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Intellectual Ventures I LLC v. Symantec Corp.

United States District Court, D. Delaware

September 24, 2014

INTELLECTUAL VENTURES I LLC and INTELLECTUAL VENTURES II LLC, Plaintiff,
v.
SYMANTEC CORP., Defendant.

MEMORANDUM ORDER

LEONARD P. STARK, District Judge.

At Wilmington this 24th day of September 2014:

Pending before the Court are Plaintiffs Intellectual Ventures I LLC and Intellectual Ventures II LLC's (collectively "Plaintiffs" or "IV") Motion for Judgment on the Pleadings on Defendant's Patent-Misuse Defense (D.I. 39) and Plaintiffs' Motion for Leave to File Motion for Summary Judgment on Defendant's Patent-Misuse Defense (D.I. 41). For the reasons that follow, Plaintiffs' motions (D.I. 39, 41) are denied.

In its Answer, Defendant Symantec Corporation ("Defendant" or "Symantec") raised the affirmative defense of patent misuse by alleging that IV engages in (i) tying the patents-in-suit with other irrelevant and unwanted patents in package licenses, (ii) collecting royalties from invalid patents, and (iii) creating and maintaining an unlawful monopoly. (D.I. 10) Plaintiffs argue that these are legally-unsound grounds for an affirmative defense of patent misuse and, further, that the evidence ofrecord cannot support this defense. (D.I. 40)

I. Plaintiffs' Motion for Judgment on the Pleadings

As a threshold matter, Defendant contends that Plaintiffs' motion for judgment on the pleadings, which Plaintiffs contend they bring pursuant to Federal Rule of Civil Procedure 12(c), should properly be viewed instead as a motion to strike governed by the standards of Rule 12(f). Defendant takes this position because it raised patent misuse as an affirmative defense rather than as a claim or counterclaim. The Court agrees with Defendant.

Under Rule 12(c), "[a]fter the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings." Federal Rule of Civil Procedure 12(f) provides that a court "may strike from a pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter."

"When deciding a motion for judgment on the pleadings pursuant to [Federal Rule of Civil Procedure] 12(c), the Court applies the same standard as that on a motion to dismiss pursuant to Rule 12(b)(6)." Chirik v. TD BankNorth, N.A., 2008 WL 186213, at *5 (E.D. Pa. Jan. 15, 2008) (citing Turbe v. Gov't of the Virgin Islands, 938 F.2d 427, 428 (3d Cir.1991)). A majority of the District Courts within the Third Circuit that have addressed the issue have determined that the pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), do not apply to the pleading of affirmative defenses. See Bayer CropScience AG v. Dow AgroSciences LLC, 2011WL6934557, at *1 (D. Del. Dec. 30, 2011) ("While the Third Circuit has not yet opined as to whether Twombly/Iqbal is applicable to affirmative defenses, this Court agrees with those courts that have found Twombly/Iqbal inapplicable to affirmative defenses."); see also Internet Media Corp. v. Hearst Newspapers, LLC, 2012 WL 3867165, at *3 (D. Del. Sept. 6, 2012) (agreeing with "well-articulated rationale" that "[i]n light of the differences between Rules 8(a) and 8(c) in text and purpose, ... Twombly and Iqbal do not apply to affirmative defenses, which need not be plausible to survive. [An affirmative defense] must merely provide fair notice of the issue involved.") (internal quotation marks omitted); XpertUniverse, Inc. v. Cisco Sys., Inc., 868 F.Supp.2d 376, 386 n.3 (D. Del. June 19, 2012) (joining "the majority of the District Courts in the Third Circuit [that] have rejected the application of Twombly and IqbaI" to affirmative defenses). The Court agrees with these authorities. Cadence Pharm., Inc. v. Paddock Labs., Inc., 2012 WL 4565013, at *1 (D. Del. Oct. 1, 2012). Therefore, despite N's characterization of this motion as a Rule 12(c) motion, the Court will treat N's motion as one to strike Defendant's affirmative defenses pursuant to Rule 12(±).

Federal Rule of Civil Procedure 12(±) provides that a court "may strike from a pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." "Motions to strike are generally disfavored and ordinarily are denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties, " Sun Microsystems, Inc. v. Versata Enters., Inc., 630 F.Supp.2d 395, 400 (D. Del. July 1, 2009) (internal quotation marks omitted), "or if the allegations confuse the issues.... A motion to strike will not be granted where the sufficiency of the defense depends on disputed issues of facts or where it is used to determine disputed and substantial questions oflaw." Cadence, 2012 WL 4565013, at *1 (quoting Weed v. Ally Fin., Inc., 2012 WL 2469544 at *2 (E.D. Pa. June 28, 2012)). "Such a motion should be denied if disputed issues of fact or law are implicated or ifthe alleged insufficiency is not clearly apparent from the pleadings." Cadence, 2012 WL 4565013, at *1 (quoting Floyd v. Black Swan Shipping Co., Ltd., 2001 WL 799848 at *1 (E.D. Pa. July 13, 2001)). When assessing a motion to strike, the Court may only rely on the pleadings. See Cadence, 2012 WL 4565013, at *1.

"Patent misuse is an affirmative defense to an accusation of patent infringement, the successful assertion of which requires that the alleged infringer show that the patentee has impermissibly broadened the physical or temporal scope of the patent grant with anticompetitive effect." Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997) (internal quotation marks omitted). "The key inquiry is whether, by imposing conditions that derive their force from the patent, the patentee has impermissibly broadened the scope of the patent grant with anticompetitive effect." C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998). "The courts have identified certain specific practices as constituting per se patent misuse, including so-called tying' arrangements in which a patentee conditions a license under the patent on the purchase of a separable, staple good and arrangements in which a patentee effectively extends the term of its patent by requiring post-expiration royalties." Va. Panel, 133 F.3d at 869 (internal citation omitted).

When a practice is not per se patent misuse, the practice may still constitute patent misuse if it "has the effect of extending the patentee's statutory rights and does so with an anti-competitive effect." Id. In those circumstances, the practice must be analyzed in accordance with the "rule ofreason." Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 706 (Fed. Cir. 1992). "Under the rule of reason, the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint's history, nature, and effect." Va. Panel, 133 F.3d at 869 (internal quotation marks omitted).

Pursuant to 35 U.S.C. § 271(d), certain practices are exempt from the affirmative defense of patent misuse. These practices include, in relevant part, "condition[ing] the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned." 35 U.S.C. § 271(d)(5). Thus, under§ 271(d), "in the absence of market power, even a tying arrangement does not constitute patent misuse." Va. Panel, 133 F.3d at 869.

In US. Philips Corp. v. Int'l Trade Comm'n, 424 F.3d 1179, 1190 (Fed. Cir. 2005), the Federal Circuit held that package licenses are not per se patent misuse, because a "package license is thus not anticompetitive in the way that a compelled purchase of a tied product would be." In Philips, the patent owner licensed essential or "wanted" patents as part of a patent package that also included non-essential or "unwanted" patents. Id. at 1183-84. The Court found there was "no evidence that a portion of the royalty was attributable to the" nonessential patents and, thus, no basis to support the conclusion that "a hypothetical licensing fee would have been lower if Philips had offered to license the patents on an individual basis or in smaller packages." Id. at 1189. The Court went on to evaluate Philips's package license under the rule of reason and found that the evidence did not support a finding of "anticompetitive effect on competitors offering alternatives to the... nonessential patents" because (i) "the evidence did not show that including those patents in the patent packages had a negative effect on commercially available technology, " (ii) there are "problems with licensing patents individually, " including transaction and monitoring costs, (iii) changes in technology might render certain essential patents non-essential and vice-versa, and (iv) package licensing with royalties based on production output rather than patent input may be more efficient and avoid unnecessary litigation. Id at 1198.

Here, Defendant alleges that Plaintiffs engage in patent misuse by tying the "wanted" patents-in-suit with a large and undisclosed number of "unwanted" patents. (D.I. 10 at 8) The relevant market, according to Defendant, is the "portfolio consisting of the [t]ying [p]atents because no reasonable substitutes exist for a license to that portfolio." (Id.) Furthermore, Defendant has alleged that IV "has conditioned and sought to condition a license to the [t]ying [p]atents on the putative licensee's agreement to also take and pay for a license to the entirely irrelevant and unwanted [t]ied [p]atents." (Id. at 9) Thus, according to Defendant, unlike in Philips, at least some portion of the licensing cost ...


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