The single-serve coffee industry is brewing up a set of interesting legal issues relating to the interplay of patent and antitrust law. Thanks in no small part to a seemingly well-managed portfolio of patents covering single-serve brewers and accompanying “K-cups” (i.e., disposable pods filled with pre-packaged ground coffee, tea, hot chocolate, etc.), Keurig has led the single-serve coffee industry and arguably achieved “household name” status. Keurig’s patents have allowed it in some ways to exercise a “legal monopoly” over products that fall within the scope of its patents– but patents do not last forever. How does Keurig maintain its leadership in the market once some or all of its patents expire? What happens when competitors cleverly design around Keurig’s patents and sell similar (but not identical) products for use in Keurig’s brewers? Does Keurig surrender its market share, or does it fight for it? Keurig has chosen to fight, but at least one competitor says it has done so anti-competitively in violation of federal and state antitrust laws.
The Antitrust Suit Comes at the End of Keurig’s “Patent Monopoly”
Last month, Sturm Foods, Inc. filed suit against Keurig for alleged antitrust violations, seeking treble damages and permanent injunctive relief. Sturm and Keurig are not strangers to litigation with each other. In October of 2010, Keurig sued Sturm for patent infringement and ultimately lost. Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370, 1375 (Fed. Cir. 2013). Sturm’s victory — as well as the 2012 expiration of two of Keurig’s most important patents — means that Sturm and other competitors of Keurig may legally market their “portion packs” (similar to Keurig’s “K-cups”) for use in single-serve brewers.
Sturm claims, however, that Keurig is illegally preventing it from marketing its portion packs. Although Sturm’s full, 410 paragraph complaint in TreeHouse Foods, Inc. v. Green Mountain Coffee Roasters, Inc., No. 14-cv-0905 (S.D.N.Y. Feb. 11, 2014) can be read here, Sturm essentially alleges that Keurig has monopolized the market for single-serve brewers, as well as the market for single servings or “portion packs” of coffee (and other beverages) used in those brewers. Complaint and Demand for Jury Trial (“Complaint”), ¶ 2. Sturm concedes in its Complaint that Keurig enjoyed a “right to exclude” certain competition for a time thanks to select patents it owned. Id. By “right to exclude,” Sturm is referencing what some courts and scholars refer to as a “patent monopoly.” Indeed, during the finite life of Keurig’s patents covering its “K-cups,” Keurig was allowed to exclude others from making, using or selling products covered by its patents. Phillips v. AWH Corp., 415 F.3d 1303, 1312 (Fed. Cir. 2005) (en banc) (“It is a ‘bedrock principle’ of patent law that the claims of a patent define the invention to which the patentee is entitled the right to exclude.”). Sturm’s Complaint, though, notes that “those patents” — i.e., the patents from which Keurig’s legal monopoly power over portion packs was derived — “expired in 2012.” Complaint, ¶ 2.
According to Sturm, Keurig is illegally attempting to hold on to its monopoly post-patent expiration and has even announced a new single-serve brewer designed to “lock out” its competitors’ portion packs. Id. at ¶ 2. Sturm cites various other “anticompetitive acts” committed by Keurig, including alleged acts of conspiracy with component suppliers, competitor roasters, distributors and retailers designed to prevent competitors from breaking into the single-serve coffee industry. Id. at ¶ 28. According to Sturm, Keurig’s unsuccessful patent infringement suit against it was also anticompetitive. Id.
Is Suing Someone for Patent Infringement Anticompetitive?
Generally, no, unless the litigation is objectively baseless and subjectively motivated by a desire to impose injury rather than obtain a justifiable legal remedy. According to Sturm, Keurig’s unsuccessful patent litigation against it fits the definition of anticompetitive conduct. In its Complaint, Sturm alleges that Keurig filed “baseless litigation” after Sturm released a portion pack similar to the K-cup but that did not violate Keurig’s patents covering portion packs. Based on Sturm’s Complaint, it seems that Keurig chose not to sue on the patents covering its K-cups because Sturm’s portion packs were filterless, and thus were not covered by the relevant patents. Id. at ¶ 158. Sturm suggests that Keurig knew that Sturm’s filterless portion packs were noninfringing and instead “brewed up” a meritless “induced infringement” argument implicating its patents covering single-serve brewers:
“Within just a matter of weeks after [Sturm’s portion packs] hit the shelves, Keurig sued TreeHouse subsidiary Sturm, alleging in bad faith that Sturm’s [portion packs] infringed Keurig’s patents directed at brewers and methods of using brewers — not even asserting any patents covering K-cups themselves. Keurig also alleged that Keurig’s own consumers were infringing patents on the Keurig K-Cup brewers by using Sturm’s unlicensed [portion packs], and that Sturm was thus also liable for ‘inducing’ infringement by these consumers.”
Id. at ¶ 160 (emphasis in original).
Ultimately, the United States District Court for the District of Delaware granted summary judgment that Sturm’s portion packs did not infringe Keurig’s method patents relating to the brewers, and the Federal Circuit affirmed based on the doctrine of patent “exhaustion.” Keurig, 732 F.3d at 1371. In a nutshell, the doctrine of patent exhaustion generally prevents a patent holder from trying to control how its patented device (here, the brewer) is used after the device is sold. Unless a patent holder’s rights are deemed “exhausted” after it receives value (i.e., gets paid) for the device covered by its patent, patent holders could unfairly try to control their devices once they are in the hands of the end-consumer (and, possibly, forever downstream after that, even when the device ends up at the end-consumer’s yard sale). In light of the well-established doctrine of exhaustion, Sturm alleges (with respect to Keurig’s patent infringement suit) that “[n]o reasonable litigant could have realistically expected to succeed on the merits of such claims, and thus Keurig’s complaint was objectively baseless.” Complaint, ¶ 162 (emphasis added). Sturm further alleges that the unsuccessful litigation was initiated solely to force Sturm “to expend additional resources that could have otherwise been spent competing against [Keurig].” Id. at ¶ 166. According to Sturm, the “sham” patent litigation is further evidence of Keurig’s anticompetitive conduct.
Why Is Sturm Using Terms Like “Sham” and “Objectively Baseless” Litigation?
It is clear that by characterizing Keurig’s prior suit as “sham litigation” (Complaint, ¶ 2) and “objectively baseless” (Complaint, ¶ 162), Sturm is anticipating that Keurig will assert that its prior patent litigation is entitled to Noerr-Pennington immunity, which (based on the First Amendment to the U.S. Constitution) “generally immunizes a party from antitrust liability based on its filing of a lawsuit unless the narrow ‘sham litigation’ exception applies.” ERBE Elektromedizin GmbH v. Canady Tech. LLC, 629 F.3d 1278, 1291 (Fed. Cir. 2010). With respect to “sham litigation,” courts have set the bar high: “To prove that [an] action is a sham and the plaintiff is not entitled to immunity, the suit must be ‘both objectively baseless and subjectively motivated by a desire to impose collateral, anti-competitive injury rather than to obtain a justifiable legal remedy.'” Id. (emphasis added).
Keurig may have an uphill battle arguing that its prior patent infringement suit is entitled to Noerr-Pennington immunity because of the Federal Circuit’s strongly-worded opinion stating that — in suing based on rights that had been exhausted — Keurig had engaged in tactics that have been “admonished” by the Supreme Court. Keurig, 732 F.3d at 1374. Although we do not yet know exactly what the future holds for Keurig with respect to the antitrust litigation initiated by Sturm, or whether Noerr-Pennington immunity will apply with respect to its prior litigation, the complaint filed by Sturm serves as a useful reminder regarding the interplay between patent and antitrust law. Battles over IP rights might get resolved, but are not always the last skirmish in a fight for market share. Patent holders who file baseless litigation in an attempt to claim more “monopoly” power than the law allows them may find themselves defending such conduct in a later suit for antitrust violations.