Jeffri A. Kaminski is a Partner with Venable LLP in its Washington, DC office.
The battle between Patent Assertion Entities (“PAEs”)—also known as “patent trolls”—and large tech companies defending against patent infringement has moved into the realm of antitrust law. A lawsuit filed last November in the U.S. District Court for the Northern District of California by Intel and Apple against Fortress Investment Group LLC (“Fortress”) and a group of PAEs asserts that Fortress has aggregated ownership or control over the PAEs in an anticompetitive campaign to assert a collection of weak patents. Fortress, a subsidiary of SoftBank Group Corp., invests in or provides loans to various PAEs and allegedly has a patent portfolio of well over a thousand patents. The complaint alleges that Fortress asserts the patents, through the PAEs, against targets like Apple and Intel to stretch the targets’ resources and inflate the terms for potential licenses.
Uniloc, a PAE named as a co-defendant (as Uniloc USA, Uniloc 2017, and Uniloc Luxembourg) with Fortress, has filed numerous infringement lawsuits against companies like Apple, Google, and Amazon. Since 2017, Uniloc has been a plaintiff in over 130 patent infringement suits, with more than 25 cases against Apple alone. Over three months in late 2018, Uniloc filed a total of 35 lawsuits against Google—and those are just Uniloc’s cases in the United States. The connection between Uniloc and Fortress is a loan from Fortress to Uniloc, as well as Fortress’s formation of Uniloc 2017. Uniloc Luxembourg assigned nearly 600 patents to Uniloc 2017 in a purchase agreement between the two companies. Uniloc is just one example of the several PAEs Fortress is allegedly directing.
Intel and Apple alleged that Fortress and its PAEs engaged in anticompetitive conduct by amassing electronics patents. The defendants claim that Fortress’s massive patent portfolio includes a range of patents that are alternatives to one another. This aggregation of substitutes and complements eliminates the competitive market for licensing the patents and forces the defendants and other companies to either pay “supracompetitive” licensing rates or defend multiple infringement lawsuits. Intel and Apple also assert that Fortress and its PAEs obtained Standard Essential Patents (SEPs) in order to bypass fair, reasonable, and non-discriminatory (FRAND) royalty protections for licensees.
In its motion to dismiss, Fortress counters that Intel and Apple have neither alleged an actual antitrust injury, nor have they sufficiently pled that Fortress and its PAEs have market power in a relevant market. Intel and Apple allege that one relevant market is the Electronics Patent Market covering patents for high-tech consumer and enterprise electronic devices. Fortress counters that this market is vague and overbroad such that it is implausibly vast, and that the complaint fails to identify how much of the market Fortress and its PAEs control. Fortress further defends its investment and loans to the PAEs as providing sufficient resources to “enforce their Constitutionally-enshrined patent rights.”
Recently, the Department of Justice’s Antitrust Division filed a Statement of Interest in support of Fortress’s position. The Department of Justice backed the defendants’ argument that Intel and Apple failed to allege facts that Fortress and its PAEs actually reduced competition. The Statement also echoes Fortress’s arguments that Intel and Apple did not define a plausible relevant market or demonstrate antitrust injury. Finally, on the defendants’ claim of Standard Essential Patents, the Statement argued that a dispute over allegedly supra-FRAND terms for licenses is a contractual, not an antitrust-law, matter.
At what point does one entity, or a collection of entities, control enough patents that it introduces an anticompetitive environment when enforcing their “Constitutionally-enshrined rights”? Companies distribution of costs and collectively asserting patents is not an inherently anticompetitive activity. The “teaming” of companies to assert or license their patents helps ensure that the innovations of those companies are properly rewarded. However, “patent pools” have raised antitrust issues in the past. A “patent pool” is an agreement between patent holders to aggregate their patents for licensing. Antitrust issues arise when a pool primarily consists of substitute products that would lead to increased prices for final products.
While companies like Intel and Apple have a greater ability to either negotiate licenses or defend against allegations of infringement, the impact on smaller or newer companies may not be fully realized. Often, these companies do not have the resources to defend against allegations of patent infringement. The PAEs are in a stronger position to increase the licensing rates against companies that cannot challenge the validity of the patent. These increased rates may stifle growth among smaller or newer companies.
If the court grants defendants’ motion to dismiss, such an early victory could inspire greater investment in Patent Assertion Entities. On the other hand, if the court allows the plaintiffs’ claims to proceed, and Intel and Apple successfully prove that Fortress’s actions were anticompetitive, such an outcome could negatively affect any company with a large patent portfolio as well as companies that wish to amass large portfolios. No matter the result, it seems that PAEs will continue to find innovative new ways to assert their “Constitutionally-enshrined rights.”