A federal judge in the Northern District of California has dismissed an antitrust complaint against SanDisk Corporation, the dominant maker of computer flash memory.

In the suit, PNY Technologies, Inc. v. SanDisk Corporation, downstream competitor PNY alleged that SanDisk violated Sections1 and 2 of the Sherman Act through licensing practices of its extensive patent portfolio.

According to the complaint, SanDisk owns more than 1,400 U.S. patents, covering 100% of the technology used to manufacture or assemble flash memory – such that every single firm in the industry must pay royalties to SanDisk or face litigation.  The complaint alleged that SanDisk exploited its robust portfolio by coercing competitors to enter licensing agreements which required licensees to:

* Pay multiple royalties on the same product as it is sold along the distribution chain;

* Pay royalties on worldwide sales, regardless of whether SanDisk had patent rights;

* License a full patent portfolio, rather than specific individual patents; and

* Grant back to SanDisk a worldwide, royalty-free license to any of the licensee’s future technological innovations related to flash memory.

Judge Yvonne Gonzalez Rogers pointed to the “tension” between the legitimate rights of patent holders and ruled that the complaint failed to sufficiently explain how SanDisk dominated the market.  While granting leave to amend the complaint, the court pointed to the “overarching inadequacy” of the allegations that failed to “distinguish[] between and among the various markets and causes of action,” and the failure “at its most basic level” to relate alleged anticompetitive conduct to the “legally obtained monopoly of the patented technology.”

While the court accepted that PNY had adequately alleged monopoly power and barriers to entry in the upstream market for flash memory, the complaint failed to allege monopoly power in the downstream markets.  The court concluded that SanDisk’s power to extract a royalty on the same patented technology on all downstream market sales did not establish that SanDisk has the power to control downstream prices or competitors.

The court also found that PNY had not alleged anticompetitive conduct in the relevant markets.  As to the technology market, the complaint did not allege any willful acquisition of a monopoly.  With respect to the other downstream markets, the complaint failed to allege that SanDisk was demanding “double royalties,” as opposed to collecting separate royalties for separate patents.  And the grantback provision was not clearly anticompetitive, because PNY did not allege that the provision in fact stifled innovation.

The dismissal followed the unsealing earlier in the month of a federal court decision in the Western District of Wisconsin dismissing nearly identical claims against SanDisk after a full bench trial on the merits.  That case involved antitrust counterclaims asserted by Kingston Technologies in response to an infringement suit brought by SanDisk.  Rejecting Kingston’s claims that SanDisk’s patent licensing protocol was unfair and anticompetitive, Judge Barbara Crabb found that Kingston failed to prove “that the challenged licensing terms would have an adverse effect upon the market for USB flash drives in the United States.”

The U.S. District Court for the Northern District of California has denied a motion for class certification in a case challenging social networking giant Facebook’s online advertising practices.

The case, In re Facebook, Inc. PPC Advertising Litigation, was filed in 2009 by advertisers on Facebook.  The plaintiffs, who paid Facebook on a “cost-per-click” basis, allege that they were billed for “invalid” clicks.  Their complaint alleges violations of California’s Unfair Competition Law and breach of contract because Facebook failed to ensure that its advertising system could detect and prevent those “invalid” clicks.

In her opinion denying the motion, Judge Phyllis Hamilton found that plaintiffs satisfied the numerosity, commonality, and typicality requirements of Federal Rule of Civil Procedure 23, but they fell short in showing adequacy of class representation and whether questions of law or fact common to putative class members predominate over any questions affecting only individual members. 

Under Rule 23(a)(4), a court must find the class representatives “will fairly and adequately protect the interests of the class.”  Judge Hamilton found the plaintiffs failed to make the requisite showing for several reasons.  First, the Court found that two of the class representatives had not attempted to show any “concrete injury” from specific “invalid” clicks and that they had never disputed Facebook charges within the time period prescribed in the contract to avoid waiver.  Those deficiencies could require the litigation of individualized defenses.  Second, the Court found that the same two class representatives have different interests than other class members because they are self-service advertisers.  The class, as defined by the plaintiffs, would also include large corporations who contract directly with Facebook on different terms.  Third, the Court found that one of the class representatives stated in his deposition that he knew “essentially nothing about the case.”

Under Rule 23(b)(3), a court must find that “questions of law or fact common to class members predominate over any questions affecting only individual members.”  The Court found the plaintiffs’ arguments lacking when it examined the underlying causes of action. 

For the breach of contract claim, the plaintiffs could not identify a “uniform written contract” to the Court’s satisfaction.  The plaintiffs pointed to various parts of the Facebook website as comprising the agreement, but none of the pages that the Court deemed part of the contract contained a promise that advertisers would never be billed for “invalid” clicks.  Adding to the lack of commonality, the Court also found that direct advertisers, who contract directly with Facebook, would have no reason to look at certain parts of the Facebook website because they work with Facebook employees directly or work with third-party advertising agencies.  The Court also found that plaintiffs failed to establish the existence of a uniform method to identify “invalid” clicks and whether damages could be identified for the class as a whole.

For the unfair business practices claims, the Court found that common questions do not predominate for the same reasons that the breach of contract claim failed.  The Court further found that the plaintiffs had no “viable method” to prove each class member’s individual recovery, and California’s Unfair Competition Law requires plaintiffs to show that Facebook obtained the plaintiffs’ payments “by means of” the alleged wrongful conduct.  Accordingly, the Court ruled that plaintiffs had failed to establish restitution as a common question that could be resolved in a single case.

This decision is a big win for Facebook because the company, like many Internet-based firms, depends greatly on advertising revenue generated by its 900 million users.  In the first quarter of 2012, Facebook reported $872 million in advertising revenue, which represented 82% of total revenue for that time period.