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IP Alert: Federal Circuit Holds Defendant in Patent Infringement Suit May Recover Triple Its Attorney’s Fees as Walker Process Damages

February 16, 2016

A patent gives one the right to exclude others from making, using, offering for sale, selling, and importing a claimed invention. Because of this exclusionary right, patent rights that can have the effect of excluding competition often intersect with antitrust laws designed to thwart anti-competitive business practices. An example of such an intersection is in a so-called “Walker Process claim,” which gets its name from the 1965 Supreme Court decision in Walker Process Equipment, Inc. v. Food Mach. and Chem. Corp. In Walker Process, the Supreme Court held that a party who uses a patent procured through intentional fraud on the U.S. Patent and Trademark Office (USPTO) to obtain or preserve a monopoly may be subject to antitrust liability under section 2 of the Sherman Antitrust Act, which prohibits anti-competitive business practices.

Last week, in TransWeb, LLC v. 3M Innovative Properties Co., the U.S. Court of Appeals for the Federal Circuit considered whether a party who has successfully brought a Walker Process claim against a patent owner may recover attorney’s fees it incurred in defending that patent infringement suit as damages resulting from the patent owner’s antitrust violation. Section 4 of the Clayton Antitrust Act provides that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . shall recover threefold the damages by him sustained, and the cost of the suit, including a reasonable attorney’s fee” (emphasis added). If the attorney’s fees a party incurs in defending an underlying patent infringement suit may be recoverable as damages in a Walker Process claim, then the party may recover three times those fees, as well as the attorney’s fees incurred bringing the antitrust case.

TransWeb and 3M are both manufacturers of filter media used in respirators of the type worn by workers in a dirty or contaminated work site. TransWeb and 3M independently developed a technology for imparting an electrical charge on the filter media. The specially charged filters are more effective in oily environments, where other types of filter media might perform poorly or quickly degrade.

In July of 1998, 3M asserted two patents against TransWeb in connection with the filter technology. After 3M voluntarily dismissed that suit due to an apparent personal jurisdiction issue, TransWeb filed suit in New Jersey for declaratory judgment. Among other claims, TransWeb asserted that the 3M patents were unenforceable due to inequitable conduct, and that 3M violated antitrust laws in a Walker Process claim. TransWeb prevailed on both counts.

On appeal, the Federal Circuit affirmed the district court’s inequitable finding. The court then moved on to TransWeb’s Walker Process claim. In order to prevail on a Walker Process claim, the antitrust plaintiff must prove two elements: (1) that the antitrust defendant obtained the patent by knowing and willful fraud on the USPTO, and maintained and enforced the patent with knowledge of the fraudulent procurement; and (2) all the other elements necessary to establish a Sherman Act monopolization claim. The other elements necessary to establish an attempted monopolization claim are (a) that the defendant has engaged in predatory or anticompetitive conduct with (b) a specific intent to monopolize and (c) a dangerous probability of achieving monopoly power.

Because the court had already affirmed the inequitable conduct finding, the court determined that that finding was sufficient to satisfy Walker Process element (1) as well as elements (a) and (b) of the Sherman Act claim. The only disputed issue on appeal with respect to the Walker Process claim, then, was the probability of 3M achieving monopoly power, which required defining the relevant product market and geographic market, and then evaluating 3M’s defendant’s ability to lessen or destroy competition in those markets.

The court explained that the relevant product market consists of all products that are reasonably interchangeable by consumers for the same purpose. The relevant geographic market is the area in which a potential buyer may rationally look for the goods or services he or she seeks. 3M argued that the district court erred in limiting the relevant product market to the electrically treated filter media at issue in this case, and that the relevant market should have more broadly included fiberglass and other materials that are interchangeable with the specially treated media. Presumably 3M’s market share in the broader market was more diluted than its share in the narrower market, making it more difficult to show a probability of monopoly power in support of a Sherman Act antitrust violation. The court rejected this argument and found that there was sufficient evidence on which a reasonable juror could conclude that the price, use, and qualities of the specially treated material rendered a market distinct from other filter media.

3M also argued that the relevant geographic market should be not limited to the United States. The court concluded that there was a sufficient basis on which a reasonable juror could conclude that the U.S. was the relevant geographical market for respirators including this type of filter media. Based on the record, the court affirmed TransWeb’s Walker Process antitrust claim.

3M also challenged the district court’s award of attorney’s fees as antitrust damages. The district court awarded TransWeb $3.2 million in attorney’s fees for prosecuting the antitrust claim on a one-for-one basis as “cost of suit” fees and awarded $7.7 million in attorney’s fees for defending the infringement suit, trebled to $23 million as antitrust “damages.” 3M argued that the district court erred in awarding $23 million in trebled attorney’s fees as antitrust “damages” because those fees had no effect on competition; they did not force TransWeb out of the market or otherwise affect prices in the market. The court recognized that section 4 of the Clayton Act does not provide compensation for any injury casually linked to a violation of the antitrust laws, but rather only for antitrust injury. Therefore TransWeb’s injury of $7.7 million in attorney’s fees must be attributable to an anticompetitive aspect of the business practice under scrutiny in order to qualify as an antitrust injury. The court found that 3M’s unlawful act was the bringing of a patent infringement suit based on a patent known to be fraudulently obtained. What made this act unlawful under the antitrust laws was its attempt to gain a monopoly based on this fraudulently obtained patent. Because TransWeb’s attorney’s fees in defending the patent infringement suit flowed directly from this unlawful aspect of 3M’s act, the court found that the fees constituted antitrust injury, and were properly trebled by the district court.

In affirming the district court, the Federal Circuit explained that 3M instigated an anticompetitive suit that forced TransWeb to choose between ceasing competition, taking a disadvantageous position in competition (taking a license), or defending the suit. Because the injury suffered by the antitrust plaintiff under each choice flows from the anticompetitive aspect of the patent owner’s behavior, each one can be recovered as antitrust damages. The court noted that because 3M was unwilling to license its patents to TransWeb, TransWeb only had the options of ceasing competition altogether or defending the patent infringement suit. The court reasoned that to hold that TransWeb can seek antitrust damages only under the first option, forfeiting competition, but not under the second, defending the anticompetitive suit, the court would be incentivizing the former over the latter. This would amount to incentivizing TransWeb to forfeit competition rather than continue it, which the court found at odds with the purpose of antitrust laws.

The Federal Circuit’s holding in TransWeb adds significant potential exposure to a plaintiff in a patent infringement suit where a defense of inequitable conduct has been asserted. A successful Walker Process claim flowing from an inequitable conduct claim can result in the tripled recovery of attorney’s fees in defending the patent infringement suit, whereas a finding of inequitable conduct alone may only result in one-for-one recovery of attorney’s fees.

If you have questions regarding this decision, please contact Joseph F. Marinelli, author of this alert.

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