`
`UNITED STATES COURT OF APPEALS
`
`FOR THE NINTH CIRCUIT
`
`
`FILED
`
`
`NOV 8 2022
`
`MOLLY C. DWYER, CLERK
`U.S. COURT OF APPEALS
`
`
`
`
`No. 21-16817
`
`
`D.C. No. 3:19-cv-07651-EMC
`
`
`
`MEMORANDUM*
`
`
`
`
`
`
`
` Plaintiff-Appellant,
`
`INTEL CORPORATION,
`
`
`
` v.
`
`
`FORTRESS INVESTMENT GROUP LLC;
`FORTRESS CREDIT CO LLC; VLSI
`TECHNOLOGY LLC,
`
`
`
`
`
`
`
`
`
`
` Defendants-Appellees,
`
`
`
`Appeal from the United States District Court
`for the Northern District of California
`Edward M. Chen, District Judge, Presiding
`
`Argued and Submitted October 11, 2022
`Honolulu, Hawaii
`
`Before: SCHROEDER, RAWLINSON, and BRESS, Circuit Judges.
`
`
`Intel Corp. appeals the district court’s dismissal of its antitrust claims against
`
`Fortress Investment Group LLC (“Fortress”), Fortress Credit Co. LLC, and VLSI
`
`Technology LLC (“VLSI”). We have jurisdiction under 28 U.S.C. § 1291. We
`
`review de novo the grant of a motion to dismiss under Federal Rule of Civil
`
`
`*
` This disposition is not appropriate for publication and is not precedent
`
`
`except as provided by Ninth Circuit Rule 36-3.
`
`
`
`
`
`
`
`
`
`Procedure 12(b)(6). Nguyen v. Endologix, Inc., 962 F.3d 405, 413 (9th Cir. 2020).
`
`We affirm.
`
`Intel “develops, manufactures, and sells integrated digital technology
`
`products,” including microprocessors. Fortress is a multi-billion- dollar investment
`
`group that has invested in intellectual property, including patent portfolios. Intel
`
`alleges that Fortress controls various so-called patent assertion entities (“PAEs”),
`
`including VLSI, and that Fortress through those PAEs has aggregated “weak”
`
`substitute patents that are “easily designed around” by acquiring the patents from
`
`other entities that had rarely enforced them.
`
`According to Intel, Fortress’s patent aggregation has allowed Fortress to gain
`
`control of four different technology markets for patents, which Fortress can use to
`
`extract large settlements and threaten meritless infringement suits. Intel claims that
`
`these patents have “questionable validity, infringement, enforceability, and/or are
`
`easily designed around, and therefore have little or no meaningful value,” but that
`
`Fortress’s aggregation of the patents gives it leverage in demanding licenses and
`
`bringing lawsuits for patent infringement.
`
`Before the commencement of these proceedings, VLSI filed suits against Intel
`
`in the Northern District of California, the District of Delaware, and the Western
`
`District of Texas, alleging that Intel’s microprocessors infringed on 21 of VLSI’s
`
`patents. In response, Intel tried to turn these events into the basis for an antitrust
`
`
`
`2
`
`
`
`
`
`suit. Intel challenges Fortress’s patent aggregation scheme under Section 1 of the
`
`Sherman Act, Section 7 of the Clayton Act, and, derivatively, California unfair
`
`competition law.
`
`The parties spar at length over whether Intel’s theory is even cognizable under
`
`the antitrust laws. Intel argues that serial patent litigation can stifle innovation and
`
`competition, noting that although the district court dismissed its suit, the court found
`
`Intel’s overall theory “compelling.” Fortress argues that much of Intel’s theory is
`
`premised on the notion that the judicial system is incapable of ensuring the accuracy
`
`of jury verdicts in patent infringement cases, and that to the extent this problem
`
`exists, an antitrust suit is not the proper remedy. Fortress relies on a recent Seventh
`
`Circuit decision noting that “[t]he patent laws do not set a cap on the number of
`
`patents any one person can hold—in general, or pertaining to a single subject,” and
`
`that valid patents in fact “authorize their owners to exclude competition.” Mayor of
`
`Baltimore v. AbbVie Inc., 42 F.4th 709, 712 (7th Cir. 2022).
`
`We need not resolve the broader question of whether this type of lawsuit
`
`reflects a proper invocation of the antitrust laws because we agree with the district
`
`court that after receiving multiple opportunities to amend its complaint, Intel has
`
`failed to plead facts sufficient to state its antitrust claims.
`
`A complaint will survive a Rule 12(b)(6) motion if it contains “sufficient
`
`factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
`
`
`
`3
`
`
`
`
`
`face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
`
`Twombly, 550 U.S. 544, 570 (2007)). To adequately state a Section 1 claim, Intel
`
`must plausibly allege that the challenged restraint will lead to “substantial
`
`anticompetitive effect[s].” Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018).
`
`A Section 7 claim similarly requires the plaintiff plausibly to allege “‘an appreciable
`
`danger’ or ‘a reasonable probability’ of anticompetitive effects” in the relevant
`
`markets. DeHoog v. Anheuser-Busch InBev SA/NV, 899 F.3d 758, 763 (9th Cir.
`
`2018) (quoting Saint Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd.,
`
`778 F.3d 775, 788 (9th Cir. 2015)). A plaintiff can allege either “direct evidence”
`
`or “[i]ndirect evidence” of anticompetitive effects. Am. Express Co., 138 S. Ct. at
`
`2284. Here, Intel purports to rely on direct evidence. “Direct evidence of
`
`anticompetitive effects would be proof of actual detrimental effects on competition,
`
`such as reduced output, increased prices, or decreased quality in the relevant
`
`market.” Id. (quotations omitted).
`
`We agree with the district court that Intel has failed plausibly to plead that
`
`Fortress’s conduct has resulted in anticompetitive effects. Intel focuses most of its
`
`allegations on how the alleged patent aggregation allegedly led to increased prices.
`
`But Intel points to no instance in which it has actually paid higher royalties post-
`
`aggregation; it merely cites Fortress’s litigation demands as evidence that licensing
`
`prices have increased. There are substantial questions regarding whether a litigation
`
`
`
`4
`
`
`
`
`
`demand is even a cognizable “price” for purposes of the antitrust laws, and whether
`
`Intel has sufficiently alleged a price “increase” based on the amounts for which the
`
`defendants acquired the patents.
`
`Even setting these potential problems to the side, we agree with the district
`
`court that Intel has failed plausibly to plead that any price increases were the result
`
`of Fortress’s patent aggregation. Because price increases can be the natural result
`
`of growing demand (or increasing marginal costs), “[e]ven in a concentrated market,
`
`the occurrence of a price increase does not in itself permit a rational inference
`
`of . . . supracompetitive pricing.” Brooke Grp. Ltd. v. Brown & Williamson Tobacco
`
`Corp., 509 U.S. 209, 237 (1993). A plaintiff must allege that a price increase is
`
`traceable to a restraint on trade. See id.
`
`As noted, Intel does not allege any instance in which it has in fact paid higher
`
`royalties due to alleged patent aggregation. Intel has also not alleged that an
`
`allegedly aggregated patent portfolio prevented it from making any product or
`
`practicing any technology, or that it has been denied any license. Although Intel
`
`claims that patents in the relevant markets have become consolidated under
`
`Fortress’s ownership and control, there are no well-pleaded allegations as to how
`
`these patents—which are supposedly weak and easily designed around and not
`
`especially numerous—are essential or otherwise functionally or economically
`
`necessary. Intel has not, in other words, pleaded sufficient facts to show that any
`
`
`
`5
`
`
`
`
`
`alleged price increases are attributable to patent aggregation. A mere “possibility”
`
`that Fortress has acted unlawfully is not sufficient. Iqbal, 556 U.S. at 678.
`
`As the defendants argue, moreover, from the face of the operative complaint
`
`there are obvious alternative explanations for the alleged price increase. See Somers
`
`v. Apple, Inc., 729 F.3d 953, 965 (9th Cir. 2013) (when allegations of anticompetitive
`
`pricing are considered alongside “obvious alternative explanation[s],” like
`
`competitive behavior, the anticompetitive theory “stops short of the line between
`
`possibility and plausibility” (quoting Twombly, 550 U.S. at 557)); In re Century
`
`Aluminum Co. Sec. Litig., 729 F.3d 1104, 1108 (9th Cir. 2013) (“To render their
`
`explanation plausible, plaintiffs must do more than allege facts that are merely
`
`consistent with both their explanation and defendants’ competing explanation.”). As
`
`Intel alleged, unlike the previous patent-holders, Fortress faces much fewer
`
`competitive restraints in asserting the patents. This alternative explanation supports
`
`the district court’s well-considered determination that Intel’s anticompetitive theory
`
`“stays in neutral territory” and “stops short of the line between possibility and
`
`plausibility.” Somers, 729 F.3d at 965 (quoting Twombly, 550 U.S. at 557).
`
`Intel has also failed to plead that Fortress’s conduct has restricted output in
`
`any relevant patent market. Its few conclusory allegations, unsupported by any facts,
`
`are insufficient to plead output restriction. See Twombly, 550 U.S. at 555–56. Intel
`
`has failed to plead facts demonstrating how patent licenses were restricted below a
`
`
`
`6
`
`
`
`
`
`competitive level and has not identified any occasion on which the defendants
`
`refused to grant a license. To the extent Intel alleges reduced output in downstream
`
`markets that Fortress does not control, that is insufficient. See R.C. Dick Geothermal
`
`Corp. v. Thermogenics, Inc., 890 F.2d 139, 151 (9th Cir. 1989) (en banc) (“The kind
`
`of restriction of output which has been condemned is the output in the relevant
`
`market . . . .”).
`
`Because Intel has not plausibly alleged any anticompetitive effects due to
`
`patent aggregation, we need not reach the other issues raised in the parties’ briefs.
`
`AFFIRMED.
`
`
`
`7
`
`
`
`