Antitrust Law Daily Attorney fees incurred defending patent infringement claims were proper antitrust damages
Wednesday, February 10, 2016

Attorney fees incurred defending patent infringement claims were proper antitrust damages

By Jeffrey May, J.D.

The cost of defending a patent infringement suit based on invalid patents properly served as the basis for antitrust damages in a dispute between rival manufacturers of filters for respirators, the U.S. Court of Appeals for the Federal Circuit has decided. A jury’s finding that 3M Company was liable for a Walker Process antitrust violation and a $26 million award to TransWeb, LLC, based on trebled attorney fees as antitrust damages, was affirmed. The appellate court also upheld a determination that the patents were unenforceable for inequitable conduct (TransWeb, LLC v. 3M Innovative Properties Co., February 10, 2016, Hughes, T.).

In seeking a declaration of invalidity and non-infringement of the patents asserted by 3M, TransWeb pursued antitrust claims based on Walker Process fraud and sham litigation. TransWeb's declaratory judgment action in the federal district court in New Jersey followed 3M's filing of a suit in Minnesota against TransWeb for patent infringement and subsequent voluntary dismissal due to an apparent personal jurisdiction issue.

A jury ultimately decided that the 3M patents at issue were not infringed, were invalid, and were unenforceable. In addition, it decided that 3M committed aWalker Process violation but did not engage in sham litigation. The federal district court in New Jersey entered judgment in accordance with the jury verdicts. It awarded antitrust damages to TransWeb, including $34,000 in lost profits ($103,000 trebled) and $7.7 million in costs of defending the infringement suit (trebled to approximately $23 million). In addition, TransWeb was awarded $3.2 million as “cost of suit” fees for prosecuting the antitrust claim. 3M appealed, challenging the district court’s judgment on validity, inequitable conduct, and antitrust liability.

At the outset, the appellate court found no abuse of discretion in the district court’s ultimate conclusion of unenforceability for inequitable conduct. It then turned to the antitrust issues.

3M did not challenge the sufficiency of the evidence supporting the jury’s Walker Process fraud finding beyond the inequitable conduct finding. With the inequitable conduct finding upheld, the appellate court accepted as admitted that TransWeb sufficiently demonstrated the Walker Process fraud component. 3M contested the antitrust judgment based on the theory that TransWeb’s attorney fees were not appropriate antitrust damages for the Walker Processviolation and based on purported flaws in market definitions.

Antitrust damages. 3M unsuccessfully argued on appeal that the district court erred in awarding the $23 million of attorney fee damages, because TransWeb failed to show any link between the attorney fees and an impact on competition. According to 3M, because TransWeb was successful at trial, increased prices for respirators that would have followed a victory for 3M in its patent suit never materialized. However, 3M’s unlawful act was the bringing of a suit based on a patent known to be fraudulently obtained and 3M's attempt to gain a monopoly based on this fraudulently-obtained patent, the appellate court explained. TransWeb’s attorney fees flow directly from this unlawful aspect of 3M’s act. Therefore, TransWeb’s attorney fees amounted to injury-in-fact and sufficiently stemmed from the competition-reducing aspect of 3M’s behavior to qualify as antitrust injury, the appellate court concluded.

In light of 3M’s anticompetitive infringement suit, TransWeb could either cease competition altogether or defend the suit. Whichever option TransWeb had taken, its injury qualified as antitrust injury and could form the basis of damages under § 4 of the Clayton Act. The appellate court also noted that holdings of other circuits, allowing attorney fees as antitrust damages in contexts such as sham litigation and lawsuits in furtherance of a broader anticompetitive scheme, were persuasive in allowing TransWeb to recover its attorney fees as § 4 damages.

Market definition. 3M also challenged the district court's relevant market definition for determining dangerous probability of monopoly power. The appellate court rejected 3M's contention that the products in the “upstream” market for respirator components and the geographic scope of the “downstream” market for certified respirators were too narrow. A reasonable jury could conclude that the relevant markets were properly limited.

The case is No. 2014-1646.

Attorneys: Michael Ernest Williams (Quinn Emanuel Urquhart & Sullivan, LLP) for Transweb, LLC. Seth P. Waxman (Wilmer Cutler Pickering Hale and Dorr LLP) for 3M Innovative Properties Co. and 3M Co.

Companies: TransWeb, LLC; 3M Co.; 3M Innovative Properties Co.

MainStory: TopStory Antitrust FedCirNews

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