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From Antitrust Law Daily, September 14, 2015

Monopoly, malicious prosecution claims over roller coaster braking system fail

By Jeffrey May, J.D.

A company that designs and builds roller coasters was not shown to have used an invalid patent to monopolize the market for magnetic braking systems for roller coasters, the U.S. Court of Appeals in San Francisco has decided. Summary judgment in favor of Intamin Ltd. and its affiliates on malicious prosecution and antitrust claims raised by Magnetar Technologies Corporation was upheld (Magnetar Technologies Corp. v. Intamin Ltd., September 14, 2015, Smith, M.).

Malicious prosecution. At the outset, the appellate court ruled that Magnetar—a manufacturer and distributor of magnetic brakes and braking systems for use on roller coaster rides—could not show that Intamin engaged in malicious prosecution by filing suit against Magnetar for patent infringement. The on-sale bar of 35 U.S.C. §102 provides that “no person is entitled to patent an ‘invention’ that has been ‘on sale’ more than one year before filing a patent application,” the court explained. In this matter, a reasonable attorney could have concluded that the on-sale bar did not apply to the purportedly infringed patent. Thus, Magnetar could not prove that Intamin lacked probable cause to bring the patent infringement action against it.

In 1996, Intamin filed an application with the U.S. Patent and Trademark Office (PTO) for a patent on a magnetic braking system used in a ride—called the “Hellevator”—developed for a Kentucky amusement park—Kentucky Kingdom. The technology was initially proposed in the Fall of 1994, when Intamin contracted to provide the Hellevator to Kentucky Kingdom. According to Magnetar, in light of the contract with Kentucky Kingdom, Intamin knew the patent was invalid based on the on-sale bar. However, there was a difference of opinion as to whether the magnetic braking system had been (1) offered for sale before the critical date; and (2) was ready for patenting before the critical date.

The contract between Intamin and Kentucky Kingdom to develop the ride and a related letter about product modifications did not necessarily constitute a commercial offer to sell the magnetic braking system described in the patent in question, according to the appellate court. Moreover, even if there was a commercial offer, a reasonable attorney could still have concluded that the magnetic braking system was not “ready for patenting” when the Hellevator was sold to Kentucky Kingdom. There was evidence that experiments on the magnetic brakes were being conducted after the critical sale date, and ongoing experiments on an invention can show that the invention had not been reduced to practice. This would refute the notion that the braking system was ready for patenting, the court explained.

Monopolization. Magnetar did not allege sufficient facts to show a causal antitrust injury stemming from Intamin’s enforcement of the patent to establish market power in the market for magnetic braking systems, the appellate court ruled. Magnetar unsuccessfully contended that Intamin caused two antitrust injuries: (1) lost profits resulting from Intamin’s patent infringement lawsuit and other attempts to force Magnetar to pay licensing fees to Intamin, and (2) litigation costs Magnetar incurred in defending the patent lawsuit.

With respect to lost profits, Magnetar failed to prove a “direct causal connection between the alleged violation and the alleged injury,” the court ruled. Magnetar did not establish what portion of its losses could be attributed to the patent lawsuit. Magnetar’s principal expert did not separate the damages attributable to the patent action from other possible causes of losses.

Neither Magnetar's expert witnesses nor its president provided evidence that Intamin caused Magnetar to lose profits. While the executive testified that Magnetar’s business and reputation were severely damaged, the conclusory testimony only showed a correlation between the beginning of the patent litigation and losses suffered by Magnetar. Affidavits from potential customers, which stated that they were wary of “potential litigation” and therefore decided not to purchase magnetic brakes from Magnetar, also did not provide a clear causal link to losses suffered by Magnetar, in the court's view.

The litigation expenses Magnetar incurred defending itself against the patent litigation was not shown to constitute an antitrust injury. Unlike the alleged lost profits, Magnetar's litigation expenses were not speculative, the court noted. However, in order to succeed on its antitrust claim based on litigation expenses, Magnetar had to show that the patent lawsuit was a sham. Because a reasonable attorney could have determined that Intamin’s patent lawsuit was viable and that the on-sale bar did not apply to the patent in question, summary judgment was proper on Magnetar's claim for expenses.

Sanctions. Magnetar was not sanctioned for bringing a frivolous antitrust action. The appellate court agreed with the lower court that Magnetar had reasonable grounds to bring the antitrust action.

The cases are Nos. 13-56119, 13-56333.

Attorneys: Maxwell M. Blecher and Harold R. Collins (Blecher, Collins, Pepperman, and Joye, P.C.) for Plaintiff-Appellant/Cross-Appellee Magnetar Technologies Corp. Gerald E. Hawxhurst, Daryl M. Crone, David S. Harris (Crone, Hawxhurst LLP) for Defendant-Appellee/Cross-Appellant Intamin Ltd.

Companies: Magnetar Technologies Corp.; Intamin Ltd.

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