Context: At the early stages of its combined antitrust-patent litigation with Microsoft, Nvidia and patent aggregator RPX, Xockets suffered a first setback when Judge Albright put the case back into the general assignment process, is struggling to retain Microsoft in the case as an active defendant (December 14, 2024 ip fray article) and is facing motions to dismiss (MTDs) its antitrust claims that may primarily have been brought in an attempt at judge-shopping.
What’s new: On Thursday (December 19, 2024), Xockets filed its opposition to the two MTDs (one by Nvidia, which makes the accused products, and a joint one by Microsoft and RPX).
Direct impact: Xockets appears more likely than not to see its antitrust claims dismissed, with maybe one formal opportunity for a do-over that may not lead anywhere in the end. Its conspiracy allegations may just fall short of the Twiqbal plausibility standard. In fact, the opposition brief appears so weak that the court could even decide, easily, without having to see the reply briefs. If the court allowed those claims to be tried, the defendants could easily win an appeal just over the denial of their MTDs.
Wider ramifications: Still, the MTD-related pleadings are interesting in the sense that they raise issues concerning patent buyers’ cartels, licensing negotiation groups and group boycott that could have a leg to stand on in some other patent cases.
You can find the documents (both MTDs and Xockets’ opposition brief) at the end of this article.
The defendants capitalized on the opportunity to file more than one MTD (as they are more than one party) by raising alternative market definition issues. The Microsoft-RPX brief talks about a failure to allege market power because there are alternative technologies to Xockets’ patents, which makes no sense because this is about an alleged buyers’ (not sellers’) cartel. Nvidia, the primary target here as it makes the chipsets at issue in the patent infringement part of the case, has the right focus and disputes market power on the buying side:
“As discussed above, the [First Amended Complaint] itself identifies numerous other potential “buyers” for the Xockets patents—including [Amazon] AWS, Google, Oracle, Coreweave, and many others, none of whom are alleged to be part of the putative conspiracy at issue between NVIDIA and Microsoft to license only through RPX.”
Xockets does note that Google is an RPX member like Microsoft and Nvidia, but there should still be enough competition in the market that Xockets failed to establish a monopsony. Licensees would normally not want to delay resolution of a meritorious patent royalty demand. Nvidia and Microsoft face the risk of willfulness enhancements and other sanctions should Xockets win.
Any deficiencies surrounding market definition and market power (of which there appear to be plenty) would not lead the court to dispose of those antitrust claims. In most antitrust cases, especially when it is about unilateral conduct, market definition is crucial. Here, however, there are allegations of per se violations through price-fixing and a related group boycott. If Judge Leon Schydlower of the United States District Court for the Western District of Texas concluded that there is no plausible allegation of a per se violation on the table, it could possibly also find that market power on the buying side was not properly alleged and dismiss the “quick look” and rule-of-reason arguments on that basis.
There are some plausibility issues with Xockets’ antitrust arguments that we can easily identify from our vantage point, such as the following ones:
- In this case it appears that the plaintiff actually had enough resources to enforce its patents if they are really as great as the plaintiff claims (i.e., essential to AI). They have several law firms involved, among them Irell & Manella, which means they either have solid litigation funding or they convinced one of the best patent assertion firms in the U.S. to take on this case on a contingency basis. There could be other cases where a buyers’ cartel actually deprives a patent holder of a fair chance to obtain reasonable compensation, for lack of resources.
- It is known from the documents that Xockets is just looking for some solution, be it a license deal or an outright sale of its assets. Xockets does not explain why there would not be some other opportunity to monetize those patents, such as by selling them to a deep-pocketed and sophisticated monetizer. If those patents are, as Xockets says, essential to AI, there should be such opportunities. The same company that publishes ip fray also runs a brokerage business for litigation finance and other IP transactions (see IP Dealmaking Opportunities page) and is presently helping one party, and probably in a matter of days a second party, with efforts to secure reosurces where more than just one deal structure will be on the table. Speaking from that experience, it is hard to see how patents that are truly “essential to AI” could not be monetized unless the court holds Microsoft, Nvidia and RPX in violation of the Sherman Act.
- Where Xockets argues that its patents would give a buyer like Nvidia or Microsoft the power to exclude rivals, they overlook two key factors. One is eBay (it is not that easy to obtain patent injunctions in the U.S.) and the other is that Nvidia or Microsoft would get into antitrust trouble if they bought those patents and leveraged them to monopolize the market. Microsoft did not even try to sue Android out of the market with its patents, but contented itself with royalties from device makers (and later shifted the focus to getting its own apps pre-installed).
Should Xockets fail (if not now, then on summary judgment, judgment as a matter of law or appeal), it still would not mean that other companies in other industry segments and circumstances will get away with similar setups. If someone actually does engage in group boycott and enough becomes known to bring a plausible allegation of a conspiracy, that could be a serious issue.
In the event that the case goes forward and discovery is conducted, chances are that there will be no evidence of Microsoft and Nvidia ever having agreed, directly and/or via RPX, to “steal” (as Xockets would have us believe) its technology instead of licensing or buying those patents. As the patent infringement part of the case unfolds, we may learn whether Microsoft and Nvidia simply believed early on that those patent rights did not give Xockets leverage.
This is Nvidia’s MTD (concerning the antitrust, not patent infringement, claims):
Microsoft and RPX’s joint partial MTD taking aim at the antitrust claims:
And finally Xockets’ opposition brief (one filing to respond to both MTDs at the same time):