Alleged Patent Troll May Have Antitrust Case
OAKLAND, Calif. (CN) - Samsung, Motorola Mobility and HTC must face accusations that they neglected their duty to license patents, a federal judge ruled.
Cascades Computer Innovation filed its federal antitrust claims against the tech companies in a March 2012 lawsuit against them individually and the patent aggregator, RPX, to which they belong.
Claiming that its portfolio of patents includes a process that optimizes the operation of the smartphone operating system Android, Cascades said device makers like the defendants conspired to monopsonize the market to buy Cascades' patents.
It said the companies agreed not to license Cascades patents, defend each other, and share information through their joint counsel and the aggregator.
But the defendants responded by labeling Cascades a patent troll - "an entity that 'enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question," according to the ruling.
Though both Cascades and RPX are non-practicing entities, or NPEs, the defendants herald RPX as an "anti-troll" that protects its members from the infringement claims of NPEs like Cascades.
RPX often acts as an intermediary for its members in acquiring patents and negotiating licenses on behalf of its members, which number more than 100. It allegedly helps members acquire patents at wholesale royalty rates by negotiating the collective's deals.
Cascades said it had been negotiating licenses with the gadgetmakers through RPX, but that negotiations ended and the collective withdrew their offer when one or more members refused to fund a proposed deal.
The defendants allegedly decided next to infringe Cascades' patents without paying royalties so that Cascades would have to accept a below market-value offer from RPX or shutter in the wake of expensive litigation.
Cascades said the RPX collective agreed not to settle independently but that LG Electronics and Philips brokered deals.
After Cascades allegedly offered licensing deals for lump-sum royalty payments of $5 million, the companies balked, according to the complaint. Cascades said Dell, which was not named as a defendant in the first amended complaint, countered with an offer of paying less than $100,000.
The amended complaint came after U.S. District Judge Yvonne Gonzalez Rogers found in January that the group boycott allegations lacked specificity.
Rogers ruled Wednesday that Cascade has successfully pleaded specific allegations of a plausible conspiracy in a relevant market.
The "amended complaint, unlike its initial complaint, alleges specific facts raising a reasonable inference that the manufacturing defendants and RPX engaged in a so-called 'hub and spoke' conspiracy to force sub-competitive pricing for Cascades' patent licenses by monopsonizing the market therefor," Rogers wrote.
Though the defendants claimed that the alleged conspiracy does not make economic sense, Rogers found that an alleged conspiracy need not be "true or even probable" to survive a motion to dismiss.
"The factual allegations of the complaint need only plausibly suggest an entitlement to relief," she added.
It is also irrelevant at this stage to consider the defendants' theory that Cascades has vastly overvalued its patent holdings, according to the ruling.
"Whether Cascades in fact valued its patents this way, and whether such valuation was realistic, are questions for another day, and not amenable to resolution at the pleading stage," Rogers wrote.
Though it is possible that the manufacturing defendants simply refrained from taking a license, Rogers said "the conspiracy alleged by Cascades makes economic sense because it would permit potential licensees of the '750 patent to realize RPX's publically stated promise of 'wholesale' pricing, provided they refrained from competitively bidding against each other and sent RPX to the market in their stead, where it would be the solve viable purchaser."
The defendants failed to show that self-interest explains their behavior because that theory ignores the allegation that a Motorola executive declined to engage in individual negotiations for the '750 Patent with Cascades on the grounds that it preferred to negotiate through RPX, according to the ruling.
Cascades has also claimed that an RPX executive said he spoke "for all the manufacturing defendants collectively; and that none of the manufacturing defendants responded to Cascades' offer of a license that included a rebate for the first to accept," Rogers added.
Before the case can proceed, however, the judge ordered Cascades to show cause as to why the case should not be stayed until the Northern District of Illinois resolves a patent dispute that Cascades filed there nearly a year before its suit in California.
The 30-page ruling expresses concern "about the role of the validity of the patents."
Cascades' answer to show-cause order is due early next week. The defendants then have three days to submit separate responses at which point the court will decide whether to hold a hearing.
Cascades is represented by Ashley La Valley of Niro Haller & Niro in Chicago.
Alfred Pfeiffer Jr. of Latham & Watkins in San Francisco represents RPX Corporation.
Neither side returned a request for comment.