Intellectual Ventures I LLC v. Capital One Fin. Corp.

Citation937 F.3d 1359
Decision Date10 September 2019
Docket Number2018-1367
Parties INTELLECTUAL VENTURES I LLC, Intellectual Ventures II LLC, Plaintiffs-Appellees Invention Investment Fund II, LLC, Intellectual Ventures Management, LLC, Invention Investment Fund I, L.P., Third Party Defendants-Appellees v. CAPITAL ONE FINANCIAL CORPORATION, Capital One Bank (Usa), National Association, Capital One, National Association, Defendants/Third Party Plaintiffs-Appellants
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

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...

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