FTC/DOJ File Amicus Brief on Antitrust Standing of Direct Purchasers Who Allege Fraud Upon USPTO

May 22, 2012. The Federal Trade Commission (FTC) and the Department of Justice's (DOJ) Antitrust Division filed an amicus curiae brief with the U.S. Court of Appeals (FedCir) in Ritz Camera & Image v. SanDisk, in support of Ritz.

SanDisk made flash memory products, which Ritz and others purchased. Ritz and the others filed a complaint in the U.S. District Court (NDCal) against SanDisk alleging monopolization in violation of Section 2 of the Sherman Act, which is codified at 15 U.S.C. § 2.

The plaintiffs' complaint alleges fraud on the U.S. Patent and Trademark Office (USPTO) by intentionally failing to disclose invalidating prior art and by making affirmative misrepresentations to the USPTO, subsequent enforcement of fraudulently obtained patents, and harm to competition by the charging of monopoly prices.

At issue is the the circumstances in which Section 4 of the Clayton Act, which is codified at 15 U.S.C. § 15, authorizes direct purchasers to recover overcharge damages resulting from a monopoly obtained and maintained through enforcement of a fraudulently procured patent.

The District Court held that direct purchasers do have antitrust standing. SanDisk then brought the present interlocutory appeal.

The FTC and DOJ argued that "For over a century, courts have held that direct purchasers have standing to recover overcharges paid to unlawful monopolists. There is no sound reason to depart from that well-settled principle when the anticompetitive conduct creating or maintaining the monopoly is the enforcement of a patent obtained through intentional fraud on the PTO."

The FTC and DOJ noted that the Supreme Court held in its 1965 opinion in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., which is reported at 382 U.S. 172, that those injured by monopolistic action taken under fraudulently procured patents can sue for damages under the antitrust laws.

The FTC/DOJ wrote that SanDisk "contends that, in addition to meeting the standards for antitrust standing, a plaintiff asserting a Walker Process claim also must satisfy the requirements imposed on a plaintiff seeking a declaratory judgment of patent invalidity. ... But neither Walker Process nor any court of appeals decision justifies such a rule".

The FTC/DOJ also wrote that "A plaintiff seeking a declaratory judgment of patent invalidity ordinarily must demonstrate that it has been threatened with an infringement suit in order to meet the constitutional requirement of a ``case or controversy.´´ But a properly alleged Walker Process claim for damages under the antitrust laws creates a justiciable controversy whether or not there is a threat of patent enforcement against the plaintiff."

The FTC/DOJ reasoned that "Ritz has alleged precisely the type of injury the antitrust laws were intended to redress. As a direct purchaser, Ritz’s injury is entirely distinct from that of an excluded competitor, and its damages -- the overcharges it paid for the monopolized product -- do not overlap the lost profits that an excluded competitor might seek."

The FTC/DOJ also urged that the Court of Appeals "not adopt a rule making direct purchaser standing turn on a separate proceeding over which the direct purchaser has no control. Such a rule could encourage holders of fraudulently procured patents to settle Walker Process claims made by excluded competitors, allowing the excluded competitors to share in any monopoly profits and the defendant to deny direct purchasers their right to recover damages under the Clayton Act."

See also, FTC release.

This case is Ritz Camera & Image LLC. v. Sandisk Corporation, U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 12-1183, an appeal from the U.S. District Court for the Northern District of California, D.C. No. 10-CV-2787.