INTELLECTUAL VENTURES I LLC, INTELLECTUAL VENTURES II LLC, Plaintiffs-Appellees
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
from the United States District Court for the District of
Maryland in No. 8:14-cv-00111-PWG, Judge Paul W. Grimm.
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,
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.
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
Prost, Chief Judge, Bryson and Reyna, Circuit Judges.
Bryson, Circuit Judge.
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).
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. 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.
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.
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.
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).
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.
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."
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.
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.
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
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.
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)).
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.
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.
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).
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
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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 ...