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Sherman Anti-trust act

Judge OKs Antitrust Suit Against RPX

Julia Love | The Recorder

SAN FRANCISCO — A federal judge has refused to shield a self-described troll fighter from a legal offensive waged by a descendant of the original patent troll.

In a 30-page order issued Tuesday, U.S. District Judge Yvonne Gonzalez Rogers of the Northern District of California rejected RPX Corp.'s motion to dismiss claims that it conspired with leading Android manufacturers to boycott patents held by Cascades Computer Innovation, a nonpracticing entity.

Gonzalez Rogers said Cascades had put forward a plausible case that the San Francisco patent aggregator and the electronics companies struck a tacit pact to negotiate as one, in violation of federal and state antitrust laws.

"On these allegations, it is reasonable to infer the existence of a restraint on trade in the form of a secondary, 'off the books' agreement or understanding to deal only through RPX," she wrote.

The case tests the business model of defensive patent consortiums, which allow member-companies to pay to use their vast portfolios. RPX also flexes its muscle to license patents for members at rates lower than they could achieve on their own—a practice that the group's lawyers at Latham & Watkins have said is just as legal as Costco's discount pricing.

But RPX's public statements about "wholesale prices" bolster plaintiffs' allegations that RPX improperly schemed with members to draw down patent licensing fees, Gonzalez Rogers wrote.

"Implicit in those statements is a proviso that wholesale pricing can be achieved through RPX but not independently," she wrote. "If the purpose of negotiating through RPX is to achieve 'wholesale' pricing, then the advantage of collective bargaining through RPX is realized only if the other manufacturing defendants also decide to negotiate a license through RPX."

That collective bargaining stamps out competition in the market for patent licenses, Cascades lawyer Raymond Niro of Chicago's Niro, Haller & Niro said in an interview. He described Gonzalez Rogers' ruling as a triumph in "the first period of the game" against the patent consortium.

An eventual victory "would have huge implications for the viability of RPX," he said.

The ruling was cheered by Cascades President Andrew Brown, whose previous nonpracticing entity, TechSearch, inspired the term "patent troll."

"It's gratifying to see that the judge agrees with our position," Brown said in an interview.

A spokesman for RPX declined to comment on pending litigation.

In January, Gonzalez Rogers dismissed a previous complaint in Cascades v. RPX, 12-1143, for relying on "generic" and "threadbare" assertions. She held Tuesday that an amended complaint made sufficiently specific allegations of anticompetitive behavior to move forward.

"Here, the [first amended complaint] goes beyond bare assertions of parallel conduct to allege specific facts which, taken together, are suggestive of concerted action," she wrote.

Cascades accuses the defendants of engaging in a monopsony, or a "buyer's monopoly" aimed at driving down licensing fees. The NPE sued RPX as well as consortium members Samsung Electronics Corp., HTC Corp. and Motorola Mobility in March 2012 after the manufacturers backed out of licensing negotiations.

Cascades was peddling licenses to a portfolio of patents that covers technology that optimizes the Android system. The companies walked away from Cascades' offer to let them use the patents for $5 million each, with a steep discount for the first one to bite, according to the complaint.

RPX insisted in its motion to dismiss that the manufacturers balked because Cascades demanded more than its patents were worth. But the plaintiffs have made arguments that may debunk those "innocent explanations," Gonzalez Rogers wrote.

She agreed with Cascades that the companies' lockstep rejections of Cascades' offer could demonstrate a conspiracy. A Motorola representative also allegedly refused to discuss a license in favor of negotiating through RPX. Moreover, Cascades claims that an RPX executive said he was speaking for all the manufacturers, Gonzalez Rogers noted.

RPX stressed that members retain the right to negotiate their own deals. But Gonzalez Rogers agreed with plaintiffs that the existence of such a contract did not bar RPX and its members from reaching an "off the books" understanding that collusion was in their best interest.

The amended complaint "suggests that in this instance each manufacturing defendant understood that it should refrain from exercising its right to negotiate individually with Cascades and instead deal with Cascades either through RPX or not at all," Gonzalez Rogers wrote.

Gonzalez Rogers also rejected RPX's argument that settlements struck by LG Corp. and Philips with Cascades undermined the allegations that the companies were acting in concert.

"A conspiracy need not be effective to be illegal," she wrote. "Nor does the failure, dissolution or scope of an alleged conspiracy necessarily render it implausible."

The legal battle is also unfolding in the Northern District of Illinois, where Cascades has sued Samsung, HTC and Motorola for infringing intellectual property implicated in the California district court case. Gonzalez Rogers ordered Cascades to explain why the antitrust suit before her should not be stayed until the out-of-state patent litigation is resolved.

Latham & Watkins partners Alfred C. Pfeiffer, Charles Crompton and Hanno Kaiser, all based in San Francisco, are spearheading RPX's defense. They are joined by Sheppard, Mullin, Richter & Hampton partner Michael Scarborough for Samsung, Wilson Sonsini Goodrich & Rosati partner Jonathan Jacobson for HTC and Kilpatrick Townsend & Stockton partner Peter Boyle for Motorola.

Contact the reporter at jlove@alm.com.