DOJ Backs Fortress Against Apple, Intel Antitrust Suit
By Bryan Koenig
Law360 (March 23, 2020, 9:22 PM EDT) -- The Department of Justice has provided important backing to Fortress Investment Group LLC, which is defending itself in California federal court against an antitrust lawsuit from Apple and Intel accusing the investment management firm of an anti-competitive patent aggregation scheme.
The DOJ on Friday argued in a statement of interest that the tech companies botched the requisite market definition, a stand that aligns with broader DOJ Antitrust Division arguments that patent rights generally do not trigger competition law. But those assertions were discussed in just three paragraphs while the lion’s share of the 27-page brief focused on arguing that Apple and Intel’s federal antitrust claims — the bulk of their case — fail because they are “premised on a facially overbroad market definition” and do not identify harm to competition.
In alleging that Fortress has formed a web of patent assertion entities, or PAEs, to bilk technology companies with excessive patent licensing demands and litigation threats, Apple and Intel base their needed market definition on an electronics patent market. But according to the DOJ, that market is entirely too broad because it appears to encompass “an indefinite number of patents utilized by or licensed to an unknown number of end users for an untold variety of purposes.”
Those patents, according to the DOJ, include technology for software, components and manufacturing processes for a huge variety of companies, and the proposed market also covers “complementary products as well as substitutes and, apparently, unrelated products.” Markets, the DOJ said, must be limited to potential substitutes for a given product, and the one proffered by Apple and Intel “is facially unsustainable.”
Apple and Intel teamed up in November to pursue allegations that Intel had initially brought alone. The companies claim that Fortress and PAEs it owns or controls are using "ill-gotten power" to extort excessive royalty fees for weak patents and are asserting the patents against a variety of major tech companies, including the plaintiffs.
According to Apple and Intel, Fortress and its PAEs are trying to "monetize meritless patents" that their original owners would have never asserted.
Apple and Intel say the defendants have acquired a massive patent portfolio and take a scattershot approach of filing repeat infringement suits in the hopes that at least one will stick, either through a court win or settlement, in order to justify the investment. They say the power of the portfolio is being used to "extract and extort exorbitant revenues unfairly and anti-competitively from Intel, Apple and other suppliers of electronic devices or components or software."
Fortress hit back against the suit in early February, arguing in a dismissal bid that all it did was make loans and equity investments that allowed patent owners to enforce rights they acquired "when the original inventors and owners might not have been able to withstand plaintiffs' high-priced defenses and refusals to pay for the technology they are using."
Without Fortress' backing, such entities "would often lack sufficient resources to enforce their constitutionally enshrined patent rights" against companies such as Apple and Intel that "refuse to pay a fair price" to license the technology, according to the brief. Enforcing those rights is not anti-competitive but is instead "a lawful and publicly beneficial business practice," Fortress said.
Adding weight to those arguments Friday were the DOJ’s continued assertions on the commitments made whenever a patent-holder's intellectual property is designated a standard essential patent, or SEP, anchored to facilitate technological compatibility.
SEP-designation comes with a commitment to license the technology on fair, reasonable and non-discriminatory grounds, but the alleged breaking of FRAND promises should not trigger competition law, DOJ Antitrust Division leadership has argued in recent years, including in a high-profile spat with the Federal Trade Commission.
“Fundamentally, these claims are contractual pricing disputes that are properly vindicated through contract law remedies and do not state an antitrust claim,” the DOJ said Friday.
The division spent more time in its brief attacking Apple and Intel’s assertions of antitrust harm. The companies, it said, have not identified a single patent that Fortress acquired that could be a substitute for any other within its portfolio. That “fatal” lack of specificity contrasts with plaintiff assertions that Fortress used its meritless patents “more aggressively than did the prior patent holders,” thus allowing it to demand greater licensing payments “or litigation windfalls,” according to the brief.
“In the absence of harm to competition (through a mechanism like aggregation of substitutes), this activity does not violate the antitrust laws, but at most reflects only a harm to particular individual firms,” the DOJ said.
The DOJ isn’t the only party to weigh in on the litigation. Others who jumped in last week did so to back Apple and Intel, including anti-PAE group Unified Patents LLC, which dedicated its proposed amicus brief to the harms caused by PAEs, sometimes referred to as patent trolls. Unified Patents and the companies that joined its brief argued that mass patent aggregation and “serial enforcement campaigns” can trigger antitrust law.
The Fair Standards Alliance argued that FRAND commitment violations can in fact run afoul of antitrust law, with Fortress’ alleged agreements and acquisitions paving the way for the company and its PAEs “to continue exercising market power” with the threat of “waves of infringement litigation, forcing a no-win choice between inflated license fees and crushing litigation expenses.”
In another amicus brief, advocacy groups R Street Institute, The Center for Democracy & Technology, Public Knowledge, Engine Advocacy and the Electronic Frontier Foundation took aim at a central tenet of Fortress’ arguments. While the groups did not argue directly for Apple and Intel, they said that Fortress’ dismissal bid rests partially on “a common but crucial misunderstanding of patent law,” that the case against it falls apart because it is accused of leveraging “weak” patents, and that weak patents, under Fortress’ logic, cannot contribute to market power.
“One might draft a patent application so broadly as to try to capture technologies or inventions that go far beyond the actual inventive contribution meriting a patent, potentially in hopes of extracting licensing fees from a broader range of manufacturers, vendors, and users of technologies,” the groups said. “By virtue of having exceptionally broad coverage, patents that are weak for overbreadth have repeatedly shown themselves to be powerful tools for manipulating markets, controlling competition, and extracting undue value from small businesses and consumers.”
Intel declined comment, and representatives for the DOJ and Fortress did not immediately respond Monday to press inquiries.
Intel and Apple are represented by Mark D. Selwyn, Leon B. Greenfield, Amanda L. Major, William F. Lee, Joseph J. Mueller and Timothy D. Syrett of WilmerHale.
Fortress is represented by Morgan Chu, Benjamin W. Hattenbach, A. Matthew Ashley, Michael D. Harbour and Olivia Weber of Irell & Manella LLP and Martin Flumenbaum of Paul Weiss Rifkind Wharton & Garrison LLP. INVT SPE LLC and Inventergy Global Inc. are represented by Christopher A. Seidl of Robins Kaplan LLP. DSS Technology Management Inc. is represented by Nathaniel Lipanovich of Thoits Law. IXI IP LLC is represented by Jason D. Cassady of Caldwell Cassady & Curry. Uniloc 2017 LLC is represented by James J. Foster of Prince Lobel Tye LLP. Uniloc Luxembourg SARL and Uniloc USA Inc. are represented by Daniel R. Shulman of Lathrop GPM LLP. Seven Networks LLC is represented by Samuel F. Baxter of McKool Smith PC.
Unified Patents LLC, CableLabs, Patreon and Bitmovin Inc. are represented by William Jenks of Jenks IP Law PLLC.
R Street Institute, The Center for Democracy & Technology, Public Knowledge, Engine Advocacy and the Electronic Frontier Foundation are represented by Alexandra H. Moss of the Electronic Frontier Foundation.
The Fair Standards Alliance is represented by Anna T. Pletcher, Ian Simmons, Matt Schock and Kristin R. Marshall of O’Melveny & Myers LLP.
The DOJ is represented by Daniel E. Haar, Andrew N. Delaney, Eric D. Dunn, Makan Delrahim, David L. Anderson, William J. Rinner and Michael F. Murray.
The case is Intel Corp. v. Fortress Investment Group et al., case number 3:19-cv-07651, in the U.S. District Court for the Northern District of California.
--Additional reporting by Britain Eakin. Editing by Peter Rozovsky.
