For years, antitrust commentators have warned of threats to innovation and competition posed by “thickets” of patents—the “dense web[s] of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology.” See Carl Shapiro, “Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting” (March 2001), available at https://www.nber.org/chapters/c10778.pdf. At least one judge on the Federal Circuit has also noted concern about this issue. E.g. Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307, 1328-29 (Fed. Cir. 2016) (Mayer, J., concurring) (calling for elimination of “generically-implemented software patents” to “clear the patent thicket”).
Yet an entity’s creation of such a “thicket” has rarely been the basis of antitrust claims—and never, as far as we can tell, successfully. E.g. P&G v. Paragon Trade Brands, 1996 U.S. Dist. LEXIS 22399, at *22 (D. Del. Mar. 29, 1996). A recent decision from the Northern District of Illinois exemplifies the difficulties facing antitrust plaintiffs when asserting this kind of theory. In June, Judge Manish Shah dismissed a suit by indirect purchasers of Humira® based on allegations that its manufacturer, AbbVie, engaged in “pay-for-delay” agreements (a separate topic we have discussed on this blog) and created a patent thicket to prevent manufacturers of lower-cost biosimilar versions of the drug to enter the market. In Re: Humira (Adalimumab) Antitrust Litigation, No. 19-cv-1873 (N.D. Ill. June 8, 2020).
Our colleagues at the Biologics Blog have a detailed post about the decision. As they explain, the “patent thicket” theory failed under the Noerr-Pennington doctrine, which exempts from antitrust liability activities that involve petitioning the government, except when those activities are objectively baseless, such as bringing so-called “sham” litigation in which no reasonable litigant could expect to succeed. (In July, the plaintiffs noticed an appeal to the Court of Appeals for the Seventh Circuit.)
More recently, Judge Edward Chen dismissed (with leave to amend) a complaint by Intel and Apple that raises related issues. Intel Corp. v. Fortress Investment Grp. LLC, No. 19-cv-07651 (N.D. Cal. July 15, 2020). There, plaintiffs allege that the investment firm Fortress has invested in and/or created several “patent assertion entities” (“PAEs”), facilitating the aggregation of over a thousand patents and fueling “serial litigation” in which even weak patents are asserted against technology companies.
Intel and Apple claim that this aggregation scheme eliminates competition by making it more difficult for manufacturers to identify “substitutes” for patented technologies. Plaintiffs explain that for any given electronic device, there are multiple approaches to providing the same functionality, allowing a manufacturer to “design around” one patented technology by using another. Before Fortress’s “aggregation,” the different technologies competed with one another because they were owned by different companies. Now, plaintiffs say, manufacturers face a “serial risk” of litigation by the Fortress PAEs.
Judge Chen found multiple infirmities in the original complaint, including insufficient allegations regarding the relevant markets. But his discussion of the Noerr-Pennington doctrine is particularly interesting when contrasted with the Humira decision. Intel and Apple argued that Noerr-Pennington does not apply to their claims because the essence of the alleged anticompetitive conduct was not so much the assertion of litigation (an act of “petitioning” the government) but the acquisition of the patents in the first place.
Judge Chen agreed with the plaintiffs on this point. The court adopted a “modified Hynix approach” (after Hynix Semiconductor Inc. v. Rambus, Inc., 527 F. Supp. 2d 1084 (N.D. Cal. 2007)). Under that approach (which Judge Chen observed has been advocated by the Hovenkamp IP & Antitrust treatise and endorsed by the First Circuit), “liability can be based on nonpetitioning activity only (such as aggregation of patents)—or else Noerr-Pennington would be implicated—but injury can be related to petitioning activity (i.e., patent infringement litigation).” Judge Chen has therefore left open the door to plaintiffs establishing an antitrust violation based on a patent “aggregation” theory and, if successful, can seek “damages in the form of litigation costs.”
This is potentially an important distinction from Humira. The acquisition of intellectual property from third parties has long been subject to antitrust scrutiny under the Sherman Act. See, e.g., SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1205 (2d Cir. 1981) (“Surely, a § 2 violation will have occurred where, for example, the dominant competitor in a market acquires a patent covering a substantial share of the same market that he knows when added to his existing share will afford him monopoly power.”). In Humira, plaintiffs did not allege that AbbVie improperly acquired any patents in the secondary market. Instead, AbbVie developed the intellectual property itself and then allegedly filed a lot of applications to the U.S. Patent and Trademark Office, which courts consistently recognize as a constitutionally protected act of “petitioning.”
Intel and Apple filed their amended complaint earlier this month. If it corrects the pleading deficiencies identified by the court on the initial motion to dismiss, the progress of the “aggregation” theory will be interesting to watch.
