Antitrust Battle Against ‘Patent Trolls’

SAN FRANCISCO (CN) - In a federal antitrust complaint, Cascades Computer Innovation claims a patent aggregator conspired with Motorola, Samsung, Dell and other electronics giants to fix prices on licenses for patents that optimize applications in Android and other smart phones.

Cascades, based in suburban Chicago, claims patent aggregator RPX Corporation conspired with five co-defendant tech companies: HTC Corp., LG Electronics, Motorola, Samsung and Dell, to fix prices and refuse to negotiate on patent licensing.

RPX acquires patents for its 110 member companies, and "has accumulated more than 1,600 patents in various fields, not counting the 29,000 patents for which it recently acquired exclusive licensing rights," according to the complaint.

Cascades claims it has exclusive right to license more than 35 Cascades/Elbrus patents, whose lead inventor, Boris Babaian, spent 40 years working on supercomputers for the Russian space program.

"Mr. Babaian is an Intel Fellow and the chairman and chief technologist of Elbrus International and oversees a design team that traces its roots to the days of Sputnik, the Soviet space satellite often cited as the catalyst for the scientific research that led to many Western technological innovations, such as the Internet," the complaint states. "As noted above, Cascades acquired the exclusive right to license and enforce more than 35 Elbrus patents, including the '750 patent ... 'Method and Apparatus for Preserving Precise Exceptions in Binary Translated Code,'" (2006).

The patents at issue help Android phones install applications "through dependency trees, which permits the optimization of the bytes code used in an application, thus, increasing the speed and value of the application," according to the complaint.

Cascades claims it, and "non-manufacturing entities" like it (NPEs), often are labeled as "patent trolls," a label it disputes.

"The term 'patent troll' was created in 2002 by Peter Detkin, then head of litigation for Intel Corporation," according to the complaint. "Intel had been sued for patent infringement and, later, for defamation for calling its opponent in the then-pending litigation 'a patent extortionist.' According to Detkin, a patent troll is 'somebody who tries to make a lot of money off a patent that they are not practicing and have no intention of practicing and in most cases never practiced.' Detkin is a co-founder of Intellectual Ventures, one of the biggest patent aggregators and (thus, by his own definition) patent trolls now in existence. Intellectual Ventures accumulated more than 30,000 patents on the pledge that it was only acquiring patents for defensive purposes. That pledge was quickly broken in a string of high-profile patent infringement cases Intellectual Ventures brought in Delaware.

"The troll label has been extended to non-manufacturing entities (called 'NPEs') who are companies like Cascades that do not manufacture or sell products covered by patents they own or control. Of course, each of the defendants also owns or controls numerous patents that cover products they neither manufacture or sell."

Cascades says Motorola owns more than 17,000 patents "in the area of mobile phone technology," and that Google "has agreed to acquire Motorola for $12.5 billion to gain control of its patent portfolio."

It claims that Google-Motorola own 22,046 U.S. patents; Samsung owns 47,348; LG owns 16,823; HTC 222; Dell 2,461; and RPX 1,600.

"Recently, RPX became an agent for licensing Alcatel-Lucent's portfolio of 29,000 issued United States patents, allowing it to effectively control the licensing of those patents as well. Together the defendants own or control nearly 120,000 U.S. patents. Cascades owns or controls less than 100," the complaint states.

It adds: "RPX is a spin-off of Intellectual Ventures and was originally backed by three venture capital firms, including Kleiner Perkins. RPX's stated goal is to protect its members from patent infringement claims from NPEs. In most cases, like in this case, an inventor turns to an NPE or financial or strategic assistance in asserting his or her patent rights, since inventors oftentimes lack the financial wherewithal or experience to do so themselves. Thus, if an inventor like Mr. Babaian cannot afford the extraordinary expense of patent enforcement (commonly, $3 million to $8 million per litigation through trial) or is not knowledgeable about how patent licensing and enforcement works in this country, he or she must turn to a company like Cascades to provide financial and other support to license the patents. As in this case, the companies that infringe an inventor's patents are frequently large multinational companies with vast resources to devote to the defense of any patent claims, regardless of merit. Cascades and other NPE companies try to level the playing field on which the large corporate and the individual inventor or small patent holder play, by providing financial and other assistance to make it a more equal contest."

Cascades claims that RPX and its members have participated in a "group boycott" of Cascades, refusing to negotiate with its patent claims, in violation of federal antitrust laws.

"Law firms like Winston & Strawn that represent two of the defendants (Motorola and Dell) and other, like Sony-Ericsson who infringes the Cascades patents, have openly encouraged their clients and potential clients not to negotiate settlements, accept licenses or settle independently with NPEs, regardless of the merits ... " the complaint states. "Defendants' goal is to force either a drastically reduced royalty for rights under the Cascades patents or no royalty payment at all."

The conspiracy, Cascades claims, consists of this: "Defendants HTC, LG, Motorola, Samsung and Dell sell more than 95 percent of all mobile phones and tablets that use the Android operating systems in the United States and are an important part of the Android market, and related, relevant sub-markets (including products that require a license from Cascades under its patented technology). The manufacturing defendants constitute nearly the total demand for the licensing of Cascades' patented technology and collectively enjoy substantial market power in that market and, together with others in the industry, have exercised their power to control the acceptance and terms and conditions of licenses from Cascades. The power is augmented by the willingness and agreement of the manufacturing defendants to infringe Cascades' patents until such time as Cascades capitulates by either going out of business, declining to enforce the patents or offering defendants patent license terms below fair market value."

Cascades claims the conspiracy has unreasonably restrained competition for the purpose of obtaining monopsony power over the terms and conditions under which Cascades can license its patented technology. (A monopsony is a market in which there is only one buyer.)

It seeks declaratory judgment, an injunction, damages and costs.

Cascades is represented by Martin Fineman with Davis Wright Tremaine in San Francisco, and by Niro Haller & Niro of Chicago.

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