Q4 in Review: NPE Litigation Gap Narrows as Top SEP Venues Compete for Jurisdiction

NPEs filed 30% less patent litigation in 2023 than they did the year before. This gap was far smaller, however, when accounting for the impact of two notable developments in 2022: a mostly unbroken pause in new litigation from IP Edge LLC due to ongoing pressure over corporate disclosures from Delaware’s chief judge, and a reduction in West Texas NPE filings due to changes that have funneled patent cases away from District Judge Alan D. Albright.

Meanwhile, the debate over potential reforms of the Patent Trial and Appeal Board (PTAB) spilled over into Congress when stakeholders sparred over a bill that could alter fundamental aspects of the America Invents Act (AIA) review system, as the USPTO moved forward on changes of its own in response to public feedback. The fourth quarter also brought new developments in litigation over standard essential patents (SEPs), as a Chinese court issued the country’s first decision imposing a global fair, reasonable, and nondiscriminatory (FRAND) license. Additionally, Europe’s recently launched Unified Patent Court (UPC) has proven to be a popular venue for SEP litigation, with NPEs also getting potentially good news from one of the court’s early rulings on injunctive relief.

Finally, amid the continued proliferation of new third-party backed litigation campaigns, two prominent litigation finance firms announced a secondary market transaction involving 15 IP investments. In addition, a December lawsuit filed against litigation finance firm Longford Capital has provided a rare look at the litigation budget for an Atlantic IP Services Limited plaintiff.

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RPX members also have exclusive access to an on-demand RPX Community webinar covering highlights from this post; CLE credit may be available. Members can view the webinar on RPX Insight.

The decrease in NPE litigation observed in 2023 does not appear to reflect a general trend. Rather, as RPX has previously reported, the drop was primarily caused by two notable developments in 2022. The most impactful of those developments was a pause in litigation by patent monetization firm IP Edge LLC, which stopped filing new complaints starting in December 2022 as a result of pressure over transparency and corporate disclosures in Delaware, where Chief Judge Colm F. Connolly pursued information on the firm’s secretive entity formation strategy in a contentious, drawn-out inquiry that lasted most of 2023. As detailed further below, Judge Connolly has since concluded as a result of that investigation that IP Edge, a related consulting firm, and the attorneys behind them engaged in a litany of misconduct.

IP Edge had long been the top filer of patent litigation by volume prior to that pause, consistently suing about 50 defendants per month and hitting a total of 562 defendants in 2022. However, apart from a small new campaign launched in Q3 2023 and a single refiled complaint, IP Edge filed no new cases whatsoever last year—meaning that by ceasing its activity, the firm was alone responsible for 81.5% of the total NPE decline last year (559 out of 686 defendants). Excluding litigation from IP Edge, NPE activity was down by just 7.4% last year.

The other development contributing to the 2023 drop was a July 2022 order in the Western District of Texas that was designed to undercut the concentration of patent litigation before Waco District Judge Alan D. Albright. The order closed a divisional filing loophole that previously allowed plaintiffs to get Judge Albright by directing their complaints into Waco, where he is the only district judge—providing instead that Waco’s patent cases are to be randomly assigned among a larger group of judges, including Judge Albright. While the district has since developed a practice of assigning cases in existing litigation campaigns to the same judge who has presided over previous filings (i.e., those with the same parties and patents), meaning that Judge Albright still sees an outsized portion of such “legacy” litigation, cases in new campaigns have been more randomly distributed. The fact that plaintiffs are no longer guaranteed to get Judge Albright by filing in Waco has led to a significant drop in NPE filings there: Such plaintiffs added 356 defendants in Waco in 2023, compared to 681 defendants the year prior.

Added together, the reductions from IP Edge and in Waco—771 defendants in total, adjusting for the overlap in IP Edge and Waco cases—accounted for the entirety of the NPE decline between 2022 and 2023 and then some. The net decrease in total NPE filings was 686 defendants, as noted above, a partial offset caused by other plaintiffs shifting from West Texas to other districts in smaller numbers.

In the fourth quarter, NPEs added 442 defendants, or 17% less than Q4 2022—falling 28% short of the trailing three-quarter Q4 average, but exceeding Q3 2023 by 15%. This dropoff was less pronounced than in Q3, which saw over 30% less NPE litigation than the same quarter the year prior. That narrowed gap was partly the result of the mere passage of time since the start of IP Edge’s litigation pause: Since the firm filed no litigation in either December 2022 or December 2023, there was no IP Edge-related decrease during the latter month.

Meanwhile, operating companies added 283 defendants in Q4, a 19% increase compared to the fourth quarter last year. Operating company filings last quarter were 21% lower than in Q3 2023, though they exceeded the trailing Q4 average by 23%.

Overall, plaintiffs added 725 defendants to patent litigation campaigns in Q4, down by 6% from the same quarter one year prior, 2% less than Q3 2022, and 10% below 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 rise in Q3 2020, is shown in grey below to illustrate its magnitude. As evident from the rightmost bar, e-seller litigation spiked in Q4 2023—accounting for 5,592 defendants added, or 88.5% of all litigation during the quarter (though note that this number is still subject to the caveat about the same defendants potentially operating multiple online storefronts mentioned above).

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

The story was similar in the fourth quarter, at least at the top of the rankings: East Texas again took a wide lead for both overall litigation and NPE litigation, while Delaware was the most popular destination for operating company litigation. However, though Delaware just barely edged out the Western District of Texas as the number-two venue for overall litigation, it fell to fifth place for NPE litigation.

IP Edge, Its Litigation Already on Hiatus, Gets Hammered by Judge Connolly

The likely explanation for Delaware’s waning popularity among NPEs has been an increasingly heated battle over transparency and corporate disclosures in the courtroom of Chief Judge Colm F. Connolly. After multiple litigating plaintiffs linked to IP Edge LLC and a related consulting firm, MAVEXAR LLC, failed to disclose those relationships as required in his courtroom, Judge Connolly began expressing concerns that IP Edge and MAVEXAR had possibly committed fraud on the court and the USPTO by obscuring those connections.

While Judge Connolly had previously stopped short of detailing the possible ramifications of those actions, this changed in dramatic fashion on November 27: In a blistering, 105-page order, Judge Connolly found that IP Edge had been the “de facto” owner of the patents asserted by its litigating affiliates and held that the entity and its principals should face “consequences” for their improper attempt to “use separate LLCs to insulate themselves” from liability: He has now called upon the Department of Justice (DOJ) and the USPTO to potentially investigate these misrepresentations. Judge Connolly has also teed up potential punishment for some of the individuals involved: He has referred certain attorneys employed by IP Edge (which is not a law firm) to a Texas disciplinary body for the unauthorized practice of law and has referred the LLCs’ local and lead counsel to state disciplinary bodies for improperly treating IP Edge as their true client. More detail on this saga can be found on RPX Insight.

IP Edge stopped filing litigation in Delaware as an apparent result of the growing pressure from this “Series of Extraordinary Events”, bringing no new cases there after the end of September 2022 before halting its filings altogether (in every district) after November. Since IP Edge had long accounted for much of Delaware’s NPE caseload, its numbers plummeted due to IP Edge’s pause: The district saw nearly 66% less NPE litigation in 2023 compared to the prior year. (However, as reported by RPX, IP Edge has since ended its litigation pause, launching its first campaign since 2022.)

This saga in Delaware also appears to have had a broader deterrent effect on other NPEs. Excluding IP Edge, NPE litigation was still down in the district by 26%—suggesting that at least some NPE plaintiffs would prefer to avoid the risk of similarly close scrutiny by Judge Connolly.

Meanwhile, Eastern District of Texas Chief Judge Rodney Gilstrap was the nation’s top district judge in 2023, with 12% of all new patent litigation falling in his courtroom. Western District of Texas Judge Alan D. Albright followed in a distant second place at 5%, his patent docket scaled back due to the Waco case assignment reforms mentioned above.

Judge Albright ranked even lower in the fourth quarter, falling out of the top five for the first time since his earliest few months on the bench (overseeing just 2% of the country’s overall patent litigation in Q4 2023). Judge Gilstrap stayed in a comfortable fourth-quarter lead at 14%; in second place was District Judge Amos L. Mazzant III, also of the Eastern District, at 3%.

Though Judge Albright’s overall share of patent filings has dipped, he has continued to attract the scrutiny of the Federal Circuit over his handling of convenience transfer motions, which he has tended not to grant since taking the bench in 2018. Starting in 2020, the Federal Circuit began to repeatedly reverse him on that issue in response to mandamus petitions from defendants with transfer motions he had either denied or ignored—identifying various legal errors and faulting him for repeatedly delaying transfer rulings. That early wave of reversals slowed significantly by 2023, as Judge Albright adjusted his approach in response to those rulings. While a late-2022 venue decision by the governing regional circuit, the Fifth Circuit, appeared to some as requiring a more deferential posture, the Federal Circuit concluded otherwise in February 2023—ruling in In re: Google that not only did it owe relatively minimal deference to a district judge’s weighing of certain factors like relative time to trial, but that NPEs lacked an interest in quick trials altogether.

Judge Albright has since applied that ruling as required, though not without offering criticisms—also filling the gaps with his own attempts to reconcile Fifth and Federal Circuit law. In November, though, the Fifth Circuit issued a decision that appears to firmly support the Federal Circuit’s approach, reversing Judge Albright in a copyright case (in In re: TikTok) based on many of the same reasons previously relied upon by the Federal Circuit. As 2023 drew to a close, the Federal Circuit issued a pair of mandamus rulings applying that latest precedent—one granting Samsung’s request for a writ ordering transfer by Judge Albright to the Northern District of California, and the other denying plaintiff DoDots Licensing Solutions LLC’s request to undo his transfer of a parallel case against Apple to the same venue—confirming that the appeals court is still watching him closely.

Among the wide variety of plaintiffs that hit this sector in the fourth quarter were a quartet of familiar monetization firms. One was Dynamic IP Deals (d/b/a DynaIP): In December, WirelessWERX IP LLC—an entity controlled by DynaIP’s Pueblo Nuevo LLC—filed two new waves of complaints in the location tracking and mapping campaign it launched in late 2022, targeting delivery platforms and family safety products with such features. Another was Equitable IP Corporation, which in December filed a new round of cases in its ongoing push notification campaign through controlled plaintiff Push Data LLC, targeting a host of retailers over their e-commerce apps and websites. Also joining the fray was publicly traded Acacia Research Corporation, which revived the distributed database processing campaign waged by subsidiary R2 Solutions LLC with a new pair of complaints respectively filed in early October and late December, asserting former Yahoo patents. Georgia-based monetization firm IPInvestments Group LLC (d/b/a IPinvestments Group) additionally resurrected a campaign of its own through associated plaintiff Advanced Transactions, LLC, which in mid-October filed a new round of litigation targeting a wide range of e-commerce technologies, including marketing email systems, gift and customer reward programs, e-commerce websites, and in-store/online ordering services.

Several inventor-controlled plaintiffs also filed litigation hitting the E-Commerce and Software sector in Q4. In mid-November, Language Technologies, Inc., an entity controlled by an inventor and professor at the University of Arizona, kicked off a new campaign targeting natural language processing products and services—the company apparently pivoting to patent assertion after previously offering mobile apps for sale. Shortly after, a different inventor-managed plaintiff, DigitalDoors, Inc., added a new case in its ongoing data security campaign, shifting its focus from enterprise cloud storage products to banks with systems compliant with certain financial industry requirements concerning the backup of customer data. Public records suggest that DigitalDoors has the backing of a litigation funder linked to a growing number of other patent plaintiffs. Moreover, inventor-managed ENOVSYS LLC filed another complaint in October targeting driver location-tracking features offered by ridesharing apps, asserting patents from an extensively litigated portfolio that the plaintiff previously wielded against cellular carriers in an earlier iteration of its campaign.

Meanwhile, the AIA institution rate was 69% in 2023, climbing slightly from 68% the year before. However, the institution rate was 66% in the fourth quarter, falling from 69% in Q4 2022.

Reform Measures Debated and Implemented in 2023

A recurring debate throughout 2023 has been a familiar one, spurred on in part by a series of changes implemented by USPTO Director Kathi Vidal: whether the PTAB needs reform, and if so, what measures should be taken. Among the measures under consideration is a legislative proposal: the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act, introduced in July. The bill would make a series of significant changes favored by some patent holders, including the imposition of a standing requirement (limiting who may file a PTAB petition), the further expansion of IPR estoppel (requiring that defendants choose between challenging validity at the PTAB or in district court), and new restrictions on the filing of multiple petitions against the same patent. The PREVAIL Act would also require the PTAB to use the same, higher evidentiary standard as district courts for a showing of invalidity, mandate that the Board use the same claim construction standard as district courts, and bar the USPTO director from influencing the outcome of PTAB decisions (though Vidal implemented interim rules to this effect in May 2022 and has recently proposed final rules to formalize the practice).

The Senate IP Subcommittee held a hearing on the PREVAIL Act in early November. Witnesses offered competing takes on the proposal, possibly reflecting the lack of broader consensus that has hamstrung similar bills in the past. Representative Lamar Smith (R-TX), the House cosponsor of the AIA, argued that IPR has come to be used inconsistently with the intent behind the law that created it and that changes should be made to ensure that IPR operates as an alternative to, not in addition to, district court litigation. In contrast, Joseph Matal, who previously performed the duties of the USPTO director (essentially, though not formally, serving as acting director), pushed back on points made as to the PTAB’s alleged hostility to patents. Matal also asserted that while some limits are appropriate to prevent gamesmanship, the proposed bill goes too far—objecting to particular changes, including limits on estoppel, the imposition of a heightened evidentiary standard, and the creation of a standing requirement, among others. Additionally, AIA review practitioner Michelle Armond offered her own, more data-focused take on outcomes at the PTAB now that they have “settled down” and expressed support for reassessing the burden of proof and provisions related to “duplicative litigation”.

While it is far from a given that any legislative proposal will gain enough traction to become law, the USPTO itself has been making a series of refinements in response to stakeholder feedback. One of the most significant has been a revamp of the interim director review process, which was created in June 2021 in response to the Supreme Court’s mandate in Arthrex that the USPTO director must have the authority to revisit PTAB validity decisions.

In its original form, the director review process existed alongside the PTAB’s Precedential Opinion Panel (POP), a body created under former USPTO Director Andrei Iancu in September 2018 that was tasked with deciding issues of “exceptional importance” to the PTAB. Yet as the director review program evolved alongside the POP, Vidal later remarked that the two processes had come to operate essentially “backwards”: The POP could set precedent for the PTAB but was not set up to correct errors by PTAB panels, a function that was handled far more, as a result, by the director—a task that Vidal suggested had been preventing her from spending enough time on more important policy issues. In July, the USPTO eliminated the POP as part of a broader revamp of the director review process—replacing it with the Delegated Review Panel, an “independent panel” to which the director may delegate the review of PTAB decisions for various reasons, including legal and factual errors. The revised process additionally gives parties the ability to request director review of institution decisions for the first time, though on a narrower basis than for final written decisions.

The USPTO is also considering some of the same changes proposed in the PREVAIL Act. In April, the agency released a sweeping Advance Notice of Proposed Rulemaking (ANPRM) that, among a variety of possible reforms, includes a proposed standing requirement, here based on an expanded view of corporate relationships as well as certain exceptions concerning business models. The ANPRM would also codify certain aspects of the PTAB’s existing practices regarding the discretionary denial of petitions based on the status of parallel proceedings—as governed by the NHK-Fintiv rule—with new exceptions allowing petitioners to sidestep discretionary denials for petitions showing “compelling merits” and those filed within six months of the service of an infringement complaint (as opposed to the one-year time bar currently required by statute). Public comments submitted in response to the ANPRM reflect a lack of consensus on these and other issues, with some stakeholders arguing that the above changes in particular would violate the AIA and thus exceed the agency’s rulemaking authority.

More on these reform proposals can be found on RPX Insight.

Reexam Filings Swing Back Upward

Some stakeholders have argued that the NHK-Fintiv rule introduces too much uncertainty into the AIA review process, by conditioning institution on factors like district court trial timing that are out of the petitioner’s control. One of the early results of this uncertainty was a shift by frequent defendants from AIA reviews to ex parte reexaminations, which are not subject to discretionary denials to the same extent. The number of reexam requests went up by 21% in 2020 and then by 53% in 2021, with an increasing share of those patents having previously been litigated in district court and subjected to PTAB challenges—together, indicating that this prior uptick was the result of NHK-Fintiv. Yet reexam requests began to fall in 2022 as PTAB discretionary denials also dropped, in part due to a June 2022 guidance designed to address certain criticisms of NHK-Fintiv.

However, the data now indicate that reexams are on the upswing again: Filings have increased each quarter this year, with Q4 2023 outpacing that same quarter last year by 25% (though the full year came in slightly below 2022 by number of requests filed). Moreover, while the share of reexam-requested patents that were previously challenged before the PTAB fell last year, from 33% to 24%, the share of patents previously litigated in district court went up, from 59% to 61%—suggesting that reexams remain an attractive tool for at least some defendants.