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District Court Rejects Intel’s Claims, but Leaves Door Open to Patent “Aggregation” Theories of Antitrust Liability

Last month, we wrote a post on the patent “aggregation” suit Intel had filed against various entities affiliated with the investment firm Fortress.  The post was timely; the next day, Judge Chen granted Fortress’s motion to dismiss with prejudice and entered judgment for the defendants.  The opinion dismissing the action was sealed until October 7.

The first issue the court decided in the newly unsealed opinion was whether Intel pled plausible product markets.  The court found that the product markets described in the second amended complaint, unlike those in Intel’s previous complaint, are “defined with sufficient specificity to be plausible” because they cover “specific functions” rather than a “general technical field.”  Opinion at 6-7.  Nevertheless, the court rejected one of the product markets because Intel had only been sued for infringement of “complementary” patents (i.e., patents used in conjunction with one another) within that market, as opposed to “substitute” patents (i.e., patents that could be used as alternatives to one another if one is unavailable).  Relying on case law holding that the contours of a “product market” for antitrust purposes are defined based on substitutability, the court held that Intel lacked standing to sue in that one product market because Intel had failed to explain why the complementary patents should be considered part of the same product market as the substitute patents.  Id. at 7-10.

The court then analyzed the remaining three product markets.  Though Intel pled that Fortress possessed multiple substitute patents in these markets, Judge Chen held that Intel did not sufficiently allege supracompetitive pricing resulting from the alleged aggregation.  For example, the court observed, Intel did not claim that the Fortress patents were “crown jewels” such that they are “critical” or “key” in the relevant markets.  Absent more information about the relevant patents and their role in each market, Intel was unable to plausibly show that it was the aggregation of those patents that enabled Fortress to charge allegedly supracompetitive prices.  Id. at 12-15.  The court observed that Intel made clear at argument that it intended to stand on its allegations as currently drafted, and therefore dismissed the complaint with prejudice.  Id. at 15.

But while it found that Intel’s claims were deficiently pled, the court expressly did not reject the “patent aggregation” theory of antitrust liability more generally:

[T]he Court does not take issue with the general theory being 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. 

Id. at 11.

Furthermore, the court denied Fortress’s motion seeking its legal fees pursuant to California’s anti-SLAPP (“strategic lawsuit against public participation”) statute.  Fortress had argued that Intel’s claims concerned Fortress’s patent infringement suits, and that filing lawsuits is a “petitioning of the government” protected by the First Amendment.  Id. at 15-18.  But the court held that the anti-SLAPP statute did not apply for two reasons.  First, the “heart” of Intel’s suit is that the aggregation was anti-competitive; the patent infringement suits are secondary.  Id. at 17.  Second, Intel did not explicitly ask the court to enjoin Fortress’s suits; the court found that Intel’s request to “enjoin Defendants’ unlawful conduct” and “declare the [unlawful conduct] to be an antitrust violation” was not the same as seeking to bar Fortress from filing patent infringement lawsuits.

In sum, the recent opinion suggests that it remains difficult to successfully plead antitrust claims based on patent aggregation, but that such claims are at least theoretically viable as a legal matter.  We will continue to follow this case and monitor any appeal.