United States District Court, N.D. Texas, Wichita Falls Division
MEMORANDUM OPINION AND ORDER
O'CONNOR, UNITED STATES DISTRICT JUDGE
the Court are Defendants Phoenix Services, LLC's and Mark
H. Fisher's Motion to Dismiss (ECF No. 25), filed August
5, 2019; Plaintiffs Ronald Chandler's, Chandler
Manufacturing, LLC's, Newco Enterprises, LLC's, and
Supertherm Heating Services, LLC's Response (ECF No. 26),
filed August 14, 2019; and Defendants' Reply (ECF No.
27), filed August 28, 2019. Having reviewed the motion,
briefing, and applicable law, the Court finds that
Defendants' motion should be and is hereby
GRANTED in part and DENIED in
enforcement of United States Patent No. 8, 171, 993 (the
“‘993 Patent”) is “at the
heart” of both this antitrust litigation brought by
Ronald Chandler, Chandler Manufacturing, LLC, Newco
Enterprises, LLC, and Supertherm Heating Services, LLC
(collectively, the “Chandler Plaintiffs”) against
Phoenix Services, LLC (“Phoenix”) and Phoenix CEO
Mark H. Fisher (“Fisher”) and several related
patent-infringement suits initiated by Heat On-The-Fly, LLC
(“HOTF”), a Phoenix subsidiary. First Am. Compl.
¶ 11, ECF No. 23. After years of patent-infringement
litigation, the Federal Circuit held that HOTF asserted its
‘993 Patent in bad faith and the ‘993 Patent is
unenforceable due to inequitable conduct. Id. at
¶¶ 1, 18. The question now before this Court is
whether the Chandler Plaintiffs have pleaded facts sufficient
to state claims against the Phoenix Defendants for antitrust
liability on the basis of (1) Walker Process patent
fraud or (2) sham patent litigation.
On-The-Fly founder Ransom Mark Hefley invented the ‘993
Patent-entitled “Water Heating Apparatus for Continuous
Heated Water Flow and Method for Use in Hydraulic
Fracturing”-to heat water “on demand or inline
during the fracing process, instead of using preheated water
in large standing tanks, ” or, as HOTF puts it, to heat
water “on-the-fly.” Id. at ¶ 11;
see also Id. at ¶ 25. Prior to filing a patent
application on September 18, 2009, “Hefley and his
companies performed on-the-fly heating of water on at least
61 frac jobs using the system described in the ‘993
Patent application” and “collected over $1.8
million for those heat-on-the-fly services.”
Id. at ¶ 12. Hefley did not disclose any of
these 61 prior frac jobs to the Patent and Trademark Office
(“PTO”), despite knowing that the PTO's
“on-sale bar” required him to do so. Id.
On May 8, 2012, the PTO approved the ‘993 Patent.
the ‘993 Patent was approved, HOTF began to enforce it
against the Chandler Plaintiffs and other competitors.
See Id. at ¶¶ 13-14. One non-party
competitor alleged that HOTF interfered with its prospective
business relationship by calling that competitor's
customer, claiming the competitor's water heaters
infringed the ‘993 Patent, and suggesting an
infringement suit. Id. at ¶ 13. On another
occasion, HOTF threatened Plaintiff Supertherm Heating
Services, LLC's customers with patent-infringement
allegations, which led its largest customer to “greatly
reduce the number of in-line frac water heating jobs
awarded.” Id. at ¶ 14. “Ultimately,
Supertherm's business was harmed to the point where it
suspended operations . . . .” Id.
eventually brought its claims to court. See Id. In
an earlier suit before the Northern District of Texas, HOTF
sued the Chandler Plaintiffs for infringing the ‘993
Patent. Id. at ¶ 1. The Northern District
stayed litigation pending the outcome of an earlier-filed
suit in the District of North Dakota, in which HOTF alleged a
competitor and the competitor's contractor also infringed
the ‘993 Patent. Id. at ¶¶ 1, 15.
“The jury in the North Dakota litigation found that
HOTF asserted the ‘993 Patent in ‘bad faith[,
'] and the district court in North Dakota found the
‘993 Patent unenforceable due to inequitable
conduct.” Id. at ¶ 1; see also
Id. at ¶¶ 16-17. On appeal, the Federal
Circuit affirmed the North Dakota district court's
declaratory judgment on both issues. Id. at
¶¶ 1, 18 (citing Energy Heating LLC v. Heat
On-The-Fly, LLC, 889 F.3d 1291, 1296, 1304 (Fed. Cir.
the Federal Circuit's ruling in the patent litigation,
the Chandler Plaintiffs filed this antitrust suit against
Phoenix, the owner and parent company of HOTF. Compl. ¶
2, ECF No. 1. The Chandler Plaintiffs later amended their
complaint to also assert antitrust claims against Fisher, the
Phoenix CEO and sole employee of HOTF. First Am. Compl.
¶ 1, ECF No. 23. In light of the Federal Circuit's
affirmance that, as a matter of patent law, the ‘993
Patent was submitted in bad faith and unenforceable due to
inequitable conduct, the Chandler Plaintiffs submit that
Phoenix is liable for attempted monopolization due to its own
“act[s] to encourage the anticompetitive acts of HOTF
with respect to the ‘993 Patent” and for
“the anticompetitive conduct of its subsidiary, HOTF,
pursuant to the Sherman Act, 15 U.S.C. § 2.”
Id. at ¶ 21. They submit that Fisher, as an
officer of a defendant company, is also individually liable
for his involvement in the patent litigation and knowledge of
Phoenix's anticompetitive acts. See Id. at
¶¶ 1, 25.
Alleged Anticompetitive Conduct
the ‘993 Patent was approved in 2012, HOTF has
“made infringement claims as to the ‘993 Patent
in litigation against many participants in th[e] relevant
market [for in-line frac water heating, ] including, but not
limited to: Energy Heating, LLC, Rocky Mountain Oilfield
Services, LLC, Marathon Oil Corp., Enservco, and the Chandler
P[laintiffs].” Id. at ¶ 18. These claims
have included informal communications with its
competitors' customers, as well as several lawsuits.
See Id. at ¶¶ 13-15.
“while the inequitable conduct finding as to the
‘993 Patent was on appeal to the Federal Circuit, . . .
[Phoenix] directly encourage[ed] HOTF in fraudulently
asserting the ‘993 Patent against the ‘on the
fly' frac water heating market.” Id. at
¶ 19. Specifically, Phoenix “modified its website
in early 2018 to threaten the market by stating that a patent
license is required to practice the method of heating
‘on-the-fly[, '] and referencing the ‘993
Patent.” Id. The statements remained on
Phoenix's website following both the Federal
Circuit's affirmance of the district court's
declaratory judgment against HOTF and the passing of the
deadline to petition the Supreme Court for certiorari.
Id. Further, Phoenix has continued to “seek
licenses from the ‘on the fly' frac water heating
market participants knowing the ‘993 Patent has been
adjudicated as unenforceable pursuant to a final and
non-appealable judgment.” Id.
HOTF's sole employee, Fisher “has been in daily
control” of the stayed patent-infringement suit HOTF
filed in this Court against the Chandler parties.
Id. at ¶ 25; see also Id. at ¶ 1.
When asked who was responsible for “enforcing the
licenses, the patent license, the trademark, the patent, the
technology stuff” during the North Dakota
patent-infringement litigation, Hefley answered that
“[a]s far as [he] kn[ew, ] Mark Fisher [wa]s in charge
of everything that has to do with Heat On-The-Fly.”
Id. at ¶ 25. Hefley also said he spoke to
Fisher about once per week. Id. As Phoenix CEO,
Fisher “would also have been aware of the licensing
offers for the ‘993 Patent” posted on
Phoenix's website. Id.
Alleged Market Share
the patent litigation, HOTF maintained that most in-line frac
water heating nationwide was performed using HOTF's
patented invention. Id. at ¶ 18. In 2015, for
purposes of the PTO's reexamination of the ‘993
Patent, HOTF submitted two declarations regarding its
coverage. Id. Declarant James D. Cole provided an
analysis of the “in-line frac water heating
market” as of 2013, which included the following:
19) I, with the assistance of the licensees of the patent in
2013, broke up the 2013 U.S. market for water heating for use
in horizontal fracing of shale formations into 7 major
markets, as follows:
20) Appalachian . . .
21) Mid-Continent . . .
22) East Texas, North Louisiana market . . .
23) Kansas . . .
24) Colorado . . ...