Fortress Gets U.S. Backing in Apple Patent ‘Puppeteering’ Suit

(Bloomberg) -- The Trump administration will join Fortress Investment Group in court Thursday in an antitrust fight with Apple Inc. and Intel Corp. with billions of dollars in patent royalties at stake.

The U.S. Justice Department threw its weight behind the fund manager owned by Japan’s SoftBank Group Corp., which is asking a judge to throw out a lawsuit by the two Silicon Valley heavyweights accusing Fortress of bombarding them with frivolous patent-infringement claims and aggressive payment demands.

The case tests Apple and Intel’s argument that Fortress is acting anti-competitively by stockpiling patents to target others with infringement litigation. Similar legal theories used against patent-holding companies haven’t advanced in federal courts.

In siding with Fortress, the government claims the technology companies haven’t shown any harm to competition. Apple and Intel don’t point to a well-defined product market in which Fortress wields power, Justice Department antitrust chief Makan Delrahim and other U.S. lawyers said in a court filing that echoes Fortress’s contentions. A Justice Department lawyer is set to argue at Thursday’s hearing in San Francisco.

Delrahim has consistently sided with patent owners when it comes to antitrust rules, even when it puts him at odds with the other government agency that enforces antitrust laws, the Federal Trade Commission. The Justice Department is backing Qualcomm Inc. in its bid to throw out an antitrust case won by the FTC over royalty charges on its telecommunications patents. An appeals court heard arguments in the case earlier this year.

A ruling in the Fortress case could ultimately clarify whether antitrust claims brought against patent-holding companies can hold up in court. Capital One Financial Corp. was unsuccessful with that approach against patent-licensing company Intellectual Ventures in Maryland federal court. A federal appeals court that refused to revive the case last year didn’t delve into antitrust arguments.

Apple and Intel say that Fortress controls a vast portfolio of patents, often in the same technical area, and acts in a “puppeteering” role through a large number of tiny companies. The business is based on “volume and repetition,” meaning if one patent or group of patents fall, there’s another group waiting in the wings.

Rather than using the patents to promote innovation, as described in the U.S. Constitution, the Fortress-controlled entities are using the threat of an endless cycle of litigation to extract unnecessarily high royalties -- and to eliminate competition from other patent holders, Apple and Intel claim.

Uniloc, whose patents are controlled by Fortress, is seeking $2.6 billion to $5.1 billion in damages in just four of 25 lawsuits it has filed against Apple, the tech giants said.

Fortress calls the antitrust claims unprecedented and says Apple and Intel are trying to “intimidate” it and its affiliates “from enforcing their constitutionally-protected patent enforcement rights.” While Apple and Intel assert that Fortress has harmed consumers by increasing prices of technology products, they don’t identify any such product that saw a price hike, the investment firm said.

The Justice Department first weighed into the case in March. It doubled down on its arguments by claiming in an April filing that Apple and Intel “inadequately” allege Fortress thwarts competition by amassing patents that are both alternatives for and complementary to one another.

The companies’ allegations don’t capture how “Fortress’s aggregation of patents led to the elimination of substitutes or any other reduction of competition,” Delrahim and his colleagues said in the filing.

The case is Intel Corp. v. Fortress Investment Group LLC, 19-cv-7651, U.S. District Court, Northern District of California (San Francisco).

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