Q1 in Review: Courts Tackle SEP Issues as Patent Deals and Third-Party Funding Bolster NPE Activity

Patent litigation in Q1 2022 remained consistent with long-term trends. In particular, NPE assertion was down compared to an unseasonably active first quarter last year, but NPE plaintiffs still had their second-busiest first quarter since 2015. Operating company litigation was up this past quarter compared to the prior year, but filings were flat when excluding litigation targeting generic drugs, which increased substantially from a slow Q1 2021.

Beyond district court, data indicate that defendants continue to shift from America Invents Act (AIA) reviews to reexaminations as a result of the NHK-Fintiv rule, while the Federal Circuit issued a series of noteworthy rulings impacting the Patent Trial and Appeal Board (PTAB) during the first quarter. Courts have also been active on issues related to standard essential patent (SEP) disputes, with three of the world’s top patent jurisdictions releasing significant new decisions on fair, reasonable, and nondiscriminatory (FRAND) licensing issues affecting the automotive industry, patent pools, and SEP negotiations.

Meanwhile, the steady flow of operating company patents to NPEs continues, with several notable patent deals coming to light in Q1. In January, BlackBerry announced that it had entered into a conditional agreement to divest “substantially all its non-core patent assets” for $600M, with the buyer reportedly linked to a group of assertion entities. Also in Q1, USPTO data made public during the quarter revealed the assignment of another large operating company portfolio to Dominion Harbor Enterprises, LLC, as the monetization firm filed more litigation asserting previously acquired patents.

Finally, the role of third-party funding in NPE litigation appears to be expanding: a recently published report claims that a significant portion of capital committed by litigation funders in 2021 was trained on patent litigation, and RPX research has confirmed third-party funding of a rash of new NPE campaigns launched during the first quarter.

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Operating company litigation, meanwhile, was up in Q1 2022 compared to a slow quarter one year ago, with 274 defendants added (versus 250 in Q1 2021). Nearly all of that increase is attributable to Abbreviated New Drug Application (ANDA) litigation targeting generic drugs, which saw unusually low activity in the first quarter last year—with 22 defendants added—compared to 47 this year.

Excluding ANDA litigation, operating company litigation was essentially unchanged in Q1 2022 compared to both the year-ago quarter and Q1 2020, as shown below.

Overall, plaintiffs added 799 defendants to patent litigation campaigns in Q1, slightly below the first quarter of 2021 and slightly above the trailing Q1 average.

The operating company data above exclude 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 a typical patent suit: These e-seller cases sometimes name hundreds of defendant entities, many of which may be merely online storefronts for the same ultimate parent. Additionally, plaintiffs mainly 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.

Please note that apart from the graph below, the remaining analyses in this report exclude pure design patent and e-seller litigation.

On March 11, the District of Delaware lost its most experienced active district judge when Leonard P. Stark was elevated to the Federal Circuit, replacing retiring Circuit Judge Kathleen M. O’Malley. Judge Stark is now the only active judge on the Federal Circuit bench with experience as a trial judge, a status previously held by Judge O’Malley: As highlighted during his Senate confirmation hearing, Judge Stark has presided over 63 trials held in patent infringement cases, of which he has overseen more than 2,400 in the nearly 14 years he served in Delaware. Judge Stark stated at his hearing that his experience presiding over so many patent cases will inform future work on the Federal Circuit: “The technology is always complex, the facts are very challenging. Patent litigators often disagree with each other, so I estimate that in a typical patent case that goes to trial I make many hundreds of decisions, or even more than 1,000, and typically only a handful of those issues get appealed to the Federal Circuit, so I’ll bring an understanding of the context in which those issues arise”.

Judge Stark is President Joseph R. Biden Jr.’s second nominee to the Federal Circuit—and the second with experience in patent law—following the July 2021 confirmation of Circuit Judge Tiffany P. Cunningham, an experienced patent litigator and former Perkins Coie partner. President Biden has not nominated a replacement for Judge Stark in the District of Delaware as of the date of this report.

The top judge in Q1 2022 was Western District of Texas Judge Alan D. Albright, with 19% of new litigation filed in his courtroom. As noted in RPX’s review of the fourth quarter and 2021, Judge Albright has attracted so much litigation in part by actively seeking out patent cases, a practice that has led to Congressional scrutiny—and, in turn, a study by the federal judiciary’s Committee on Court Administration and Case Management.

Judge Albright has become well known for his restrictive posture toward various defensive motions commonly brought in patent suits. These include motions to stay pending the outcome of PTAB trials as well as patent eligibility motions under Alice, which he has previously stated he is inclined against granting early in the course of litigation. Judge Albright has also lamented the difficulty of applying Section 101 caselaw consistently, remarking in a February ruling that “[a]t this point, it is trite to comment on the confusing abyss of patent eligibility law”.

That said, Judge Albright’s best-known tendency has arguably become his idiosyncratic approach to motions to transfer for convenience. As also detailed in RPX’s fourth-quarter review, the Federal Circuit has frequently reversed his decisions on mandamus, taking issue with the way he has applied various substantive factors and flagging a variety of repeated legal errors. In 2021, the Federal Circuit issued 18 writs of mandamus against Judge Albright on that issue, including nine in the prior quarter alone.

While the appellate court did so just once in the first quarter of 2022, that ruling—in In re: Volkswagen—overturned a notable decision by Judge Albright that venue can be proper against an automaker based in the activity of in-district dealerships. In that September 2021 opinion, Judge Albright concluded that the dealerships’ relationships with automakers, governed mainly by franchise agreements, make those dealerships the agents of the respective automakers; that the automakers ratify the in-district dealerships as their own places of business; and that the dealerships are conducting the business of the automakers in West Texas.

However, the Federal Circuit cut through each of those determinations, ruling instead that plaintiff StratosAudio, Inc. “failed to carry its burden to show that the dealerships are agents of Volkswagen or Hyundai under a proper application of established agency law”. For that reason, the appellate court determined that the in-district dealerships “do not constitute regular and established places of business of Volkswagen and Hyundai under [Section] 1400(b)”, taking instruction from its February 2020 holding in In re: Google.

See here for more details on the Federal Circuit’s decision and its potential impact.

Finally, Judge Albright has since taken additional steps to place limits on transfers—in particular, through an updated standing order designed to make it harder to file motions to transfers in the first place. That new standing order, issued on March 7, requires that motions for transfer be filed within eight weeks of receiving or waiving service of the complaint or within three weeks of the case management conference, whichever is later. After that, leave from the court is required. Parties must also repeatedly check in with the court about transfer motions, as Judge Albright now asks parties to file multiple status reports on pending motions—including one advising him when motions are ready for resolution, another when a case is four weeks away from the first Markman hearing (or, if there are more than one such hearing, six weeks before the first one), and yet another one week before the hearing if the motion still has not been decided.

E-Commerce and Software litigation filed by NPEs in Q1 included activity from a variety of notable plaintiffs, with some of those cases asserting patents from familiar sources. Among those plaintiffs were Advanced Transactions, LLC and Alto Dynamics, LLC, two Georgia LLCs with ties to patent monetization firm IPInvestments Group LLC (d/b/a IPinvestments Group), both of which launched campaigns focusing on this sector in February over patents acquired from Intellectual Ventures LLC (IV) earlier that month via other IPinvestments entities. Those campaigns respectively target online payment systems, e-commerce websites, and shopping services (Advanced Transactions) and data collection, user login, and search technologies (Alto Dynamics).

Another monetization firm hitting the same sector in February was prolific monetization firm IP Edge LLC, which, through Savannah Licensing LLC, launched a campaign that hit a host of app developers, service providers, and mobile device makers over software that incorporates certain user feedback features. The patents came from another familiar source: In May 2021, fellow IP Edge entity Vibrant Licensing LLC acquired them from Empire Technology Development LLC—itself a subsidiary of Allied Inventors Management, LLC, which was reportedly founded in 2015 to monetize patents received from IV. IP Edge also continued to litigate patents acquired from Xerox via Bassfield IP LLC, which in January and March filed more cases in the QR code campaign that it launched in December.

Additionally, monetization firm Dynamic IP Deals, LLC (d/b/a DynaIP) launched two new E-Commerce and Software campaigns this past quarter. In March, its subsidiary AK Meeting IP LLC filed its first litigation over screen and content sharing features included in various online collaboration products. Another entity linked to DynaIP is Silent Communication, LLC, which apparently attempted to sue BlackBerry in March over its Hub+ communications suite, targeting features related to aggregating contact data and messages from multiple sources—though corporate identity issues could undercut that case (as detailed here). The patent at issue was previously litigated by Mobile Synergy Solutions, LLC, an NPE associated with Texas monetization firm Dominion Harbor Enterprises, LLC.

Other recent campaigns hitting this sector have focused more on products and services related to enterprise infrastructure. In March, Desktopsites Inc. (f/k/a CityCites.com Corp.), a former cloud computing company that has since turned to patent assertion, sued Dell (VMware) over virtualization software with certain remote access and authentication features. The month before, Isix IP LLC, a subsidiary of monetization firm Aequitas Technologies LLC, kicked off a campaign targeting systems integration products, which allow the integration of different computing systems such as cloud-based and on-premises applications.

Even more campaigns targeted more consumer-facing features this past quarter. Among them were two initiated by inventor-controlled NPEs: In February, Zentian Limited accused Amazon and Apple of infringing five speech recognition patents through the provision of devices respectively supporting the Amazon and Siri voice assistants, including wake word support (“Alexa” and “Hey Siri”), text dictation, and on-device speech processing. Weeks later, M4siz Limited added more retailers to its ongoing campaign targeting the search features offered by their e-commerce websites—in particular, features related to correcting misspelled search terms.

Additionally, the PTAB instituted trial in 62% of the AIA review petitions addressed in Q1. The institution rate for 2021 was 58.7%, a slight increase from 2020’s 58.2% but still down from 2019’s 61%.

That prior decline can be attributed partly to a pair of precedential PTAB decisions known together as the NHK-Fintiv rule, which allows the board to use its discretion to deny institution in AIA reviews based on several factors related to the status of parallel district court litigation. The most hotly debated of those factors has been one that allows the PTAB to deny institution when its final decision would be due close to the district court’s scheduled trial date. This practice has been especially problematic from a strategic perspective because it forces petitioners to file as early as possible—effectively, further compressing the one-year window defendants already have to file an IPR—based on an aspect of litigation, trial scheduling, that is inherently outside of a petitioner’s control and is subject to change.

That said, additional decisions from the PTAB have allowed petitioners to stipulate around other NHK-Fintiv factors, which may be contributing to the leveling-out of year-over-year institution rates. In Sand Revolution II v. Continental Intermodal Group – Trucking (issued May 2020; designated as informative that July), the PTAB granted institution after the petitioner agreed not to assert the same invalidity grounds in district court that it did in its IPR petition. That same December, the Board accepted an even broader type of stipulation in its Sotera Wireless v. Masimo decision (designated as precedential two weeks later), after the petitioner informed the district court that it would not pursue “any ground raised or that could have been reasonably raised in an IPR” after institution. Some practitioners have indicated that the PTAB has been more amenable to the latter, broader type of stipulation.

NHK-Fintiv Has Led to an Upswing in Reexam Requests

Apart from the use of such stipulations, data show that a key result of NHK-Fintiv has been that would-be petitioners are instead filing more ex parte reexaminations, which are not subject to the same level of discretionary denials and offer a variety of other advantages (such as lower cost and lack of estoppel).

Indeed, reexam requests went up markedly last year: parties filed 331 such requests, or 53.2% more than in 2020 (during which 216 requests were filed). Early data for 2022 suggests that this trend is holding, with about the same number of reexam requests filed in Q1 (69) as in the first quarter last year (72). Moreover, the share of those patents that have been previously litigated in district court increased in 2021 as well, accounting for 64% of the patents with reexam requests (up from 60% in 2020 and 52% in 2019), although that dipped slightly to 61% in Q1 2022. In addition, the share of patents with reexam requests that were also previously challenged via AIA review also continued to increase last year, reaching 36% in 2021—up from 33% in 2020 and 25% in 2019. That AIA review overlap was even higher in Q1 2022 at 43%.

Taken together, these datapoints suggest that NHK-Fintiv is the reason that defendants are filing more ex parte reexams.

Supreme Court Denies NHK-Fintiv Challenge, but Federal Circuit Appeal Proceeds

The NHK-Fintiv rule has spawned several appellate challenges since its inception, including three Supreme Court appeals of decisions directly denying institution in AIA reviews that were rejected in the first quarter. Two of those certiorari petitions were denied at the start of Q1: one filed by Apple, after a court ruled that its direct appeal was barred under the Supreme Court’s Cuozzo decision; and a second from Mylan, which had challenged a denial based on a related ruling (Mylan v. Janssen) providing that mandamus review for such decisions is only available based on “colorable constitutional claims”. The third petition, filed by Intel based on a ruling citing Mylan, was denied by the Court on March 21.

However, an overlapping appeal remains active before the Federal Circuit, over the dismissal of a California lawsuit challenging the rule itself. That case, filed by Apple, Cisco, Google, and Intel, later joined by Edwards Lifesciences, asserted that NHK-Fintiv has reduced the availability of IPR and alleged that the rule conflicts with the AIA, that it is arbitrary and capricious, and that it violates the Administrative Procedure Act (APA) because it had not been “adopted through notice-and-comment rulemaking”. The appellants filed their opening brief in February. Since then, the court has received amicus briefs in support from stakeholders spanning a variety of industries: Mylan; Honda and Tesla; and a group of nine tech and telecom companies and industry associations, including the Computer and Communication Industry Association, Micron, Juniper Networks, Verizon, VMware, and TSMC. The government’s brief in response is due on April 29.

Vidal Takes the Reins at the USPTO

The ongoing NHK-Fintiv debate will likely be top-of-mind for new USPTO Director Kathi Vidal, who was confirmed by the Senate on April 5 after more than a year in which the agency lacked a permanent head. Unsurprisingly, the rule was among the most frequent topics of questioning during Vidal’s confirmation process last year, with Senator Thom Tillis (R-NC) taking particular issue with the NHK-Fintiv factor tying institution to district court trial dates—a practice that Vidal, at his request, agreed to study and review.

Vidal also detailed her views on a variety of additional patent issues in her capacity as a nominee, including other topics related to the PTAB—among them, APA challenges to discretionary denial practices, concerns over PTAB filing practices, and the compensation of PTAB administrative patent judges—as well as so-called “judge shopping”, SEP licensing issues, and patent eligibility. See here for more on Vidal’s views as shared with the Senate Judiciary Committee.

Federal Circuit Decisions on IPR Estoppel in District Court and Reexams; Forum Selection Clauses

The Federal Circuit also issued several significant decisions that dealt with the PTAB throughout the first quarter. Among the most notable was its February 4 opinion in Caltech v. Apple and Broadcom. That ruling vacated and remanded a $1.1B damages award against the defendants but also significantly expanded IPR estoppel—the statutory requirement that restricts petitioners from raising certain IPR validity arguments in subsequent district court challenges.

In Caltech, the Federal Circuit resolved a district court split over the application of that requirement by overruling its 2016 Shaw Industries Group v. Creel Automated Systems decision, now holding that a petitioner is estopped not just from later asserting arguments actually raised in a successful petition, but also from including those arguments that they “reasonably could have” included. The decision’s original wording was interpreted by some stakeholders as establishing that an IPR against even one claim of a patent could lead to estoppel as to all claims of that patent. However, the court subsequently modified the opinion to clarify that Caltech extends estoppel to grounds that “reasonably could have” been included but not to all claims.

On February 24, the Federal Circuit additionally held that appellate review is available for USPTO decisions not to initiate reexaminations based on IPR estoppel, which in this context bars reexam requests by petitioners whose IPRs against the same claims have reached final written decisions. In Alarm.com v. Hirshfeld, the court ruled that the Eastern District of Virginia was wrong to reject an APA lawsuit challenging a reexam denial on that basis. The Federal Circuit instead concluded, contrary to the district court, that the relevant statutory scheme does not preclude appeals of IPR estoppel decisions with respect to reexams.

Another decision of particular commercial relevance was the Federal Circuit’s ruling that forum selection clauses can bar parties from filing IPRs. On February 8, the court held in Nippon Shinyaku v. Sarepta Therapeutics that parties are free to contract around IPRs should they choose to do so, confirming a series of prior rulings in its first precedential opinion addressing the issue. The decision places even greater importance on the careful review of forum selection clauses for potential defendants that wish to preserve their options for validity challenges.