Antitrust Law Daily Claims based on alleged fraudulently obtained fracking-related patent failed for lack of standing, liability
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Tuesday, April 14, 2020

Claims based on alleged fraudulently obtained fracking-related patent failed for lack of standing, liability

By Nicole D. Prysby, J.D.

Plaintiffs’ Walker Process and sham patent litigation failed to demonstrate standing and liability.

Plaintiffs lacked standing to bring monopolization claims against former patent owner Heat-On-The-Fly (HOTF) and their claims failed regardless, as outside the limitations period and for lack of liability, held a federal district court in Wichita Falls, Texas. The plaintiffs claimed that HOTF attempted to monopolize a portion of the fracking market through enforcement actions, even after a court held that HOTF asserted the patent in bad faith which rendered the patent unenforceable due to inequitable conduct. The plaintiffs failed to present evidence that HOTF’s cease-and-desist letter to the plaintiffs’ client caused their losses, since the client continued to work with the plaintiffs after receipt of the letter. The claims also failed based on the statute of limitations, as the plaintiffs should have been aware of the actionable conduct due to their extensive communications with another plaintiff involved in a similar lawsuit against HOTF. And the plaintiffs failed to demonstrate liability for attempted monopolization on the part of HOTF’s parent company. It was HOTF that engaged in the inequitable conduct, not its parent and there were no facts alleged to support a finding that the parent knew HOTF was engaging in inequitable conduct when it sent cease-and-desist letter and filed patent-infringement claims (Chandler v. Phoenix Services, April 13, 2020, O’Connor, R.).

HOTF was granted a patent on an apparatus to heat water on demand for use during hydraulic fracturing. Once the patent was approved, HOTF began to enforce it against the plaintiffs and other competitors through various means, including patent-infringement litigation and calls to competitors’ customers. In 2018, the Federal Circuit affirmed a judgment finding that HOTF had asserted the patent in bad faith, which rendered the patent unenforceable due to inequitable conduct. Even after the judgment, HOTF and its parent company continued to assert the patent. The plaintiffs sued HOTF and its parent and CEO for attempted monopolization in violation of section 2 of the Sherman Act. Both sides motioned for summary judgment.

Standing. The plaintiffs lacked standing to pursue their monopolization claim because they failed to present evidence that the defendants’ conduct was a material cause of their losses, according to the court. In 2013, the plaintiffs’ client received a cease-and-desist letter from HOTF which stated that the plaintiff was infringing on HOTF’s patent. The plaintiffs went out of business in 2016. But there was no evidence of a causal link between the two events and the client continued to work with the plaintiffs after receiving the letter. Without proving HOTF’s cease-and-desist letter caused their monetary damages, the plaintiffs cannot satisfy the standing elements with regard to their claims for lost profits. Accordingly, they lacked standing to pursue these claims. They did have standing to pursue Walker Process and sham patent litigation claims for fees expended in defending against HOTF’s patent-infringement claims.

Statute of limitations, liability. The alleged injuries to the plaintiffs occurred outside the Clayton Act’s four-year limitations period, according to the court. The plaintiffs argued that the limitations period should be tolled under the exceptions for fraudulent concealment, damages not initially ascertainable, and continuing violation. Evidence suggests that HOTF actively concealed prior use from the the U.S. Patent and Trademark Office. But the plaintiffs could have discovered the alleged fraudulent concealment through their extensive communications with another plaintiff involved in a similar lawsuit against HOTF. The other plaintiff amended its complaint to include the inequitable-conduct claim, which should have made the plaintiffs in the present action aware of the conduct. The damages not initially ascertainable exception does not apply, because the plaintiffs knew of the existence of alleged lost profits well within the limitations period. The continuing-violation exception also does not apply. The cease-and-desist letter and patent infringement lawsuits were filed before the limitations period. Any harm done by HOTF’s reexamination proceeding and patent enforcement activities after the plaintiffs’ cause of action accrued did not injure the plaintiffs, only third parties. Even if the plaintiffs had been damaged by HOTF’s later actions, they can only recover damages caused by the new act; the new act does not revive old damages occurring before the limitations period. Because none of the three exceptions applied, the Sherman Act’s four-year statute of limitations barred the Walker Process fraud and sham patent litigation claims.

The plaintiffs failed to demonstrate liability for attempted monopolization on the part of HOTF’s parent company, according to the court. The plaintiffs conceded that actual notice of facts to support a Walker Process fraud claim did not arise as to either plaintiffs or defendants until January 2016 when the court made its inequitable conduct finding. But it was HOTF that engaged in the inequitable conduct, not its parent. There were no facts alleged to support a finding that the parent knew HOTF was engaging in inequitable conduct when it sent cease-and-desist letter and filed patent-infringement claims. Given the parent’s lack of knowledge, intent, and involvement in HOTF’s injurious acts, it may not be held liable as part of a single enterprise. For similar reasons, claims against the CEO failed; there was substantial evidence in the record that the CEO did not know, when he authorized the patent-infringement lawsuits, that the patent was unenforceable due to inequitable conduct.

The case is No. 7:19-cv-00014-O.

Attorneys: Theodore G. Baroody (Carstens & Cahoon, LLP) and Don Ross Malone (Malone Law Firm) for Ronald Chandler, Chandler Mfg., LLC, Newco Enterprises LLC and Supertherm Heating Services, LLC. Devan V. Padmanabhan (Padmanabhan & Dawson, PLLC) for Phoenix Services LLC and Mark H. Fisher.

Companies: Chandler Mfg., LLC; Newco Enterprises LLC; Supertherm Heating Services, LLC; Phoenix Services LLC

MainStory: TopStory Antitrust TexasNews GCNNews

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