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Uniloc’s Funding Deal With Fortress Spurs Litigation Setbacks

Jan. 5, 2021, 10:56 AM

Uniloc Luxembourg SA has suffered a series of losses in patent infringment cases after U.S. district courts ruled it defaulted on a loan from a Fortress Investment Group affiliate—money Uniloc used to pay for the lawsuits against Apple Inc. and other companies.

Uniloc’s most recent setback came last week, when Judge Colm Connolly in the U.S. District Court for the District of Delaware threw out an infringement lawsuit that it had filed against Motorola Mobility LLC.

Connolly found Uniloc defaulted on the loan when it fell short of a revenue target imposed by Fortress. Because Uniloc ceded rights in the patents to Fortress in the event of a default under loan terms, it didn’t have legal standing in the suit, the judge said.

Neither “Uniloc Luxembourg nor Uniloc USA held exclusionary rights to the asserted patent on the date they filed this suit,” Connolly wrote. “Accordingly, they lacked standing and this court lacks subject matter jurisdiction under Article III.”

Two judges in the U.S. District for the Northern District of California issued similar rulings last month, ending lawsuits Uniloc filed against Apple and Google LLC. Uniloc has indicated in court filings it plans to appeal those rulings.

Should the rulings stand, they could give fresh ammunition to other companies defending infringement suits from Uniloc, attorneys said.

“I would be very surprised if we didn’t keep seeing these kinds of standing arguments,” said Matt Warren, the founding partner of Warren Lex LLP in San Francisco who represents technology companies in IP disputes.

Uniloc has been one of the most active filers of patent lawsuits in recent years; it has been named as a plaintiff in nearly 350 patent cases since the start of 2017, according to Bloomberg Law data.

Representatives for Uniloc and Fortress didn’t immediately respond to requests for comment.

Multiyear Partnership

Documents filed in the cases have also shed light on the multimillion-dollar finance arrangement between Uniloc and Fortress Credit Co. LLC. Their partnership dates back several years, but many details were previously unknown.

Beginning in December 2014, Fortress agreed to loan Uniloc up to $26 million and purchased shares in Uniloc Luxembourg, in exchange for a share of future licensing revenue from Uniloc’s patents, court records show.

As security, Uniloc gave Fortress a license in its patent portfolio, allowing Fortress to sublicense the patents. Fortress agreed not to use the license unless Uniloc defaulted on the loan, according to court documents.

An executive at Fortress told Apple attorneys in a deposition that he understood the agreement—which was amended a handful of times when Fortress loaned Uniloc additional money—to include Uniloc’s entire patent portfolio.

Uniloc was required to generate $20 million in settlements, royalties, and other patent payments in the 12 months before March 2017 under loan terms. Uniloc ended up $6 million short of that target, court records show.

Motorola and the other tech companies argued Uniloc defaulted. Uniloc maintained Fortress was satisfied with its monetization efforts and didn’t view the shortfall as a default.

“I never believed them to be in default,” James Palmer, a director in the IP Finance Group at Fortress Investment Group, said in a deposition that Uniloc submitted with court filings.

“But if for some crazy reason somebody thinks they were in default,” Palmer said in the deposition, “by simple fact of us actually executing an additional amendment and giving them additional capital means in my mind it’s satisfied.”

‘Subjective Beliefs’

Connolly said in his ruling the argument was unconvincing.

“Fortress’s after-the-fact subjective beliefs with respect to the Unilocs are of no moment; the clear and unambiguous language” of the agreement “dictates the outcome here,” Connolly wrote in his ruling.

Motorola had pointed to a Dec. 4 decision from Judge William Alsup in the U.S. District Court for the Northern District of California. He also found Uniloc defaulted on the loan and said the default wasn’t cured by the time a lawsuit against Apple was filed.

Another Northern District of California judge, Yvonne Gonzalez Rogers, on Dec. 22 threw out nearly a dozen cases Uniloc filed against Google after finding Uniloc defaulted by not meeting a revenue requirement. Rogers also said Uniloc breached the agreement by not disclosing challenges to the validity of certain patents.

Tools to Use

The adverse rulings have the potential to “hugely disrupt” Uniloc’s current litigation campaign, said Jonathan Stroud, the chief IP counsel at Unified Patents, a membership group that seeks to deter patent assertions from non-practicing entities like Uniloc.

While Uniloc could attempt to fix the standing issue and refile the suits, it already has “wasted a significant amount of time and they could be on the hook for a significant amount of money,” Warren said.

Warren noted the winning side in a patent case may be awarded attorneys’ fees when a case is “exceptional” and stands out from others.

Companies in patent validity challenges at the U.S. Patent and Trademark Office must name other entities with an interest in the proceeding. Fortress wasn’t named in challenges to patents involved in the Apple, Google, and Motorola cases, records show.

There could be questions about patent licenses Uniloc has entered into, Stroud said.

“It gives defense counsel in a lot of these cases a lot of tools with which to question the structure and ownership of the patents that were out there,” Stroud said.

Sealed Documents

Uniloc has fought to block the public release of many documents in litigation. Last summer, the U.S. Court of Appeals for the Federal Circuit upheld a ruling that denied the company a chance to redact certain documents in its cases against Apple.

On Dec. 22, Alsup ordered additional documents disclosed, including documents with the names of dozens of Uniloc’s licensees, as well as the dates and dollar amounts of the deals.

Uniloc had argued revealing this information would “cause great and undue harm.” The documents remain sealed to give Uniloc time to appeal the judge’s decision.

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: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com