Q3 in Review: Patent Litigation Swings Upward as SEP Owners Benefit from Major Rulings

Litigation Update: Design Patent Litigation Spikes, While Other Patent Litigation Trends Upward

Most analyses of patent litigation have generally not focused on cases asserting primarily design patents. The reason is mainly twofold: NPEs rarely, if ever, assert design patents, while most operating company patent disputes involving technology typically do not depend on such assets. Moreover, purely design patent cases have historically accounted for a relatively small share of overall filings.

However, the third quarter of 2020 was a notable exception to that trend. While 2,466 defendants were added to patent litigation campaigns in Q3 (with no filter by patent or plaintiff type), more than double the prior-year period, RPX data reveal that this increase is largely the result of a dramatic spike in defendants added to campaigns asserting only design patents. These cases account for 67.8% of all defendants added in the quarter. This quarterly share is much higher than in recent years: since Q1 2018, the number of defendants added to pure design patent campaigns has ranged from 2.3% to 17.8% of total patent litigation—a significant amount at the upper end, but well below Q3.

Venue Update: West Texas Remains the Top District Overall, While Design Patent Plaintiffs Flock to Northern Illinois

Applying the same filter as in the above filing trend analysis (excluding pure design patent cases) to a breakdown of the top patent venues for Q3 reveals that the Western District of Texas remains the most popular venue for overall patent litigation (i.e., with no filter for plaintiff type) and for litigation filed by NPEs, also rising to second place for operating company litigation. The District of Delaware, meanwhile, was the top operating company venue and the number-two district for both overall and NPE litigation. The Eastern District of Texas—the favored venue of NPEs prior to the Supreme Court’s decision in TC Heartland—took third place for overall and NPE litigation but was in fifth place for operating company litigation.

Meanwhile, an analysis of pure design patent cases (again, excluded from the immediately preceding analysis and the graph below) reveals that nearly all of that litigation (94%) has been filed in the Northern District of Illinois. All other districts saw very few defendants added to pure design patent cases; the Southern District of New York, for instance, held a distant second place with just 32 defendants added.

COVID-19 Update: First Patent Jury Trials During Pandemic Held in East and West Texas

Among the more closely watched distinctions between the top districts has been their handling of jury trials—specifically, whether courts would proceed with in-person jury trials despite the ongoing COVID-19 pandemic.

As detailed in a recent RPX analysis, the most popular patent venues have taken different approaches, with the Western and Eastern Districts of Texas giving judges certain levels of discretion over whether to proceed with jury trials. August saw District Judge Rodney Gilstrap hold the nation’s first such trial since the start of the pandemic in litigation between subsidiaries of PanOptis Holdings, LLC and Apple, leading to a $506.2M infringement verdict. District Judge Alan D. Albright of the Western District of Texas has now followed suit, greenlighting the resumption of patent jury trials in his district in late September—citing declining local COVID-19 infection rates—and beginning his district’s first such trial on October 5 in litigation between inventor-controlled MV3 Partners LLC and Roku. The proceeding is also Judge Albright’s first patent jury trial since he took the bench in late 2018.

Other top patent districts may soon follow suit. In mid-September, the District of Delaware entered the second phase of its reopening plan, under which jury trials are allowed subject to a detailed set of safety guidelines. Additionally, the Northern District of California’s district-wide continuance of all civil trials expired on September 30, clearing the way for patent trials to resume there as well. Currently, the only venue in the top five not to restart civil jury trials is the Central District of California, where such trials remain postponed indefinitely.

Market Sector Update: Automotive, Medical, and Networking Litigation Outpaces 2019

RPX data show that NPE patent litigation hitting the Automotive market sector remains well above levels observed last year, having risen by 131% in Q1-Q3 2020 compared to the same period last year. Earlier this year, as detailed in RPX’s second-quarter review, a number of notable plaintiffs launched automotive campaigns that continue to see new cases, including one launched by 21ST CENTURY GARAGE LLC over patents divested from Intellectual Ventures LLC. As the third quarter came to a close, prolific monetization firm IP Edge LLC joined the fray through affiliated plaintiff Inspire Licensing LLC, initiating a campaign targeting connected car cybersecurity technology and systems for monitoring automotive manufacturing.

Other sectors that have seen an increase in litigation this year so far include Industrial and Medical, both of which saw a 50% uptick, with growth also observed in sectors such as Networking (42%), Biotech and Pharma (38%), and E-Commerce and Software (21%). The sectors that declined the most, meanwhile, were Media Content and Distribution (which decreased by 30%) and Consumer Electronics and PCs (which went down by 25%).

PTAB Update: CBM Review Program Sunsets as Tech Companies Challenge Discretionary Denial Rule

In the third quarter of 2020, 461 petitions for America Invents Act (AIA) review were filed with the Patent Trial and Appeal Board (PTAB), including 440 petitions for inter partes review (IPR), nine petitions for covered business method (CBM) review, and 12 petitions for post-grant review (PGR). The overall number of AIA review petitions filed in Q3 was 21.3% higher than the previous quarter, during which 380 petitions for AIA review were filed—the third quarterly increase in a row, following four quarters of relatively flat activity.

Section 101 Update: Supreme Court Declines to Revisit Alice as Berkheimer Dip Persists

The US Supreme Court handed defendants a major defensive tool through its landmark 2014 Alice decision, but the nation’s highest court has stepped back as the Federal Circuit has nudged the pendulum in favor of patent owners. In particular, the Supreme Court has repeatedly denied certiorari for a series of petitions challenging various aspects of the Alice test and decisions applying it—most recently, declining on October 5 to revisit the Federal Circuit’s controversial ruling in Chamberlain Group v. Techtronic Industries, commonly referred to as the “garage door” case.

In that decision, the Federal Circuit invalidated a patent claiming a smart garage door opener as unpatentably directed to the abstract idea of “wirelessly communicating status information about a system”, but the patent owner had argued in its petition that the court erred by distilling the patent to “a single supposed point of novelty” rather than considering the claims as a whole—allegedly leading courts taking this approach to nullify “concrete and specific” inventions. Senator Thom Tillis (R-NC), the chair of the Senate IP Subcommittee, has argued that the decision highlights the need for Section 101 reform, stating that “nothing better demonstrates the madness” of how courts have applied Alice.

As always, it remains unclear whether the Supreme Court will continue to avoid wading into the Section 101 debate once again—but for her part, Federal Circuit Judge Kathleen M. O’Malley recently remarked that she does not think the Supreme Court has “any stomach” to take on such a case.

These latest developments follow the Court’s January 2020 decision not to review the Federal Circuit’s 2018 rulings in Berkheimer and Aatrix, which have arguably done the most of any subsequent appellate decisions to limit the practical applicability of Alice. In those cases, the Federal Circuit held that courts may not grant early dismissal under Alice when a patent owner establishes a material factual dispute over a patent’s inventiveness.

The result has been a significant drop in Alice invalidation rates, which stood at around 67% before Berkheimer but have now dropped to 43% for decisions issued since Berkheimer and through Q3.

FRAND Update: DOJ’s Policy Advocacy Bears Fruit as Top FRAND Jurisdictions Expand SEP Jurisprudence

The third quarter of 2020 saw a series of important developments impacting the licensing of standard essential patents (SEPs) in some of the world’s top patent jurisdictions.

The US

The US, for its part, continued to see the impact of a shift in the policy of the Department of Justice (DOJ) toward fair, reasonable, and non-discriminatory (FRAND) patent licensing. Since 2017, the DOJ’s Antitrust Division, led by Assistant Attorney General Makan Delrahim, has reassessed its posture toward antitrust enforcement in SEP disputes, arguing that such disputes should be handled under contract law, not antitrust; placing more emphasis on implementer hold-out (which occurs when a potential licensee declines to take a license to a SEP, forcing the patent holder to turn to litigation) rather than patent owner hold-up (the assertion of a SEP to gain an unduly high license rate); and favoring the availability of injunctive relief in SEP disputes (a remedy previously deemed anticompetitive in this context).

The DOJ has advocated for this policy shift through multiple channels, including through coordinated outreach to industry associations in Q3. On September 10, Delrahim took what he acknowledged to be the “extraordinary step” of urging the Institute of Electrical and Electronics Engineers (IEEE), a standard-setting organization (SSO), to make several changes to its patent licensing policy—in part, asking it to relax its prohibition on patent owners seeking injunctive relief and to revisit its recommendation that the smallest saleable patent practicing unit (SSPPU) be used as the basis for a reasonable royalty. The DOJ has also pushed its SEP goals in the courts by filing briefs in existing litigation—a strategy that saw some recent success in the third quarter, with the Ninth Circuit adopting the DOJ’s viewpoints in its August reversal of the Northern District of California’s FTC v. Qualcomm decision. Additionally, in early September, a Texas judge adopted the DOJ’s positions in an order dismissing with prejudice an antitrust lawsuit filed by automotive supplier Continental against Internet of Things patent pool operator Avanci, LLC.

The UK

Meanwhile, courts in other key SEP jurisdictions made significant new rulings on FRAND licensing in the third quarter. In the UK, the country’s Supreme Court issued a landmark decision on SEP licensing on August 26, holding that UK courts have the jurisdiction to impose global licenses for multinational patent portfolios and determine what terms would be FRAND. In that opinion—resolving appeals in Unwired Planet v. Huawei and two other cases—the court ruled that it has the authority to resolve licensing disputes over portfolios including non-UK assets because those disputes turn not on patent law but on contract law, since a patent owner’s FRAND commitments stem from contractual agreements made to SSOs. Stakeholders have raised the possibility that this decision may encourage forum shopping, arguing that plaintiffs with multinational SEP portfolios may increasingly litigate FRAND licensing disputes in the UK as a result.

Germany

Another important ruling came in Germany, where the Federal Court of Justice (Bundesgerichtshof) established, in its written opinion in Sisvel v. Haier in early July, a series of criteria concerning the conduct expected of patentees and implementers during negotiations in SEP licensing disputes. The decision imposed a higher bar for accused infringers hoping to show that their prior licensing behavior had been FRAND-compliant, with the court explaining that defendants must go well beyond merely stating their willingness to take a FRAND license. The court also laid out additional requirements and guidelines for patent owners—in part, stating that portfolio licenses do not violate antitrust law, under certain conditions, and can be global in scope. Stakeholders have interpreted the decision as largely favoring SEP owners; should it survive a pending constitutional challenge from Haier, it could serve to strengthen Germany’s position as the most popular destination for SEP litigation in Europe.

China

Moreover, Chinese courts have continued to expand the country’s body of FRAND jurisprudence, potentially further encouraging of Chinese courts as SEP venues. In September, the Supreme People’s Court reportedly granted China’s first anti-suit injunction, a measure commonly used by US and European courts to block parallel litigation in other countries. The court’s decision reportedly barred Conversant Wireless Licensing S.à r.l. from enforcing a German injunction against Huawei. Weeks later, the Wuhan Intermediate People’s court imposed an even broader anti-suit injunction against InterDigital, Inc. in litigation against Xiaomi, barring the NPE from seeking injunctive relief or the determination of a FRAND licensing rate as to the relevant patents in China or any other jurisdiction.

Marketplace Update: Litigation Finance, IV Divestitures, and Operating Company Assets Drive NPE Filings

Despite the broader economic downturn caused by COVID-19, NPEs continued acquiring and asserting patents throughout the third quarter—including some plaintiffs with prominent financial backing and others wielding patents with notable pedigrees.

Third-Party Funders Continue to Fuel New Litigation

As previously reported by RPX, a trio of Irish NPEs—Data Scape Limited, Neodrón Limited, and Solas OLED Limited—have launched campaigns with the backing of Magnetar Capital, a hedge fund currently reporting $12.1B in assets under management. Public records now reveal a growing roster of other Irish entities linked to Magnetar: in addition to Sonraí Memory Limited, an entity flagged by RPX earlier in 2020, two newly identified entities also share the same management—Arís Technologies Limited and Scramoge Technology Limited. While the latter two have not yet received patents—at least, according to currently available assignment data—Sonraí has acquired at least two sets of patents this year, one from Microchip in February 2020 and the other from HP Enterprise (HPE) in April. Sonraí has since farmed out some of its patents to still another Irish NPE, Arigna Technology Limited, leaving both in a position to launch new litigation.

Meanwhile, a familiar name among publicly traded NPEs—ParkerVision, Inc.—has further expanded its long-running, third-party funded Wi-Fi campaign with a new suit against Hisense. In February 2016, ParkerVision reported receiving $10M from litigation funder Brickell Key, and SEC filings indicate that the NPE has since received additional backing from the firm, including funds earmarked for ParkerVision’s enforcement campaign in Germany. As recently reported by RPX, public records also confirm that ParkerVision has received at least $200K from the US government’s Paycheck Protection Program, a financial assistance program meant to aid small businesses in the wake of COVID-19.

Intellectual Ventures Files New Litigation, While Other NPEs Assert Divested Patents

In April 2017, Intellectual Ventures LLC (IV) announced that it would wind down its last remaining fund and focus instead on monetizing existing assets. IV has since dramatically reduced its own litigation efforts following years of mixed results, although 2020 has seen the NPE file several new patent cases.

After filing just one district court case in 2019, IV has brought a trio of new lawsuits in 2020, starting with a March case against Dell (VMware) over various products related to virtualization and cloud computing. IV then filed two additional cases in the third quarter: one against HP, targeting printing technology; and the other against Arista Networks, focusing on networking products and services.