Antitrust Law Daily Collateral estoppel barred Capital One’s antitrust counterclaims against Intellectual Ventures
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Tuesday, September 10, 2019

Collateral estoppel barred Capital One’s antitrust counterclaims against Intellectual Ventures

By Cheryl Beise, J.D.

Capital One’s failure to identify a relevant market for antitrust purposes in one patent infringement case precluded its arguments for a different market in a substantially similar case.

The federal district court in Greenbelt, Maryland, did not err in finding that antitrust counterclaims asserted by Capital One against patent assertion entities Intellectual Ventures I LLC and Intellectual Ventures II LLC (together, "IV") were precluded by a prior Virginia federal district court decision holding that Capital One failed to plead a relevant market to support similar antitrust counterclaims against IV in an earlier patent infringement case, the U.S. Court of Appeals for the Federal Circuit has held. Although the Virginia court’s judgment was based on two independent grounds—Capital One’s failure to identify an appropriate relevant market, and Capital One’s failure to allege the exercise of monopoly power within that relevant market—either one of those alternative grounds was sufficient to defeat Capital One’s Sherman Act claims in the present case, because the issues before the court in the Maryland case were the same as those that were decided in the Virginia action (Intellectual Ventures I LLC v. Invention Investment Fund II, LLC, September 10, 2019, Bryson, W.).

Litigation history. Plaintiffs Intellectual Ventures I LLC and Intellectual Ventures II LLC (collectively, "IV") are related entities engaged in the patent assertion and licensing business. The IC family of companies have brought numerous patent infringement actions to enforce a portfolio of over 3,500 technology-related patents.

In 2014, IV sued Capital One Financial Corporation, Capital One (Bank) USA, National Association, and Capital One, National Association (collectively "Capital One") in the federal district court in Greenbelt, Maryland, asserting infringement of U.S. Patent No. 7,984,081 ("the ’081 patent"), titled "System and Method for Non-programmers to Dynamically Manage Multiple Sets of XML Document Data"; U.S. Patent No. 6,546,002 ("the ’002 patent"), titled "System and Method for Implementing an Intelligent and Mobile Menu-Interface Agent"; and U.S. Patent No. 6,715,084 ("the ’084 patent"), titled "Firewall System and Method via Feedback from Broad-Scope Monitoring for Intrusion Detection." The Maryland district court determined that the ’081 and ’002 patents were directed to abstract ideas and were ineligible for protection under Section 101, and IV was precluded from pursuing infringement claims over the ’084 patent. The ’084 patent was found to be ineligible under Section 101 as directed to an abstract idea by the Southern District of New York in Intellectual Ventures II, LLC v. JP Morgan Chase & Co., No. 13-cv-3777-AKH, (S.D.N.Y. Apr. 28, 2015). On March 7, 2017, the Federal Circuit affirmed the Maryland court’s invalidity rulings.

While the case was on appeal, Capital One sought to add antitrust counterclaims against IV in the present case. The district court allowed the counterclaims to proceed, finding that several IV-related companies were a single entity for purposes of pursuing claims that they amassed monopoly power in violation of Section 2 of the Sherman Act and Section 7 of the Clayton Act by acquiring financial services patents. Capital One was instructed to re-plead allegations in a third-party complaint it filed against one IV company to show that the original IV companies were the same entity. The court rejected IV’s motion to dismiss the antitrust counterclaims as precluded by a prior decision issued by the federal district court in Alexandria, Virginia. In that case—another patent infringement action brought in 2013 by IV against CapitalOne—the district court determined that Capital One failed to plead a relevant market to pursue similar antitrust counterclaims. The Maryland court found that Capital One sufficiently pleaded a relevant market on the augmented facts presented in the counterclaims that was not resolved in the prior proceeding. As for claim preclusion, the court had already decided in 2015 that res judicata was not a bar to the antitrust counterclaims. Capital One had identified new facts that were not previously available, including the extent of the IV companies’ patent ownership. The Federal Circuit rejected Intellectual Ventures I LLC’s petition for writ of mandamus seeking to direct the Maryland court to vacate its January 14, 2016, order and dismiss the antitrust counterclaims. The appellate court concluded that mandamus relief cannot be used as a substitute for appeal.

On November 30, 2017, the Maryland court granted summary judgment to IV on Capital One’s antitrust counterclaims. The court examined the facts and determined that Capital One’s claims were in fact barred under the doctrines of Noerr-Pennington immunity and defensive collateral estoppel based on the Virginia district court’s ruling in 2013. Because IV’s patent infringement claims were not objectively baseless and were integral to Capital One’s antitrust counterclaims, it was petitioning activity protected from antitrust scrutiny by Noerr-Pennington, the court found. The court concluded that the antitrust claims were in fact precluded by the Alexandria district court’s determination that Capital One failed to plead a relevant market to pursue antitrust counterclaims against IV. IV’s appeal of the November 30, 2017decision was presently before the Federal Circuit.

On appeal, Capital One challenged the district court’s application of collateral estoppel on the relevant market issue and its ruling that the Noerr-Pennington doctrine immunizes all of IV’s challenged conduct from antitrust scrutiny. The Federal Circuit affirmed the district court’s judgment based on collateral estoppel, and did not reach the issues presented by the parties as to the Noerr-Pennington doctrine or Capital One’s theory of antitrust liability.

Collateral estoppel. The Maryland court characterized the Virginia court’s judgment as being based on two independent grounds: (1) Capital One’s failure to identify an appropriate relevant market, and (2) Capital One’s failure to allege the exercise of monopoly power within that relevant market. The Maryland court concluded that under Fourth Circuit law, collateral estoppel would apply in this setting to a determination in a prior case even if that determination were only one of two alternative grounds for dismissal in the prior action. According to the Maryland court, either one of the alternative grounds would be sufficient to defeat Capital One’s Sherman Act claims, because the issues before the court in the Maryland case were the same as those that were decided in the Virginia case.

Capital One argued, when a prior judgment is based on two independent grounds, collateral estoppel does not apply to either ground of decision, and the losing party in the first action is not estopped from relitigating either of those two issues in subsequent litigation. The Federal Circuit disagreed. The appeals court noted that Capital One’s premise was wrong. The two issues on which the Virginia court based its dismissal order were not "independent and alternative grounds of decision," but were "integrally related." "Specifically, the presence of a relevant antitrust market was critical both to whether a relevant market has been identified and to whether the defendant possesses monopoly power in a relevant market," the court said. The court’s finding that a relevant antitrust market was not plausibly pleaded was fatal to Capital One’s position on both issues.

The Federal Circuit concluded that the Fourth Circuit would hold collateral estoppel applicable to both of two alternative grounds, when both grounds would be dispositive in the second case, especially when the two cases were co-pending at the time the plaintiff decided to proceed with the second case after an adverse decision in the first.

Offensive collateral estoppel. In In re Microsoft Corp. Antitrust Litigation, 355 F.3d 322, 326 (4th Cir. 2004), the Fourth Circuit embraced the general principle that "where the court in the prior suit has determined two issues, either of which could independently support the result, then neither determination is considered essential to the judgment." The Federal Circuit explained that the modern rule is that if a judgment rests on independent grounds, either of which would support the result, the judgment is not conclusive with respect to either issue standing alone. IV sought to distinguish the Microsoft case, as did the Maryland court, on the ground that it involved offensive collateral estoppel rather than defensive collateral estoppel. The Federal Circuit agreed that Microsoft did not adopt an inflexible rule that collateral estoppel is unavailable as to alternative and independent determinations, no matter what the circumstances "We are satisfied that the Fourth Circuit has not adopted a general exception, for cases involving defensive collateral estoppel, to the rule denying collateral estoppel effect to alternative and independent determinations," the Federal Circuit said.

The court further explained that some circuits have held, consistent with IV’s argument, that each alternative determination that supported the first court’s ruling forms an independent ground for collateral estoppel in the second case, at least when a party is asserting defensive collateral estoppel. While that position is the one taken in the First Restatement of Judgments, the Second Restatement of Judgments rejected this, and several circuit courts have adopted the general rule espoused in the Second Restatement with regard to the application of collateral estoppel in the case of alternative and independent grounds for decision. The Federal Circuit found that the Fourth Circuit "would align itself with the latter circuits and, as a general rule, would decline to give preclusive effect in a later case to each of several alternative and independent grounds for decision in the first litigation."

Preclusion in this case. The Maryland court found that either one of the alternative grounds of decision in the Virginia case was sufficient to defeat Capital One’s Sherman Act claims in the present case, because the issues were the same.

Capital One also attempted to distinguish the relevant market in the Maryland and Virginia cases. Capital One contended that in the Maryland case the relevant market consisted of IV’s portfolio of patents on financial services for commercial banks, while in the Virginia case the relevant market consisted of the "market" or "ex post market" for "technology enabling business processes common throughout the commercial banking industry in the United States." The district court effectively rejected this argument, finding that Capital One’s proposed technology market equated to IV’s "portfolio of 3,500 or more patents that [IV] alleges cover widely used financial and retail banking services." Capital One could not distance itself from its counsel’s position before the district court in order to suggest that the Maryland case was different from the Virginia case.

Moreover, even assuming, as Capital One argued, that the Maryland district court erred in characterizing the alleged relevant market in the case before him, that would not be a basis for granting relief to Capital One from the court’s preclusion decision, the Federal Circuit said. "A collateral estoppel determination is based on what the prior court ruled, and the prior court’s ruling cannot be dissected to determine whether it was somehow based on an incorrect legal or factual basis," the court said. The appeals court pointed out that if Capital One had wanted to dispute the Virginia district court’s characterization of the relevant antitrust market, it could have done so by challenging that characterization on appeal from the judgment in that case. Instead, Capital One agreed in its appeal brief in the Virginia case (before withdrawing its appeal) that IV’s patent portfolio represented a relevant antitrust market. Under these circumstances, Capital One could not now contend that the Virginia court mischaracterized the relevant antitrust market asserted in that case and should not be given collateral estoppel effect in this one.

The Federal Circuit affirmed the judgment as to Capital One’s Sherman Act claims based on collateral estoppel. The court noted that the two issues decided by the Virginia court were not alternative and independent grounds for decision, but even if they could be regarded as alternative grounds for decision, "each was independently sufficient to dispose of the first action and therefore would be independently sufficient to dispose of the second."

For similar reasons, collateral estoppel applied to Capital One’s claim under Section 7 of the Clayton Act. In addition to finding that Capital One’s antitrust theories failed on the "relevant market" issue, the Virginia court dismissed Capital One’s claim under Section 7 of the Clayton Act on the ground that Capital One had failed to "allege that IV’s acquisitions, standing alone, have lessened competition as if, for example, IV had acquired all substitutes or competing technologies." Rather, the anticompetitive effects about which Capital One complained arose from IV’s litigation threats, based on the patents it had accumulated. The district court found that "the complained of anticompetitive effects do not arise from the acquisition of the patents, but from conduct that post-dates the acquisition." The Maryland court also based its ruling on all the antitrust claims—including the Clayton Act claim—on the same failure to allege or prove a relevant antitrust market. As the Maryland court observed, "while patent acquisition and aggregation is the focus of the Clayton Act claim, acquisition is actionable under the Clayton Act only where ‘the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.’"

The case is No. 2018-1367.

Attorneys: Robert E. Freitas (Freitas & Weinberg LLP) for Intellectual Ventures I LLC and Intellectual Ventures II LLC. Matthew J. Moore (Latham & Watkins LLP) for Invention Investment Fund II, LLC, Intellectual Ventures Management, LLC and Invention Investment Fund I, LP.

Companies: Intellectual Ventures I LLC; Intellectual Ventures II LLC; Invention Investment Fund II, LLC; Intellectual Ventures Management, LLC; Invention Investment Fund I, LP

MainStory: TopStory Antitrust FedCirNews

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