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Patent Lawsuits on Rise, Buying Spree Hints More To Come

June 12, 2020, 10:30 AM

Federal courts are seeing a jump in patent infringement lawsuits, and recent intellectual property sales are hinting at a further increase.

Even as the coronavirus outbreak disrupted U.S. courts and businesses, patent lawsuits in the first five months of 2020 increased 9% year-over-year, Bloomberg Law data show. The lawsuit pace is also up 5% from the same period in 2018.

The increase in patent cases comes amid recent Federal Circuit and patent office developments that can make it harder for accused infringers to quickly invalidate patents. New cases from non-practicing entities (NPE)—companies that generate revenue mainly from patent licensing and litigation—are also contributing to the increase, studies by organizations that oppose certain NPE activity show.

“I think a large percentage of the increase in filings is accounted for by non-practicing entities,” said David Donoghue, a partner in Holland & Knight LLP’s Chicago office and leader of the firm’s national IP group.

IP watchers say there are signs patent litigation will gain further momentum.

Non-practicing entities completed major deals leading up to the economic downturn this year, according to Allied Security Trust, a patent cooperative that helps its members defend themselves against infringement lawsuits. Fallout from the pandemic is expected to only fuel new lawsuits, as cash-strapped companies look to sell patents.

Impact on Tech

There were 1,633 patent lawsuits filed in 2020 through the end of May, according to Bloomberg Law data.

The Western District of Texas has emerged as the busiest court in the U.S. for new patent cases, with one-fifth of the new suits. Patents involved in lawsuits there disproportionately cover computer software inventions, compared to the rest of the country, Tamara Fraizer, a partner at Squire Patton Boggs in California, said.

“That leads me to believe that a lot of the patents being asserted lately are in the area of computers and communications software,” said Fraizer.

New plaintiffs have emerged, attorneys who track court dockets say. Among them is patent licensing firm WSOU Investments LLC, which filed over 40 lawsuits. The Texas-based firm has accused companies like Huawei Technologies Co. and Microsoft Corp. of patent infringement.

WSOU’s founder, Craig Etchegoyen, also helped start the well-known licensing firm Uniloc. An attorney for WSOU didn’t immediately respond to a request for comment.

Other relative newcomers include Cedar Lane Technologies Inc. and Castlemorton Wireless LLC, both of which have filed over two dozen lawsuits. Delaware’s Castlemorton said in court documents it was created to “obtain compensation” for wireless communications tech developed by the U.K.’s Ministry of Defense.

Patent Owner Optimism

Recent legal developments have made patent owners more optimistic they’ll prevail in court.

Plaintiff attorneys “are figuring out how to leverage the current state of the law,” said Jeremy Taylor, a partner at Baker Botts LLP in California’s Bay Area who represents tech companies.

The Patent Trial and Appeal Board, where accused infringers often challenge patent validity, has made changes friendly to patent owners, including clamping down on repeat challenges to the same patent.

Recent Federal Circuit decisions have also made it more difficult for defendants to get quick wins in district court infringement cases by arguing the patent covers ineligible subject matter. And there has been additional case law around what is an unpatentable abstract idea.

“Things have gotten clearer than they were two or three years ago,” said Stamatios Stamoulis, whose Delaware law firm, Stamoulis & Weinblatt LLC, focuses on representing patent litigation plaintiffs and generic pharmaceutical defendants.

‘Sound Investment’

Other defensive patent groups, which aim to deter non-practicing entities’ activity, have reported increased litigation from NPEs.

Of the 2020 lawsuits analyzed by United Patents LLC, 63% were brought by businesses or individuals identified by the group as NPEs. That is compared to 58% of cases during the same period in 2019, and 50% in 2018, according to Unified, which, among other things, files validity challenges against NPE-owned patents.

San Francisco-based RPX Corp. reported that NPE lawsuits in the first quarter of 2020 were the highest of any first quarter since 2015.

A record-setting U.S. economic expansion may have also contributed to those types of patent assertions, as investors looked for assets that would be protected if the market cratered. Patents have historically been viewed as recession-proof.
“Patent assertions, when things are very good, are seen as a sound investment,” said Jonathan Stroud, chief IP counsel at Unified Patents.

Patent Sales

Recent patent sales could spark more litigation.

Allied Security Trust reported a busy quarter for patent transactions in the first quarter of 2020, with the highest quarterly deal total in recent years. NPEs, in particular, acquired close to 5,000 patents—up from 1,197 in the final quarter of 2019, AST said, while 33 new NPEs bought patents.

“I think the main reason patents get transacted is somebody wants to assert them,” said Kayvan Noroozi, founder of the Southern California law firm Noroozi PC, which focuses on patent litigation and advises litigation funds about investments. “That’s certainly a very common phenomenon.”

More patents could soon be hitting the market, as a result of the economic fallout from the pandemic.

“What stands out is the number of calls and emails that we’re getting where people are trying to sell patents,” Richardson Oliver Law Group LLP partner Erik Oliver said. Much of the interest is from companies that appear to be small, venture-backed startups low on cash, said Oliver, whose firm tracks the brokered patent market.

That could fuel even more lawsuits as licensing firms scoop up patents at cheap prices. Squire Patton attorneys reported an increase in the volume of lawsuits from “high volume plaintiffs” in the years after the recession.

Operating companies may also feel pressure in an economic downturn to generate a return on their patent investments through litigation.

“I wouldn’t be surprised if a year and a half from now, you’re looking at a whole bunch of new names that you don’t recognize that are bringing suit and sending letters,” Stroud said.

Frequent lawsuit targets, like Apple Inc. and Samsung Electronics Co. Ltd., have strategies for dealing with infringement allegations. But smaller companies could be caught flat-footed and should prepare how they’d respond to demands of licensing payments, or settlements, attorneys said.

“For companies that haven’t seen enough patent cases to feel like they need a strategy, now is the time to develop one so that you are acting with some purpose and certainty when you face one of these claims,” Donoghue said.

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com, Keith Perine at kperine@bloomberglaw.com

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