United States District Court For The District Of Maryland Grants Summary Judgment To Non-Practicing Entity Intellectual Ventures Against Monopolization Counterclaims Alleging Sham Patent Litigation
On November 30, 2017, Judge Paul W. Grimm of the United States District Court for the Southern Division of the District of Maryland granted Intellectual Ventures (“IV”) and affiliates’ motion for summary judgment on Capital One’s antitrust counterclaims based on IV’s alleged bad faith assertion of patent claims, concluding that Capital One’s antitrust counterclaims were barred by both Noerr-Pennington immunity and collateral estoppel. Intellectual Ventures I LLC et al v. Capital One Financial Corp., 8-14-cv-00111 (MDD 2017-12-01, Order). The Court’s thorough and careful opinion is a good illustration of the challenges of litigation over the conduct of a non-practicing patent-assertion entity, or as some would have it, a patent troll, under the Sherman Act.
As Judge Grimm colorfully put it, Capital One claimed that IV is not just a patent troll, but a “veritable Dovregubben” (i.e., a Troll King, referencing Henrik Ibsen’s play, Peer Gynt). Capital One claimed that: (i) IV acquired a vast portfolio of patents necessary for various types of services offered by commercial banks (e.g., mobile banking), (ii) offered its entire portfolio for license at very high prices, (iii) refused to disclose information about the patents, and (iv) sued banks for patent infringement unless they agreed to the license. Capital One alleged that IV threatened that if it lost the infringement case, it would simply file another claim regarding a different set of patents. Capital One claimed that this pattern of conduct constituted monopolization, attempted monopolization, and that the series of acquisitions in accumulating its vast portfolio violated Section 7 of the Clayton Act. IV claimed that its conduct was a legitimate exercise of its rights as a patent holder and protected from antitrust liability under the Noerr-Pennington doctrine, and that Capital One’s antitrust counterclaims were barred by collateral estoppel. IV also asserted that Capital One did not properly allege a relevant market with its theory that IV promotes its cluster of financial services patents as a single product (a “cluster market”).
The Court began its analysis with an extended discussion of market definition. IV argued that different patents in its portfolio enabled different functions and competed in different product markets with different substitutes and potential competitors and that the plaintiff therefore erred in alleging an overly broad product market encompassing the entire portfolio. Capital One argued that it had properly alleged a “cluster market” based on the bundle of technology patents that IV offered as a package. After discussing the parties’ respective arguments and expert submissions on this issue, including commenting that there was “something concerning from an antitrust perspective” about the way IV attempts to license its patent portfolio, the Court ultimately concluded that market definition was a question of fact for the jury and that Capital One had provided enough evidence to present its proposed market definition to a jury unless summary judgment were granted on other grounds.
The Noerr-Pennington doctrine establishes immunity from antitrust liability for a wide variety of government petitioning, including litigation, even where the sought-after government behavior would be adverse to competition. The “sham litigation” exception, however, obviates Noerr-Pennington protection for litigation claims that are “a mere sham to cover up what is nothing more than an attempt to interfere directly with the business relationships of a competitor.” Capital One argued that the sham litigation exception applied to its claims because IV had filed a series of meritless patent infringement lawsuits against Capital One and other financial companies. To resolve the issue, Judge Grimm weighed two Supreme Court precedents: In California Motor Transport Co. v. Trucking Unlimited, the Supreme Court held that “a pattern of baseless, repetitive claims” that “leads the factfinder to conclude that the administrative and judicial processes have been abused” would not qualify for Noerr-Pennington immunity. 404 U.S. 508, 513 (1972). About twenty years later, in Professional Real Estate Investors v. Columbia Pictures Industries (PREI), the Court created a two-part test to determine whether a single lawsuit constituted a “sham”: (1) the lawsuit “must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits”; and (2) the “litigant’s subjective motivation” must “be to interfere directly with the business relationships of competitor.” 508 U.S. 49, 60-61 (1993).
Judge Grimm explained that courts had disagreed on the application of these Supreme Court precedents, specifically whether PREI distinguished or displaced California Motor so as to require that the plaintiff show that the individual lawsuits underlying an alleged bad faith pattern or series of lawsuits are objectively and subjective baseless. The Federal Circuit applies the PREI standard to any allegation of sham litigation; thus, any a lawsuit that is not both objectively and subjectively baseless cannot be sham litigation. Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343 (Fed. Cir. 2014). The Fourth Circuit, by contrast, looks to the sham litigation standard of California Motor “when the purported sham litigation encompasses a series of legal proceedings rather than a singular legal action.” Slip. Op. at 31 (citing Waugh Chapel S. LLC v. United Food & Commercial Workers Union Local 27, 728 F. 354, 363 (4th Cir. 2013)). Judge Grimm held that the PREI standard should govern for two reasons: (1) this case is governed by Federal Circuit law because Capital One’s antitrust claims are counterclaims to IV’s patent claims, and (2) even if Fourth Circuit law applied, the PREI standard would still apply because IV had brought only two cases against Capital One, not a pattern of claims as in California Motor. Judge Grimm held that under the PREI standard, IV’s litigations could not be considered objectively baseless because IV had prevailed on some of its patent claims, and was therefore entitled to Noerr-Pennington immunity.
Judge Grimm also held that collateral estoppel barred relitigation of Capital One’s market definition. In a case arising from the same facts, the Eastern District of Virginia (in a decision by Judge Trenga) held that the cluster market that Capital One had alleged was not a relevant market for antitrust purposes. Capital One argued that issue preclusion (i.e., collateral estoppel) should not apply because (1) the relevant market is materially different in this litigation, and (2) Judge Trenga’s conclusion regarding the relevant market was not critical or necessary to his judgment. On the first issue, Judge Grimm held that despite new factual allegations, the alleged relevant market had not changed in any material way. On the second issue, Judge Grimm held in favor of IV, finding that because the sufficiency of the market definition had been fully and fairly litigated in the prior action involving the same parties and because IV invoked defensive collateral estoppel (where a defendant uses the doctrine to prevent a plaintiff from asserting a claim that plaintiff has already litigated), the possibility of unfairness from offensive collateral estoppel was not present.