In Walker Process Equip Co., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965), the Supreme Court held that the enforcement of a fraudulently procured patent may violate Section 2 of the Sherman Act assuming the other elements of a Section 2 violation are also proved. In recent years, such Walker Process claims have become commonplace, and often asserted as counterclaims in patent infringement cases. The parties asserting such claims, however, are normally those who manufacture competing and potentially infringing products and the damage remedy is normally lost profits.
In Molecular Diagnostics Laboratories v. Hoffman-LaRoche, 2005 U.S. Dist. LEXIS 30142 (D.C. D.C. 2005), however, the plaintiff asserting the Walker Process claim was a direct purchaser of the patented product. It did not produce a competitive, potentially infringing product at all and was not a defendant in an infringement suit. Plaintiff’s alleged injury was that it was forced to pay an artificially inflated price for the patented product as a result of the enforcement of a patent obtained by fraud. Defendants moved to dismiss under Rule 12(b)(6) asserting that, unlike a competitor, purchasers making Walker Process claims do not have standing or suffer antitrust injury. Judge Kennedy denied the motion holding that, under the applicable Supreme Court standing/antitrust injury cases, direct purchasers do have standing to assert Walker Process claims.
The court began by noting that, except for two cases, neither the parties nor the court had been able to identify an instance in which a purchaser, as opposed to a competitor, litigated a Walker Process claim. The two exceptions were In re Remeron Antitrust Litigation, 335 F. Supp. 2d, 522 (D.N.J. 2004) and Carrot Components Corp. v. Thomas & Betts Corp., 1986 U.S. Dist. LEXIS 29723 (D.N.J. 1986). Both held that the purchasers lacked standing to pursue Walker Process claims.
In Molecular Diagnostics, Judge Kennedy distinguished Carrot Components since there the plaintiff claimed to be a competitor. The Remeron plaintiffs, however, were direct purchasers who neither produced a competing product nor were parties to any infringement suits. This was sufficient for the Remeron court to hold they lacked standing to assert Walker Process claims. Judge Kennedy’s opinion in Molecular Diagnostics states, however, that the Remeron court cites neither any controlling precedent nor compelling justification for its conclusion of no standing. The Molecular Diagnostics court further criticized Remeron on the basis that it focused on the wrong type of injury for a Walker Process claim. The relevant injury, said the court, was not the enforcement of the fraudulent patent standing alone, but rather the antitrust injury flowing from the Section 2 violation. A Walker Process claim is not, said Judge Kennedy, just a fraud claim where the harm arises from an invalid patent but rather the use of an invalid patent to establish a monopoly.
Viewed from this antitrust perspective, Judge Kennedy concluded that there is no reason to treat the standing requirements for a Walker Process claim different from those generally applicable to antitrust claims. Pursuant to Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), direct purchasers not only have standing to sue but are the “preferred plaintiffs” in private treble damage litigation. While other factors – such as the potential for duplicative recovery and the existence of other parties that may have been more directly harmed – should be considered, the Molecular Diagnostics court “sees no reason to limit standing to competitors.” 2005 U.S. Dist. LEXIS 30142 at 13. Although competitors subject to infringement suits may be in a stronger position to detect Walker Process claims, direct purchasers have frequent interactions with the defendants. In Judge Kennedy’s view, increasing the number of parties scrutinizing the actions of potential monopolists will help provide the deterrent purpose of the treble damage remedy. Likewise he found little risk of duplicate recovery since direct purchasers are entitled to recover the full extent of any overcharge.
Molecular Diagnostics is significant in that it departs from prior case law, and is apparently the first reported decision to squarely hold that direct purchasers do have standing to assert Walker Process claims even though they did not produce a potential infringing product at all. Given the classic formulation that “consumers and competitors” incurring antitrust injury usually have standing, its holding is unremarkable. Nonetheless, the court’s rather broad reading of general antitrust standing principles unrelated to the type of violation alleged may be tested on appeal. There are probably more chapters to be written before this purchaser standing issue is resolved.
Carlton A. Varner