Essential Patents Cannot Block Smartphones from European Markets

The European Union’s competition chief, Joaquin Alumnia, in a speech prepared for EU lawmakers, vowed to stop mobile-device makers from using litigation over standard-essential patents to block their rivals’ smartphones and tablets from European markets.  Almunia warned device makers against trying to take unfair advantage of European wireless standards’ key patents, which are “essential” to the telecommunications industry.  Alumnia’s statement stems from an inquiry as to whether mobile device makers broke their vows to the European Telecommunications Standards Institute to license patents related to European third-generation wireless standards on fair, reasonable and nondiscriminatory, or FRAND, terms. 

In his speech, Alumnia also addressed the EU regulator’s probes into interbank lending rates and into efforts to standardize online payments throughoutEurope.   The regulator’s investigations focused on concerns that several major banks may have fixed the Euro Interbank Offered Rate in violation of the antitrust rules that prohibit cartels and restrictive business practices.  Almunia further expressed concerns that the process the European Payments Council was using to standardize online payments was not transparent enough; might yield standards that blocked some innovative providers from the market; and was lagging on developing mobile processing systems.

Sixth Circuit Affirms Dismissal Antitrust Challenge to the States’ Tobacco Settlement

The Sixth Circuit Court of Appeals has affirmed the dismissal of a defunct tobacco manufacturer’s antitrust lawsuit against the 1998 master settlement agreement between states and tobacco companies.  The plaintiff, Vibo Corp. dba General Tobacco, claimed that the other tobacco companies’ successfully lobbied the state attorneys general to block General Tobacco from amending its settlement terms, thereby illegal boycotting the plaintiff and concertedly refusing to deal.

The 1998 agreement ended litigation between several states and the four largest tobacco companies over the companies’ advertising strategies, which the states said misled consumers about the harmful effects of tobacco and targeted underage consumers. 

Under the deal, the states’ AGs released their past and future claims against the tobacco companies in exchange for settlement payments, future annual disbursements, and restrictions on the companies’ ad and marketing campaigns.  Although the agreement allowed other tobacco companies to join the agreement, the original parties were to receive the most favorable payment terms, and the agreement called for states to enact “escrow statutes” to require nonparticipating tobacco manufacturers to make annual deposits into escrow accounts.

In 2004, General Tobacco joined the master settlement agreement after negotiating the required adherence agreement with the AG defendants.  It sought to amend the agreement, however, after it became unable to meet its payment obligations.  The states refused to sign the amendment when other participating manufacturers objected and threatened to seek the same terms that General Tobacco sought. General Tobacco claims that the other manufacturers violated the Sherman Act by helping to create the allegedly discriminatory master settlement agreement and by invoking their allegedly baseless right to receive the same favorable terms it had sought.  General Tobacco claims that it suffered a huge loss in market share and was forced to close its business operations.

In upholding the dismissal, the Sixth Circuit agreed with the Kentucky district court that the tobacco company defendants were immunized from the Sherman Act claims under the Noerr-Pennington doctrine, which protects petitioning the government for action that would violate antitrust law.  The “bad intent or anti-competitive motivation” of private actors seeking government action, the court explained, is irrelevant to the doctrine’s application.

General Tobacco had invoked the sham exception to the Noerr-Pennington doctrine, arguing the companies’ efforts at settlement were actually an attempt to directly interfere with a competitor’s business relationships, but the Sixth Circuit shot down that reasoning, noting that the defendants petitioned for a specific outcome from the government — the rejection of the plaintiff’s amended agreement — and succeeded, placing the scenario outside the sham exception.

The appeals court also found that the manufacturer defendants are protected by extension of the AG defendants’ state-action immunity because they acted in their sovereign capacities regarding the master settlement agreement and not in their non-protected market-participant capacities.

The Sixth Circuit also upheld the dismissal of General Tobacco’s constitutional claims against the AGs, finding that General Tobacco waived those claims by signing the master settlement, and of the fraudulent inducement claim, on the grounds that General Tobacco did not properly allege that the AGs consented to be sued on state law claims in federal court.

Property Management Software Maker Is Subject to Tying Claims Concerning Cloud Services

Central District of California federal judge Otis D. Wright II denied RealPage Inc.’s, a property management accounting software seller, motion to dismiss a defensive claim that an accounting software vendor illegally tied its software by prohibiting customers from using competitors’ cloud database systems.  RealPage filed the counterclaims in Yardi Systems Inc.’s lawsuit against it, which alleges that RealPage stole Yardi’s trade secrets after purchasing a former Yardi consulting group. 

Yardi’s Voyager software allows property managers to track payments and other items, and Yardi’s business includes both software and the maintenance of cloud servers on which data related to its customers’ management operations is stored.  Yardi alleges in its suit against RealPage that RealPage has stolen its trade secrets, including client and pricing information, and used the information to improve its cloud services to Yardi clients.

Judge Wright refused to dismiss the antitrust claims, saying RealPage had alleged facts establishing an illegal tying arrangement – a licensing contract that precluded its customers from hosting their Voyager processes on RealPage’s cloud servers – and  “that Yardi has market power in the product market for the tying product to affect competition in the tied product market.”

Photo Lab Repair Servicer Loses Bid to Enjoin Fujifilm North America’s Work for Rite Aid Photo Labs

District of Oregon federal judge Michael H. Simon denied Retail Imaging Management Group’s emergency motion for a temporary restraining order against Fujifilm North America’s repair services at Rite Aid photo labs, finding no strong evidence that Fujifilm engaged in exclusionary pricing by bundling services, including Rite Aid’s call center service work, at below cost in order to drive Retail Imaging out of the market. Judge Simon found that the court could not conclude that the public interest favored granting the injunction sought by Retail Imaging, adding that doing so may have resulted in Fujifilm breaching its contract with Rite Aid, and cited a lack of evidence for Retail Imaging’s claim that Fujifilm offered Rite Aid a below-cost offer for the call center business that the drugstore chain could not refuse.  “[T]he court declines,” Judge Simon wrote, “at this preliminary stage of the litigation, to place the substantial power of the federal courts on the side of one competitor against another as they compete for business in the commercial marketplace.”

Retail Imaging’s lawsuit against Fujifilm alleges that Fujifilm sought to force Retail Imaging out of the market for repairing Fujifilm-brand photo labs by interfering with service contracts and refusing to sell or provide parts and information to service photo labs.  Retail Imaging previously was able to purchase parts from Fujifilm to repair and provide maintenance on Fujifilm-brand photo labs installed in major retailers, including Rite Aid and Sam’s Club, but as it grew nationally, Fujifilm began refusing to provide the means for Retail Imaging to repair print heads and other mechanical failures in the printers.  Retail Imaging claims it has been forced to steer print head failure projects to Fujifilm, which then billed Retail Imaging for the cost of the equipment and labor, causing it to lose money on its service contracts.  Retail Imaging also alleges Fujifilm has obtained agreements from its competitors Rimage and Seiko Epson to refuse to sell replacement parts to Retail Imaging for repairs at Sam’s Club stores.

The motion for a TRO sought to enjoin Fujifilm from commencing work on its contract to service Rite Aid’s 4,400 nationwide photo lab locations, on the ground that Fujifilm unlawfully interfered with a long-standing Rite Aid service agreement and unjustly restricted access to parts and supplies in an attempt to monopolize the market for servicing Fujifilm photo processing minilabs.  Retail Imaging claims that Fujifilm’s actions forced it to close portions of its operations in Portland, Ore., and cost it 30% of its gross operating revenue.

Pfizer Faces Suit by Health Plans Regarding Its Efforts to Delay Generic Lipitor

Pfizer has been sued in a putative class action in the Southern District of New York by a group of health and welfare benefit plans who claim that Pfizer filed sham patent applications and colluded with Ranbaxy Inc. to delay the introduction of generic competitors to its cholesterol treatment Lipitor.

 The complaint alleges that Pfizer and its subsidiary Warner-Lambert delayed the date on which generics could have entered the market by (1) fraudulently obtaining a second, duplicative patent for the same compound covered by its first patent; (2) filing a sham “citizen petition” with the U.S. Food and Drug Administration; and (3) engaging in an anticompetitive scheme with generics maker Ranbaxy, costing indirect purchasers billions of dollars.  This suit follows a similar one filed by eleven California pharmacies.

The New York case alleges that in order to make the second patent appear novel, Warner-Lambert falsely asserted that the new compound was 10 times more effective in inhibiting cholesterol production than an alternate compound.  After Ranbaxy — the first company to challenge Pfizer’s patents on Lipitor — filed its abbreviated new drug application in August 2002, Pfizer sued for infringement of both the ‘893 and ‘995 patents, triggering a 30-month delay required by the FDA’s approval of Ranbaxy’s ANDA.

When the stay was about to expire, the complaint alleges, Pfizer sent a letter to the FDA and later refiled as a citizen petition, asking the FDA to take into account information that allegedly lacked any regulatory, scientific or medical relevance to Ranbaxy’s ANDA in order to further delay the introduction of a generic version of Lipitor.

The putative class claims that Pfizer brought Ranbaxy into the anticompetitive scheme, reaching a settlement in its patent infringement suits that took advantage of Ranbaxy’s entitlement, as the first filer of an ANDA for generic Lipitor, to market the drug exclusively for 180 days.  To avoid paying damages, plaintiffs allege, Ranbaxy promised not to compete directly with Pfizer by launching its generic Lipitor or to allow others to compete by relinquishing its marketing exclusivity until Nov. 30, 2011.

A spokesman for Pfizer noted that the Federal Trade Commission had reviewed the terms of the companies’ settlement.

MGA’s Antitrust Claims Against Mattel Over Bratz Doll Dismissed While IP Dispute Continues

Central District of California federal judge David O. Carter dismissed MGA Entertainment Inc.’s claims that Mattel Inc. attempted to sabotage its Bratz doll line, ruling that MGA’s lawsuit against Mattel relied on the same factual allegations that were raised during a 2010 trial resolving an intellectual property dispute over the Bratz doll line.  The new claim was therefore barred by the doctrine of res judicata.

MGA may appeal because its Bratz doll has been unable to gain a foothold in the fashion doll market, where Mattel maintains a monopoly with the Barbie doll. MGA claims Mattel employed a so-called “Kill Bratz” strategy, including using false identification to access MGA showrooms and get an advance look at the latest Bratz products before they were available in stores; imitating Bratz television commercials; tampering with Bratz window displays at Wal-Mart and Toys R Us stores; and illegally undercutting rival MGA products.

MGA and Mattel have been feuding over trade secret and copyright infringement claims concerning the Bratz doll, which Mattel claims was originated by its toy designer Carter Bryant who left Mattel for MGA.  Those claims have been tried to a $100 million jury verdict, which was vacated by the Ninth Circuit, and a $311 million award by Judge Carter, which is currently under appeal.  In dismissing the later antitrust lawsuit, Judge Carter ruled that claims about Mattel’s alleged attempts to drive Bratz dolls out of the market and undermine MGA during the litigation should have been brought in the earlier lawsuit.

Post-trial Motions Rejected in High Stakes Kevlar Litigation; Antitrust Claims to be Tested Next

Eastern District of Virginia federal judge Robert E. Payne denied two separate post-trial motions lodged by Kolon challenging the jury’s $920 million verdict in favor of DuPont for theft of trade secrets concerning Kevlar armor products.  The court found sufficient evidence for a reasonable jury to have found in DuPont’s favor on its trade secret claims, on both liability and damages.  DuPont’s suit alleged that the Korean manufacturer poaching DuPont workers in order to apply the company’s high-strength para-aramid Kevlar fiber technology to its own research and development efforts. 

Kolon also has a related antitrust suit pending in the Eastern District of Virginia against DuPont, which originated as one of Kolon’s counterclaims in the earlier suit.  That suit accuses DuPont of monopolizing the Kevlar fiber market through “exclusionary, predatory and unlawful business conduct,” as well as “para-aramid fiber patents, trade barriers, legislative protections and other high barriers to entry in the relevant market.”

EC Competition Regulator Investigates Samsung Patent Licensing, Litigation

The European Commission is investigating whether Samsung Electronics Co. Ltd. anticompetitively abused its patent rights by suing to block the sale of rival smartphones and other mobile devices based on patents that are part of wireless technology standards.  The EC will focus on whether Samsung’s litigation violate  EU antitrust law as well as Samsung’s irrevocable 1998 commitment to the European Telecommunications Standards Institute to license its patents related to European third-generation wireless standards on a fair, reasonable and nondiscriminatory (FRAND) basis.

Samsung and Apple Inc. are litigating over each others’ patents rights for wireless technology, including a suit in Germany, in which Apple has successfully enjoined blocking the import and sale of certain models of Samsung’s Galaxy line of tablet computers based on an iPad design patent.  In France, a Paris judge refused to preliminarily enjoin the sale of Apple’s latest iPhone 4S, expressing skepticism toward Samsung’s claim that two of its essential 3G cellular telecommunications patents are affected.  While infringement is presumed if a product uses the technological standard without the proper licensing, the judge concluded that Apple had demonstrated that its chips were made by Qualcomm Inc., which already has a licensing agreement with Samsung.

FTC Sues to Halt OmniCare’s Bid to Acquire Pharmerica, Citing Effects on Medicare Part D Drug Plan

The Federal Trade Commission filed an administrative complaint seeking to block Omnicare Inc.’s proposed $440.8 million acquisition of PharMerica Corp.  The FTC alleged that Omnicare would control over half of the U.S. market for pharmacy services at nursing homes and other long-term facilities where patients receive prescription drugs from sponsors of the government’s Medicare Part D plan. The larger the pharmacy services provider, the Commission explained, the more likely the government is to require a Part D sponsor to include it in its network.  A merger with PharMerica — Omnicare’s largest and only national competitor — would therefore allow the new company to force sponsors to accept rate hikes or face being barred from offering Part D plans altogether.  The FTC alleges that “Omnicare’s use of termination threats to get price increases from Part D sponsors will likely escalate post-acquisition as the combined firm flexes its increased bargaining leverage to extract even higher prices and better terms.”  The government would eventually bear any increase in drug prices because it subsidizes nearly 75% of each Part D plan’s cost.

PharMerica, an operator of assisted living facilities and hospitals across the U.S., rejected Omnicare’s bid, citing concerns that antitrust regulators would not approve the deal.  The rejection led Omnicare to sue the company and its board in Delaware court.

Microsoft Challenges Motorola/Google’s Patent Practices in EC Competition Complaint

Microsoft Corp. has filed a competition complaint against Motorola Mobility Holdings Inc., and its soon-to-be parent Google Inc., with the European Commission, claiming that Motorola charges too much for its patents and is trying to head off sales of Microsoft products. 

Microsoft deputy general counsel Dave Heiner opined in a blog post that Motorola is undermining the purpose of the industry standards for wireless video products through its unreasonable licensing demands on its standard essential patents.  “Motorola is on a path to use standard essential patents to kill video on the Web,” Heiner wrote, “and Google as its new owner doesn’t seem to be willing to change course.”

Motorola counters that it remains open to resolving the current licensing dispute with Microsoft in a mutually beneficial manner; that it had offered the same terms it historically offered to other licensees; and that it was Microsoft that insisted upon litigation.

Microsoft’s action followed the EC’s and DOJ’s Feb. 13 approval of Google’s $12.5 billion purchase of Motorola.

Google has issued a letter to industry-standard-setting organizations stating that it will continue to honor Motorola’s current patent licensing practices. Google also plans to adopt Motorola’s maximum per-unit royalty of 2.25% of the net selling price on devices that use the essential patents.