We previously wrote that regulators are considering using antitrust laws to reign in perceived abuses by non-practicing entities or, more familiarly, “patent trolls” – entities that purchase the rights to patents not to practice the patents but to enforce them through licensing or litigation. In a recent case, antitrust laws are taking center stage in a battle between two non-practicing entities, one a purported “patent troll,” the other a claimed “anti-troll.” Cascades Computer Innovations LLC v. RPX Corp., No. 4:12-cv-01143 (N.D. Cal.).
Plaintiff Cascades Computer, a non-practicing entity or “patent troll,” claims the rights to 38 patents issued to Elbrus International, at least one of which is a patent Cascades alleges is practiced by operating systems for mobile devises. Defendant RPX, a defensive patent aggregator or “anti-troll,” advertises it can negotiate “wholesale pricing terms” on behalf of its members when non-practicing entities acquire rights to patents. Alternatively, RPX will acquire patent rights for a subset of its members, called a syndicated or structured acquisition, funded by contributions from those members.
According to Cascades’ amended complaint – the court dismissed the initial complaint for failure to meet the plausibility standard in Twombley – RPX approached Cascades to acquire a license to the Elbrus patents. RPX and Cascades agreed on a high seven-figure price, but RPX withdrew from the deal because one or more of its members refused to fund the acquisition at that price. Cascades then tried to negotiate with the individual manufacturing defendants, but none responded and at least one expressly stated it would only negotiate through RPX.
Cascades then filed an antitrust claim against RPX and three of its manufacturer defendants. Cascades alleges that RPX and its manufacturer defendants formed a “hub and spoke” conspiracy that restrained competition and monopsonized the market for mobile devise operating system technology in violation of Sections 1 and 2 of the Sherman Act. Defendants moved to dismiss on the grounds that Cascades alleged nothing more than parallel conduct in that each defendant acted in its own self-interest by refusing to overpay for a license.
The Court acknowledged defendants’ explanation may ultimately prove true, but denied the motion to dismiss because the alleged facts made Cascades’ theory of a hub and spoke conspiracy sufficiently plausible. The Court found that Cascades adequately alleged a horizontal conspiracy among the manufacturing defendants – the rim of the hub and spoke – because RPX allegedly refused to purchase a license unless all of the manufacturer defendants agreed to the license, and defendants refused to negotiate individually with Cascades. Those allegations suggested an agreement among the manufacturers to license collectively or not at all. Similarly, the Court found the vertical component of the conspiracy – the spokes of the hub and spoke – adequately pled because at least one individual manufacturer allegedly refused to negotiate a license unless it was through RPX.
The Court’s decision could spur more parties to try to wield the antitrust laws – which include the threat of recovering attorneys’ fees and treble damages – in patent licensing disputes involving purported patent trolls or anti-trolls. This is a reason why companies, when planning intellectual property strategies, should be cautious about engaging in defensive measures that could be portrayed as coordinated effort, i.e., a conspiracy, particularly if they involve companies with large market shares or industries that are highly concentrated.