Two Silicon Valley giants are testing a relatively new legal argument that non-practicing corporate entities that hoard patents and make aggressive demands can commit antitrust violations.
Intel Corp. and Apple Inc. are pressing claims against Fortress Investment Group LLC, alleging that the Softbank investment unit’s aggregation of electronics patents into a massive portfolio hurts competition. Capital One Financial Corp. made similar arguments in a case against Intellectual Ventures involving banking technologies and lost, although the substance of its antitrust arguments wasn’t considered on appeal.
Intel and Apple could face an uphill battle, underscored by the hurdles encountered by Capital One. Antitrust arguments turn on competition behavior in a market. And proving non-practicing patent entities’ extreme conduct and showing the boundaries of their “market” could be a challenge, attorneys say.
But should those kinds of arguments find traction in court, they could pose a significant threat to the business model of mass patent aggregation, some attorneys say. Such arguments also pose an additional risk factor for non-practicing entities that could discourage patent aggregation, they say.
Legal scholars have studied the possibility of applying antitrust law to attack “patent assertion entities,” or non-practicing entities whose business model is focused on buying patents and accusing alleged infringers in hopes of raising revenue. But companies actually using the antitrust line of attack in litigation is new, practitioners say.
“It’s a theory that we haven’t really seen before,” Michael Denniston, an antitrust and intellectual property attorney at Bradley Arant Boult Cummings LLP in Birmingham, Ala.
He said the Fortress case “is an important case for the patent and antitrust bar and is going to be looked at and monitored very closely,” including by companies that are frequent targets of non-practicing entities.
Apple and Intel’s lawsuit against Fortress, filed in a California court last fall, says the firm has collected well over a thousand electronics patents through its control of entities like Seven Networks Inc. and Uniloc Corp.
“That size allows Defendants to threaten serial litigation and impose uncertainty on their victims regardless of the merits of the asserted patents, which become secondary to the sheer size of the portfolio,” Apple and Intel wrote in their complaint.
The patents Fortress bought had competed with each other before the acquisition, the complaint said.
“When the patents were held by their original owners, there was competition and a prospective licensee could choose between competing options (or forego those options and design its product in a different way),” it said. “But now, under the control of Fortress, the prospect of competition disappears and so does the feasibility of redesigning products.”
The case is similar to Capital One’s claims against Intellectual Ventures, which is controlled by Nathan Myhrvold, Microsoft Corp.'s former chief technology officer. Capital One argued the Bellevue, Wash., firm acquired thousands of weak patents on banking technologies then threatened “serial lawsuits” against banks that refused licenses.
A lower court disposed of Capital One’s claims, and the U.S. Court of Appeals for the Federal Circuit in December said it would not reconsider its affirmance of that ruling while not addressing the antitrust arguments’ substance.
Outcome aside, that case, and the new one brought by Apple and Intel, illustrate a pivot away from conventional arguments typically lodged against non-practicing entities and toward antitrust concerns stemming from the targeted aggregation of patents, attorney Zachary Silbersher said.
“Let’s say they were successful, what would that look like? That would mean that companies like Intellectual Ventures couldn’t exist,” said Silbersher, a partner at Kroub Silbersher & Kolmykov PLLC, a New York firm that specializes in intellectual property.
Indications of Market
Intellectual Ventures is unique, even among non-practicing entities. Founded in 2000, the firm claims to manage one of the world’s biggest patent portfolios, which includes almost 20,000 publicly listed patents and applications.
From an antitrust perspective, the number of patents in a portfolio matters less than the relative coverage of those patents. Antitrust violations could exist when there is “fairly extreme conduct,” said Herbert Hovenkamp, a University of Pennsylvania law professor.
Only when an aggregator’s activity “threatens to monopolize a market, as it did in Capital One, then do we want the antitrust laws to kick in,” Hovenkamp, an antitrust expert, said. “It’s a minority of these cases that raise antitrust concerns.”
For companies making such arguments, defining the relevant antitrust market could be challenging, patent attorneys say. A district court judge who considered Capital One’s case said the bank didn’t allege “any of the recognized indicia of a relevant market.”
Fortress, which has filed a motion to dismiss Apple and Intel’s lawsuit, also argues the tech companies’ proposed market where antitrust violations allegedly occurred—electronics patents—is “vague and overbroad.”
Getting the relevant antitrust market “small enough to really be viable in the court is going to be difficult for anybody,” Stephanie Grosvenor, an attorney at the intellectual property law firm Birch Stewart Kolasch & Birch LLP in Virginia, said.
Another potential trip wire is that non-practicing entities don’t compete with companies like Intel or Capital One, Matthew Sipe, a visiting law professor at George Washington University, said.
“From the outset, it doesn’t even look like the kind of thing that judges dealing with antitrust problems are used to seeing,” Sipe said.
Proving that non-practicing entities that aren’t overly aggressive are antitrust violators could be a “tougher sell,” Michael Carrier, an antitrust and IP law professor at Rutgers University, said.
Even so, the fact that large companies are bringing antitrust claims adds to non-practicing entities’ risk, Silbersher said.
“That’s a risk that might discourage a lot of smaller NPEs from bothering to get into this business in the first place,” Silbersher said.
That outcome could present its own challenges for tech companies looking to unload patents they no longer want. Fewer non-practicing entities means fewer potential patent buyers on the secondary market, potentially cutting into sellers’ revenue stream.
Uniloc, for example, owns patents that originated with Koninklijke Philips Electronics N.V. Other entities under Fortress’ control have patents that once belonged to companies like Nokia Corp., Panasonic Corp., and Huawei Technologies Co.
“It’s not just that Fortress would lose,” Silbersher said. “Other large practicing entities would also lose the ability to use their patents and monetize them.”
The case is Intel Corp. v. Fortress Investment Grp. LLC, N.D. Cal., No. 19-cv-7651.