A Walker Process Claim Alleging Threats of Patent Infringement Litigation May Be Based Upon Enforcement Activity Against the Plaintiff's Customers

Case: Hydril Co. LP v. Grant Prideco LP, No. 2006-1188 (Fed. Cir. January 25, 2007)

The One Sentence Summary: The Federal Circuit reversed the district court's dismissal of the antitrust and patent infringement claims and vacated the district court's dismissal of the state law contract claim, holding that: (1) the antitrust claim based on patent enforcement activity directed against the plaintiff's customers sufficiently alleged a Walker Process claim, and (2) the parties did not waive the right to sue for patent infringement in their merger agreement.

What They Were Fighting About: Hydril Company LP and Hydril U.K. Ltd. ("Hydril"), manufacturer of threaded connections for drill pipes, filed an action against Grant Prideco LP and Grant Prideco, Inc. ("Grant Prideco"), manufacturer and seller of drill pipes and connections, alleging Grant Prideco: (1) monopolized two product markets by enforcing a patent that was fraudulently obtained from the USPTO, (2) breached a technology licensing agreement that stemmed from a merger agreement between the parties, and (3) infringed a patent owned by Hydril because the patent license terminated upon Grant Prideco's breach. The district court dismissed the complaint for failure to state a claim on the antitrust and patent infringement claims and declined to exercise supplemental jurisdiction over the state law breach of contract claim.

Federal Circuit Holdings:

The Federal Circuit reversed the dismissal of the antitrust claim, holding that although it was unclear whether the district court dismissed the claim because the complaint failed to allege sufficient enforcement activity by Grant Prideco or because the complaint failed to claim that Grant Prideco threatened such enforcement activity against Hydril rather than against Hydril's customers, neither ground justified the dismissal of the complaint. It further stated that a Walker Process antitrust claim may be based on patent enforcement activity directed against the plaintiff's customers. The Federal Circuit declined to consider additional grounds for affirming the district court's dismissal, stating they would be more appropriately dealt with in the district court.

To determine the validity of the patent infringement claim, the Federal Circuit interpreted the meaning and application of a section of a merger agreement where each party waived rights and remedies relating to the agreement. The Federal Circuit interpreted the limitation of rights and remedies under the agreement to end when the patent licensing agreement was terminated due to breach, and stated that Grant Prideco could no longer rely on the prior license to use Hydril's patented technology. The Federal Circuit therefore reversed the dismissal by the district court, holding that the patent infringement claim was not precluded by the terms of the merger agreement.

Because it reversed the dismissal of the federal antitrust and patent infringement claims, the Federal Circuit vacated the district court's dismissal of the state law breach of contract claim to allow the district court to reinstate the claim in light of this decision.