Saturday, October 9, 2021

Monopolistic patent aggregation can give rise to antitrust liability, Judge Chen clarifies in dismissal of Intel's (and previously also Apple's) antitrust case against Fortress Investment

On September 28, 2021, Judge Edward M. Chen of the United States District Court for the Northern District of California granted a motion by Fortress Investment and certain entities funded by Fortress to dismiss with prejudice an antitrust complaint that Intel was still pursuing and from which Apple withdrew in June as this blog was (to the best of my knowledge) first to report.

Meanwhile, a public redacted version of the order has become available (this post continues below the document):

21-10-07 Public Redacted Ve... by Florian Mueller

From the beginning I've looked at this case--with or without Apple being involved--as a test case for whether antitrust claims could still be brought in the United States against anything involving patents. The year after the dispute started, the Ninth Circuit's reversal of the district court's FTC v. Qualcomm judgment was in part based on a reasoning that appeared to generally raise the bar for antitrust theories targeting patent licensing and litigation practices. I never thought that the door was entirely closed to such claims, and that's why I'm glad to see that Judge Chen--a very well-respected district judge in that same circuit--carefully distinguished the specific problems facing Intel's complaint from what would otherwise amount to antitrust immunity for patent holders.

The key passage begins on page 11 of the above order:

"In so holding, the Court does not take issue with the general theory being put forward by Intel – i.e., that aggregation of substitute patents could, in theory, harm 'competition in the same way as any merger or combination of competitors that lessens competition.' [...] The narrative told by the operative complaint, in principle, is compelling. It is not hard to imagine that a person or entity could accrue market power by obtaining a dominant share of substitute patents and threaten a barrage approach to litigation wherein an imperfect civil justice system may yield an erroneous outcome, thus allowing legally unjustified leverage over licensees, a result which could well constitute an unreasonable restraint of trade." (emphases added)

Judge Chen goes on to note:

"The problem for Intel is that the SAC lacks sufficient facts to demonstrate the narrative has been carried out against the company, at least at this juncture." (emphases added)

The last part--which other passages of the order are totally consistent with--makes this a semi-prejudicial dismissal. At first sight the type of dismissal is binary: if the court dismisses a case with prejudice, you can't refile, and if it's without, the court either means to send you back to the drawing board to do a better job or just wants to give you the opportunity to try again some other time. Here, however, the prejudice is only to the combination of the theories Intel presented with the lack of facts that would allow the court to consider it a possibility that, as Judge Chen put it, "the narrative has been carried out against [Intel]." There isn't much left of the original allegations, especially as Judge Chen rejected the idea that complementary patents could be in a patent-based antitrust market (as complements can only form part of a common market when this reflects commercial realities), but there still are some substitute patents in a few markets left, and depending on whether substitutes would be asserted against Intel, they could refile. That doesn't mean there'd automatically be an antitrust violation, but at least there would be a basis for a new complaint.

This may serve to dissuade Fortress from asserting certain combinations of patents in court, in which case Intel would have actually accomplished something of tangible value despite the dismissal. Moreover, Intel may gain mileage out of this case at the policy level, especially now that the Biden Administration appears to be more sympathetic to makers of innovative products.

The key takeaways are that patent aggregation is not without antitrust risks. But if you, as an alleged infringer of aggregated patents, want to bring an antitrust complaint over patent aggregation in the Northern District of California, you can give it a try, but you must plead specific patent markets consisting of substitutes (not complements), and you better do so only when any potentially abusive behavior has actually occurred.

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