Category Archives: IP-Antitrust

Is What is Wired, Tied?

A newly-filed suit in Michigan, accusing Comcast of tying premium cable TV with the rental of a set-top box, presumably will add to the cases before the Multidistrict Judicial Panel, 626 F.Supp.2d 1353 (MDL 2009).  In Rogers v. Comcast, 2:10-CV-10547 (E.D. Mich.), the class pleads a Sherman §1 claim along with Michigan Consumer Protection Act claim.

The class alleges upon “information and belief, the set-top box is required for the class to view the premium and/or digital channels” provided by Comcast. ¶23.  It alleges that the “market for cable boxes separate and apart from the market for …cable [TV] services.” ¶52.  Although set-top boxes can be bought elsewhere, class members allegedly are “forced to rent a set-top box from” Comcast to “fully view” premium content from the cable TV provider.  Early on, Comcast is accused of conspiring with “its officers and owners …to violate the Sherman Anti-Trust Act …by purposefully creating an unlawful tying arrangement” between premium cable and set-top boxes.

The Rogers complaint tracks what is alleged in the cases collected under the MDL order.  Still, one wonders (what is latin for ‘I wonder, ergo I blawg’). 
Pleading a Sherman Act tying claim leads to a rule of reason analysis.  That pretty much opens the season for hunting down every economic species known to experts in the field.  There too are limits in the law on whether tied items are separate or integral, e.g., Virtual Maint., 11 F.3d 660 (6th Cir. 1993), and whether cable TV is a good or a service, Morrison v. Viacom, Inc., 66 Cal.App.4th 534 (Cal.App. 1st Dist. 1998).  Conspiracy with corporate “officers and owners” is less favored in the law than a concert with those outside one’s company.
The MDL order conditionally consolidated the Sherman Act, i.e., the rule of reason cases. 
Consider though that §3 of the Clayton Act, which may provoke a rule of per se illegality, makes it “unlawful …to lease …commodities ..on the condition …that the lessee ..shall not use or deal in the goods” of others. 

We will watch the wire for continuing developments.  Recalled however is that cartoon, with two neighbors talking over the fence, and one observes: ‘I’ve got 387 channels now, and there’s not a darn thing on any of them.’

Might Free IP Save the Poor from their Lot?

Thomas Berg (University of St. Thomas, St. Paul/Minneapolis, MN – School of Law) has posted the abstract of Intellectual Property and the Preferential Option for the Poor (5 Journal of Catholic Social Thought 193 (2008). As abstracted, Professor Berg’s paper advocates elimination of IP restraints so as to provide benefits, such as patented medicines, to the poor. It struck me as odd that I cannot freely obtain a paper about giving intellectual property away freely; I seem to have to buy the paper.

There should be little disagreement over providing medicine to the poor, and that IP monopolies should give way to that goal. Still, the paper’s focus on IP monopolies or restraints is perhaps a bit off. It is the distribution of the medicine or the beneficial IP that is restrained, usually by those governments that take charge of or have responsibility for the poor populations. If shipments of medicine are sent, addressed to “Those Most In Need,” then numerous instances of diversion or even destruction of the goods are to be expected. That human factor, not the force of IP protections, is what so often gums up the good works.

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.

Cert. Denied in Generic Pharma Case.

Today the U.S. Supreme Court denied certiorari to the patent-validity & antitrust case, Joblove v. Barr Labs.

Joblove is the tamoxifen citrate case decided by the 2nd Circuit, which affirmed the district court’s decision that a settlement between the patentee-pharmaceutical company and a generic manufacturer did not restrain trade in violation of the antitrust laws, and dismissed claims made by a class of consumers.  The decision explored the “tension” between the Sherman Act and the Patent Act, which share the goal of “goal of stimulating competition and innovation,” but which provoke a “tension between restraints on anti-competitive behavior imposed by the Sherman Act and grants of patent monopolies under the patent laws.”

Spin it which ever way a denial of cert. can be spun, but some may see it as a “pro-business” affirmance that rejects a ‘new’ type of antitrust action against the U.S. pharmaceutical manufacturers and their patent portfolios.

If Your Complaint is Twombly’d, then It’ll Be Cooter’d, and Never Be Markman’d.

Every year you get a new copy of the Federal Rules of Civil Procedure, and each one contains a “Form 16 Complaint for Infringement of Patent.”  After the CivPro teachings that Justice Souter just discoursed about in Bell Atlantic v. Twombly, it might be time to bulk up Form 16.

Only antitrust dweebs have a present realization that the rule in Twombly’s case may forever change the long-standing appellate axiom that about anything that resembles civil allegations tend to meet the ‘good enough for gov’t work’ standard of review.  [Now you know how this dweeb knows].  The short headnote in Twombly is that mere allegations of ‘conscious paralellism’ are insufficient to plead an antitrust “contract, combination or conspiracy.”

The longer topic is the appropriate measure of allegations that will overcome a Rule 12(b)(6) motion to dismiss for failure to state a claim.  Justice Souter declaims that “no heightened pleading” rule is being stated, then he goes on instructing about what additionally needs to be pleaded.  It is insufficient to plead a “possibility” without allegations adequate to suggest “plausibility.”  [Maybe the form allegation should begin, “Trust me, defendants have …”].

Others, more erudite than I, can explain and expound how Twombly announces a new regime for initial pleadings.  My thought was: does the case subsume Rule 11.  In order to plead enough facts for a plausible claim of patent infringement, or non-infringement, a pleader necessarily will have conducted a pre-filing investigation. 

To master what Twombly failed to do, a patentee would not merely plead “patent # was duly granted” and “upon information and belief, defendant has infringed said patent.”  How would barebones, Form 16, allegations suggest a “plausible” claim for infringement?  To quote The Honorable Justice “we do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face. Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.” 

If a complaint has “not nudged” far enough, then does it fail a Rule 11 test; will the ‘nudge’ or the Rule 11 test expose what the pleader had hoped to have the opportunity to discovery and prove.  The case may improve pleading standard, but it is likely to spawn many Rule 11 “safe-harbor” letter as new suits are filed. 

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.