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Monopolization Claims Against In-Flight Internet Provider Dismissed

April 12, 2013 by Leave a Comment
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In Stewart v. Gogo, Inc., 2013 U.S. Dist. LEXIS 51895 (N.D. Cal. Apr. 10, 2013) (Chen, J.), a putative class of airline passengers challenged Gogo’s long-term exclusive contracts to provide Internet access connectivity to various domestic airlines under, among other things, Sherman Act Section 2.

The complaint suggested that Gogo’s exclusive contracts with the airlines effectively operated as a wholesale bar preventing the contracting airline from using an Internet access provider other than Gogo on any of its planes.  However, at oral argument, plaintiffs clarified that the typical Gogo contract binds an airline on an aircraft-by-aircraft basis. In other words, where an airline agreed to have an airplane equipped with Gogo for Internet access, that airplane would use only Gogo’s services (and no other company’s) for the ten years. Thus, conceivably, an airline could have some of its airplanes equipped for Gogo’s services but use a different Internet access provider for its other planes.

In dismissing the complaint (but granting leave to amend), the court found that the relevant market could not be limited to North American aircraft that actually provide Internet access, but must take into account the North American aircraft that could be equipped to provide such access, in which case Gogo has only a 16% market share (not 85% or higher as alleged by plaintiffs who focused only on the North American aircraft actually equipped).

The court noted that Plaintiffs had not made any allegations as to why airplanes that could be equipped should not be included in the full range of selling opportunities reasonably open to a competitor. Plaintiffs did not allege, for example, that there are substantial technological or design barriers to installing a competitor’s Internet connectivity services on such planes, nor did they allege that there are substantial financial barriers which prevent competition for these planes.

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Filed Under: Monopolization, Relevant Markets Tagged With: ,

Can An “Anti-Patent Troll” Be a Monopsonist or a Section 1 Conspirator?

January 28, 2013 by Leave a Comment
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A recent interesting case suggests that “anti-patent trolls” may in theory face antitrust liability. In Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition.

The court also agreed that Cascades had not adequately pled a conspiracy that made economic sense. According to RPX, a more plausible explanation for the manufacturing defendants’ decision to decline a $5 million licensing offer was that the offer price was too high. RPX had been negotiating a $10 million deal for all of its 110 members, which made a $5 million offer to each of LG, Motorola, Samsung and HTC too high (collectively $20 million). Although the court did not endorse this and several other “economic sense” arguments, it concluded that Cascades

ha[d] fastidiously avoided providing specific facts with respect to the timing of the alleged negotiations and the interplay with the filing of [actions] for patent infringement. Cascades also will need to provide specific facts to clarify why, absent a conspiracy, it is economically irrational for the Manufacturing Defendants—who are being sued by Cascades for infringement of one patent, the ‘750 Patent—to decline an offer to license Cascades’ entire portfolio of 38 patents. Without clarification and specificity, the Court will not presume economic [ir]rationality where the circumstances giving rise to the lawsuit plausibly suggest nothing more than a tactical ploy to regain economic leverage that Plaintiff lost in the licensing negotiations.

However, the court also refused to hold that the alleged group boycott activity could not constitute a per se Section 1 violation. And the court rejected defendants’ argument that Cascades failed to allege antitrust injury because of the lack of allegations regarding possible consumer injury. “Anticompetitive conduct need not harm consumers specifically in order to cause antitrust injury.”

Although Cascades now has an uphill battle, given leave to amend the complaint, only time will tell whether it can allege sufficient facts to establish its conspiracy, competitive harm, and relevant market allegations.

As Professor Hovenkamp cogently wrote in a comment to the article below — a comment which still applies to the likely amended complaint:

As a matter of antitrust law, a great deal will depend on whether this is a naked agreement to refuse to license (or to suppress the price), or whether it is an ancillary agreement setting standards so as to exclude the plaintiff. A naked agreement among a group of competing manufacturers not to purchase a license or to pay only a low fee would be illegal per se under the antitrust laws. On the other hand, joint licensees who are actively engaged in standard setting do set standards that exclude some technologies. Standard setting is addressed under the rule of reason and generally upheld if there is an objectively reasonable basis for the exclusion. An objectively reasonable basis could include a decision that a patent offered by an outsider is not valid or that the manufactures already have suitable alternatives to the offered patent or are not infringing it.

Another possibility is that the defendant device manufacturers are not acting in concert at all, but are individually deciding not to purchase a license from the plaintiff. The firms are not monopolists, and in any event there is no law in the United States that requires even a monopolist (acting unilaterally) to purchase a license from an outside patentee.

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Filed Under: Horizontal Restraints, Monopolization, Northern District of California, Patents, Refusal to Deal Tagged With: , , , ,

The Continuing Saga of Reverse Payment Patent Litigation

January 24, 2013 by Leave a Comment
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Lower generic drug costs (Photo credit: BC Gov Photos)

In FTC v. Watson Pharmaceuticals, Inc. (Supreme Court No. 12-416), the FTC unsurprisingly filed a merits brief this month again arguing that pay-for-delay (or “reverse payment”) patent settlements are presumptively anti-competitive.

These settlements often occur in connection with the Hatch-Waxman Act and patent lawsuits filed by a patent-owning pharmaceutical manufacturer against a would-be generic manufacturer. Following a patent lawsuit, the branded manufacturer will pay the generic compensation in return for the generic’s agreement to stay off the market for some period of time.  According to the FTC:

Given the significant difference between monopoly and competitive drug prices, a brand-name manufacturer has a strong economic incentive to induce its would-be generic competitor to forgo competition. And while the generic manufacturer will profit if it prevails in paragraph IV [Hatch-Waxman] litigation and enters the market, its profits will be much less than the brand-name manufacturer stands to lose. As a result, both the brand-name and generic manufacturers may benefit (at the expense of consumers) if the brand-name manufacturer agrees to share its monopoly profits in exchange for the generic manufacturer’s agreement to defer its own entry into the market.

FTC brief at 8-9. The FTC’s position is contra that of the Eleventh Circuit and mostly in line with that of the Third Circuit, which in In re K-Dur Antitrust Litigation, 686 F.3d 197, 214 (3d Cir. 2012), held that reverse payment agreements are subject to a “quick look rule of reason analysis” under which “any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market [is] prima facie evidence of an unreasonable restraint of trade.” Id. at 218.

Oral argument is set for March 25.

I previously covered Watson and K-Dur.

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Filed Under: Monopolization, Patents, Settlements Tagged With: , ,

On the FTC-Google Settlement

January 7, 2013 by Leave a Comment

Much has already been written about the specific terms of the settlement, so I will not attempt duplicate that effort. You can find the actual settlement here.  There is some interesting background /behind-the-scenes information on Google’s “antitrust escape” in this Wall Street Journal article.

In a nutshell, the settlement addressed three areas: (1) standard-essential patents (SEPs); (2) advertisers’ management of their ad campaigns; and (3) website “scraping.”

1. The settlement restricts Google (and its subsidiary, Motorola Mobility) from seeking injunctions on SEPs against potential licensees who are willing to enter into a license on fair, reasonable, and non-discriminatory (FRAND) terms. As a result, Google is generally prohibited from seeking injunctions for FRAND-encumbered SEPs. Although Google is allowed to seek injunctions in certain narrow situations—e.g., when a potential licensee refuses to enter into a license agreement on FRAND terms and is an “unwilling” licensee —the settlement outlines specific procedures that Google must follow when negotiating with potential licensees for its SEPs.

Practical result: The settlement reinforces the general rule that SEP owners may not seek injunctions. It also makes clear that potential licensees should pay particular attention to notices of alleged SEP infringement, because failure to respond could be interpreted as being an unwilling licensee.  However, the settlement’s complex license negotiation procedures may encourage opportunistic efforts to portray companies as “unwilling” licensees who can be enjoined.

2. Google agreed to remove restrictions on the use of its online search advertising platform, AdWords, that may make it more difficult for advertisers to coordinate online advertising campaigns across multiple platforms.

Practical result: Some advertisers may have at least a marginally easier time pursuing their advertising goals on non-Google platforms thanks to this commitment. However, it is not clear how robust the effects of the commitment will be.

3. Google committed to refrain from “scraping” the content of certain competing websites, passing the content off as its own, and threatening to de-list rivals entirely from Google’s search results if and when they protest about the alleged misappropriation of content. Websites will now have the ability to “opt out” of display on Google “vertical” properties (websites that focus on specific categories such as shopping or travel).

Practical result: Unclear, although arguably at least somewhat pro-competitive by removing a possible obstruction to innovation on the Internet.

The elephant in the room, however, is that although the Commission did investigate the central issue for many observers – allegations of so-called search algorithm bias favoring Google properties over others – the Commission’s settlement does not address this issue. Instead, the FTC “concluded that the introduction of Universal Search, as well as additional changes made to Google’s search algorithms – even those that may have had the effect of harming individual competitors – could be plausibly justified as innovations that improved Google’s product and the experience of its users. It therefore has chosen to close the investigation.”

Many observers think that the FTC missed the boat on this one.

The European Commission is still investigating Google’s search practices, and it may not be deterred by the FTC’s decision. EU competition law is generally more protective of competitors’ interests than U.S. law, which tends to focus more narrowly on competition itself and on consumer welfare. 

Rivals — including Microsoft, which owns search engine bing — are also not terribly impressed with the settlement, see the report in the linked article below.  Whether competitors, advertisers, or consumer classes attempt to bring their own challenges to alleged Google search engine bias remains to be seen.

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Filed Under: Monopolization, Patents Tagged With: ,

Supreme Court Grants Cert in Watson Pay-For-Delay Case

December 11, 2012 by 1 Comment

On December 7, 2012, the Supreme Court granted certiorari in FTC v. Watson Pharmaceuticals.  The Supreme Court is now poised to resolve the circuit split on the treatment of so-called “pay for delay” Hatch-Waxman Act patent litigation settlements.

The Second, Eleventh, and Federal Circuits have all allowed such settlements where they do not exceed the duration or scope of the patent (or involve sham litigation or fraudulently-obtained patents).  The Third Circuit has disagreed, finding that payments from patent-holding pharmaceutical manufacturers to generics to stay off the market are prima facie evidence of an antitrust violation.

You can find past blog entries on pay-for-delay issues and the Hatch-Waxman act by using the search feature.

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Filed Under: Monopolization, Patents, Settlements Tagged With: , ,

Direct Purchasers Can Bring Walker Process Claims

December 4, 2012 by Leave a Comment

In Ritz Camera & Image v. SanDisk Corp., No. 2012-1183 (Fed. Cir. Nov. 20, 2012), the Federal Circuit held that direct purchasers have antitrust standing to bring Walker Process claims.

In a typical Walker Process claim, an alleged patent infringer claims that the patentee fraudulently obtained a patent or patents from the Patent and Trademark Office.  Usually the claim is brought as a type of monopolization claim.

In Ritz Camera, a direct purchaser of SanDisk products (not an alleged patent infringer) brought a Walker Process claim, alleging that by fraudulently obtaining patents, SanDisk was able to raise prices above competitive levels.  The Federal Circuit found that the plaintiff had antitrust standing.  “Ritz’s status as a direct purchaser gives it standing to pursue its Walker Process claim even if it could not have sought a declaratory judgment of patent invalidity or unenforceability.”

The ruling increases patentees’ potential exposure to antitrust claims arising out of patent prosecution and enforcement.

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Filed Under: Monopolization, Patents, Standing Tagged With: , ,

Third Circuit Rules That Long-Term Agreements Featuring Market Share Rebates, Coupled With Other Exclusionary Behavior, Are Not Subject to a Price-Cost Screen

November 6, 2012 by Leave a Comment

In ZF Meritor, LLC v. Eaton Corp., 2012 U.S. App. LEXIS 20342 (3d Cir. Sept. 28, 2012) (opinion available here), the Third Circuit ruled that long-term supply agreements predicated upon market share rebates or discounts should be evaluated under the Rule of Reason, rather than under the Brooke Group above-cost pricing test. As such, they can be exclusionary even if all of a defendant’s prices are above cost.

The defendant Eaton, a monopolist in the heavy-duty truck transmissions market, had entered into long-term supply agreements with all of the customers (OEMs) in the market. The agreements conditioned rebates on the purchase of a specified percentage of the OEMs’ requirements from Eaton.

The rebates did not reduce Eaton’s prices below cost, and Eaton argued that under a price-cost screen it therefore did not violate the antitrust laws. The Third Circuit conceded that predatory pricing principles, including the price-cost test, would control in cases solely presenting a challenge to pricing practices. “Moreover, a plaintiff’s characterization of its claim as an exclusive dealing claim does not take the price-cost test off the table . . . . [W]hen price is the clearly predominant mechanism of exclusion, the price-cost test tells us that, so long as the price is above-cost, the procompetitive justifications for, and the benefits of, lowering prices far outweigh any potential anticompetitive effects.”

However, the court declined to adopt Eaton’s “unduly narrow” characterization of the case as a “pricing practices” case, i.e., a case in which price is the “clearly predominant mechanism of exclusion.” The court noted other forms of exclusionary behavior, including (i) Eaton’s efforts to make itself the standard offering in the OEMs’ “data books” (which provided product information to end users); (ii) the removal of competitors’ products from two data books; (iii) preferential prices for Eaton products required by the long-term agreements; and (iv) evidence that Eaton’s continued compliance with the long-term agreements was also conditioned on the market penetration targets.

“Accordingly,” the Third Circuit concluded, “this is not a case in which the defendant’s low price was the clear driving force behind the customer’s compliance with purchase targets, and the customers were free to walk away if a competitor offered a better price . . . . Rather, Plaintiffs introduced evidence that compliance with the market penetration targets was mandatory because failing to meet such targets would jeopardize the OEMs’ relationships with the dominant manufacturer of transmissions in the market.”

In a long footnote, the Third Circuit distinguished its decision in LePage’s, while reaffirming its vitality. According to the ZF Meritor Court, LePage’s involved bundled product tying claims. “LePage’s is inapplicable where, as here, only one product is at issue and the plaintiffs have not made any allegations of bundling or tying. The reasoning of LePage’s is limited to cases in which a single-product producer is excluded through a bundled rebate program offered by a producer of multiple products, which conditions the rebates on purchases across multiple different product lines.”

The court went on to find that Eaton’s long-term contracts were, in fact, exclusionary and supported a finding of antitrust injury.

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Filed Under: Discounting, Monopolization, Price Predation Tagged With: , ,

You Can’t Try to Monopolize a Market In Which You Don’t Compete

August 30, 2012 by Leave a Comment

That message was delivered, again, by the court in Infostream Group, Inc. v. PayPal, Inc., 2012 U.S. Dist. LEXIS 122255 (N.D. Cal. Aug. 28, 2012) (Illston, J), which dismissed antitrust claims against PayPal.

In Infostream, adult, “nontraditional” online dating services objected to PayPal’s refusal to deal with them, and alleged that PayPal’s contractual excuse was pretextual because PayPal was dealing with competitors such as Ashley Madison.com and ArrangementFinders.com. Plaintiffs alleged that PayPal has a monopoly in the “Confidential Payment Services” market and exercised its monopoly power in that market to injure competition in downstream markets, including the “Specialty Online Dating Services” market in which plaintiffs compete.

The problem for plaintiffs is that PayPal does not compete in the plaintiffs’ market. In Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536 (9th Cir. 1991), the Ninth Circuit rejected monopoly leveraging doctrine as an independent theory of liability under the Sherman Act.

Although plaintiffs alleged that they had a “belief” that PayPal has an ownership interest in plaintiffs’ competitors, that allegation raised plausibility concerns under Iqbal and Twombly. Moreover, plaintiffs did not allege a dangerous probability of success in the downstream market, and in fact “wholly failed to allege any specific facts with respect to market power of their competitors . . . .”

The court gave plaintiffs leave to amend.

Filed Under: Monopolization, Online Distribution Tagged With: ,

Litigation Costs Are Monopolization Damages

July 3, 2012 by Leave a Comment

In the ongoing Apple v. Samsung war, on June 30, 2012, Judge Lucy H. Koh of the Northern District of California denied Samsung’s bid for summary judgment on the basis that Apple had failed to offer any evidence of antitrust damages. 

(Apple alleges that Samsung violated a Fair, Reasonable and Non-Discriminatory (“FRAND”) obligation to license patents to a standard-setting organization and its members.  See the first related article link below.)

The court held that litigation expenses stemming directly from Samsung’s alleged anticompetitive behavior are recoverable as antitrust damages.  It also held that Apple’s limited amount of factual (non-expert) evidence of litigation expenses was sufficient to avoid summary judgment.

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Filed Under: Apple, Monopolization, Northern District of California, Patents Tagged With: , , ,

Northern District of California Reiterates That You Can Monopolize a Technology Market

May 17, 2012 by 3 Comments

Not every antitrust market is a physical product market.

In Apple, Inc. v. Samsung Electronics Co., Ltd., Case No. 11-CV-01846 (N.D. Cal. May 14, 2012) (Koh, J.), a patent case, the court refused to dismiss Apple’s counterclaims, including a Sherman Act § 2 counterclaim, against Samsung arising out of Samsung’s alleged manipulation of the mobile phone standard-setting process (which alleged resulted in the industry being “locked in” to technology owned and controlled by Samsung). The decision features three holdings of note:

  1. The court rejected Samsung’s argument that Apple had not pled a relevant antitrust market because it alleged monopolization of a technology market, and not a physical product market. Samsung’s argument that only physical product markets are cognizable was novel, but many courts have accepted technology markets as relevant markets. As have the DOJ and the FTC.
  2. The court also rejected Samsung’s argument that Apple had not adequately alleged market or monopoly power. Under Illinois Tool Works, of course, patents do not establish market power. But where a patent is incorporated into an industry standard, and where the standardization of the patented technology prevented the development of other proprietary technologies, the entity that caused the Standard Setting Organization (“SSO”) to adopt its technology may have market power, the court held.
  3. Finally, the court reiterated that an SSO can be used to obtain monopoly power and create anticompetitive effects on the relevant markets.  That can occur in a consensus-oriented private standard-setting environment, when a patent holder’s intentionally false promises to license essential proprietary technology on FRAND (fair, reasonable, and non-discriminatory) terms is coupled with the SSO’s reliance on that promise when including the technology in a standard, and the patent holder subsequently breaches that promise. Allegations of false FRAND commitments are subject to Federal Rule of Civil Procedure 9(b)’s heightened pleading standard, which Apple met.

Moral of the story: a robust and properly-framed SSO manipulation complaint can be difficult (though not impossible) to dismiss.

Filed Under: Apple, Monopolization, Northern District of California, Patents, Technology Markets Tagged With: , , , ,
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