Top-5 Patent Litigation Venues Seen Nearly Half of the Cases Related to a Super NPE

As the post-pandemic world begins to shape up, the patent litigation world has seen billion dollar verdicts to record-breaking amounts of litigation financing. The explosive growth in litigation financing has come from a backlog of capital during the covid pandemic and investors seeking non-cyclical returns. As highlighted from last year’s report on NPE patent financing in the Western District of Texas, this trend can be seen among the top-5 patent venues. From Waco to Silicon Valley to Delaware, the effect of aggregations and financing can be seen. 

These venues were chosen, since the Western District of Texas now accounts for 25% of all patent litigation, while the remaining four account for 43% in the first quarter of 2021. Collectively, these five venues have seen the most litigation over the last five years, with nearly 70%. 

As identified last year the rise, anecdotally, seemed tied to frequent filers, co-owned entities, and entities underwritten by private litigation financing. Unified examined public databases, such as Edgar, to determine if there was an aggregator and known financing. NPE aggregators were defined as NPEs that have more than one affiliated subsidiary also bringing patent litigation. Third-party financing was defined as any third party with a financial interest, other than the assertors. 

When looking at the new rocket docket, the Western District of Texas, the momentum has not stopped. Nearly 64% of all cases can be attributed to patent aggregators---i.e., entities like WSOU or Uniloc. 

The year-by-year data would suggest that this momentum is only growing. The Western District of Texas–-fueled almost entirely by the Waco division–-has already seen 172 of it's cases linked to an aggregator, of the 333 cases brought in 2021 to date.

In addition, nearly 50% of all of the cases brought in the Western District of Texas can be tied to litigation financing.

Judge Albright has made the Western District of Texas not only a safe haven for small-time NPEs, but also one for those investors who are looking to use US patent litigation to reap non-cyclical, non-correlated returns.

And although the Eastern District of Texas has seen a dramatic decrease in cases, 90% of cases it has seen can be attributed to aggregators.

This trend of decreasing caseload increasingly dominated by patent aggregators can be seen below.

And with the aggregation effect comes financing, with nearly 63% of all cases being financed.

The yearly trend can be seen below.

New to this year's report, but has a long tradition in litigation, is Delaware. Interestingly, between 2015 and 2021, over 62% of all patent cases can be attributed to an aggregator.

The yearly breakdown of this trend can be seen below.

The financing identified attributes to nearly 30% of all aggregators.

While litigation may also be declining in Delaware, litigation-financed suits over the last couple of years have picked up steam.

California Northern has also seen a rise in aggregation, with nearly 57% of filed cases associated with aggregators.

Looking at the year-by-year trends, aggregation in this district appears to remain steady.

Around 16% of all aggregation has some form of financing.

Last year, despite the pandemic, financing found its way into the most cases ever recorded.

California Central has seen nearly 50% of all cases can be attributed to an aggregator.

The year-by-year breakdown can be seen below.

While not as prominent, financing can be attributed to over 13% of all cases.

There has been some movement in recent years regarding financing in California Central.

Obviously, financing and third-party economic backing is shrouded in secrecy, so this data necessarily underestimates the total percentage of cases funded by third parties, whether through private capital groups like Magnetar, Starboard, Vector Capital, or Burford Capital, or via private sources unwilling or unable to acknowledge their stake.  But what is clear from an honest assessment of filed cases is that in all of these top venues, more than 50% of patent litigation is related to patent aggregators. 

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A Year of WSOU: Craig Etchegoyen’s Post-Uniloc NPE Files Nearly 200 Cases

For most U.S. businesses, the pandemic forced temporary (and sometimes permanent) closures, bankruptcies, and credit crunches. Many were forced to adapt to working remotely, deal with border closures and shortages, or address outbreaks. But for at least one kind of entity, 2020 was a banner year. Patent Assertion Entities (PAEs), entities that exist to acquire and enforce patent assets, filed upwards of 3,744 suits, up more than 12% over 2019—the vast majority of patent cases filed.  For patent lawyers, at least, business has been booming.

One particularly prolific NPE filed almost 200 suits since March 2020, representing 1 out of every 20 district court cases nationwide: WSOU Investments LLC, d/b/a Brazos Licensing (i.e., “we-sue”). WSOU is a new kind of patent troll in terms of scale—but it’s one built on an old file-and-settle model and run by the now-infamous Craig Etchegoyen (the guy behind the litigious NPE Uniloc), he’s gone from 600 patents being asserted through Uniloc to a web of over 15,000 Nokia and Alcatel-Lucent patents and applications from over 4,500 patent families. Most of the patents in the portfolio (and most of the patents asserted) relate to telecommunications and digital data processing and transmission, although they cover a range of fields, including wireless networks, video games, and image processing and communication. Over 5,000 of these patents are US Patents:

WSOU takes a “darken-the-skies” approach to litigation that forces operating companies to either settle or fight, on average, eight lawsuits at once. One defendant, Huawei, has the unrelished honor of finding itself defending against 20 of these patents in dozens of suits, with Google close behind at 15.

Rather than assert a few related patents against similar accused products or make any attempt to consolidate or streamline matters for the courts, WSOU instead clogs them, running up court costs and concerns with multiple single-patent cases against a wide variety of different accused products, relying on patents from different families for each defendant. Indeed, when accounting for transfers, 98% of the patents asserted come from unique families.

WSOU appears to be picking defendants off in a way that prevents any sort of joint defense, common interest, or other means of defending themselves, and then seeking to license the whole shebang seriatim, keeping all discussions separate and isolated.  To wit, WSOU has not asserted the same patent twice against different defendants.

It isn’t hard to see WSOU’s play here. By filing individual suits involving different patents, WSOU makes it expensive to perform prior art searches and develop non-infringement and invalidity contentions for each case. Accounting for refilings and transfers (which are often involuntary), WSOU has filed over 90% of its cases in the Western District of Texas, a known hotbed for PAEs ever since a particular Waco judge has created a reputation of hoarding patent cases with promises of fast resolution, even despite repeated admonitions from the Federal Circuit.

By litigating in well-known “rocket dockets” where it can, WSOU makes it difficult for defendants to meet the statutory requirements for filing IPRs, and filing all of those IPRs would not only be expensive (the filing fees alone, not including the cost of attorneys and experts, would cost about $250,000 for the average campaign per defendant, assuming one IPR per patent), but also somewhat superfluous when the presiding judge over almost all of the cases has a avowed policy of refusing to stay a case unless the defendant somehow manages to petition for inter partes review before they are even sued.

While the effectiveness of this boil-the-ocean approach is questionable, it certainly was foreseeable. With a one-year statutory bar to file any kind of expensive defensive challenge (a year being pretty generous under Apple v. Fintiv), and no obligation for patent owners to forewarn defendants about their patent portfolios, a patent owner would almost be foolish not to quietly build up a line of cases to spring on defendants all at once, and use the filing as a sort of ransoming starting point for negotiations once companies are staring down the barrel of millions of dollars in court costs. When the cost of defense can be upwards of $4,000,000 over three years, while it’s still hard to comprehend, defendants can at least budget ahead for the defense.  When the cost is multiplied by a dozen and sprung upon you on questionable patents, it can be a little harder to justify defending oneself.

Theoretically, this strategy should also be relatively expensive for a plaintiff. But WSOU has this down to a science. Using a firm that does work almost exclusively for Uniloc and WSOU, his hope is that the high costs of defense force defendants to surrender to settlement early.  This is particularly true given WSOU’s relationship with RPX. For an additional subscription, RPX (it appears) offers settlements for WSOU’s entire portfolio, creating a cycle of monetization that is antithetical to patent assertion deterrence.

WSOU is managed by Craig Etchegoyen, surfing-prodigy-turned-PAE-manager. Etchegoyen is the former CEO of Uniloc, another prolific PAE. In December 2020, it was discovered that based on a contract clause that gave a litigation financier a right to take ownership of patents if certain revenue targets were not met, Uniloc did not have standing to assert its patents. WSOU may be subject to similar contract clauses, and discovery into ownership and chain of title is already in process. A defendant would be wise to pore through assignment and financing agreements to catch any chink in the chain of ownership—the assignment frames on record with the USPTO do not, for instance, show a clear chain of title for many of the WSOU patents.  Rumor has it that he tried and failed to find a buyer for the portfolio, bringing unreasonable demands to the table.  It’s likely that his current demands are equally unreasonable, but he’s leveraging the cost of litigation as far as it can be leveraged in an attempt to avoid any sort of honest look at the value of his portfolio. 

It is too early to tell if WSOU’s strategy will pan out, but most defendants have not yet taken advantage of the inter partes review process, presumably because the costs there would extend into the millions just to file, and with the substantial uncertainty surrounding Fintiv and other USPTO flexes of discretion, it’s unclear if even meritorious challenges will be given the time of day. Of the 140+ patents asserted, so far just 12 PTAB challenges have been filed, including one IPR by Unified Patents against a video codec patent. Unified has also posted a number of PATROLL contests (US8209411, US7409715) and continues to monitor WSOU’s monetization activities.

Economic PTAB Analysis Demonstrates Post-Grant Challenges Save Litigation Costs Regardless of Stay

Leading Economic Expert finds that PTAB challenges lower total costs and benefit the US Economy almost $2 billion regardless of whether litigation stays are granted

The Perryman Group, in a recent economic study commissioned by Unified, found substantial cost savings in district court cases when there is a copending IPR proceeding regardless of whether a stay is granted or not. 

The study found either outcome resulted in substantial benefits to the U.S. economy by improving business activity $1.87 billion and saving 8,530 job years.  That included where an IPR was conducted parallel to an ongoing district court proceeding, where the Perryman Group estimated the economic benefits of cost savings over the 2014-19 period of $135.4 million in US gross product and 617 person-years of employment. The study also found these benefits are primarily concentrated in the manufacturing sector.

Source: The Perryman Group

The full study is available here, and complements Perryman Group’s earlier work demonstrating the quantifiable economic benefits of the Leahy-Smith America Invents Act’s post-grant proceedings in the years following their implementation.

Source: The Perryman Group

The Perryman Report is part of Unified Patents’ Patent Quality Initiative (PQI), an effort to gather and provide objective data and research demonstrating how lowering patent quality will inevitably lead to even higher cost and risk for U.S. SMEs, inventors, and manufacturers, and can lead to less innovation, fewer U.S. jobs, and a drain on the U.S. economy. Our PQI aims to provide data, studies, and testimonials to give policymakers and practitioners a clear picture of the state of the patent system. More information about our PQI efforts can be found here.

For far greater detail, read the entire report HERE.

Copyright © 2021, Unified Patents, LLC. All rights reserved.

PTAB/District Court Trial Date Denials Spiraling Upward: PTAB Discretionary Denials Third-Quarter Report

Key Takeaways: After returning to the data, breaking down all discretionary denials by category, and updating the data for the past three months, it is clear that the PTAB now prefers denying more petitions under their recent NHK Spring/Fintiv “parallel district court” practice than any other means; discretionary denials as a percentage of overall denials have risen and will almost certainly exceed last year’s denials, both in terms of raw numbers (in a down year) and by overall percentage (by a substantial margin). 

Following Unified’s Quarter 1 and Quarter 2 reports on PTAB procedural denials, we went back to further analyze and categorize all Board decisions to date to understand the impact of new decisions, including the NHK Spring/Fintiv and General Plastic/NVIDIA line of decisions. This year, the number of non-merits or “procedural” denials by the Board has dramatically increased overall; for example, through the first nine months of 2020, 151 denials (16% of all decisions) have been issued, nearly tying 2019’s 162 denials for the entire year. 

With total number of institution decisions by the Board somewhat depressed overall this year, we now see that the amount of discretionary denials as a percentage of total denials has risen dramatically, representing more than a third of all institution denials in 2020–or put another way, 38% of all denials in 2020 to date are cases where the Board did not consider the merits of the petition.

In the 151 denials to date in 2020, 314(a) has been the predominant means of procedural denial, used by the PTAB 73% of time (110 total decisions). Meanwhile, 325(d) denials are at their lowest since 2017, with only 27 denials this year. This year has also not seen any “combination” denials under both 314(a) and 325(d).

The reduction in 325(d) denials makes sense on some level, given the overlap between the various 314 analyses (which include analyses of other petitions or forums and the grounds they raised), and with the overlap of the “same or substantially same” grounds already raised by the parties in other IPR proceedings. In those overlapping instances, 314 may be an easier form of denial, whereas application of 325 may be less straightforward, requiring a more prior art-heavy analysis to justify denial. 

Looking at the last five years, 314(a) denials are now used by the Board 9.5% of time, up 2.5% from the last quarter.

On the other hand, while § 325(d) denials are at their lowest overall number since 2017 (so far),  they have decreased just .3% from the last quarter, to 5.4% total over the past five years as a percentage of all denials.

In 2020 to date, 83% of all procedural denials are denied due to either a parallel petition, the NHK Spring/Fintiv framework, or the General Plastic/NVIDIA framework. Parallel petitions accounted for 40% of (or 44) denials of the 110. NHK Spring/Fintiv framework was used 43% of the time to deny petitions (or 47 denials of the 110 total). Interestingly given that it was the genesis of “discretionary denials” under 314, the General Plastic/NVIDIA framework was used just 13% of the time (or in 14 denials of the 110).

One of the more interesting developments in the analysis used in NHK Spring/Fintiv denials has been the denial of institution based on the Board “estimating” when a trial will be held, even when a trial date has not been scheduled in the District Court. In two recent cases, the Board refused to consider the merits of challenges based on their own estimates of when a trial date was likely to occur, and rejected arguments and speculations to the contrary. 

There has also been a notable reliance on the “cost” and “investment” of the PTAB, the parties, and the Court in their respective proceedings, or the cost or benefit of such respective proceedings, without any substantive economic analysis of actual economic cost to any party or institution, or a reliance on any data whatsoever to support a cost (or benefit) to the parties or decision makers. The lack of any economic support for economic assumptions made by the agency is notable, given that economic efficiency is one of the primary grounds advanced by the agency on which such denials are based.  

For questions, comments, or inquiries, please contact info@unifiedpatents.com

Click to download the full report.

Footnotes

1. PTAB/District Court Trial Date Denials Spiraling Upward: Discretionary PTAB Denials Third-Quarter Report by Unified Patents, LLC is licensed under a Creative Commons Attribution 4.0 International License.  Sharing, reproduction, and adaptation are permitted in commercial contexts with proper attribution.

2. Unified Patents, PTAB Procedural Denials and the Rise of § 314 (May 13, 2020), https://www.unifiedpatents.com/insights/2020/5/13/ptab-procedural-denial-and-the-rise-of-314.

3. Unified Patents, PTAB Discretionary Denials: In the First Half of 2020, Denials Already Exceed All of 2019 (July 27, 2020), https://www.unifiedpatents.com/insights/2020/7/27/ptab-discretionary-denials-in-the-first-half-of-2020-denials-already-exceed-all-of-2019.

4. We refer to “procedural denials” as any denial of institution where the substantive merits of the petition were not considered in light of policy-based decision making or “discretion.” Some discretion is directly spelled out in the statute–for instance, 35 U.S.C. 325(d) tightly circumscribes and explicitly grants the Director the ability to “determine the manner in which the post-grant review or other proceeding or matter may proceed, including providing for the stay, transfer, consolidation, or termination of any such matter or proceeding.”  Joinder discretion is made explicit under 35 U.S.C. 315(c): “the Director, in his or her discretion, may join as a party to that inter partes review any person who properly files a petition ... that the Director ... determines warrants the institution of an inter partes review under section 314.”  Meanwhile, 35 U.S.C. 314(a) contains no such express grant or outline.

5. NHK Spring Co. v. Intri-Plex Technologies, Inc., IPR2018-00752, Paper 8 (PTAB Sept. 12, 2018) (precedential); Apple Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020) (precedential).

6. General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (PTAB Sept. 6, 2017) (precedential); NVIDIA Corp. v. Samsung Elec. Co., IPR2016-00134, Paper 9 (PTAB May 4, 2016).

7. For the sake of simplicity and because it was more difficult to code for and not explicitly tied to a particular precedential decision, we placed the July 2019 Trial Practice Guide Update line of cases (i.e., the “parallel petition” denials based on ranking of petitions) with the General Plastics/NVIDIA line of cases.  We will continue to refine the data to provide the most accurate picture possible as we produce future reports.  If you have inquiries about methodology or the data or reports themselves, please contact PatentQualityInitative@unifiedpatents.com.

8. The remaining 5 denials amounted to another 4.5% of all denials, for various reasons.

9. Intel Corp. v. VLSI Technology, LLC, IPR2020-00583, Paper 22 (PTAB Oct. 5, 2020); Supercell Oy v. GREE, Inc., PGR2020-00053, Paper 12 (PTAB Oct. 9, 2020).

Copyright © 2020, Unified Patents, LLC. All rights reserved.

PTAB Discretionary Denials: In the First Half of 2020, Denials Already Exceed All of 2019

Following on Unified’s previous study, the PTAB continues their steady uptick in procedural denials under § 314 through the first half of 2020, and on procedural, non-merits-based denials in general. These § 314 denials have tied 2019’s annual total—and total denials are just 13 denials shy of 2018’s total, with just half the year reported. Projections show procedural denials will most likely greatly exceed those in 2019 by the end of Q3. Most significantly, though, the General Plastic/NHK framework is being used to procedurally deny petitions more than ever—projecting more than double the number of denials in 2019, they are set to make up roughly 30% of all denials this calendar year.

Thus far, 2020 has seen seventy-five § 314(a) denials, which accounts for roughly 30% of the all denials to date (268). This already ties the previous year total, which only saw 75 § 314(a) discretionary denials total. 2018 saw 45, while 2017 and 2016 saw 15 and 5, respectively.

Indeed, § 314(a) now accounts for the majority of procedural denials (including denials under § 325 and those related to joinder). The ratio of § 314(a) procedural denials has grown this year, as you can see below. 2019 saw 49% of all procedural denials be § 314(a) (75 out of 154); in 2020, more than 74% of procedural denials have been under § 314(a) (75 out of 102). This means that the PTAB is expected to issue 162 § 314(a) denials by the end of the year, a 116% increase from last year.

This is a dramatic increase over the life of the Board, where it has denied institution on 7.0% of all petitions to date for purely procedural reasons—including denials of joinder, § 314, § 325, and other requirements. This is an increase of the previous study, based on the rapid rise of the use of such denials over the past six months.

Of all denials to date, roughly a quarter have not been on the merits; indeed, in total 7.0% of all denials have been over § 314(a) (nearly all from the past two years); and 5.7% have been over § 325(d). Note that § 314(a) denials have exploded since 2018, particularly as a percentage of the (falling) filing numbers and institution rates. Both have increased since the last study.

Parallel District Court Cases Affected by Denials: Early Numbers

When looking at the petitioners that are denied on 314(a) with related parallel district court litigation, the California Northern District Court comprises 45% of the cases related to denials, with 208 cases being cited. (It should be noted that often with denials multiple cases are cited for the denial, and these numbers don’t yet distinguish between “multiple petition” denials under General Plastic, “parallel petition” denials under the July 2019 Trial Practice Guide Update, or “trial date” denials under NHK Spring and Aptiv. A large number of these suits are related to sprawling ongoing litigations, like the yearslong Finjan or Rovi v. Comcast disputes.) These numbers encompass the Board’s entire history, and are a lagging indicator of where cases were being filed years ago. 

The Texas Eastern District has 80 cases cited, comprising 17% of all 314(a) denials. The Delaware District Court had 67 cases cited, comprising 15% of all 314(a) denials. The Texas Western District Court has seen 1 case cited in 2019, and this year that number has risen to 4, accounting for 1% of all 314(a) denials to date; as that docket balloons to more than 20% of the US patent docket, that number is set to rise dramatically.

Looking at the jurisdictions breakdown of § 314(a) denials, the venues as a whole average around 457 days. The top five range from 812 days (California Southern) to 435 days (Florida Southern). Interestingly, Texas Western is below the average by only 5 days, 452 respectively. 

Note that many of the cases denied under § 314(a) due to the advanced stages of a district court proceeding are litigations that were filed more than a two years ago, which is the average time of a district court in the United States to get to trial, suggesting this breakdown is a lagging indicator of where trials were filed more than two years ago. Given that the Western District of Texas has recently adopted aggressive local rules establishing early aspirational trial dates and the docket has ballooned, we have begun to see the Western District of Texas account for more cases related to denials under § 314(a). Of the recent denials of the past few months, nearly all have been due to trial dates in either the Eastern or Western Districts of Texas.

Copyright © 2020, Unified Patents, LLC. All rights reserved.