Fortress’s $ 2 billion verdict against Intel highlights gold rush in patent litigation among investment firms
In recent years, the number of investment firms entering the field of patent litigation has grown steadily. Some diversify their investment portfolios with interests in patent litigation or licensing entities; others direct all of their activity to patent litigation. Target companies lamented the influx of plaintiffs and litigation capital. Recent verdicts in the WDTex. highlight the growth in investment firm patent litigation, as well as the potential benefits and risks.
In March, a jury at WDTex. issued an infringement verdict against Intel in favor of a subsidiary of Fortress Investment Group (“Fortress”), VLSI Technology LLC (“VLSI”), for $ 2.18 billion, the second largest patent verdict ever . VLSI Technology LLC v Intel Corp., No.6: 21-cv-00299 (WD Tex.). A month later, Intel scored a victory without infringement in another VLSI lawsuit claiming $ 3.1 billion. VLSI Technology LLC v Intel Corp., No.6: 19-cv-00255 (WD Tex.). A third jury trial between Intel and VLSI looms, with VLSI seeking an additional $ 2 billion. The affected patents relate to core power processor technologies potentially applicable to millions of processors sold in the United States each year. VLSI vs. Intel will likely drag on through appeals and post-grant review proceedings, but it illustrates the potential that windfall investment firms can recoup in patent litigation, and the risk of ” commit capital to a potentially worthless investment. In light of these cases and the growth of investment firm patent litigation, it is important to understand the strategies firms employ to acquire and enforce patents, and what potential targets are doing to fight back.
Strategies of investment firms for patent claims
Pure and simple purchase: VLSI vs. Intel offers an example of an outright purchase. Fortress founded VLSI as a holding company. Intel Wins Chip Trial, Dodging $ 1 Billion Hit (1), Bloomberg Law, April 21, 2021. VLSI acquired the patents now claimed against Intel from NXP Semiconductors, which acquired them by purchasing Freescale Semiconductors, which acquired some of the patents by acquiring SigmaTel. S. Decker, M. Bultman, Intel told to pay $ 2.18 billion after losing patent lawsuit, Bloomberg, March 2, 2021. NXP Semiconductors will receive a portion of damages or license fees.
The claimed patents were filed between 2000 and 2009 and expire between 2020 and 2027. They relate to basic functions of modern computers such as power management. At the time of filing, mobile technology was emerging and companies rushed to get large patents in space.
Fortress has located one of the many core computer patents, has made an agreement to acquire those patents from a company that has no interest in claiming them and that will benefit from any verdict and licensing agreement. Fortress’ patents withstood the first challenges of validity and reached a receptive jury that was ready to validate its damage model.
Acquisition of companies holding patents: Target companies take many forms, including licensing targets and claiming patents. One example is Fortress’s acquisition of Finjan Holdings, Inc., an NPE that owns, licenses, and claims cybersecurity patents. Another common target with patents is a failed (or sometimes successful) start-up. Some fail for reasons other than the quality of their technology; others fail for technological reasons, but nevertheless have strong patents. For example, Fortress leveraged its stake in Theranos to secure valuable patents despite Thernos’ legal problems. Francine McKenna, Theranos signs deal with Fortress to shut down struggling business, MarketWatch, September 17, 2018.
Acquisition of stakes in companies asserting patents: Investment firms looking to share the benefits of patent litigation without risk or full cost can invest in patent claim firms. For example, SEVEN Networks Inc. (“SEVEN”) is a private company owned by Fortress and other private equity firms. Since Fortress acquired a controlling stake in 2015, SEVEN has filed ten patent infringement lawsuits against industry leaders, including Google, which was represented by Quinn Emanuel. Most cases are already settled, and shareholder private equity firms share a portion of each settlement.
Litigation financing: Third Party Funding (“TPF”) of patent litigation has increased as protection and ethics laws have shrunk. TPF involves parties who are not directly involved in a case, financing a dispute and sharing the profits. Funders do not own patents and do not have the right to claim them. Litigation financing generally differs little from other investment vehicles. Venture capitalists raise funds from investors and issue stocks that can be bought and sold like stocks. For example, lender LexShares specializes in building a portfolio of lawsuits, in which investors can buy shares. Dan Packel, LexShares opens new $ 100 million litigation fund to investors, The American Lawyer, June 10, 2020. Investors share the proceeds of these lawsuits.
Federal Supreme Court: The most common way to enforce patents is a challenge in federal court. It allows for pecuniary damages and does not require an asserting entity to exercise its patents. The choice of the federal court route also often allows patent holders to select friendly venues for plaintiffs and pools of jurors.
International Trade Commission: ITC is a federal quasi-judicial body before which patents can be claimed. ITC disputes offer two major advantages: (1) the average resolution time is faster than in the district court – 18 months, Section 337 statistics: average length of investigations, United States International Trade Commission, April 16, 2021; and (2) the ITC relief offers an exclusion order to prevent the importation of the counterfeit product, which is a powerful lever to force a settlement. ITC’s challenges are not without drawbacks. An ITC applicant must demonstrate sufficient domestic industry (“ID”) related to the patent. Investment firms that do not manufacture goods may find it difficult to meet this requirement. The federal circuit in InterDigital Communs., LLC v. ITC, 718 F.3d 1336 (Fed. Cir. 2013) held that DI can be satisfied by licensing. An investment must therefore find licensees before setting up an ITC challenge. In Certain graphics processors, DDR memory controllers, and products containing them, Inv. No. 337-TA-1037 (ITC 2017), in which Quinn Emanuel represented Qualcomm, complainant ZiiLabs relied on its licensing agreement with Intel to meet the DI requirement. The speed and cures of ITC can be a double-edged sword. Speedy procedures can result in limited discovery, potentially reducing the evidence to prove infringement. An exclusion order can be a powerful lever, but it can be designed around and the ITC cannot award monetary damages.
Defense strategies against targeted litigation
Investment firms often have problems proving patent ownership, and therefore reputation, and compliance with trademark laws. Patent ownership is very technical and complicated by each patent sale. An error in the chain of ownership can derail a plaintiff’s action. Investment firms, as non-patent initiators, require at least one purchase. Often, as in VLSI vs. Intel, patents are sold several times before being claimed.
Marking obliges patent holders and their licensees to mark articles protected by patents. Failure to mark prevents the patent owner from recovering damages before the defendant becomes aware of the infringement. Investment firms aim to license their patents for profit. However, the more license holders there are, the more difficult it is to control the marking of license holders. Thus, early tagging challenges can reduce damage and promote faster settlements.
Defendants often point out that the investment firm is not an inventor. Jurors sympathize with inventors, especially against corporations. Describing the plaintiff as a large investment firm can neutralize any tendency of jurors to support a patentee. Emphasizing that an investment firm does not produce a product also generates a negative reaction to the firm.
External strategies: Win or lose, targets incur significant expenses. Strategies that prevent or stop litigation are preferable. Inter Partes Review (“IPR”) provides a method to avoid litigation. The IPR allows a respondent to present the prior art to the PTAB in the hope that the Board will find the invention obvious. However, the process is far from certain. Intel attempted to use IPRs against VLSI, but each time the Board refused the institution, and therefore the desirability of claiming the patents was obvious.
After the IPR failed, Intel filed an antitrust complaint against Fortress. The complaint alleges that Fortress’s patent aggregation “eliminates[es] competition. . . result[ing] among suppliers of products with little or no alternatives to [Fortress] to grant patents. . . resulting in inflated royalties and reduced production in these markets. . . and for the licenses of the global portfolio of the defendants. ” Intel Corporation v Fortress Investment Group LLC, n ° 3: 2019-cv-07651 (ND Cal. 2021). The challenge faces an uphill battle. Antitrust aims to prevent barriers to trade. Patent rights, in contrast, are designed to provide monopoly control of an invention for a period of time in return for its disclosure. Intel will have to demonstrate that a monopoly on a single invention is allowed, but the purchase of multiple patents in the same field constitutes an illegal restriction on trade.