Lawyers win dismissal against antitrust claims by tech giants

MATT ASHLEY, MORGAN CHU, OLIVIA L. WEBER, MICHAEL D. HARBOUR, LUCAS S. OXENFORD, BENJAMIN W. HATTENBACH, Irell & Manella LLP

Matt Ashley and his Irell & Manella team scored an important patent law victory by demonstrating to a federal judge that the large and novel antitrust suit brought by two tech giants against Irell’s clients was much less than it seemed.

“In many respects, we felt it was not really an antitrust case,” Ashley said.

Plaintiffs Apple Inc. and Intel Corp. made “very complicated antitrust complaints,” he said. “We had to distill it into something very simple that showed that what they were doing was complaining, really, about the little guy now having funding sufficient to take on their defenses.”

Irell’s main client is the multibillion-dollar investment management firm Fortress Investment Group, which includes among its properties and affiliates several “patent assertion entities” that own many patents.

Intel and Apple alleged in their lawsuit that the defendants have engaged in an anticompetitive scheme by “aggregating” so many patents that they can dominate certain markets. They can charge supracompetitive licensing fees, but their real goal is to bring repeated aggressive infringement lawsuits in the expectation that some will produce jackpots, the plaintiffs claimed. Intel Corp. v. Fortress Investment Group LLC, 3:19-cv- 07651 (N.D. Cal., filed Nov. 20, 2019).

“We found it very ironic that these behemoths like Intel and Apple that have tens of thousands of patents in very specific areas were suing our clients under antitrust law because we had… more than a thousand patents,” Ashley said. The U.S. Justice Department filed an amicus brief supporting Irell’s clients. But a dozen interest groups and companies filed amicus briefs backing the plaintiffs, including the Electronic Frontier Foundation. They “wanted to make this a philosophical debate about the pros and cons of entities that assert patents that may not also make a product,” he said.

Avoiding philosophy, Ashley won three motions to dismiss the lawsuit, with the third being with prejudice.

In the first, he argued that the markets the plaintiffs alleged that his clients could monopolize — such as the “Electronics Patents Market” — were vague and overbroad.

U.S. District Judge Edward M. Chen agreed. “Plaintiffs have not explained how, e.g., patents for a smartphone could be part of the same market as patents for a refrigerator,” he wrote in his first dismissal order.

The plaintiffs tightened the markets in the later versions of their complaints. By the second amended complaint, the broad electronics market had become four much narrower ones, including “the market for patents for preventing stalls for cache misses” and “the market for patents for arbitrating multiple requests to access a memory bus,” Chen wrote.

Ashley’s team then asked how many patents those markets encompassed and how many of the total the alleged defendants owned. In his third dismissal order, Chen determined that Fortress and the other defendants owned just 21 relevant patents in the combined four markets.

But the plaintiffs “would never say how many were in the market total,” Ashley said. “The way we put it several times to Chen was, they’re leaving out the denominator of the equation.”

Apple and Intel filed their second amended complaint in March 2021. The following June, Apple dropped out of the case, leaving Intel as the only plaintiff.

An even more fundamental problem for the plaintiffs, Ashley said, “was a total disconnect between their theory of antitrust violation, which was aggregation of patents, and the alleged supracompetitive pricing, which was their core theory of anticompetitive behavior.”

The judge agreed. “Because the Court concludes that Intel has failed to allege that supracompetitive pricing was a result of the patent aggregation, Intel’s antitrust claims are hereby dismissed,” he wrote in his Sept. 28 order.

Intel has appealed. Intel Corp. v. Fortress Investment Group LLC, 21-16817 (9th Cir., filed Oct. 29, 2021).

Ashley said the tech giants and their amici were proposing a theory of antitrust that would have made it unlawful for patentees to engage in constitutionally and statutorily protected behavior such as charging licensing fees and suing infringers. “That’s pretty remarkable, right?” he said. “It’s extremely dangerous, and it was a very novel theory.”

--Don DeBenedictis