Judge Gilstrap recently issued an Order rejecting the equitable defense of patent misuse in a case involving standard essential patents (SEPs) subject to a commitment to license them on fair, reasonable and non-discriminatory (FRAND) terms. Motorola Mobility LLC (Motorola) alleged that Saint Lawrence Communications LLC (St. Lawrence or SLC) was guilty of patent misuse by, among other things, requiring Motorola to take a worldwide license to FRAND-committed SEPs, using the threat of injunctive relief in Germany to coerce licensing of those SEPs, entering different license terms with different licensees and not disclosing effective royalties from licensing the SEPs under a patent pool when negotiating individual licenses. This decision is another indication that competition law claims asserted against SEPs may not prevail when patent owners have followed traditional patent enforcement and licensing strategies or even if they breach of a FRAND commitment. Rather, there must be something more egregious or deceptive with the particular patent owner’s conduct at issue to give rise to competition law claims that are required to address harm to competition beyond harm that can be addressed by more traditional patent or contract law remedies — e.g., a contract remedy for breach of a FRAND commitment or limits on patent remedies based on a FRAND commitment. Continue Reading Judge Gilstrap rejects patent misuse defense to alleged FRAND-committed SEPs (St. Lawrence v. Motorola Mobility)
The U.S. Trade Representative (USTR) issued its annual 2017 Special 301
Report FINAL that “reviews the state of IP protection and enforcement in U.S. trading partners around the world.” (Report at 1). The report aims to “call out foreign countries and expose the laws, policies, and practices that failed to provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers.” (Report at 1). Among the issues raised in this report are concerns that a foreign government may force U.S. standard essential patent (SEP) holders to enter license terms that devalue the patent and subject them to improper competition law enforcement. Continue Reading U.S. Trade Representative’s Report raises concerns about unfair foreign treatment of U.S. companies with standard essential patents
The Northern District of California recently granted judgment on the pleadings in favor of patent-plaintiff ChriMar Systems, Inc. on antitrust and state law unfair competition counterclaims filed by accused infringers Cisco and Hewlett-Packard (HP). According to the court, the crux of Cisco’s and HP’s counterclaims alleged that ChriMar failed to disclose and commit to license one of its patents on reasonable and non-discriminatory (RAND) terms during a standard-setting process and, subsequent to the standard being adopted, filed suit against them alleging infringement of the same patent. Cisco and HP alleged that this was an abuse ChriMar’s “monopoly power” and also a violation of California’s Unfair Competition Law. The court held that judgment on the pleadings was warranted because Cisco and HP failed to define the relevant market and also failed to plead facts showing market power and antitrust injury. The court, however, granted Cisco and HP leave to amend their counterclaims.
Background. On October 31, 2011, ChriMar filed a complaint against Cisco and HP alleging that Cisco’s and HP’s “Power over Ethernet telephones, switches, wireless access points, routers and other devices used in wireless local area networks, and/or cameras and components thereof that are compliant with the” Institute of Electrical and Electronic Engineers (IEEE) 802.3af and/or 802.3at standards infringed one or more claims of ChriMar’s U.S. Patent No. 7,457,250 (“the ‘250 Patent”). In response, Cisco and HP filed counterclaims asserting causes of action for, inter alia, monopolization under the federal antitrust laws as well as for violations of California’s Unfair Competition Law.
In their counterclaims, Cisco and HP allege that the IEEE has a “patent disclosure policy” that “requires participants in the standards setting process to disclose patents or patent applications they believe to be infringed by the practice of the proposed standard.” Cisco and HP further allege that the IEEE policy requires those who disclose intellectual property rights to provide a written assurance stating whether they would enforce any of their present or future patents “whose use would be required to implement the proposed IEEE standard or provide” a license to such patents royalty-free or on RAND terms. The counterclaims assert that ChriMar was required to but intentionally “failed to disclose to IEEE its belief that its ‘250 Patent was essential to the proposed 802.3af and/or the 802.3at” during amendments of the 802.3 standard and that “ChriMar was not willing to license the ‘250 Patent on RAND terms.” Cisco and HP contend that due, in part, to this alleged failure to disclose, the industry adopted the present form of IEEE 802.3af and IEEE 802.3at amendments to the IEEE 802.3 standard and that they are now “locked-in to the current implementation . . . for Power over Ethernet-enabled products.” Had ChriMar disclosed its belief that the ‘250 Patent would be infringed by practicing the proposed amendments to the 802.3 standard as well as its unwillingness to license the patent on royalty-free or RAND terms, the IEEE would have, according to Cisco and HP, done one or more of the following:
1. Incorporated one or more viable alternative technologies into the IEEE 802.3af and IEEE 802.3at amendments to the IEEE 802.3 standard;
2. Requested ChriMar to provide a letter of assurance that it would license the ‘250 Patent on RAND terms;
3. Decided to either not adopt any amendment to the IEEE 802.3; and/or
4. Adopted an amendment that did not incorporate technology that ChriMar claims is covered by the ‘250 Patent.
Cisco and HP further contend that ChriMar has taken the position that all Power over Ethernet-enabled products infringe the ‘250 Patent and that, to the extent that the ‘250 Patent is essential to the 802.3af and the 802.3at standards, no viable technology substitutes exist and ChriMar has monopoly power over the Power over Ethernet Technology Market. Both Cisco and HP allege that this conduct combined with ChriMar’s infringement action against them is an unlawful abuse of monopoly power under Section 2 of the Federal Sherman Antitrust Act and also unfair competition under California’s Unfair Competition Law, Cal. Bus. Code § 17200 (UCL).
HP also filed a claim for attempted monopolization under Section 2, which alleges that ChriMar’s complaint against it, Cisco and several others (Respondents) before the International Trade Commission seeking an exclusion order under Section 337 of the Tariff Act of 1930 constituted an unlawful intent to monopolize the Power over Ethernet Technology market. According to HP, ChriMar alleged before the ITC that Respondents infringe the ‘250 Patent by importing products that practice the Power over Ethernet Standards IEEE 802.3af and 802.3at. HP alleges that the Respondents’ imports collectively “comprise the substantial majority of products commercially offered in the Power over Ethernet Technology Market.” HP alleges further that ChriMar’s “baseless” allegations of infringement and request for an order prohibiting these Respondents from importing Power over Ethernet products constitutes an unlawful attempt to monopolize the Power over Ethernet Technology Market.
ChriMar’s Answers and Motion to Dismiss. ChriMar filed an answer to Cisco’s counterclaims as well as an answer to HP’s counterclaims generally denying defendants’ antitrust and UCL allegations and asserting lack of standing and failure to state a claim as affirmative defenses. ChriMar thereafter moved for judgment on the pleadings on the antitrust and UCL counterclaims. In its motion, ChriMar argued that Cisco and HP failed to plead facts showing that ChriMar had monopoly power in the alleged relevant market. Specifically, according to ChriMar, Defendants could not “simply rely on the existence of patent rights or actions to enforce them, as they have done.” “As a matter of law, ‘patent rights are not legal monopolies in the antitrust sense of that word’ … and simply owning or enforcing the patent right does not make one a ‘prohibited monopolist.'” ChriMar elaborated:
While the patent may give its owner a right to exclude, that is in no way synonymous with having monopoly power. … Such is presumably the case in a market related to a standards setting context where the standard does not practice the patented technology as Defendants allege in this action, where there are market alternatives to the standard itself such as Cisco’s own proprietary inline power technology, where other parties have rights to exclude in the same technology market (in the form of other patents that read on the standards) and can effectively limit the ability of other parties to exert monopoly power (i.e., control prices), or where competing technologies like wireless communication or conventional unpowered Ethernet can exert economic influences that can keep Power over Ethernet prices or the exercise of monopoly power in check — all issues Defendants’ pleadings never address.
ChriMar further argued that its enforcement of its patent rights was presumed to be valid under the Noerr-Pennington doctrine, which generally grants immunity from antitrust liability for petitioning the government in the form of litigation. To overcome this presumption, Cisco and HP had to plead facts showing that its litigation against them and ITC proceeding seeking an exclusion order were a “sham,” that is, “objectively baseless.” To be objectively baseless, Cisco and HP must plead facts showing that ChriMar’s claims were “‘so baseless that no reasonable litigant could realistically expect to secure favorable relief.'” If Cisco and HP could show that ChriMar’s claims were objectively baseless, they next had to allege facts showing that the litigation was subjectively brought in bad faith in order to overcome Noerr-Pennington immunity.
ChriMar argued that the only factual allegation in HP’s counterclaim is that “‘discovery in the ITC investigation established that ChriMar’s allegations for domestic industry were baseless'” and that “ChriMar withdrew its [ITC] complaint nine months after it was filed, and after HP filed a motion for summary determination on the issue of domestic market.” These allegations, according to ChriMar, failed to overcome ChriMar’s Noerr-Pennington immunity.
ChriMar also argued that Defendants failed to plead facts adequately defining a relevant market, a necessary element for a Section 2 claim. Defendants alleged the following relevant market in their counterclaims:
ChriMar actually, potentially, and/or purportedly competes in the United States and worldwide markets for developing and licensing technology essential to implement the IEEE 802.3af and 802.3at amendments to the IEEE 802.3 standard and for technology essential to perform certain functions, allegedly covered by the ‘250 Patent, necessary to implement the IEEE 802.3 standard (hereinafter ‘Power over Ethernet Technology Market’).
ChriMar asserted that this definition is flawed because it fails to identify what particular technologies are included within the market. Further, ChriMar argued that Defendants “have pled a market whose outer boundaries are defined by ChriMar’s infringement claims (one patent asserted against two standards) rather than any exploration of the ‘reasonable interchangeability’ of use or the cross-elasticity of demand’ outside this intersection.” Cisco and HP’s counterclaims did not consider that the “technologies and products at issue in this litigation may be interchangeable with other technologies and products such as Power over-Ethernet technologies and products that are not compliant with the two standards . . . or even technologies and products not compliant with any standard, but that themselves are alternatives to the Power over Ethernet technologies and products compliant with these two standards.” Under the Sherman Act, according to ChriMar, the relevant market cannot be defined by ChriMar’s economic power within the two standards. Rather, the relevant market must be defined and measured by cross-elasticity of demand or product interchangeability: “Here, Defendants plead economic power with respect to those entities voluntarily choosing to continue making products compliant with these two particular standards . . . and not the market demand for these particular Power over Ethernet technologies themselves.”
ChriMar further argued that Cisco and HP failed to plead facts showing that ChriMar had monopoly power or that Defendants have suffered antitrust injury. Further, ChriMar asserted that HP’s attempted monopolization claim was deficient because it failed to plead facts showing that ChriMar’s ITC action “was motivated by an intent to monopolize, rather than primarily motivated by legitimate business purposes.” Finally, ChriMar argued that Cisco and HP’s UCL claims should be dismissed because they relied on the same conduct that formed the basis of their Section 2 claims.
Cisco and HP’s Opposition. Cisco filed an opposition to ChriMar’s motion, as did HP. Responding to ChriMar’s arguments that Defendants failed to adequately plead a relevant market, both Cisco and HP argued that “[m]arket definition is rarely grounds for dismissal of a pleading because ‘the validity of the relevant market is typically a factual element rather than a legal element” that is not appropriate to resolve on a Rule 12 motion.
On the merits, Defendants argued that numerous cases have consistently held “that the relevant market is defined by those technologies that — before the standard was adopted — were competing to perform the function that was covered by the purportedly essential patent.” According to Cisco and HP, “ChriMar does not cite to a single case that considered the relevant market where antitrust violations occurred in connection with misconduct in the context of standards development.” In contrast, Defendants argued that Apple v. Samsung, Broadcom v. Qualcomm and Apple v. Motorola confirm that their market definition was adequately pled. In Samsung, Apple pled the relevant market as “the various markets for technologies that — before the standard was implemented — were competing to perform each of the various functions covered by each of Samsung’s purported essential patents for UMTS.” “Apple also identified the patents Samsung declared as standard essential and alleged that ‘pre-standardization there existed alternative substitutes for the technologies covered by Samsung’s patents,’ and that after standardization, ‘viable alternative technologies were excluded.'” Defendants asserted that the Samsung court found such allegations to “define the bounds of the relevant market” and that “Apple ha[d] sufficiently pled a relevant antitrust market” because “the incorporation of a patent into a standard . . . makes the scope of the relevant market congruent with that of the patent.”
According to Defendants, the Broadcom court reached a similar conclusion, holding that Broadcom, the alleged infringer, had adequately pled a relevant market to support a monopolization claim that was defined as “the market for Qualcomm’s proprietary WCDMA technology, a technology essential to the implementation of the UMTS standard.” Apple v. Motorola reached a similar conclusion, finding that a relevant market was sufficiently pled as “the various technologies competing to perform the functions covered by Motorola’s declared-essential patents for each of the relevant standards.”
Cisco and HP argued that, “[c]onsistent with these cases, [Defendants] defined the market to comprise the technologies that competed to perform the functions in the [Power over Ethernet] Standards allegedly covered by the ‘250 patent.” This definition, according to Defendants, “appropriately focuses on alternative technologies that were excluded from the market by ChriMar’s deceptive conduct and which [Defendants] and other implementers of the standard cannot now choose because the industry is ‘locked-in’ to the standard.” “To the extent ChriMar argues the correct market definition should include the entire standard, rather than some portion of the standard, that argument is inconsistent with both the complaint and with” Samsung, Broadcom, and Apple.
With respect to monopoly power, both Cisco and HP argued that in the standards context, “it is well settled that patentees holding standard-essential patents can possess monopoly power.” Cisco and HP again relied upon Samsung, wherein the court concluded that “because standard-essential patents may confer antitrust market power on the patent owner, Apple’s claims” that “Samsung had market power over the relevant market because it obtained the power to raise prices and exclude competition over the technologies covered by Samsung’s standard-essential patents” and that “there was a ‘lock-in’ to the standard” were sufficient to plead monopoly power. Cisco and HP argued that their counterclaims satisfied this standard because they alleged that, as a result of ChriMar’s accusations that “the leading vendors of Power over Ethernet-enabled products” infringe the ‘250 Patent, “it is ChriMar’s position that no meaningful level of Power over Ethernet-enabled products do not infringe the ‘250 Patent.” Further, like the allegations in Samsung, Cisco and HP both allege that “because of ‘lock-in’ to the standard,” there are no “viable technology substitutes at present.” “Accordingly, if the ‘250 Patent claims covered products that comply with the IEEE standard as claimed by ChriMar, ChriMar has monopoly power over the Power over Ethernet Technology Market.”
The element of antitrust injury was also adequately pled, according to Cisco and HP. Defendants argued that in order to plead that they have suffered antitrust injury, they must allege facts showing an injury to competition. “It is well settled that misconduct before an SSO harms competition by ‘obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer monopoly power on the patent holder.'” Cisco and HP pointed to allegations in their counterclaims “concerning the harm to competition caused by ChriMar’s deception in the context of standards setting,” including that ChriMar “‘could charge supra-competitive prices”‘” and that “‘[c]ustomers and consumers will be harmed, either by not getting products that are compliant with the IEEE 802.af and IEEE 802.at amendment to the IEEE 802.3 standard or having to pay an exorbitant price for one.”
Cisco also took issue with ChriMar’s argument that “the anticompetitive harm alleged by Cisco ‘is a potential consequence in any successful patent litigation.'” According to Cisco, “[t]his is not just ‘ any patent litigation,’ and the competitive harm alleged by Cisco is not the natural result of any litigation.” “[H]ere, ChriMar deliberately subverted the goals of the IEEE standards-setting process by not disclosing its patent rights, waiting until the industry became ‘locked-in’ to the [Power over Ethernet] Standards, and demanding royalties from implementers of the standards that Cisco has alleged will lead to ‘supra-competitive prices.'”
With respect to ChriMar’s Noerr-Pennington argument, Cisco argued that “[c]ourts have repeatedly recognized that the Noerr-Pennington doctrine does not apply to monopoly power gained through deception in the context of SSOs, even when an allegedly standard-essential patent is subsequently asserted in court.” As the doctrine does not apply, Cisco and HP need not plead facts supporting the two exceptions.
HP argued similarly, but also asserted that its counterclaim alleged facts supporting the “sham” exception to Noerr-Pennington, that is is, that ChriMar filed a sham ITC proceeding against HP and others only to later voluntarily withdraw it.
HP also asserted that its counterclaims adequately pled that ChriMar had a specific intent to monopolize and a dangerous probability of obtaining a monopoly. “HP alleges facts that ChriMar deceitfully concealed its patent in connection with the IEEE standards-setting process and then sought to enforce its patent in the ITC. This conduct shows a specific intent by ChriMar to monopolize the [Power over Ethernet] Technology Market through its anticompetitive conduct.” “ChriMar became dangerously close to succeeding in its attempt, having dismissed its complaint less than two months before the start of the ITC hearing.”
Finally, Cisco and HP argued that, because they adequately pled causes of action under the federal antitrust laws, they also adequately pled a cause of action under California’s UCL.
The Court’s Decision on Cisco and HP’s Monopolization Counterclaims. After ChriMar filed its reply, the court entered an order granting ChriMar’s motion. With respect to Cisco and HP’s monopolization claims, the court agreed with ChriMar that their pleadings failed to allege facts sufficient to define the relevant market, a necessary element to a Section 2 claim. “Courts typically require that the proposed relevant market be defined with reference to the rule of reasonable interchangeability and cross-elasticity of demand.” “However, in the context of a standard setting organization (‘SSO’) locking in a standard which eliminates substitute or alternative technologies courts have allowed a relevant market to be defined by the technologies that were competing before the standard was adopted to perform the function that is covered by the standard and the essential patent.” “For example, in [Apple v. Samsung], the court found sufficient Apple’s allegations that defined the relevant market as the ‘various markets for technologies that — before the standard was implemented — were competing to perform each of the various functions covered by each of Samsung’s purported essential patents for’ the standard.” The court in Samsung further “noted that Apple alleged that pre-standardization there were alternative substitutes for the technologies covered by Samsung’s patents, and that after the SSO adopted the proposed standard, viable alternative technologies were excluded.” Cisco and HP’s claims failed to plead such facts or facts defining the market “as comprising the technologies that competed to perform the functions in the Power over Ethernet standards allegedly covered by the ‘250 Patent.” Therefore, Cisco and HP failed to sufficiently allege the relevant market.
The court also held that Cisco and HP failed to allege sufficient facts showing that ChriMar had the requisite market power to support a Section 2 claim. On this element, Cisco and HP argued that “their allegations regarding ChriMar’s failure to disclose its belief that the ‘250 Patent was essential to the 802.3af and 802.3at amendments to the IEEE 802.3 to the standard setting organization (‘SSO’) is sufficient to allege their monopoly claims.” Citing to an earlier decision in Apple v. Samsung, Defendants contended that “it is sufficient to allege that if the ‘250 Patent is essential, then ChriMar has monopoly power.” The court, however, concluded that the decision did not support defendants’ contention. Specifically, “in that case, the court determined that Apple had sufficiently alleged monopoly power.” “The court in Samsung further noted that, in contrast to the theory that a patent holder misrepresented to an SSO that it would license its intellectual property on RAND terms, ‘[c]ourts have been more reluctant to find an antitrust violation based on the theory that a failure to disclose intellectual property rights in a declared essential patent created monopoly power for a member of the SSO.'” Indeed, the Samsung court expressly required the plaintiff to allege that “there was an alternative technology that the SSO was considering during the standard setting process and that the SSO would have adopted an alternative standard had it known of the patent holder’s intellectual property rights.” The Samsung court further made it “clear that the heightened pleading requirements under Rule 9(b) for fraud applies to” the types of antitrust claims brought by Cisco and HP. Applying these standards to those claims, the court concluded that “they fail to allege non-conclusory facts which, if true, would be enough to show that ChriMar acquired sufficient monopoly power.” “Notably, Defendants fail to clearly allege that the IEEE would have adopted an alternative standard had it known about the ‘250 Patent and ChriMar’s position with respect to its ‘250 Patent.” Therefore, Cisco and HP failed to plead the necessary element of market power.
Finally, with respect to the necessary element of antitrust injury, the court concluded that Cisco and HP’s claims merely alleged, “in conclusory fashion, that ChriMar’s alleged conduct has ’caused and will directly and proximately cause antitrust liability to [Defendants] within the Power over Ethernet Technology Market . . .” Neither defendant pled any facts which, if true, “would demonstrate antitrust injury.”
Because Cisco and HP failed to allege the necessary elements of a relevant market, monopoly power, and antitrust injury, the court found “that Defendants have not alleged sufficient facts to state a counterclaim for monopolization.” However, the court provided Defendants with leave to amend their monopolization claims in an attempt to remedy the deficiencies identified by the court.
Notably, the court did not address — at least not at this time — ChriMar’s Noerr-Pennington arguments but may very well do so on any subsequent motion to dismiss the amended counterclaims permitted by the court’s decision.
The Court’s Decision on HP’s Attempted Monopolization Counterclaim. Because HP failed to plead a relevant market as well as antitrust injury, HP’s attempted monopolization claim failed as well. “In addition, although a lower percentage [of market share] is required for an attempted monopoly claim, as opposed to an actual monopoly claim, HP must still allege sufficient market power.” The court concluded that HP failed to allege sufficient market power which was also “fatal to its attempted monopolization claim.”
The court disagreed with ChriMar’s argument that “HP’s attempted monopolization counterclaim fails for the additional reason that HP fails to allege specific intent to monopolize or a dangerous probability of obtaining monopoly power because HP’s attempted monopolization allegations are based solely around the terminated [ITC] investigation.” The court concluded that “HP does not rely solely upon the ITC investigation” but “is also premised upon ChriMar’s alleged misconduct before the SSO.” However, because the court was granting HP leave to amend its counterclaim to adequately allege a relevant market, market power and antitrust injury, the court did not reach the issue of whether HP’s additional allegations regarding the ITC investigation would be sufficient, standing alone, to state a claim for attempted monopolization “if HP sufficiently alleges the relevant market power, and an antitrust injury.” HP’s attempted monopolization claim was therefore dismissed with leave to amend.
The Court’s Decision on Cisco and HP’s UCL Counterclaims. The court also dismissed Cisco and HP’s UCL counterclaims. “Courts have held that where the alleged conduct does not violate the antitrust laws, a claim based on unfair conduct under the UCL cannot survive.” “Because the Court finds that Defendants have not alleged facts sufficient to state a a counterclaim for monopolization and attempted monopolization, Defendants’ UCL counterclaims” fail as well. However, as with the other counterclaims, the court granted HP and Cisco leave to amend this claim as well.
We will continue to track the pleading and other developments in this case.
After being removed to federal district court last May, the Vermont Attorney General’s suit against non-practicing entity MPHJ is being sent back to state court. The decision holds that the AG’s unfair competition claims arising from MPHJ’s patent enforcement efforts belong in state court and raises the question of whether other patent demand letter jurisprudence will be formed by patch-work state competition claims in lieu of a uniform federal law.
MPHJ is widely regarded as a non-practicing entity whose patent portfolio includes a number of patents directed to scan-to-email technology. Over the past several years, MPHJ has sought to enforce these scanner patents against a large number of businesses through an extensive demand letter writing campaign.
Vermont’s attorney general initially filed suit in Vermont’s Superior Court last May, alleging that MPHJ’s local patent assertion efforts constitute unfair and deceptive trade practices in violation of state unfair competition laws. See our May 22, 2014 post for more information. MPHJ moved to have the action heard in federal court, and action was removed to district court in June 2014. The Vermont Attorney General then moved the district court to have the action returned to state court, arguing the claim that MPHJ has violated state consumer protection laws must be heard in state court. In response, MPHJ argued that the suit involved questions of federal patent law and as such was properly before the District Court.
The District Court’s Ruling
U.S. District Court Judge William Sessions agreed with Vermont’s position, ruling that the case “is premised solely on Vermont state law, not federal patent law” and belongs in state court. In reaching this decision, Judge Sessions reasoned that the suit claims MPHJ violated state unfair competition law without raising claims related to the infringement or validity of MPHJ’s patents:
Instead, the state is targeting bad faith conduct irrespective of whether the letter recipients were patent infringers or not, on the basis that MPHJ’s bad faith conduct would be unlawful even MPHJ’s patents were valid and the conduct was directed toward actual patent infringers.
The court weighed the claims made in the complaint, such as the allegation that MPHJ’s letters falsely claimed to have performed an infringement analysis and that the letters falsely asserted that most recipients had already taken a license, and found that none involved questions of patent law. From the Court’s perspective, “this case is about consumer protection, not about patents”.
Opponents of the decision will likely question whether it will have a chilling affect on patent enforcement, placing patent owners seeking to enforce their rights at the risk of being subjected to numerous state court challenges across multiple jurisdictions. Opposing Vermont’s motion, MPHJ specifically argued that the suit would undermine the patent system by subjecting patent owners to potential liability for sending licensing demand letters and by providing patent infringers with relative immunity. The court called such arguments a “gross mischaracterization” of the case at hand and indicated the action is directed not to prevent MPHJ from lawfully enforcing its patent rights in Vermont, but rather to prevent MPHJ from engaging in activity that violates state law.
Activity in Other States
Vermont’s AG isn’t the only one giving MPHJ’s scanner-patent-enforcement programs some unwanted attention. As discussed in our January 22, 2014 post, MPHJ’s counsel received a cease and desist order from Nebraska’s attorney general in July 2013, though MPHJ was able to secure an injunction preventing the order from being enforced. MPHJ also reached settlement with New York’s attorney general in January, pursuant to which MPHJ is required to repay licensing money received from organizations in New York after a similar letter-writing campaign. MPHJ also filed suit against the FTC in January, preemptively seeking to prevent an enforcement action threatened by the commission. See our March 21, 2014 and January 14, 2014 posts for more information.
Yesterday Arris filed a declaratory judgment action in D. Del. against Rockstar based on Rockstar asserting alleged standard essential patents (SEPs) against cable operators who purchased Arris equipment (recall our Jan. 21, 2014 post about Rockstar lawsuits with cable operators). Among other things, Arris seeks a declaration of the essentiality of Rockstar patents, what standard setting organization (SSO) obligations attach thereto as well as an unfair competition claim seeking to declare the patents unenforceable based on Rockstar’s patent enforcement activities against Arris’ customers. Further, Arris is a spin-off of Nortel — from whom Rockstar purchased the patents out of bankruptcy — and Arris asserts that Nortel had granted Arris a license under the patents.
Unfair Competition Claim. The unfair competition claim is based on Delaware state law and premised on issues recently raised not only with SEPs, but with patent assertion entities asserting large patent portfolios, stating as follows (enumeration and break-out formatting added):
149. Defendants have engaged in unfair competition and interfered with ARRIS’s current and expected business relationships by, among other things,
 wrongfully accusing ARRIS’s customers of infringement,
 falsely representing that ARRIS’s customers are not licensed to the Asserted Patents,
 pressuring ARRIS’s customers to sign NDA agreements to hamper cooperation with ARRIS and to frustrate Defendants’ FRAND and DOCSIS royalty commitments,
 concealing the true owners of patents from the Nortel Patent Portfolio, and
 concealing the complete list of patents Defendants believe ARRIS’s customers are infringing.
Storage Wars. Arris alleges that Rockstar “refused to identify for accused infringers … the full list of patents they are purportedly infringing” but “provided only what [Rockstar] deemed ‘exemplary’ patents” thus “le[aving] accused infringers with no way to meaningfully evaluate Rockstar’s infringement allegations … or to determine the actual value of the relevant patents within Rockstar’s portfolio.” This seems similar to concerns that patent aggregating patent monetization entities may seek unfair royalties by leveraging the risk and uncertainty that some unidentified-but-valuable-patent might be lurking somewhere within their portfolio of thousands of patents (Rockstar is reported to have over 4,000 patents).
This brings to mind “Storage Wars”. “Storage Wars” is a reality TV show in which abandoned contents within storage lockers are sold to purchasers who speculate on the contents’ value on the chance that there is more there than meets the eye. Specifically, the locker door is opened so that prospective purchasers can see whatever is in plain sight from a limited view peering from outside the door. They then purchase the contents without entering, touching or examining the contents to make a fully informed valuation–e.g., what’s under a blanket, what’s in boxes, what’s in something that appears to be a safe … Whether or not this is a good analogy, hopefully you’ll appreciate a television show analogy for a case about cable operators.
NDAs. Arris’ allegations include concerns that Rockstar required prospective licensees to enter non-disclosure agreements (NDAs) that “concealed the scope of Defendants’ assertions” and “has been orchestrated to subvert the FRAND and DOCSIS royalty free obligations.” Recall from our Jan. 23, 2014 post that Ericsson’s use of NDAs in negotiating licenses for SEPs was one of the reasons cited by the Competition Commission of India to investigate Ericsson’s SEP licensing activity.
Misrepresenting Existing Licenses. Arris’ allegation includes concern that Rockstar “falsely represent[ed] that ARRIS’s customers are not licensed to the Asserted Patents.” Recall that a concern raised with Innovatio’s assertion of WiFi SEPs in demand letters to equipment end-users (e.g., coffee shops providing WiFi access) was that Innovatio did not tell the end-users that some WiFi equipment may be licensed based on rights granted to manufacturers or component suppliers of that equipment (see our Feb. 6, 2013 post). The Innovatio case concerned silence as to whether the patents were licensed, which allegations were dismissed, but this case alleges “false representations that ARRIS’s customers are not licensed.”
Last month, Judge James F. Holderman dismissed various claims brought by Cisco, Motorola Solutions, and NETGEAR against Innovatio IP Ventures, LLC over Innovatio’s vast licensing and litigation campaign relating to the IEEE 802.11 Wi-Fi standard. These suppliers claimed that Innovatio — in threatening the suppliers’ customers and bringing litigation over standard-essential patents — violated various unfair competition laws, and even the Federal Racketeering and Corrupt Organizations Act (“RICO”). But the court found that Innovatio’s conduct was protected petitioning activity under the Noerr-Pennington doctrine, and that the suppliers did not properly plead that the conduct was a “sham” that would exempt this activity from protection. Yesterday, the suppliers filed a motion for entry of final judgment under Federal Rule of Civil Procedure 54(b), which indicates that the suppliers want to appeal the dismissal of these claims as soon as possible to keep the heat on Innovatio.
We’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.
On Fri., January 25, 2013, in Hall v. Bed Bath & Beyond, No. 2011-1165, the Federal Circuit (Newman, Lourie (dissenting-in-part), and Linn) held that a towel design patent owner properly pled claims of patent infringement, false advertising, misappropriation, and unfair competition. The Court also held that certain inventor statements on whether the towel was covered by his patent did not create liability for false advertising or false marking. This case indicates that the pleading requirements for design and utility patents are fairly similar.