Intellectual Ventures I LLC v. Symantec Corp.

Filing 76

MEMORANDUM ORDER re 39 MOTION for Judgment on the Pleadings is DENIED; 41 MOTION for Leave to File Motion for Summary Judgment on Symantec's Patent-Misuse Defense is DENIED. Signed by Judge Leonard P. Stark on 9/24/14. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

INTELLECTUAL VENTURES I LLC and
INTELLECTUAL VENTURES II LLC,
Plaintiff,
C.A. No. 13-440-LPS

v.
SYMANTEC CORP.,
Defendant.

MEMORANDUM ORDER
At Wilmington this 24th day of September 2014:
Pending before the Court are Plaintiffs Intellectual Ventures I LLC and Intellectual
Ventures II LLC's (collectively "Plaintiffs" or "IV") Motion for Judgment on the Pleadings on
Defendant's Patent-Misuse Defense (D.I. 39) and Plaintiffs' Motion for Leave to File Motion for
Summary Judgment on Defendant's Patent-Misuse Defense (D.I. 41). For the reasons that
follow, Plaintiffs' motions (D.I. 39, 41) are denied.
In its Answer, Defendant Symantec Corporation ("Defendant" or "Symantec") raised the
affirmative defense of patent misuse by alleging that IV engages in (i) tying the patents-in-suit
with other irrelevant and unwanted patents in package licenses, (ii) collecting royalties from
invalid patents, and (iii) creating and maintaining an unlawful monopoly. (D.I. 10) Plaintiffs
argue that these are legally-unsound grounds for an affirmative defense of patent misuse and,
further, that the evidence ofrecord cannot support this defense. (D.I. 40)

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I.

Plaintiffs' Motion for Judgment on the Pleadings
As a threshold matter, Defendant contends that Plaintiffs' motion for judgment on the

pleadings, which Plaintiffs contend they bring pursuant to Federal Rule of Civil Procedure 12(c),
should properly be viewed instead as a motion to strike governed by the standards of Rule 12(f).
Defendant takes this position because it raised patent misuse as an affirmative defense rather than
as a claim or counterclaim. The Court agrees with Defendant.
Under Rule 12(c), "[a]fter the pleadings are closed- but early enough not to delay triala party may move for judgment on the pleadings." Federal Rule of Civil Procedure 12(f)
provides that a court "may strike from a pleading any insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter."
"When deciding a motion for judgment on the pleadings pursuant to [Federal Rule of
Civil Procedure] 12(c), the Court applies the same standard as that on a motion to dismiss
pursuant to Rule 12(b)( 6)." Chirik v. TD BankNorth, N.A., 2008 WL 186213, at *5 (E.D. Pa.
Jan. 15, 2008) (citing Turbe v. Gov't of the Virgin Islands, 938 F.2d 427, 428 (3d Cir.1991)). A
majority of the District Courts within the Third Circuit that have addressed the issue have
determined that the pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544
(2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), do not apply to the pleading of affirmative
defenses. See Bayer CropScience AG v. Dow AgroSciences LLC, 2011WL6934557, at *1 (D.
Del. Dec. 30, 2011) ("While the Third Circuit has not yet opined as to whether Twombly/Iqbal is
applicable to affirmative defenses, this Court agrees with those courts that have found

Twombly/Iqbal inapplicable to affirmative defenses."); see also Internet Media Corp. v. Hearst
Newspapers, LLC, 2012 WL 3867165, at *3 (D. Del. Sept. 6, 2012) (agreeing with

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"well-articulated rationale" that "[i]n light of the differences between Rules 8(a) and 8(c) in text
and purpose, ... Twombly and Iqbal do not apply to affirmative defenses, which need not be
plausible to survive. [An affirmative defense] must merely provide fair notice of the issue
involved.") (internal quotation marks omitted); XpertUniverse, Inc. v. Cisco Sys., Inc., 868 F.
Supp. 2d 376, 386 n.3 (D. Del. June 19, 2012) (joining "the majority of the District Courts in the
Third Circuit [that] have rejected the application of Twombly and IqbaI" to affirmative defenses).
The Court agrees with these authorities. Cadence Pharm., Inc. v. Paddock Labs., Inc., 2012 WL
4565013, at *1 (D. Del. Oct. 1, 2012). Therefore, despite N's characterization of this motion as
a Rule 12(c) motion, the Court will treat N's motion as one to strike Defendant's affirmative
defenses pursuant to Rule 12(±).
Federal Rule of Civil Procedure 12(±) provides that a court "may strike from a pleading
any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter."
"Motions to strike are generally disfavored and ordinarily are denied unless the allegations have
no possible relation to the controversy and may cause prejudice to one of the parties," Sun

Microsystems, Inc. v. Versata Enters., Inc., 630 F. Supp. 2d 395, 400 (D. Del. July 1, 2009)
(internal quotation marks omitted), "or if the allegations confuse the issues. . . . A motion to
strike will not be granted where the sufficiency of the defense depends on disputed issues of facts
or where it is used to determine disputed and substantial questions oflaw." Cadence, 2012 WL
4565013, at *1 (quoting Weed v. Ally Fin., Inc., 2012 WL 2469544 at *2 (E.D. Pa. June 28,
2012)). "Such a motion should be denied if disputed issues of fact or law are implicated or ifthe
alleged insufficiency is not clearly apparent from the pleadings." Cadence, 2012 WL 4565013,
at *1 (quoting Floyd v. Black Swan Shipping Co., Ltd., 2001 WL 799848 at *1 (E.D. Pa. July 13,

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2001) ). When assessing a motion to strike, the Court may only rely on the pleadings. See

Cadence, 2012 WL 4565013, at *1.
"Patent misuse is an affirmative defense to an accusation of patent infringement, the
successful assertion of which requires that the alleged infringer show that the patentee has
impermissibly broadened the physical or temporal scope of the patent grant with anticompetitive
effect." Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997) (internal
quotation marks omitted). "The key inquiry is whether, by imposing conditions that derive their
force from the patent, the patentee has impermissibly broadened the scope of the patent grant
with anticompetitive effect." C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir.
1998). "The courts have identified certain specific practices as constituting per se patent misuse,
including so-called 'tying' arrangements in which a patentee conditions a license under the patent
on the purchase of a separable, staple good and arrangements in which a patentee effectively
extends the term of its patent by requiring post-expiration royalties." Va. Panel, 133 F.3d at 869
(internal citation omitted).
When a practice is not per se patent misuse, the practice may still constitute patent misuse
if it "has the effect of extending the patentee's statutory rights and does so with an anticompetitive effect." Id. In those circumstances, the practice must be analyzed in accordance
with the "rule ofreason." Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 706 (Fed. Cir.
1992). "Under the rule of reason, the finder of fact must decide whether the questioned practice
imposes an unreasonable restraint on competition, taking into account a variety of factors,
including specific information about the relevant business, its condition before and after the
restraint was imposed, and the restraint's history, nature, and effect." Va. Panel, 133 F.3d at 869

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(internal quotation marks omitted).
Pursuant to 35 U.S.C. § 271(d), certain practices are exempt from the affirmative defense
of patent misuse. These practices include, in relevant part, "condition[ing] the license of any
rights to the patent or the sale of the patented product on the acquisition of a license to rights in
another patent or purchase of a separate product, unless, in view of the circumstances, the patent
owner has market power in the relevant market for the patent or patented product on which the
license or sale is conditioned." 35 U.S.C. § 271(d)(5). Thus, under§ 271(d), "in the absence of
market power, even a tying arrangement does not constitute patent misuse." Va. Panel, 133 F.3d
at 869.
In US. Philips Corp. v. Int'/ Trade Comm 'n, 424 F.3d 1179, 1190 (Fed. Cir. 2005), the

Federal Circuit held that package licenses are not per se patent misuse, because a "package
license is thus not anticompetitive in the way that a compelled purchase of a tied product would
be." In Philips, the patent owner licensed essential or "wanted" patents as part of a patent
package that also included non-essential or "unwanted" patents. Id. at 1183-84. The Court
found there was "no evidence that a portion of the royalty was attributable to the" nonessential
patents and, thus, no basis to support the conclusion that "a hypothetical licensing fee would have
been lower if Philips had offered to license the patents on an individual basis or in smaller
packages." Id. at 1189. The Court went on to evaluate Philips' s package license under the rule
of reason and found that the evidence did not support a finding of "anticompetitive effect on
competitors offering alternatives to the ... nonessential patents" because (i) "the evidence did
not show that including those patents in the patent packages had a negative effect on
commercially available technology," (ii) there are "problems with licensing patents individually,"
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including transaction and monitoring costs, (iii) changes in technology might render certain
essential patents non-essential and vice-versa, and (iv) package licensing with royalties based on
production output rather than patent input may be more efficient and avoid unnecessary
litigation. Id at 1198.
Here, Defendant alleges that Plaintiffs engage in patent misuse by tying the "wanted"
patents-in-suit with a large and undisclosed number of ''unwanted" patents. (D .I. 10 at 8) The
relevant market, according to Defendant, is the "portfolio consisting of the [t]ying [p]atents
because no reasonable substitutes exist for a license to that portfolio." (Id.) Furthermore,
Defendant has alleged that IV "has conditioned and sought to condition a license to the [t]ying
[p]atents on the putative licensee's agreement to also take and pay for a license to the entirely
irrelevant and unwanted [t]ied [p]atents." (Id. at 9) Thus, according to Defendant, unlike in
Philips, at least some portion of the licensing cost is allegedly attributable to the unwanted

patents. (Id. at 9) It follows, in Defendant's view, that a rule ofreason analysis could result in a
finding of patent misuse in this case.
The parties also dispute whether the alleged relevant market is correctly defined and
whether Plaintiffs have market power within the correctly defined relevant market. Conducting a
rule of reason analysis in light of these disputes will require additional factual information not in
the record. Because the Court may only rely on the pleadings at this stage, the Court denies
Plaintiffs' motion to strike Defendant's affirmative defense of patent misuse by package
licensing.
Plaintiffs next assert that Defendant's second grounds for the patent misuse defense, i.e.
the alleged collecting ofroyalties from invalid patents, is explicitly allowed by 35 U.S.C.
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§ 271(d). Defendant alleges that Plaintiffs misuse their patents "[b]y forcing [their] victims to
accept licenses to thousands of invalid patents," thereby eliminating "the economic incentive of
its coerced licensees to challenge the validity of those patents." (D.I. 10 at 10) Section 271(d)
exempts patent owners from being found to misuse a patent based on "enforc[ ing] ... patent
rights against infringement or contributory infringement." Because issued patents carry a
presumption of validity, Plaintiffs contend that by licensing their patent portfolio, they are merely
enforcing their patent rights against infringement.
Defendant's affirmative defense alleges more than mere enforcement of patent rights by
Plaintiffs. The allegation is that victims are forced to license thousands of invalid patents,
resulting in an economic disincentive to challenge the validity of those patents. Whether this
practice "impermissibly broaden[ s] the physical or temporal scope of the patent grant with
anticompetitive effect[s]," Va. Panel, 133 F.3d at 868, is a legal and factual question that the
Court cannot resolve at this stage of the lawsuit, see Cadence, 2012 WL 4565013, at *1 (quoting

Weed, 2012 WL 2469544, at *2) ("A motion to strike will not be granted where the sufficiency of
the defense depends on disputed issues of fact or where it is used to determine disputed and
substantial questions oflaw."). Accordingly, the Court denies Plaintiffs' motion to strike
Defendant's affirmative defense of patent misuse by licensing invalid patents.
Defendant further alleges that Plaintiffs engage in patent misuse by creating and
maintaining an unlawful monopoly. Specifically, Defendant contends that IV has "illegally
monopolized relevant markets for patent portfolios that it asserts are indispensable for making,
selling, and using Internet security, antivirus, storage, monitoring, and replication products ... by
aggregating and bundling a collection of patents for which, according to Intellectual Ventures, no

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substitutes exist." (D.I. 10 at 11) The alleged practice is not one of the specific practices that
constitute per se patent misuse and will have to be evaluated under the rule of reason.
In Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416, 420-23 (10th Cir. 1952) ("Kobe II"),

Kobe aggregated dozens of patents related to hydraulic oil well pumps, thereby controlling the
entire market for hydraulic oil well pumps. When a competitor began making hydraulic pumps,
Kobe sued for infringement. See id. The district court found one of the patents valid and
infringed. However, the district court also found that Kobe had "employed its patent rights in
furtherance and maintenance of its total monopoly of commerce in hydraulic pumps for oil
wells" and that the "action was brought and ... maintained by Plaintiffs in furtherance of the
monopoly found to be held and exercised by Plaintiff ... and was brought and ... maintained
with the intention and purpose of preventing competition in the subject field .... " Kobe, Inc. v.

Dempsey Pump Co., 97 F. Supp. 342, 349 (N.D. Okla. 1951) ("Kobe I"), aff'd Kobe II, 198 F.2d
at 416. On appeal, the Tenth Circuit held:
The infringement action and the related activities, of course, in
themselves were not unlawful, and standing alone would not be
sufficient to sustain a claim for damages which they may have
caused, but when considered with the entire monopolistic scheme
which preceded them we think, as the trial court did, that they may
be considered as having been done to give effect to the unlawful
scheme.
The district court held that Kobe "should take nothing upon their claims for relief for
infringement of the United States Letters Patent above described for misuse of the said patents in
violation of the policy of the United States as expressed in the Sherman and Clayton Acts."

Kobe I, 97 F. Supp. at 355. The Tenth Circuit affirmed, holding that in light of the larger
"monopolistic scheme," Kobe's aggregation and enforcement activities "maybe considered as

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having been done to give effect to the unlawful scheme." Kobe II, 198 F.2d at 425.
Defendant here alleges that Plaintiffs have monopolized "relevant markets for patent
portfolios that it asserts are indispensable for making, selling, and using Internet security,
antivirus, storage, monitoring, and replication products." (D.I. 10 at 11) Like in Kobe,
Defendant's allegation here stems from Plaintiffs' aggregation of patents in the relevant market,
patents that Plaintiffs assert against alleged infringers in the relevant industry in order to maintain
a monopoly with anticompetitive results. Whether these allegations can be proven under a rule
of reason analysis will require the resolution of factual and legal questions and cannot be done at
this stage. Accordingly, Plaintiffs' motion to strike Defendant's affirmative defense of patent
misuse by unlawful monopolization is also denied.

II.

Plaintiffs' Motion for Leave to File Motion for Summary Judgment
Plaintiffs alternatively seek leave to file a motion for summary judgment on Syman.tee's

patent-misuse defense. Plaintiffs' desired summary judgment motion relates primarily to
Defendant's allegation that Plaintiffs engage in patent misuse by tying the patents-in-suit to
irrelevant and unwanted patents in package licenses. Plaintiffs contend that this issue is ripe for
summary judgment because (i) Plaintiffs had previously granted a license to the patents-in-suit in
another case without insisting on a "portfolio" or "package" license, and (ii) Plaintiffs have been
and are willing to offer a license to Symantec covering only the patents-in-suit in this case. (D.I.

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41 at 3)
Defendant disputes IV's assertion that IV has ''been and [is] willing to offer a license to
Symantec covering the patents-in-suit alone in this case." (D.I. 48 at 5) Defendant contends that
IV has "not offered such a license to Symantec." (Id. at 6) Because there is a factual dispute as

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to whether IV improperly tied licensing the patents-in-suit in this case with unrelated patents, this
issue does not appear to be amenable to resolution on summary judgment. More importantly, the
Court perceives no persuasive reason to permit a motion for summary judgment on this one issue
at this time. (See D.I. 21i!13) (setting date for case-dispositive motions)
Accordingly, the Court denies Plaintiffs' request for leave to file a motion for summary
judgment on Defendant's patent misuse defense for Plaintiffs' alleged improper tying.

UNITED STATES DISTRICT JUDGE

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