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Judge Cote Finds Initiating Lawsuits to Obtain Settlements Rather Than a Determination on the Merits is Not an Abuse of Process

On July 28, 2016, District Judge Denise Cote (S.D.N.Y.) granted defendants AlphaCap Ventures, LLC’s, a non-practicing entity, and Richard Juarez’s (collectively, “AlphaCap”) motion to dismiss plaintiff Gust, Inc.’s (“Gust”) allegations of (1) attempted monopolization under the Sherman Act; (2) patent misuse; and (3) abuse of process, stemming from the filing of patent infringement lawsuits in Texas.

After the Supreme Court’s decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), AlphaCap initiated a patent infringement action in Texas against Gust and others relating to software that allows investors to search for companies seeking investments. According to Gust, AlphaCap initiated the patent infringement actions despite knowing its patent was invalid under Alice.

To prevail on an attempted monopolization claim under the Sherman Act, the plaintiff must demonstrate market power either through direct evidence that the defendant can control prices or exclude competition, or through the inference that flows from the defendant’s “large percentage share” of the relevant market. Here, Gust explained AlphaCap’s market power as the power to extract licensing revenue through the assertion of its patents. The court, however, concluded Gust had failed to sufficiently allege AlphaCap’s market power and granted leave to amend.

To prevail on a patent misuse claim, the plaintiff must demonstrate that the patentee has impermissibly broadened the physical and temporal scope of the patent grant and has done so in a manner that has anticompetitive effects. The court explained that the doctrine of patent misuse is a narrow one, and has largely been confined to a handful of specific practices in which the patentee attempted to extend its patent grant beyond the statutory limits. Here, Gust alleged that AlphaCap engaged in patent misuse by asserting objectively baseless claims of patent infringement. The court, however, dismissed the allegation because Gust had failed to state any benefit that AlphaCap sought or gained beyond that which naturally accrues from its possession of patents.

In dismissing Gust’s abuse of process claim, the court held that:

“Gust’s abuse of process claim is premised entirely on AlphaCap’s filing of the patent infringement complaints in Texas. It asserts that AlphaCap used the lawsuits to obtain settlements, rather than as a sincere effort to obtain a determination on the merits of its infringement claims. This claim fails as a matter of law. Initiating a civil action, without more, is insufficient to sustain an abuse of process claim.”

Case: Gust, Inc. v. AlphaCap Ventures, LLC, No. 15cv6192 (DLC), 2016 U.S. Dist. LEXIS 98869, 2016 BL 244235 (S.D.N.Y. July 28, 2016). The patents-in-suit are U.S. Patent Nos. 7,848,976; 7,908,208; and 8,433,630.