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Should NPE patent-aggregators be worried about violating antitrust law?

Zachary Silbersher

While Alice undoubtedly increased the difficulty for enforcing software patents, its utility to short-circuit cases may be waning in the wake of Berkheimer and other cases.  A recent case shows that some patent defendants have tried to wield antitrust counterclaims to defeat patent claims, but without much success.

The Federal Circuit recently ruled on a case brought by Intellectual Ventures against Capital One ($COF).  The case is Intellectual Ventures I LLC v. Capital One Financial Corp., 2018-1367 (Fed. Cir. Sep. 10, 2019).  While the underlying case arose out of IV’s assertion of its patents against Capital One, the appeal focuses on Capital One’s counterclaim that IV was an unlawful monopolist by aggregating a series of patents and asserting them through litigation.  Capital One lost the appeal.  But the question remains – how much teeth do antitrust counterclaims have against aggregating and enforcing patents through litigation?


 The dispute arose out of two separate patent cases brought by IV against Capital One, one in Virginia and another in Maryland.  In both cases, Capital One argued that IV acquired thousands of patents related to commercial banking practices and attempted to squeeze allegedly supracompetitve licensing fees by threatening serial litigation. 

 The Virginia court dismissed the claims because Capital One failed to articulate a relevant market.  Capital One defined the market as, roughly, the market for commercial banking technology in the U.S.  The court, however found no meaningful competition between IV and the banks within this market.  Capital One also failed to allege its proposed market included all relevant substitutes.  Instead, the court concluded that Capital One’s proposed market was in reality IV’s patent portfolio of 3500 patents covering different technologies.  That, however, was not a recognizable market under any applicable antitrust jurisprudence.

While the Virginia case was still pending, IV commenced a separate patent case against Capital One in Maryland.  This time, Capital One defined the relevant market differently, namely, IV’s patent portfolio covering financial services, over which Capital One alleged that IV had a monopoly.  Capital One argued that IV held a monopoly over those patents because, allegedly, there was “no way to get around them.”

The Maryland court was sympathetic to Capital One.  The Court granted Capital One permission to add its counterclaims after finding that its proposed relevant market was plausible and that IV had potentially abused its monopoly power within that market by acquiring the patents to “hold up” banks that had substantially invested in product designs.

The court stated, “it is hard to deny that there is something concerning from an antitrust perspective about the way in which IV engages in its licensing business.”  Nevertheless, the court dismissed Capital One’s antitrust claims for two reasons.  First, the Noerr-Pennington doctrine provided immunity to antitrust liability, especially where the facts of this particular case failed to show that IV’s patent claims were frivolous.  Second, the Virginia court’s denial of Capital One’s antitrust claims collaterally estopped those same claims from proceeding in the Maryland case.

The case actually on appeal to the Federal Circuit was of the court’s decision in the Maryland court.  (Capital One had previously withdrawn its appeal of the Virginia court’s decision.)  While the Federal Circuit affirmed the Maryland court’s dismissal of Capital One’s antitrust counterclaims, its principal reasons for doing so were based upon its finding that Capital One’s Maryland claims were collaterally estopped based upon the earlier Virginia court’s decision. 

In that sense, the Federal Circuit’s decision is limited to the facts of this case.  There are nevertheless a few takeaways that inform how much this case may read-through to the viability of using antitrust counterclaims as a defense to patent assertion.

            Takeaways from the Federal Circuit’s decision

Overall, this case presents a big win for IV, as well as for other non-practicing entities in the business of aggregating patents and licensing them.  Yet, because the decision turned primarily on issues of collateral estoppel that were unique to the dispute between IV and Capital One, the Federal Circuit has yet to decisively drive a stake through the heart of Capital One’s antitrust theory. 

 Indeed, while the Virginia court rejected Capital One’s theory, the Maryland court appeared to concur with some of its basic premises.  The most important one being the idea that a relevant market for antitrust liability can potentially be defined by simply aggregating a number of patents and seeking to license them through litigation.  That question may need to be decided at a later time by the Federal Circuit.

Yet, even accepting that a relevant market for antitrust purposes can theoretically be defined by aggregation of patents, the Maryland court nonetheless recognized the difficulty of actually prevailing on such a theory.  Most importantly, the Noerr-Pennington doctrine presents a substantial obstacle.  To overcome Noerr-Pennington, a patent litigation defendant would have to show that the patent claims were essentially frivolous so as to rise to the level of sham litigation. 

 Even if that were the case, IV does not directly compete Capital One, and therefore, even if IV’s patent claims were frivolous, it is unclear how they are an actionable restraint on trade.  Taken to its logical extreme, all frivolous civil lawsuit claims could give rise to antitrust liability, even if the claims were not made between competitors. 

In addition, the fact that IV does not compete directly with Capital One is what distinguishes this case from allegations against drug companies forming “patent thickets” to stifle generic or biosimilar competition.  In those cases, no one is arguing that the patents, themselves, define the market – but rather, the particular FDA-drug for a given indication.

 Moreover, there are already established forms of relief for defending frivolous patent claims. This includes the statutory exception, for patent cases, to the American rule that typically proscribes the right of a prevailing defendant to recover its attorneys’ fees.  Indeed, the Virginia court acknowledged as much by stating, “the antitrust laws appear ill suited as a remedy for what Capital One fears, and relief for any such liability would more likely come through various doctrines of tort liability, statutory fees or judicial sanctions.”

Capital One also made much of the fact that IV had purportedly concealed the identify of patents within its portfolio.  Capital One argued this increased the alleged litigation threat being wielded by IV because it hindered Capital One’s ability to design around the patents. 

This reasoning appears a bit backwards.  It is not clear from the Federal Circuit’s opinion whether IV’s patents were, in fact, concealed.  Presumably, IV had recorded its acquisition of the patents in its portfolio with the Patent Office.  But even if not, all patents are public.  If a company wishes to avoid patent liability by designing around existing patents, the patents covering a particular technology are easily discoverable.  

This point matters.  Capital One’s antitrust argument essentially claimed that IV has made it harder for Capital One to practice efficient infringement.  In other words, Capital One’s principal grievance is that the fact that IV’s patents were granted in the first instance should be a problem that Capital One should have the burden of dealing with.  Sanctioning that type of argument undermines the patent system as a whole.

Capital One also argued that IV’s threat of serial patent litigation was anticompetitive, in part, because IV’s portfolio allegedly covered all available substitutes for a given technology.  Yet, in the Maryland case, where IV moved for summary judgment, IV’s expert pointed out that Capital One had not even attempted to show that, for particular technologies, IV held all patents covering all possible substitutes. 

While not an issue in IV’s case against Capital One, this line of thinking may pose an issue for a patent-holder asserting standard-essential patents (SEPs).  For those patents, there may theoretically be no available substitutes if companies are effectively forced to comply with a particular standard to sell a given product. 

But even in the case of SEP patents, there are existing legal constraints weighing against finding antitrust liability.  Most importantly, courts have held that license rates for SEP patents are typically much lower than non-SEP patents (often referred to as FRAND licensing).  Courts are mindful against royalty-stacking for SEP patents.  Since royalty rates for SEP patents are typically much lower, that presumably precludes them from being supracompetitive.  In effect, courts have already established guidance that royalty rates for SEP patents cannot be anticompetitive.

 In sum, Capital One’s antitrust defense, if successful, could have had a significant impact on the patent-licensing business.  This is not just a “patent troll” problem.  Not only would be NPE patent-aggregators be affected, but big tech companies could be hobbled in their use of their own patents as well.  Big tech companies may well be admonished to watch what they wish for in seeking a new purported panacea to defend their practices of efficient infringement. 

 In the big picture, as recognized by the Virginia court, the antitrust defense seems to be an ill-fit.  A patent is fundamentally is a state-sanctioned monopoly for a limited period of time.  If aggregating patents can itself raise antitrust concerns, that would indirectly limit the ability to buy and sell patents.  Making patents even harder to alienate would further encourage efficient infringement and mitigate the value of patents for all—even for those companies that are not NPE’s.