Alleged Patent Troll Must Fix License Boycott Suit

SAN FRANCISCO (CN) - A federal judge tossed a suit that accused Samsung, Motorola Mobility and others of boycotting their duty to license patents.

Cascades Computer Innovation had advanced infringement claims against patent aggregator RPX and its member companies that make Android-based mobile phones and computer tablets. Dell, HTC, LG Electronics, Motorola and Samsung all belong to the collective.

The complaint accused them of agreeing 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 negotiations ended and the collective withdrew their offer when one or more members refused to fund a proposed deal.

Though circumstantial, it claimed that such actions suggest a conspiracy.

It said that the defendants decided next to infringe its patents without paying royalties so that Cascade would have to accept a below market-value offer from RPX, or shutter in the wake of expensive litigation.

Though the RPX collective allegedly agreed to not settle independently, Cascades said it reached agreements with LG Electronics and Philips.

It claimed to have been rebuffed after offering the companies licensing deals for lump sum royalty payments of $5 million. Dell allegedly countered with an offer of paying under $100,000.

Cascade also said the conspiracy has harmed competition in multiple markets including those for patents, patented technology and licenses for patents.

U.S. District Judge Yvonne Gonzalez Rogers found Thursday that Cascades had failed to allege group boycott with enough specificity.

"Instead, the allegations in the complaint consist primarily of threadbare recitals of conspiracy," Rogers wrote.

"Other than Cascades' allegation that negotiations with RPX broke down when one or more RPX members would not agree to fund the deal, all Cascades has alleged is 'parallel behavior,'" she added.

But this does not meet the heightened fact pleading standards as required by Bell Atlantic Corp. v. Twombly, according to the ruling.

Dell cannot be considered an alleged co-conspirator since it sent Cascades a licensing offer, even though Cascade calls the offer "ridiculous," Rogers ruled.

Though the defendants have not shown a pro-competitive reason for boycotting Cascades patents, Rogers faulted Cascades for not stating what relevant market the defendants were attempting to monopolize.

"Cascades avoids its pleading obligation with subterfuge, it defines the relevant product market as broadly as 'licenses', 'the Android market' and mobile phones and tablets that use the Android operating system and as narrowly as Cascades' patents, licenses for Cascades' patents, and products that use Cascades' patented technology," Rogers wrote.

Subsequent court filings merely confuse the matter further, she added.

"While Cascades does not need to limit its antitrust allegations to a single market or sub-market, it does need to specify the market or markets in which the allegedly anticompetitive acts occurred (and the effects of those anticompetitive acts on those specific markets)," the ruling states (parentheses in original). "Otherwise, it is impossible to determine the actual effect the alleged challenged conduct has had on competition."

Cascade also failed to sufficiently show that its alleged injury "flows directly from the defendants' unlawful conduct," Rogers wrote.

"All of the harm alleged - lost royalties, depressed market value for the patents, litigation expenses, loss of business growth - derives from Cascades' inability to license its patents," she added. "However, Cascades has provided insufficient facts from which to plausibly infer that the reason it suffered this harm is due to a conspiracy in a particular market, rather than due to individual business disputes between independent actors."

The judge similarly shot down claims that a boycott conspiracy represents the only justification for the otherwise economically irrational decision of the defendants to reject licensing deals from Cascades.

She gave Cascades 28 days to amend its claims.

Cascades is represented by Ashley LaValley of Niro Haller Niro in Chicago and by Martin Fineman of Davis Wright Tremaine in San Francisco.

Lead counsel for RPX is Alfred Carroll Pfeiffer Jr. of Latham & Watkins in San Francisco.

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