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Eighth Circuit Cools Off Antitrust Claims Based on Alleged Patent Fraud

The US Court of Appeals for the Eighth Circuit affirmed a grant of summary judgment dismissing antitrust and tortious interference claims based on fraudulent procurement of patents where the plaintiff failed to show a knowing and willful intent to deceive the US Patent and Trademark Office (PTO). Inline Packaging, LLC v. Graphic Packaging International, LLC, Case No. 18-3167 (8th Cir. June 18, 2020) (Smith, J.).

Inline Packaging and Graphic Packaging are manufacturers of susceptor packaging, a specialized food packaging used for microwaving frozen foods. Graphic developed the susceptor design in partnership with Nestlé in 2005. The packaging was redesigned from a prior patent obtained several years earlier. Although Graphic’s computer-aided design drafter was listed as the sole inventor of the redesigned packaging claimed in the asserted patent, Nestlé’s engineer provided feedback that was implemented into the design, including the addition and deletion of certain features of the packaging.

In 2014, Nestlé held an auction to select the next manufacturer of its susceptor packaging. Nestlé originally selected Inline as the supplier of its susceptor packaging, but later awarded 90% of the susceptor packaging business to Graphic after Graphic notified Nestlé that Inline would likely infringe on Graphic’s patents. In June 2015, Graphic initiated patent litigation against Inline. In July 2015, Inline brought an antitrust suit against Graphic alleging that Graphic monopolized the susceptor packaging market using anticompetitive practices in violation of federal and state antitrust laws. To support its antitrust claims, Inline alleged that Graphic fraudulently procured the asserted patents, made baseless litigation threats and engaged in predatory discount bundling through the use of multi-year supply agreements. At the time the lawsuit was initiated, Graphic was the dominant supplier of susceptor packaging, with an almost 95% share of the US market. The district court granted summary judgment in favor of Graphic, dismissing Inline’s claims. Inline appealed.

The Eighth Circuit reviews grants of summary judgment de novo to determine whether a genuine dispute of material fact exists and whether judgment is entitled as a matter of law. Here, all inferences were viewed in the light most favorable to Inline. Section 2 of the Sherman Act prohibits monopolizing, or attempting to monopolize, any part of the trade or commerce among the several states. To prove a violation of Section 2, a claimant must show that an entity possessed monopoly power in the relevant market and willfully acquired or maintained such monopoly power through anticompetitive conduct rather than as the result of fair competition (e.g., by means of a superior product or business acumen).

The Eighth Circuit first considered whether Graphic fraudulently procured the asserted patents. Patent fraud, also known as Walker Process fraud, can support a monopolization claim where the defendant procured the patent at issue by knowing and willful fraud on the PTO, or maintained and enforced the patent with knowledge of the fraudulent manner in which it was obtained. Knowing and willful fraud requires an intent to deceive or inequitable conduct. The Court reasoned that this standard requires clear and convincing evidence that a patent applicant breached its duty of candor and good faith to the PTO by failing to disclose material information or submitting false material information.

The Eighth Circuit rejected Inline’s claim that a dispute of material fact existed because the district court failed to consider evidence of Nestlé’s contributions to the susceptor packaging design in the asserted patents. The Court reasoned that the record lacked evidence showing that Nestlé solely or jointly invented the patents at issue, and noted that neither Nestlé nor its engineer claimed ownership over the patents. The Court further reasoned that Nestlé need not affirmatively disclaim ownership.

The Eighth Circuit also rejected Inline’s claim that the prior sale of a related design created an on-sale bar prohibiting the award of patents for the redesigned packaging. The Court reasoned that Inline failed to show clear and convincing evidence that anyone at Graphic owing a duty of candor to the PTO actually knew that the prior sales were material and deliberately failed to disclose them. The Court found that there is no duty to investigate where there is no notice of the existence of material information. A specific intent to deceive requires more than gross negligence, including where the patent owner was “completely unaware” of information later discovered and found to be material. In the instant case, Graphic’s designer did not become involved in the project with Nestlé until 2005, and had transformed the original design into a new and different one after several months of work with Nestlé. The Eighth Circuit concluded that Inline failed to establish knowing and willful fraud, and thus its claims of monopolization through Walker Process fraud were properly dismissed.

The Eighth Circuit similarly affirmed the dismissal of Inline’s sham litigation claims. Under the Noerr-Pennington doctrine, conduct related to the constitutional right to petition the government, including courts, is protected from antitrust liability unless the act is a mere sham. The sham exception requires a lawsuit to be objectively baseless and to use the governmental petitioning process as a means to interfere with the business relationships of a competitor. The Court found that the sham exception claims relied on essentially the same facts as the alleged fraudulent procurement of the patents and affirmed the dismissal of the claims.

Inline’s claims that Graphic violated antitrust laws by engaging in discount bundling by leveraging the sale of susceptor packaging with paperboard, a product that Inline did not sell, were also dismissed. The Eighth Circuit reasoned that it was unnecessary to analyze the discounting bundling claims in detail because such a claim required a showing that Graphic was a monopolist in the relevant or leveraging market, i.e., paperboard. Inline offered no evidence that Graphic held monopoly power in the paperboard market. Rather, the evidence demonstrated that Graphic faced significant competition from other paperboard packaging companies. The district court thus properly dismissed these claims.

Finally, the Eighth Circuit affirmed the dismissal of Inline’s claim that Graphic engaged in anticompetitive conduct through the use of exclusive dealing—multi-year contracts that required companies to exclusively purchase susceptor packaging from Graphic. The Court found that the district court did not err in rejecting these claims where the complaint, even when broadly construed, failed to allege an exclusive dealing claim. The Court declined to search the record on appeal for factual disputes where Inline failed to make sufficient citations to the record showing it had actually plead an exclusive dealing claim.

Practice Note: The Eighth Circuit’s decision in Inline Packaging serves as a reminder that claimants asserting monopolization through Walker Process fraud must show a knowing and willful intent to deceive the PTO of material information. Merely showing that material information was later discovered where it was not known to those with a duty of candor to the PTO is insufficient to meet this high bar.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 218
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Lisa P. Rumin Associate  Washington, DC Antitrust  Cartel Defense  Government Investigations  Health Antitrust  Merger Clearance  Life Sciences  Food, Beverage & Agribusiness Litigation
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Lisa P. Rumin focuses her practice on antitrust, regulatory and litigation matters. She assists clients across a variety of industries and has represented numerous clients in the healthcare, pharmaceutical, and biotechnology industries. Lisa advises clients on mergers and acquisitions, including obtaining clearance from the Federal Trade Commission (FTC) and Department of Justice (DOJ), as well as counsels clients on issues regarding antitrust compliance, pricing, and distribution. She also counsels clients on cartel prosecutions and defenses, including government investigations and the...

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