The U.S. District Court for the Northern District of California recently addressed whether a “patent aggregator” (a.k.a. “anti-troll”), which is an organization formed by operating companies to protect against “non-practicing entities” (NPEs, a.k.a. “patent trolls”), violated antitrust laws.1Cascades Computer Innovation LLC (“Cascades”), an alleged troll, sued RPX Corp. (“RPX”), a patent aggregator, and several of RPX’s member companies, for violations of federal and state antitrust laws. The court subsequently granted the defendants’ motions to dismiss—but also granted Cascades leave to amend. Patent aggregators: Be warned that you may face antitrust claims in future disputes with patent trolls.

The dispute between Cascades and RPX began when their negotiations over licensing Cascades’ patents, which relate to the Android operating system used in many mobile devices, fell through. RPX negotiates licensing agreements on behalf of its members (including Dell, HTC, LG, Motorola and Samsung – “the Manufacturing Defendants”)2 so that the individual members do not have to deal directly with patent trolls.3

Cascades alleged that RPX and the Manufacturing Defendants conspired to refuse to license Cascades’ patents and to infringe them instead. After Cascades sued the Manufacturing Defendants for patent infringement, Cascades alleged that the Manufacturing Defendants furthered their conspiracy by making common defense agreements in order to act together in resisting settlement and licensing talks. Cascades then filed a second suit, against RPX and the Manufacturing Defendants, for violations of the Sherman Antitrust Act, §§ 1–2, as well as California antitrust laws. Cascades alleged that the defendants’ conspiracy to boycott Cascades’ patents harmed competition in as many as eight different markets by, inter alia, lowering the value of licenses and driving Cascades out of business.

Based on numerous grounds, the defendants filed three motions to dismiss both the federal and state claims, and the district court granted the motions. Here are the lessons learned.

  1. Don’t Conspire

Several defendants argued that Cascades had failed to allege a plausible conspiracy—an element essential to Cascades’ claims. The court agreed because Cascades’ Complaint contained only threadbare allegations of conspiracy (i.e. allegations that the defendants agreed at some point not to license Cascades’ patents). Cascades had made inconsistent allegations regarding the timing of the conspiracy (either before or after license negotiations broke down between Cascades and RPX). Moreover, Cascades had not alleged what role each defendant had in the conspiracy, and thus the allegations suggested little more than “parallel behavior” on the part of the defendants—which might be the result of individual decisions rather than conspiracy. Furthermore, Dell had offered a “nuisance settlement” for the patent infringement claims. The court found that this conduct was inconsistent with the alleged conspiracy not to license Cascades’ patents.

  1. Argue that the Plaintiff Has Not Offered a Coherent Market Definition

The court also found that Cascades’ allegations were deficient because it had not specifically identified the market in which the defendants’ conduct restrained trade.4 Instead, Cascades had repeatedly provided different market definitions throughout its Complaint.

  1. Argue that the Alleged Conspiracy Did Not Cause the Alleged Harm

In a bit of role reversal, the alleged troll claimed that it was the victim. But Cascades failed to plausibly allege that its injuries (lost royalties, depressed market value for the patents, litigation expenses, and loss of business growth) flowed from the defendants’ “illegal conspiracy”—rather than from “individual business disputes between independent actors.”5

  1. Be Economically Rational

Cascades failed to show that, absent a conspiracy, it was economically irrational for the Manufacturing Defendants to refuse to license all thirty-eight of Cascades’ patents—when Cascades had only sued them for infringement of one patent. Thus, patent aggregators should ensure that their conduct appears to be economically rational, even in the absence of conspiracy.

  1. Procedural Arguments Don’t Always Work

Dell argued that the court should dismiss Cascades’ antitrust claims because they were compulsory counterclaims that Cascades should have asserted in its patent infringement suits against the Manufacturing Defendants. The court rejected this argument because the antitrust claims involved different law and facts than the patent infringement claims.

  1. Maybe on the Amended Complaint

The Manufacturing Defendants argued that their conduct—in forming common defense agreements against Cascades—was protected under the Noerr-Pennington doctrine, which “provides immunity from antitrust liability for litigation related conduct.”6 The court rejected this basis for dismissal because Cascades had not pleaded facts sufficient to allow the court to assess the Noerr-Pennington doctrine.

Conclusion

On February 20, 2013, Cascades filed an amended complaint. Stay tuned as to whether the second complaint fares better than the first.