Antitrust Violation Found in Patent Infringement Litigation, and (Trebled) Attorney Fees for Defending Infringement Awarded as Damages

On February 10, 2016, the Federal Circuit issued an opinion in a case captioned Transweb, LLC v. 3M Innovative Properties Company, 3M Company.

3M had sued TransWeb for infringement of several patents.  TransWeb sued for declaratory judgment of invalidity and non-infringement of the patents.  A jury found the patents to be invalid based on TransWeb's prior public use of the patented method.  Further, in accordance with an advisory verdict from the jury, the District Court found the patents unenforceable due to inequitable conduct.

Among other outcomes of the district court litigation, the jury found 3M to be liable for a Walker Process antitrust violation, based on fraudulent procurement and subsequent assertion of the patents, and that attorney fees were an appropriate antitrust remedy.  The District Court awarded approximately $26 million to TransWeb, including trebled attorney fees as antitrust damages.  On appeal, the Federal Circuit affirmed that the attorney fees are an appropriate basis for damages under the antitrust laws in this context.  The Federal Circuit found that TransWeb's attorney fees appropriately flow from the unlawful aspect of 3M's antitrust violation, and thus, are an antitrust injury that can properly serve as the basis for antitrust damages.

Looking at the technology involved, TransWeb and 3M are both manufacturers of filters for respirators, such as might be worn by workers in a dirty or otherwise contaminated worksite.  The filter media at issue in this case consist of "nonwoven fibrous webs," which rely on a "web" of fibers rather than traditional woven material.  Both TransWeb and 3M use a process of melting pellets of a filter material, such as polypropylene, blowing the melted material into a thin film, and then allowing the material to cool and solidify into the nonwoven fibrous web.

3M asserted U.S. Patent Nos. 6,397,458 and 6,808,551 against TransWeb.  These patents generally disclose uses of "hydrocharging," which is a technique that uses water to impart electrical charges on the filter medium to enable the medium to repel or capture particulates both by mechanical and electro-magnetic means.

The District Court ultimately presented many issues to a jury including questions of infringement, invalidity, and unenforceability of the two patents.  Of note for this commentary is the Walker Process antitrust violation that was presented to the jury based on fraudulent procurement and subsequent assertion of the patents; sham litigation antitrust violation based on assertion of the patents; entitlement to lost profits damages for antitrust violations; and entitlement to attorney fees as damages for antitrust violations.  The jury delivered all verdicts (with the exception of no sham litigation) against 3M, and TransWeb was entitled to lost profits and attorney fees as antitrust damages.

Walker Process Antitrust Violation

In Walker Process, the Supreme Court held that a plaintiff could bring an action under § 2 of the Sherman Act based on the alleged maintenance and enforcement of a fraudulently-obtained patent.  To prevail on a Walker Process claim, the antitrust-plaintiff must show two things: (1) that the antitrust-defendant obtained the patent by knowing and willful fraud on the Patent Office and maintained and enforced the patent with knowledge of the fraudulent procurement; and (2) all the other elements necessary to establish a Sherman Act monopolization claim (e.g., (i) that the defendant has engaged in predatory or anticompetitive conduct with (ii) a specific intent to monopolize and (iii) a dangerous probability of achieving monopoly power).  In determining the dangerous probability of achieving monopoly power for element (iii), the courts look at the relevant market and the defendant's ability to lessen or destroy competition in that market.

In this case, 3M does not contest that TransWeb's inequitable conduct showing, if affirmed, along with 3M's bringing of the infringement suit proves the first Walker Process requirement, as well as elements (i) and (ii) of the second Walker Process requirement.

Because 3M did not challenge the sufficiency of the evidence supporting the jury's Walker Process fraud finding beyond challenging the inequitable conduct finding, the Federal Circuit accepted as admitted that TransWeb sufficiently demonstrated the Walker Process fraud component (note that the showing required for proving inequitable conduct and the showing required for proving the fraud component of Walker Process liability may be nearly identical, but debate still exists as to whether Walker Process liability requires a higher, more specific showing of knowing and willful fraud than the more inclusive inequitable conduct doctrine).

On Appeal, 3M challenged whether the District Court properly defined the relevant market for determining dangerous probability of monopoly power in element (iii), and whether the award of TransWeb's attorney fees is appropriate even if the Walker Process case were proven.

The relevant market is defined by both a product market and a geographic market.  TransWeb defined two distinct markets: an "upstream" market for "fluorinated polymeric material" and a "downstream" market for NIOSH-certified respirators in the United States.

Product Market: The relevant product market consists of all products that are reasonably interchangeable by consumers for the same purposes.  Looking at all evidence submitted, the Federal Circuit concluded that a sufficient basis existed on which a reasonable jury could conclude that the price, use, and qualities of fluorinated material render it a distinct market from other filter media.

Geographic Market: The relevant geographic market is the area in which a potential buyer may rationally look for the goods or services he or she seeks.  3M argued that the District Court erred in limiting the downstream market for NIOSH-certified respirators to the United States.  The Federal Circuit concluded, however, that there was a sufficient basis on which a reasonable jury could conclude that the United States was the relevant geographic market for the NIOSH-certified respirators.

Thus, with the fraud component of the antitrust claim being admitted, and having found that the District Court properly defined the relevant market for determining dangerous probability of monopoly power in element (iii), the Federal Circuit affirmed that 3M is liable for the Walker Process anti-trust violation.

Attorney Fees as Antitrust Damages?

Section 4 of the Clayton Act provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee."  15 U.S.C. § 15(a) (2012).

The jury concluded that TransWeb was entitled to its lost profits ($34,000) and attorney fees in recompense for 3M's antitrust violation.  The District Court trebled the lost profits to the amount of approximately $103,000.

But, for attorney fees, the District Court concluded that TransWeb incurred approximately $3.2 million in attorney fees prosecuting the antitrust claim and approximately $7.7 million defending the infringement suit.  The District Court awarded the $3.2 million on a one-for-one basis as "cost of suit" fees but awarded the $7.7 million trebled to approximately $23 million as damages for a total of over $26 million in trebled attorney fees damages.

3M argued that the District Court erred in awarding the $23 million of attorney-fees damages due to defending the infringement suit because TransWeb failed to show any link between those attorney fees and an impact on competition.  3M argued that those attorney fees had no effect on competition because they did not force TransWeb out of the market or otherwise affect prices in the market.  On this basis, 3M argued that those attorney fees are not an antitrust injury, and thus cannot be a proper basis for antitrust damages.

Section 4 of the Clayton Act does not provide recompense for any injury causally linked to a violation of the antitrust laws, but rather only for antitrust injury.  Thus, TransWeb's injury-in-fact of $7.7 million must be attributable to an anti-competitive aspect of the practice under scrutiny in order to qualify as an antitrust injury.

The Federal Circuit noted that in this case, 3M's unlawful act was in fact aimed at reducing competition and would have done so had the suit been successful because 3M's unlawful act was the bringing of suit based on a patent known to be fraudulently obtained.  What made this act unlawful under the antitrust laws was its attempt to gain a monopoly based on this fraudulently-obtained patent.  TransWeb's attorney fees flow directly from this unlawful aspect of 3M's act.  That is, TransWeb's attorney fees flow from that which makes 3M's acts unlawful, and are attributable to this anti-competitive aspect of the practice under scrutiny.

No assertion of a patent known to be fraudulently obtained can be a proper use of legal process.  No successful outcome of that litigation, regardless of how much the patentee subjectively desires it, would save that suit from being improper due to its tainted origin.  Therefore, the Federal Circuit found that allowing attorney fees as antitrust damages in contexts such as sham litigation and lawsuits in furtherance of a broader anticompetitive scheme is proper.

The antitrust laws exist to protect competition.  The Federal Circuit noted that this outcome furthers the purpose of the antitrust laws to encourage TransWeb to bring its antitrust suit instead of waiting to be excluded from the market.  In summary, TransWeb's attorney fees that were incurred defending the infringement suit are an antitrust injury, and thus can form the basis for damages under § 4.

The outcome of this case provides great power to defendants who are successful in challenging a patent as being unenforceable due to inequitable conduct, or knowing and willful fraud on the Patent Office.  With such a finding, defendants then need only show "a dangerous probability of achieving monopoly power," albeit a challenge itself, to achieve a successful Walker Process antitrust violation.  That violation, which may not ordinarily be attributable to large monetary damages to the defendant, now attaches attorney fees (trebled) for defending the infringement suit.

Transweb, LLC v. 3M Innovative Properties Co. (Fed. Cir. 2016)
Panel: Circuit Judges Wallach, Bryson, and Hughes
Opinion by Circuit Judge Hughes