Ritz Camera v. SanDisk: Expansion of Standing for Walker Process claims

By Jason Rantanen

Ritz Camera & Image, LLC v. Sandisk Corporation (Fed. Cir. 2012) Download 12-1183
Panel: Bryson (author), Dyk, and Moore

In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the Supreme Court held that a party who uses a patent procured through intentional fraud on the PTO to obtain or preserve a monopoly may be subject to antitrust liability.  Ritz Camera addresses an important standing issue for Walker Process claims: whether a direct purchaser of goods covered by the patent has standing to bring a Walker Process antitrust claim against the patentee even if the purchaser would not be entitled to seek declaratory relief against the patentee under the patent laws.  In an opinion authored by Judge Bryson, the court held that such direct purchasers do have standing. 

Background: SanDisk is a major producer of NAND flash memory; allegedly, SanDisk controls about three-quarters of the market.  It holds several patents relating to the memory products under which it sells and licenses flash memory technology.  Ritz is a retailer that purchases flash memory products from SanDisk and its licenses. 

In 2010, Ritz filed suit alleging that SanDisk had violated Section 2 of the Sherman Act.  Ritz contended that SanDisk had fraudulently procured two patents central to its flash memory business by failing to disclose known prior art and making affirmative misrepresentations to the PTO, that SanDisk established its monopoly position by enforcing those patents and by threats of enforcement, and that these actions caused direct purchasers to pay supra-competitive prices for NAND flash memory products.  SanDisk sought to dismiss the complaint on the ground that Ritz lacked standing, an argument that the district court rejected.  The appeal arrived at the Federal Circuit on a petition for interlocutory review.

Antitrust Standing Even When No Patent Law Standing: The sole question at issue was:

Whether direct purchasers who cannot challenge a patent's validity or unenforceability through a declaratory judgment action (have not been sued for infringement, 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.

Slip op. at 5.  The Federal Circuit held that direct purchasers do have such standing and, more broadly, that antitrust standing is not limited by the rules of patent standing.  Rather, "[t]he “full play” of antitrust remedies encompasses the standing requirements that apply in the antitrust setting,… including the recognition that direct purchasers are not only eligible to sue under the antitrust laws, but have been characterized as “preferred” antitrust plaintiffs." Slip Op. at 6 (internal citations omitted).  In Walker Process itself, "[t]he 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 independent challenge to the patents at issue."  Id.

In reaching this conclusion, the court expressly rejected SanDisk's argument "that allowing direct purchasers to bring Walker Process claims would allow an intolerable 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."  Slip Op. at 9.  The court noted that a Walker Process claim "is a separate cause of action from a patent declaratory judgment action."  Id. It is governed by antitrust law, and the patent issue is only one of several elements that must be proven by the claimant.

Nor did the court agree that the result here "would trigger a flood of litigation and stem innovation," particularly given the demanding proof requirements of a Walker Process claim.  Walker Process claims involve patents procurred through intentional fraud, which "cannot well be thought to impinge upon the policy of the patent laws to encourage inventions and their disclosure."  Id., quoting Walker Process, 382 U.S. at 176 (Harlan, J., concurring). 

Note: Judge Bryson recently annouced his move to senior status, effective January 7, 2013.  He has written a number of significant opinions over his tenure, including Phillips v. AWH.  Once he assumes senior status, he will have a likely have a reduced caseload and will no longer be eligible to participate in en banc decisions unless he is part of the original panel that heard the case.  I will certainly miss reading his opinions as often as I was previously able.

8 thoughts on “Ritz Camera v. SanDisk: Expansion of Standing for Walker Process claims

  1. 8

    I don’t think so, it seems to me like it only affects the Christenson view that patent counterclaims don’t give the Federal Circuit jurisdiction if the complaint itself doesn’t fall within the 1338 jurisdiction. The question is about whether “arising under” has a different meaning under 1331 (federal question) and 1338 (patent law)… and the answer there is no. The Federal Circuit has simply interpreted it differently to give the court jurisdiction over patent-related malpractice cases and patent-related antitrust cases. Unfortunately, there’s always going to be this tug of war with the unclear Grable standard for whether a case turns on a “substantial issue” of patent law. For the malpractice cases, it’s pretty clear to me that they’re going to say that comity requires no federal question/patent jurisdiction over any malpractice claims – the only way they come into federal court is diversity. For a federal law antitrust case, it’s a different balance under Grable… but clearly, the Federal Circuit and the regional circuits disagree on it.

    I would not be surprised if, on a petition for rehearing en banc, there’s some dissent on the jurisdictional question by the same judges dissenting on the malpractice cases.

  2. 7

    I went back to look at how many votes the Fed. Cir. view of its “arising under” jurisdiction got from the Sup. Ct. in Holmes Group, Inc., v. Vornado Air Circulation Systems, Inc. 535 U.S. 826 (2002): None.
    This Sup. Ct. decision was only overuled by the AIA as to suits with patent infringement counterclaims.

  3. 6

    Do you think the AIA change in 28 U.S.C. 1295 from “a case involving a claim arising under” to “any civil action arising under” may have an effect on these debatable CAFC jurisdictional issues, or ought to?

  4. 5

    Thanks for the detailed explanation and your sympathy with my jurisdictional question here.
    Personally I think the Fed. Cir. is begging for another hard slap down from the Sup. Ct. soon in claiming appellate jurisdiction over state malpractice suits against patent attorneys.That is apparently on the same over-reaching view of their jurisdiction over any legal issue in which “the determination .. necessarily involves a substantial question of patent law.”
    Likewise their creation of the own law of contracts for employee contract invention assignments, also contrary to Erie v. Tompkins.

  5. 4

    I think this falls into the fuzzy area of “arising under” jurisdiction under 28 U.S.C. 1338 – a non-patent claim that turns on a question of patent law. I think under the Federal Circuit’s interpretation of 1338, the Christenson v. Colt Indus. Operating Corp. one (pre-Grable), this would “arise under” because there’s a substantial question of patent law. Having said that, I have to wonder if this really is a case where it arises under the patent law. Even under the AIA, it’s questionable for the Federal Circuit to have jurisdiction (it seems like all of these reverse-payment antitrust suits would go to the Federal Circuit under that theory… which is a bit nonsensical).

    Interestingly, the motions panel granting the appeal deferred the jurisdictional question to the merits panel, who barely discussed it in their opinion.

    Here’s the relevant portion of SanDisk’s brief:

    “Jurisdiction in the District Court was invoked under 28 U.S.C. §§ 1337 and 1331. This Court has jurisdiction over this interlocutory appeal under 28 U.S.C. §§ 1292(b) and 1295(a)(1), because: (i) the District Court certified its order denying Defendant-Appellant SanDisk Corporation’s (“SanDisk”) motion to dismiss for interlocutory appeal on September 7, 2011, (N.D. Cal. Dkt. 84); (ii) SanDisk timely petitioned this Court for permission to appeal on September 19, 2011; and (iii) this Court granted SanDisk’s petition on January 13, 2012. (J.A. 0127-0129.)

    Jurisdiction over this interlocutory appeal lies with this Court, as opposed to the United States Court of Appeal for the Ninth Circuit, because this Court has “exclusive jurisdiction” over all appeals where the complaint arises under, “in whole or in part,” the patent laws of the United States. 28 U.S.C. § 1295(a)(1). This Court has appellate jurisdiction over Walker Process antitrust claims such as Ritz’s “because the determination of fraud before the PTO necessarily involves a substantial question of patent law.” In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1330 & n. 8 (Fed. Cir. 2008) (citing Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808 (1998) (holding 28 U.S.C. § 1295 vests the Federal Circuit with exclusive jurisdiction where the plaintiff’s right to relief necessarily depends upon resolution of a substantial question of federal patent law)).”

    And here’s the portion of Ritz Camera’s brief:

    “Jurisdiction in the district court was invoked under 28 U.S.C. §§ 1337 and 1331. The District Court certified its order denying Defendant-Appellant SanDisk Corporation’s (“SanDisk”) motion to dismiss for interlocutory appeal on September 7, 2011, (N.D. Cal. Dkt. 84); SanDisk timely petitioned this Court for permission to appeal on September 19, 2011; and this Court granted SanDisk’s petition on January 13, 2012 (JA [*2] 0127-0129). n1

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –

    n1 As used herein, “JA” refers to the Joint Appendix, and “N.D. Cal. Dkt.” refers to the United States District Court for the Northern District of California’s docket in this case, Case No. 10-CV-2787.

    – – – – – – – – – – – – End Footnotes- – – – – – – – – – – – – –

    This Court, however, lacks jurisdiction over this appeal pursuant to 28 U.S.C. §§ 1292(b) and 1295(a)(1), which grant this Court jurisdiction over “appeal[s] from a final decision of a district court of the United States . . . in any civil action arising under . .. any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). n2 Because the present appeal does not “aris[e] under” a federal patent statute, this Court lacks jurisdiction.

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –

    n2 The panel granting SanDisk’s request for interlocutory appeal noted that Ritz “argues that this court does not have jurisdiction to hear the permissive appeal,” and “deem[ed] it the better course to defer the jurisdictional issue raised by the parties to the merits panel.” JA129.

    – – – – – – – – – – – – End Footnotes- – – – – – – – – – – – – – [*3]

    In Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Supreme Court held that this Court’s jurisdiction is limited to those cases “arising under” federal patent law – either where (1) “federal patent law creates the cause of action” or (2) “the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.” Id. at 808-09.

    Although SanDisk’s defense to Ritz’s monopolization claim will rely on substantial questions of patent law, Christianson explicitly held that “a case raising a federal patent-law defense does not. .. ‘arise under’ patent law, even if the defense is anticipated in the plaintiff’s complaint, and even if both parties admit that the defense is the only question truly at issue in the case.” Id. at 809 (internal quotation marks omitted in part). This Court thus lacks jurisdiction over this appeal. n3 It should be dismissed so that Ritz may proceed with its claims in the district court. See, e.g., Nystrom v. TREX Co., 339 F.3d 1347, 1351 (Fed. Cir. 2003) [*4] (dismissing interlocutory appeal notwithstanding district court’s certification of issue for appeal).

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –

    n3 Ritz acknowledges that this argument is contrary to Federal Circuit precedent. See In re Ciprofloxacin Hydrochloride Antitrust Litig., 544 F.3d 1323, 1330 & n.8 (Fed. Cir. 2008); Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (enbanc in relevant part). Nonetheless, Ritz raises it in order to preserve further review, and incorporates the arguments raised in its Opposition to Petition for Permission To Appeal.”

  6. 3

    P.S. I don’t see how the AIA change in Fed. Cir. jurisdiction – AIA amended 28 U.S.C. 1295 – changes that, unless there was a patent infringement counterclaim here that this decision fails to mention?

  7. 2

    If this N.D.CA suit was an AT D.J. complaint that was not part of any patent suit, why is this interlocutory appeal being decided by the Fed. Cir. rather than the 9th Cir.?

  8. 1

    This is not nearly as significant as one might think, since remarkably few Walker Process antitrust suits have ever been successful.
    As the Fed. Cir. noted in its 2007 “Dippin’ Dot’s” decision, “To demonstrate Walker Process fraud, a claimant must make higher threshold showings of both materiality and intent than are required to show inequitable conduct.”
    Also, there is no presumption under Walker Process that a patent-based right to exclude others suffices to establish market power for antitrust purposes. Abbott Labs. v. Brennan, 952 F.2d 1346, 1354 (Fed. Cir. 1991), cert. denied, 505 U.S. 1205 (1992).

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