- Wading into the merging streams of antitrust and patents, the US Court of Appeals for the Ninth Circuit upheld dismissal of an antitrust suit where a jury verdict in a parallel case found no patent infringement. Cascades Computer Innovation, LLC v. RPX Corp. and Samsung Electronics Co. Ltd., Case No. 16-15782 (9th Cir., December 11, 2017).
- Cascades Computer Innovation is a non-practicing entity that owns a series of 38 patents (collectively known as the Elbrus portfolio) allegedly used to optimize Android devices. Cascades intended to license these patents for use by companies including Motorola, HTC, Samsung, LG Electronics, Dell and RPX (a defensive patent aggregator that purchases patents on behalf of subscriber organizations using membership fees). An agreement couldn’t be reached. Cascades alleged this lack of agreement was due to a conspiracy between the defendants, using RPX, to not seek licenses for use of these patents—an agreement in violation of antitrust law.
- Cascades filed two related lawsuits against Samsung, Motorola, HTC and others in separate district courts with separate causes of action. In Illinois, Cascades’ claim rested on patent infringement. Although the entire Elbrus portfolio was referenced in the complaint, the court determined only one patent, referred to by the court as “the ‘750 patent,” was truly at issue. Cascades asserted that merely installing the Android mobile device operating system resulted in an infringement of this patent. In California, Cascades relied on antitrust law arguing the agreement between defendants not to purchase licenses amounted to a violation. Again, the ‘750 patent was primarily at issue. Thus, Cascades simultaneously argued that a group of companies infringed on their patent and also that those companies illegally conspired to refuse to obtain licenses for use of that patent.
- A jury in Illinois determined there was no patent infringement, which undercut Cascades’ argument in California. Without any infringement, the court in California noted “[o]nly those who possess antitrust standing by virtue of having suffered antitrust injury may bring a private action for damages for violation of the antitrust laws” before ruling for the defendants on a motion for judgment on the pleadings. The California court reasoned that in order to show antitrust injury, there must be harm to competition, not any particular competitor. The court reasoned that a “failure to license a non-infringed patent typically cannot serve as the basis for a cognizable antitrust injury.” Because Cascades’ entire theory of injury was based upon ongoing infringement of the ‘750 patent, and not on any potential, unalleged future infringement, there was no antitrust injury in the case.
- On appeal, the 9th Circuit determined the district court “properly recognized the preclusive effect of [the Illinois decision] and correctly reasoned that because the defendants did not infringe the ‘750 patent, Cascades’ failure to license the patent was not a cognizable antitrust injury.” In a footnote, the panel explained, “[h]ere, the defendants were not infringing the valid patent; therefore, they were not using the invention. Thus, the failure to license had no effect [...]
In the long-running patent dispute between Microsoft and Motorola, a U.S. District Court jury in Seattle found that Motorola breached its commitment to license certain standard-essential patents on fair, reasonable and non-discriminatory (FRAND or RAND) terms. The jury awarded Microsoft damages of approximately $14.5 million.
The litigation has witnessed numerous legal firsts. In May, the district court became the first U.S. court to set FRAND royalty rates and ranges for standard-essential patents. The dispute between Microsoft and Motorola centered on patents that covered wireless and video technology used in the Xbox game console. Motorola sought a royalty calculated as a percentage of the net selling price of the product. Microsoft claimed this method would have required it to pay approximately $4 billion per year and argued that royalties should instead be modeled on much lower rates charged by related patent pools, which would have resulted in approximately $1 million in royalties. The court’s ruling established a broad, multi-factor analysis to be used to assess a reasonable rate range for standard-essential patents. Applying this test, the court found that the reasonable rate was much closer to the rate proposed by Microsoft than the rate initially demanded by Motorola.
Building upon the earlier decision, the district court jury considered whether Motorola’s initial royalty demands were so unreasonable that they constituted a breach of Motorola’s contractual commitment to offer the patents on RAND terms. Motorola argued its proposal was a first offer meant to be subject to additional negotiation; Microsoft countered that the initial offer was a sham designed to elicit Microsoft’s rejection. The jury unanimously found that Motorola’s actions breached the commitments made in two standards setting organizations.
In addition to legal costs, Microsoft sought $23 million in damages for the costs associated with relocating a distribution center to avoid the impact of a German injunction Motorola had obtained in related litigation. The jury only granted about half the damages that Microsoft sought, but the penalty imposed on Motorola was still substantial.
The jury verdict suggests patent holders should approach licensing negotiations for standard-essential patents with due care. While the facts in the case may present an extreme example, opening royalty rate offers that are viewed as unreasonable may nonetheless expose patent holder to claims of breach of the RAND obligation. More importantly, the case establishes that damages may extend beyond legal costs and can be substantial.