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Cascades Takes Another Run at RPX
Cascades Computer Innovation, a nonpracticing entity descended from the original "patent troll," is back in federal court waging a legal assault against self-described troll-fighter RPX Corp.
In a novel case that tests the business model of defensive patent consortiums like RPX, Cascades saw its first complaint thrown out for relying on "generic" and "threadbare" assertions that RPX and several Android phone manufacturers engaged in an illegal boycott of its patents.
But U.S. District Judge Yvonne Gonzalez Rogers, who dismissed Cascades antitrust suit with that criticism in January, seemed more open at a hearing Tuesday to the amended complaint filed by the NPE's lawyers at Chicago's Niro, Haller & Niro.
Gonzalez Rogers did not indicate how she would rule. However, she seemed satisfied the new complaint offered more specific allegations of anti-competitive behavior by RPX and individual defendants Samsung Electronics Co., HTC Corp. and Motorola Mobility in their dealings for a portfolio of more than 30 patents acquired by Cascades from the inventor Boris Babaian.
"I have to assume not only that its true but that all inferences are in their favor," Gonzalez Rogers told Latham & Watkins San Francisco associate Alan Devlin, who argued for RPX, a patent aggregator that offers member companies access to its portfolio for an annual fee.
"All reasonable inferences," Devlin countered. To which Gonzalez Rogers quipped with trademark dryness: "I'm always reasonable."
Cascades President Anthony O. Brown, the former Jenner & Block partner whose previous patent assertion business TechSearch inspired the derogatory term patent troll, traveled from Chicago to attend the hearing.
"We have believed from the outset that RPX is engaged in and aiding and abetting buyers' side cartels that are anti-competitive," Cascades' lead lawyer Raymond Niro said in an interview following the arguments. He added: "I think we're in a better position than we were before. Whether it's good enough, we'll have to see."
At a 2012 hearing, Gonzalez Rogers directed her skepticism at Cascades. Many of the same parties were back for Round Two, though one of the original defendants, LG Electronics Inc., settled for $800,000 last summer.
RPX said the licensing deal between Cascades and LG proves its members are free to negotiate independently and there could be no anti-competitive conspiracy.
Cascades wanted $5 million from each company to license the Babaian patents and offered a 50 percent discount to the first actor. Defense lawyers, who urged Gonzalez Rogers to dismiss the antitrust suit with prejudice, insist Cascades is trying to punish tech industry leaders for turning down the deal, which they viewed as too expensive.
Samsung is represented by Michael Scarborough of Sheppard Mullin Richter & Hampton; HTC is represented by Jonathan Jacobson of Wilson Sonsini Goodrich & Rosati and Motorola is represented by Peter Boyle, a D.C.-based antitrust partner with Kilpatrick Townsend & Stockton.
The RPX business model is no more illegal than the discount pricing employed by Costco, Devlin argued on behalf of RPX, since Costco shoppers also pay membership fees to get reduced prices made possible because the retailer buys in large volumes.
The same is true of RPX, he said, which can strike more favorable licensing terms from patent holders because it negotiates on behalf of more than 100 member companies.
Gonzalez Rogers focused on the three phone makers in the suit, which Cascades asserts control roughly 90 percent of the market for Android cell phones. She did not seem persuaded that Cascades settlement with LG or with other RPX members should be viewed as significant.
"Those were minor players who don't really control that particular market," she said, adding, "It's not the question of number. It's the question of how much of the market they control."
Niro likened the relationship between RPX and the companies to a hub and spokes, with RPX at the center acting as the facilitator and the manufacturers at the perimeter.
The fair market price for a patent license is set through negotiations between a patent owner and potential licensees, Niro said.
"Here, there was no negotiation," he said. "The conspiracy prevented negotiation."
Correction: An earlier version of this article incorrectly stated that LG Electronics settled with Cascades Computer Innovation for $80,000 last summer. Actually, LG settled for $800,000. We regret the error.
This article originally appeared in The Recorder.