On November 20, 2012, the U.S. Court of Appeals for the Federal Circuit issued a decision in Ritz Camera & Image, LLC v. SanDisk Corp., No. 2012-1183, 2012 WL 5862779 (Fed. Cir. Nov. 20, 2012). They affirmed that direct purchasers of patented products have standing to pursue a Walker Process antitrust claim against the patent holder, even where the direct purchaser cannot be sued for patent infringement and otherwise lacks the ability to bring an action for declaratory judgment.
As a result of the Supreme Court’s decision in Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), an entity may incur antitrust liability if it obtained a patent through intentional fraud on the Patent and Trademark Office and uses the patent to obtain or to preserve a monopoly. Such claims are referred to as Walker Process claims. The Federal Circuit’s decision in Ritz is important because, although the proof required to establish a Walker Process claim remains high, the class of potential plaintiffs may be larger than previously believed.
In June 2010, Ritz filed a class action suit in the Northern District of California against SanDisk on behalf of a class of direct purchasers of SanDisk’s NAND flash memory. The action asserted a Walker Process claim alleging that SanDisk had violated Section 2 of the Sherman Act by enforcing patents that were fraudulently procured and causing direct purchasers to pay supra-competitive prices for NAND flash memory products.
SanDisk sought dismissal on the grounds that, as a matter of law, Ritz could not pursue a Walker Process claim because, as a direct purchaser, Ritz faced no threat of an infringement action and would not have standing to pursue a declaratory judgment action under the patent laws. Judge Fogel denied SanDisk’s Motion to Dismiss, finding that although Walker Process claims are generally brought by competitors, nothing in the legal landscape prevented direct purchasers from asserting such claims. The Federal Circuit accepted SanDisk’s interlocutory appeal of Judge Fogel’s decision.
The Federal Circuit’s Decision
SanDisk’s argument that Ritz, as a direct purchaser, who would have no standing to challenge a patent’s validity or enforceability through a declaratory judgment action, was unable to assert a Walker Process claim rested on two grounds: (1) because a Walker Process antitrust claim requires proof that the patent was procured through fraud, it is subject to the standing rules applicable to patent claims, and (2) allowing Ritz to proceed would expand the Walker Process doctrine in unanticipated ways.
The Federal Circuit disagreed, finding instead that the Walker Process court had specifically addressed these issues. The opinion, authored by Judge Bryson, includes the following key points:
In Walker Process, Justice Harlan specifically stated that “as to this class of improper patent monopolies, antitrust remedies should be allowed room for full play.” Walker Process, 382 U.S. at 180 (concurring). The Federal Circuit determined that “the full play of antitrust remedies” includes the standing rules generally applicable to antitrust actions, including the preference for direct purchasers as antitrust plaintiffs. Ritz Camera, 2012 WL 5862779 at *2.
The Walker Process court specifically considered and rejected the idea that rules of standing related to patent cases should be incorporated into the antitrust setting solely because these claims involve one element related to fraudulent procurement of a patent. Id. at *3 (citing Walker Process, 382 U.S. at 175-76).
Other courts, including the Second Circuit, have already adopted the position that direct purchasers can bring Walker Process claims, despite the fact that they cannot directly challenge the patent’s validity. Id.
SanDisk’s policy arguments regarding the encroachment of antitrust laws on patent laws had already been considered and rejected by the Supreme Court when it created the Walker Process doctrine, which has very demanding proof requirements including intentional fraud on the PTO. Id. at *4.
Contact counsel if you have questions regarding the Ritz decision and its impact on your company.