Antitrust Update Blog

Another Update on the Patent “Aggregation” Suit Against Fortress

There have been several developments since we last wrote about Intel and Apple’s suit against Fortress and several of its so-called “patent assertion entities” (collectively, “Fortress”) based on the allegedly anticompetitive practice of patent “aggregation.”  Recall that the plaintiffs’ first amended complaint was dismissed without prejudice in January 2021 because Judge Chen of the U.S. District Court for the Northern District of California found that certain of the alleged product markets were too broad and that the complaint lacked adequate allegations of Fortress’s market power in any of those markets.  The court held that plaintiffs did not sufficiently allege that Fortress was charging supracompetitive prices to license its patents, or that there were no substitute patents that could be licensed instead of Fortress’s patents.

In an attempt to address these deficiencies, Apple and Intel filed a second amended complaint on March 8, which included a new section titled “Defendants’ Assertions of Portfolios Encompassing Substitute Patents.”  Intel and Apple alleged that “the precise details regarding the settlement terms and royalties paid to Defendants are not publicly available” and therefore details about the “supracompetitive royalties” Fortress has charged “can only be obtained through discovery.”  The plaintiffs noted, though, that the aggregation of patents permitted Fortress to extract supracompetitive royalties because the portfolios are comprised of both substitute and complementary patents and therefore “eliminate alternatives” plaintiffs could otherwise try to license.  To further demonstrate that it is the aggregation that is causing harm, plaintiffs pled that before the patents were acquired by Fortress, they had never been asserted, and Fortress was able to obtain them at a low cost that is greatly exceeded by the amount it is now demanding in royalties.  According to plaintiffs, the fact that these patents are being asserted only now that they have been aggregated with related patents shows that the aggregation itself enables Fortress to demand supracompetitive profits.

On April 26, Fortress filed a motion to dismiss in which it argued, inter alia, that plaintiffs’ product markets are still insufficiently defined and that plaintiffs failed to adequately plead it charged supracompetitive royalties or that substitute patents were unavailable.  Plaintiffs’ opposition, filed on June 14, asserted that the new allegations in their second amended complaint cured any previous defects.

A week later, things took an unexpected turn.  Apple, one of the two plaintiffs, voluntarily dismissed its action in its entirety.  There is no indication in the public record that Apple entered a settlement agreement with the defendants, though it dismissed its claims “with prejudice” with respect to all entities except one, VLSI Technology LLC, regarding which Apple’s dismissed its claims without prejudice.  Why VLSI’s claims were treated differently is unclear.  On July 8, Fortress filed its reply brief, which echoed its motion to dismiss.

In mid-August, after the motion was fully briefed, Judge Chen asked the parties to explain how Apple’s withdrawal impacted what issues the court needed to decide.  The parties filed a joint statement on August 25.  They agreed that without Apple’s claims, five of the nine allegedly relevant product markets were no longer at issue[1] and six of the nine Fortress entities could be released from the case. 

On September 17, Law360 reports, the court held oral argument for almost two hours on the motion to dismiss.  Judge Chen asked Intel why there was no allegation that Fortress was leveraging its “crown jewels,” i.e., its most important patents that lack reasonable substitutes.  Intel responded that it does not believe it needs to make such an allegation to state a claim.  Fortress emphasized that Intel has failed to plead that Fortress charged supracompetitive prices, and that Intel’s complaint focuses on litigation demands concerning individual patents, not on the aggregation of patents and anticompetitive conduct resulting from Fortress building a patent portfolio.  As we explained in previous posts, the Noerr-Pennington doctrine exempts acts of petitioning the government—such as filing a lawsuit—from antitrust liability unless the petition is objectively baseless (e.g., if the lawsuit is a “sham”).  Judge Chen, however, stated in an earlier opinion that the Intel action could proceed even in the face of this doctrine if Intel can show that the aggregation of the patents, rather than the filing or threatening of lawsuits, is the relevant anticompetitive act.

The outcome of the most recent motion to dismiss could be instructive regarding the viability of patent “aggregation” theories as a basis for antitrust liability, and what a plaintiff asserting such a theory must plead to escape the Noerr-Pennington doctrine.  We will continue to monitor this case and report back as it further develops.

[1] The product markets no longer at issue are: 1) Network-based Voice Messaging Patents Market; 2) Remote Software Update Patents Market; 3) Mobile Device-to-Device Communication Through a Network-Couple Intermediary Device Patents Market; 4) Generating Alerts Based on Blood Oxygen Level Patents Market; and 5) Remote Enabling and Disabling of Software Components Patents Market.  The product markets still at issue are: 1) Preventing Stalls for Cache Misses Patents Market; 2) Arbitrating Multiple Requests to Access a Memory Bus Patents Market; 3) Third-party Device Authorization Through Limitation of Information Exchanged Patents Market; and 4) MOSFET Channel Fabrication Patents Market.