Can a group of defendants refuse to settle with a non-practicing entity (NPE)? Can they collectively refuse to license patents from a “troll”? Or does that refusal subject them to antitrust scrutiny? These are the issues at the heart of a Northern District of California case: Cascades Computer Innovation LLC v. RPX Corp.

Cascades manages a portfolio of patents and filed suit against a number of large technology companies for infringement. Those companies are members of RPX Corporation (RPX), a defensive patent aggregator formed to protect its members from NPEs who file infringement claims. When RPX, on behalf of its members, failed to reach a licensing agreement with Cascade, Cascade sued RPX and its members — including Dell, HTC, LG, Motorola and Samsung — claiming that defendants’ alleged collective refusal to deal with it constituted an antitrust violation.

Not only is this case unique in that an NPE, or “patent troll” in some circles, is striking out at alleged infringers with an antitrust attack, but the case was dismissed with what many thought was no hope of revival. Alas, Cascades’ amended complaint included enough additional facts to allow the case to move forward.

Original complaint dismissed

Cascades’ original complaint alleged that RPX and its members formed a boycott not to license Cascades’ patents in violation of the Sherman Act and related California state law prohibiting monopsonization (a buyers’ monopoly) and conspiracies and attempts to monopsonize. Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013). Cascades claimed that it was unable to license its technology patents, including one to optimize the popular Android operating system, to the manufacturer defendants because they allegedly agreed to:

  1. negotiate for any such licenses only through RPX;
  2. jointly refuse to license Cascades’ patents;
  3. not negotiate a license with Cascades independently; and
  4. infringe on Cascades’ patents.

According to Cascades, the defendants’ goal was to force Cascades to abandon its licensing efforts, accept a below-market value price or go out of business from costly litigation. Cascades had previously sued the manufacturing defendants for patent infringement in the Northern District of Illinois.

The court dismissed the complaint, finding that the antitrust allegations were “threadbare recitals of conspiracy” that lacked answers to the basic questions of who, what, where and when. In light of the lack of detail, the court refused to presume that the alleged conspiracy made any economic sense. According to the court, the complaint was further defective because Cascades only alleged “parallel behavior” which, without more, does not support a claim for conspiracy to violate antitrust laws. The court also found that the complaint failed to allege sufficient facts to show that any injury suffered by Cascades was the result of unlawful conduct by defendants. The court granted the defendants’ motions to dismiss but allowed the plaintiff another chance to amend its complaint.

Amended complaint survives

Surprising many in the industry, Cascades’ amended complaint survived a renewed motion to dismiss. Alleging the same basic claims, the court found that the beefed up complaint alleged facts that raised a reasonable inference of a hub-and-spoke conspiracy to force below market pricing for Cascades’ patent licenses through monopsonization of the market for these patent licenses.

For instance, the complaint alleged that RPX and Cascades had reached agreement on pricing, yet RPX later withdrew from the deal because at least one RPX member refused to pay the amount. Similarly, the court found sufficient allegations of a vertical agreement between RPX and the manufacturing defendants, including that no defendant responded to Cascades’ individual offers. The amended complaint also cured another defect of the original complaint by alleging a relevant market. The defendants did win one concession in that the court issued an order to show cause why the antitrust action should not be stayed pending the resolution of the merits in the patent litigation in the Northern District of Illinois.

Time will tell whether other “patent trolls” will wield the antitrust sword any time a group of defendants choose to litigate and not attempt to negotiate a license. But the fact that this case is moving forward means that entire world of patent litigation and the issues swirling around NPEs, just got more interesting and complicated.