Powerhouse Points: Patent Infringement, Antitrust and the Discovery Rule

Written by Partner Jeffery M. Cross for the Fall 2021 Edition of Powerhouse Points,  A Quarterly Litigation Update.

Read the full issue here.

Powerhouse Points:

  • Under the discovery rule, the statute of limitations is triggered only when the plaintiff knows it has been injured and by whom, or through due diligence should have discovered its injury.
  • A patent infringement suit is not necessarily antitrust injury. The Noerr-Pennington doctrine provides immunity from antitrust claims to the patent holder.
  • Only intentional fraud on the patent office strips the patent holder of immunity from antitrust claims.

On September 20, 2021, Judge John Robert Blakey in the Northern District of Illinois issued an opinion in a Walker Process patent fraud antitrust case denying defendants’ motion for summary judgment on their statute of limitations defense. TCS John Huxley America, Inc. v. Scientific Games Corp., No. 1:19-cv-1846, 2021 WL 4264403 (N.D. Ill. Sept. 20, 2021).  The opinion established important principles regarding application of the statute of limitations “discovery rule” in a Walker Process antitrust case.  Freeborn & Peters was one of the firms representing the plaintiffs.

The plaintiffs had sued Scientific Games Corp. alleging a violation of Section 2 of the Sherman Act.  The complaint alleged that Scientific Games, through its acquired entity, SHFL Entertainment, brought patent infringement litigation in 2009 and 2012 based on fraudulently obtained patents for automatic card shufflers used in licensed casinos.

In an earlier similar case, both Scientific Games and SHFL had been sued in federal district court in Chicago by Shuffle Tech International, also alleging antitrust violations for bringing an infringement action based on fraudulently obtained patents.  That case went to trial in the summer of 2018 before a jury, which returned a verdict for Shuffle Tech in the amount of $105 million.  Under the antitrust laws, this jury award was automatically tripled by the trial court to $315 million.  Shuffle Tech was also entitled to its attorneys’ fees and costs.  The case ultimately settled for $151 million.  Freeborn & Peters had also been part of the team representing the plaintiffs in the earlier case.

Having seen this verdict, which was the tenth largest federal jury verdict in the United States in 2018, plaintiffs TCS John Huxley and Taiwan Fulgent reached out to patent counsel on the Shuffle Tech case, meeting with them on March 8, 2019.  The antitrust case was filed shortly thereafter on March 15, 2019.

The defendants in TCS John Huxley moved to dismiss on the grounds that the case was barred, in part, by the statute of limitations.  The court denied the motion to dismiss in March 2020, but bifurcated discovery on the statute of limitations from discovery on the merits.  After plaintiffs produced over 750,000 pages of documents and defendants took seven depositions, defendants moved for summary judgment.

The statute of limitations for a complaint brought under Section 2 of the Sherman Act is four years from the time of injury. 15 U.S.C. § 15(b).  But in the Seventh Circuit, the time that the statute of limitations for antitrust cases begins to run is tempered by the so-called discovery rule.  There are two prongs to the discovery rule:  knowledge of the injury or whether the plaintiff should have discovered the injury in the exercise of due diligence.  Under the first prong, accrual occurs “when the plaintiff discovers that ‘he has been injured and who caused the injury.’” In re Copper Antitrust Litigation, 436 F.3d 782, 789 (7th Cir. 2000) (quoting Barry Aviation, Inc. v. Land O’Lakes Municipal Airport Commission, 377 F.3d 682, 688 (7th Cir. 2004)); see also Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450 (7th Cir. 1990).

Judge Blakey noted in his opinion denying defendants’ motion to dismiss that defendants had argued that the statute of limitations began to accrue when SHFL sued plaintiffs in 2009 and 2012.  See TCS John Huxley America, Inc. v. Scientific Games Corp., No. 1:19-cv-1848, 2020 WL 1678258 **4-7 (N.D. Ill. March 20, 2020).  But the court noted that a patent infringement case is different.  Although a patent infringement case causes an anticompetitive injury in that it excludes the plaintiff from the market, it does not cause “antitrust injury.” Id. at 4.  Such exclusion by a patent infringement action is permitted by law.  Such an infringement action is immune from antitrust liability under the Noerr-Pennington doctrine which upholds the right of a party to petition the government, including the courts. See, generally Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers of America v. Pennington, 381 U.S. 657 (1969).  Judge Blakey noted that the assertion of patent rights “implicates the antitrust laws only if the patent holder knows the patent is invalid and otherwise unenforceable and nonetheless uses it to gain or maintain a monopoly.” 2020 WL 1678258at *4.  The court held that, for a Walker Process patent fraud antitrust case, the “antitrust injury stemming from a Walker Process claim occurs . . . only if the alleged infringer knows (or has reason to know) the asserted patents were procured by fraud or otherwise invalid and unenforceable ....”  Id.

In denying summary judgment, Judge Blakey went further to focus on the Supreme Court’s requirement to strip away antitrust immunity for a patent holder bringing an infringement case. In Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1969), the Supreme Court noted that immunity from antitrust liability for a party bringing a patent infringement claim could be stripped away only if the patentee intentionally defrauded the patent office to obtain the patent. Justice Harlan in a concurring opinion elaborated on this requirement.  He noted that the requirement that there be intentional fraud on the patent office was necessary to balance the different policies of the patent laws and the antitrust laws.  He concluded that, if any erstwhile infringer were allowed to bring an antitrust claim for some other challenge to the patent, such as obviousness or what he described as “technical” fraud, such an action would “impinge” on the policy of the patent laws to encourage invention and the disclosure of that invention required by the patent laws.  Only by requiring a finding of intentional fraud on the patent office to strip away the immunity would the conflicting principles of the patent laws and the antitrust laws be accommodated. Id. at 179-80 (Harlan J. concurring).

Judge Blakey acknowledged this requirement in denying defendants’ motion for summary judgment.  His key legal finding in his opinion was as follows:

A patent infringement suit is not necessarily an antitrust injury.  In fact, the Noerr-Pennington doctrine provides immunity from antitrust claims to patent holders.  Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1067-68 (Fed. Cir. 1998).  To overcome such immunity, a plaintiff must show the patent holder obtained the patent through intentional fraud or brought the case in bad faith, with knowledge that the asserted patent was invalid, unenforceable, or not infringed.  See Professional Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993); Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965).  Thus, to know they had suffered an antitrust injury, Plaintiffs needed to know, or have reason to know, Defendants had intentionally engaged in fraud to obtain the asserted patent or brought sham litigation to keep TF from competing in the market.

2021 WL 4264403 at *3 (emphasis in original).

Undertaking a thorough review of the evidence adduced by the defendants during bifurcated discovery, Judge Blakey concluded that “the record [did] not allow the Court to definitively rule that Plaintiffs knew they had suffered an antitrust injury before [the start of the four-year statute of limitations period].”  2021 WL 4264403 at *5.