On Friday, a Maryland federal judge granted summary judgment in favor of Intellectual Ventures on Capital One’s claims that IV’s acquisition and enforcement of patents relating to banking services violated U.S. antitrust law. In a 53-page memorandum Opinion, Judge Paul W. Grimm found that IV’s conduct in obtaining and enforcing its patents was immune from antitrust liability based on the Noerr-Pennington doctrine. In addition, the court held that Capital One was barred from relitigating its antitrust claims based upon a 2014 ruling from a Virginia federal court that had rejected similar antitrust claims alleged by Capital One against IV.
The IV Patent Case
In 2014, IV sued Capital One in federal court in Maryland for infringement of four IV patents (the author served as one of IV’s local counsel). Those patents generally related to various aspects of online banking. In response, Capital One filed antitrust counterclaims for monopolization and attempted monopolization under Section 2 of the Sherman Act, and unlawful asset acquisition under Section 7 of the Clayton Act.
In 2016, the district court granted summary judgment to Capital One on IV’s patent claims. The court found that two of IV’s patents were ineligible under Section 101 and the Supreme Court’s Alice decision. In addition, the court ruled that IV was collaterally estopped from asserting its other two patents based upon a previous decision in a New York federal case, which found those same two patents to be ineligible under Section 101. The patent aspects of the action were appealed, and in 2017, the Federal Circuit affirmed.
Meanwhile, the district court allowed litigation to proceed over IV’s antitrust counterclaims. The essence of Capital One’s antitrust claim was that:
IV’s business practice is to acquire a vast portfolio of thousands of patents that purportedly deal with technology essential to the types of services offered by commercial banks (such as ATM transactions, mobile banking, on-line banking, and credit card transactions). It then employs an aggressive marketing scheme whereby it makes an “offer” for banks to license (Capital One really would prefer to say “extorts” banks to license) its entire portfolio for a period of years at a jaw-droppingly high price. But, Capital One insists, when the banks ask for details about the patents covered in the portfolio in order to determine whether their services infringe them, IV refuses to disclose sufficient information to enable them to make an intelligent decision about whether they should agree to the license. And, if the bank balks at licensing the entire portfolio at IV’s take-it-or leave-it price, IV then threatens to file a patent infringement claim against the bank regarding only a few of the patents in the portfolio. Adding insult to injury, IV then makes it clear that should it lose the patent infringement case, it will simply file another (and if needed, another, and so on) regarding a different set of its patents, until the prospect of endless high-cost litigation forces the bank to capitulate and license the entire portfolio.
After extensive fact and expert discovery, IV moved for summary judgment. In relevant part, the district court rejected Capital One’s antitrust counterclaims based upon the “Noerr-Pennington” doctrine. Under Noerr-Pennington, a party (including a patent holder) who petitions the government for redress (such as by filing a complaint) is generally immune from antitrust liability.
The court noted that two exceptions to Noerr-Pennington immunity as applied to patent actions exist: (1) if a patent holder knowingly enforces a patent procured by fraud (also known as the “Walker Process” fraud doctrine); and (2) when the patentee engages in “sham” litigation by asserting patent claims the patentee knew were objectively baseless and that the suit was filed with the subjective intention to interfere directly with the business relationships of a competitor.
The district court found that neither exception to Noerr-Pennington immunity applied with respect to IV’s enforcement of its patents against Capital One.
As for the fraud exception, the court found that Capital One failed to adduce any evidence that IV’s patents were procured by fraud on the USPTO. Consequently, Capital One failed to establish any issue of fact regarding the Walker Process exception to antitrust immunity.
The district court also held that as a matter of law that IV’s patent litigation against Capital One was not a “sham,” notwithstanding that IV ultimately did not prevail on its patent claims. The court focused its analysis on the objective prong of the sham litigation exception. The court identified multiple grounds as to why IV’s patent infringement action was not “objectively baseless.”
First, the court found that an independent Special Master “with significant experience in handling patent litigation” (renowned litigator Ray Lupo), selected by both parties, wrote two comprehensive reports and recommendations. According to what the court described as Mr. Lupo’s “detailed and insightful analysis, IV did succeed on two of its patent claims: the Special Master recommended a judgment of patent eligibility for the ’084 and ’002 Patents.” Although the court ultimately did not adopt that part of Special Master Lupo’s recommendations, the fact that an esteemed patent litigation expert had recommended finding in IV’s favor was alone “sufficient to show that a reasonable litigant could realistically expect to succeed on the merits.”
As further support of its conclusion that IV’s patent litigation was not objectively baseless, hence not a “sham,” the court relied upon the following undisputed facts:
- The patent action was filed prior to the Supreme Court’s Alice decision;
- IV has not filed any additional suits against Capital One post-Alice;
- IV withdrew specific claims when it was persuaded that it would not prevail;
- IV appealed the district court’s patent-based rulings, “an extra step that one who did not expect to succeed likely would not bother taking.”;
- IV incurred substantial litigation expenses, and the litigation involved nineteen attorneys for IV, as well as a Special Master and an economic consultant, and the docket included almost 700 entries and the documents in support of the parties’ summary judgment briefing exceed 13,000 pages;
- IV did not itself prepare or prosecute the asserted patents; it acquired them from third parties and was “entitled to rely on their presumptive validity”;
- In 2014, the district court in Virginia ruled that IV’s patent infringement action was not an “exceptional case” marked by “unreasonable conduct” that would justify an award of attorneys’ fees to Capital One; and
- IV designated nine experts on objective reasonableness—in comparison to Capital One’s failure to designate any.
The court concluded based on these undisputed facts that “no reasonable factfinder could conclude that IV lacked probable cause to file suit.”
In addition to the failure of Capital One to establish the objective prong for sham litigation, the court also noted that, with respect to the subjective prong, Capital One could not have prevailed either since IV and Capital One are not competitors. Consequently, IV’s patent infringement action could not, as a matter of law, have been subjectively intended to “interfere directly with the business relationships of a competitor.”
Collateral Estoppel Based on Virginia Litigation
Separate from its finding on immunity, the court further found, as separate grounds for granting summary judgment to IV, that Capital One’s antitrust claims were barred based on the collateral estoppel doctrine based upon similar antitrust claims that Capital One had alleged, and which were dismissed, in 2014 in a patent case filed by IV in the Eastern District of Virginia. Capital One initially appealed the Virginia court’s dismissal of its antitrust counterclaims, but it later withdrew that appeal.
The issue that largely was dispositive of the 12(b)(6) motion in the Virginia litigation was whether Capital One had plausibly alleged a cognizable “relevant market”–a necessary predicate to finding under the antitrust law of either monopoly power or attempt to monopolize the “relevant market.” In the Virginia litigation, the relevant market for antitrust purposes was defined both by the Eastern District and Capital One as “IV’s ‘portfolio of 3,500 or more patents that [IV] alleges cover widely used financial and retail banking services’ in the United States.” The court in Virginia held that Capital One’s market definition failed to state a legally cognizable “relevant market” for antitrust purposes, and thus, the Virginia court dismissed Capital One’s antitrust counterclaims.
In the Maryland case, Capital One essentially tried to resurrect the same “relevant market” definition that it had identified in Virginia. Indeed, Judge Grimm found that Capital One was alleging the same “relevant market” definition that had been considered, and rejected, in the Virginia litigation. Furthermore, the Maryland court concluded that the “relevant market” finding was crucial to the Virginia court’s determination, the action was between the same parties, and Capital One had a full and fair opportunity to litigate the relevant market issue. Consequently, Judge Grimm reasoned, Capital One was collaterally estopped from arguing “that its relevant market, which has not changed materially from the relevant market alleged in the Virginia litigation, is not a relevant market for antitrust purposes.”
Having failed based on collateral estoppel from defining a relevant market for antitrust purposes, Capital One’s antitrust counterclaims failed as a matter of law.
In sum, based on both Noerr-Pennington immunity and collateral estoppel, the district court entered summary judgment in favor of IV on all of Capital One’s antitrust claims. Much has been reported in the media regarding Capital One’s “interesting and aggressive theory” of antitrust liability. As Professor Michael Carrier has opined here, “[w]hether plaintiffs can bring a monopolization claim” predicated on another’s acquisition of a shear volume of patents “presents particularly unchartered territory.” Maybe so. Now, however, two district courts have rebuffed Capital One’s theory of antitrust liability. The “territory” as such has become quite a bit less “unchartered” in light of Judge Grimm’s merits decision.
From an ethics standpoint, the decision of the district court should give a sigh of relief to the prevailing parties at IV and their counsel. While some litigation results can form the predicate for an ethics investigation by state bar counsel or the USPTO’s Office of Enrollment and Discipline, as we have reported in this Blog on many occasions, considering the Maryland court’s well-reasoned opinion, it would be surprising to have the result in this action morph into a basis for justifying an attorney ethics investigation.