agreements between RPX and the manufacturers were not themselves actionable.

The court concluded that the plaintiff augmented the generic allegations of the original complaint with specific facts suggestive of concerted action. While alternative explanations might exist, the issues were not yet ripe for resolution, it was decided. Moreover, a vertical agreement was plausible, despite the defendants’ contention that RPX members reserved the right to negotiate separately from RPX, and thereby to compete with each other and, theoretically, RPX itself in bidding for patent licenses. “It does not follow from the fact that the Manufacturing Defendants are permitted to deal independently that they diddeal independently,” the court noted.

The court also noted that it did not need to rule on whether the amended complaint alleged a restraint of trade that was per se unreasonable because it concluded that the amended complaint’s allegations sufficed to plead a violation of the rule of reason. In its amended complaint, Cascades “more precisely defined the relevant markets.” It identified a market based on a portfolio of 38 technology patents, including a submarket for the ‘750 Patent.

With respect to the monopsonization claim, Cascades adequately alleged that RPX wielded monopsony power in the market for Cascades’ patents—and specifically for the ‘750 Patent—by virtue of its role as purchasing agent for the defending manufacturers. These manufacturers collectively controlled more than 90 percent of the mobile phone business using the Android operating system and 75 percent of the combined mobile phone and tablet business, it was noted.

Noerr-Pennington Doctrine. The court also denied the defendants’ motion to dismiss based on the Noerr-Pennington doctrine. The amended complaint did not identify with sufficient particularity the information necessary to determine whether the alleged cooperative conduct fell within the ambit of Noerr-Pennington protection for petitioning activity. There was insufficient information regarding the timing of any licensing negotiations vis-à-vis the filing of the Illinois lawsuit. Moreover, the court rejected the contention that Cascades had the burden of pleading facts rebutting the Noerr-Pennington doctrine’s applicability.

The case is No.: 12-CV-1143 YGR.

Attorneys: Ashley E. LaValley (Niro Haller Niro) for Cascades Computer Innovation LLC. Alfred Carroll Pfeiffer, Jr. (Latham & Watkins LLP) for RPX Corp. Daniel Paul Weick (Wilson Sonsini Goodrich and Rosati) for HTC Corp., Motorola Mobility Holdings, Inc., and Samsung Electronics Co. Ltd.

Companies: Cascades Computer Innovation LLC; RPX Corp.; HTC Corp.; Motorola Mobility, Inc.; Samsung Electronics Co.

MainStory: TopStory Antitrust CaliforniaNews

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