How does Intel’s antitrust lawsuit against Fortress change the patent narrative?

Zachary Silbersher

Intel’s lawsuit takes aim at a new aspect of PAEs.  That aspect is patent aggregation.  Intel and Apple, two big-tech companies, are seeking a court ruling that would essentially hold that the very act of aggregating patents can give rise to antitrust violations.  The implications of that could redound far beyond the alleged scourge of “patent trolls.”  Indeed, the real targets of Intel’s lawsuit are not PAEs, but rather startups. 

We previously blogged about Intel’s antitrust lawsuit against Fortress.  Fortress has moved to dismiss the complaint, which resulted in numerous amicus briefs filed in support of Intel as well as a statement of interest filed by the DOJ in support of Fortress.

Intel’s theory of antitrust liability for aggregating patents 

At the heart of Intel’s lawsuit is the allegation that patent aggregation is the newest evil within the patent-sphere that must be redressed.  (Intel’s lawsuit is actually brought by both Intel and Apple, as co-plaintiffs.  For ease of reference, this post will simply refer to both as “Intel”.) 

 There are two basic questions lurking behind the briefing filed by the parties and amici in Intel’s lawsuit.  First, is patent aggregation truly an evil that needs redress?  And second, if so, are antitrust laws a proper mechanism for redressing this evil? 

On the first question, Intel claims that Fortress controls over 1000 patents for high-tech consumer and enterprise electronics.  From here, Intel identifies two key aspects of Fortress’ portfolio that raises antitrust alarms.  First, Fortress has aggregated patents previously owned by multiple entities under control of a single entity.  Second, Fortress’ patents cover complementary and substitute technologies for electronics devices. 

Intel explains that Fortress’ aggregated portfolio includes technologies that are both complementary and substitutes.  According to Intel, by virtue of aggregating patents covering substitute technologies, competition is eliminated.  Substitutes previously owned by different entities are now owned by the same entity.  For a potential licensee, its options are therefore limited.  Intel is presumably suggesting that a prospective licensee cannot forego a license from Fortress in favor of selecting a substitute technology from another firm.  As a result, this allegedly raises royalty rates above supra-competitive prices.  

Intel, however, does not suggest that Fortress has aggregated all or nearly all substitutes for a given technology.  It is questionable whether the act of aggregating an undefined number of substitutes is necessarily a restraint on trade.  Even if aggregating less than all substitutes could theoretically define a relevant market for antitrust purposes, Intel’s broad definition of the relevant market and vaguaries over the scope of the aggregated substitutes basically asks a court to deem patent aggregation—by itself—as an antitrust violation.  This appears to be divorced from the constraints on defining a relevant market for antitrust purposes.  Indeed, the DOJ showed up in this case for the purpose of making this precise point.

Companies often pursue patents for alternative or substitute technologies.  Indeed, single patent applications often disclose alternative or substitute embodiments in themselves.  It is hard to believe that neither Apple nor Intel own patents covering substitute technologies.  Going further, each time there is an M&A deal within a given industry, will the attendant aggregation of patents under a single owner necessarily result in blocking the deal?

For another reason, Intel alleges that Fortress’ aggregated patent-portfolio allegedly violates antitrust laws because Fortress can allegedly monetize patents that their predecessor owners would not have.  Intel claims that the companies that sold their patents to Fortress were not incentivized to enforce those patents.  Intel identifies a number of reasons for this.  Intel claims that the patents are weak, they would likely be proven invalid, and thus there would be no incentive for a positive return.  Yet, according to Intel, by virtue of aggregating lots of patents, Fortress can allegedly assert scores of weak patents that raise the likelihood that numerous licensees—presumably like Intel and Apple—will agree to pay supracompetitive royalty rates.  Or even better, according to Intel, “that a weak patent will slip through the controls of the jury system and be found enforceable when it should not be.”  (Intel’s Opposition at 7). 

There are some obvious holes in these arguments.  At the outset, it is hard to believe, as Intel suggests, that a patent that is upheld by a jury can give rise to an antitrust violation even though Intel believes that should not have happened.  Intel cannot seriously base an antitrust complaint on the theory that juries are sometimes fallible, and Intel simply knows better which patents should make it through the system. 

Next, Intel’s allegation that the prior owners of these patents would not have enforced them is belied by the facts alleged in its own complaint.  Intel’s narrative suggests that Fortress rummaged through a vault labeled “weak patents” to compile its portfolio.  That is not true.  One of the amici (High Tech Inventors Alliance and Computer & Communications Industry Assoc.) suggests that PAEs often acquire patents from defunct or downsized companies.  That is also not true—especially in the case of Fortress.  Intel’s own complaint identifies a list of viable, existing large technology companies from where Fortress’ subsidiaries acquired its patents – NXP, Koninklijke Philips, Huawei, Panasonic, Nokia, among others. 

The fact that Fortress, or its subsidiaries, may be acting as intermediaries between patent owners and monetization does not undermine the fact that the original patent owners were interested in monetizing their own patents.  The DOJ’s statement of interest spoke directly to this point:  “Ensuring that such intermediary activity is not unduly constrained by overly expansive application of antitrust law can help ensure that such inventors are properly rewarded for beneficial research and development efforts—and are incentivized to proceed with them.”

Indeed, Intel’s briefing highlights that this case boils down to death-by-association.  The patents are weak are because they are associated with Fortress.  The PAEs that are asserting the patents are monopolists because they are associated with Fortress.  The act of aggregating patents is an antitrust violation because it is done by, again, Fortress.  If a PAE can successfully prevail at a jury trial then, well, that “should not” have happened because, well, it is affiliated with Fortress.  

Among the amici, the brief filed by Unified Patents along with Cablelabs Patreon and Bimovin covers a lot of ground on the argument that PAEs are purportedly—in general—just bad for the economy.  But Unified’s arguments take aim at nearly all PAE’s, while not being limited to the PAE’s that would fall into the relatively unique reasons for which Intel claims that Fortress has violated antitrust laws—namely, by (i) aggregating substitute technologies, and (ii) from multiple prior owners. 

Unified also claims that most PAE suits end in nuisance settlements.  If that is true, that undermines one of the primary factual contentions of Intel’s case—namely, that Fortress’s “scheme” is anticompetitive because it is charging supracompetitive prices.  It also underscores a gaping hole within Intel’s allegations.  If Intel and Apple have been the victims of Fortress’ scheme to pay supracompetitive rates, why is there no allegation that they have in fact been victims of that scheme—by having actually paid rates that are supracompetitive? 

Unified makes the observation that increased “aggregation” of patents may be the result of developments that have made patents more difficult to enforce, namely, Alice, eBay and IPRs.  By aggregating patents, Unified claims that “large PAEs rely on the threat of virtually endless litigation and retaliatory assertions to extract supracompetitive rates for patent licenses.”  (Unified Br. at 8).  But that threat would presumably only make sense if Fortress’ entities were negotiating supracompetitive licenses to its entire portfolio—across all of its subsidiaries.  If they are, instead, negotiating one-off licenses (allegedly only for “nuisance” value) for patents actually asserted, then the threat of “endless litigation” is not in fact a threat at all.

Fair Standards Alliance (FSA) filed also filed an amicus brief in favor of Intel.  FSA is a standard-setting organization that promotes transparent licensing of SEP patents on FRAND terms.  FSA’s brief argues that it is can be an anticompetitive restraint on trade to charge supracompetitive prices for SEP patents.  Intel’s complaint does not identify any instances of a Fortress-owned entity asserting a specific SEP patent and demanding a non-FRAND royalty rate.  If Fortress is not aggregating any SEP patents, and if laws already exist to deter supracompetitive licensing for SEP patents, then FSA may be attacking a straw-man.

Is aggregation is the new evil in the patent narrative?

If Intel’s antitrust theory is to survive, it appears that it might have to be limited to only to those instances where a patent-aggregator has proven to have cornered the market on all possible substitute technologies, and it has then demanded truly supracompetitive rates.  But based upon some of the admissions of the amici, it is far from certain that very many PAEs currently on the market would satisfy either of those criteria.  In that case, Intel and the amici are addressing a problem that may not actually exist. 

But perhaps that is exactly the point.  Intel may very well lose this lawsuit.  Yet, this may nevertheless be an instance of losing the battle, but attempting to win the war.  And the war, for now, is the ongoing narrative over asserting patents that were developed at another company. 

For years, big-tech has succeeded in muffling the importance of patents.  While they claim the reason is because alleged “patent trolls” are sucking them dry, the evidence does not bear that out.  Instead, big tech has succeeded without patents, and their continued success could potentially be muffled if patents wielded by start-ups actually had any teeth.  This is the counter-narrative, namely, that Intel’s lawsuit is a roundabout way to justify efficient infringement.

Indeed, for Intel to even make it past the motion to dismiss stage would considerably increase the risks associated with aggregating patents.  That in turn would make it much harder to sell patents, which in turn would dramatically reduce the price of patents, and the corresponding value of patents.  And that, at the end of the day, may be exactly what companies like Apple want—to reduce the value, importance and leverage of patents.  Period.

As we’ve discussed before, if Intel and Apple prevail, the companies that really lose here are not PAEs.  The real losers will be start-ups.