Manufacturers’ Attempt to Invoke RICO Act Fails Against Non-Practicing Entity

In re Innovatio IP Ventures By David LeRay – Edited by Kathleen McGuinness In re Innovatio IP Ventures, LLC, Case No. 11 C 9308 (N.D. Ill. Feb. 4, 2013) Slip opinion [caption id="attachment_3068" align="alignleft" width="150"] Photo By: woodleywonderworks - CC BY 2.0[/caption] The Northern District of Illinois granted in part and denied in part Innovatio IP Ventures’s motion to dismiss seven claims in a complaint brought by manufacturers of wireless Internet technology. The court dismissed the manufacturers' claims based on the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-1968, the California Business & Professional Code, a theory of civil conspiracy, a theory of interference with prospective economic advantage, and a theory of unclean hands. The court did not dismiss claims based on breach of contract and promissory estoppel. The court held that the Noerr-Pennington doctrine protecting petitioners of the government from liability extends to patent law cases in the Seventh Circuit, and specifically applies to pre-suit demand letters under Federal Circuit law unless the defendant is engaging in sham litigation. The court reasoned that the doctrine is “today understood [in the Seventh Circuit] as an application of the first amendment . . . ,” and applies readily beyond its origins in antitrust and labor cases. Innovatio at 9. The court held that the doctrine protected pre-suit communications under the logic of the Federal Circuit’s holding in Globetrotter Software. Id. at 13 (discussing Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d 1367 (Fed. Cir. 2004)). Ars Technica provides an overview of the case. Wall Street Journal Law Blog and The Patent Examiner discuss its history. Innovatio IP Ventures is a non-practicing entity (or, less politely, “patent troll”) that acquired a number of patents allegedly covering technology that is necessary to implement standards for wireless local area networking technology (“WiFi”).  Id. at 3. Innovatio subsequently attempted to enforce the patents by suing end-user businesses that provided WiFi to their customers, including hotels, cafes, and restaurants. Although Innovatio did not sue any WiFi device manufacturers, several sought a declaratory judgment that their devices do not infringe the patents at issue. On October 1, 2012, several manufacturers—Cisco Systems, Inc., Motorola Solutions, Inc., and Netgear, Inc.—filed an amended complaint against Innovatio containing fifty-five claims, including violation of the RICO Act and breach of contract. As discussed above, the Northern District of Illinois dismissed the RICO Act claim because it held that the Noerr-Pennington doctrine extends to patent law cases, and specifically applies to pre-suit demand letters unless the defendant is engaging in sham litigation. Sham litigation must be “objectively baseless” and, subjectively, must constitute “an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome . . .” Id. at 8 (emphasis added). The manufacturers presented a number of arguments for why the demand letters constituted sham litigation, which the court rejected in turn. First, defendants argued that the licensing campaign was a sham because “it asserted infringement against the [end-users] before offering them a RAND license.” Id. at 17. However, because the question of a patent holder’s ability to recover damages for the infringement of a RAND-obligated patent is “muddled,” the court concluded that Innovatio’s claim was not baseless. Id. at 19­–20. Additionally, the defendants argued they had licensed the patents for use in their products and that the end-users therefore could not be infringing. However, the court reasoned that Innovatio did not know which products used by the end-users were subject to the licenses, and held that Innovatio “had a reasonable expectation that at least some of the products that any given [end-user] used were not covered by any licenses.” Id. at 21. The court further held that Innovatio was not obligated to disclose the possible existence of licenses in its pre-suit demand letters, given their adversarial nature. Id. at 23. After addressing other alleged misrepresentation, the court held that Innovatio’s campaign was not a sham and was therefore protected under Noerr-Pennington, and dismissed five claims. The two claims under breach of contract and promissory estoppel were not dismissed. The case is in line with a general trend of broad interpretation of Noerr-Pennington doctrine that bolsters a patentee’s ability to enforce patent rights, and ended these manufacturers’ hopes of using RICO to defend against “patent troll” tactics. However, the court did not dismiss the breach of contract claims, and Innovatio may still face liability for its wide-ranging enforcement campaign.