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Consumer antitrust suits alleging that companies kept prices artificially high through fraudulently obtained patents are migrating from the pharmaceutical industry to other consumer-product sectors. A consolidated consumer class action against online DVD rental company Netflix Inc. in a California federal court is borrowing the strategy in a case that claims that Los Gatos, Calif.-based Netflix is violating the Sherman Antitrust Act, a California antitrust law � the Cartwright Act � and California’s Unfair Competition Law. The plaintiffs claim that Netflix “monopolized the online DVD rental market by deterring other competitors from entering that market.” They seek triple damages for subscribers who claim they paid higher subscription prices and an injunction against Netflix to prevent additional anti-competitive actions. In re Netflix Antitrust Litigation, No. 07-00643 (N.D. Calif.). The plaintiffs claim that Netflix concealed prior art from the U.S. Patent and Trademark Office for two patents involving computer-implemented systems for renting movies to customers. Companies are warehousing patents to dissuade other companies from entering their markets, said Scott A. Kamber of New York-based Kamber & Associates, the plaintiffs’ co-lead counsel on the Netflix antitrust case. “You’ve seen an explosion of this stockpiling of patents,” Kamber said. “This has an anti-competitive effect when these patents are obtained based on fraud on the patent office.” The plaintiff in Kamber’s original case, which was consolidated with two similar California federal cases, was a Netflix subscriber since 2002 who saw news reports about Netflix’s patent suit against Dallas-based Blockbuster Inc., which also offers online DVD rentals. Netflix Inc. v. Blockbuster Inc., No. 06-02361 (N.D. Calif.). In that suit, Blockbuster’s counterclaims accused Netflix of monopolizing and attempting to monopolize the DVD rental market through fraudulent patenting and sham litigation. The companies resolved the antitrust claims. The patent issues continue and a summary judgment hearing is scheduled for August. A judge rejected the consumer’s motion to intervene in the patent case. The class action would have complicated the patent case, said Marshall Grossman, a Santa Monica, Calif.-based Bingham McCutchen partner and Blockbuster’s co-lead counsel on the case. “Having to deal with procedural issues that a class action case interject brings additional costs and delay to the underling private litigation,” he said. Keith Eggleton of Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif., a Netflix lawyer on the antitrust case, referred questions to the company. A spokesman said the company doesn’t comment on pending litigation. Netflix’s court papers dispute the plaintiffs’ so-called Walker Process claim, a legal theory based on a 1965 U.S. Supreme Court ruling that held that a company’s enforcement of its fraudulently obtained patent could violate Sherman Antitrust Act anti-monopolization rules. The company said the plaintiffs’ Walker Process claims must fail because they didn’t allege that Netflix ever tried to enforce its patents. A hearing on Netflix’s motion to dismiss is scheduled for June 14. Similar cases involving pharmaceutical companies are at the appeals court stage following recent district court decisions with opposing rulings on whether purchasers have standing to bring Walker Process claims. Despite the conflicting rulings, purchaser antitrust cases have led to many successful multimillion-dollar settlements, noted J. Douglas Richards, an antitrust partner at the New York-based Pomerantz Law Firm who is involved in current and past antitrust cases concerning drug companies’ allegedly fraudulently obtained patents. “The Netflix case rests on the established legal theory that purchasers may bring an antitrust case based on the enforcement of a fraudulently procured patent,” Richards said. “Many such cases have been brought successfully . . . in the drug field.” Recent district court decisions with opposite rulings on whether purchasers have standing to bring Walker Process claims have fueled the controversy. The fight has advanced to the appellate stage in a closely watched case brought by direct purchasers, such as wholesalers, who bought drugs from Ferring Pharmaceuticals Inc. and Aventis Pharmaceuticals, now Sanofi-Aventis U.S. The purchasers allege that the companies delayed generic drugs from entering the market, but the district court said they lacked standing to bring Walker Process claims. In re DDAVP Direct Purchaser Antitrust Litigation No 06-5525 (2d Cir.).

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