Ritz Camera & Image, LLC v. Sandisk Corp. , 700 F.3d 503 ( 2012 )


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  •   United States Court of Appeals
    for the Federal Circuit
    __________________________
    RITZ CAMERA & IMAGE, LLC,
    Plaintiff-Appellee,
    v.
    SANDISK CORPORATION,
    Defendant-Appellant.
    __________________________
    2012-1183
    __________________________
    Appeal from the United States District Court for the
    Northern District of California in Case No. 10-CV-2787,
    Judge Jeremy Fogel.
    ___________________________
    Decided: November 20, 2012
    ___________________________
    JOSEPH S. HALL, Kellogg, Huber, Hansen, Todd, Ev-
    ans & Figel, P.L.L.C., of Washington, DC, argued for
    plaintiff-appellee. With him on the brief were STEVEN F.
    BENZ, WILLIAM J. RINNER, and ALEXANDER S. EDELSON. Of
    counsel on the brief was R. STEPHEN BERRY, Berry Law
    PLLC, of Washington, DC.
    RAOUL D. KENNEDY, Skadden, Arps, Slate, Meagher &
    Flom LLP, of Palo Alto, California, argued for defendant-
    appellant. With him on the brief were DAVID W. HANSEN,
    RITZ CAMERA   v. SANDISK CORP                           2
    JAMES P. SCHAEFER, TRAVIS M. JENSEN, and JOSHUA M.
    TEMPLET.
    KRISTEN C. LIMARZI, Attorney, Antitrust Division,
    United States Department of Justice, of Washington, DC,
    argued for amici curiae United States, et al. With her on
    the brief were JOSEPH F. WAYLAND, Acting Assistant
    Attorney General, and CATHERINE G. O’SULLIVAN, Attor-
    ney. Of counsel on the brief were WILLARD K. TOM, Gen-
    eral Counsel, and JOHN F. DALY, Deputy General Counsel,
    Federal Trade Commission, of Washington, DC.
    J. DOUGLAS RICHARDS, Cohen Milstein Sellers & Toll
    PLLC, of New York, New York, for amici curiae American
    Antitrust Institute, et al. With him on the brief was
    MICHAEL B. EISENKRAFT.
    LESLIE B. DUBECK, Assistant Solicitor General, State
    of New York, of New York, New York, for amici curiae
    State of New York, et al. With her on the brief were ERIC
    T. SCHNEIDERMAN, Attorney General, BARBARA D.
    UNDERWOOD, Solicitor General, C. SCOTT HEMPHILL,
    Chief, Antitrust Bureau, STEVEN C. WU, Assistant Solici-
    tor General, and SAAMI ZAIN, Assistant Attorney General
    of Counsel.
    MICHAEL A. CARRIER, Rutgers School of Law–Camden,
    of Camden, New Jersey, for amici curiae 27 U.S. Anti-
    trust, Intellectual Property, and Innovation Professors.
    __________________________
    Before BRYSON, DYK, and MOORE, Circuit Judges.
    BRYSON, Circuit Judge.
    This case comes to us on an interlocutory appeal from
    the United States District Court for the Northern District
    3                                RITZ CAMERA   v. SANDISK CORP
    of California. The certified question concerns the limits
    on standing to bring so-called Walker Process antitrust
    claims. The Supreme Court in Walker Process Equip-
    ment, Inc. v. Food Machinery & Chemical Corp., 
    382 U.S. 172
     (1965), held that antitrust liability may attach when
    a party uses a patent to obtain or preserve a monopoly if
    the patent was procured through intentional fraud on the
    Patent and Trademark Office (“PTO”). The question in
    this case is whether an antitrust action against the owner
    of a patent, based on the Walker Process theory of liabil-
    ity, can be brought by a direct purchaser of goods that are
    protected by the patent, even if the purchaser faces no
    threat of an action for patent infringement and has no
    other basis to seek a declaratory judgment holding the
    patent invalid or unenforceable. We hold that the district
    court was correct to rule that a direct purchaser is not
    categorically precluded from bringing a Walker Process
    antitrust claim, even if it would not be entitled to seek
    declaratory relief against the patentee under the patent
    laws.
    I
    Defendant SanDisk allegedly controls about three-
    quarters of the market for NAND flash memory. Flash
    memory is a computer chip that can be erased and repro-
    grammed; NAND is a particular type of flash memory.
    The capacity of NAND flash memory to store large
    amounts of data and to rewrite the contents of that data
    has led to its widespread use in consumer products such
    as digital cameras, mobile phones, and USB drives.
    SanDisk holds patent rights needed to make NAND
    products. With those patents, SanDisk manufactures and
    sells flash memory products and also licenses the technol-
    ogy to other manufacturers. Retailers such as plaintiff
    RITZ CAMERA   v. SANDISK CORP                            4
    Ritz Camera & Image, LLC, purchase flash memory
    products from SanDisk and its licensees.
    In June 2010, Ritz filed suit on behalf of itself and a
    class of direct purchasers of NAND flash memory, alleg-
    ing that SanDisk had violated Section 2 of the Sherman
    Act, 
    15 U.S.C. § 2
    . The complaint alleged that SanDisk
    had fraudulently procured two patents central to its flash
    memory business—U.S. Patent Nos. 5,172,338 and
    5,991,517 (“the ’338 and ’517 patents”)—by failing to
    disclose known prior art and making affirmative misrep-
    resentations to the PTO. Ritz further alleged that San-
    Disk established its monopoly position by enforcing those
    patents against its competitors and by threatening the
    competitors’ customers. Ritz contends that those actions
    have caused direct purchasers to pay inflated, supra-
    competitive prices for NAND flash memory products.
    SanDisk moved to dismiss the complaint. Among its
    arguments, SanDisk asserted that Ritz lacked standing to
    bring a Walker Process antitrust claim based on the
    invalidity or unenforceability of SanDisk’s patents, be-
    cause Ritz faced no threat of an infringement action and
    had no other basis to bring a declaratory judgment action
    challenging the patents.1
    1    The Supreme Court in Medimmune, Inc. v. Genen-
    tech, Inc., 
    549 U.S. 118
    , 127 (2007), rejected our “reason-
    able apprehension of suit” test for declaratory judgment
    standing and held that the proper test is whether “there
    is a substantial controversy, between parties having
    adverse legal interests, of sufficient immediacy and
    reality to warrant the issuance of a declaratory judg-
    ment.” See SanDisk Corp. v. STMicroelectronics, Inc., 
    480 F.3d 1372
    , 1380 (Fed. Cir. 2007). Ritz does not claim that
    it could have brought a declaratory judgment action
    against SanDisk seeking relief under the patent laws.
    5                                 RITZ CAMERA   v. SANDISK CORP
    The district court rejected SanDisk’s argument. Ritz
    Camera & Image, LLC v. SanDisk Corp., 
    772 F. Supp. 2d 1100
    , 1103-05 (N.D. Cal. 2011). The court acknowledged
    that Walker Process claims normally are brought by
    competitors of the patentee as counterclaims in patent
    infringement actions. However, the court noted that the
    Supreme Court’s decision in Walker Process “places no
    limitation on the class of plaintiffs eligible to bring [such
    claims].” 
    Id. at 1105
    . Moreover, the court was not per-
    suaded by SanDisk’s contention that expressly authoriz-
    ing direct purchasers to bring Walker Process claims
    “could result in an avalanche of patent challenges” be-
    cause such claims are “rare” and because the Supreme
    Court rejected the same argument in Walker Process. 
    Id.
    In the course of its opinion, the court pointed out that
    allegations of fraud relating to the ’338 and ’517 patents
    had survived a motion for summary judgment in a differ-
    ent litigation, which “raise[s] at least some question as to
    the validity of the subject patent[s].” 
    Id.
    SanDisk petitioned for interlocutory review of the dis-
    trict court’s ruling pursuant to 
    28 U.S.C. § 1292
    (b) and
    (c). The district court and this court granted SanDisk’s
    request.
    II
    SanDisk’s appeal is limited to a single question:
    Whether direct purchasers who cannot challenge a pat-
    ent’s validity or enforceability through a declaratory
    judgment action (and have not been sued for infringe-
    ment, and so cannot assert invalidity or unenforceability
    as a defense in the infringement action) may nevertheless
    bring a Walker Process antitrust claim that includes as
    one of its elements the need to show that the patent was
    procured through fraud. SanDisk contends that allowing
    RITZ CAMERA   v. SANDISK CORP                               6
    parties such as Ritz to use a Walker Process antitrust
    lawsuit to challenge patents would represent an unjusti-
    fiable expansion of the Walker Process doctrine and would
    undermine well-recognized limitations on standing to
    bring a declaratory judgment action challenging a patent.
    We disagree.
    Walker Process set forth two conditions for antitrust
    liability based on the fraudulent procurement of a patent.
    First, the plaintiff must show that the defendant procured
    the relevant patent by knowing and willful fraud on the
    PTO or (in the case of an assignee) that the defendant
    maintained and enforced the patent with knowledge of
    the fraudulent manner in which it was obtained. Second,
    the plaintiff must prove all the elements otherwise neces-
    sary to establish a Sherman Act monopolization charge.
    Walker Process, 
    382 U.S. at 174, 176-77
    ; see also 
    id. at 179
     (Harlan, J., concurring). With the first condition, the
    Court made clear that the invalidity of the patent was not
    sufficient; a showing of intentional fraud in its procure-
    ment was required. 
    Id. at 176-77
    ; 
    id. at 179
     (Harlan, J.,
    concurring). With the second condition, the Court incor-
    porated the rules of antitrust law generally. As Justice
    Harlan stated in his concurring opinion, “as to this class
    of improper patent monopolies, antitrust remedies should
    be allowed room for full play.” 
    Id. at 180
     (Harlan, J.,
    concurring). The “full play” of antitrust remedies encom-
    passes the standing requirements that apply in the anti-
    trust setting, see, e.g., Associated Gen. Contractors of Cal.,
    Inc. v. Cal. State Council of Carpenters, 
    459 U.S. 519
    , 537-
    46 (1983); In re DDAVP Direct Purchaser Antitrust Litig.,
    
    585 F.3d 677
    , 688 (2d Cir. 2009), including the recognition
    that direct purchasers are not only eligible to sue under
    the antitrust laws, but have been characterized as “pre-
    ferred” antitrust plaintiffs, e.g., Big Bear Lodging Ass’n v.
    7                               RITZ CAMERA   v. SANDISK CORP
    Snow Summit, Inc., 
    182 F.3d 1096
    , 1102 n.4 (9th Cir.
    1999).
    Nothing in Walker Process supports SanDisk’s argu-
    ment that the rules governing standing to bring patent
    validity challenges should be imported into an antitrust
    case simply because one element of the antitrust cause of
    action requires proof of improper procurement of a patent.
    In fact, the Supreme Court in Walker Process rejected an
    argument closely analogous to SanDisk’s argument here.
    The Court stated that it found no merit in the proposition
    that rules defining who may bring suit “to cancel or annul
    a patent” should also dictate the boundaries of antitrust
    standing. Walker Process, 
    382 U.S. at 175-76
    . Notwith-
    standing the fact that “one of its elements is the fraudu-
    lent procurement of a patent,” the Court explained, an
    antitrust claim under the Clayton Act is not a claim
    under the patent laws. 
    Id. at 176
    . Rather, “the gist of
    [the antitrust] claim is that since [the defendant] obtained
    its patent by fraud it cannot enjoy the limited exception to
    the prohibitions of § 2 of the Sherman Act, but must
    answer under that section and § 4 of the Clayton Act in
    treble damages to those injured by any monopolistic
    action taken under the fraudulent patent claim.” Id. The
    Court did not suggest that the class of “those injured by
    any monopolistic action” should be limited to those within
    that class who would have standing to bring an independ-
    ent challenge to the patents at issue.
    In arguing that the right to bring a Walker Process
    claim should be governed by the standing requirements of
    the Declaratory Judgment Act rather than traditional
    antitrust standing requirements, SanDisk relies on the
    Court’s statement in Walker Process that permitting a
    plaintiff to bring an antitrust claim based on a fraudu-
    lently procured patent “accords with . . . long-recognized
    RITZ CAMERA   v. SANDISK CORP                               8
    procedures.” 
    382 U.S. at 176-77
    . Because that statement
    follows a brief survey of cases concerning patent validity
    disputes, SanDisk argues that it evinces the Court’s
    intent to limit the class of potential antitrust plaintiffs to
    those who could contest a patent’s validity directly. The
    quoted sentence, however, does not say what SanDisk
    claims. The context makes clear that the sentence in
    question simply explains that recognizing a cause of
    action for an antitrust claim based on a fraudulently
    procured patent is not inconsistent with patent law rules
    permitting challenges to patently validity or patent
    misuse. Nothing in that sentence, or elsewhere in the
    Court’s opinion, suggests that the standing limitations on
    direct actions to challenge patent validity should be
    imported into antitrust actions predicated on fraudulently
    procured patents.
    Noting the distinction between patent and antitrust
    actions drawn in Walker Process, this court and others
    have declined to apply limitations on patent invalidity
    suits to Walker Process antitrust actions. In Hydril Co. v.
    Grant Prideco LP, 
    474 F.3d 1344
     (Fed. Cir. 2007), this
    court refused to apply the standing limitation on declara-
    tory judgment actions challenging a patent’s validity to
    the context of a Walker Process claim. 
    Id. at 1350
    . Simi-
    larly, the Second Circuit has held that direct purchasers
    had standing to pursue their Walker Process claim despite
    the fact that, as purchasers, they could not directly chal-
    lenge the patent’s validity. DDAVP, 
    585 F.3d at 689-92
    .2
    2   The Second Circuit “decline[d] to decide whether
    purchaser plaintiffs per se have standing to raise Walker
    Process claims,” and held “only that purchaser plaintiffs
    have standing to raise Walker Process claims for patents
    that are already unenforceable due to inequitable con-
    duct.” DDAVP, 
    585 F.3d at 691-92
    . The district court in
    this case noted that claims of intentional fraud against
    9                               RITZ CAMERA   v. SANDISK CORP
    The D.C. Circuit has likewise allowed a Walker Process
    claim to proceed even though the patentee had disclaimed
    the patent and thus the plaintiff faced no risk of an in-
    fringement suit. Oetiker v. Jurid Werke, GmbH, 
    556 F.2d 1
     (D.C. Cir. 1977). The rule urged by SanDisk—to limit
    Walker Process antitrust claimants to competitors who
    could bring a declaratory judgment action attacking a
    patent’s validity—would conflict with all of those deci-
    sions.
    SanDisk argues that allowing direct purchasers to
    bring Walker Process claims would authorize an intoler-
    able end-run around the patent laws because parties
    unable to pursue invalidity claims could achieve the same
    result by way of a Sherman Act claim. We do not share
    SanDisk’s concern. A Walker Process antitrust claim is a
    separate cause of action from a patent declaratory judg-
    ment action. It is governed by principles of antitrust law,
    and there is nothing novel about the fact that it includes
    as one of its elements the need to prove a violation that is
    not independently actionable between the same parties.
    Walker Process explained that while one of the elements
    of the antitrust claim is the fraudulent procurement of a
    patent, the action “does not directly seek the patent’s
    annulment.” 
    382 U.S. at 176
    . Ritz’s claim likewise seeks
    relief under the antitrust laws; it does not directly seek to
    the ’338 and ’517 patents had previously survived a
    motion for summary judgment in another case. We see no
    reason to limit the scope of Walker Process standing to
    cases in which the patents have been “tarnished” in
    another proceeding. Walker Process contains no such
    limitation, and applying such a requirement would have
    the undesirable effect of subjecting injured parties’ claims
    to the litigation strategies of others. It would also be
    likely to generate unproductive wrangling over what
    counts as a sufficiently “tarnished” patent to support a
    Walker Process claim.
    RITZ CAMERA   v. SANDISK CORP                              10
    invalidate SanDisk’s patents or render them unenforce-
    able, even though that would likely be the practical effect
    if Ritz were to prevail on its Walker Process claim.
    Moreover, as to SanDisk’s assertion that granting
    standing to direct purchasers would trigger a flood of
    litigation and stem innovation, the Supreme Court re-
    jected the same argument in Walker Process when it
    explained that “the interest in protecting patentees from
    ‘innumerable vexatious suits’ [cannot] be used to frustrate
    the assertion of rights conferred by the antitrust laws.”
    
    382 U.S. at 176
    . As the Court explained, Walker Process
    claims “deal only with a special class of patents, i.e., those
    procured by intentional fraud,” 
    id.,
     and “cannot well be
    thought to impinge upon the policy of the patent laws to
    encourage inventions and their disclosure,” 
    id. at 180
    (Harlan, J., concurring). Particularly in light of the
    demanding proof requirements of a Walker Process claim,
    we are not persuaded by SanDisk’s “flood of litigation”
    argument.
    In sum, Walker Process recognizes a clear distinction
    between claims that arise under the antitrust laws and
    those that arise under the patent laws. Because direct
    purchasers are generally permitted to bring antitrust
    actions, and because the Walker Process decision did not
    preclude purchasers from bringing this particular type of
    antitrust claim, we hold that Ritz’s status as a direct
    purchaser gives it standing to pursue its Walker Process
    claim even if it could not have sought a declaratory judg-
    ment of patent invalidity or unenforceability.
    AFFIRMED