Cascades Computer Innovation LLC v. RPX Corporation et al

Filing 93

ORDER by Judge Yvonne Gonzalez Rogers granting 54 Motion to Dismiss; granting 55 Motion to Dismiss; granting 76 Motion to Dismiss. The Complaint is dismissed with leave to amend. (fs, COURT STAFF) (Filed on 1/24/2013)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 9 CASCADES COMPUTER INNOVATION LLC, 10 Plaintiff, Northern District of California United States District Court 11 12 vs. Case No.: 12-CV-01143 YGR ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS THE COMPLAINT WITH LEAVE TO AMEND RPX CORPORATION et al., 13 Defendants. 14 Plaintiff Cascades Computer Innovation LLC (“Cascades”) brings this antitrust action against 15 16 Defendants RPX Corporation (“RPX”), Dell, Inc. (“Dell”), HTC Corporation (“HTC”), LG 17 Electronics, Inc. (“LG”), Motorola Mobility, Inc. (“Motorola”), and Samsung Electronics Co. 18 (“Samsung”), alleging that the Defendants formed a group boycott not to license its patents. Plaintiff 19 brings four claims: (1) Violation of the Federal Antitrust Laws under Sections 1 and 2 of the Sherman 20 Act, 15 U.S.C. §§ 1, 2; (2) Monopsonization, Conspiracy to Monopsonize, and Attempt to 21 Monopsonize1 under Section 2 of the Sherman Act, 15 U.S.C. § 2; (3) Violation of the California 22 Cartwright Act, Cal. Bus. & Prof. Code §§ 16700 et seq.; and (4) Violation of California Unfair 23 Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. The Defendants have filed three Motions to Dismiss raising numerous grounds for dismissal,2 24 25 26 27 28 namely, the Complaint: (1) fails to allege a plausible antitrust conspiracy; (2) fails to allege harm to 1 A company that has substantial power in the purchasing-side of the market has monopsony power, “colloquially called a ‘buyer’s monopoly.’” Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312, 320 (2007). 2 In total, the Defendants raise eight grounds for dismissal: RPX argues the complaint must be dismissed on 1 the competitive process in a relevant ma c arket; (3) fai to allege a antitrust i ils an injury; (4) la acks econom mic 2 sens and (5) al se; lleges joint activity relat to defend a ted ding against ongoing pat infringement lawsui tent its, 3 whic (a) accord ch ding to Dell, should have been filed as a counter , rclaim in a p pending patent 4 infri ingement liti igation, or (b according to HTC, LG Motorola, and Samsu b) g G, , ung, is litigat tion activity 5 prot tected by the Noerr-Penn e nington doct trine. Having carefully con c nsidered the papers subm mitted, the C Complaint, an the oral a nd argument of 6 7 coun nsel, for the reasons set forth below, the Court h , hereby GRAN all three Motions to Dismiss. NTS 8 LEA TO AME is GRAN AVE END NTED to the extent the Co e omplaint can be amende consistent with this n ed t 9 Ord and Rule 11. der 10 I. BACKG GROUND Northern District of California United States District Court 11 This acti arises ou of Cascade inability to license it technology patents, all ion ut es’ ts y legedly 12 beca ause of Defe endants’ grou boycott. According t the Complaint, althou the Defen up to ugh ndants 13 man nufacture dev vices that inf fringe on Ca ascades’ pate ents, they ha conspired not to licen Cascade ave d nse es’ 14 pate ents. In furth herance of th conspiracy, they have entered into joint defen agreemen and share he e o nse nts ed 15 info ormation thro ough their jo legal cou oint unsel and thr rough co-De efendant RPX X. 16 A. THE PARTIES 17 Cascades is a non-pr racticing ent (“NPE”) , whom the Defendants accuse of be tity eing a “paten nt 18 troll l”―an entity that “enfor y rces patent ri ights against accused inf t fringers in an attempt to collect n 19 licen nsing fees, but does not manufacture products or supply serv b e r vices based u upon the pat tents in 20 ques stion.” Inter Ad Syste rnet ems, LLC v. Opodo, Ltd. 481 F. Sup 2d 596, 6 (N.D. Te 2007).3 Its ., pp. 601 ex. 21 state purpose is to level the playing fie between i ed e eld individual in nventors and large multin d national 22 23 24 25 26 27 28 the grounds that Cascades’ alle g C egations (1) lack economic sense; (2) fa to allege antitrust injury and (3) do not c ail y; n alleg a relevant antitrust mark Dell mov to dismiss on the groun that (4) C ge a ket. ves s nds Cascades’ clai are ims com mpulsory coun nterclaims not pled in anoth lawsuit; (5 Cascades “ t her 5) “pled itself ou of court”; a (6) ut and Casc cades failed to plead relinq o quishment of independent d decision-mak king authority by Dell. De y efendants HTC C, LG, Motorola, an Samsung have filed a Jo Motion to Dismiss on the grounds t Cascades (7) fails to nd h oint o that s ge cy; leges litigatio activity pro on otected by the Noerr-Penn e nington doctrine. alleg a conspirac and (8) all 3 No all NPEs are referred to as “patent trolls.” For exa ot a ample, researc universities may develo patented ch op techn nology but no practice the patents. (Se Dkt. No. 54 FED. TRA COMM’N, THE EVOLV ot e ee 4-4, ADE VING IP MAR RKETPLACE: ALIGNING PATENT NOTICE AND REMED A E DIES WITH CO OMPETITION, Exec. Summ at 8 n.5 m., (201 11).) 2 1 corporations with vast resources, by providing financial and other assistance to make patent licensing 2 or litigation a more equal contest. (Complaint ¶ 17.) Cascades holds rights to a portfolio of 38 3 patents relating to technology that optimizes use of the Android operating system employed in certain 4 mobile phones and computer tablets. (Id. ¶ 13.) “Manufacturing Defendants”) sell devices, including mobile phones and computer tablets, employing 7 the Android operating system. (Id. ¶ 8.) Together, the Manufacturing Defendants sell more than 8 95% of the devices sold in the United States that use the Android operating system. (Id. ¶ 13.)4 9 Accordingly, Cascades alleges that the Manufacturing Defendants have sufficient market power to 10 form a buyer’s cartel. As each Manufacturing Defendants is a member of RPX, the opportunity to 11 Northern District of California Plaintiff alleges Defendants Dell, HTC, LG, Motorola, and Samsung (collectively, the 6 United States District Court 5 collude exists. (Id.) 12 Like Cascades, RPX itself is an NPE, but according to RPX’s Form S-1 Registration 13 Statement filed with the Securities and Exchange Commission, it is a defensive patent aggregator or 14 “anti-troll,” formed to protect its members from NPEs, like Plaintiff, who file infringement claims. 15 (RPX’s Request for Judicial Notice (“RJN”), Ex. B, Dkt. No. 54-3, (“RPX’s Form S-1”), at 1, 17, 34, 16 53, 58; Complaint ¶¶ 17, 20.) RPX frequently acts as an intermediary for its members for purposes 17 of acquiring patents and negotiating licenses on behalf of its more than 110 members. (Id. ¶ 20.) 18 According to the Complaint, RPX effectively discourages its members from dealing independently 19 with patent owners. (Id. ¶¶ 20, 29, 41.) RPX believes that by making individual inventors, patent 20 owners and NPEs negotiate through RPX, its members are able to acquire patent rights at 21 “wholesale” royalty rates. (Id. ¶ 21.) The members fund RPX, “each of whom is granted a license in 22 exchange for a payment ranging from $60,000 to $6,000,000.” (Id. ¶¶ 2, 20.) However, in certain 23 transactions involving the acquisition of patents or licenses relevant only to a very small number of 24 RPX members, funding will be provided by the particular members against whom the patents are 25 26 27 28 4 According to the Complaint, approximately 40% of all mobile devices use the Android operating system. (Complaint ¶ 13.) The Complaint identifies each Manufacturing Defendant’s share of the market for those devices as follows: HTC (41%), Motorola (35%), Samsung (17%), LG (4%), and Dell (less than 4%). (Id.) 3 1 being or may be asserted. (See RPX’s Form S-1, at 36-37 (“Through December 31, 2010, we have 2 completed 11 [such] acquisitions”); Complaint ¶¶ 27-28.) LICENSING NEGOTIATIONS In 2010, RPX, on behalf of its members, entered into licensing negotiations with Cascades. 5 (Id. ¶¶ 19, 27, 28.) Cascades believes that the Defendants entered into a common agreement when 6 RPX attempted to negotiate a license on their behalf. By agreeing to negotiate only through RPX, the 7 Manufacturing Defendants sought a license at a much lower price than if they acted independently. 8 (Id. ¶ 47.) The negotiations involved a “high seven-figure payment to Cascades for a fully paid-up 9 license.” (Id. ¶ 27.) Subsequently, RPX terminated negotiations and withdrew its offer because one 10 or more of its members would not fund the deal, which Cascades argues is circumstantial evidence of 11 Northern District of California B. 4 United States District Court 3 a conspiracy, i.e., one participant invited common action by the others. (Id. ¶ 28.) 12 Either before or after the negotiations ended (the Complaint alleges both) the Manufacturing 13 Defendants, RPX, and others formed a conspiracy not to license Cascades’ patents. Allegedly, the 14 Defendants agreed they would jointly refuse to license Cascades’ patents; none would negotiate a 15 license with Cascades independently; and all would infringe on Cascades’ patents without paying 16 royalties. (Id. ¶¶ 28, 39.) The object of the conspiracy was to force Cascades to abandon its efforts 17 to license and enforce its patents, accept a below market-value offer from RPX, or go out of business 18 by virtue of expensive litigation. (Id. ¶¶ 28, 46.) 19 Cascades alleges that each Manufacturing Defendant is openly and notoriously infringing on 20 Cascades’ patents. (Id. ¶ 37.) In its Opposition to the Joint Motion of the Manufacturing Defendants, 21 Cascades accuses them of being “serial infringers.” (See Dkt. No. 82, Opp’n to Joint Motion 1.) It 22 has sued all five Manufacturing Defendants for patent infringement in the Northern District of 23 Illinois, Cascades Computer Innovation, LLC v. Motorola Mobility Inc. and Samsung Electronics Co. 24 Ltd., Case No. 11-CV-4574 (filed on July 6, 2011), Cascades Computer Innovation, LLC v. HTC 25 Corporation and LG Electronics, Inc., 11-CV-6235 (filed on September 7, 2011), Cascades 26 Computer Innovation, LLC v. Dell, Inc., Case No. 11-CV-7264 (filed on October 13, 2011). (See 27 Dkt. No. 54-4, RJN, Ex. C; respectively referred to as the “Illinois Actions” or “Illinois Action.”) 28 4 1 Each Manufacturing Defendant has counterclaimed for declarations of invalidity and non- 2 infringement. (Id.) 3 In furtherance of the alleged conspiracy, the Defendants have engaged in common defense 4 agreements against Cascades’ patents. (Complaint ¶¶ 39-40, 43.) The common defense agreements 5 allegedly share a common purpose: do not settle with Cascades; do not discuss the possibility of a 6 license; do not negotiate independently; and act consistently with each other. (Id. ¶ 43.) The 7 Manufacturing Defendants share information through RPX and others, including the law firm of 8 Winston & Strawn, concerning their negotiations with Cascades, and the Defendants have agreed to 9 share expenses and assist each other in attacking Cascades’ patents. (Id. ¶¶ 39-44.) Northern District of California With the exception of RPX, which “withdrew an offer when its members agreed to boycott 11 United States District Court 10 Cascades,” each of the Defendants has refused to engage in any serious licensing negotiations with 12 Cascades. (Id. ¶ 37; but see, id. ¶ 27 (alleging the conspiracy formed “after negotiations with 13 Cascades ended”).) In January 2012, Cascades tried to negotiate licensing agreements with each of 14 the Manufacturing Defendants individually. (Id. ¶ 30.) Dell made a “token” offer of less than 15 $100,000 for a fully paid-up license under all of Cascades’ patents, which Cascades alleges was 16 “spurious and made in bad faith.” (Id. ¶ 36.) Cascades offered LG, Motorola, Samsung and HTC 17 identical license proposals that, inter alia, would have required a lump-sum royalty payment of $5 18 million with the right to recover some or all of the payment based upon licensing revenues Cascades 19 received from other manufacturers. (Id. ¶ 30.) None of these Defendants ever responded to the offer, 20 which Cascades alleges is economically irrational behavior that can be explained only by a concerted 21 refusal to deal. (Id.) 22 Since the filing of this lawsuit, LG and Cascades reached a settlement and LG has been 23 dismissed from this lawsuit. (See Dkt. Nos. 85 & 88.) The Manufacturing Defendants also have 24 asked the Court to take judicial notice that Philips, who is a member of RPX (see Complaint ¶ 19), 25 has settled its patent infringement lawsuit with Cascades, Cascades Computer Innovation, LLC v. 26 Koninklijke Philips Electronics N.V., 11-CV-7387 (N.D. Ill.). 27 28 Cascades alleges that the conspiracy to boycott Cascades’ patents is a buyers’ cartel that has harmed competition by (1) diminishing the value of licenses; (2) reducing NPEs incentives to support 5 1 inno ovation; (3) driving Casc d cades out of business; (4 raising prices and redu 4) ucing output in products t 2 cove ered by Casc cades’ paten and (5) ra nts; aising barrie to entry in the market for licenses by ers n t s 3 implementing a plan to elim minate all NP PEs. (Compl laint ¶¶ 53-5 55.) Cascade further all es leges that the 4 Defe fendants’ con nspiracy has harmed com mpetition in t followin markets: (1) patents, (2) patented the ng d 5 tech hnology, (3) licenses for patents, (4) licenses for Cascades’ p patents, (5) licensing of C Cascades’ 6 pate ented technology, (6) the “Android market,” (7) mobile phon and table that use t Android e m nes ets the 7 oper rating system and (8) pr m; roducts that use Cascade patented technology. es’ 8 II. LEGAL STANDAR L RD A motion to dismiss under Rule 12(b)(6) tes the legal s n sts sufficiency o the claims alleged in the of s t 9 Northern District of California com mplaint. Ileto v. Glock, In 349 F.3d 1191, 1199 o nc., d 9-1200 (9th Cir. 2003). “Dismissal can be based d 11 United States District Court 10 on th lack of a cognizable legal theory or the absen of suffici facts all he l nce leged under a cognizable e ient 12 lega theory.” Balistreri v. Pacifica Pol Dep’t, 9 01 F.2d 696 699 (9th C 1990). A allegation al B P lice 6, Cir. All ns 13 of material fact are taken as true. Johns v. Lucent Techs., Inc 653 F.3d 1000, 1010 ( m son c., (9th Cir. 14 2011).5 15 To withs stand a motio to dismis a plaintiff must not m on ss, f merely allege conduct tha is at 16 conc ceivable but must instead allege “enough facts to state a clai to relief t is plausi on its o im that ible 17 face Bell Atl. Corp. v. Tw e.” wombly, 550 U.S. 544, 57 (2007). “ claim has facial plaus U 70 “A s sibility when n 18 the plaintiff plea factual content that allows the co to draw the reasonab inference that the p ads c a ourt able 19 defe endant is liab for the misconduct al ble m lleged.” Ash hcroft v. Iqba 556 U.S. 662, 679 (2 al, 2009) (citing 20 Two ombly, supra 550 U.S. at 556). In th antitrust c a, a he context, “a c court must de etermine wh hether an 21 antit trust claim is ‘plausible’ in light of basic econom principle ’ b mic es.” William O. Gilley E m Enters., Inc. v. 22 Atl. Richfield Co 588 F.3d 659, 662 (9t Cir. 2009 ) (citing Two o., th ombly, supra 550 U.S. a 556). “Th a, at he 23 5 24 25 26 27 28 Review is gener rally limited to the contents of the comp t plaint and doc cuments attac ched thereto. Allarcom Pay y Tele evision. Ltd. v. Gen. Instrum Corp., 69 F.3d 381, 3 (9th Cir. 1995). A cou also may c ment 6 385 urt consider docu uments whose contents are incorporated by reference in a complai or upon w e e d e int which a compl laint necessar rily relie when authe es enticity is not contested, an matters sub nd bject to judici notice with ial hout converting the motion n into one for summ mary judgmen Knievel v. ESPN, 393 F nt. F.3d 1068, 10 (9th Cir. 2 076 2005); Lee v. City of Los Ange eles, 250 F.3d 668, 689 (9t Cir. 2001). The Court f d th . finds that doc cuments subm mitted in suppo of the ort parti briefs are subject to ju ies’ e udicial notice and/or are inc corporated by reference in the Compl y nto laint. The Court takes judicial noti of the fact that certain documents w ice t were publicly-filed and the fact that certa statements ain were made in those documents on the dates specified, bu not the truth of the statem e s s ut h ments contain therein. ned 6 1 plau usibility stan ndard is not akin to a prob a bability requ uirement, bu it asks for more than a sheer ut 2 poss sibility that a defendant has acted un h nlawfully … . When a co omplaint pleads facts tha are merely at y 3 cons sistent with a defendant’ liability, it stops short of the line b ’s t t between possibility and p plausibility of 4 entit tlement to re elief.” Iqbal supra, 556 U.S. at 679 (quoting Tw l, 6 9 wombly, sup 550 U.S. at 556-57) pra, 5 (inte ernal quotati marks om ion mitted). In sum, if the fa alleged foster a reas s acts sonable infer rence of 6 liabi ility—strong than a mere possibili ger ity—the clai may proc im ceed; if not, t claim mu be the ust 7 dism missed. See id. 8 Courts acknowledge that “proceeding to anti a e itrust discov very can be e expensive.” Twombly, 9 supr 550 U.S. at 558. For that reason, this Court m “insist upon some specificity in pleading ra, r , must n Northern District of California befo allowing a potentially massive fa ore y actual contro oversy to pro oceed.” Id. Accordingly if the y, 11 United States District Court 10 alleg gations in th complaint fail to give rise to a plau he usible claim for relief, “‘this basic d m deficiency 12 shou … be exp uld posed at the point of min nimum expe enditure of ti and mon by the pa ime ney arties and th he 13 cour rt.’” Id. (cita ations omitte ed). 14 III. DISCUS SSION Section 1 of the Sher rman Act ma akes illegal “[e]very con ntract, combination …, o conspiracy or y, 15 16 in re estraint of tra or comm ade merce.” 15 U.S.C. § 1.6 To state a S U Section 1 She erman Act c claim, the 17 claim must plead not just ultimate fac (such as a conspiracy but evide mant p t cts y), entiary facts which, if tru ue, 18 will prove: (A) a contract, combination or conspirac among tw or more p cy wo persons or distinct busine ess 19 ties; (B) by which the pe w ersons or ent tities intende to harm o restrain tra or comm ed or ade merce; (C) th hat entit 20 actu ually injures competition Twombly, supra, 550 U at 548. n. U.S. Section 2 of the Sher rman Act ma akes it unlaw to mono wful opolize, atte empt to mono opolize, or 21 22 com mbine or cons spire to mon nopolize any part of the n nation’s inte erstate or for reign comme erce. 15 23 U.S.C. § 2.7 To state a caus of action for the offen of monop o se f nse poly under S Section 2 of t Sherman the n 24 25 6 15 U.S.C. § 1. Trusts, etc., in restraint of trade illegal; penalty T n Every con ntract, combination in the form of trust or otherwise, or conspirac in restrain of cy, nt trade or commerce am c mong the sever States, or with foreign nations, is de ral eclared to be i illegal. Every per rson who sha make any contract or en all c ngage in any c combination o conspiracy hereby or y declared to be illegal shall be deem guilty of a felony … s med 7 15 U.S.C. § 2. Monopolizing trade a felon penalty M g ny; to Every per rson who sha monopolize or attempt t monopoliz or combine or conspire with all e, ze, 26 27 28 7 1 Act, a plaintiff must plead two elements: (1) the possession of monopoly power in the relevant 2 market; and (2) willful acquisition or maintenance of that power as distinguished from growth or 3 development as a consequence of a superior product, business acumen, or historic accident. United 4 States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). If a defendant does not possess monopoly 5 power, a Section 2 Sherman Act claim may be maintained for attempted monopolization if (1) there 6 is “a dangerous probability” that the defendant may be able to achieve monopoly power and (2) the 7 defendant is engaged in predatory or anticompetitive conduct (3) with “a specific intent to 8 monopolize.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993); Cost Mgmt. Servs., Inc. 9 v. Washington Natural Gas Co., 99 F.3d 937, 949 (9th Cir. 1996). Given the parties’ overlapping arguments regarding the sufficiency of the antitrust allegations, 10 Northern District of California United States District Court 11 the Court’s analysis will be issue based: 12 A. FIRST ELEMENT: CONCERTED ACTION 13 Defendants HTC, LG, Motorola, and Samsung argue in their Joint Motion to Dismiss that 14 Cascades’ Complaint fails to allege a plausible conspiracy. Cascades alleges that Defendants’ group 15 boycott claim violates Sections 1 and 2 of the Sherman Act. 16 1. 17 Pleading an antitrust conspiracy “requires a complaint with enough factual matter Requirement for pleading an antitrust conspiracy. 18 (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an 19 agreement does not impose a probability requirement at the pleading stage; it simply calls for enough 20 fact[s] to raise a reasonable expectation that discovery will reveal evidence of illegal agreement …. 21 [A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice.” Kendall v. 22 Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008) (quoting Twombly, supra, 550 U.S. at 556-57). 23 Rather, a complaint must state facts “plausibly suggesting (not merely consistent with) agreement” 24 among the purported co-conspirators rather than individual decisions. See Twombly, supra, 550 U.S. 25 at 557. 26 27 28 any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony … 8 1 To allege an “agreement between antitrust co-conspirators, the complaint must allege facts 2 such as a ‘specific time, place, or person involved in the alleged conspiracies’ to give a defendant 3 seeking to respond to allegations of a conspiracy an idea of where to begin.” Kendall, supra, 518 4 F.3d at 1047 (quoting Twombly, supra, 550 U.S. at 565 n.10). A plaintiff need not allege “specific 5 back-room meetings between specific actors at which specific decisions were made.” In re Graphics 6 Processing Units Antitrust Litig., 527 F. Supp. 2d 1011, 1024 (N.D. Cal. 2007); see In re TFT-LCD 7 (Flat Panel) Antitrust Litig., 599 F. Supp. 2d 1179, 1183 (N.D. Cal. 2009) (Twombly and Kendall do 8 not impose an elaborate “who, what, when, where” pleading requirement). However, “a conclusory 9 allegation of agreement at some unidentified point does not supply facts adequate to show illegality.” 10 Twombly, supra, 550 U.S. at 556-57. Because conspiracy is an essential element of each of Cascades’ claims, each of its claims Northern District of California United States District Court 11 12 requires that it plead a plausible conspiracy, and it must do so with the required specificity. See 13 Kendall, supra, 518 F.3d at 1047 n. 5 (“[a]t least for the purposes of adequate pleading in anti-trust 14 cases, the Court specifically abrogated the usual ‘notice pleading’ rule”). 15 2. 16 Cascades complains of a “group boycott and concerted refusal to deal.” (Complaint ¶ Whether Cascades has pled a plausible conspiracy. 17 12.) As set forth above, Cascades alleges that the Manufacturing Defendants “conspired,” but 18 Cascades “does not answer [any of] the basic questions: who, did what, to whom (or with whom), 19 where, and when?” Kendall, supra, 518 F.3d at 1048; see also, Rick-Mik Enters. v. Equilon Enters., 20 LLC, 532 F.3d 963, 976 (9th Cir. 2008) (“All that is alleged is there was an agreement on price. The 21 co-conspirator banks or financial institutions are not mentioned. The nature of the conspiracy or 22 agreement is not alleged. The type of agreements are [sic] not alleged.”). Instead, the allegations in 23 the Complaint consist primarily of threadbare recitals of conspiracy.8 Cascades alleges that the 24 Manufacturing Defendants conspired, combined and/or entered into “agreements with RPX, joint 25 26 27 28 8 “Terms like ‘conspiracy,’ or even ‘agreement,’ are border-line: they might well be sufficient in conjunction with a more specific allegation―for example, identifying a written agreement or even a basis for inferring a tacit agreement―but a court is not required to accept such terms as a sufficient basis for a complaint.” Twombly, supra, 550 U.S. at 557 (quoting DM Research, Inc. v. Coll. of Am. Pathologists, 170 F.3d 53, 56 (1st Cir. 1999)). 9 1 defense agreements, NPE insurance, common counsel, meetings, phone calls, emails, and discussions 2 with RPX and otherwise” to agree to “not accept licenses from Cascades.” (Complaint ¶ 39.)9 As to 3 when this alleged conspiracy formed, Cascades alleges that “after negotiations with Cascades ended, 4 RPX and the other defendants conspired.” (Id. ¶ 28.) Cascades also alleges that RPX “withdrew its 5 offer when its members agreed to boycott Cascades.” (Id. ¶ 37.) Other than Cascades’ allegation that 6 negotiations with RPX broke down when one or more RPX members would not agree to fund the 7 deal, all Cascades has alleged is “parallel behavior.”10 This is the sort of generic pleading—alleging 8 misconduct against various defendants without specifics as to the role each played―that was rejected 9 by Twombly: 10 the pleadings mention[s] no specific time, place, or person involved in the alleged conspiracies …. [T]he complaint here furnishes no clue as to which of the [defendants] (much less which of their employees) supposedly agreed, or when and where the illicit agreement took place …. [A] defendant seeking to respond to plaintiffs’ conclusory allegations in the § 1 context would have little idea where to begin. Northern District of California United States District Court 11 12 13 14 Id. at 565, n.10. Based on the foregoing analysis, the Court GRANTS the Joint Motion to Dismiss on this basis 15 16 WITH LEAVE TO AMEND. 17 3. 18 Dell focuses on Cascades’ own allegations to challenge the plausibility of the 19 Whether Cascades has “pled itself out of court” with respect to Dell. conspiracy allegations that Dell itself participated in the group boycott. According to Dell, by 20 21 22 23 24 25 26 27 28 9 In its Opposition to the Joint Motion, Cascades argues that it has alleged a contract because “there is an acknowledged agreement” because each manufacturing defendant is a member of RPX, “and there may be many more” agreements. (Opp’n to Joint Motion 7.) Each Defendant’s initial disclosures identified individuals with knowledge of and/or documents reflecting Cascades-related communications between the defendant and RPX. (Id. at 7-8.) On the basis of these initial disclosures (which are not facts alleged in the complaint), Cascades argues that “‘Cascades-related communications with manufacturing defendants’ exist, suggesting further meeting of the minds between the co-conspirators beyond the initial membership agreement.” (Id. at 8:9-11.) 10 A footnote in Twombly describes the type of evidence that enables parallel conduct, i.e., similar conduct by different entities, to be interpreted as collusive: “‘parallel behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence unaided by an advance understanding among the parties’ … [;] ‘conduct [that] indicates the sort of restricted freedom of action and sense of obligation that one generally associates with agreement.’” 550 U.S. at 557 n.4. 10 1 alleging that Dell negotiated with Cascades, albeit in bad faith, Cascades has “pled itself out of court 2 with respect to Dell.” (Dell’s Mot. 11.) On this same basis, Dell argues that Cascades failed to plead 3 sufficiently the relinquishment of independent decision-making authority, an essential part of all 4 claims against Dell. Although these are separate bases for dismissal, Dell makes the same arguments 5 in support of both, and the Court will analyze them together. 6 The Complaint alleges a group boycott and concerted refusal to deal that consisted of 7 agreeing: (1) “none of [the Manufacturing Defendants] would separately negotiate with Cascades for 8 a license”; (2) “all would act together to oppose Cascades’ effort to license and enforce [its patents]”; 9 and (3) “not to accept a license at any price” from Cascades. (Complaint ¶¶ 28, 47, 53.) Dell argues Northern District of California that Cascades has “pleaded itself out of court” by admitting that: Dell independently and directly 11 United States District Court 10 negotiated with Cascades regarding a license for use of Cascades’ patented technology, and Dell 12 directly made an independent settlement offer for a license to use the technology. 13 According to Cascades, Dell ignores relevant allegations in the Complaint. Specifically, 14 Cascades points to the following: “the individual manufacturing defendants all agreed among 15 themselves and with RPX not to negotiate independently with Cascades” (id. ¶ 28); “RPX enables its 16 members to act in concert in dealing with NPEs seeking to license their patents and eliminates the 17 ability of its individual members to act independently” (id. ¶ 22); and “Defendants have contracted, 18 combined and conspired to restrain trade by jointly refusing to negotiate or accept licenses under the 19 Cascades patents” (id. ¶ 31). In its Opposition, Cascades implies that “[t]o make it seem as if it was 20 negotiating independently, Dell made a ridiculous offer of less than $100,000.” (Dkt. No. 60, 21 Combined Opposition to Motions of Defendants Dell and RPX (“Combined Opp’n”), at 3.) 22 While Cascades’ Complaint characterizes Dell’s offer as “spurious” and “made in bad faith,” 23 it does not indicate that Dell only pretended to negotiate independently to make it seem as if it was 24 not involved in a conspiracy. (See Complaint ¶ 36.) The alleged conspiracy was not to negotiate a 25 license or pay for a license at any price, even $1. Any offer to license Cascades’ patents, even a 26 spurious and bad faith offer, is not conduct consistent with participation in the conspiracy as pled. 27 Rather, and without more, the conduct more plausibly suggests that Dell considered paying a 28 nuisance fee to avoid litigation than the conduct suggests that Dell pretended to negotiate 11 1 independently. Therefore, as to Defendant Dell, only, the allegations in the Complaint fail 2 adequately to allege Dell’s participation in the conspiracy. Based on the foregoing analysis, the Court GRANTS Dell’s Motion to Dismiss on this basis 3 4 WITH LEAVE TO AMEND. 5 B. SECOND ELEMENT: UNREASONABLE RESTRAINT OF TRADE 6 Not all agreements in restraint of trade violate Section 1 of the Sherman Act. Only those 7 agreements that unreasonably restrain trade will run afoul of the antitrust laws. See Big Bear 8 Lodging Ass’n v. Snow Summit, Inc., 182 F.3d 1096, 1101 (9th Cir. 1999) (citing 15 U.S.C. § 1). The 9 second element of a Section 1 Sherman Act claim requires that the challenged agreement be an 10 unlawful restraint of trade. See State Oil Co. v. Khan, 522 U.S. 3, 10 (1997); 15 U.S.C. § 1. Northern District of California United States District Court 11 There are two types of analyses used to determine the lawfulness of an agreement between 12 competitors: per se and rule of reason. See National Soc’y of Prof’l. Eng’rs v. United States, 435 13 U.S. 679, 692 (1978). Certain agreements are considered so harmful to competition and to have no 14 significant benefits that they almost always are illegal. See Continental TV, Inc. v. GTE Sylvania 15 Inc., 433 U.S. 36, 50 n.16 (1977). These agreements are “per se” violations of the Sherman Act; no 16 defense or justification is allowed. Per se violations include agreements amongst competitors to fix 17 prices, rig bids, or share or divide markets. Northwest Wholesale Stationers, Inc. v. Pac. Stationery 18 & Printing Co., 472 U.S. 284, 298 (1985) (the category of restraints classified as group boycotts to 19 which the per se approach applies “generally involve joint efforts by a firm or firms to disadvantage 20 competitors by ‘either directly denying or persuading or coercing suppliers or customers to deny 21 relationships the competitors need in the competitive struggle.’”).11 All other agreements are 22 evaluated under a “rule of reason” analysis. Cascades asserts both per se and rule of reason claims 23 under Section 1 of the Sherman Act. 24 25 26 27 28 11 The following three criteria “are indicative of per se illegal conduct”: (1) the boycott cuts off access to a supply, facility, or market necessary for the victim firm to compete; (2) the boycotting firms possess dominant market positions; and (3) the practices are not justified by plausible arguments that they enhanced overall efficiency or competition. Adaptive Power Solutions, LLC v. Hughes Missile Systems Co., 141 F.3d 947, 950 (9th Cir. 1998) (quoting Hahn v. Oregon Physicians’ Serv., 868 F.2d 1022, 1030 (9th Cir. 1988)). 12 1 1. 2 To succeed on a per se claim, a plaintiff must establish that the defendant entered into Per Se. 3 an agreement amounting to a hardcore offense, such as naked horizontal price-fixing or market- 4 sharing, and that the plaintiff has suffered “antitrust injury” as a result. Broadcast Music v. Columbia 5 Broadcasting Sys., 441 U.S. 1, 8 (1979). Where a plaintiff alleges a per se antitrust violation, harm to 6 competition is presumed and the plaintiff does not need to identify the relevant market in which the 7 defendants’ conduct has had an anticompetitive effect. Big Bear Lodging Ass’n, supra, 182 F.3d at 8 1104-05. is per se illegal. They argue that their contracts with RPX permit members of the alleged conspiracy 11 Northern District of California The Manufacturing Defendants challenge Cascades’ contention that the alleged group boycott 10 United States District Court 9 to negotiate independently with Cascades, and therefore, the alleged agreement imposed no restraint 12 on the market and the rule of reason applies.12 Although the Complaint is far from clear on this issue, 13 Cascades appears to challenge an alleged agreement among the Defendants not to deal with Cascades 14 specifically, and not, more broadly, the Manufacturing Defendants’ membership agreements with 15 RPX. While Defendants are correct that, as a threshold matter, the challenged conduct must involve 16 concerted action, as opposed to independent behavior, the critical question here is whether the 17 concerted refusal to deal with Cascades is a restraint exhibiting a “predictable and pernicious 18 anticompetitive effect” without potential for procompetitive benefit. See State Oil Co., supra, 522 19 U.S. at 10. Defendants do not address whether the Complaint, on its face, shows any procompetitive 20 justification to form a group boycott of Cascades’ patents. See Brennan v. Concord EFS, Inc., 369 F. 21 Supp. 2d 1127, 1131, 1133 (N.D. Cal. 2005) (applying per se analysis when reviewing complaint 22 because “[w]hatever the merits of the [defendants’ procompetitive] arguments, they are intrinsically 23 factual, contrary to plaintiffs’ pleading and inappropriate for resolution at the motion to dismiss 24 stage”).13 25 12 26 27 28 On this same basis, the Manufacturing Defendants argue that the claims also should not be analyzed under the rule of reason either. That, however, would leave no framework from which to analyze the lawfulness of the alleged agreement. 13 As the cases cited by the Manufacturing Defendants demonstrate (see Joint Motion 16-17), determining whether a group boycott is per se unlawful tends to be a fact specific inquiry that requires examination of market conditions, and which procedurally is determined on a motion for summary judgment (Northwest 13 Based on the foregoing, the Court will not dismiss the allegations of per se illegality of the 1 2 group boycott on this basis.14 Therefore, this basis for dismissal of the Complaint is DENIED 3 WITHOUT PREJUDICE. 4 2. 5 RPX argues that, to the extent that Cascades claims are analyzed under the rule of Rule of Reason. must plead that the challenged agreement, by virtue of the defendants’ market power, was 8 unreasonably restrictive of competition in a relevant market and that the plaintiff suffered antitrust 9 injury. Nat’l Soc. of Prof’l Engineers v. United States, 435 U.S. 679, 690 (1978). Unlike a per se 10 violation, where harm to competition is presumed, in a rule of reason analysis “[t]he focus is on the 11 Northern District of California reason, Cascades fails to identify the relevant product market. Under the rule of reason, a plaintiff 7 United States District Court 6 actual effects that the challenged restraint has had on competition in a relevant market.” Bhan v. 12 NME Hosp., Inc., 929 F.2d 1404, 1410 (9th Cir. 1991). The relevant market has two dimensions: the “relevant geographic market” and the “relevant 13 14 product market.” See Brown Shoe v. United States, 370 U.S. 294, 325 (1962). The parties dispute 15 whether Cascades has defined adequately the scope of the “relevant product market” in which the 16 Defendants are alleged to have restrained competition.15 Because the validity of the relevant market 17 typically is a factual rather than a legal issue, an antitrust complaint survives dismissal under Rule 18 12(b)(6) “unless the alleged market suffers a fatal legal defect.” Newcal Indus., Inc. v. Ikon Office 19 Solution, 513 F.3d 1038, 1045 (9th Cir. 2008) (“a complaint may be dismissed under Rule 12(b)(6) if 20 21 22 23 24 25 26 27 28 Wholesale Stationers, supra, 472 U.S. 284; Mesirow v. Pepperidge Farm Inc., 703 F.2d 339, 343 (9th Cir. 1983)) or after a full trial on the merits (Broadcast Music, Inc. v. Columbia Broadcasting Sys., 441 U.S. 1 (1979); Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 836-38 (7th Cir. 1978)). 14 This is not a determination of whether the group boycott alleged is per se unlawful or should be analyzed under the rule of reason, only that there are insufficient facts alleged in the Complaint from which the Court can make this determination as a matter of law. 15 Charges of monopolization under Section 2 of the Sherman Act also need to be analyzed within the context of the relevant market. Count I alleges violations of both Section 1 and Section 2. Count II alleges only a violation of Section 2 (monopsony and attempt to monopsonize). None of the Defendants moved to dismiss on the additional basis that, to the extent that the claims are brought under Section 2, Count II fails to allege the relevant product market. 14 1 the complaint’s ‘relevant market’ definition is facially unsustainable”) (citing Queen City Pizza, Inc. 2 v. Domino’s Pizza, Inc., 124 F.3d 430, 436-37 (3d Cir. 1997)). 3 To the extent that Cascades’ claims are analyzed under the rule of reason, Cascades has failed 4 to identify specifically what it considers to be the relevant market. In its Complaint, Cascades avoids 5 its pleading obligation with subterfuge, it defines the relevant product market as broadly as “licenses” 6 (Complaint ¶¶ 52, 54), the “Android market” (id. ¶¶ 13, 36, 38, 46), and mobile phones and tablets 7 that use the Android operating system (id. ¶¶ 13, 35); and as narrowly as Cascades’ patents (id. ¶¶ 28, 8 35, 46), licenses for Cascades’ patents (id. ¶¶ 35, 48, 57, 58), and products that use Cascades’ 9 patented technology (id. ¶¶ 46, 53). In its opposition, Cascades further obfuscates the analysis when Northern District of California it attempts to clarify that “the alleged market is the market for patented technology, particularly 11 United States District Court 10 technology relating to the Android industry” (see Combined Opp’n 25) (emphasis in original), but 12 then equivocates by arguing that the markets and submarkets are “the entire mobile phone and tablet 13 industry that uses Android operating systems,” the “submarket for licenses under the Cascades’ 14 patents,” and “the market for Android devices.” (Id. at 26.) While Cascades does not need to limit 15 its antitrust allegations to a single market or sub-market, it does need to specify the market or markets 16 in which the allegedly anticompetitive acts occurred (and the effects of those anticompetitive acts on 17 those specific markets). Otherwise, it is impossible to determine the actual effect the alleged 18 challenged conduct has had on competition. Without a coherent market definition, the Complaint 19 necessarily fails to allege a contract, combination, or conspiracy in restraint of trade or 20 monopolization of the relevant market.16 To survive a motion to dismiss, Cascades must provide 21 sufficient specificity of each alleged violation in each alleged market or sub-market. Based on the foregoing analysis, the Court GRANTS RPX’s Motion to Dismiss on this basis 22 23 WITH LEAVE TO AMEND. 24 25 26 27 28 16 RPX argues that Cascades also fails to plead facts pertaining to several requirements for market definition: reasonable interchangeability between substitutes, supply-side substitution, cross-price elasticity of demand, or barriers to entry. See Brown Shoe, supra, 370 U.S. at 325 (“The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.”). 15 1 C. THIRD ELEMENT: HARM TO COMPETITION & ANTITRUST INJURY 2 Only those who possess antitrust standing by virtue of having suffered antitrust injury may 3 bring a private action for damages for violation of the antitrust laws. See Glen Holly Entm’t, Inc. v. 4 Tektronix, Inc., 352 F.3d 367, 371 (9th Cir. 2003). Because Cascades seeks relief under Sections 4 5 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, it must allege that it has suffered (Section 4) or faces 6 the threat of (Section 16) antitrust injury of “‘the type the antitrust laws were designed to prevent and 7 that flows from that which makes defendants’ acts unlawful.’” Cargill, Inc. v. Monfort of Colo., Inc., 8 479 U.S. 104, 113 (1986) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 9 (1977)). There are “four requirements for antitrust injury: (1) unlawful conduct, (2) causing an Northern District of California injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, and (4) that is of 11 United States District Court 10 the type the antitrust laws were intended to prevent.” Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of 12 California, 190 F.3d 1051, 1055 (9th Cir. 1999). RPX challenges Cascades’ standing to bring this antitrust action, arguing that Cascades has 13 14 not alleged an injury that is the type the antitrust laws were intended to prevent. RPX argues (1) the 15 only injury alleged is litigation expenses of enforcing its patents; and (2) Cascades does not alleged 16 harm to consumers. This first argument ignores an entire section of the Complaint entitled “Injury to 17 Competition.” In that section Cascades specifies the following injuries: a loss of substantial royalties 18 to which it would be entitled under licenses (Complaint ¶¶ 47, 55)17; legal expenses incurred in 19 enforcing its patents (id.); damage to business growth (id. ¶ 55); to the possible point of closure (id. ¶ 20 53). Additionally, Cascades alleges that it has received less for licensing its patents than it would in a 21 market that was free of an unlawful conspiracy. RPX's second argument, that Cascades fails to allege antitrust injury because of the lack of 22 23 allegations regarding possible consumer injury, takes too restrictive a view of the type of injury the 24 antitrust laws were intended to prevent. Anticompetitive conduct need not harm consumers 25 specifically in order to cause antitrust injury. Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 26 27 17 28 As to the right to royalties, RPX, without citation to any legal authority, argues that Cascades has no such right, only a right to bring suit to enforce its patents. In this context, the argument lacks merit. 16 1 979, 988 (9th Cir. 2000).18 The cases upon which RPX relies to argue the contrary are not on point— 2 those cases are between competitors, not buyers and sellers. See id. at 988-89 (“A seller who is paid 3 less suffers antitrust injury, and this is even so if the savings are passed on to the consumers. Most 4 courts understand that a buying cartel’s low buying prices are illegal and bring antitrust injury and 5 standing to the victimized suppliers. Clearly mistaken is the occasional court that considers low 6 buying prices pro-competitive or that thinks sellers receiving illegally low prices do not suffer 7 antitrust injury.”). Actionable antitrust injury is not limited to situations where prices are increased or 8 products are less innovative. Glen Holly Entm’t, supra, 352 F.3d at 374 (noting “this understanding 9 of antitrust injury is too restrictive”). Northern District of California That said, due to Cascades’ vague allegations of a group boycott, Cascades has not alleged 11 United States District Court 10 sufficient facts to show that the injury Cascades has suffered flows from the Defendants’ unlawful 12 conduct. All of the harm alleged—lost royalties, depressed market value for the patents, litigation 13 expenses, loss of business growth—derives from Cascades’ inability to license its patents. However, 14 Cascades has provided insufficient facts from which to plausibly infer that the reason it suffered this 15 harm is due to a conspiracy in a particular market, rather than due to individual business disputes 16 between independent actors. Accordingly, Cascades has not alleged that Defendants’ unlawful 17 conduct caused Cascades to suffer the type of injury that the antitrust laws were meant to prevent. Based on the foregoing analysis, the Court GRANTS the motion to dismiss on this basis WITH 18 19 LEAVE TO AMEND. 20 D. ECONOMIC SENSE 21 Where the facts alleged in the complaint demonstrate that an alleged conspiracy makes no 22 economic sense, the claim must be dismissed. Adaptive Power Solutions, LLC v. Hughes Missile Sys. 23 Co., 141 F.3d 947, 952 (9th Cir. 1998) (“Antitrust claims must make economic sense”) (citing 24 25 26 27 28 18 [T]he central purpose of the antitrust laws, state and federal, is to preserve competition. It is competition―not the collusive fixing of prices at levels either low or high―that these statutes recognize as vital to the public interest. The Supreme Court’s references to the goals of achieving “the lowest prices, the highest quality and the greatest material progress,” and of “assur[ing] customers the benefits of price competition,” do not mean that conspiracies among buyers to depress acquisition prices are tolerated. Knevelbaard Dairies, supra, 232 F.3d at 988 (internal citations omitted). 17 1 Eastman Kodak Co. v. Image Technical Servs. Inc., 504 U.S. 451, 468 (1992)). “Allegations of facts 2 that could just as easily suggest rational, legal business behavior by the defendants as they could 3 suggest an illegal conspiracy are insufficient to plead a violation of the antitrust laws.” Kendall, 4 supra, 518 F.3d at 1049 (citing Twombly, supra, 550 U.S. at 553-56 & n.5). The issue is not as 5 simple as determining whether there is “a plausible and justifiable reason for defendant[s’] conduct 6 that is consistent with proper business behavior.” See In re Citric Acid Litigation, 191 F.3d 1090, 7 1094 (9th Cir. 1999). At the motion to dismiss stage, the determination turns on whether the 8 defendants had “any rational motive” to join the alleged conspiracy; and whether the conduct alleged 9 “was consistent with the defendant’s independent interest.” Matsushita Electric Industrial Co. v. 10 Zenith Radio Corp., 475 U.S. 574, 596-97 (1986). RPX argues that Cascades’ group-boycott theory―that the Manufacturing Defendants acted Northern District of California United States District Court 11 12 against their own best interests when they declined $5 million licensing deals―does not make 13 economic sense and, therefore, is implausible. In its motion, RPX has offered well-reasoned 14 justifications for the Manufacturing Defendants’ behavior. According to RPX, the more plausible 15 explanation for the Manufacturing Defendants’ decision to decline a $5 million licensing offer was 16 that the offer price was too high: RPX had been negotiating a $10 million deal for all of its 110 17 members, which makes a $5 million offer to each of LG, Motorola, Samsung and HTC too high 18 (collectively $20 million).19 Cascades counters that due to the rebate structure of its licensing offers, 19 it makes no economic sense to refuse the licensing offers, which it argues supports an inference of a 20 group boycott. (Combined Opp’n 20 (“if Motorola accepted the Cascades proposal and paid $5 21 million and direct competitors HTC and Samsung were ultimately licensed for $10 million total, 22 Motorola would get a $2.5 million rebate, which would drive its effective royalty to $2.5 million or 23 roughly one-half of its two major competitors”).) Although not based on facts alleged in the 24 19 25 26 27 28 In its Combined Opposition, Cascades raises additional facts not alleged in the Complaint, including that RPX structures these deals so that its members pay 3-4 times the price RPX pays for a license. (Combined Opp’n 16.) “At higher purchase prices, like the $9 million proposed for a license under the Cascades patents, the pre-sale amount would be around 2 times or $18 million.” (Id.) Multiplying each manufacturing defendant’s alleged market share by the $18 million RPX would charge its members rather than the $9 million “wholesale” price RPX would pay, HTC ($7.38 million) and Motorola ($6.3 million) would save money by directly negotiating a $5 million license with Cascades, while Samsung ($3.06 million) and LG ($720,000) would not. This would make a $5 million licensing offer more reasonable. 18 1 Complaint, Cascades also argues that “[t]wo of the three [Manufacturing Defendants] have 2 successfully accepted a rebate approach in other negotiations that did not involve RPX.” (Id.) RPX additionally argues that it would be nonsensical for the Manufacturing Defendants to 3 4 refuse to negotiate licenses for valid and infringed patents because the price of litigation is too high 5 and it would subject each of them to liability for treble damages for willful infringement in ongoing 6 patent infringement lawsuits. That said, RPX’s argument requires the Court to assume that the 7 allegations of infringement are not true (i.e., that both the infringement allegations in this lawsuit and 8 the infringement allegations in the Illinois Actions are false). Given the procedural posture of this 9 action, the Court cannot do so and rejects this argument. The Manufacturing Defendants argue that irrespective of infringement or validity, 10 Northern District of California United States District Court 11 “[a]ccepting the offer Cascades purportedly made would have been contrary to the economic interests 12 of each individual Defendant, for it would have attracted nuisance suits.” (See Joint Motion 13).)20 13 Having to pay a high price for a patent or face a patent infringement lawsuit may not be an optimal 14 choice, but this does not render the allegations that the Defendants conspired not to license Cascades’ 15 patents “nonsensical,” as RPX argues.21 Notwithstanding the foregoing, Cascades has fastidiously avoided providing specific facts 16 17 with respect to the timing of the alleged negotiations and the interplay with the filing of the Illinois 18 Actions for patent infringement. Cascades also will need to provide specific facts to clarify why, 19 20 21 22 23 24 25 26 27 28 20 The case on which RPX relies, Matsushita, supra, 475 U.S. 574, was decided at the summary judgment stage. In Matsushita, the Court found no evidence of any agreement to fix prices below cost to drive competitors out of business, and the “absence of any rational motive to conspire” because the defendants had every incentive not to engage in the alleged conduct which required them to sustain losses for decades with no foreseeable profits. Id. at 597. 21 RPX also argues that Cascades’ group-boycott theory makes no economic sense because the allegations (and the incorporated SEC filing) demonstrate that the RPX members that allegedly declined to fund a licensing transaction between RPX and Cascades had already paid for, and would have directly benefitted from, RPX’s acquiring a license to Cascades’ patents. This argument ignores allegations in the Complaint. Cascades alleges that RPX members pay amounts in excess of their subscription fees to fund certain license deals. (Complaint ¶ 28 (“RPX terminated negotiations with Cascades and [withdrew] its offer because one or more of its members allegedly would not fund the license deal.”).) RPX disputes that this particular licensing deal would subject its members to fees in excess of their subscription fees, and creates a factual dispute not suitable for resolution on a motion to dismiss. This argument is not a basis for the Court’s dismissal of the claims under Rule 12(b)(6). 19 1 absent a conspiracy, it is economically irrational for the Manufacturing Defendants—who are being 2 sued by Cascades for infringement of one patent, the ’750 Patent—to decline an offer to license 3 Cascades’ entire portfolio of 38 patents. Without clarification and specificity, the Court will not 4 presume economic rationality where the circumstances giving rise to the lawsuit plausibly suggest 5 nothing more than a tactical ploy to regain economic leverage that Plaintiff lost in the licensing 6 negotiations. Based on the foregoing analysis, the Court GRANTS the motion to dismiss on this basis WITH 7 8 LEAVE TO AMEND. 9 E. 10 All of the Manufacturing Defendants argue that the antitrust activity alleged in this case arises Northern District of California 11 United States District Court RELATIONSHIP BETWEEN THESE ANTITRUST CLAIMS AND THE PATENT INFRINGEMENT CLAIMS IN THE ILLINOIS ACTIONS 12 out of refusing to settle the Illinois Actions. On that basis, Dell argues that Cascades’ claims against 13 it must be dismissed because they are compulsory counterclaims under Rule 13(a) of the Federal 14 Rules of Civil Procedure that should have been, but were not, asserted in the Illinois Action. The rest 15 of the Manufacturing Defendants argue they are immune from antitrust liability under the Noerr- 16 Pennington doctrine, which provides immunity from antitrust liability for certain litigation related 17 conduct, because the conduct at issue stems from their defense of the patent infringement claims in 18 the Illinois Actions. The Court will address each argument in turn. 19 1. Whether the claims against Dell are compulsory counterclaims. 20 Under Federal Rule of Civil Procedure 13(a)(1), a pleader must state as a counterclaim 21 “any claim that … the pleader has against an opposing party if the claim arises: (A) out of the 22 transaction or occurrence that is the subject matter of the opposing party’s claim; and (B) does not 23 require adding another party over whom the court cannot acquire jurisdiction.” Fed. R. Civ. P. 24 13(a)(1).22 This Court should apply the “logical relationship” test to determine whether the two 25 claims arise out of the same “transaction or occurrence” for purposes of Rule 13. Burlington 26 27 22 28 No party suggests that the Illinois Court would not have jurisdiction over RPX as required by subsection 13(a)(1)(B). (See Dell’s Mot. 2.) Thus, the Court views the issue conceded for purposes of this motion. 20 1 Northern R.R. Co. v. Strong, 907 F.2d 707, 711 (7th Cir. 1990).23 The approach is a flexible one: “A 2 court should consider the totality of the claims, including the nature of the claims, the legal basis for 3 recovery, the law involved, and the respective factual backgrounds.” Bd. of Regents of Univ. of 4 Wisconsin Sys. v. Phoenix Int’l Software, Inc., 653 F.3d 448, 470 (7th Cir. 2011) (quoting Burlington 5 Northern R.R., supra, 907 F.2d at 711). Dell characterizes the subject matter of this lawsuit as a “concerted refusal to settle the Illinois 6 Illinois Action. According to Dell, Cascades and Dell engaged in settlement negotiations in the 9 Illinois Action in January 2012; after the parties’ settlement efforts failed, and as recourse, Cascades 10 filed this antitrust lawsuit. On this basis, Dell contends that Cascades’ claims for antitrust and unfair 11 Northern District of California Action,” which it argues should have been filed as a counterclaim to Dell’s counterclaim in the 8 United States District Court 7 competition in this action arise out of the same transaction or occurrence as the claims in the Illinois 12 Action. Dell’s arguments are not based on an impartial reading of the Complaint. The nature of the antitrust claims, the legal basis for recovery, the law involved,24 and the 13 14 facts giving rise to the antitrust claims all differ from the patent infringement claim asserted in the 15 Illinois Action. The controversy in the Illinois Action concerns whether Dell’s Venue smartphone 16 and Streak 7 tablet infringe, either directly or indirectly, on one of the Cascades patents (the ’750 17 Patent). Dell counterclaimed seeking declaratory judgments of non-infringement and invalidity of 18 the ’750 Patent. The controversy in this antitrust action is whether the Manufacturing Defendants, 19 including Dell, have formed a group boycott and concerted refusal to deal with Cascades to license 20 all of Cascades’ patents, not just the ’750 Patent, albeit the ’750 Patent appears to be the primary 21 patent at issue in this case. 22 23 24 25 26 27 28 23 The Ninth Circuit has ruled that the law of the circuit where the original patent infringement litigation occurred, here, the Seventh Circuit, determines whether an antitrust claim is a mandatory counterclaim in a patent infringement action. Destiny Tool v. SGS Tools Co., 344 Fed. App’x 320, 323 (9th Cir. 2009) (applying Sixth Circuit law to determine whether antitrust claim was compulsory counterclaim to patent infringement lawsuit) (citing Springs v. First Nat’l Bank of Cut Bank, 835 F.2d 1293, 1295 (9th Cir. 1988)). 24 Although not dispositive of the issue, another distinction between the claims raised in the two lawsuits is that jurisdiction over an appeal of the patent action would be with the Federal Circuit, while any appeal of this antitrust suit would be to the regional circuit court of appeals, here, the Ninth Circuit. 21 1 Although the subject matter is related—i.e., but for the antitrust conspiracy alleged in this 2 case, Dell would not be infringing on the ’750 Patent, which is the subject matter of the Illinois 3 Action—the counterclaim is permissive, not compulsory. Determining whether Dell’s Venue 4 smartphone and Streak 7 tablet infringe on the ’750 Patent does not depend on whether Dell 5 conspired not to license the ’750 Patent. Conversely, determining whether Dell conspired not to 6 license Cascades’ entire patent portfolio may be informed by whether Dell is infringing on the ’750 7 Patent. The extent of overlap is not obvious. Accordingly, the Court does not find that the claims 8 arise out of the same transaction or occurrence so as to be compulsory counterclaims under Rule 9 13(a). Fed. R. Civ. P. 13(a); Burlington Northern R.R., supra, 907 F.2d at 711. 10 Based on the foregoing analysis, the Court DENIES this basis for dismissal of the Complaint. Northern District of California United States District Court 11 2. 12 The Manufacturing Defendants argue that this lawsuit is based on protected litigation Noerr-Pennington doctrine. 13 conduct of defending against patent infringement charges in the Illinois Actions and argue that 14 Noerr-Pennington immunity applies because their alleged cooperative conduct began only after they 15 were either charged with or sued for patent infringement. The Noerr-Pennington doctrine provides 16 immunity from antitrust liability for litigation related conduct–filing a complaint, an answer, 17 negotiating a settlement–that is not otherwise a “sham.” See Prof’l Real Estate Investors, Inc. v. 18 Columbia Pictures Indus., Inc., 508 U.S. 49, 56-60 (1993). 19 The Manufacturing Defendants characterize the Complaint as alleging that “Defendants 20 ‘conspired’ to defend themselves against Cascades’ patent claims and to resolve those claims jointly 21 …. When the negotiations [with RPX] failed, Cascades attempted to secure funding for a litigation 22 campaign by offering various companies a license requiring a large up-front payment that would be 23 rebated as Cascades extracted licenses from others through litigation threats.” (Joint Motion 6-7.) 24 Cascades argues that the Complaint alleges a buyer’s cartel, not defending against patent 25 infringement charges, and that the conduct at issue started before any contemplated or perceived 26 threat of litigation. 27 28 The Complaint alleges that “[i]n 2010, RPX contacted Cascades about the possibility of acquiring licensing rights.” (Complaint ¶ 19.) On July 6, 2011, Cascades sued Motorola and 22 1 Samsung for patent infringement in the Northern District of Illinois25 and on September 7, 2011, 2 Cascades sued HTC and LG for patent infringement, also in the Northern District of Illinois.26 The 3 Complaint in this action alleges that in January 2012, Cascades offered each of the Manufacturing 4 Defendants identical license proposals but no Manufacturing Defendant responded to its offer. (Id. ¶ 5 30.) Cascades filed this antitrust lawsuit on March 7, 2012. 6 Based on the allegations in the Complaint, the Court cannot conclude that the Noerr- 7 Pennington doctrine applies. Determining whether the alleged conspiracy preceded the alleged joint 8 litigation conduct necessarily requires an inquiry into the timing of the conspiracy itself, the timing of 9 any perceived threats of litigation, the scope of any such perceived threat, etc. As a consequence of Northern District of California Cascades’ failure to plead the necessary specifics of the alleged conspiracy, the Court cannot 11 United States District Court 10 determine at this time whether Defendants are immune from suit under the Noerr-Pennington 12 doctrine or even whether resolution of this issue will be appropriate at the pleading stage. Based on the foregoing analysis, the Court DENIES WITHOUT PREJUDICE this basis for 13 14 dismissal of the Complaint. 15 F. 16 REMAINING CLAIMS FOR RELIEF: VIOLATIONS OF CALIFORNIA’S CARTWRIGHT ACT AND UNFAIR COMPETITION LAW The disposition of the Sherman Act claims disposes of the Cartwright Act and Unfair 17 18 Competition claims (“UCL”) as well. The Cartwright Act is patterned after the Sherman Act, and 19 “federal cases interpreting the Sherman Act are applicable to problems arising under the Cartwright 20 Act.” Marin County Bd. of Realtors, supra, 16 Cal.3d at 926. Because Cascades has not adequately 21 pled its federal antitrust claims, its Cartwright Act claim fails. Additionally, because Cascades’ UCL 22 claim is not materially different than its federal and state antitrust claims, its UCL claim necessarily 23 fails as well. See Ingels v. Westwood One Broad. Servs., Inc., 129 Cal. App. 4th 1050, 1060 (Cal. Ct. 24 App. 2005) (“‘If the [underlying] claim is dismissed, then there is no ‘unlawful’ act upon which to 25 base [ ] the derivative Unfair Competition claim.’”) (second alteration in original); Scripps Clinic v. 26 25 27 Cascades Computer Innovation, LLC v. Motorola Mobility Holdings Inc. and Samsung Electronics Co., Ltd., 11-CV-4574 (N.D. Ill. 2011). 28 26 Cascades Computer Innovation, LLC v. HTC Corp. and LG Electronics, Inc., 11-CV-6235 (N.D. Ill. 2011). 23 1 Sup. Ct., 108 Ca App. 4th 917, 934-39 (Cal. Ct. Ap 2003); se also Kran supra, 89 Cal. App. . al. 9 pp. ee ntz, 2 4th 164 (Cal. Ct App. 2001) (viability of unlawful U t. o UCL claim s stands or fal with the u lls underlying 3 m). claim 4 Based on the foregoi analysis, the Court G RANTS the motions to d n ing , dismiss Casc cades’ 5 Cart twright Act Claim and th motions to dismiss Ca C he t ascades’ cla for violat aim tion of Calif fornia’s Unfa air 6 Com mpetition Law WITH LEAVE TO AMEND. w M 7 IV. CONCL LUSION 1. RPX’s Motio to Dismis is GRANTE ; R on ss ED 10 2. Dell’s Motio to Dismiss is GRANTE ; D on s ED 11 Northern District of California For the reasons set forth above: r fo 9 United States District Court 8 3. HTC, LG, Motorola, and Samsung’s Joint Motio to Dismis is GRANTE ; H M d s on ss ED 12 4. The Complai is DISMIS T int SSED WITH L EAVE TO AMEND cons sistent with t Order; this 13 5. Cascades sha file an am C all mended comp plaint within 28 days of the date this Order is n s 14 filed. f 15 This Ord Terminat Docket Numbers 54, 55 & 76. der tes N , 16 IT IS SO ORDERED. 17 18 Date: January 24, 2013 __ __________ ___________ __________ __________ YVON GONZAL ROGERS NNE LEZ UNITED ST TATES DISTR RICT COURT JUDGE T 19 20 21 22 23 24 25 26 27 28 24 4

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