Fifth Circuit Affirms Dismissal of Walker Process Claim, Disagrees with Federal Circuit Transfer of Action

The US Court of Appeals for the Fifth Circuit affirmed a summary judgment order dismissing a Walker Process monopolization action brought by Ronald Chandler and his oilfield service company Chandler Manufacturing (collectively, Chandler). The Fifth Circuit affirmed the lower court's tossing of the action, holding that the alleged claims lacked a nexus to antitrust injury and were time barred under the four-year statute of limitations. Ronald Chandler et al. v. Phoenix Services, LLC, Case No. 21-10626 (5th Cir. Aug. 15, 2022) (Wiener, Graves, Duncan, JJ.)

A Walker Process monopolization action involves antitrust claims regarding fraudulently obtained patents. Chandler alleged that even though Phoenix Services' patent for fracking technology was declared unenforceable in separate federal litigation in 2018, Phoenix Services continued to enforce the patent to exclude competitors from the market (for example, by sending cease-and-desist letters to Chandler's clients that attempted to utilize the technology). A Walker Process claim requires a showing of the following:

• The defendant obtained its patent by "knowing and willful fraud on the patent office and maintained and enforced the patent with knowledge of the fraudulent procurement."
• The plaintiff can satisfy all other elements of a Sherman Act monopolization claim.

In the district court, a Texas federal judge granted summary judgment to Phoenix Services, finding that Chandler filed the lawsuit too late and that the defendants involved ultimately could not be held liable. Chandler appealed.

The Fifth Circuit first addressed its appellate jurisdiction. The Court made it clear that it did not agree with the Federal Circuit's transfer of this Walker Process case (on the basis that it did "not present a substantial issue of patent law" since the underlying patent had already been declared unenforceable in earlier litigation), but that under the Supreme Court's 1988 decision in Christianson v. Colt Indus. Operating Corp. it did not find the transfer "implausible." It therefore accepted jurisdiction but noted that its acceptance did not mean that it found the Federal Circuit's decision correct.

The Fifth Circuit acknowledged that unlike the situation in Xitronix v. KLA-Tencor, where it and the Federal Circuit debated the appellate jurisdiction issue of Walker Process claims, the patent involved here had already been declared unenforceable. However, the Fifth Circuit pointedly noted its position that Walker Process claims should fall under the appellate purview of the Federal Circuit.

On the merits, the Fifth Circuit agreed with the Texas district court that Chandler did not sufficiently demonstrate that its alleged lost profits were caused by Phoenix Services' alleged antitrust behavior. The Court found that Chandler failed to present substantial evidence that the cease-and-desist letters materially harmed Chandler's business.

Antitrust plaintiffs must show the following:

• Injury-in-fact, e., an injury to the plaintiff proximately caused by the defendants' conduct
• Antitrust injury
• Proper plaintiff status, which ensures that other parties are not better situated to bring suit.

Only injury-in-fact was analyzed in the appeal. Chandler argued that the cease-and-desist letter sent to its clients eventually drove the client out of business. However, the Fifth Circuit found that Chandler failed to establish a "causal link" between the letter and its client's demise. The Court found that the district court correctly found a lack of substantial evidence that the cease-and-desist letter materially caused lost profits.

On the issue of standing, the Fifth Circuit agreed that Chandler had standing to pursue its Walker Process and sham litigation claims seeking the fees it had to spend after the defendant asserted the patent against Chandler and its client. Nonetheless, the Court found these claims time-barred under the four-year statute of limitations and affirmed their dismissal. Chandler argued for tolling based on fraudulent concealment, but the Court explained that even if Chandler could show concealment, it did not show its failure to discover the relevant facts as it was in regular contact with its client's counsel regarding contacts from the defendants.