Tuesday, November 20, 2012

CAFC affirms ND Ca in Ritz Camera v. SanDisk: Ritz can pursue Walker Process claim

The bottom line in the Ritz Camera case:

The certified question concerns the limits on standing to bring so-called Walker Process antitrust claims. The Supreme Court in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), held that antitrust liability may attach when a party uses a patent to obtain or preserve a monopoly if the patent was procured through intentional fraud on the Patent and Trademark Office (“PTO”). The question in this case is whether an antitrust action against the owner of a patent, based on the Walker Process theory of liability, can be brought by a direct purchaser of goods that are protected by the patent, even if the purchaser faces no threat of an action for patent infringement and has no other basis to seek a declaratory judgment holding the patent invalid or unenforceable. We hold that the district court was correct to rule that a direct purchaser is not categorically precluded from bringing a Walker Process antitrust claim, even if it would not be entitled to seek declaratory relief against the patentee under the patent laws.

The underlying issue:

In June 2010, Ritz filed suit on behalf of itself and a class of direct purchasers of NAND flash memory, alleg- ing that SanDisk had violated Section 2 of the Sherman Act, 15 U.S.C. § 2. The complaint alleged that SanDisk had fraudulently procured two patents central to its flash memory business—U.S. Patent Nos. 5,172,338 and 5,991,517 (“the ’338 and ’517 patents”)—by failing to disclose known prior art and making affirmative misrep- resentations to the PTO. Ritz further alleged that San- Disk established its monopoly position by enforcing those patents against its competitors and by threatening the competitors’ customers. Ritz contends that those actions have caused direct purchasers to pay inflated, supra- competitive prices for NAND flash memory products.

The CAFC noted:

Nothing in Walker Process supports SanDisk’s argu- ment that the rules governing standing to bring patent validity challenges should be imported into an antitrust case simply because one element of the antitrust cause of action requires proof of improper procurement of a patent. In fact, the Supreme Court in Walker Process rejected an argument closely analogous to SanDisk’s argument here. The Court stated that it found no merit in the proposition that rules defining who may bring suit “to cancel or annul a patent” should also dictate the boundaries of antitrust standing. Walker Process, 382 U.S. at 175-76. Notwith- standing the fact that “one of its elements is the fraudu- lent procurement of a patent,” the Court explained, an antitrust claim under the Clayton Act is not a claim under the patent laws.


SanDisk argues that allowing direct purchasers to bring Walker Process claims would authorize an intoler- able end-run around the patent laws because parties unable to pursue invalidity claims could achieve the same result by way of a Sherman Act claim. We do not share SanDisk’s concern. A Walker Process antitrust claim is a separate cause of action from a patent declaratory judg- ment action. It is governed by principles of antitrust law, and there is nothing novel about the fact that it includes as one of its elements the need to prove a violation that is not independently actionable between the same parties. Walker Process explained that while one of the elements of the antitrust claim is the fraudulent procurement of a patent, the action “does not directly seek the patent’s annulment.” 382 U.S. at 176.

Bottom line:

In sum, Walker Process recognizes a clear distinction between claims that arise under the antitrust laws and those that arise under the patent laws. Because direct purchasers are generally permitted to bring antitrust actions, and because the Walker Process decision did not preclude purchasers from bringing this particular type of antitrust claim, we hold that Ritz’s status as a direct purchaser gives it standing to pursue its Walker Process claim even if it could not have sought a declaratory judg- ment of patent invalidity or unenforceability.


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