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Intellectual Ventures I LLC v. Capital One — Collateral Estoppel May Still Apply Even Where Prior Decision Was Based On Alternative Determinations

Bethany Caracuzzo
Pritzker Levine LLP

On September 10, 2019 the Court of Appeals for the Federal Circuit affirmed the grant of summary judgment to counter-defendant Intellectual Ventures by district courts in Maryland and Virginia.  Applying collateral estoppel to plaintiffs’ antitrust Sherman and Clayton Act claims, the Federal Circuit found that even where a court makes alternative findings, it may still be appropriate to apply collateral estoppel where all of the alternative determinations in the first case, both apply, and would be independently sufficient, to dispose of the second case.  Intellectual Ventures I LLC, et al. v. Capital One Financial Corporation, et al., Case No. 2018-1367 (Sept. 10, 2019), ECF No. 105.

I. BACKGROUND

Intellectual Ventures I LLC and Intellectual Ventures II LLC (collectively “IV”) brought a first patent infringement claim against two Capital One entities (collectively “Capital One”) in 2013 in the Eastern District of Virginia.  A year later, IV brought a second patent infringement claim against Capital One in the District of Maryland.   IV lost on its claims in both trial courts, and on appeal.

Capital One filed antitrust counterclaims against IV in both actions, but lost on both:  Judge Trenga of the Eastern District of Virginia dismissed the case for failure to state a claim on which relief could be granted.  Intellectual Ventures I LLC v. Capital One Fin. Corp., No. 1:13-cv-00740, 2013 WL 6682981 (E.D. Va. Dec. 18, 2013) (“Virginia Op.”).   In Maryland, Judge Grimm denied IV’s motion to dismiss (No. PWG-14-1111, 2015 WL 4064742 (D. Md. July 1, 2015), but subsequently granted summary judgment against Capital One on all of its antitrust claims. 280 F.Supp.3d 691 (D. Md. 2017) (“Maryland SJ Op.”).

In both the Virginia and Maryland cases, Capital One’s cross-actions alleged that IV violated section 2 of the Sherman Act and section 7 of the Clayton Act for engaging in monopolization, attempted monopolization, and for unlawful acquisition of assets.  Case No. 18-1367, ECF No. 105 (“Fed. Cir. Op.”), at 4. 

The Virginia Action

In the Virginia action, Capital One asserted patent misuse as a defense and counter-claimed that IV’s business model is to acquire patents, and then use those patents to threaten repetitive infringement litigation against banks unless the banks agree to pay large licensing fees to IV. Id.  IV had accumulated a patent portfolio of approximately 3,500 patents related to commercial banking practices, though IV concealed the identify of its patents, Capital One alleged, and instead insisted that bank such as Capital One pay for a license to the entire portfolio. Fed. Cir. Op., at 4-5.  Many of these 3,500 patents were invalid, unenforceable and not infringed, Capital One claimed.  Therefore, Capital One asserted, the threatened patent infringement litigation was a “sham” and asserted in “bad faith” and was used as an “anti-competitive weapon to increase its pricing power in the relevant market.”  Id., at 5.

IV moved to dismiss the counterclaims, and Judge Trenga granted the motion on the grounds that Capital One had not alleged “any of the recognized indicia of a relevant market.” Virginia Op., at *5.  The court observed that, because Capital One had in effect alleged there is no commercial market for IV’s patent portfolio, Capital One’s relevant market is merely “what IV relies upon to justify its allegedly extortionate demands…it is not the substantive commercial usefulness or the merits of the technology that defines the market; but simply the patents in that market used to threaten Capital One”, e.g. the entire portfolio of 3,500 patents. Fed. Cir. Op. at 6, quoting Virginia Op. at 5. The Virginia court concluded: “Capital One’s proposed market is not a ‘relevant market’ under any recognized jurisprudence.” Id.

Furthermore, the Virginia court went on, even if Capital One had identified a proper relevant market, it also failed to allege IV’s market share: facts that supported a plausible claim that IV wields unlawful monopoly market power within that market. Fed. Cir. Op. at 7, citing Virginia Op. at *6.  It rejected Capital One’s argument that, instead, supra-competitive prices and restricted output” provided direct evidence of market power. Id.  Judge Trenga also found that Capital One did not provide any explanation as to “why IV’s acquisition of presumably valid patents was unlawful or at what point IV’s enforcement of those patents became an unlawful exercise of monopoly power.” Id.  While Capital One claimed that IV engages in and threatens sham litigation to extort the licensing fees, it did not refer to any specific litigation history by IV that support its allegations, and therefore, there were no facts that placed Capital One’s counterclaims with any recognized exception to the Noerr-Pennington doctrine’s protections. Id., at 7-8.  In sum, Judge Trenga held, “the antitrust laws appear ill suited as a remedy for what Capital One fears” and that relief would “more likely come through various doctrines of tort liability, statutory fees or judicial sanctions.”  Id., at 8, quoting Virginia Op. at *8.

IV lost its appeal.  Capital One initially cross-appealed from the dismissal of its antitrust counterclaims and other third-party claims, but dismissed its appeal when the District of Maryland granted Capital One’s motion to add antitrust counterclaims and third party claims in the Maryland action.

The Maryland Action

While the Virginia case was still pending, IV brought patent infringement claims, arising from five new and different patents, against the Capital One entities.  Capital One again moved to assert the same antitrust counterclaims under the Sherman and Clayton Acts, though Capital One alleged a different market.

The Maryland district court, in permitting Capital One to add the counterclaims, held that it had alleged a plausible relevant market consisting of IV’s portfolio of patents on financial services, that Capital One had sufficiently alleged that IV had monopoly power in that market, and that IV had intentionally acquired patents on existing products in the financial industry to so that it could “hold up” banks that substantially invested in those existing product designs.  Fed. Cir. Op. at 10, citing to 99 F. Supp. 3d 610, 626 (D. Md. 2015) (Maryland mot. to dismiss ruling). Maryland also rejected IV’s argument that Capital One’s claims should be dismissed on collateral estoppel grounds.  Id.   IV took an interlocutory appeal, and the Federal Circuit affirmed.  850 F.3d 1332 (Fed. Cir. 2017).

The District of Maryland granted IV’s motion for summary judgment.  Fed. Cir. Op. at 12; Maryland S.J. Op. at 697-700. Capital One offered the opinions of expert economist Fiona Scott Morton, who opined, in part, that, while IV”s patent portfolio didn’t constitute a classic relevant market for antitrust purposes, it was analogous to a “’cluster market’ that IV promotes as a single product (for which there are no close substitutes) at a supra- competitive price.”  Id.   IV’s expert, Professor Richard Gilbert disagreed, arguing that there was distinct technology markets for sets of the patents, that Capital One did not analyze whether there are alternative close substitutes it could turn to, and that there was no market price at all, since no party had actually paid for licensing IV’s portfolio.  Id.

Judge Grimm acknowledged “it is hard to deny that there is something concerning from an antitrust perspective about the way in which IV engages in its licensing business”, but found there were two dispositive issues that warranted granting summary judgment for IV: (1) Noerr-Pennington doctrine immunity, to which the sham litigation exception did not apply in this instance; and (2) the collateral estoppel effect of the Virginia district court decision that the portfolio of financial services patents was not a relevant market for Capital One’s antitrust claims. Fed. Cir. Op. at 13, 16; Maryland S.J. Op. at 704, 716-24. While Capital One had made some changes in its relevant market definition, Judge Grimm explained in his ruling why the changes did not materially alter the alleged relevant market from the one alleged in the Virginia action. Id., at 17; Maryland S.J. Opp. at 719.

II. Appellate Analysis

Capital One appealed challenging Maryland’s application of collateral estoppel on the relevant market issue and its ruling that Noerr-Pennington doctrine immunizes all of IV’s challenged conduct from antitrust scrutiny. Fed. Cir. Op. at 18.

Collateral Estoppel

On appeal, Capital One argued that because the Virginia district court dismissed its antitrust claims on two alternative and independent grounds, under the law of judgments, collateral estoppel does not apply to either ground of decision, and the losing party is not estopped from relitigating either issue in subsequent litigation.  

The law of the regional circuit in which the district court is located (Maryland) applies, so the Fourth Circuit law governs. Id., at 19. The Fourth Circuit has adopted the “widely recognized principle” that collateral estoppel applies only if (1) the issue or fact is identical to the one previously litigated; (20 the issue or fact was actually resolved in the prior proceeding; (3) the issue or fact was critical and necessary to the judgment in the prior proceeding; (4) the judgment in the prior proceeding is final and valid; and (5) the party to be foreclosed by the prior resolution of the issue or fact had a full and fair opportunity to litigate the issue or fact in the prior proceeding.  Id., at 20.

The Federal Circuit Court of Appeals found that the two issues on which Judge Trenga (of Virginia) based his dismissal order were not independent and alternative grounds, but where, in fact, integrally related: the presence of a relevant market is critical to both whether a relevant market had been identified (ground one for dismissal) and to whether the defendant possesses monopoly power in a relevant market (ground two). Id., at 20-21. “The requirement of a relevant antitrust market is a necessary component of both determinations.” Id., at 21.

The First Restatement of Judgments (§ 68 cmt. n (1942)) suggests that “[w]here one judgment is based upon matters litigated as alternative grounds, the judgment is determinative on both grounds, although either alone would have been sufficient to support the judgment.”  This is directly at odds with the Second Restatement of Judgments (§ 27 cmt. i (1982)) which instead posits that “[i]f a judgment of a court of first instance is based on determinations of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone.”  Fed Cir. Op. at 26. Several circuits have adopted the general rule of the Second Restatement, including the 4th, 5th, 7th, 8th, and 10thId. at 23, nt. 4, and 27. The Federal Circuit acknowledged the fairness aspect to such a rule – it would relieve parties from having to appeal several issues simply to avoid the preclusive effect of one of the rulings, and that a party may not foresee the risk of potential collateral estoppel down the road and therefore wouldn’t timely appeal, and it could also result in additional unnecessary appellate litigation that would otherwise never come to pass.  Id. at 27.

The Federal Circuit, noted, however, that “the case for applying collateral estoppel to alternative determinations is much stronger when all of the alternative determinations in the first case, would be independently sufficient to dispose of the second case.” Id. at 28.

 “Applying the principles of collateral estoppel as we believe the Fourth circuit would apply them,” the Federal Circuit affirmed the judgment finding that, (1) the issues between the Maryland and Virginia claims were not independent grounds for decision, but, (2) even if they were, because Judge Grimm (Maryland) found that either alternative grounds for judgment against Capital One – that it failed to identify a relevant market and that it failed to allege that IV had monopoly power in a relevant market – were sufficient to defeat its Sherman Act claims, it was appropriate to apply collateral estoppel applied.  Id. at 31, 38.   It also found, “for similar reasons…the failure to allege or prove a relevant antitrust market”, that collateral estoppel applied to Capital One’s Clayton Act claims. Id. at 38.

Because it affirmed the judgment on all of Capital One’s antitrust claims on collateral estoppel grounds, the Court of Appeals found it “unnecessary” to reach the issue of the applicability of Noerr-Pennington doctrine or the merits of the antitrust claims.

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