Q1 in Review: West Texas Reforms Upend US Venue Rankings as SEP Landscape Shifts in Europe

The first quarter of 2023 ended with a 36% slowdown in NPE litigation. Much of that drop, however, was the result of two significant events last year: one formerly prolific litigant’s decision to pause all filings due to pressure over transparency in Delaware, and a closely watched reform of judge assignment practices in the Western District of Texas that led to a downturn in the Waco Division.

Meanwhile, USPTO Director Kathi Vidal continued to make changes affecting the Patent Trial and Appeal Board (PTAB) in Q1, including further refinements to its practice of issuing discretionary denials in America Invents Act (AIA) reviews under the NHK-Fintiv rule—as the Federal Circuit revived a procedural challenge against the rule’s implementation from a group of tech companies.

Moreover, Q1 saw two important developments impacting standard essential patent (SEP) licensing and litigation in Europe: a UK court decision that provided the country’s second-ever determination of a global fair, reasonable, and nondiscriminatory (FRAND) license and a newly revealed EU initiative that seeks to impose a Europe-wide framework for SEP litigation.

Also during Q1, BlackBerry announced that it has found a new—and this time, fully financed—buyer for the bulk of its patent portfolio. In addition, for those keeping an eye on the litigation finance market, there were some notable discoveries related to major players in the space as well as two industry reports released during the quarter.

Download Full Report (PDF)

RPX members will also soon have exclusive access to an on-demand RPX Community webinar covering highlights from this post; CLE credit may be available.

Within a few weeks of the July order, the Western District developed a general practice of assigning new cases to the same judge who oversaw prior litigation involving the same parties and patents. Most of the cases in these “legacy” campaigns have thus ended up before Judge Albright, who of course presided over all of Waco’s prior NPE litigation, while cases falling in new campaigns have been randomly distributed. It appears that approximately 90% of disputes in legacy campaigns with an active case in the district have been assigned to the judge who has presided over the earlier cases. When there are no active cases in a legacy campaign, the new dispute has been assigned to the legacy judge (usually Albright) about 50% of the time.

Since the July order, cases in legacy campaigns have accounted for a little less than two thirds of the cases filed in Waco.

The number of cases being filed in legacy campaigns appears to have slowed in March—though monthly case counts are volatile, so this trend could reverse. On the other hand, these legacy campaigns may eventually run out of new defendants to sue. If that happens, Waco may experience yet another downshift in NPE activity.

The longer-term impact of the July order can be seen below. NPE patent litigation in Waco (counted below by defendants added) now stands at roughly half of where it stood at its peak.

Meanwhile, operating company plaintiffs added 285 defendants to patent litigation campaigns in Q1, or 8% higher than the first quarter last year (when operating companies added 263 defendants) and 14% more than Q4 2022 (250 defendants). Operating company filings exceeded the trailing average by 7%.

Overall, 618 defendants were added to patent litigation campaigns in the first quarter of 2023—21% less than in Q1 2022, 21% fewer in than Q4 2022, and 22% 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 spike in Q3 2020, is shown in grey below to illustrate its magnitude. As evident from the rightmost bar, e-seller litigation in Q1 2023 accounted for 1,161 defendants added, or 65% of all litigation during the quarter (subject to the caveat about defendants with multiple online storefronts noted above).

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

Despite the downturn in West Texas NPE litigation, such plaintiffs do not appear to have selected a new favorite venue, at least in the short term—as no one district has yet experienced a disproportionate rise in NPE activity. In particular, NPEs do not seem to be flocking to Delaware, where they previously headed after TC Heartland: NPEs added roughly the same number of defendants there in Q4 2022 and Q1 2023.

That relative hesitance could be the result of an ongoing battle over transparency and mandated disclosures in the courtroom of Delaware Chief Judge Colm F. Connolly. In April 2022, Judge Connolly posted new standing orders applicable to cases assigned to him, including two that require parties to reveal information related to funding arrangements and corporate control. While these new requirements pushed many plaintiffs to file new or updated disclosures, others have apparently failed to comply—including a group of entities linked to IP Edge that Judge Connolly ordered to produce a substantial range of information on their formation, control, and funding. Thus far, those plaintiffs have been unsuccessful in their attempts to push back on appeal. In February, the Federal Circuit declined to rehear a prior decision in which it refused to vacate one such production order against Nimitz Technologies LLC, which has indicated that it may appeal to the Supreme Court. Back in Delaware, after two months passed with no production forthcoming from Nimitz, Judge Connolly ordered its counsel to appear before him and explain why it should not be sanctioned for its failure to comply. Three days later, Nimitz made the requested filings.

Another IP Edge-linked entity, Lamplight Licensing LLC, has also challenged another such order directly before Judge Connolly, arguing that its dismissal of the underlying cases deprives the court of jurisdiction, that the order is overly broad, and that it calls for the production to the court of privileged materials for an “improper purpose”. On April 3, a third IP Edge entity, Backertop Licensing LLC, raised essentially the same arguments in its own motion to set aside a similar production order against it.

Although the effect of Judge Connolly’s standing orders is inherently limited to parties before him for the most part, their impact was also briefly felt outside his district in Q1 as the result of a multijurisdictional discovery dispute involving the once-prolific litigant WSOU Investments, LLC (d/b/a Brazos Licensing and Development) (“WSOU”). In January, Salesforce—a defendant in ten WSOU cases brought in the Western District of Texas—filed a Delaware motion asking the court to force two Delaware entities with allegedly “substantial interests” in WSOU to provide information on their ownership and control. WSOU filed a motion to seal much of that material, sought by Salesforce in support of a license defense. On February 24, Judge Connolly not only denied that sealing motion but also rolled back all prior redactions in the case—revealing new details on the asserted license, which stems from WSOU’s alleged ties to an individual behind another well-known NPE. Judge Connolly’s involvement has since come to an end, as he transferred the discovery action back to the Western District of Texas in early March.

Meanwhile, another result of the West Texas judge reassignment order—and, perhaps, as reflected in the leveling-out of legacy cases mentioned above—is that District Judge Alan D. Albright is no longer the nation’s top patent judge. In fact, he has fallen to a distant third place, just barely edged out by Delaware District Judge Maryellen Noreika, with 4% of all Q1 patent litigation in his courtroom. Reclaiming first place is a familiar name: District Judge Rodney Gilstrap of the Eastern District of Texas.

While Judge Albright has fallen out of first place, one aspect of the pre-July 2022 status quo that apparently remains intact has been his ongoing back-and-forth with the Federal Circuit over his handling of convenience transfer motions. As noted in RPX’s prior coverage, the proper application of the relevant transfer factors—and the extent of a district judge’s discretion to do so—has been at the center of the appellate court’s ongoing disagreement with Judge Albright, who has often denied such motions since taking the bench in 2018. Starting in 2020, the appellate court has repeatedly reversed him on that issue through mandamus review, identifying a series of recurring legal errors in his transfer analyses.

An October 2022 ruling from the Fifth Circuit—the regional circuit that determines the law governing convenience transfers in Texas—appeared to depart from the Federal Circuit’s prior take on issues central to the analysis of such transfer motions, including the location of evidence, the cost of attendance for witnesses, and the district judge’s overarching discretion over such matters. However, in early February, the Federal Circuit interpreted that closely watched decision as still justifying its current approach. In its In re: Google ruling, the court held that a clear showing that a venue is more convenient takes precedence over the district judge’s discretion. Even more significantly, the Federal Circuit determined that NPEs do not have an interest in getting cases to trial quickly—and that a district judge lacks the discretion to give undue weight to his district’s time to trial.

A wide variety of NPE plaintiffs, many of them interrelated, hit the E-Commerce and Software sector in Q1 2023. Among them were KOJI IP LLC, which filed its first litigation over location-based notifications on February 22; Street Spirit IP LLC, which on February 27 expanded the campaign it launched last September with new suits targeting content moderation and user verification tools; and AK Meeting IP LLC, which added a new complaint over screen sharing technology to its own existing campaign on February 1. All three are connected to Texas-based monetization firm Dynamic IP Deals (d/b/a DynaIP) via affiliated entity Pueblo Nuevo LLC, which has developed a distinctive approach to corporate disclosures after other plaintiffs under its control faced pressure from Judge Connolly over disclosures in his Delaware court (as detailed in the coverage linked above). Additionally, a fourth DynaIP plaintiff—AML IP LLC, which is under the firm’s direct management—pushed its online payments campaign past the 50-defendant mark in Q1 with a wave of new cases filed in January.

Other NPEs hitting this sector in the first quarter were multiple NPEs apparently associated with a familiar figure in patent monetization—a former inventor who in recent years has shifted to the assertion of patents acquired from others. Those plaintiffs included Convergent Assets LLC, which in March launched its first litigation campaign over targeted advertising technology, asserting patents developed at ADISN, an inventor-controlled digital advertising agency. Another was Hyperquery LLC, which in January filed its first litigation targeting smartphones with preinstalled Google search products and filed a second cluster of cases in March (see here and here). One more of those affiliated plaintiffs, Scancomm LLC, also added more litigation to the campaign that it kicked off in July 2022 over payment platforms, targeting features related to sharing contact information and making transactions by using QR codes. Additionally, yet another NPE in this extended family, InvesTrex LLC, filed one more case in its own campaign targeting web features for displaying real-time stock information in March. If past activity is any indication, these plaintiffs will likely proceed in file-and-settle fashion. See RPX Insight for more on the connections between these NPEs—and related patent acquisition activity indicating that even more litigation is coming.

Another plaintiff that hit the E-Commerce and Software space in the first quarter was Dialect, LLC, which in mid-February initiated a litigation campaign over certain products (i.e., Internet of Things devices, smartphones, tablets, and wearables) that incorporate voice-recognition software services. The asserted patents originated with Voicebox Technologies (acquired in 2018 by Nuance Communications). Dialect is connected to a different, but also familiar, figure in patent monetization, an individual who has been linked to other established NPE plaintiffs—including Oyster Optics, LLC, which, with its subsidiary and coplaintiff Oyster Optics, Inc., has waged an optical networking campaign, with some setbacks, since 2008; and Document Security Systems, Inc. (DSS), a publicly traded company with a rocky patent litigation history.

Other already-active inventor-backed plaintiffs filed complaints over a wide range of other technologies in this sector in Q1: Virtual Creative Artists, LLC brought another case over products with online photo sharing features in March; AlmondNet, Inc. and its subsidiary Intent IQ, LLC again focused on targeted advertising in a new complaint filed earlier that month; and PACid Technologies, LLC filed a complaint focused on the use of certain secure authentication standards, also in March. In January, inventor-controlled S3G Technology LLC continued to sue retailers over the provision of mobile apps for retail operations, asset tracking, and digital key operation; and Innovaport LLC (f/k/a PatentBank LLC) sued another retailer over its mobile app’s product availability tracking features.

Institution rates in AIA review trials were also relatively stable in the first quarter, which came in at 65%—slightly higher than Q1 2022 (when the rate was 62%) but lower than Q4 2022 (68%).

In the first quarter, the PTAB’s practice of discretionarily denying institution in AIA reviews based on the status of parallel district court litigation—known as the NHK-Fintiv rule—remained a focus of USPTO Director Kathi Vidal. Q1 saw Vidal use her post-Arthrex director review power to further refine the metes and bounds of NHK-Fintiv through a series of such reviews initiated sua sponte (i.e., at the director’s own initiative, rather than at the request of a party).

Vidal Clarifies Scope of “Compelling Merits” Standard from June 2022 Guidance

Two of Vidal’s most notable changes served to clarify a prior reform that the director made last year through a June 2022 guidance on the NHK-Fintiv rule. Among other changes, that guidance established a new limitation that essentially exempted AIA reviews that are especially likely to succeed from NHK-Fintiv. Specifically, the Director stated that while the PTAB will retain the discretion to deny institution under NHK-Fintiv factor six (considering the merits of the petition) where evidence of invalidity is “merely sufficient to meet the statutory institution threshold”, the Board “should not discretionarily deny institution” for petitions presenting “compelling, meritorious challenges”: “those in which the evidence, if unrebutted in trial, would plainly lead to a conclusion that one or more claims are unpatentable by a preponderance of the evidence”.

On February 27, Vidal issued a director review decision in CommScope v. Dali Wireless to explain that it was not her intent for the compelling merits determination to serve as a “substitute for a Fintiv analysis”, after acknowledging that this was a plausible reading of the guidance as written. Rather, Vidal clarified that PTAB should assess the other NHK-Fintiv factors first: If they do not favor discretionary denial, no compelling merits analysis should be performed, whereas if the factors tip the scale toward discretionary denial, compelling merits should then be assessed.

Vidal also addressed how the compelling merits standard affects the interplay of certain district court validity challenges with PTAB proceedings. In AviaGames v. Skillz Platform, a PTAB panel discretionarily denied institution under NHK-Fintiv after the district court invalidated the challenged patent as ineligible under Section 101. However, Vidal reversed and remanded the denial of institution on March 2, holding that the Board should institute trial despite the ineligibility ruling if the petition presents compelling merits. Vidal explained that since invalidity under Section 101 is not a statutory ground that the petitioner could have raised before the PTAB, there is no risk of duplicative proceedings or inconsistent results. Additionally, Vidal underscored that by the time the Section 101 ruling has made its way through the appellate process, the petitioner would be time-barred. That said, the director also held that the IPR should be terminated if the Section 101 decision gets overturned on appeal (ostensibly, while the IPR is still in progress).

Vidal Gives Update on Planned Structural Changes

In late February, Vidal also gave further details on her longer-term plans for restructuring how the PTAB reviews decisions and implements reforms in an interview with IAM. Vidal expressed the view that there remains value in pursuing changes at the PTAB both through formal rulemaking as well as through interim guidance, characterizing the latter as a halfway point between rulemaking and the use of her post-Arthrex director review power to unilaterally set policy, in terms of those mechanisms’ level of formality and finality. The director emphasized that rulemaking is valuable because it is “important to memoriali[z]e these types of things so that they don’t change over time” and gives the “public some certainty”. However, she also observed that beginning the reform process with an interim guidance allows the PTAB to consider the practical impact of changes before they are formalized: “The way we’ve done it is interim until final, and that’s worked really well because it’s taught what has worked well and what could be improved. By the time we go to rulemaking, we’ve lived with some of this for a little while”.

That said, Vidal’s use of interim guidance as a policy-testing approach could face obstacles as a result of a lawsuit challenging NHK-Fintiv from a group of prominent petitioners and frequent defendants. On March 13, the Federal Circuit partially revived a case filed by Alphabet (Google), Apple, Cisco, and Intel, alongside Edwards Lifesciences, with respect to their claims that the rule is procedurally unsound—and should thus be set aside—because it was not implemented via notice-and-comment rulemaking in the first instance.

While USPTO data (as summarized here) show that discretionary denials based on NHK-Fintiv went down due to practices codified in the June guidance, Vidal has explained that her intent was not to “slow discretionary denials”. Rather, the director explained that the goal was to make them more predictable: “The intent of the memo was to get away from a multifactor test that each judicial panel was weighing, and to get more certainty, so that the public could know what to expect from Fintiv denials”.

Reexam Filings Continue to Dip in the Wake of the June 2022 Guidance

One particularly notable result of the uncertainty caused by NHK-Fintiv 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.

However, after one last spike in the second quarter of 2022, reexam filings dipped in Q3 (the first full quarter after Vidal’s late-Q2 guidance), plateaued in Q4, and then declined even further in Q1 2023—suggesting that the changes made to NHK-Fintiv have collectively reduced its deterrent effect on petitioners. That said, a significant share of those reexams still involve previously litigated patents and those challenged at the PTAB, indicating that reexams remain in play for district court defendants despite their reduced popularity in the wake of recent reforms.

Vidal Reinstates Third-Party Petitioners After Sanctions Rulings

Finally, in January and February, Vidal walked back a portion of an increasingly severe set of sanctions that she imposed in late 2022 over alleged gamesmanship before the PTAB. In October, Vidal demoted third-party IPR petitioner OpenSky Industries to a silent understudy role for its abuse of the IPR process by making a set of unusual financial offers designed to “extract rents” from patent owner VLSI Technology LLC and joined copetitioner Intel, among other offenses. December saw Vidal double down, dismissing OpenSky entirely and doing the same to another third-party challenger, Patent Quality Assurance (PQA), for similar behavior and making additional misrepresentations. However, on January 27 and February 3, Vidal restored both PQA and OpenSky as petitioners and ordered OpenSky to pay attorney fees and costs to VLSI.

On April 4, Vidal then denied OpenSky’s motion to terminate Intel, which had been designated lead petitioner. While OpenSky had argued that Intel was barred from participating due to claim preclusion, as a result of a jury verdict rejecting its validity challenge, Vidal agreed with Intel that claim preclusion does not apply in AIA review proceedings.