Judges Friedman and Bryson were the majority of two, with Mayer dissenting.

Grant Prideco owns 6,244,631, claiming "a combination of raw pipe with specified diameters and connections that fit such pipe."

Paragraph 57 of the complaint encapsulates the antitrust claim as follows:

Under the theory of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), Grant Prideco has violated Section 2 of the Sherman Act by obtaining and maintaining market power in the relevant markets by use of threats to enforce a patent that Grant Prideco knew was procured by fraud.

The alleged fraud was that “[d]uring the application process for the ’631 patent, Grant Prideco failed to disclose to the USPTO material prior art of which Grant Prideco was aware.” The complaint referred to various items of prior art that Grant Prideco failed to disclose...

Grant Prideco has obtained and maintained its market power in the relevant markets by wrongfully threatening to enforce the ‘631 Patent against other market participants, including connections manufacturers, drill pipe distributors, and end-users. Grant Prideco has obtained a dominant position in the sale of connections of all practically-functional sizes for use with 5.–inch drill pipe, making a substantial portion of all sales of connections for such use. Similarly, Grant Prideco dominates the 5.–inch drill pipe market . . . Grant Prideco makes a substantial portion of all sales of finished 5.–inch drill pipe worldwide.

Hydril, the appellant, makes threaded connections for interlocking lengths of drill pipe used in drilling oil and gas wells. Besides alleging antitrust, Hydril asserted breach of contract and patent infringement.

These claims arise out of the following allegations in the complaint: “Grant Prideco has breached a technology licensing agreement with Hydril and violated Hydril’s patent rights over ‘wedge thread’ technology,” which is “a technology developed by Hydril for making high-torque connections between neighboring pieces of pipe, tubing, or conduit.” Hydril’s United States Patent Reissue No. 34,467 (“the ’467 patent”) covers some of that technology.

The claim arose via a string of transactions, originating with a settled trade secret suit against Hydril ex-employees for starting XLS, a company selling Hydril's patented wedge thread technology; where XLS was sold to Grant Prideco, with a subsequent "Wedge Agreement" that Grant Prideco would stick with large-diameter connections, and Hydril with smaller-diameter connections.

“Grant Prideco has materially breached its obligations under the Wedge Agreement by improperly disclosing intellectual property and by improperly using intellectual property it agreed would be used only for large-diameter connections as part of Grant Prideco’s development of smaller-diameter connections.”

The district court threw Hydril's antitrust & patent case out.

In two separate opinions, the district court dismissed the antitrust and patent claims for failure to state a valid claim for relief, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

In dismissing the antitrust claim, the district court held that “[b]ecause Hydril has failed to allege enforcement activity by Grant Prideco which would create an objectively reasonable apprehension that Grant Prideco intended to enforce the ’631 Patent against Hydril, Plaintiffs have failed to allege the minimum level of enforcement necessary to state a Walker Process claim against Grant Prideco.” Hydril Co., L.P. v. Grant Prideco, L.P., 385 F. Supp. 2d 609, 612 (S.D. Tex. 2005) (“Hydril II”).

The district court dismissed the patent claim on the ground that, in a provision of the 1997 merger agreement between Hydril and Grant Prideco (Section 12.12, discussed in Part III below), the parties waived the right to sue for patent infringement “relating to this agreement” and provided only a breach of contract remedy for such claims. Hydril Co., L.P. v. Grant Prideco, L.P., No. Civ.A. H-05-0337, 2005 WL1515422, at *3 (S.D. Tex. June 22, 2005) (“Hydril I”).

Here's the backdrop on patent-related antitrust case law, specifically, the Walker Process precedent.

In Walker Process, the Supreme Court “concluded that the enforcement of a patent procured by fraud on the Patent Office may be violative of § 2 of the Sherman Act provided the other elements necessary to a § 2 case are present.” 382 U.S. at 174. It stated that Walker Process “alleged that Food Machinery obtained the patent by knowingly and willfully misrepresenting facts to the Patent Office. Proof of this assertion would be sufficient to strip Food Machinery of its exemption from the antitrust laws” that the patent provided. Id. at 177. The Court pointed out that “[t]o establish monopolization or attempt to monopolize . . . under § 2 of the Sherman Act, it would then be necessary to appraise the exclusionary power of the illegal patent claim in terms of the relevant market for the product involved.” Id.

This court has “consistently explained that Walker Process fraud is a variant of common law fraud,” “and that the elements of common law fraud include: (1) a representation of a material fact, (2) the falsity of that representation,” and “(3) the intent to deceive or, at least, a state of mind so reckless as to the consequences that it is held to be the equivalent of intent (scienter).” Unitherm Food Sys. Inc., v. Swift-Eckrich, Inc., 375 F.3d 1341, 1358 (Fed. Cir. 2004) (citations omitted), rev’d on other grounds, 126 S. Ct. 980 (2006).

How the majority viewed the bottom line.

Hydril’s complaint alleged that Grant Prideco had fraudulently obtained its ’631 patent by “fail[ing] to disclose to the USPTO material prior art of which [it] was aware“ (which the complaint described) and that ”[t]he ’631 Patent as issued would not have been granted to Grant Prideco had Grant Prideco not omitted from its disclosures such known information on the prior art.” If Hydril can prove these allegations, they would ground a claim of monopolization in violation of § 2 of the Sherman Act because they “would be sufficient to strip [Grant Prideco] of its exemption from the antitrust laws” its patent would otherwise provide.

Under our precedent, the conduct alleged in Hydril’s complaint would constitute Walker Process fraud. Cf. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1070 (Fed. Cir. 1998) (“We agree that if the evidence shows that the asserted patent was acquired by means of either a fraudulent misrepresentation or a fraudulent omission and that the party asserting the patent was aware of the fraud when bringing suit, such conduct can expose a patentee to liability under the antitrust laws. We arrive at this conclusion because a fraudulent omission can be just as reprehensible as a fraudulent misrepresentation.”).

The district court had been hasty in dismissing Hydril's antitrust claim, the majority ruled. As to Hydril's patent infringement assertion -

The theory of Hydril’s patent infringement claim is as follows: even if the Wedge Agreement authorized Grant Prideco to use Hydril’s patented technology to make large diameter connections, Grant Prideco breached that agreement by using or permitting others to use that technology to make small diameter connections. The effect of Grant Prideco’s breach was to terminate its license to use Hydril’s patented technology. Grant Prideco therefore is subject to suit for patent infringement because, after the Wedge Agreement had terminated, Grant Prideco could no longer rely on the prior license it had to use Hydril’s patented technology.

The majority figured the district court misread the Wedge Agreement.

So, vacated and remanded.

Judge Mayer dissented "[b]ecause Hydril did not have standing to bring either an antitrust claim with respect to the finished drill pipe market, or a claim for infringement of U.S. Reissue Patent No. 34,467."

Because Hydril has not alleged that it competes in the finished drill pipe market within the United States, it could not have had a “reasonable apprehension” that Grant Prideco would – or could – enforce its U.S. Patent No. 6,244,631 against Hydril in the finished drill pipe market... Accordingly, rather than punt this question of law back to the district court, we should hold that Hydril does not have standing to bring a Walker Process antitrust claim with respect to the finished drill pipe market because it admittedly only competes with Grant Prideco in that market “outside the United States.”

We should also affirm the dismissal of Hydril’s claim that the ’467 patent was infringed. The Merger Agreement clearly limits the parties’ remedies to an action for breach of contract or specific performance... [T]he majority’s holding that Hydril may sustain a claim for patent infringement because the Merger Agreement has previously been terminated by breach is discordant with Hydril’s own pleadings and position.

Patent rights are statutory rights, and a claim for patent infringement sounds in tort; the right to sue for such injuries was waived by the Merger Agreement. Moreover, these rights “relate to” the Merger Agreement, and are, in fact, the reason the agreement was consummated in the first place. Accordingly, the district court correctly dismissed Hydril’s infringement action for failure to state a claim because its exclusive remedy under the Merger Agreement lies, if at all, in an action for breach of contract.