By Gabriele Accardo
On 6 November 2014, the Federal Trade Commission communicated that MPHJ Technology Investments (“MPHJ”) and its law firm have agreed to settle Federal Trade Commission charges that they used deceptive sales claims and phony legal threats in letters that accused thousands of small businesses around the United States of patent infringement. The settlement would bar MPHJ and its law firm from making deceptive representations when asserting patent rights.
The settlement with MPHJ is the first time the FTC has taken action using its consumer protection authority against a patent assertion entity (“PAE”), which is a company that obtain patent rights and try to generate revenue by licensing to or litigating against those who are or may be using patented technology.
According to the FTC’s administrative complaint MPHJ bought patents relating to network computer scanning technology, and then told thousands of small businesses that they were likely infringing the patents and should purchase a license. In several thousand letters sent under the names of numerous MPHJ subsidiaries, MPHJ appears to have falsely represented that many other companies had already agreed to pay thousands of dollars for licenses.
MPHJ’s law firm authorized letters on the firm’s letterhead that were sent to more than 4,800 small businesses, warning them that the firm would file a patent infringement lawsuit against the recipient if it did not respond to the letter. The letters also referenced a two-week deadline and attached a purported complaint for patent infringement, usually drafted for filing in the federal court closest to the small business receiving the letter. In reality, the complaint alleges, the senders had no intention—and did not make preparations—to initiate lawsuits against the small businesses that did not respond to their letters. No such lawsuits were ever filed.
The Commission vote to accept the proposed consent order was 5-0. The proposed consent order will be subject to public comment through early December 2014, after which the Commission will decide whether to make the proposed consent order final.
U.S. District Court for the Northern District of Texas dismissed Second Consolidated Amended Complaint against hotel chains and online travel agencies
By Gabriele Accardo
On 28 October 2014 the U.S. District Court of the Northern District of Texas dismissed with prejudice a class action against hotel chains and Online Travel Agencies (“OTAs”), insofar as class action’s plaintiffs have not overcome the pleading deficiencies following the first judicial review of their pleadings which the Court originally dismissed without prejudice on 18 February 2014 (see Newsletter 1/2014, p. 3, for additional background).
The plaintiffs asserted a conspiracy amongst hotels and online travel agencies to impose “rate parity” across hotel booking websites so that the price of a room is the same on a hotel chain’s website as it is on any of the other websites where it may also be sold.
Yet, the Court found that the plaintiffs had not plausibly alleged a conspiracy in violation of the antitrust laws, and concluded that plaintiffs’ attempts to re-plead were futile.
Nonetheless, the Court noted that plaintiffs appear to have made some significant changes to their antitrust complaints.
Most noticeably, rather than allege an industry-wide conspiracy to fix prices, the amended complaint dropped the hotel chains as defendants and asserted a per se price fixing agreement between OTAs, an agreement which caused hotel prices to rise in 2003 and afterwards.
In support of this new theory, plaintiffs emphasized new allegations that the OTAs competed vigorously on price in the period 1999-2002 until an abrupt halt in price competition came in 2003 as a result of the horizontal OTA conspiracy.
Plaintiffs also alleged that the rate parity agreements followed the cessation of price competition between the OTAs as a necessary means of stamping out the OTA’s last remaining source of price competition: their hotel room suppliers.
Likewise, plaintiffs alleged that the OTAs were dominant retailers by 2002 capable of imposing unreasonable vertical restraints.
From this, plaintiffs argued that the rate parity agreements were not the “nub” of amended complaint but rather a necessary tool to effectuate the underlying agreement not to compete between OTAs.
Plaintiffs also made one noticeable change to address proximate causation for their consumer protection claim, namely, the amended complaint explicitly tied harm to the alleged price-fixing scheme, rather than the rate guarantees alone.
The Court noted that dropping the hotel defendants removed an inherent contradiction in the first complaint’s theory, as hotels were no longer simultaneously victims and willing participants in the scheme.
However, the deficiencies of the first complaint were not overcome by the mere re-configuration of the culpable actors. More likely factual allegations did not materially differ from the assertions that the court had already found insufficient.
In addition, the court did not allow the plaintiffs to add a claim that the online travel agencies’ RPM agreements with the hotels were per se unlawful vertical restraints under California state law.
By Nicole Daniel
On 21 November 2014 US District Judge Denise Cote gave her final approval to a settlement of the Apple e-book class action.
The class action against Apple arose from allegations that Apple and five publishers conspired on the publishing industry’s e-book pricing model in order to drive up prices. Ahead of the related trial the five publishers settled for approximately $ 167 million in total. Apple however decided to defend its actions in court.
In July 2013 Judge Cote found Apple liable under the antitrust rules and imposed a court-monitor responsible for reporting on the antitrust policies of Apple.
In August 2014 Judge Cote gave her preliminary approval to the settlement which resolves the claims by states as well as class action plaintiffs.
When giving her final approval Judge Cote noted that the form of the settlement is “highly unusual”. Indeed the settlement is comprised of three scenarios. In case Apple loses its appeal it will pay $400 million and another $50 million in attorney’s fees. If the appeals court vacates Judge Cote’s earlier decision but sends it back to her or if her decision is reversed and also sent back to her or if a retrial is ordered than Apple pays $50 million to consumers and a further $20 million in attorney’s fees. However in case Judge Cote’s decision is completely reversed by the appeal court and survives a further appeal then Apple does not owe consumers, states or their attorneys anything.
Judge Cote also said that the settlement deal makes sense given Apple’s “delaying tactics” since if they continued they would have forced consumers to wait to receive any money from Apple.
On 15 December 2014 a federal appeals court hearing is scheduled to hear Apple’s appeal. It remains to be seen which scenario will apply after the appeal court hands down its decision.
By Nicole Daniel
On 19 November 2014 in a hearing regarding the possible reopening of a lawsuit over whether GlaxoSmithKline (GSK) unfairly extended the monopoly on its drug Lamictal, an appellate panel of the Third Circuit suggested that reverse payments may be something other than cash.
The issue on appeal has its roots in the US Supreme Court decision in the Actavis case where it was held that a large and unjustified payment to a generic rival by the original brand of the drug in question to stay out of the market can be scrutinized under antitrust rules.
The main issue is therefore whether reverse payment settlements, also called pay-for-delay deals that do not include cash payments, can be deemed a type of payment that comes under the rule of reason analysis according to Actavis to determine whether the reverse payment settlement comes under the scrutiny of antitrust rules.
Drug buyers want the appeals court to reopen a lawsuit against GSK regarding its settlement deal with generic drug manufacturer Teva over the Lamictal drug. In 2005 GSK and Teva agreed that when Teva’s version of Lamictal will be marketed, GSK will not sell its own generic version of the drug, i.e. the authorized generic, for six months. In exchange Teva agreed not to market its generic version of Lamictal until July 2008.
The plaintiffs allege that this reverse payment led to higher prices for the buyers of Lamictal. The defendants argue that there was no payment at all. In 2012 and in 2014 a district court judge agreed with the defendants and threw the case out twice.
So far the courts have differed on the term “payment”. In the Lamictal case in Newark, New Jersey, US District Judge William H. Walls ruled that the Actavis decision made a cash payment a requirement. Another US District Judge, this time in Trenton, New Jersey, ruled that payments need not take the form of cash.
The FTC urged the court not to limit its definition of the word payment to cash alone. Furthermore law professors, consumer unions and 28 states filed briefs urging the Third Circuit to reverse the decision of the lower court.
In the hearing on 19 November 2014 the judges on the Third Circuit questioned the ruling of the lower court which held that a reverse payment need to be in cash to put the patent settlement under the scrutiny of antitrust laws. This is so since a payment is some sort of consideration. Accordingly why is something that is valuable not deemed to be a payment?
Furthermore limiting reverse payment settlements that come under the scrutiny of antitrust rules to cash payments only creates an undesirable loophole for drug manufacturers to elide liability under antitrust rules.
It remains to be seen how the Third Circuit decides on this very important issue.