RPX: Patent Aggregator and Alleged Antitrust Conspirator

Cascades Computer Innovation v. RPX, HTC, LG, Motorola, Dell, Samsung (N.D. Cal. 2012)

In a bold move, non-practicing patent holder CCI has sued a group of tech companies and the patent aggregator RPX for price fixing and conspiring to restrain trade in violation of the Clayton and Sherman Acts as well as under California state antitrust law. The allegation is that RPX and its members decided as a group to boycott negotiations with Cascades except through their aggregator RPX.

Defendants HTC, LG, Motorola, Samsung and Dell sell more than 95 percent of all mobile phones and tablets that use the Android operating systems in the United States and are an important part of the Android market, and related, relevant sub-markets (including products that require a license from Cascades under its patented technology). The manufacturing defendants constitute nearly the total demand for the licensing of Cascades’ patented technology and collectively enjoy substantial market power in that market and, together with others in the industry, have exercised their power to control the acceptance and terms and conditions of licenses from Cascades. The power is augmented by the willingness and agreement of the manufacturing defendants to infringe Cascades’ patents until such time as Cascades capitulates by either going out of business, declining to enforce the patents or offering defendants patent license terms below fair market value.”

The complaint is well written and worth a read. Nick McCain at Courthouse News has more: http://www.courthousenews.com/2012/03/09/44560.htm.

42 thoughts on “RPX: Patent Aggregator and Alleged Antitrust Conspirator

  1. 41

    The recent rise of patent aggregators like RPX is an interesting development. Whether or not one agrees with their business model, as more large conglomerates profit from patent acquisition and enforcement, at least it will likely change the tone and focus of the “patent troll” debate — which was, after all, getting rather tiresome.

  2. 37

    What if your neighbor is in the middle of your yard yelling at you to get off his lawn?

    Oh wait, you’ve already met Ned.

  3. 35

    Number 27, I think there's a difference between a law firm advising a client in response to a request for legal advice and a law firm publicly advising not to deal with a particular patent owner, but when and if they do sue come to us for legal representation (so we can make a big killing on legal fees in the lawsuit).  

  4. 34

    Number 27, let's assume RPX was a democracy and they put the issue of taking a license with particular patent owner to a vote.  One of the vote was close, but a narrow majority decided not to take out a license.  What are the options of those who disagreed with the majority?

    This is not an issue that heavily effects patent law and whether a particular patent is valid or infringed.  RPX basically is a collective-bargaining agent for its members.  I don't know whether its members have a right to vote on the leadership are on particular issues, but they should.

    In the end, I think RPX has many of the same problems conceptually that were presented by the Association of licensed automobile manufacturers long ago with the Selden patent.  

  5. 33

    Number 27,

    Now we are talking.

    How does RPX get paid?  Subscription fees?

    A collective-bargaining agent has the problem of free riders.  If they negotiate a favorable royalty for its members for a fee, that will become the reasonable royalty for all even if they are not "members."  So why would a member of the public join RPX and pay it a subscription fee if they can enjoy the benefits of RPX without paying its subscription fee?

    Obviously, RPX business model requires all similarly situated businesses to be participants.  One of the allegations in the complaint is that RPX forces unwilling companies to join by threat.  This is almost required by the RPX business model, if I understand it correctly.

    Alternatively, RPX could acquire the patents and use them to force the unwilling to become subscribers, increasing its bargaining power against future patent owners.  Again, an allegation in the complaint states that RPX actually does this.

    On the whole, I don't understand how RPX business model is consistent with either the antitrust laws or with the unfair competition laws.

  6. 32

    How can it be unlawful for a firm to advise clients that a license is unnecessary after having reviewed the asserted patent’s claims against the client’s technology? The only way to know for sure is to litigate every patent raised against your client.

    If a client comes to you saying that this patent has been asserted against the client’s product, isn’t the client asking for your legal advice as to the desirability/necessity of a license, the cost versus risk of infringement etc? And if the law firm’s analysis reasonably concludes the client is not infringing why would it be necessary or even desirable to deal at all with the patent owner? If I am standing in the middle of my own yard why would I bother dealing with a nieghor who is yelling at me to get off his lawn?

  7. 30

    You assume there is an agreement beyond the RPX membership agreement, which I agree is at issue also. Your comments suggests an outfit like RPX always has a duty to deal with any patent owner who claims to have rights to technologies used by RPX members, no matter how dubious the claim.

    The refusal of defendants to continue licensing negotiations could also be the result of a calculation that plaintiff’s licensing demands outweigh the risks/cost of potential infringement. This could be the sole decision of RPX on behalf of its membership. If so, how would this differ from a law firm providing the same advice to several of its clients to not seek a license from a patent owner; beyond the AC privileged nature of the advice that is? Indeed, plaintiff is also complaining about that exact situation.

  8. 29

    Your response makes me wonder that even if RPX did not boycott but instead negotiated a license for its members, would that too not constitute an illegal combination of the entities, i.e., members RPX is representing? If they can’t join together through RPX to boycott why can they join together to set a licensing fee applicable to all, to fix the price for which its members are willing to license?

    To turn your point around, why would a belief that they were in fact infringing be a sufficient excuse to arrange a price setting collective action through RPX membership? Again, assuming standards setting is not the context.

    And these questions are likely the point of the lawsuit. Theoretically, and carried to the exetreme, a license “wholesaler” could sign up all the intended practicioners of an invention & through such monopsony power effectively deny an inventor/patent owner the benefits, i.e. monopoly rents, of his or her lawfully obtained monopoly.

  9. 28

    27, While any member can unilaterly refuse to deal based upon a good faith belief they do not infringe, I doubt that this would extend to an agreement amount similarly situated members to refuse to deal.

    The group boycott appears, on the face of the complaint, to intended to lower the price/and or force the patent owner out of business.

  10. 27

    Even if RPX had a good faith belief in lack of infringement by all members, I doubt that that would be a sufficient excuse for organizing a collective boycott. I don’t think they would even have standing to file a DJ action on behalf of it member alleging non infringement. On it face, that seems incredible.

    Just exactly what would they say?

  11. 26

    Would RPX have to say there is no infrgngement as opposed to saying there was no concerted action or agreement, or that there was a reasonable belief that the patents were not of concern to defendants? In this AT case, it seems to me the onus is on plaintiff to show infringement (agree w/your point that validity is presumed) and thus that defendants had/have a duty to deal with plaintiff.

    I am assuming, as appears to be the case here, plaintiff has separately sought enforcement of the patent against alleged infringers indluing these defendants (see compl. par 47 and summation of damages).

  12. 25

    In fashioning this as a concerted refusal to deal the hurdles for plaintiff that jump out at me are the lack of historic dealing between the parties involved & the availability of the plaintiff to seek redress by enforcing the patents at issue. Absent a finding or admission of infringement, can the named defendants be said to have a duty to deal with plaintiff? If in the standards setting context perhaps, but otherwise?

  13. 24

    Assuming there are separate patent enforcement actions, which appears to be the case here, this case may be an attempt to ascertain the legality of the RPX business model, in those instances where a combination of potential licensees who belong to the same aggregator have monopsony market power & the aggregation agreement prevents each from acting on their own to obtain a license.

    If successful could the plaintiff here get doubly rewarded under AT for any actual/willful infringement, or at least get treble damages for the complained of costs of the infringement litigation & costs for this action, & at the same time relieve itself from having to deal in the future with a time-consuming & expensive tactic or potential licensees and aggregators?

  14. 23

    Googling “Cascades Computer Innovation” returns a list of cases involving the 750 patent filed last Fall ND Ill.

  15. 22

    I take from the complaint par. 47 and itemization of damages that Cascades has incurred costs in enforcing the patents against named defendants & others. Should be easy enough to verify.

  16. 21

    Why would the plaintiff have to prove that the patent was not invalid?

    We have a statute that says that patents are presumed to be valid.

    Furthermore, if RPX wants to contend the patents are invalid over art, why haven’t they requested reexamination? The implication is that they have no good art. Reexamination is a proper and legal way to prove a patent invalid, not a group boycott.

    Regarding damages, why should damages critically depend on whether there was past infringement. Couldn’t the reason for a license be that one wants to use the patent in the future?

    Further, just how is RPX going to defend itself on the basis that its members do not infringe. That is something they cannot say, IMHO.

  17. 20

    Ned, the statute provides for willful infringers to get up to treble damages, and furthermore a “reasonable royalty” is the minimum or base line for infringement damages, not its limit. [Ample good business reasons not to simply ignore patents one is accused of infringement of for any length of time without also developing a non-infringement and/or invalidity defense. Also, effectively using one of the 5 different reexaminations soon possible under the AIA.]

  18. 19

    Other interesting questions for this interesting case.
    Even if Jones Knitting Corp. v. Morgan, 361 F.2d. 451 (3d Cir. 1966) is held to be applicable law on this subject [which some academic papers seem to disagree with] would this unusual antitrust case not also have a “case within a case” problem? That is, unless the patents the joint-parties are refusing to voluntarily take a license for are shown to be infringed and not invalid, how are damages going to be proven?
    Even though this is an AT complaint, is it sufficiently patent-related to give the Fed. Cir. appellate jurisdiction rather than the 9th Circuit?

  19. 17

    A lawyer always serves his own interests first. Clients will lie to you. They are not interested in you and any of your ethical dilemmas that you may find yourself in. To have this notion of “only in the best interests of the client” is quaint.

  20. 16

    Might I also add this:

    If the firm will profit from the inevitable ligitigation that results from following its advice, then it is doubly at fault. They are not disinterested, advocating only the best interests of their clients. They are advocating the best interests of the firm.

  21. 12

    Herb, “Given the fate of so many patents in litigation and the fact that the courts typically relegate NPEs to damages, I think advising a client not to be pressured into accepting a license from an NPE is sound advice.”

    Actually the way I see it that this advice, without more, is advice to willfully infringe. It is one thing to not take out a license because there’s a good faith belief that the patent is invalid or not infringed. It is another to refuse to take a license and to continue to infringe because the court will in the end award no more than a reasonable royalty.

    Unless the firm knows that a patent is invalid and not infringed, how can a firm advise clients to refuse to deal and somehow not be engaging in unlawful conduct?

  22. 11

    I can’t directly answer that (because I don’t know). One of the two law firms on the complaint is Niro Haller & Niro (formerly Niro Scavone). They are among the most active patent plaintiffs firms in the country.

    I’m not sure offhand what the perceived downside of a lawsuit would be, but imagine the patent owner views litigation like running a trail filled with bear traps. You’d have to avoid them all to make it through with both legs intact. The essence of their argument could be that the conspirators are blocking the safer trail and saying, if you want to get to us, use the trail with the bear traps, and somehow that constitutes an illegal boycott …

    I’m skeptical on the legal claims, but I love the drama…

  23. 10

    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. The allegation respecting the law firm of Winston & Strawn (paragraph 18) states that the law firm encouraged clients and potential clients not to accept licenses from NPEs. Significantly, however, the complaint does not allege that Winston and Strawn urged them to conspire with each other to refuse to deal. An individual decision not to take a license from someone is perfectly lawful. Given the fate of so many patents in litigation and the fact that the courts typically relegate NPEs to damages, I think advising a client not to be pressured into accepting a license from an NPE is sound advice.

    It will be interesting to read the answer.

  24. 9

    First the anti-ITC stance at link to ipwatchdog.com

    Now you are against this avenue.

    If the court feels the cause of action is not appropriate, the court will let the parties know.

    We don’t need your opinion of what a just cause is.

  25. 7

    You have to admit this lawsuit is interesting, and far from normal.

    Paul’s question is legit, why don’t they just sue the individual infringer. It’s not like RPX can prevent them from doing so.

  26. 5

    Re the alleged: “..willingness and agreement of the manufacturing defendants to infringe Cascades’ patents until such time as Cascades capitulates by either going out of business, declining to enforce the patents or offering defendants patent license terms below fair market value.”

    Why are normal suiits for patent infringement against reluctant licensees not an option? With such a huge product market base, and thus huge potential and allegedly willful infringement damages why cannot they find any law firms eager to take such suits on a contingent fee basis?

  27. 3

    According to the complaint, RHX is an offshoot of Intellectual Ventures. It is said to coerce membership in RHX using blackmail. It further allegedly forces its members not to individually negotiate with NPEs using a variety of techniques such that the NPE must deal with RHX or not deal at all.

    This is not a group boycott, I don’t know what is. It also seems that RHX is the mastermind, but I might be wrong in this and that it might be fronting for core group of companies.

    This will be interesting.

  28. 2

    Andrew, RCA was a patent pool and was broken up to a degree: AT&T was “expelled.”

    Also consider this:

    link to en.wikipedia.org

    The ALAM group licensed/approved the Selden auto patent. They denied a license to Henry Ford who developed the assembly line and was undercutting the market.

    While Ford eventually won a ruling that the patent did not cover all automobiles, I think the group boycott as aspect of the ALAM may have led to the further development of the A/T laws.

    It is amazing how history repeats itself.

  29. 1

    That is really interesting. Is there any precedent for applying the “group boycott” doctrine to patent licensing? Maybe it makes no difference if the alleged boycott is against a DRAM vendor or a patent licensor, but I’d be curious to see the legal analysis of that.

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