gavelWe’ve previously discussed the wide-ranging assertion activities of Innovatio IP Ventures LLC, a non-practicing entity that has targeted thousands of companies across the country over patents related to the IEEE 802.11 wireless networking (Wi-Fi) standard.  And due to an amended complaint filed in October 2012 by Motorola Solutions, Cisco, and Netgear in the Northern District of Illinois, Innovatio has been facing a litany of charges relating to this licensing and litigation campaign.  These charges include breach of contractual RAND obligations, state law unfair competition, civil conspiracy, and even violation of the federal civil RICO statute.  In November, Innovatio moved to dismiss these claims.  This week, Chief Judge James F. Holderman granted much of Innovatio’s motion, dismissing all of the claims except for the RAND-based breach of contract and promissory estoppel claims.  This ruling is indicative of the substantial hurdles that potential licensees of standard-essential patents face in attempting to show when patent holders’ assertion of rights and licensing demands may cross legal boundaries — and it may also further muddy the already murky waters surrounding the scope of RAND obligations.

To recap, Innovatio’s motion to dismiss sought to dismiss counts XLIX (RICO), L (unfair competition), LI (civil conspiracy), LII (breach of contract), LIII (promissory estoppel), LIV (intentional interference with prospective economic advantage), and LV (unclean hands) of the 55-count complaint.  Innovatio claimed that its patent enforcement and licensing activity is protected by the Noerr-Pennington Doctrine — the right to petition the government for redress of grievances (e.g., using the courts to address patent infringement).  Innovatio also claimed that the plaintiffs lacked standing to bring these claims because they had never been targeted by Innovatio, and that the complaint suffered from various deficiencies in factual allegations.

The RICO/unfair competition claims

As to the non-RAND-based claims, the court first addressed the threshold issue of the scope and applicability of the Noerr-Pennington doctrine.  Judge Holderman found that Noerr-Pennington is relevant not just in the traditional antitrust arena; applying Seventh Circuit law, he also found that it applies broadly to the other statutory and common law claims asserted by the plaintiffs.

But as to whether Noerr-Pennington protected the demand letters and other patent licensing correspondence Innovatio sent to the plaintiffs’ customers, the court looked to Federal Circuit law, citing extensively to and extending the reasoning of Globetrotter Software v. Elan Computer Grp. (a case not cited by any of the parties in their briefs, interestingly enough).  In that case, which dealt with federal preemption of state law counterclaims, the Federal Circuit found that state law claims could avoid preemption only if it could be shown that the patent holder was acting in “bad faith” in seeking to enforce its patents.  The court found that the holding of Globetrotter mandates that Noerr-Pennington shields pre-suit communications such as these from both state and federal law claims.  The court also rejected two fallback arguments from the plaintiffs: (1) that the licensing demands were not “pre-suit communications,” and (2) that because Innovatio is a patent assertion entity, its activities were “normal business activity” that should be shielded by Noerr-Pennington.  As to the latter argument, the court noted that plaintiffs failed to explain why, given that Noerr-Pennington is grounded in the First Amendment, patent assertion entities are not entitled to First Amendment protection.

The court also found that the plaintiffs failed to properly plead that Innovatio’s activities were mere “shams” undertaken in bad faith, which would remove them from Noerr-Pennington protection. The court held that the mere existence of RAND obligations did not prohibit Innovatio from enforcing its patent rights.  Furthermore, the fact that some of Innovatio’s licensing targets may have been using Wi-Fi equipment that was already licensed to Innovatio’s patents did not mean that Innovatio’s claims were a “sham” in the absence of evidence that Innovatio knew that all of a particular target’s products were licensed.  Finally, as to the plaintiffs’ claims that Innovatio had made several misrepresentations about the scope and value of its patents and the existence of license agreements, the court found that even if true and taken as a whole, these statements were not material enough to render Innovatio’s entire licensing campaign a “sham.”

The RAND-based breach of contract and promissory estoppel claims

Unlike the other claims, Innovatio’s motion to dismiss the plaintiffs’ RAND-based breach of contract and promissory estoppel claims was denied — with a slight twist.  The court noted that Innovatio did not dispute that 802.11-essential patents at issue were subject to RAND obligations, that RAND obligations created a binding contract, nor that Innovatio was bound by the RAND obligations undertaken by Broadcom, the previous holder of the patents.  Judge Holderman found — as other courts have — that despite that the presence of terms such as “applicants” and “upon request” in some of the RAND letters of assurance, the planitiffs were not required to actually request a RAND license before filing suit.  He rejected Innovatio’s argument that the plaintiffs lacked standing because they had never been approached by Innovatio nor had proactively requested a license, and thus were not intended beneficiaries of the IEEE RAND contract.

But in a bit of a departure from previous courts’ findings on RAND obligations (W.D. Wash. in Microsoft v. Motorola, W.D. Wis. in Apple v. Motorola), Judge Holderman construed the RAND contract in an interesting way.  He found that Innovatio’s RAND obligations only extended directly to IEEE members as parties to the contract, and that the plaintiffs had only pled that Cisco (not Motorola or Netgear) was an IEEE member (and therefore a party to the contract).  Therefore, even without having been approached by Innovatio, Cisco had standing to sue for breach of contract and damages from that breach.

As for Motorola and Netgear’s breach of contract claims, the court noted that it would generally be improper for Motorola and Netgear (third parties to the IEEE RAND contract) to sue Innovatio for breaching its obligations to their customers (other third parties to the IEEE RAND contract).  But the court did allow these claims to go forward, with the caveat that neither party may pursue any damages on the theory that they were harmed by Innovatio’s failure to offer RAND licenses to their customers.

Finally, the court rejected Innovatio’s attempt to dismiss the promissory estoppel claim because the existence of a contract was also alleged, explaining that it is appropriate for the plaintiffs to plead alternative grounds for relief.  Therefore, the court held that Innovatio’s activity is protected conduct under Noerr-Pennington and dismissed counts XLIX, L, LI, LIV, and LV.

February 4, 2013 Order on Motion to Dismiss