Can An “Anti-Patent Troll” Be a Monopsonist or a Section 1 Conspirator?


A recent interesting case suggests that “anti-patent trolls” may in theory face antitrust liability. In Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition.

The court also agreed that Cascades had not adequately pled a conspiracy that made economic sense. According to RPX, a more plausible explanation for the manufacturing defendants’ decision to decline a $5 million licensing offer was that the offer price was too high. RPX had been negotiating a $10 million deal for all of its 110 members, which made a $5 million offer to each of LG, Motorola, Samsung and HTC too high (collectively $20 million). Although the court did not endorse this and several other “economic sense” arguments, it concluded that Cascades

ha[d] fastidiously avoided providing specific facts with respect to the timing of the alleged negotiations and the interplay with the filing of [actions] for patent infringement. Cascades also 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. Without clarification and specificity, the Court will not presume economic [ir]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.

However, the court also refused to hold that the alleged group boycott activity could not constitute a per se Section 1 violation. And the court rejected defendants’ argument that Cascades failed to allege antitrust injury because of the lack of allegations regarding possible consumer injury. “Anticompetitive conduct need not harm consumers specifically in order to cause antitrust injury.”

Although Cascades now has an uphill battle, given leave to amend the complaint, only time will tell whether it can allege sufficient facts to establish its conspiracy, competitive harm, and relevant market allegations.

As Professor Hovenkamp cogently wrote in a comment to the article below — a comment which still applies to the likely amended complaint:

As a matter of antitrust law, a great deal will depend on whether this is a naked agreement to refuse to license (or to suppress the price), or whether it is an ancillary agreement setting standards so as to exclude the plaintiff. A naked agreement among a group of competing manufacturers not to purchase a license or to pay only a low fee would be illegal per se under the antitrust laws. On the other hand, joint licensees who are actively engaged in standard setting do set standards that exclude some technologies. Standard setting is addressed under the rule of reason and generally upheld if there is an objectively reasonable basis for the exclusion. An objectively reasonable basis could include a decision that a patent offered by an outsider is not valid or that the manufactures already have suitable alternatives to the offered patent or are not infringing it.

Another possibility is that the defendant device manufacturers are not acting in concert at all, but are individually deciding not to purchase a license from the plaintiff. The firms are not monopolists, and in any event there is no law in the United States that requires even a monopolist (acting unilaterally) to purchase a license from an outside patentee.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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