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From Antitrust Law Daily, January 15, 2016

Patent portfolio companies adequately alleged to be single entity for monopoly claims

By Jeffrey May, J.D.

Capital One Financial Corp. sufficiently alleged that patent portfolio company Intellectual Ventures Management, LLC and related companies were a single entity for purposes of pursuing claims that they amassed monopoly power in violation of Section 2 of the Sherman Act and Section 7 of the Clayton Act by acquiring financial-services patents. Also rejecting assertions of issue preclusion and claim preclusion, the federal district court in Greenbelt, Maryland, concluded that “the time has come to move forward with discovery” (Intellectual Ventures I LLC v. Capital One Financial Corp., January 14, 2016, Grimm, P.).

Capital One's antitrust claims arose in response to patent litigation brought by Intellectual Ventures I LLC and a related company Intellectual Ventures II LLC (the original IV companies). The IV companies, purportedly operating as a patent assertion entity (PAE) or patent troll, acquired a portfolio of patents and then engaged in a “patent holdup” by using a patent suit to force payment of excessive license fees. Capital One brought antitrust counterclaims against the original IV companies and a Third-Party Complaint against other IV companies (the new IV companies). Capital One contended that combined the related companies acquired a “single 3,500 patent portfolio” of financial-services patents.

In its Third-Party Complaint against the new IV companies, Capital One adequately described the IV companies’ corporate structure sufficiently to withstand dismissal, according to the court. It sufficiently alleged that Intellectual Ventures Management, LLC was the parent company, that the other IV companies were subsidiaries, and that the parent company controlled the subsidiaries. However, because the allegations of management and control, which were present in the Third Party Complaint, were “nowhere to be found” in the counterclaims against the original IV companies, the antitrust counterclaims were dismissed without prejudice. Capital One was instructed to re-plead to include the allegations contained in the Third Party Complaint to assert that the original IV companies were the same entity.

Issue, claim preclusion. The new IV companies unsuccessfully argued that claim and issue preclusion barred the Third Party Complaint. They asserted issue preclusion, based on the finality of a judgment in a suit in a federal district court in Virginia, where Capital One filed similar antitrust counterclaims. The court ruled that collateral estoppel did not bar litigation of whether Capital One sufficiently pleaded a relevant market, even though the Eastern District of Virginia had rejected Capital One's market in that matter. The facts pleaded, pertaining to the relevant market, were not identical and whether Capital One sufficiently pleaded a relevant market on the augmented facts present in the counterclaims at issue in the current case was not resolved in the prior proceeding.

As for claim preclusion, the court had already decided that res judicata was not a bar to the antitrust counterclaims. Capital One had identified new facts that were not previously available, including the extent of the IV companies’ patent ownership. “Their later-acquired knowledge could be the facts necessary to push the quantity of the Intellectual Ventures companies’ patents over the line to a Section 7 violation,” the court concluded.

This is Case No. 8:14-cv-00111-PWG.

Attorneys: Michael Edward McCabe, Jr. (Funk and Bolton PA) and Clayton Walter Thompson, II (Feinberg Day Alberti and Thompson LLP) for Intellectual Ventures I LLC and Intellectual Ventures II LLC. Mary Catherine Zinsner (Troutman Sanders LLP) and Matthew Moore (Latham and Watkins LLP) for Capital One Financial Corp.

Companies: Intellectual Ventures I LLC; Intellectual Ventures II LLC; Intellectual Ventures Management, LLC; Capital One Financial Corp.

MainStory: TopStory Antitrust MarylandNews

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