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Intellectual Ventures I LLC v. Capital One Financial Corp.

United States Court of Appeals, Federal Circuit

September 10, 2019

INTELLECTUAL VENTURES I LLC, INTELLECTUAL VENTURES II LLC, Plaintiffs-Appellees
v.
CAPITAL ONE FINANCIAL CORPORATION, CAPITAL ONE BANK (USA), NATIONAL ASSOCIATION, CAPITAL ONE, NATIONAL ASSOCIATION, Defendants/Third Party Plaintiffs-Appellants INVENTION INVESTMENT FUND II, LLC, INTELLECTUAL VENTURES MANAGEMENT, LLC, INVENTION INVESTMENT FUND I, L.P., Third Party Defendants-Appellees

          Appeal from the United States District Court for the District of Maryland in No. 8:14-cv-00111-PWG, Judge Paul W. Grimm.

          Robert E. Freitas, Freitas & Weinberg LLP, Redwood City, CA, argued for plaintiffs-appellees and third party defendants-appellees. Also represented by Jessica N. Leal, Daniel J. Weinberg.

          Matthew J. Moore, Latham & Watkins LLP, Washington, DC, argued for defendants/third party plaintiffs-appellants. Also represented by Gabriel Bell, Alan J. Devlin, Adam Michael Greenfield; Alexander Reicher, Christopher S. Yates, San Francisco, CA; Robert A. Angle, Troutman Sanders LLP, Richmond, VA.

          Michael Murray, Antitrust Division, United States Department of Justice, Washington, DC, argued for amicus curiae United States. Also represented by Frances Elisabeth Marshall, Makan Delrahim, Andrew C. Finch, James Fredricks, Kristen Ceara Limarzi, Robert Nicholson, Mary Helen Wimberly.

          Mark Stephen Hegedus, Office of General Counsel, Federal Trade Commission, Washington, DC, for amicus curiae Federal Trade Commission. Also represented by Alden F. Abbott, John Dubiansky, Joel Marcus, Suzanne Munck af Rosenschold, Haidee L. Schwartz.

          Before Prost, Chief Judge, Bryson and Reyna, Circuit Judges.

          Bryson, Circuit Judge.

         This appeal stems from a patent infringement action brought in 2014 in the District of Maryland before Judge Paul W. Grimm. The action was instituted by Intellectual Ventures I LLC and Intellectual Ventures II LLC against Capital One Financial Corporation and two other affiliated companies: Capital One (Bank) USA, National Association; and Capital One, National Association (collectively "Capital One"). The action in this case was preceded by a similar patent infringement action brought by Intellectual Ventures I LLC and Intellectual Ventures II LLC in 2013 against Capital One in the Eastern District of Virginia before Judge Anthony J. Trenga. The infringement claims in both cases were resolved against Intellectual Ventures I LLC and Intellectual Ventures II LLC, first by the two trial courts and then on appeal. See Intellectual Ventures I LLC v. Capital One Fin. Corp., Civil Action No. 1:13-cv-00740, 2014 WL 1513273 (E.D. Va. Apr. 16, 2014), aff'd, 792 F.3d 1363 (Fed. Cir. 2015); Intellectual Ventures I LLC v. Capital One Fin. Corp., 127 F.Supp.3d 506 (D. Md. 2015), aff'd, 850 F.3d 1332 (Fed. Cir. 2017).

         In both cases, Capital One filed antitrust counterclaims against Intellectual Ventures I LLC and Intellectual Ventures II LLC, and it filed third-party antitrust complaints against three other companies affiliated with IV: Invention Investment Fund II, LLC; Intellectual Ventures Management, LLC; and Invention Investment Fund I, L.P.[1] In both cases, the counterclaims and third-party claims were resolved against Capital One. The district court in the Virginia case dismissed Capital One's antitrust counterclaims and third-party claims for failure to state a claim on which relief could be granted. Intellectual Ventures I LLC v. Capital One Fin. Corp., No. 1:13-cv-00740, 2013 WL 6682981 (E.D. Va. Dec. 18, 2013) ("Trenga Op."). The district court in the instant case initially granted Capital One's motion to add antitrust counterclaims and third-party claims to the Maryland case, Intellectual Ventures I LLC v. Capital One Fin. Corp., 99 F.Supp.3d 610 (D. Md. 2015), and denied IV's motion to dismiss those claims, Intellectual Ventures I LLC v. Capital One Fin. Corp., No. PWG-14-111, 2015 WL 4064742 (D. Md. July 1, 2015). However, the court subsequently granted summary judgment against Capital One on all the antitrust claims. Intellectual Ventures I LLC v. Capital One Fin. Corp., 280 F.Supp.3d 691 (D. Md. 2017). We affirm.

         I

         A

         In the Virginia case, IV asserted five patents against Capital One. After the plaintiffs dropped two of the patents, three patents remained in issue. The first was directed to tracking and storing information relating to a user's purchases and expenses. The second was directed to methods and systems for providing customized Internet content to a user as a function of user-specific information and the user's navigation history. The third was directed to methods of scanning hardcopy images onto a computer.

         In its answer, counterclaims, and third-party claims in the Virginia case, Capital One alleged antitrust violations and claimed patent misuse as a defense. In the antitrust counterclaims and third-party claims, Capital One alleged that IV was liable for monopolization and attempted monopolization, in violation of section 2 of the Sherman Act, 15 U.S.C. § 2, and unlawful acquisition of assets, in violation of section 7 of the Clayton Act, 15 U.S.C. § 18.

         Capital One alleged in the Virginia case that IV, which is principally engaged in the business of acquiring patents and asserting them in litigation, had acquired a huge patent portfolio, including approximately 3, 500 patents relating to commercial banking practices. According to Capital One, IV's business model was to attempt to obtain large licensing fees from banks by threatening them with repetitive patent infringement suits. Capital One alleged that IV concealed the identity of its patents and insisted that banks such as Capital One take a license to IV's entire portfolio of patents on financial services. Capital One contended that IV knew that many of its patents were invalid, unenforeceable, and not infringed. Nonetheless, according to Capital One, IV sought to obtain licensing fees based on the large size of its patent portfolio and its willingness to pursue target banks, including Capital One, through serial lawsuits, imposing huge costs on the banks to defend the lawsuits. Capital One alleged that IV's business model "is not based on the licensing of valuable patent rights, but rather on the threat of asserting thousands of patents in a never-ending series of costly and disruptive patent infringement law suits-pummeling its victims into submission." Answer to Complaint at 12, No. 1:13-cv-00740, at 12 (E.D. Va. Oct. 14, 2013).

         Capital One alleged that IV implemented its scheme through "sham infringement litigation in bad faith, regardless of the relevance, validity, or enforceability of its patents or the likelihood of success on the merits at trial, with the intent of using the federal court process, as opposed to the outcome of that process, as an anticompetitive weapon to increase its pricing power in the relevant market." Id. at 31. As a result of IV's tactics, Capital One alleged, "a rational financial services target would more likely than not pay for limited patent peace, even if [IV] does not have a single valid and infringed patent in its financial services portfolio." Id. at 16.

         IV moved to dismiss the antitrust counterclaims in the Virginia case, and Judge Trenga granted the motion. Capital One alleged in the Virginia case that the relevant market for antitrust analysis was the "market for technology enabling business processes common throughout the commercial banking industry in the United States." Id. at 13. The court, however, concluded that Capital One had not alleged "any of the recognized indicia of a relevant market." Trenga Op. at *5. In particular, the court noted that Capital One did not allege that the proposed market consisted of "an 'area of effective competition' between IV and the commercial banks who are the alleged victims of IV's anticompetitive conduct." Id. Capital One also did not allege that the proposed market "contains all, or even any, of the available substitutes for the technologies included within that proposed market, or that the included technologies all pertain to the same aspects of the commercial banking operations, or even to those at issue in this case." Id. With respect to the market definition issue, the court concluded that "as best as the Court can discern, Capital One's proposed technology market equates to IV's 'portfolio of 3, 500 or more patents that [IV] alleges cover widely used financial and retail banking services' in the United States because IV's patent portfolio presents an 'inescapable threat' to providers of financial services." Id.

         The Virginia court observed that because Capital One had in effect alleged that there is no commercial market for IV's patent portfolio, Capital One's relevant market "reduces to what IV relies upon to justify its allegedly extortionate demands to buy 'patent peace' and avoid the paralyzing costs of 'wave after wave of burdensome and expensive litigation.'" Id. For that reason, the court concluded, "the actual technologies included within the proposed market, within broad limits, appear nearly irrelevant, since it is not the substantive, commercial usefulness or the merits of the technology that defines the market; but simply the patents in that market used to threaten Capital One, which consist entirely of IV's patent portfolio. Only in that sense are there no 'substitutes' for the patents that IV controls and uses to threaten and coerce the commercial banks." In short, the court concluded, "Capital One's proposed market is not a 'relevant market' under any recognized antitrust jurisprudence." Id.

         Even assuming that Capital One had proposed an appropriate "relevant market" consisting of the market for technologies used to provide commercial banking services in the United States, the Virginia court concluded that Capital One had failed to allege facts that rendered plausible its claim that IV wields unlawful monopoly power within that market. Capital One did not allege that IV had any particular share of that market, but instead relied on what it characterized as "direct evidence" of market power in the form of "supracompetitive prices and restricted output." Id. at 6. But the court concluded that Capital One had not identified any evidence from which to infer that the licensing fees proposed by IV were supracompetitive or that the demanded licensing fees reflected unlawful monopoly power within the context of IV's right to license its patents. Id. The court added that Capital One did not explain how threats of litigation to enforce presumably valid patents can render license fees unlawful if they would otherwise be lawful. Id.

         The Virginia court also found that Capital One's counterclaims and third-party claims did not include any allegation that IV sought to foreclose competition, to gain a competitive advantage, or to destroy a competitor. Id. at *7. Moreover, the court found, the counterclaims and third-party claims contained no fact-based explanation of why IV's acquisition of presumably valid patents was unlawful or at what point IV's enforcement of multiple patents became an unlawful exercise of monopoly power. Id.

         A central feature of Capital One's theory of monopolization, the Virginia court explained, was that "IV has engaged in or threatens to engage in, 'sham litigation' to enforce a patent portfolio whose patents are, in fact, either unenforceable or so weak that, absent IV's 'hold-up,' they have limited commercial value." Id. The court noted, however, that Capital One had not referred to any specific litigation history to support that claim or identified any particular patents that IV "has attempted or threatened to enforce that have expired, been cancelled or adjudicated to be invalid." Id. And because IV and Capital One do not compete in any relevant market, the court concluded that "it cannot be said that IV's object is to use this or any other litigation to interfere with the business relationships of a competitor." Id.

         Under those circumstances, the Virginia court held, Capital One has not alleged facts that would plausibly place this litigation within any recognized exception" to the so-called Noerr-Pennington doctrine, which-with limited exceptions-protects private parties from antitrust liability based on even unsuccessful litigation attempts to enforce laws with potentially anti-competitive effects. Id. (citing E.R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), and United Mine Workers v. Pennington, 381 U.S. 657 (1965)).

         In the end, the court stated, "Capital One's claim of monopolization reduces simply to IV's alleged ability, with its economic resources and patent portfolio, to credibly threaten serial litigation, not for the purpose of enforcing its patents, but rather to bludgeon Capital One into a licensing agreement that could not otherwise be obtained or justified based on the merits of its patents, were they to be dispersed individually among many holders." Trenga Op. at *7. If IV were to engage in the kind of endless, unsuccessful litigation described by Capital One, the court added, IV would be likely to incur legal liability. But "the antitrust laws appear ill suited as a remedy for what Capital One fears, and relief for any such liability would more likely come through various doctrines of tort liability, statutory fees or judicial sanctions." Id. at *8.

         With respect to Capital One's Clayton Act claim, the Virginia court noted that section 7 of the Clayton Act can apply to the acquisition of patents, as it does to the acquisition of other assets, but only if the acquisition of the patents itself substantially lessens competition, and not where the anticompetitive effects arise after the acquisition. Because Capital One alleged that the anticompetitive effects arose from IV's litigation threats and not from the patent acquisitions themselves, the court held that Capital One had failed to allege any facts that made it plausible that the effect of IV's patent acquisition "may be to substantially lessen competition." Id. at *9.

         With respect to IV's patent infringement claims against Capital One, the Virginia court subsequently held that two of the three litigated patents were directed to ineligible subject matter. As to the third, the court issued a claim construction that resulted in the parties' stipulating to non-infringement. Intellectual Ventures I LLC v. Capital One Fin. Corp., No. 1:13-cv-00740, 2014 WL 1513273 (E.D. Va. Apr. 16, 2014).

         IV appealed the Virginia court's rulings on patent ineligibility and claim construction. This court affirmed the district court's rulings as to all three patents. Intellectual Ventures I LLC v. Capital One Bank (USA), 792 F.3d 1363 (Fed. Cir. 2015). Capital One initially cross-appealed from the dismissal of its antitrust counterclaims and third-party claims in the Virginia case. However, Capital One later dismissed its cross-appeal from the adverse judgment in the Virginia case after the district court in the Maryland action granted Capital One's motion to add its antitrust counterclaims and third-party claims in this case.

         B

         While the Virginia case was still pending, IV brought the present patent infringement action against Capital One in the District of Maryland, asserting five new patents. Those patents included three directed to methods, systems, and apparatuses for dynamically managing extensible markup language data; one directed to systems and methods for accessing a user's remotely stored data and files; and one directed to methods, devices, and systems for controlling access rights to data.

         Capital One moved to add antitrust counterclaims and third-party claims of monopolization and attempted monopolization under section 2 of the Sherman Act, as well as unlawful asset acquisition under section 7 of the Clayton Act. In support of its motion, Capital One contended that it was alleging a different relevant market from the market alleged in the Virginia case, and that discovery in the Virginia case and events that occurred during and after the Virginia action justified its new counterclaims and third-party claims.

         As in the Virginia case, Capital One alleged that IV had employed a business model of acquiring thousands of patents dealing with technology essential to the services offered by commercial banks and then seeking to force banks to license IV's entire portfolio of financial services patents for a fixed number of years at a high price.

         The Maryland district court granted Capital One's motion to add the counterclaims and third-party claims. The court held that Capital One had alleged a plausible relevant market consisting of IV's portfolio of patents on financial services, that Capital One had sufficiently alleged that IV has monopoly power in that market, and that IV had intentionally acquired patents on existing products in the financial services industry so that it could "hold up banks that have substantially invested in those existing product designs." Intellectual Ventures I LLC, 99 F.Supp.3d at 626. The court also rejected IV's argument that Capital One's counterclaims and third-party claims should be dismissed on the ground that they were barred by collateral estoppel stemming from the district court's ruling in the Virginia case. Accordingly, the court permitted the antitrust claims to remain in the case.

         Of the five patents on which IV initially based its infringement claims in the Maryland case, IV voluntarily dismissed one at the outset; the district court dismissed two others as foreclosed by collateral estoppel based on a decision by the United States District Court for the Southern District of New York; and the court held that the remaining two patents were directed to unpatentable subject matter under 35 U.S.C. §101. The court permitted IV to take an interlocutory appeal from its ruling dismissing all of the infringement claims, and this Court affirmed. Intellectual Ventures I LLC v. Capital One Fin. Corp. 850 F.3d 1332 (Fed. Cir. 2017).

         Following the appeal, IV moved for summary judgment on Capital One's antitrust claims in the Maryland case. The district court granted the motion. Intellectual Ventures I LLC v. Capital One Fin. Corp., 280 F.Supp.3d 691 (D. Md. 2017).

         As in the Virginia case, the Maryland district court characterized Capital One's theory of the case as based on IV's aggregation of a large number of patents, concealment of those patents, and insistence on licenses to its patent portfolio at what Capital One called "supracompetitive" prices. According to Capital One's theory, IV exerted leverage over Capital One by threatening serial litigation that would be so expensive that the bank would be forced to accede to IV's demands. Id. at 696-97.

         Capital One characterized the relevant market for purposes of its antitrust analysis as the market consisting of IV's portfolio of financial services patents. Capital One's expert, economist Fiona Scott Morton, testified that IV had a monopoly in that market, and that Capital One (as well as the other targeted banks) could not realistically "design around" the patents. According to Professor Scott Morton, that was because IV did not disclose the patents that related to particular technology and because the banks had already invested sunk costs into particular technology that would make any design-around process prohibitively expensive. See id. at 699.

         Professor Scott Morton further stated that IV's pattern of aggregating patents, concealing its ownership of those patents, and threatening serial litigation enabled IV "to exercise 'hold-up' power by demanding take-it-or-leave-it supracompetitive prices to license its financial services portfolio." Id. at 700. While acknowledging that IV's patent portfolio did not constitute a classic relevant market for antitrust purposes, Professor Scott Morton analogized "IV's financial services patent portfolio to a 'cluster market' that IV promotes as a single product (for which there are no close substitutes) at a supracompetitive price." Id. She asserted that IV exercises monopoly power in that market, even though she acknowledged that no bank, including Capital One, has agreed to purchase a license to the entire portfolio, and that IV has yet to prevail in any of its patent suits against banks. Id.

         IV's response, as set forth in the opinion of its expert, Richard Gilbert, was to challenge Professor Scott Morton's market definition, "arguing that the proper definition is not a 'cluster' of financial services patents constituting a single product, but rather a collection of patents that relate to multiple distinct technology markets." Id. The flaw in Capital One's analysis, according to Professor Gilbert, was "its failure to analyze the distinct technology markets for which IV does have patents to determine whether there are alternative close substitutes that Capital One could turn to in order to avoid having to license from IV." Id. Professor Gilbert contended, moreover, that there was no market price at all for the patent portfolio, as no party had accepted IV's invitation to take a license at the price IV asked.

         Judge Grimm acknowledged that Professor Gilbert's analysis of the relevant market "is firmly grounded in commonly used antitrust analysis." Id. at 701. Nonetheless, noting that the question of the identity of the relevant market in an antitrust action is typically a question of fact, Judge Grimm ruled that he could not conclude, as a matter of law, that Professor Scott Morton's relevant market analysis was incorrect, particularly in light of the difficulty that would be presented by any effort "to perform the analysis of available substitutes that Professor Gilbert calls for to determine whether there are close substitutes to which Capital One could turn to avoid the reach of IV's portfolio." Id. at 703. The court concluded that a jury could reasonably conclude ...


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