Tuesday, June 15, 2021

Apple, Intel reject Fortress Investment's criticism that their second amended antitrust complaint lacks plausibility, want to proceed to trial at long last

Intel and Apple demonstrate what perseverance can mean in litigation. They've been trying since 2019 to strike back against Fortress Investment's patent assertion business (which is just one of various fields in which Fortress invests) with an antitrust action in the Northern District of California. Had they not done this, the dispute would have been a one-way street, with Apple and Intel always being on the receiving end of litigation campaign after litigation campaign. Sometimes a good offense is the best defense. So Intel, which was joined by Apple early on, alleged that Fortress and the multitude of patent assertion entities it has funded engaged in anticompetitive conduct.

Fast forward to 2021, and the case is still at the motion-to-dismiss stage. It's already the second amemded complaint. All in all, that it makes it the third version of the joint Apple-Intel complaint, and the fourth version if one includes the original filing Intel made alone. The case got narrower and narrower, and the legal theory at its heart is now "the unlawful mass aggregation of patents, including substitutes, thereby eliminating competitive constraints that existed before the aggregations," as last night's response by Apple and Intel to Fortress's renewed motion to dismiss says (this post continues below the document):

21-06-14 Apple Intel Respon... by Florian Mueller

Let's take a bird's-eye view here. Assuming for the sake of the argument (not in the sense of a prediction) that the court finally lets this version of the complaint go to trial (and on the way there, a lot of work would still have to be done), would this offense be the best defense?

It could make a useful contribution to Intel's and Apple's defensive efforts, and it could serve as a warning to litigation-funding or other companies engaging in patent aggregation. However, the best defense is still to be cleared of infringement. Intel achieved that in April. That was the second of three patent infringement cases by Fortress-funded VLSI Technology against Intel. And in the first case, where a record damages verdict ($2.175 billion) came down in the Western District of Texas, Intel is raising a host of issues with the decision and the way it was reached. There are reasons to believe that Intel will get that verdict vacated or adjusted massively--well before anything could come out of the NorCal antitrust case even in the most optimistic scenario for Intel and Apple.

What about the other scenario, in which Judge Edward Chen would still find the pleadings, fundamentally lacking and wanting? In that case, Intel and Apple would have to take this up with the appeals court. FTC v. Qualcomm is controlling Ninth Circuit law. Apple itself points to it all the time in its App Store antitrust dispute with Epic, as does Fortress in defense against Apple and Intel's antitrust lawsuit. FTC v. Qualcomm is a patent-related antitrust case in which a three-judge panel essentially said, among other things, that if someone overcharges for patents and you can address the problem under patent law (such as by not taking a license and instead defending yourself against an infringement action, which gives you the chance to challenge the economic value of the patents in question), it's not an antitrust issue. However, patent law does not have scope for defenses against "the unlawful mass aggregation of patents, including substitutes, thereby eliminating competitive constraints that existed before the aggregations" (this is the passage I quoted further above). Patent law is not about reinstating competitive constraints. Antitrust law can do that.

The FTC's motion for rehearing en banc against the Qualcomm panel decision failed. That lends that decision more weight. But it doesn't mean that anything to do with patent licensing and assertion is beyond reach for antitrust law. Intel and Apple v. Fortress would be an opportunity for the appeals court to clarify that.

Apple and Intel argue that their case is now, finally, ripe for further proceedings in the trial court. They point to the low bar for a complaint to survive a motion to dismiss (and conversely high bar for such motion to succeed). When a complaint is as detailed as this one is by now, there comes a point at which the issues a defendant can raise are likely more about triable facts than about the pleading standard. Intel and Apple note that the factual allegations on which their theories are based merely have to be plausible, which is more than "possible"--but not a whole lot more. And they say that the complaint's own factual allegations matter, and if Fortress disagreed with those facts, it would have to present its own facts later--at the summary-judgment stage at the earliest.

Judge Chen wanted to see actual anticompetitive effects, but also wanted the two plaintiffs to plead facts according to which those effects are truly caused by the alleged patent aggregation. Apple and Intel point to patents that prior owners, even including litigious ones, did not assert in court. They highlight discrepancies between the valuation of certain patents or portfolios and what some Fortress-funded entities later demanded in damages. One could paraphrase Fortress's position on this as suggesting between the lines that they're simply damn good at what they're doing and identify gems that others fail to see--and/or that they're first-rate patent monetizers. It's not going to be easy for Intel and Apple to prove that aggregation--and not some other factors, such as the aforementioned ones--resulted in price increases. But where we are now, the question is whether Apple and Intel will get their day in court.

As for the agreements between Fortress and other entities, Apple and Intel note that "an anticompetitive agreement is illegal, even if only one party thereto intended an anticompetitive result." In this case, it's about whether Fortress entered into agreements with a certain agenda, not whether both parties did. The other party to any given agreement might have done so for whatever reason.

Technically, there's also a separate motion by one Fortress entity, INVT (Inventergy). Apple and Intel argue that it's based on the court's prior holding concerning standard-essential patents, but the complaint is about non-SEPs.

Before we see the next major development in this California case, I wouldn't be surprised to see some key post-trial decisions in the Western District of Texas (VLSI v. Intel).

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