Tuesday, April 27, 2021

Fortress Investment and subsidiaries seek dismissal of Apple and Intel's second amended antitrust complaint over patent aggregation

Not every long story is neverending: this summer we're finally going to know whether Apple and Intel's antitrust complaint against Fortress Investment in the Norther District of California over abusive patent aggregation will be taken to trial--or whether the plaintiffs have to appeal a dismissal with prejudice. Last night, Fortress and various non-practicing entities (NPEs) it funded brought their motion to dismiss and strike the Second Amended Complaint (a 161-page "book" that is technically already the fourth complaint, as Intel originally brought one, which it withdrew in order to refile with Apple).

Just last week, Intel defended itself against Fortress-funded VLSI Technology's second patent infringement complaint in the Western District of Texas, as a jury held neither of the patents-in-suit to be infringed. VLSI had won a $2.175 billion verdict in the first case in early March. More recently, I found out about a bunch of VoiceAge v. Apple cases pending in Munich, though the trial dates in those have been vacated due to the pandemic. VoiceAge EVS is another Fortress-funded NPE.

At this stage, the case is about patent aggregation: Apple and Intel allege Fortress made targeted purchases for the purpose of amassing a portfolio outside of which one can't find alternative technologies. The complaint has come a long way from a diversity of partly very broad and general assertions to its current degree of specificity. But, guess what, Fortress is basically telling Apple and Intel that their best isn't good enough. Allegedly the Second Amended Complaint "repeats the same errors" as the two prior vesions.

This is the motion to dismiss and strike (this post continues below the document):

21-04-26 Fortress VLSI Moti... by Florian Mueller

INVT and Inventergy filed a supplemental memorandum (this post continues below the document):

21-04-26 INVT Supplemental ... by Florian Mueller

As always in antitrust litigation, market definition is key. Fortress says Apple and Intel's new definitions aren't better: the patents are the same, and it's still about "technical fields" (not "specific functions"). Fortress furthermore argues some of the patents "do not fit [Apple and Intel's] new market definitions."

The next step is to establish market power in a given market. Here, Fortress criticizes that the complaint "does not identify a single price—much less a 'supracompetitive' one—that anyone has ever paid to license any of Defendants’ patents" (just damages demands). Fortress furthermore says the complaint doesn't plead aggregation in the sense of having acquired "all or even most of the 'substitutes' in the alleged markets, or that Defendants have aggregated the most important substitutes—i.e., the 'crown jewels'—in any of the markets." And Fortress argues that makret power alone wouldn't suffice: reduced output is allegedly an indispensable additional requirement in the Ninth Circuit.

With respect to antitrust injury, Fortress notes that Apple and Intel "still do not allege that they ever paid for a single license" to the patents at issue.

A conspiracy across those entities (Sherman Act Section 1) is denied because "every allegedly improper transaction is only between Fortress or Fortress Credit and a single other Defendant" but not among the group of companies as a whole.

In the headline of my report on the Second Amended Complaint, I mentioned the alleged Generating Alerts Based on Blood Oxygen Level Market. The motion to dismiss argues that some of the patents Apple and Intel listed in that context "have nothing to do with measuring blood oxygen." At first sight, a couple of examples Fortress provides may indeed be unrelated, such as U.S. Patent No. 7,690,556 on a "step counter accounting for incline": in the patent document, I couldn't find the word "oxygen" once, and the sole occurrence of "blood" relates to other eHealth functionality than the one covered by the patent. While I did get the impression that the Second Amended Complaint defined reasonably narrow markets, it may very well be that a few patents have been miscategorized.

Fortress's arguments get more technical with respect whether certain patents are in the same market. If they were, Fortress argues, a pice change for one would have to cause a change in demand for another. I guess Apple and Intel will argue that the aggregation of a set of patents may simply mean there are no substitutes left, which Fortress obviously denies.

Maybe you wondered why it's a "motion to dismiss and strike": Fortress asks the court to strike an Unfair Competition Law claim under California's anti-SLAPP statute, as this would entitled Fortress to a fee award.

Some of the points Fortress makes in its motion may not serve as a basis for dismissal, but go to the merits. I guess that's what Apple and Intel are going to argue in their opposition brief on June 14.

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