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Walker Process antitrust claim reinstated: threats to sue competitor's customers sufficient
January 26, 2007
In Hydril Co. v. Grant Prideco, Inc., the Federal Circuit reinstated a Walker Process antitrust claim the lower court had dismissed. A Walker Process claim can arise when a patent holder, knowing that its patent was obtained through fraud, still attempts to enforce the patent. This type of claim is named after the Supreme Court case where it was first described as a valid claim under United States antitrust laws. Because this case was appealed after a motion to dismiss, the court was required to accept the allegations Hydril asserted in its complaint as true. In order to prove a Walker Process antitrust claim, the party must show the elements of common law fraud, which are (1) a representation of a material fact, (2) that the representation was false, and (3) either intent to deceive or acting with reckless disregard for the consequences of the representation. Here, the court found that the allegations in the complaint, if true, satisfied these three requirements. Hydril asserted that Grant Prideco fraudulently obtained its patent by failing to disclose material prior art to the patent office of which it was aware, and that the patent would not have issued had the omissions not have been made. Further, Hydril alleged that these omissions were done knowingly and deliberately. The court held that these allegations, if true, would constitute the necessary fraud to support a Walker Process claim. In addition to the fraud, however, there must be some act by the patent holder to attempt to enforce the patent. Hydril did not allege that Grant Prideco had ever threatened it with enforcement of the patent, just the Grant Prideco had threatened some of Hydril's customers with enforcement. The district court found that because Grant Prideco never asserted the patent against Hydril, Hydril had no claim. The Federal Circuit disagreed, specifically stating that "a valid Walker Process claim may be based upon enforcement activity against the plaintiff's customers." This is because enforcement against a supplier's customers will have the same net effect as enforcement against the supplier itself: the supplier's market share will suffer if its customers stop dealing with it based on a threat of patent infringement. Judge Mayer dissented, and would have found no valid antitrust claim. Judge Mayer noted that there was no allegation of enforcement of the patent in the United States, and as a result, there could be no reasonable apprehension that Grant Prideco would enforce its patent against Hydril or its customers. Because of this territorial issue (not addressed by the majority), Judge Mayer would have affirmed the dismissal. This case illustrates the minimum pleading requirements for a Walker Process antitrust claim, and also serves as a reminder for the dire consequences that can arise if a patent is obtained through fraud. Violations of antitrust laws can result in the violator having to pay treble (triple) damages as well as the plaintiff's legal fees. To read the full decision in Hydril Co. v. Grant Prideco LP, click here.
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