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Motions to Dismiss Patent Misuse and Antitrust JUNE2002 MOTIONSTODISMISSPATENTMISUSEANDANTITRUST INTHISISSUE COUNTERCLAIMSPROVEEFFECTIVEINPATENTLITIGATION 2 EU ADOPTSNEWLENIENCYPOLICY Two recent court decisions obtained by against Funai Electronics by Orion Electric, a 2 MORGANLEWISWINSDISMISSALOF Morgan Lewis lawyers may signal a promising VCR manufacturer, and Orion America, its U.S. ANTITRUSTLAWSUITFORBANKAUSTRIA shift in favor of patent owners facing patent affiliate. The case centered on Funai’s offer of misuse defenses and antitrust claims. U.S. a “package license” under seven U.S. patents 3 FTC TAKESSTRONGACTIONON district court judges in the Northern District which it claimed Orion’s VCRs infringed. Orion CONSUMERPROTECTIONANDPRIVACY- of California and the Southern District of New asserted both patent misuse and antitrust RELATEDISSUES York recently took the unusual step of dis- claims under Section 2 of the Sherman Act missing patent misuse defenses based on based on the theory that Funai’s licensing 3 TERMINATIONOFAFRANCHISEE: DOES reasoning that has historically only been strategy constituted an illegal tie. On behalf “GOODCAUSE” MEAN“GOODFAITH”? applied to antitrust claims. of Funai, Morgan Lewis filed a motion to dismiss arguing that Orion had not suffi- In the Northern District of California, LG 4 MORGANLEWISOBTAINSREVERSALOF ciently asserted market power in any of the Electronics filed a series of patent infringe- $271 MILLIONJURYVERDICT ment cases based on six patents embodying alleged relevant markets. Despite Orion’s assertions that Funai had 33% and 50% technology related to computer systems. In 4 RECENTPUBLICATIONSBYMORGANLEWIS market shares in two of the markets, the court response, several of the defendants asserted ANTITRUSTPARTNERS antitrust counterclaims and patent misuse adopted Morgan Lewis’ argument and dis- defenses based on allegations that LG’s patent missed not only the antitrust claims, but also infringement claims were objectively baseless. the claim based on patent misuse. LG moved to dismiss the counterclaims and The LG and Funai decisions should encour- strike the misuse defenses because they were age patent owners facing patent misuse WASHINGTONP PHILADELPHIAP NEWYORK conclusory in that they did not properly allege defenses to consider seeking their dismissal. LOSANGELESP MIAMIP PRINCETON relevant market, market power or anticompet- Like antitrust claims, patent misuse defenses PITTSBURGHP HARRISBURGP NORTHERNVIRGINIA itive effects, allegations necessary to assert add significant complexity to patent litigation LONDONP BRUSSELSP FRANKFURTP TOKYO an antitrust claim. Although this kind of by increasing the scope of issues relevant for argument is hardly novel in the antitrust discovery and trial; the rewards of a success- context, it has rarely been applied to patent ful motion are therefore substantial. This newsletter is provided as a general infor- misuse defenses. Nonetheless, with little to Antitrust practice group Partners Scott mational service to clients and friends of no case law directly on point, Morgan Lewis Stempel and Willard K. Tom developed the Morgan, Lewis &Bockius LLP. It should not be persuaded the court to analyze the patent motion to dismiss strategy, working closely construed as imparting legal advice on any misuse allegations using antitrust principles. specific matter. It was the court’s adoption of this simple, but with Partners in Morgan Lewis’ litigation and surprisingly novel, approach that won the intellectual property groups. day: the court concluded that antitrust prin- Scott Stempel has considerable experience ciples demonstrated that the claimants could litigating and advising clients on the antitrust not, as a matter of law, plead the requisite aspects of intellectual property restrictions anticompetitive effect element necessary to and their enforcement. He has counseled establish their patent misuse allegations, and technology owners and litigated cases on dismissed the defense as well as the antitrust patent acquisition and enforcement, joint counterclaims. ventures, marketing activities, licensing, stan- In March 2002, Morgan Lewis successfully dard setting and patent pooling. Will Tom MORGAN, LEWIS& BOCKIUSLLP persuaded the District Court for the Southern served in policy positions at both federal COUNSELORSATLAW©2002 District of New York to adopt the same antitrust agencies. At the FTC, he served as approach in a declaratory judgment case filed Deputy Director of the Bureau of Competition (continued on page 2) Morgan, Lewis & BockiusLLPn MORGANLEWISONCOMPETITION 1 MOTIONSTODISMISSMAYBEMORE The policy change also allows for reduced Jürgen Beninca, an associate resident in EFFECTIVEINPATENTLITIGATION fines for companies that provide evidence of Frankfurt, Germany, is spending a year in “significant added value” to the Commission. Washington. He represents clients in cartel (continued from page 1) There is a sliding scale of fine reductions based cases brought by the European Commission and head of the Bureau’s Policy Office. At on the timing of cooperation: the second as well as in merger proceedings of the EC’s party to approach the Commission will receive DOJ, he was Counselor to the Assistant Merger Task Force and the German Federal a reduction of 30-50 percent, the third a reduc- Attorney General in charge of the Antitrust Cartel Office. tion of 20-30 percent, and the fourth up to 20 Division and had responsibility for telecom- percent. Full immunity is available only to munications and intellectual property companies that did not coerce others to par- matters. Tom also recently testified at the ticipate in the cartel. Reduced fines are MORGANLEWISWINS DOJ/FTC Hearings on the Intellectual available for companies that do not meet this Property and Antitrust Interface. DISMISSALOF criterion, provided they stop their participa- tion in the cartel at the time they start ANTITRUSTLAWSUITFOR EU ADOPTSNEWLENIENCY cooperating with the Commission. BANKAUSTRIA The full text of the revised EC leniency OLICY P policy, together with the press release and Morgan Lewis recently won dismissal Donald C. Klawiter and Jürgen Beninca related materials, can be accessed at of an antitrust class action lawsuit for www.europa.eu.int/comm/competition/ client Bank Austria AG. The lawsuit, brought in the U.S. District Court in the The European Commission recently antitrust/leniency. Southern District of New York, alleged a adopted the revised leniency policy reported The EU’s policy changefollows more closely conspiracy among Austrian, Dutch, in the last issue of ONCOMPETITION. The policy the U.S. leniency program, so it should Italian and German banks to fix the fees change is intended to provide greater incen- enhance harmony among jurisdictions. It is charged for European currency exchange. tive for companies involved in price fixing also much broader than the 1996 policy it Morgan Lewis led a joint defense on and other cartel activities to cooperate with replaces, which required a company to offer behalf of all the defendants in prevailing on a motion to dismiss for lack of subject EUinvestigations. “decisive” evidence and excluded from partic- matter jurisdiction. Under the revised policy, the Commission ipation companies that had “instigated” or will grant full immunity played a “determining” role in a cartel. Nonetheless, the policy still offers partici- The procedural posture of the case (1) to the first member of an undetected proved important. Because the class pants less protection than the U.S. approach. cartel which provides sufficient infor- that plaintiff’s complaint alleged had not mation to allow an inspection of the More importantly, any decision with respect been certified, the judge only considered suspected participants in a “dawn raid”; to the Commission must take into account the the currency transactions engaged in by or potential consequences in the United States, the named plaintiff. Although the plain- tiff alleged a class of all individuals who given the high likelihood of both a U.S. gov- (2) to the first member of the cartel engaged in currency exchange transac- which provides evidence allowing the ernment enforcement action and private class tions in boththe United States and Commission to establish “an infringe- action litigation. In the EU, leniency requires Europe, he had not himself engaged in ment,” if no other entity has qualified submission of written materials. Those materi- any transactions in the United States. for immunity under (1). als may be discoverable in the United States, and may provide a basis for an antitrust claim. The judge agreed with Morgan Lewis’ Accordingly, all written communications with PLEASEPROVIDEUSWITHYOUR arguments that the currency exchanges EC authorities must be crafted carefully, and in Europe in which the plaintiff engaged E-MAILADDRESS coordination among counsel in the United had no direct effect on U.S. commerce and that the allegations that defendants We occasionally schedule teleseminars on States, Canada, EU, and even EU member states is essential to anticipate and minimize fixed prices on transactions in the United short notice to provide information to clients States were not relevant because those regarding important developments in the collateral consequences in these jurisdic- transactions did not give rise to the antitrust law on a timely basis. We also tions. plaintiff’s claim. Consequently, he dis- plan to publish this newsletter electroni- missed the case. cally. Don Klawiter, a Partner resident in Washington, D.C., represents corporations
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