Q2 in Review: PTAB Reforms Face New Challenges as China Targets Foreign Pools

NPE litigation continued on an upward trend in the second quarter of 2024, rising by 19% compared to Q2 2023. Building on a significant increase in the first quarter, NPE filings were up by 21% in the first half of the year.

In addition, the USPTO moved forward in the second quarter with planned rulemaking on a variety of issues impacting Patent Trial and Appeal Board (PTAB) reviews, including an April 2024 proposal addressing discretionary denials that drew a wide range of stakeholder feedback. However, as Q2 came to a close, the Supreme Court cast those efforts into uncharted waters by overturning the 40-year-old judicial doctrine known as Chevron, which required judges to give deference to agency interpretations of reasonably ambiguous statutes—now raising the possibility that the USPTO will face litigation challenging its planned rule changes once implemented.

Moreover, patent pools were in the spotlight in Q2, after it was revealed that China’s Supreme People’s Court became the first national court to assert the power to set global fair, reasonable, and nondiscriminatory (FRAND) rates for foreign patent pools. Furthermore, a Chinese anti-monopoly agency announced this past week that it had just initiated a formal dialogue with patent pool Avanci, LLC regarding the compliance of its automotive licensing programs with anti-monopoly laws. The Unified Patent Court (UPC) also began to issue its first rulings specific to standard essential patent (SEP litigation) last quarter, in the process revealing a split between two popular local divisions over licensing transparency—with other local divisions also diverging on issues relevant to NPE litigation more broadly.

As Q2 drew to a close, a jury in the Eastern District of Texas returned an $847M verdict in favor of General Access Solutions, Ltd., a Texas NPE that—according to public records—received litigation funding shortly before commencing that lawsuit. Meanwhile, a close review of litigation data reveals that several of the new US patent litigation campaigns begun during the second quarter can be tied to prominent third-party litigation funders—and USPTO data suggest that more such campaigns are in the pipeline.

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In the second quarter of 2024, NPEs added 508 defendants to patent campaigns, an increase of 81 defendants (or 19%) compared to Q2 2023, when NPEs added 427 defendants. NPE litigation was 10% below the trailing three-quarter average for Q2 2021-2023 but was 23% more than in Q2 2023.

Operating companies added 303 defendants in Q2, which was 28% more than the year-ago quarter, exceeding the trailing three-quarter average by 12% and coming in ahead of Q1 by 19%.

Overall, patent plaintiffs added 811 defendants in the second quarter of 2024, or 22% more than in Q2 2023, 21% more than Q1 2024, and 3% less than the trailing average.

Additionally, the operating company data above leave out another distinct category of litigation filed by a small group of design and utility patent owners targeting copycats and counterfeiters selling products online. RPX excludes such “e-seller” cases from analyses of district court litigation because they tend to follow a different dynamic compared to what one might consider the usual patent suit. These e-seller cases sometimes name hundreds of defendant entities, many of which may be merely online storefronts or aliases for the same ultimate parent. Also, plaintiffs primarily seek injunctive relief instead of damages, and their cases often end with the e-seller defendant’s failure to answer, followed by a default judgment.

This category of litigation, which began to spike in Q3 2020, is shown in grey below to illustrate its magnitude. As shown by the rightmost bar, e-seller litigation in Q2 2024 accounted for 2,510 defendants added, or 76% of all litigation during the quarter—though this number remains subject to the caveat about defendants potentially having multiple online storefronts noted above.

Apart from the following graph, the remaining analyses in this report exclude pure design patent and e-seller litigation.

Delaware’s NPE numbers have plummeted as a result of pressure over transparency in the courtroom of Chief Judge Colm F. Connolly, who in April 2022 began requiring the wide-ranging disclosure of information on corporate control and funding. Starting later that year, this triggered a heated battle with NPEs linked to monetization firm IP Edge LLC after Judge Connolly, probing into their failure to comply with those rules, identified wide-ranging fraud and ethical violations by those involved. IP Edge stopped filing there as a result, and since the firm had previously accounted for much of Delaware’s NPE volume, this alone was responsible for most of the drop—but other NPEs have followed suit as well.

West Texas, which was the top patent district from Q2 2020 to Q4 2022, has also fallen in the rankings due to another key development in 2022: That July, former Chief Judge Orlando L. Garcia issued an order designed to reduce the concentration of patent litigation before District Judge Alan D. Albright, who had successfully (and openly) sought to attract patent litigation to his court. This was made possible by divisional filing rules that let plaintiffs file directly in a preferred division—letting them pick Judge Albright by filing in Waco, where he is the only district judge. The order changed this rule solely for patent cases brought in Waco, providing that they would randomly be assigned among a larger group of judges throughout West Texas, including Judge Albright. This appears to have reduced Waco’s appeal to NPEs, which added just 54 defendants there in Q2 2024, compared to 103 in Q2 2023.

Perhaps not surprisingly, Judge Albright has continued to fall in the rankings as a result, failing to break the top five for the first time in Q2. The top district judge last quarter remained Chief Judge Rodney Gilstrap, with 17% of the country’s patent litigation falling in his court.

Though he saw a smaller portion of the nation’s overall patent caseload in Q2, Judge Albright has continued to receive a disproportionate share of Waco’s patent litigation despite that order, with 48% of Waco’s Q2 filings ending up before him. The primary reason is that in the months following the 2022 case assignment order, the Western District adopted a practice of assigning each new patent complaint to the same judge that previously oversaw related cases involving the same parties and patents. In practice, this has led Judge Albright to receive the lion’s share of those “legacy” filings, given the number of prior cases in existing litigation campaigns that had already fallen in his courtroom before the case assignment order was handed down.

That said, stakeholders have debated whether this could potentially change as a result of a revised case assignment order issued by current Chief Judge Alia Moses on May 30, 2024. That order maintains the random case assignment policy but now provides the following new language on related cases: “Parties seeking to consolidate patent cases contending all cases are related shall file a motion with sufficient legal and factual justification in the court and with the judge presiding over the case sought to be removed”. However, it remains to be seen whether fewer movants will succeed in getting related cases reassigned, or whether the order will just preserve the status quo with a more fulsome record.

While it is too early to decisively answer this question, at least one judge has indicated that the existing practice should continue. On June 4, after the new order took effect, District Judge Kathleen Cardone, who had been randomly assigned a case from Proxense, LLC, transferred that case to Judge Albright with his consent, holding that “[t]o facilitate efficient docket management, all related cases are ordinarily allocated to the Judge that was randomly assigned the earliest-numbered related case” (as provided in a district-wide order issued in 2003 that concerns case assignments in multi-judge divisions).

Plaintiffs and their counsel have also begun to look beyond Waco in seeking a preferable West Texas venue. In particular, patent cases are increasingly flowing to the Midland-Odessa Division, where District Judge David Counts essentially adopted Judge Albright’s standing order governing patent cases, with some minor changes, shortly after the issuance of the July 2022 case assignment order. Since the July 2022 order and its May 2024 replacement are both specific to patent cases filed in Waco, plaintiffs are still free to target Midland-Odessa, where they are guaranteed to get Judge Counts, the division’s only district judge, under the same single-judge filing loophole that enabled Judge Albright’s former dominance.

Though Judge Counts had scarcely ever overseen patent cases before the assignment order and his adoption of Judge Albright’s rules, with just one defendant added in his courtroom in 2021, his caseload has risen steadily each year since, reaching 12 defendants added in 2022 and 35 in 2023. While these are still relatively small numbers, it is also worth noting that one of the top plaintiff-side firms by volume, Ramey LLP, has increasingly focused on Midland-Odessa. Though Ramey filed virtually no cases there before Q3 2022, it has filed a steadily greater share of its litigation there, even as its overall filings in the district have dipped: After accounting for 14% of the firm’s West Texas litigation in 2023 (at 16 defendants added, or 46% of Judge Counts’s total 2023 caseload), 75% of the defendants added by Ramey in West Texas in Q1 2024 were in Midland-Odessa (albeit, at just nine of 12 total), and 55% in Q2 (six out of 11 defendants).

Among the NPEs contributing to that swell in Networking litigation were several plaintiffs controlled by industry veterans. One was Innovations In Memory LLC, which in May launched a campaign targeting networking hardware (including servers and switches) and enterprise storage products that allegedly incorporate certain memory devices. The plaintiff was formed by an individual behind multiple firms engaged in patent monetization and/or financing (presently including Armada IP Capital, and formerly Soryn IP Group, LLC) and who also previously served as an engineer at InterDigital, Inc. Another such plaintiff was Encryptawave Technologies LLC, which in late June expanded its ongoing litigation campaign with a new wave of complaints over a wide range of devices (e.g., computers, label printers, smartphones, smart microwave ovens, tablets, thermostats, and TVs) that support the WPA2 protocol within certain authentication tools. Encryptawave is managed by Inferential Capital LLC, which is controlled by two individuals who variously report past positions with Wi-LAN Inc., IPNav, and Acacia Research Corporation. Also adding new cases to an existing Networking campaign was Freedom Patents LLC, which filed a series of mid-June complaints alleging infringement through devices (e.g., gateways, MIMO modules, and TVs) that implement MIMO Wi-Fi functionality. Freedom Patents is managed by a Texas attorney behind several other litigating NPEs, including American Patents LLC; Dynamic Hosting Company LLC; Liberty Patents LLC; Panther Innovations LLC; Plectrum LLC; and Snyders Heart Valve LLC.

Also joining the fray were two plaintiffs linked to well-known monetization firms. In early May, Fleet Connect Solutions LLC, a plaintiff associated with Texas-based Empire IP LLC, added another complaint to the campaign it launched in December 2020, here hitting networking products (e.g., access points, firewalls, and routers) that support Bluetooth, IEEE 802.11ac/b/n, and LTE connectivity. Additionally, Iarnach Technologies Limited, an NPE linked to Dublin monetization firm Atlantic IP Services Limited, added a third defendant to its ongoing optical networking campaign in early April, alleging infringement through products and services related to providing DPoE v2.0-compliant networks, including optical networking hardware, transport networks, and DOCSIS back-office equipment.

Q2 also saw networking litigation from CelluPlex LLC, which in late June kicked off a campaign over telephone systems that can connect to cellular phones via Bluetooth; and Lab Technology LLC, which in late May started its own campaign over cellular networking products, including LTE modems and processors incorporating them, adding more complaints throughout June (see here and here). Both plaintiffs are part of a growing group of New Mexico-based NPEs represented by Rabicoff Law LLC that have recently launched litigation, also including Data Resonance LLC, e-Beacon LLC, Payvox LLC, and Pointwise Ventures LLC.

The PTAB instituted trial for 74% of the AIA review petitions addressed in Q2, up from that same quarter last year (during which the institution rate was 70%) and from Q1 2024 (68%). The institution rate for the first half of the year was 70%, versus 71% in 1H 2023.

The standards governing institution—in particular, the rules allowing the PTAB to discretionarily deny AIA review petitions—were among the areas of greatest focus in Q2 for the USPTO, which has steadily pushed to reform a variety of internal procedures using notice-and-comment rulemaking over the past year.

In late April, the USPTO released a long-awaited Notice of Proposed Rulemaking (NPRM) addressing discretionary denials before the PTAB that included just a subset of the changes from a far more sweeping—and far more controversial—rules package released in April 2023. While that earlier proposal (styled as an Advance Notice of Proposed Rulemaking, or ANPRM) floated the codification and expansion of the Board’s discretionary denial practices under NHK-Fintiv as well as the creation of a standing requirement, the newer NPRM is limited to rules concerning “serial” and “parallel” petitions as well as validity arguments previously addressed by the USPTO, also creating a separate briefing process for discretionary denials and requiring the filing of pre-institution settlement agreements. Public comments submitted in response to the newer, more limited package by the June 18 deadline reflected feedback from a broad set of stakeholders, including licensors, frequent defendants, industry groups, and even the US Federal Trade Commission (FTC).

However, those efforts saw a potentially significant setback as Q2 came to a close, when the US Supreme Court overturned a 40-year-old doctrine called Chevron deference that has, until now, given many agencies wide latitude to set certain regulations.

Under Chevron, courts were required to defer to federal agencies’ interpretation of the laws governing them when those statutes were ambiguous. For cases satisfying the various “preconditions” required for Chevron to apply, courts had to apply a two-step test: they would first ask “whether Congress has directly spoken to the precise question at issue”. If the court found that “the statute is silent or ambiguous with respect to the specific issue”, it would have to defer to the agency’s reading if it was “based on a permissible construction of the statute”.

Yet on June 28, a 6-3 Supreme Court majority overturned Chevron in its decision in Loper Bright Enterprises v. Raimondo. In Loper Bright, Chief Justice John Roberts, writing for the majority, grounded its decision in the history of agency oversight, arguing that under a principle established by the Founders, courts have the sole and independent authority to interpret federal statutes on questions of law. Agency interpretations of legal issues, the majority further found, have historically been granted just “due respect” and treated as informative, while only factual determinations would be given any deference. Courts have given greater weight, the majority explained, to agency interpretations “issued contemporaneously with the enactment of the statute” and those based on an agency’s “specialized expertise”.

The fact that the Administrative Procedure Act (or APA, a “cornerstone” law that was enacted in 1946 and governs agency rulemaking and court oversight) provides no deferential standard for when agencies answer relevant questions of law, while doing so for agency policymaking and factfinding, confirms “that courts decide legal questions by applying their own judgment” and that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference”. Chevron, per the majority, violates the APA’s “command” that courts must decide all relevant questions of law and interpret statutes, by requiring agencies to “‘ignore, not follow’, the conclusion they would have otherwise reached using their ‘independent judgment’” (citation omitted).

In overturning Chevron, the majority took the significant step of breaking stare decisis, the principle under which the Supreme Court generally respects its prior precedent, finding that each of the applicable factors—“the quality of [the precedent’s] reasoning, the workability of the rule it established, . . . and reliance on the decision”—weighed in favor of reversal. For quality of reasoning, the majority argues that Chevron and cases applying it failed to “grappl[e] with the APA” and highlights the “flaws” that have led the Court to narrow the decision and provide various exceptions over the years. As to Chevron’s workability, the majority highlights the difficulty courts have faced in attempting to provide a “meaningful definition” of the requisite ambiguity. Lastly, the majority contends that Chevron has not “been the sort of stable background rule that fosters meaningful reliance” (internal quotation marks omitted) given the Court’s “constant tinkering with and eventual turn away from” that decision. This makes it a gamble whether Chevron will be invoked at all or produce a consistent outcome if it is, the majority argues. Moreover, it contends that “[r]ather than safeguarding reliance interests, Chevron affirmatively destroys them” by enabling “an agency to change positions as much as it likes”.

Stakeholders debating the likely impact of Loper Bright have focused in part on its potential impact on prior decisions. As a general matter, the majority states that the Court does “not call into question prior cases that relied on the Chevron framework”, ruling that those decisions “are still subject to statutory stare decisis despite our change in interpretive methodology” unless some “special justification” is provided beyond “[m]ere reliance on Chevron”. However, some stakeholders have echoed a counterpoint from the dissent penned by Justice Elena Kagan, who remarked that “[c]ourts motivated to overrule an old Chevron-based decision can always come up with something to label a ‘special justification’”.

Additionally, Chevron’s elimination still leaves a more limited form of deference known as Skidmore, which provides that courts may rely on agency interpretations, even for questions of law, when based on agency’s “specialized expertise”, with weight to be given dependent on “the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control”.

In any event, Chevron has been applied less frequently with respect to the USPTO. Notably, the last time that the Supreme Court applied Chevron was in a patent case, Cuozzo Speed Technologies v. Lee, in which the Court deferred to a USPTO regulation that applied a different claim construction standard (broadest reasonable interpretation) in PTAB proceedings from the one used in district court (Philips). (The USPTO subsequently used this same authority to switch the PTAB over to Philips.) Moreover, the USPTO is somewhat unique in that it is overseen by a specialist appellate court, the Federal Circuit, that has never shown deference to the USPTO on substantive rulemaking. The Federal Circuit rarely applied Chevron in evaluating rules promulgated by the Patent Office, and though it has upheld some USPTO regulations challenged on that basis, the court did not reach a consensus on the proper bounds of Chevron deference as applied to USPTO regulations while Chevron was still in effect (failing to do so in its split Aqua Products decision in 2017).

Some have observed that Loper Bright may encourage opponents of current USPTO regulations to file litigation challenging those policies—including issues where the Federal Circuit did not previously decide the propriety of those regulations under Chevron, such as whether PTAB precedential opinions were entitled to such deference. As for policies yet to be finalized, such challenges could cause roadblocks and delays for the USPTO’s rulemaking proposals on discretionary denials, as described above, and other regulations recently proposed by the Patent Office (including the proposed codification of rules governing director reviews). Nonetheless, certain stakeholders (including Christopher “Kit” Crumbley, a former PTAB Lead Administrative Patent Judge) have argued that while litigation is likely, few rules are likely to be struck down, in part because the USPTO may still bolster its regulations under Skidmore by attempting to provide fulsome, “persuasive reasoning” justifying its relevant interpretations of the law.

–  Reexams More Popular than Ever in 1H 2024

As PTAB stakeholders react to the unknowns left in the wake of Loper Bright, uncertainty of a different sort has kept contributing to a different, ongoing trend: With institution in AIA review trials perceived as less certain as a result of the NHK-Fintiv rule, defendants continued to gravitate toward ex parte reexaminations, which are not subject to such denials to the same extent as AIA reviews. Ex parte reexam filings first began to rise in response to the initial uncertainty triggered by the NHK-Fintiv rule: The number of such requests went up by 21% in 2020 and then by 53% in 2021, peaking that year. Since then, yearly reexam filings have held steady, remaining around 330 requests for each of in 2022 and 2023 (with the latter standing out as the second-highest filing year of the past decade).

Reexam filings so far this year suggest that 2024 could be an even busier year. Filings spiked in Q1, which saw 40% more reexam requests than that same quarter one year prior. The increase was smaller but still substantial for the second quarter, which saw 27% more requests than Q2 2023—with the total number of requests brought in the first half of the year 33% greater than that same period last year. The share of patents subject to reexam requests that were also previously challenged at the PTAB has also continued to fall, from 36% in 2021 to 24% in 2023 and to 21% in the first half of 2024. Meanwhile, the share of those reexam patents also litigated in district court has held steady since 2022. This all suggests that defendants have been relying less on the PTAB as uncertainty over discretionary denials persists, and that reexams have remained a frequently utilized defensive tool as a result.