Violating antitrust law through a fraud on the Patent Office will cost 3M Company more than $26 million in damages, almost all of it in legal fees to its adversary in the patent litigation.
The dispute, TransWeb LLC v. 3M Innovative Properties Co., was over two patents for a filtration membrane used in industrial respirators in oily environments such as shipyards—patents that 3M was found to have obtained fraudulently.
U.S. District Judge Faith Hochberg in Newark awarded the fees on Monday to TransWeb LLC, which was represented by Quinn Emanuel Urquhart & Sullivan in Los Angeles.
The total of $26,146,493 in fees and costs, calculated by a special master, is in addition to more than $34,000 in lost profits awarded by a jury—a sum that is subject to trebling.
3M, a multinational corporation based in St. Paul, Minn., first sued TransWeb, of Vineland, N.J., for patent infringement in the District of Minnesota in 2010. 3M agreed to dismissal without prejudice after TransWeb challenged personal jurisdiction.
TransWeb filed the New Jersey suit in August 2010, seeking a declaratory judgment that the two patent claims on which 3M had sued in Minnesota were invalid and also unenforceable based on inequitable conduct by 3M.
In an amended complaint filed in June 2011, it added two antitrust claims. One was that 3M tried to monopolize the market through fraud under Walker Process v. Food Machinery. In that 1965 case, the U.S. Supreme Court held that enforcement of a fraudulently obtained patent can violate Sherman Act §2, which prohibits monopolization or attempted monopolization.
The other was a sham litigation antitrust claim. That occurs when a patent holder sues for infringement of a patent it knows is invalid and does so in an attempt to stifle competition.
3M countered with 58 claims of patent infringement but dropped 56 of them two days before trial, leaving two to be adjudicated.
On Nov. 30, 2012, the jury found that the patents were invalid for obviousness based on prior art—TransWeb’s own earlier product—and that 3M engaged in Walker Process fraud, though not sham litigation. It also found inequitable conduct, but at 3M’s request that part of the verdict was only advisory.
The jury awarded TransWeb $34,412 in lost profits plus its attorneys’ fees in defending the patent infringement claims, which it found were damages attributable to 3M’s antitrust violations.
Hochberg appointed former federal judge Alfred Wolin, now with Saiber in Florham Park, to figure out the amount of the fee portion of the award.
Wolin calculated the fees under an agreement that those attributable to defending 3M’s patent claims would be trebled as antitrust damages, while those incurred in pursuing the antitrust claim were recoverable without trebling.
TransWeb did not submit bills for work done by local counsel, paralegals, or nonattorney support staff. It marked time entries as either patent or antitrust and where there was block billing, agreed that any entry that explicitly referred to the antitrust claims was to be treated as antitrust fees, even if it also referred to patent work, in order to avoid improper trebling.
Deeming the case to be more patent than antitrust, when a block billing did not specify which, Wolin allocated 75 percent to patent and 25 percent to antitrust. He reduced some entries after determining that the work, though done by an attorney, could have been performed by a paralegal.
3M objected to Wolin’s report on various grounds, including Quinn Emanuel’s billing rates, which ranged from $760 to $970 for partners and “of counsel,” and $420 to $680 for associates. 3M argued the rates should be discounted by 20 per cent to reflect the lower rates charged for patent litigation by lawyers in New Jersey.
In her opinion, Hochberg upheld Wolin’s finding that TransWeb’s choice of Quinn Emanuel, although not a New Jersey firm, was reasonable “given that the survival of the company required successfully defending a patent case against a multinational corporation with extensive resources.”
She also agreed with Wolin’s view that 3M, which is currently engaged in 31 patent cases, has the “economic muscle” to demand discounts from top law firms, while TransWeb, which had 55 employees at its peak, lacked similar bargaining power to negotiate a lower billing rate.
Because “TransWeb’s existence hinged upon winning a complex patent litigation with novel and difficult substantive issues, a premier litigation firm was a reasonable choice,” she wrote.
In addition, 3M challenged the 75/25 patent-antitrust breakdown, arguing that any mixed entry should be treated as antitrust fees, an approach that would lower the fees by more than $1.4 million.
Hochberg rejected that position, stating, “Wolin’s detailed analysis of the nature of the case and the challenged entries supports the proportion allocated to antitrust fees and represents a reasonable estimate of antitrust damages.”
Hochberg also denied 3M’s post-trial motions seeking to overturn the verdict, finding 3M misled the U.S. Patent Office by not revealing its knowledge of TransWeb’s prior invention, which was sufficient basis for the rejection of 3M’s own application for obviousness.
The in-house lawyer who handled the patent application, Karl Hanson, was involved in the fraud, Hochberg found.
She also faulted an unnamed associate at one of 3M’s outside firms who told TransWeb that 3M was investigating when it acquired a sample of TransWeb’s product, a key factor in the fraud. And when TransWeb, after repeated inquiries about the status of the investigation, threatened to raise the issue with Magistrate Judge Patty Shwartz at the final pretrial conference, the associate said she could not confirm a date.
Hochberg called that assertion a “disturbing tactical maneuver” meant to keep TransWeb from going to Shwartz, but one that later “boomeranged as a nonprivileged substantive admission of 3M that effectively impeached its own witness’ sudden resurrected memory of that date.”
Michael Williams, of Quinn Emanuel’s Los Angeles office, declines comment since he expects 3M will appeal. Liza Walsh of Connell Foley in Roseland was local counsel.
A 3M attorney, Michael Patunas of Lite Greenberg DePalma in Newark, referred a request for comment to company spokeswoman Donna Fleming Runyon, who said 3M plans to appeal. “We continue to believe that our patents and the steps we took to obtain and enforce them were proper and lawful,” Runyon said.
Minneapolis’s Fish & Richardson and Hartford’s Axinn Veltrop & Harkrider were counsel for 3M.
At various earlier points in the case, 3M was represented by McCarter & English in Newark, Day Pitney in Parsippany, and Podvey Meanor, Catenacci, Hildner, Cocoziello & Chattman in Newark.
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