Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Memory provider alleges competitor attempted to monopolize market by enforcing invalid patent, (Jul 8, 2013)

By Tobias J. Gillett, J.D., LL.M.

Server memory provider Netlist, Inc. has filed a complaint in the federal district court in Santa Ana, California, alleging that Smart Modular Technologies, Inc. has attempted to monopolize the market for rank multiplication technology, an essential component of a memory standard, by threatening and pursuing baseless patent litigation regarding an invalid patent, and has committed a Walker Process violation through bad faith enforcement of its fraudulently-obtained patent (Netlist, Inc. v. Smart Modular Technologies, Inc., July 1, 2013).

According to the complaint, Smart Modular obtained United States Patent No. 8,250,295 (“the ‘295 patent”) through inequitable conduct at the United States Patent and Trademark Office (USPTO). Smart Modular allegedly withheld known, material prior art that would not have permitted the patent to issue if the USPTO had known of it. Smart Modular also allegedly committed fraud on the JEDEC standard-setting body by failing to disclose its interests in the ‘295 patent application it had on file when it voted to approve the Load Reduced Dual In-Line Memory Module (LRDIMM) standard, in violation of JEDEC’s patent policy. Smart Modular also never offered to license its patent on reasonable and non-discriminatory (RAND) terms, as it promised when the patent issued.

On September 10, 2012, Smart Modular filed suit against Netlist, alleging that its HyperCloud products infringed the ‘295 patent, and later filed a motion for preliminary injunction against the products. The complaint alleges that Smart Modular filed the lawsuit with knowledge that the ‘295 patent was not infringed and was not valid or enforceable, without “perform[ing] a legally sufficient investigation into infringement of the ‘295 patent,” and contrary to its promise to license the patent on RAND terms. The United States District Court for the Eastern District of California denied the preliminary injunction motion and stayed the infringement lawsuit pending the completion of a reexamination of the ‘295 patent.

In addition, Netlist alleges that Smart Modular made deceptive and misleading public statements about the lawsuit “designed to harm Netlist’s business and cause uncertainty in the market about Netlist’s products.” Smart Module also allegedly colluded with other industry members in its campaign against Netlist, and made statements to Netlist indicating that its “true intent is to put Netlist out of business by outspending Netlist in the litigation.”

Netlist alleges a worldwide relevant geographic market and a product market consisting of rank multiplication technology for its Sherman Act Section 2 claims. There are allegedly no reasonably interchangeable substitutes for rank multiplication technology due to its incorporation in the LRDIMM standard, Netlist’s investment in the technology, and consumers’ reliance on it. Netlist claims that Smart Module engaged in its allegedly exclusionary conduct in an attempt to achieve monopoly power over rank multiplication technology, potentially leading to higher prices for consumers and lower willingness to engage in future standard-setting efforts.

Smart Module also allegedly committed a Walker Process violation by failing to disclose known and material prior art in a manner that “constitutes fraud on the Patent Office that is actionable under Section 2 of the Sherman Act.” Moreover, Netlist asserts that Smart Module’s conduct constitutes unfair competition under California’s Unfair Competition Law and common law fraud.

Netlist seeks a permanent injunction against further enforcement of the ‘295 patent, compensatory damages, treble damages under Section 4 of the Clayton Act, attorneys’ fees, and any other relief the court or a jury might consider proper.

The case is No. 8:13-cv-00996-DOC-JPR.

Attorneys: Sean C. Cunningham (DLA Piper LLP) for Netlist, Inc.

Companies: Netlist, Inc.; Smart Modular Technologies, Inc.

News: Antitrust