Category Archives: IP-Antitrust

Sham Litigation Exception is so clear, it gets resolved in 6 years.

Due to its saga of litigative history, it took 27 pages to dismiss attempted monopolization and Walker Process claims in Sumitomo v. MEMC (N.D. Cal. 8/13/2007).   In 2001, MEMC sued for patent infringement, losing in 2004 on summary judgment of no infringement, which the CAFC reversed in part.  On remand, the patent was held invalid as non-enabling, but not anticipated, and the appeal remains pending.  In between those two appeals, Sumitomo sued in D. Del. claiming MEMC pled a baseless suit in an attempt to monopolize.

Again, I draw upon the visual metaphor of the Spy v. Spy comic strip from Mad Magazine, here to show the necessary relation between claims of invalidity, inequitable conduct, and sham litigation monopolization.  Spy I claims infringement, Spy II counterclaims invalid.  Spy I distinguishes the cited prior art, and argues it is immaterial.  So, Spy II identifies inconsistencies between that and positions that Spy I had argued to the USPTO to get claims allowed, and notes that Spy I knew of some prior art but didn’t cite it or mischaracterized it.  Spy I acknowledges knowing of the art, so Spy II argues inequitable conduct.  Cross-motions for summary judgment are denied.  Spy II counterclaims for attempted monopolization.   Yikes – even if the Spy’s patent is invalid, the collateral litigation will go on for three more years. 

The English language is apparently lacks words to describe the level of proof needed.  To prove inequitable conduct, or invalidity, requires clear and convincing evidence.  Some more stringent level of proof is needed to elevate inequitable conduct up to proving an attempt to monopolize. What, clearly clear and convincingly convincing; crystal clear and totally convincing?  As Judge Armstrong states: “Walker Process fraud requires a much greater showing of materiality and intent than the showing required to establish inequitable conduct.”  The claimant “must have affirmative evidence of fraudulent intent.” Sumitomo lacked that proof, indeed, it could not make out a material factual dispute sufficient (clear enough?) to overcome a summary judgment motion. 

It’s sham litigation theories can be categorized as: (a) litigation positions on prior art that differ from statement to USPTO, (b) technical flaws in prosecution, (c) omitted inventors, (d) anecdotal evidence of early sales never disclosed to examiner, (e) allegedly knowing that patent was obvious or non-enabling.

Judge Armstong dismissed (a) because the alleged differences in position taken were held to be mis-interpretations by Sumitomo’s expert.  That he came “to a different conclusion regarding the correctness or salience of this distinction …does not raise a triable issue.”  The technical flaw as to claims of priority did not raise a material dispute, because Sumitomo’s expert report, instead of supporting that claim, opined that it presented “issues of material fact.”  Apparently, Judge Armstrong did not view that as within the expert’s expertise.  The omitted inventors (c) theory was dismissed because it could not rise to the point of proving that the patent would not have issued ‘but for’ the claimed omissions.  As to non-disclosures related to the on sale bar (d), there was no record of any sales in the U.S., only one witness’ anecdotal recollection. 

Sumitomo’s assertion that the litigation was a sham that fronted MEMC’s knowledge of invalidity was based on its “expert” on patent prosecution.  His opinion did not, per FRE 702, “assist” Judge Armstrong, who noted that the expert had “prosecuted all of one patent during his entire career.” 

In patent cases that involve inequitable conduct and sham litigation counterclaims, what needs to be ground down are the standards of proof, and case management tools for getting rid of unprovable contentions – earlier.  The caselaw varies, needlessly, about whether an infringement case, which gets past a summary judgment motion, can be proven later to be a “baseless” sham suit.  In the Sumitomo ruling, the appeal of the non-infringement ruling included a cross-appeal of a denial of Rule 11 sanctions.  The CAFC found that the patentee’s counsel had done “a good faith, informed comparison of the claim …[vs.] the accused” products, and a finding that the count for inducing infringement could go to a jury.

Even those findings did not provide a ‘free-pass’ that would end the later-pleaded complaint alleging that the infringement suit was baseless.  The “Court’s ruling on the [R. 11] attorneys fee motion does not wholly foreclose” the attempted monopolization claim of baselessness.  Well, why does it not?  Because the law is unclear.  The standards for inequitable conduct need to be clarified by statute, and as well, the elements necessary to prove the sham litigation exception for attempted monopolization claims against a patentee.  Now, it all about interpreting the caselaw, conflating the majority and minority rules, distinguishing what Judge Zigalockoouse did in some unreported case from the District of Whereas, and so on.  That lack of clarity enables cases, like the Sumitomo case, to go on for six years, at which point, only a summary judgment has been entered, then the CAFC gets the case for a third time. 
If there is no hope of statutory repair – real reform, then the Dickensian remedy may be viewed as the next best alternative.

Limewire Mired in Monopolizing Morass of Music Merchants.

In a well-drafted, but issue driven counterclaim, the owners of LimeWire software threw a battery of antitrust accusations against the major distributors of popular music.  After being sued for copyright infringement, LimeWire countered that the music business is a conspiratorial cartel that acts “with a vengeance,” in Arista Records, et al v. Lime Wire, 06CV5936 (S.D.N.Y.).

The defense of the infringement case suggests that LimeWire developed its software using annotated copies of the Napster and Grokster decisions.  It’s antitrust counterclaim may have been structured around annotations to those and other RIAA cases.

LimeWire avers it lacks the file “directory” resident on its servers, which was a resident evil that snared Napster.  The counterclaim notes a clickwrap agreement by which new users “agree not to use the application to infringe the copyrights of others.”  That hopes to distance LimeWire from the software promoted by Grokster and other P2P systems.  It acknowledges that after clicking, “those persons make use of LimeWire in the manner that they alone choose.”  Sort of like a choice teens make after clicking the ‘I am 18’ on other web sites. 

The LimeWire counterclaim condenses most of the history, and some sound bites from, many prior efforts to ‘take on’ the music industry in court.  Still, it seems short on the details of the antitrust violations.  Usually, a civil antitrust complaint should read like a criminal indictment, identifying the combination, the contract, detailing the conspiracy, the object, the overt acts, etc.  This one indicts more so with criticism of the ‘old business’ model, and with information and belief.  The first problem may be providing an initial disclosure that supports the litany of legal theories – if it gets that far.

The alleged badness – to “attack [new] technology with a vengeance,” “prevent the exploitation of new technology,” “plan to dominate the market for online recorded music distribution,” use “anticompetitive [&] unduly restrictive licensing,” “pool their copyrights,” foment “price-fixing among horizontal competitors,” “concerted refusal to deal,” “boycott,” “collusively employing anti-piracy methods,” – all of these run head-on into the music companies’ exclusive right to distribute, which 17 U.S.C. §106(3) guarantees to all copyright owners.

Copyright cases so often ask who’s copy, what copy, how copied, but so many cases today hinge on the right of distribution.  §106(3) enables all manner of vertical, horizontal, exclusive, non-exclusive, exclusionary, etc., distribution arrangements.  The distribution right goes far, and beyond that point, the law of copyright yields in respect to the law of contracts and licenses. 

While I enjoyed reading the LimeWire counterclaim, and find intellectual interest in its challenge to the music business, I think it faces a tough pull to surmount the copyright owners §106(3) rights.  Copyright law is read textually from the Act, and applied equitably to be fair to the copyright owner.  That leaves little in the scale of justice for a defendant accused of facilitating large-scale copyright infringement.  As I’ve been told, your legal arguments are great, but if it’s you against the whole world, I’d bet that the world wins.

No Horizontal Restraints on Smoking.

The gray market (grey?), and the Acts of Lanham and of Sherman all played roles in R.J.R. Tobacco v. Cigarettes Cheaper!, (7th Cir. 8/24/2006).  A suit begun to stop a seller of reimported cigarettes provoked an antitrust counterclaim.  The Sherman Act count went out on summary judgment, because RJR lacked “market power.”  That was affirmed, although the panel called the lack of power conclusion “both questionable and irrelevant.”  It would be irrelevant if the Robinson-Patman claim of a “horizontal” pricing conspiracy would lie, since that would be per se illegal, which takes out the rule of reason factors.  The predatory pricing claim, though, failed at trial.  Then, a further trial was held on the Lanham Act claim, RJR prevailed, and was awarded $4M.

If you enjoyed more than two semesters of economics, then you’d find Judge Easterbrook’s dissection of the antitrust claims a worthy read.  (You perhaps already know that, for the cig market, the “Herfindahl-Hirschmann Index exceeds 3,000”).  Most opinions on the economic drivers in a market offer the reader some chestnuts about capitalism, and often a literary allusion.  Here, one gleans these.  Capitalism is a “gale of creative destruction,” and “cutthroat competition” is a “term of praise.”  In analyzing the price-cutting evidence, the panel said proof that RJR had “played the role of cat’s paw …would suffice even if ..the[ir] motivation” was hard to understand.  That’s more in the dialect of undergrad classes, than what’s heard in law schools, but it resonates with antitrust wonks.

That gets us to the end of the decision, which affirms the Lanham Act award against the cigarette importer.  In gray market cases, the exception always overcomes the rule.  “The Lanham Act does not block reimportation and sale of genuine articles under their real trademarks …[but this] does not apply if the domestic and foreign products are materially different.”  In every case I’ve seen, the products have some differences, often small, and those always are considered material differences.  With cigarettes, the “loyalty programs,” i.e., coupons on the pack, differ here and abroad; domestically, cigs beyond their shelf life are removed by RJR, but they don’t police remiported cig stores.  While those seem modest differences, the jury accepted them. Sure, the coupons differ – why would a smoker in Italy want a Nascar cap?  No doubt too that RJR is not going to gray market stores to check shelf life labels, but for as long as the reimported cigs were fresh, then they were not materially different from the domestic products.

Sometimes it seems that when no other commercial claim will fit, that a Lanham Act or an antitrust claim can fill in the void.  Here, the fact is that gray market resellers are disfavored, even by jurors who like to get the same thing for a lower price.  If you are defending one of the these cases: invoke your advertising injury coverage, then work hardest to settle with the trademark owner.