Distribution, Competition, and Antitrust / IP Law

Archives for March 2013

A Supreme Court Antitrust Twofer: What You Need to Know

Washington DC: United States Supreme Court

Washington DC: United States Supreme Court (Photo credit: wallyg)

Within the past two weeks, the U.S. Supreme Court has decided two important cases relevant to antitrust.

First, on March 27, in Comcast Corp. v. Behrend, No. 11-864, the U.S. Supreme Court ruled that a U.S. district court may not certify a class action under Federal Rule of Civil Procedure 23(b)(3) without first determining that damages may properly be awarded on a classwide basis. The Court held that if a damages model fails to attribute supra-competitive prices specifically to the theory of impact, Rule 23(b)(3) cannot authorize class treatment.

Justice Scalia, writing for the majority, cited the Court’s reasoning in Wal-Mart Stores, Inc. v. Dukes as requiring “a determination that Rule 23 is satisfied, even when that requires inquiry into the merits of the claim.” At the class certification stage, “any model supporting a plaintiff’s damages case must be consistent with its liability case.”

In the past, lower courts saw no need for class plaintiffs to tie each theory of antitrust im­pact to a calculation of damages. That, they said, would involve consideration of the merits having no place in the class certification inquiry.  This approach is no longer the law after Comcast.

Time will tell whether Comcast reduces the overall number of class claims presented, or merely leads to more robust expert reports and expert discovery.

Second, on March 19, the Supreme Court held in Standard Fire Ins. Co. v. Knowles, No. 11-1450, that class representatives cannot circumvent the Class Action Fairness Act (CAFA) by stipulating to limit their class damages claim to less than $5 million to keep their case out of federal court. The decision should make it more difficult for plaintiffs to keep their antitrust and other class claims out of federal court by, e.g., so stipulating, and bringing multiple cases/claims, each purportedly under $5 million.

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Free Product Distribution or Discounted Component Distribution Likely Does Not Exhaust Patent Rights

OneTouch Ultra2 is being used by a diabetic pa...

OneTouch Ultra2 is being used by a diabetic patient. (Photo credit: Wikipedia)

In LifeScan, Inc. v. Shasta Technologies, LLC, 2013 U.S. Dist. LEXIS 38677 (N.D. Cal. Mar. 19, 2013), Judge Davila granted plaintiff’s motion for a preliminary injunction to address claims of patent infringement, and addressed whether patent exhaustion doctrine applies to free distribution of product or to discounted distribution of only one component of a product.

I previously covered patent exhaustion doctrine here.  In a nutshell, the patent monopoly is exhausted after a patentee sells the patented invention in whole, or under certain circumstances, in part. (A license to use technology in a certain field of use, however, generally does not trigger the exhaustion doctrine, also known as the first sale doctrine.)

In LifeScan, the plaintiff markets and sells the “OneTouch Ultra System,” a glucose monitoring system. The system is composed of both a meter and disposable test strips. A patent covering “DoubleSure Technology” specifies a method designed to improve the reliability and accuracy of glucose measurements. The technology uses a self-testing strip design using multiple sensors.

Defendants made strips for use in the OneTouch Ultra System (thus prompting the patent suit), and argued that LifeScan’s patent rights were exhausted for two reasons. The court rejected each argument.

First, LifeScan has doctors distribute free OneTouch Ultra kits, comprised of meters and test strips, to diabetic patients. The court held – at least at the preliminary injunction stage – that LifeScan could likely show that this free distribution did not exhaust its patent rights. LifeScan receives no remuneration at the moment it parts with the patented invention. The fact that LifeScan distributes the kits in consideration of patients’ anticipated future repeat purchases of disposable test strips was not enough. According to the court, the common theme running through prior case law – which did not squarely address the issue before the court – was that there must be consideration at the time of the authorized sale in order for the patent exhaustion doctrine to attach.

Second, LifeScan sells OneTouch Ultra meters alone at a reduced price. But this practice too, the court held, likely does not trigger patent exhaustion, because the patent at issue is a method patent that requires both a meter and a test strip for an individual to practice it. “As such, the sale of the meter by itself does not necessarily convey the entire invention of the . . . patent to the purchaser, casting the applicability of exhaustion into doubt.”

The decision reaches the appropriate result – patent rights should not be lost merely because of a novel distribution system, one that is likely pro-competitive because it fosters dissemination of new technology.

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