Valve’s ‘Patent Troll’ Verdict Points to Laws, Licenses as Tools

Valve Corp.’s victory against an inventor under state laws penalizing bad-faith patent litigation highlights the importance of licensing agreement terms even if it falls short of heralding the end of nuisance litigation.

A Western District of Washington jury’s verdict finding inventor Leigh Rothschild and several affiliates violated the state’s Patent Troll Prevention Act and Consumer Protection Act may be the first concerning an anti-troll law, according to multiple intellectual property attorneys who spoke to Bloomberg Law.

The case turned on litigation companies affiliated with Rothschild filed and threatened against Valve over patents the Steam online gaming platform developer had already licensed from one of the inventor’s affiliates.

Valve’s award isn’t huge. But the verdict is a “meaningful data point” and another weapon to fend off infringement allegations, Robert Greeson of Norton Rose Fulbright US LLP said.

“These statutes, by and large, wouldn’t have even been on anybody’s radar,” Greeson said. Defense strategies would have focused on “noninfringement, invalidity, damages, prior licenses, early motions to dismiss.”

He suggested companies’ legal departments ask themselves, “What can we do to get out of this case?” and look through their license portfolios.

“Patent troll” is an often-pejorative term used to describe entities that file bad-faith lawsuits as a way to obtain settlements in amounts that are generally less than the cost of litigation. More than 30 states have statutes targeting bad-faith patent litigation. Some allow only the state attorney general to bring enforcement actions, while others allow private suits.

The Valve case provides a lesson in the importance of drafting license agreements, said Lionel Lavenue of Finnegan, Henderson, Farabow, Garrett & Dunner LLP, who said he often tries to put clients in a position where they have leverage when negotiating terms to obtain favorable agreements, including by expanding the universe of patents covered by a license.

“One of your most horrific moments is to know that after you resolved the case, the same plaintiff has the ability to come back and sue you again in the future,” Lavenue said. “Sometimes you can’t avoid that because you’re just dealing with the patents that are asserted, and not all the patents that they assert against you in the future.”

Mind the Licenses

Valve entered into a global settlement and licensing agreement with Rothschild affiliate Display Technologies LLC in 2016. The agreement gave it to right to use certain patents and “all continuations, divisionals, continuations in-part, extensions, reissues, reexaminations, and any other patents or patent applications claiming priority to or through the patents,” according to the software company.

The court ruled in January that Rothschild and Display Technologies breached that license agreement by asserting one of the covered patents against Valve in in 2022.

The subsequent verdict shows every patent owners needs “to take inventory of all the licenses it granted and that its affiliates have granted,” George Chen of Bryan Cave Leighton Paisner LLP said.

It’s vital “to carefully look at any license agreements that they have signed, carefully scrutinize the language in those license agreements” before making contact with potential infringers, Chen said.

Similarly, companies negotiating licenses with patent owners should push for access to all patents in the same family, as Valve did.

“Paying attention to what licenses you’ve taken over the years and what that really covers is going to be important,” Greeson said. “It’s almost a matter of bookkeeping.”

Look to State Laws

The Washington state jury awarded Valve $152,093 in damages, according to Joseph Zito of DNL Zito, counsel for Rothschild and the affiliates: Jurors determined the inventor and the entities owed $130,000 for breaching the contract, $1 for a second breach, $7,364 for violating the state law—which was tripled to $22,092.

Though not eye-popping in an era of infringement verdicts measured in the hundreds of millions of dollars, it may be enough of a red flag for some patent owners to review their licenses before making allegations, Chen said.

“These laws can be used effectively as a deterrent for these nonpracticing entities who are just sending out cease and desist letters or licensing demands, or filing lawsuits without having done their investigation that’s required under the law,” Chen said.

It’s difficult to predict whether more companies will follow in Valve’s footsteps and generate an increase in actions brought under state laws, Greeson said, but under the right set of circumstances there could be some momentum. The US Court of Appeals for the Federal Circuit in December dismissed a challenge to the constitutionality of a bonding requirement in Idaho’s Bad Faith Assertions of Patent Infringement Act brought by a patent owner suing Micron Technology Inc.

Regardless of any damages in the Washington case, Valve may find itself less likely to deal with nuisance lawsuits in the future because the company has shown it’s willing to fight, Patrick Muffo of Polsinelli PC said.

Fighting can be more expensive in the short term, he said, but over time a company that shows it’s more resistant to settling can curb the number of suits targeting it.

“The rule of patent trolls is generally the more you give in, the more you’re going to be sued by them, and you’ll suffer a death by 1,000 cuts,” Muffo said.