In Ritz Camera & Image, LLC v. Sandisk Corp., the Federal Circuit held that a direct purchaser of a patented product has standing to bring a Walker Process antitrust claim, even if it does not have standing to bring a declaratory judgment action to invalidate the patent. The case reached the court on an interlocutory appeal from the U.S. District Court for the Northern District Of California.
Walker Process Antitrust Claims
A “Walker Process” antitrust claim is based on the 1965 Supreme Court decision in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., where the Court 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”).”
As explained by the Federal Circuit, “Walker Process set forth two conditions for antitrust liability based on the fraudulent procurement of a patent:”
The question raised by Sandisk is whether a Walker Process antitrust claim “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.”
The Federal Circuit held that a direct purchase can bring such a claim, notwithstanding its lack of standing to bring a declaratory judgment action to invalidate the patent.
The Patents at Issue
The patents at issue are Sandisk’s U.S. Patent Nos. 5,172,338 and 5,991,517, directed to technology “central to its flash memory business.”
Ritz asserted that Sandisk had violated Section 2 of the Sherman Act (15 USC § 2) by fraudulently procuring the patents. In particular, Ritz argued:
The Federal Circuit found no reason to apply declaratory judgment standing requirements to Walker Process claims.
A Walker Process antitrust claim is a separate cause of action from a patent declaratory judgment action. … [W]hile 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.”
The court cited the Supreme Court’s opinion in Walker Process for the principle that “the interest in protecting patentees from ‘innumerable vexatious suits’ [cannot] be used to frustrate the assertion of rights conferred by the antitrust laws,” and noted that “the demanding proof requirements of a Walker Process claim” would prevent a “flood of litigation.” Thus, the court held:
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 judgment of patent invalidity or unenforceability.
The Interplay Between Walker Process and Therasense
It is not clear whether the Federal Circuit’s 2011 decision in Therasense directly impacts Walker Process claims, which already require fraudulent conduct. However, it is possible that the “knowing and willful fraud on the PTO” requirement will be read through the lens of Therasense, such that the withheld information and/or the alleged misrepresentations will have to be “but-for material” to patentability in order to support a claim, unless the plaintiff can establish fraud by “affirmative egregious misconduct.” In this case, Ritz Camera filed suit before the Therasense decision, but has since maintained its claim.