Patent Troll Survives Slings And Arrows Of Motion To Dismiss Antitrust Claims

By Jeffrey I. Shinder

As Congress contemplates passing comprehensive legislation to deal with patent trolls, an intriguing antitrust case involving a defensive patent aggregator—an entity created to deal with such trolls—will proceed in federal court in San Francisco.

The case, Cascades Computer Innovation LLC v. RPX Corporation in the U.S. District Court for the Northern District of California, was brought by Cascades, a so-called patent troll, or non-practicing entity, which is 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 on those patents.

Cascades controls a portfolio of patents that include a patent that allegedly enhances the efficiency of the Android operating systems.  Cascades claims that the defendants, HTC Corporation, Motorola Mobility Holdings, Inc, and Samsung Electronics Co. Ltd agreed that none of them would deal with Cascades individually.  According to Cascades, the defendants instead agreed to negotiate any and all licenses with Cascades through their entity, RPX Corporation.  Cascades claims that this agreement is an unlawful conspiracy to create a buyers’ monopoly—a monopsony—in the market for Cascades’ licenses in violation of Section 1 and 2 of the Sherman Act. 

After Cascades’ initial complaint was dismissed without prejudice, it filed a new complaint, which last week survived a second motion to dismiss.  In an era replete with dismissals of well-plead antitrust complaints for failure to plead sufficient “evidence” of conspiracy before discovery even starts, the denial of this motion is somewhat surprising.  It is all the more surprising when one considers the general hostility towards non-practicing entities, and the undue solicitude that antitrust courts tend to give to intellectual property holders.

For these reasons, the district court’s decision is a refreshing example of a judge properly following the law and not applying a thinly-veiled agenda.  The defendants, for example, argued that the alleged conspiracy made no sense because their refusal to deal with Cascades resulted from Cascades’ overpricing of its licenses—not from any anticompetitive conspiracy.  While finding the defense theory plausible, Judge Yvonne Gonzalez Rogers properly rejected it on a motion to dismiss because that argument was dependent on inferences against the plaintiffs, among other reasons.

Most importantly, the court rejected the standard defense argument that the complaint failed to adequately plead the alleged conspiracy.  In doing so, Judge Rogers brushed aside the defendants’ argument that the complaint alleges nothing more than organizational membership and non-conspiratorial parallel conduct.  The court did so by properly highlighting that the factual allegations as a whole, taken together, are suggestive of concerted activity, which is sufficient to survive a motion to dismiss.  Cascades alleged that: (1) Motorola expressed a desire to deal only through RPX; (2) RPX told Cascades that its members had raised the amounts necessary to fund a deal; (3) one RPX member declined to fund the deal at the price RPX had agreed to, suggesting that the members collectively had to agree on a price; and (4) RPX told Cascades that none of its “members” wanted an individual license with Cascades but, instead, wanted to license its entire portfolio.  In the court’s view, these allegations were more than enough to plausibly allege that the defendants had agreed to refrain from dealing individually with Cascades.

We agree.  In lauding this decision, we make no pronouncements on the ultimate merits of this case, including whether the use of a defensive patent aggregator to check the conduct of trolls can be anticompetitive.  Nor do we comment on whether innovation will be undermined if patent holders cannot use anti-trolls like RPX to restrain the conduct of non-practicing entities like Cascades.  Answers to those questions are best reserved for a more fully developed record that fleshes out Cascades’ allegations and the defendants’ defenses to them.

For now, we reserve our applause for a decision that correctly applied the pleading standards that should be applied on a motion to dismiss, and allowed a controversial case to proceed.

— Edited by Gary J. Malone