Cascades Computer Innovation LLC v. RPX Corp.
| Decision Date | 23 February 2016 |
| Docket Number | Case No. 12-cv-01143-YGR |
| Court | U.S. District Court — Northern District of California |
| Parties | CASCADES COMPUTER INNOVATION LLC, Plaintiff, v. RPX CORPORATION, ET AL., Defendants. |
In this antitrust case, plaintiff Cascades Computer Innovation LLC ("Cascades") accuses defendants1 of anticompetitive conduct in connection with the negotiation of licenses to plaintiff's patent portfolio.2 The remaining defendants3 now move for judgment on the pleadings, arguing plaintiff lacks antitrust standing to maintain this action in light of a September 21, 2015 jury verdict finding Samsung did not infringe the primary patent at issue in this case. (Dkt. No. 186 ("Mot.").) Plaintiff opposes the motion on a number of grounds. (Dkt. No. 190 ("Oppo.").)
Having carefully considered the papers submitted,4 the record in this case, and the arguments of counsel, and good cause shown, the Court GRANTS the motion.
Plaintiff instituted this action on March 7, 2012. (Dkt. No. 1.) After defendants' initial motions to dismiss were granted with leave to amend, plaintiff filed its First Amended Complaint on February 20, 2013. (Dkt. No. 94.) Thereafter, defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (Dkt. Nos. 98-99.) The Court denied the motions on December 3, 2013. (Dkt. No. 119.)
On March 4, 2014, the Court stayed this case pending the resolution of litigation in the Northern District of Illinois wherein plaintiff alleged infringement of the '750 Patent—the primary patent at issue in this dispute—by the manufacturing defendants. (Dkt. No. 133.) The Court held that "the Illinois litigation has the potential to narrow substantially, or moot entirely, the antitrust issues now before this Court" because a finding of invalidity of the '750 Patent could render illusory "any damage stemming from a refusal to negotiate a license under that patent." (Id. at 3.)
This antitrust case accuses defendants of anticompetitive behavior in connection with the negotiation of licenses to plaintiff's Elbrus portfolio. Although the Elbrus portfolio is comprised of 38 patents, all of the specific, non-conclusory allegations in the operative complaint, with the exception of a few passing references, relate to a single patent—namely, the '750 Patent. Plaintiff separately sued many of the defendants accused in this case for alleged infringement of the '750 Patent in the Northern District of Illinois. Most settled. Samsung defended itself through trial and ultimately prevailed, receiving a jury verdict of non-infringement. See Cascades Computer Innovation, LLC v. Samsung Electronics Co., Ltd., Case No. 11-cv-4574 (N.D. Ill.) ("IllinoisSamsung Case"), Dkt. No. 420. The remaining defendants in this case, Samsung and RPX, now move for judgment on the pleadings, primarily on the ground that plaintiff lacks antitrust standing as a result of the jury finding of non-infringement.
In ruling on prior motions to dismiss, the Court detailed the allegations of the FAC. (See Dkt. No. 119 at 1-8.) In light of the intervening verdict finding Samsung did not infringe the '750 Patent, however, the Court summarizes the salient allegations for purposes of the instant motion.
Cascades is a non-practicing entity ("NPE"), a company that "enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based on the patents in question." Internet Ad Systems, LLC v. Opodo, Ltd., 481 F. Supp. 2d 596, 601 (N.D. Tex. 2007). Through the provision of financial resources and strategic guidance, Cascades seeks to level the playing field between the "individual inventors" who own patents and the "large multinational corporations with vast resources" who, according to Cascades, commonly infringe them. (FAC ¶¶ 17-18.) To that end, Cascades acquired exclusive rights to license and enforce 38 technology patents originally issued to non-party Elbrus International. (Id. ¶¶ 10-11.)6
The manufacturing defendants produce mobile devices using the Android operating system, thereby allegedly infringe the '750 Patent. (Id. ¶¶ 6, 13.) The manufacturing defendants collectively sell more than 90 percent of Android phones and more than 75 percent of Androidtablets. (FAC ¶¶ 6, 13, 72, 88.) Samsung's market share for Android phones is purportedly 17 percent. (Id. ¶ 12.)7
RPX styles itself as a defensive patent aggregator, defending its members from allegedly baseless infringement claims from NPEs. RPX members purportedly pay between $60,000 and $6 million to subscribe for an initial three-year term. (Id. ¶¶ 2, 24.) Each of the manufacturing defendants is purportedly a member. Subscriptions give members a license to practice RPX-controlled patents, which number in the thousands. (Id. ¶¶ 2, 20.) The subscription agreement purportedly gives members "the ability to deal independently in their own self-interest." (Id. ¶ 20.) In addition to its aggregation role, RPX allegedly acts as a purchasing or negotiating agent for certain of its members. (Id. ¶¶ 2, 20.) Those members provide financing for the acquisition of rights in certain patents relevant to their businesses. (Id.) Through this group negotiation mechanism, RPX can purportedly obtain reduced royalty rates for its members, which it refers to as "wholesale" prices. (Id. ¶¶ 19-22.)
A key part of the Elbrus portfolio, the '750 Patent—entitled "Method and Apparatus for Preserving Precise Exceptions in Binary Translated Code" and issued on June 20, 2016—is specifically referenced more than seventy times in the operative complaint. By contrast, none of the other Elbrus portfolio patents are specifically mentioned more than once—when the entire set of patents in the portfolio is listed. Central to the case, the '750 Patent's technology is allegedly used to optimize software applications running on Android, an operative system commonly used in mobile devices such as smartphone and tablets. (FAC ¶ 47.)
The instant litigation originated in a failed patent license negotiation between Cascades and RPX on behalf of certain of its members. (Id. ¶ 35.) Cascades asserts the purpose of the purported illegal horizontal agreement was to:
(1) combine the purchasing power of manufacturers of mobile electronic devices that utilize the Android operating system with respect to the acquisition of the rights to use the '750 patented technology, and (2) acquire a sufficient share of the purchasing power for the '750 patent so as to be able to drive the price paid for the use of the '750 patent below the rates that would be set by the unfettered competitive market forces or, in the alternative, to have the manufacturing defendants collectively refuse to deal with Cascades at all if Cascades would not meet their joint demand for a license of the '750 patent at below a competitive market rate.
(FAC ¶¶ 63, 65 (emphasis supplied) ( "Cascades has been injured . . . by its inability to obtain the competitive market rate for the licensing of its '750 patent"); see also id. ¶ 76.)
Cascades "suggested" RPX negotiate a license solely to the critical '750 Patent, stating the parties should "discuss an exclusive license under just [the '750] patent, forgetting about the entire portfolio," but RPX insisted on negotiating for the entire portfolio to ensure its members would not "hear about Cascades again." (Id. ¶¶ 35-36 (alteration in original).) After all, "it would make no economic sense for the manufacturing defendants to decline a license under all the Cascades/Elbrus patents effectively for the price of a license under the '750 patent." (Id. ¶ 37.) According to plaintiff:
the conduct of each manufacturing defendant in refusing to act in what would be its independent self-interest by individually negotiating a license with Cascades for the '750 patent, and instead negotiating only jointly through the common agent RPX, constitutes a tacit agreement among the three manufacturing defendants and RPX to accumulate purchaser-side market power to drive the license fees of the '750 patent below the market rate or, in the alternative, to jointly and collectively decline to license the '750 patent at all.
(Id. ¶ 38 (emphasis supplied).)
Cascades defines the relevant product market as follows:
the market for the purchase, acquisition or licensing of technology covered by the Cascades '750 patent (and, because of the requirements of RPX and the manufacturing defendants, the other Cascades patents) to manufacturers of mobile phones and tablets that use the Android operating system.
(Id. ¶ 92 (emphasis supplied).)8
When the parties failed to reach an agreement on licensing terms, Cascades filed suitagainst the manufacturing defendants and other RPX members for patent infringement in Illinois and instituted this antitrust action.
Under Federal Rule of Civil Procedure 12(c), judgment on the pleadings may be granted when, accepting as true all material allegations contained in the nonmoving party's pleadings, the moving party is entitled to judgment as a matter of law. Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012). The applicable standard is essentially identical to the standard for a motion to dismiss under Rule 12(b)(6). United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 n.4 (9th Cir. 2011). Thus, although the Court must accept well-pleaded facts as true, it is not required to accept mere conclusory allegations or conclusions of law. See Ashcroft v. Iqbal, 556 U.S. 662, 678-79.
In ruling on a motion for judgment on the pleadings, the Court may consider documents incorporated by reference in the pleadings and "may properly look beyond the complaint to matters of public record" that are judicially noticeable. Mack v. South Bay Beer Distrib., Inc., 798 F.2d 1279, 1282 (9th...
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