In Ritz Camera & Image LLC v. SanDisk Corp., the Federal Circuit will decide whether a firm that is not at risk of being sued for patent infringement can prosecute an antitrust claim based on fraudulently obtained patent. Defendant SanDisk Corp. argued that an affirmative decision would “open the floodgates” to litigation.
The putative class action was filed by Ritz Camera alleging that SanDisk used false patents and sham litigation to maintain a monopoly in the flash memory market. SanDisk sought to dismiss the case on the ground that Ritz was a memory purchaser and not a competitor in the technology market or a licensee subject to potential patent infringement claims. A California district court refused to dismiss the case, and it is not pending before the Federal Circuit.
Patent fraud antitrust claims were upheld by the U.S. Supreme Court in the Walker Process case. There, the Court held that enforcing a patent procured from the USPTO by fraud could constitute an anticompetitive act violating the antitrust laws if the other elements of the claim were met.
SanDisk argues that purchasers, like Ritz, should be denied antitrust standing, because allowing them to sue could lead to a flood of litigation. Ritz, however, asserts that only four cases have been filed after the Second Circuit’s 1999 ruling in In re: DDAVP Direct Purchaser Antitrust Litigation that opened the door to direct purchaser patent fraud claims.
During oral argument, one judge asked whether SanDisk’s concerns were realistic. “I’m always skeptical of floodgates arguments,” the judge asserted, “because they’re made frequently and they often turn out not to produce much by way of a flood.” Another member of the court pointed out that the Supreme Court’s language in Walker Process did not suggest that anything more than a valid antitrust claim would be required to use a patent fraud theory.
In another case challenging ScanDisk’s licensing practices, PNY Technologies Inc. v. ScanDisk Corp., Northern District of California Judge Yvonne Gonzalez Rogers denied ScanDisk Corp.’s motion to dismiss PNY Technologies Inc.’s lawsuit alleging that ScanDisk threatened litigation to force rivals into anti-competitive patent licensing agreements. PNY initially claimed that ScanDisk’s patent licensing and royalty strategy harmed competition in the U.S. flash memory market and kept prices high. In April, Judge Rogers dismissed that complaint for failing to adequately plead the antitrust claims. The court held that PNY admitted that SanDisk’s monopoly in the flash memory technology market was a consequence of the patent laws, but it contained no allegations that the defendant willfully acquired this monopoly in violation of the Sherman Act. The court also held that while PNY alleged “anti-competitive conduct” generally, it failed to relate that conduct to the maintenance of SanDisk’s legally obtained monopoly of the patented technology.
Following the April ruling, PNY filed an amended complaint with additional allegations attacking SanDisk’s licensing activities and other allegedly anti-competitive behavior. The plaintiff alleged that the defendant’s conduct was undertaken “with the specific intent to acquire or the intent to maintain monopoly power in and over the flash memory technology market.” The amended complaint further alleged that ScanDisk’s grant-back provision lessens the incentive to innovate because the companies can never break away from ScanDisk’s licensing grasp. Additionally, PNY contended that SanDisk unfairly required licensees to pay for access to a broad portfolio of patents, as opposed to specific ones, and the licensees were forced to pay royalties on worldwide sales, even in countries where SanDisk holds no patent rights. In denying ScanDisk’s second motion to dismiss, the court held that these new allegations in PNY’s amended complaint addressed the original complaint’s deficiencies that led to the earlier suit’s dismissal.