Although for the most part this blog discusses developments in the law of patent remedies--meaning relief available to patent plaintiffs--from time to time I also discuss claims and remedies that may be available to persons who believe they have been falsely or wrongly accused of patent infringement. Both in the U.S. and abroad there are a wide variety of legal doctrines that play a role in resolving this latter class of disputes; and at some point in the future I hope to get back to work on a project addressing the comparative law and economics of wrongful patent enforcement. Anyway, all of this is background to the following discussion of a case decided this morning, TransWeb, LLC v. 3M Innovative Properties Co., in which the Federal Circuit affirmed a judgment of antitrust liability for the assertion of an allegedly fraudulently procured patent (a so-called "Walker Process" claim). The opinion is by Judge Hughes, joined by Judges Wallach and Bryson.
The facts in brief are as follows. Plaintiff and defendant are competitors in the market for respirator filters, and at some point both independently developed methods for imparting something called an "electret" characteristic to their filters. At an exhibition in 1997, TransWeb's founder Ogale handed out samples of a filter material his firm had developed. 3M filed a patent application more than a year after this exhibition, eventually obtained two patents, and filed an infringement action against TransWeb. The jury found, however, and the Federal Circuit affirmed, that Ogale's conduct constituted a prior public use more than one year prior to the date on which 3M's application was filed, and that the patents in suit were obvious in view of this prior public use. (I won't review these rulings here.) In addition, the Federal Circuit found no abuse of discretion in the finding that the patents in suit were unenforceable due to inequitable conduct, based on evidence that the inventor and 3M were aware of the prior public use and failed to disclose it properly to the USPTO. (I won't review this ruling either, except to the extent it is relevant to the antitrust claim discussed below. I will note only that the inequitable conduct defense has become more difficult to sustain following the Federal Circuit's 2011 en banc ruling in Therasense.) Finally, the jury concluded that 3M's conduct constituted an act of attempted monopolization in violation of the antitrust laws, based on the alleged fraudulent procurement of the patents.
In Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), the U.S. Supreme Court held that enforcing a patent that had been fraudulently obtained (e.g., by knowingly and willfully making material misrepresentations to the USPTO) can violate Sherman Act § 2, though only if all of the other elements of a Sherman Act § 2 claim also are proven. The other elements needed to prove a § 2 monopolization claim are “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). To prove a § 2 attempted monopolization claim, a plaintiff must prove (1) predatory or anticompetitive conduct, (2) specific intent to monopolize, and (3) a dangerous probability of success. See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Both monopolization and attempted monopolization claims require proof of the relevant market.
Turning now to the case at issue, on the issue of fraud in the procurement the Federal Circuit states:
After Therasense,the showing required for proving inequitable conduct and the showing required for proving the fraud component of Walker Process liability may be nearly identical. See, e.g., Gideon Mark & T. Leigh Anenson, Inequitable Conduct and Walker Process Claims AfterTherasense and the America Invents Act, 16 U. Pa. J. Bus. L. 361, 402 n.258 (2014). Regardless, because 3M does not challenge the sufficiency of the evidence supporting the jury’s Walker Process fraud finding beyond challenging the inequitable conduct finding, we will accept as admitted that TransWeb sufficiently demonstrated the Walker Process fraud component.
Second, on the issue of whether the market had been properly defined, the court observed among other matters:
While 3M points to evidence supporting a conclusion that fluorinated material does not form a distinct market, this does not undermine the sufficiency of the evidence supporting the jury’s conclusion to the contrary. Evidence demonstrated that: fluorinated material has a lower pressure drop while maintaining high filtration, as compared to other filter media; fluorinated material has a longer service life than other filter media; and customers would pay more for respirators with the fluorinated media. Taken together, this evidence provides a sufficient basis on which a reasonable jury could conclude that the price, use, and qualities of fluorinated material render it a distinct market from other filter media. . . .
The court also finds no error in the jury's determination of the relevant geographic market.
Third, and of most interest for purposes of this blog, the court affirms the award of damages:
Section 4 of the Clayton Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a) (2012). The jury concluded that TransWeb was entitled to its lost profits and attorney fees in recompense for 3M’s antitrust violation. The jury found 3M liable for approximately $34,000 in lost profits, which the district court awarded to TransWeb as the trebled amount of approximately $103,000. After review by a special master, the district court concluded that TransWeb incurred approximately $3.2 million in attorney fees prosecuting the antitrust claim and approximately $7.7 million defending the infringement suit. The district court awarded the $3.2 million on a one-for-one basis as “cost of suit” fees. The district court awarded the $7.7 million trebled to approximately $23 million as damages. 3M does not appeal the lost profits or cost of suit fees. 3M argues that the district court erred in awarding the $23 million of attorney-fees damages, because TransWeb failed to show any link between those attorney fees and an impact on competition. 3M argues that those attorney fees had no effect on competition because they did not force TransWeb out of the market or otherwise affect prices in the market. On this basis, 3M argues that those attorney fees are not an antitrust injury and thus cannot be a proper basis for antitrust damages.
Section 4 of the Clayton Act does not provide recompense for any injury causally linked to a violation of the antitrust laws, but rather only for antitrust injury. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). TransWeb’s injury-in-fact of $7.7 million must be “attributable to an anti-competitive aspect of the practice under scrutiny” in order to qualify as an antitrust injury. Atl. Richfield, 495 U.S. at 334. Stated another way, TransWeb’s injury-in-fact must “stem from a competition-reducing aspect or effect of the defendant’s behavior,” not from competition-increasing or competition-neutral aspects. Id. at 344.
3M’s argument focuses on the fact that the harmful effect on competition proven by TransWeb at trial never actually came about. TransWeb proved at trial that increased prices for fluorinated filter media and respirators would have resulted had 3M succeeded in its suit. However, because TransWeb prevailed, these effects never materialized.
We do not read the antitrust injury requirement from Atlantic Richfield, Brunswick, and similar cases to so narrowly define the scope of antitrust injury. Those cases dealt with situations where the antitrust-defendants’ actions, though unlawful, would not have actually reduced competition. See, e.g., Atl. Richfield, 495 U.S. at 337–38 (rejecting attempt to recover profits lost due to an increase in competition and reduction in prices caused by vertical, maximum-price-fixing arrangement); Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 114–17 (1986) (rejecting attempt to block merger on the theory that the merged companies would increase competition and lower prices); Brunswick, 429 U.S. at 487–88 (rejecting attempt to recover lost marginal profits that were not achieved because an acquiring company purchased a failing company, thus maintaining competition with the antitrust plaintiff).
In this case, however, 3M’s unlawful act was in fact aimed at reducing competition and would have done so had the suit been successful. 3M’s unlawful act was the bringing of suit based on a patent known to be fraudulently obtained. What made this act unlawful under the antitrust laws was its attempt to gain a monopoly based on this fraudulently-obtained patent. TransWeb’s attorney fees flow directly from this unlawful aspect of 3M’s act. That is, TransWeb’s attorney fees “flow from that which makes [3M’s] acts unlawful,” Brunswick, 429 U.S. at 489, and are “attributable to [this] anti-competitive aspect of the practice under scrutiny,” Atl. Richfield, 495 U.S. at 334. The “competition-reducing aspect,” id. at 344, of 3M’s behavior was its attempt at achieving a monopoly by bringing the subject lawsuit. 3M’s failure to prevail in that lawsuit does not make the resultant attorney fees any less attributable to that behavior, and the attorney fees are precisely “the type of loss that the claimed violations would be likely to cause,” Brunswick, 429 U.S. at 489 (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 125 (1969)) (internal ellipses omitted). Therefore, TransWeb’s attorney fees are both injury-in-fact and antitrust injury. . . .
The court finds further support for awarding attorneys' fees spent in defending the patent infringement claim in precedent from other circuits involving sham litigation antitrust claims, and from the policy of encouraging parties to file meritorious antitrust suits.
To be honest, I've never given much thought to the question of what appropriate antitrust damages should be for attempted (but unsuccessful) monopolization. As 3M points out, when (as here) the attempt is unsuccessful there may be no exclusion of competitors or higher prices. Nevertheless, I'm inclined to think the court is right: that as long as Congress has proscribed attempted monopolization, the harms a target suffers to fend off the attempt ought to be compensated, and here that harm took the form of almost $8 million in fees. (I imagine there must be some scholarship out there addressing the law and economics of remedies for attempts, with which I should at some point familiarize myself.) Of course, in a system in which prevailing parties are awarded their attorneys' fees as a matter of course, the question of whether fees expended in defense of an unsuccessful infringement claim can be awarded as damages for attempted monopolization might be less relevant--though in reality even in countries that routinely award fees to the prevailing party those fees often are not fully compensatory. Moreover, as the material quoted above indicates, in U.S. antitrust law damages are automatically trebled, so by prevailing on an antitrust claim the successful infringement defendant is awarded much more than just its compensable out-of-pocket fees.
As a matter of policy, enhanced damages conceivably make sense for antitrust violations that are hard to detect or that cause harm to a wider population--the optimal deterrence point--but it's never been clear to me why U.S. law awards successful private antitrust claimants treble damages for all types of antitrust violations. Interestingly, in a recent non-antitrust patent infringement action the Federal Circuit vacated an award of double attorneys' fees to a successful defendant, which prompted me to wonder whether there might be circumstances in which courts should award fee multipliers to achieve adequate deterrence (see here). But because it involved a successful antitrust claim, TransWeb is a case in which the prevailing infringement defendant automatically got a fee multiplier. Not sure the distinction makes sense as a matter of policy, but it's probably correct on the law.