Patent Troll Successfully Repleads Attack on Patent Aggregator RPX

On December 3, 2013, the Northern District of California refused to dismiss any of the claims brought by Cascades Computer Innovation LLC (Cascades) in its amended complaint. Cascades, an NPE and alleged patent troll, sued RPX Corporation (RPX), a patent aggregator and so-called "anti-troll," and several of its members, alleging that the defendants engaged in a conspiracy to lower pricing for Cascades' patent licenses by monopsonizing the market. This decision followed the court's January 2013 decision dismissing Cascades' original complaint, which the court described as "generic pleading."¹

RPX is also an NPE. But, according to RPX, rather than acquiring patents for the purpose of asserting them against operating companies, it purchases patents on behalf of its operating company members, and then licenses the technology to all of its members. RPX has been characterized as an "anti-troll" because it aims to neutralize trolls by providing its members with a "broad-based defense" and enhanced economic leverage against "wasteful patent litigation."²

Among RPX's more than 110 members are operating companies in sectors including consumer electronics and PCs, e-commerce, mobile devices, networking, semiconductors, software, and telecommunications. Specific members include AMD, AOL, Cisco, eBay, Google, Intel, Microsoft, Oracle, and RIM.

The dispute between Cascades, RPX, and several of RPX's members concerns a portfolio of 38 technology patents originally issued to a non-party, Elbrus International. Cascades holds exclusive rights to license and enforce the Elbrus patents, which are allegedly infringed by devices that use the Android operating system. One of the 38 patents – the '750 patent – is central to the dispute. Following unsuccessful licensing negotiations, Cascades filed a separate patent infringement suit in the Northern District of Illinois, as well as this antitrust case in the Northern District of California. After dismissal of its original antitrust complaint in January, Cascades filed an amended complaint that withstood a motion to dismiss.

In its amended complaint, Cascades asserted four federal antitrust claims: (1) a horizontal conspiracy to restrain trade under Section One of the Sherman Act; (2) a vertical conspiracy to restrain trade under Section One; (3) a conspiracy to monopsonize under Section Two; and (4) a monopsonization claim under Section Two. All but the last claim were brought against all defendants; the Section Two monopsonization claim was brought against RPX only.

In declining to dismiss all four claims, the court outlined new factual allegations that, together, were sufficient to avoid dismissal.

Regarding the existence of an agreement, Cascades alleged a "hub-and-spoke" conspiracy. The defendants argued that the alleged agreement was implausible because economic self-interest explained the alleged behavior as well as or better than illegal collusion. The court rejected this argument, pointing to allegations that at least one of RPX's members expressly declined individual negotiations with Cascades because it preferred to negotiate through RPX, that RPX represented itself as speaking for the members collectively, and that none of the members responded to Cascades' license offer, which included a rebate for the first to accept. The court also pointed to alleged public statements by RPX that it could achieve "wholesale" pricing for its members, which, according to the court, implicitly suggested that wholesale pricing could be obtained through RPX, but not independently.³

In response to the defendants' arguments that subscription to RPX does not restrain trade because its members are permitted to negotiate independently of RPX, the court held that, based on Cascades' specific allegations, it was reasonable to infer a secondary, "off-the-books" agreement or understanding to deal only through RPX.⁴

Referencing its earlier order dismissing Cascades' original complaint, the court also noted that Cascades had initially failed to identify a coherent relevant market. In response, Cascades amended its complaint to identify the relevant product market as "the market for 'purchase, acquisition or licensing of technology covered by all of the Elbrus Patents, with the market for licenses under the '750 Patent alone allegedly constituting a relevant submarket.'" The defendants argued that Cascades had failed to allege facts regarding "interchangeability, cross-elasticity of demand, or other factors needed to establish the relevant product market" and, thus, the alleged market was insufficient. But the court rejected this argument because Cascades alleged a monopsony in the market to buy Cascades' patents, not the market to sell them. Because those RPX members named as defendants allegedly comprise 75-90 percent of the relevant submarket of buyers, the court accepted the definition as sufficient to withstand a motion to dismiss.⁵

 

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¹ Order Granting Motion to Dismiss at 9-10 (Jan. 24, 2013).

² RPX Website, http://www.rpxcorp.com/ (last visited Dec. 12, 2013).

³ Order Denying Motion to Dismiss First Amended Complaint at 17-18 (Dec. 3, 2013).

⁴ Dec. 3 Order at 20-21.

⁵ Dec. 3 Order at 23-24.

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