Antitrust Law Daily Commercial car hauler subject to antitrust liability for patent enforcement actions
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Wednesday, October 25, 2017

Commercial car hauler subject to antitrust liability for patent enforcement actions

By Linda O’Brien, J.D., LL.M.

In a declaratory judgment action of noninfringement by a manufacturer of commercial car haulers against a competitor, the manufacturer sufficiently alleged that the competitor was not entitled to immunity from antitrust liability for its patent enforcement conduct, the federal district court in Portland, Oregon has decided. Thus, the defendant’s motion to dismiss was denied (Boydstun Equipment Manufacturing, LLC v. Cottrell, Inc., October 24, 2017, Simon, M.).

From 1989 to 2009, Rob Boydstun, through his company Boydstun Metal Works, manufactured and sold commercial car haulers, which are used to transport vehicles throughout the country. When Boydstun ceased operation in 2009, competitor Cottrell Inc. became nearly the only supplier of commercial car haulers in the U.S. Boydstun reentered the business in 2014 with his company Boydstun Equipment Manufacturing. At that time, Cottrell held, and continues to hold, a market share of 95 percent in the commercial car hauler industry.

In May 2005, Cottrell applied for a "Strap Tie Down Apparatus and System," which became U.S. Patent No. 7,484,917 ("the ‘917 patent"), for a ratcheting winch that is used in a tie-down system to fasten vehicles to car hauler trailer. The ‘917 patent was issued by the USPTO in February 2009. While Cottrell was prosecuting the ‘917 patent, Boydstun filed an application in May 2005, titled "Vehicle Support and Retention System for a Vehicle Transporter," for which Boydstun was issued the patent U.S. Patent No. 7,114,897 ("the ‘897 patent"). Boydstun then sued Cottrell for infringement of the ‘897 patent. The dispute was settled and Cottrell acquired a license to the Boydstun patent. After Boydstun entered the market in 2014, it began selling its own soft tie system. In November 2015, Cottrell sent a cease and desist letter to Boydstun and threatening suit for infringement of the ‘917 patent. Boydstun responded in a letter that the ‘917 patent was invalid. However, Cottrell did not respond to that letter or withdraw its original cease and desist letter.

In March 2008, Cottrell also applied for the U.S. Patent No. 7,585,140 ("the ‘140 patent"), which was for a ratcheting winch. In its application, Cottrell cited two prior art references: U.S. Patent Pub. No. 2006/0013667 to Bu Qin Ruan and U.S. Patent No. 5,101,537. In February 2016, Boydstun introduced its Rapid Ratchet winch. Cottrell sent a demand letter, asserting that Boydstun’s Rapid Ratchet winch infringed its ‘140 patent. Boydstun filed a petition for inter partes review, with the U.S. Patent Trial and Appeal Board, asserting that all claims in Cottrell’s ‘140 patent were obvious over Ruan and one of Cottrell’s own patents. The PTAB granted the petition, after finding a reasonable likelihood that Boydstun would prevail in at least some of its claims.

Subsequently, Boydstun sought a declaratory judgment on noninfringement and asserted claims of unlawful monopolization under Section 2 of the Sherman Act and the state antitrust law. Specifically, Boydstun alleged that Cottrell’s threats to bring patent infringement actions based on two invalid patents was done in bad faith and constituted anticompetitive conduct.

Before the court was Cottrell’s motion to dismiss the Sherman Act and state law claims for failure to state a claim.

Monopolization. The court first determined that Boydstun failed to sufficiently allege facts that Cottrell’s enforcement actions with respect to the ‘140 and ‘917 patents were objectively baseless that constituted conduct under the sham exception to Noerr-Penningtonimmunity. Cottrell’s declaration that it was unable to make a claim of patent infringement regarding the ‘140 patent was made seven months after Cottrell’s February 2016 cease and desist letter and was not determinative of whether Cottrell had a reasonable basis for sending the letter. Moreover, Boydstun’s allegation that the ‘917 patent was obtained through fraud was conclusory and there were no allegations that Cottrell’s November 2015 cease and desist letter regarding the ‘917 patent was either objectively or subjectively baseless.

However, Boydstun set forth sufficient facts to satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) to state a claim for fraud on the USPTO as well as the fraudulent intent element of a Walker Process exception to Noerr-Penningtonimmunity. Boydstun alleged that Cottrell’s ‘140 patent was obtained through fraud because Cottrell failed to disclose that one of Cottrell’s other patents was highly relevant to its application and was more pertinent than the two prior art references that Cottrell did disclose. Boydstun also alleged that it was readily apparent that the racheting winch in the ‘140 patent was invalid as obvious over Ruan and Cottrell’s other patent. According to the court, those allegations were supported by the PTAB decision to grant Boydstun’s petition and finding of a reasonable likelihood that Boydstun would prevail in its challenge of the ‘140 patent on that ground.

Furthermore, Boydstun alleged more than a mere failure to cite its own patent to establish Walker Process intent, the court noted. Boydstun alleged specific facts explaining why Cottrell’s own patent was more relevant than the two prior art references and that Cottrell’s failure to disclose its own patent was done with an intent to deceive the USPTO. The sufficiency of the allegations was supported by the USPTO grant of Boydstun’s petition and tentative finding.

Boydstun also sufficiently alleged Walker Process fraud based on the prosecution of Cottrell’s ‘917 patent. Cottrell’s argument that it was not obligated to disclose the ongoing litigation with Boydstun in its patent prosecution process was rejected. The court stated that the existence of litigation involving the subject matter of a patent being prosecuted was relevant to the application and was required to be disclosed to the USPTO. Thus, Cottrell was not entitled to antitrust immunity with respect to its patent enforcement actions.

Exclusionary conduct. Additionally, the court determined that Boydstun sufficiently alleged that Cottrell used its monopoly power to interfere with Boydstun’s relationships with dealers, manufacturers, and suppliers. Boydstun’s complaint set forth allegations that four dealerships declined to do business with Cottrell competitors due to exclusive arrangements with Cottrell and any attempts to do business with those competitors would jeopardize their business relationships with Cottrell. Although Boydstun did not assert a separate claim for exclusive dealing, its allegations were sufficient to state a claim for monopolization under Section 2 of the Sherman Act.

Antitrust injury. Finally, Boydstun sufficiently alleged an antitrust injury. According to the court, Boydstun alleged that it has lost sales, revenue, and profits from Cottrell’s anticompetitive conduct, Cottrell’s interference with dealers has undermined its ability to gain market share, and Cottrell’s threats of patent infringement litigation has scared away potential customers. Those allegations were sufficient to show an injury that flowed from Cottrell’s alleged unlawful conduct and harmed competition, the court concluded.

The case is No. 3:16-cv-00790-SI.

Attorneys: Stephen J. Joncus (Joncus Law, PC), Andrew E. Aubertine (Aubertine Law Group PC), and Philip S. Van Der Weele (K&L Gates LLP) for Boydstun Equipment Manufacturing, LLC. Thomas R. Johnson (Perkins Coie LLP) and J. Peter Staples (Chernoff Vilhauer LLP) for Cottrell, Inc.

Companies: Boydstun Equipment Manufacturing, LLC; Cottrell, Inc.

MainStory: TopStory Antitrust OregonNews

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