Q2 in Review: Second-Quarter NPE Filings Spike as Prior Patent Transfers Spark New Litigation
July 7, 2020
Patent litigation increased significantly in Q2 2020 despite the broader economic downturn caused by the COVID-19 pandemic, with NPEs surging in the final days of June and operating companies outpacing prior second quarters. The first half of the year also saw a marked increase in litigation hitting the Automotive market sector, while Biotech and Pharma, Semiconductors, and Networking also experienced a sizable bump. Moreover, the Western District of Texas continued to grow in popularity, overtaking the District of Delaware as the top patent venue in Q2.
Additionally, multiple avenues for challenging patent validity were impacted by judicial decisions in the second quarter. In April, the Supreme Court precluded the appellate review of inter partes review (IPR) time-bar rulings through its opinion in Click-to-Call, with subsequent activity indicating that Click-to-Call could also affect other Patent Trial and Appeal Board (PTAB) procedures, like joinder. The Supreme Court also denied another series of constitutional challenges against the IPR regime itself, while the PTAB has continued to feel the impact of the Federal Circuit’s October decision in Arthrex. Moreover, patent eligibility rulings continue to be affected by the Federal Circuit’s 2018 decisions in Berkheimer and Aatrix, as the resulting decline in Alice invalidations persisted through Q2 2020—with operating company patents seeing a particularly low invalidation rate in the first half of the year.
Meanwhile, the divestiture of patents from Intellectual Ventures led to even more new litigation as NPE plaintiffs launched campaigns asserting such assets throughout the second quarter. Prolific litigants like IP Edge LLC also continued to stockpile patents in Q2, as other NPEs like Acacia Research Corporation and Fortress Investment Group LLC made notable acquisitions of their own—all signaling additional litigation likely to come.
Litigation Update: NPE Filings Surge as Operating Company Filings Also Trend Upward
Venue Update: West Texas Tops the Charts as Federal Circuit Leaves Server Venue Decision in Place
PTAB Update: Petitions Edge Upward in Q2, and the Supreme Court Bars IPR Time-Bar Appeals
Back to topLitigation Update: NPE Filings Surge as Operating Company Filings Also Trend Upward
RPX data show that 1,199 defendants were added to patent litigation campaigns in Q2 2020, an increase of 35.2% over the second quarter of 2019 and 22.5% higher than the second-quarter average for 2016-2019, despite the ongoing pandemic. Additionally, the overall defendant count was up by 32.8% compared to Q4 2019, consistent with prior seasonality patterns.
| Defendants Added | Change Compared to: | ||||
| Q2 2020 | Q2 2019 | Q2 2016-2019 Average | Q1 2020 | ||
| NPE | 633 | +17.4% | +10.9% | +28.1% | |
| Operating Company | 566 | +62.6% | +38.8% | +36.4% | |
| Total | 1,199 | +35.2% | +22.5% | +32.8% | |
NPE Plaintiffs
NPEs filed more patent litigation in Q2 2020 than in any second quarter since 2016, adding 633 defendants to campaigns—17.4% more than the same period last year. In the second quarter, NPEs beat the Q2 2016-2019 average by 10.9% and brought 28.1% more litigation than in Q1 2020, which itself was the strongest first quarter NPEs have had since 2015. NPE litigation spiked at the end of Q2, with prolific litigant IP Edge LLC—which has filed more US litigation than any other plaintiff in history—adding 40 companies to litigation in just two days (June 29 and 30).
Operating Company Plaintiffs
Operating company litigation also saw a significant uptick, with 566 defendants added in Q2—the highest levels seen for such plaintiffs since 2012, and 62.6% more than in Q2 2019. In the second quarter, operating company filings also outstripped the Q2 2016-2019 average by 38.8%. However, the second-quarter operating company numbers include 127 defendants added to a single design patent case targeting purveyors of collapsible drinking straws. Excluding that case, Q2 operating company litigation exceeded the four-quarter trailing average by a smaller amount (7.7%) but was still higher than all second quarters since 2017.
Litigation at the Half-Year Mark Suggests a Strong End for 2020
RPX data also show that plaintiffs added more than 2.1K defendants to patent litigation matters in the first half of 2020. While there is no perfect measure of the volume of patent litigation, surpassing the 2K threshold as of the half-year point does suggest—given that 2017, 2018, and 2019 ended with approximately 3.6K, 3.4K, and 3.6K campaign defendants added, respectively—that one year-end theme for 2020 may be a rise in US patent litigation.
To be sure, the structure of some early 2020 campaigns has affected the numbers. For example, WSOU Investments, LLC (d/b/a Brazos Licensing and Development) has launched more than ten single-patent actions against each of several defendants this year—thereby counting each company sued more than ten times in the overall defendants added statistic. However, prior year counts reflect similar circumstances, such as the launch of more than a dozen single-patent campaigns in 2018 against one defendant over Uniloc Corporation Pty. Limited assets, both before and after acquisition by Fortress Investment Group LLC, rather than once in a single complaint asserting all of those patents together.
Additionally, RPX data show that NPE patent litigation targeting the Automotive market sector has increased dramatically in 2020, rising by 150% in the first half of the year compared to the same period in 2019.
As recently reported by RPX, a variety of NPEs have taken aim at companies operating in the Automotive sector in 2020—most recently 21st Century Garage LLC (asserting patents divested from Intellectual Ventures LLC) and Sisvel International S.A. (d/b/a Sisvel Group). So far this year, new campaigns have been launched by plaintiffs ranging from relatively recent entrants to patent monetization (e.g., Quartz Auto Technologies, LLC) to established players (e.g., Conversant Wireless Licensing, S.à.r.l.), as well as additional cases filed in existing campaigns waged by inventor-controlled Omega Patents, L.L.C. and frequent plaintiff Leigh M. Rothschild. From wireless connectivity to more traditional automotive technologies, something about 2020 has drawn more litigation to the sector.
Other market sectors have also seen a significant uptick in NPE litigation in the first two quarters of 2020. Significantly, NPEs filed 333% more litigation in the Biotech and Pharma sector (though it should be noted that the sample size here is relatively small, given that NPE activity in that sector has historically been fairly minor) and 40% more in the Medical sector. Several other market sectors saw a sizeable increase during that timeframe as well, including Semiconductors (63% higher), Networking (34%), and Mobile Communications and Devices (33%), with E-Commerce and Software seeing a more modest increase of 21%.
Meanwhile, the only sectors that experienced less NPE activity were Consumer Electronics and PCs (which saw a 26% decrease) and Consumer Products (down by 17%).
Venue Update: West Texas Tops the Charts as Federal Circuit Leaves Server Venue Decision in Place
RPX data show that the Western District of Texas kept gaining steam in the second quarter of 2020, becoming the most popular district for patent litigation overall (counting defendants added by all plaintiff types) and remaining in first place for litigation filed by NPEs. Although less popular for operating company litigation, the Western District rose to fourth place from fifth in Q1. Meanwhile, the District of Delaware—previously the top district in the wake of TC Heartland—fell from first to second place for litigation overall and held that same spot for NPE and operating company cases. In the second quarter, operating companies filed the most patent litigation in the Northern District of Illinois.
The growing popularity of the Western District can likely be attributed to District Judge Alan D. Albright, who has taken overt steps to attract the filing of patent litigation in his district—in part through a standing order implementing rules designed to appeal to both plaintiffs and defendants. However, Judge Albright has taken a markedly restrictive approach with certain types of motions, including patent eligibility challenges and motions to transfer for convenience. Indeed, Judge Albright has apparently never granted a convenience transfer out of his district, sparking some recent pushback—which prompted him to assert, in a recent ruling, that he would not “follow the crowd” on that issue.
Additionally, the second quarter also saw the Federal Circuit double down on a February ruling that overturned a controversial decision on venue from the Eastern District of Texas. In 2018, District Judge Gilstrap held in Seven Networks v. Google that certain Google servers maintained in an ISP data center were enough to establish venue, each counting as a “regular and established place of business” under the patent venue statute’s second prong. However, in February 2020, the Federal Circuit ruled in In re: Google (2019-0126) that the “regular, physical presence of an employee or other agent of the defendant conducting the defendant’s business” is required “at the alleged ‘place of business’” to establish venue—and on May 15, the appeals court denied the plaintiff-appellant’s request for an en banc and panel rehearing of its opinion.
Patent Eligibility Update: Berkheimer Decline Persists, While Most Operating Company Patents Withstood Alice in the First Half of 2020
As previously noted by RPX, the Supreme Court’s Alice decision—which has historically allowed defendants to resolve litigation early on, thereby saving time and money—has been considerably narrowed by the Federal Circuit’s decisions in Berkheimer and Aatrix. In those opinions, the latter court held that dismissal under Alice is premature when a patent owner establishes a material factual dispute over a claim’s inventiveness.
RPX data have shown that Berkheimer has caused a significant drop in the Alice invalidation rate, a decline that has held steady through Q2 2020. For Alice orders dated since Berkheimer and through the end of the second quarter, 44% of patents had all challenged claims invalidated (the same share as Q1), down from 67% before Berkheimer.
Breaking the data down by procedural stage shows that Rule 12 and summary judgment—by far the two most common avenues for Section 101 challenges—remain similarly affected by Berkheimer, each seeing a drop comparable to the decline in the overall invalidation rate. Post-Berkheimer decisions issued through Q2 and under Rule 12 resulted in a 44% invalidation rate, the same as Q1 (compared to 70% pre-Berkheimer), while summary judgment dipped slightly to 38%, from 40% in Q1 (compared to 58% before Berkheimer).
RPX data further show that plaintiffs are still much less successful when trying to block an Alice ruling at the Rule 12 stage than at summary judgment. Limiting the analysis to decisions that turned on Berkheimer or Aatrix, meaning a plaintiff asserted that a factual issue precluded early resolution and the court’s order actually addressed that issue, courts found sufficient facts to rule about half of the time for Rule 12, or 88 of the 175 patents challenged at that stage (compared to 54% as of the end of Q1).
In contrast, for summary judgment decisions turning on Berkheimer, courts found that they had sufficient facts to move forward just 30% of the time (or just eight patents out of 27)—though all eight of those patents saw claims invalidated. This result is unchanged from Q1; while courts issued two new Alice summary judgment rulings during the second quarter, neither turned on Berkheimer.
A further breakdown by plaintiff type shows that NPEs remain less successful than operating companies at blocking Rule 12 challenges under Berkheimer/Aatrix, with courts finding sufficient facts to issue a ruling 58% of the time for motions against NPEs but 41% of the time for those against operating companies. NPEs fare even worse at the summary judgment stage, as courts found sufficient facts to rule in 75% of Alice summary judgment motions against NPEs—whereas for summary judgment motions against operating companies, courts found sufficient facts just 11% of the time.
Overall, since the Alice decision’s June 2014 issuance and through the end of Q2 2020, 59% of patents have had claims invalidated under its rationale. Alice outcomes diverge based on plaintiff type; while operating company patents have an Alice invalidation rate of just under 50% during that period, around 66% of NPE patents had claims invalidated.
Narrowing the timeframe to the first half of 2020, the NPE and operating company invalidation rates diverge further. While 60% of NPE patents adjudicated under Alice in that period had all claims invalidated, just 15% of operating company patents had claims invalidated. However, it is worth noting that individual orders can skew the numbers to a greater extent when considering invalidation rates within a shorter period of time—particularly since courts often address multiple patents in a single ruling. For instance, nearly half of the patents that saw Alice rulings in the first half of 2020 were considered in just two decisions, both of which declined to invalidate the patents, and one of which addressed a group of patents belonging to the same family.
PTAB Update: Petitions Edge Upward in Q2, and the Supreme Court Bars IPR Time-Bar Appeals
In the second quarter of 2020, 380 petitions for America Invents Act (AIA) review were filed with the Patent Trial and Appeal Board (PTAB), including 356 petitions for inter partes review (IPR), two petitions for covered business method (CBM) review, and 22 petitions for post-grant review (PGR). The overall number of AIA review petitions filed in Q2 was 11.4% higher than the prior quarter, during which 341 petitions for AIA review were filed—the second quarterly increase in a row.
In April 2020, the Supreme Court held in Thryv v. Click-to-Call that appellate review is not available for applications of the IPR statutory time bar, under which a defendant may not file an IPR petition more than one year after being served with a patent infringement complaint. A majority of the Court ruled that because the time bar establishes a key threshold for the PTAB’s decision to institute trial, it falls within the Court’s 2016 opinion in Cuozzo Speed Technologies v. Lee, which blocked the appeal of institution decisions and any matters “closely tied to” institution.
That decision may also affect another ruling impacting the PTAB, this one from the Federal Circuit. In March, that court ruled in Facebook v. Windy City Innovations that the PTAB may not “join” an entity to an IPR proceeding in which it is already a party (“same-party joinder”) or to “join” new issues “material to patentability, such as new claims or new grounds” to an existing IPR. In early June, the parties and the US government (as an amicus) briefed the impact of Click-to-Call on this case by order of the court, with Facebook and the USPTO both arguing that joinder decisions fall under the Supreme Court’s Cuozzo Speed Technologies v. Lee decision, thereby insulating them from appellate review—the same rationale used by the Supreme Court in Click-to-Call.
Should it survive further appellate scrutiny, Windy City may significantly increase leverage for NPEs that hold larger patent portfolios with many claims, as it may now be less practical for some defendants to challenge those assets before the PTAB.
Click-to-Call may also come to affect other facets of the AIA review system. In mid-June, the Supreme Court ordered the Federal Circuit to determine whether Click-to-Call also bars the review of decisions regarding whether patents qualify for CBM review. Moreover, the month before, the Federal Circuit held that Click-to-Call additionally precludes appellate review of PTAB decisions applying the “real party in interest” requirement of 35 USC Section 312(a)(2).
Additionally, the Federal Circuit’s October decision in Arthrex—holding that the appointment of the PTAB’s administrative patent judges (APJs) had been unconstitutional under the Appointments Clause—continues to hang over the Board. Indeed, an RPX analysis suggests that hundreds of America Invents Act (AIA) reviews may be subject to rehearing as a result of that decision. In March, that court decided not to rehear Arthrex en banc, and in May, the PTAB’s Chief APJ, Scott R. Boalick, issued a general order that holds in administrative abeyance all matters remanded from the Federal Circuit pending the decision’s appeal to the Supreme Court.
The Federal Circuit has also since clarified and extended Arthrex; in early May, at the USPTO’s request, the court designated as precedential its prior ruling that PTAB petitioners may not seek reversal under that decision. In that newly precedential opinion, issued in in Ciena v. Oyster Optics, the Federal Circuit held that a petitioner forfeits the right to raise an Appointments Clause challenge due to having already “sought out the board’s adjudication”. Furthermore, the appeals court ruled in May that Arthrex also applies to inter partes reexaminations, and the following month it extended Arthrex to ex parte reexaminations as well.
The second quarter also saw the IPR regime withstand another set of constitutional challenges. Although the US Supreme Court resolved the Article III constitutionality of IPR in Oil States, the Court’s April 2018 opinion declined to foreclose other types of challenges against the program, explicitly stating that the ruling did not address the retroactive application of IPR nor due process concerns. On June 22, 2020, the Court denied three certiorari petitions raising those issues, each of which argued that the retroactive application of AIA review to patents issued before the AIA violates the Due Process and Takings Clauses of the Fifth Amendment: one filed by Quarterhill Inc. subsidiary Collabo Innovations, Inc. and the other two by Celgene and Enzo Life Sciences, respectively. The US government opposed each of those petitions.
Marketplace Update: Georgia NPEs Asserts Assets from IV, IP Edge Stockpiles Patents, and Acacia and Fortress Announce New Acquisitions
Top Assignee of IV Divestitures Starts Litigating
Over the past several years, RPX has observed the start of numerous litigation campaigns where the patents at issue were acquired from IV and asserted by other NPEs—activity that continued in Q2 2020.
Among the most notable, recent litigation asserting such assets has stemmed from IV’s late-2019 transfer of more than 3,500 US assets to several NPEs apparently controlled by IPInvestments Group LLC (d/b/a IPinvestments Group), an Atlanta-based monetization firm, assignments that late last year ousted Dominion Harbor Enterprises LLC from its long-held position as the top NPE assignee of IV divestitures. In early December 2019, Hanger Solutions, LLC received more than 3,200 US assets from IV, with five related NPEs (CDN Innovations, LLC; CommWorks Solutions, LLC; DataCloud Technologies, LLC; DigiMedia Tech, LLC; and Kioba Processing, LLC) each receiving smaller tranches of assets in the prior month.
May and June 2020 saw the first tranche of litigation from these Georgia NPEs, with CDN Innovations targeting wireless devices; CommWorks Solutions and DataCloud Technologies, networking products; and DigiMedia Tech, digital cameras. The early June transfer of additional former IV assets to Kioba Processing suggests that a new campaign from that NPE may soon follow. Indeed, similar assignment activity preceded the launch of litigation by another Georgia NPE: in February, Hanger Solutions assigned over 70 US patent assets from those it acquired from IV to 21st Century Garage LLC, which (as mentioned above) launched an automotive campaign asserting some of those patents in May.
RPX has published a comprehensive, members-only report that contains additional analysis of IV activity, identifying the top NPE assignees of IV divestitures over the past four years and briefly summarizing campaigns resulting from notable transactions. The most recent version of that report can be downloaded from RPX Insight here.
IP Edge Stockpiles and Asserts More Patents
Having initiated over a dozen new campaigns during the first half of 2020, public records indicate that IP Edge LLC continues to create new Texas NPEs—including at least 20 in the past three months alone. It also appears to have a full pipeline of patents poised for litigation, with USPTO records reflecting a number of patent assignments to various IP Edge affiliates recorded in June.
Those new IP Edge entities include Shingletop IP LLC, which in early June received cellular networking and VoIP patents from UK-based telecommunications company Ghost Telecom Limited; and Topdown Licensing LLC, which in late May acquired interactive music and gaming patents from Beamz Interactive. Two other IP Edge NPEs, Atestraw Licensing LLC and Syclone IP LLC, have also received patents from Empire Technology Development LLC; in June, Atestraw farmed out three of its acquired patents to another IP Edge NPE, Boxey Tech LLC, which later that month began asserting them in a new ridesharing campaign. Syclone IP also launched a campaign of its own on the same day, targeting battery technology.
A Freshly Funded Acacia Acquires More Portfolios
As noted in RPX’s first-quarter report, publicly traded Acacia Research Corporation announced a partnership with hedge fund Starboard Ventures late last year, giving the NPE access to up to $500M and making it “well-positioned to pursue opportunities of greater scale and flexibility”, according to Chief Investment Officer Al Tobia Jr.
Acacia has apparently since put that funding to use; most notably, in May, it announced its acquisition of the Excalibur IP portfolio, comprising more than 2,500 patents that were spun out from Yahoo prior to that company’s acquisition by Verizon. Along with that transaction, Acacia also disclosed that it had acquired another portfolio, this one obtained from defense contractor L3Harris and comprising assets described as covering “commercial applications of Wi-Fi and Internet-of-Things technologies”. Those transactions followed Acacia’s acquisition last year of patents from Marconi (see here), Siemens (see here), and Transpacific IP Group Limited (see here). The acquisition from Transpacific IP included former Orange S.A. patents now being litigated in a networking campaign waged by Acacia subsidiary Monarch Networking Solutions LLC.
Fortress Announces Finjan Acquisition
Another notable transaction announced in Q2 was global investment manager Fortress Investment Group LLC’s planned acquisition of publicly traded NPE Finjan Holdings, Inc. in an all-cash deal valued at $43.9M. The June 10 press release announcing the transaction stated that Finjan “will maintain its brand and business model post-transaction”, continuing to license and enforce the anti-malware portfolio that the NPE has been asserting in litigation since 2006.
The Finjan acquisition is far from Fortress’s first foray into patent assertion; indeed, with ample capital on hand and approximately $43.5B under management, the firm has amassed—through various avenues—a stockpile of more than 1,500 US assets of disparate origin and subject matter. Many of its patents are now being asserted by a web of entities under Fortress’s control; see here for details on that litigation, as well as more background on Fortress.
Another Private Equity-Backed Irish NPE Appears Poised to Litigate
Throughout 2020, RPX has reported on private equity’s growing interest in patent litigation—and in the second quarter, RPX noted the emergence of yet more NPEs backed by third-party litigation financing. Among the most notable of those entities is Sonraí Memory Limited, an Irish NPE linked to Data Scape Limited, Neodrón Limited, and Solas OLED Limited—all three of which are waging sizeable, multi-front litigation campaigns with backing from hedge fund Magnetar Capital. Sonraí acquired a portfolio from Microchip in the first quarter, and in late April the entity acquired additional assets from HP Enterprise —making it all the more likely that the aforementioned trio of litigating Irish NPEs will soon become a quartet.
With investors and analysts focused on COVID-19’s impact on global economic growth, expect the chatter around litigation finance as a “recession-proof asset class” to grow louder, and interest in the industry to mount. RPX publishes a periodic, members-only report on the primary sources of capital for NPEs today. The latest iteration of that report, which provides overviews of more than 20 third-party litigation funders known to have backed NPEs, can be downloaded from RPX Insight here.
Additional RPX Patent Market Intelligence
For further analysis and up-to-date information on patent litigation and market trends, visit RPX Insight.