Q3 in Review: PTAB Rulemaking Push Continues as US Weighs More Active SEP Approach

NPE litigation was down by 34% in Q1-Q3 2023, a dip once again caused by two significant changes last year: a pause in new complaints from former top filer IP Edge LLC, and a judge assignment order that has made the Western District of Texas less tempting for some NPEs. Yet while West Texas has remained less popular as a result of those new rules, IP Edge has recently put a cautious toe back into the litigation waters—launching its first new case since November 2022.

Additionally, the Patent Trial and Appeal Board (PTAB) remains in a state of flux, as the USPTO weighs which changes to keep from a sweeping but nonfinal rulemaking proposal that could reshape the America Invents Act (AIA) review system in fundamental ways—including the potential addition of a standing requirement for inter partes reviews (IPRs). The Biden administration, meanwhile, is signaling a potential return to a more active approach on issues related to fair, reasonable, and nondiscriminatory (FRAND) disputes in response to a widely criticized EU proposal for a centralized SEP licensing regime.

Finally, BlackBerry’s divestment of substantially all of its non-core patent assets may be in the rearview, but the transaction continued to spark new litigation during Q3. On the litigation finance front, Burford Capital escaped sanctions in Taction Technology, Inc.’s suit against Apple, but its client might be on the hook for attorney fees and expert fees now that Apple has been granted summary judgment of noninfringement. Also related to litigation finance, RPX has flagged noteworthy developments involving Arizona’s Alternative Business Structure program, under which nonlawyers can own and operate law firms in that state.

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In the third quarter of 2023, NPEs added 382 defendants, down 32% from the same quarter this past year (when NPEs added 558 defendants). This also marked a 31% dip from the trailing third-quarter average for 2020-2022 and a 12% drop from Q2 2023. Meanwhile, operating companies added 279 defendants in Q3 2023, up by 8% from the year-ago quarter, up by 7% compared to the trailing average, and up by 17% compared to the preceding quarter.

The decline in NPE filings during Q1-Q3 is largely the result of two primary developments last year. The most impactful has been a prolonged pause in litigation by patent monetization firm IP Edge LLC. While IP Edge, through plaintiffs under its apparent control, had long been the most prolific filer of patent cases by a wide margin, it stopped bringing new litigation in December 2022, likely due to pressure that it has faced from disclosure rules in the courtroom of Delaware Chief Judge Colm F. Connolly (as detailed further below). The sheer volume of IP Edge’s prior litigation meant that its subsequent pause caused a significant slide in the overall NPE numbers: Though it added roughly 50 defendants per month before it hit the brakes, for a total of 455 defendants in Q1-Q3 2022, nearly zero were added during that same period this year. That difference alone accounts for more than three fourths (76.5%) of the drop in NPE litigation so far this year. Excluding IP Edge from both periods, NPE litigation was down by just 10.9% compared to Q1-Q3 2022.

That said, early signs point to an IP Edge revival, as the firm ended its litigation pause on September 13 by filing its first new case since November 2022, targeting Roku over products compliant with H.265/HEVC video compression standards and HDR10+ technology in a complaint filed by new plaintiff Communication Advances LLC. Certain aspects of this new campaign suggest that IP Edge is doubling down on a more recently introduced business formation and litigation strategy. Prior IP Edge campaigns largely tended to be brought by plaintiffs controlled by a series of individual “passive investors” not otherwise connected to patent monetization (a strategy flagged as potentially fraudulent in Delaware, as detailed further below), would assert patents first acquired by an intermediate entity also linked to IP Edge (rather than plaintiffs obtaining patents directly), and would largely bring short-lived file-and-settle cases. In contrast, there are signs that the Communication Advances campaign may follow an “IP Edge 2.0” model pioneered by a smaller and more recently formed group of IP Edge plaintiffs that have shown a greater willingness to litigate on substance—at least one of which has also indicated that it has received litigation funding. Like those other recent IP Edge entities, Communication Advances was formed directly by the principals of IP Edge—Texas attorneys Lillian Woung, Gautham (Gau) Bodepudi, and Sanjay Pant—and acquired its patents directly from the source. More details on those “2.0” entities, and this potential IP Edge revival, can be found on RPX Insight.

The second development impacting NPE litigation this year was a downturn in NPE filings within the Western District of Texas, where a July 2022 order from the district’s chief judge targeted the concentration of litigation before Waco District Judge Alan D. Albright. Plaintiffs previously took advantage of filing rules allowing complaints to be filed in a specific division, thus guaranteeing they could get Judge Albright—who has demonstrated a restrictive approach to transfer motions, PTAB stays, and Alice motions­—by filing in Waco (where he is the only district judge). Yet the July order created an exception, ordering that Waco’s patent cases be randomly distributed among a group now comprised of 11 judges, including Judge Albright. While the district has since developed a practice of assigning new cases in existing campaigns (those with the same parties and patents) to the judge who oversaw prior litigation, meaning that Judge Albright has received the bulk of new cases in those “legacy” campaigns, the assignment of complaints filed in entirely new campaigns has been far more random. By eliminating the guarantee that cases would end up before Judge Albright, it appears that the July order has undercut the district’s overall appeal for NPEs: Such plaintiffs added 282 defendants in Waco from Q1-Q3 2023, compared to 544 during that same period last year.

Added together, the reductions from IP Edge and in Waco—633 defendants in total, adjusting for the overlap in IP Edge and Waco cases—accounted for 100% of the decline in NPE activity in Q1-Q3 2023 and then some. The net decrease was 594 defendants, a partial offset caused by other plaintiffs shifting from West Texas to other districts in smaller numbers.

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 Q3 2023 accounted for 1,639 defendants added, or 71% of all litigation during the quarter (though note that this number is subject to the caveat about defendants with multiple online storefronts outlined above).

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

Delaware’s fall in the rankings is likely the result of a battle over the stringent disclosure rules that Chief Judge Colm F. Connolly imposed in his courtroom in April 2022. Since this past winter, several entities affiliated with Texas monetization firm IP Edge LLC have been embroiled in a heated back-and-forth with Judge Connolly over their initial failure to make sufficient disclosures under those new rules, leading him to order them to produce reams of information about their ownership and legal representation. Those orders were prompted by Judge Connolly’s concerns over IP Edge’s historical business model: as noted above, it has frequently hired individuals with no prior connection to patent monetization as the owners/managers of its litigating LLCs in exchange for the promise of passive income from its litigation proceeds. That practice, per Judge Connolly, raised concerns that by assigning patents to those LLCs without disclosing connections to IP Edge and a related firm, MAVEXAR LLC, those two entities had perpetrated a fraud on the USPTO and/or the district court. As those inquiries ramped up late last year, IP Edge’s Delaware filings fell by the end of Q3 2022, with the firm bringing no new cases in the district after the end of September (pausing its filings altogether by the close of November). As IP Edge accounted for the bulk of Delaware’s NPE activity, the district’s numbers tumbled as a result, and they have not rebounded since.

Though most of the aforementioned IP Edge-linked plaintiffs have since provided the materials ordered by Judge Connolly after a lengthy battle, two remained locked in conflict with him as of the end of the third quarter. One was Backertop Licensing LLC, which attracted the court’s scrutiny after both of its attorneys tried to withdraw from representation, citing an apparent breakdown in the relationship with their client. Judge Connolly then ordered its sole owner, Texas paralegal Lori LaPray, to appear in person to answer questions about the unusual situation, but she refused to do so multiple times in a contentious, drawn-out fight—ultimately leading the court to impose a $200-per-day fine for contempt after she failed to appear at an August 1 hearing. On October 3, Judge Connolly refused to stay the fines against Ms. LaPray, holding that she was unlikely to succeed in her pending appeal and that to conclude otherwise would undermine the court’s authority. He further noted that in any event, simply complying with the court’s order would eliminate the fines altogether and observed that neither Ms. LaPray nor Backertop had provided any evidence of her alleged financial hardship. Also failing to appear was Jacob LaPray, the owner of the other aforementioned IP Edge NPE, Creekview IP LLC, whose failure to appear at that same hearing has not yet led to a contempt order.

Meanwhile, Eastern District of Texas Judge Rodney Gilstrap remained the nation’s top district judge in Q3, with 12% of all new patent litigation falling in his courtroom. Once again, Western District of Texas Judge Alan D. Albright held a distant second place at 7%, his patent caseload slimmed down as a result of those judge assignment rule changes in Waco.

As Judge Albright’s caseload has shifted, so has his dynamic with the Federal Circuit over a familiar issue: motions to transfer for convenience. Starting in 2020, the appellate court began to repeatedly reverse him on that issue, in each instance identifying a series of recurring legal errors, in response to mandamus petitions from parties with transfer motions that he had either denied outright or ignored while moving on to other substantive matters. However, after reversing Judge Albright 18 times in 2021 alone, that wave of reversals became a trickle as he adjusted his analyses to account for the Federal Circuit’s rulings on both his application of the substantive convenience transfer factors and on the issue of timing—overturning him on mandamus just six times in all of 2022.

The Federal Circuit has done so only twice in 2023: most notably, in its precedential February In re: Google ruling, which took an even more limiting view of a district judge’s discretion than before (deferring to Judge Albright’s factfinding on issues like time to trial, but not necessarily his conclusions of law) and held that NPEs lack an interest in getting cases to trial quickly. The second reversal, issued in June, largely just applied that same rationale to a pre-Google transfer denial. In the meantime, Judge Albright has further shifted his approach in response to the Google decision, albeit begrudgingly—while the Federal Circuit issued no mandamus reversals against him whatsoever in Q3.

Defendants in his courtroom have also recently hit a mandamus wall on two other types of issue. The first was improper venue: In late September, the Federal Circuit declined to disturb Judge Albright’s ruling that a plaintiff can establish venue based on an in-district property not leased until after the case was filed, facts that were not pleaded until an amended complaint. The decision appeared to stretch a prior Federal Circuit opinion that concerned an amended complaint grounding venue in newly pleaded facts, but where those facts predated the original complaint. The second issue was alternative means of service on foreign defendants, an issue on which Judge Albright has lately shown significant flexibility—recently allowing service against a Taiwanese company’s limited-purpose outside counsel.

A wide variety of plaintiffs hit this sector throughout the third quarter, including several linked to patent monetization firms. Among them was SitNet LLC, an entity formed by the principal of CAsE Analysis, which in late July launched its first campaign over social networking technologies—including crisis communications services, targeted advertisement services, and underlying software architecture for such advertising—with the backing of a well-known litigation funder. Additionally, two plaintiffs controlled by Equitable IP Corporation added cases to existing campaigns in Q3: Scale Video Coding LLC filed a new complaint in early September targeting teleconference products that support the H.264 video codec and related scalable video coding (SVC) technology, while Communication Interface Technologies, LLC brought a host of new cases in August against companies offering push notification features in their respective mobile apps. Other monetization firms hitting this sector in Q3 were Ortiz & Lopez, PLLC (d/b/a OL PATENTS), which through associated plaintiff FlickIntelligence, LLC filed a new trio of complaints in its ongoing augmented reality campaign in early September; and the once-prolific Empire IP LLC, which through Nearby Systems LLC added a pair of suits to its ongoing location-based mapping campaign in late August.

Also joining the fray were a variety of plaintiffs associated with notable individuals active in the patent assertion space. One was OptiMorphix, Inc., which in late September kicked off a campaign asserting former Citrix patents against products related to cloud infrastructure and web search. The plaintiff is controlled by an individual linked to multiple other litigating NPEs, including DIFF Scale Operation Research, LLC; Dynamic Data Technologies, LLC; Castlemorton Wireless, LLC; and, most recently, NexGen Control Systems LLC. Two other NPEs starting their first campaigns were Accessify, LLC and ThinkLogix, LLC, both of which are controlled by an entity formed by two former Intellectual Ventures LLC (IV) alums. The two plaintiffs have asserted patents from a larger portfolio divested by IV in February 2023; Accessify’s litigation alleges infringement through the provision of technology related to purchasing and accessing digital content on a website, while ThinkLogix has focused on a wide array of products, ranging from multicamera systems to smart home solutions. Also hitting this sector in the third quarter were multiple NPEs apparently associated with another familiar figure in patent monetization—a former inventor who in recent years has shifted to the assertion of patents acquired from others. Those plaintiffs include GeoSymm Ventures LLC, which filed its first litigation over augmented reality (AR) technology in mid-July; Scancomm LLC, which filed two more complaints targeting social networking apps in late August; Attestwave LLC, which filed litigation over products with trusted software validation and execution features in late July; and RecepTrexx LLC, which added another lawsuit to its ongoing voice assistant campaign in mid-July.

Still other NPEs zeroing in on E-Commerce and Software products in Q3 were a variety of inventor-controlled plaintiffs—including Anonymous Media Research Holdings LLC, which brought its first litigation in August over “automatic content recognition” technology for use in targeted advertising. Also launching a new campaign was RavenWhite Licensing LLC; its litigation over web tracking technologies (e.g., beacons, cookies, and pixels) and online advertising systems marked the fifth campaign to assert patents by the same inventor, following Security Technology LLC; Crypto Research, LLC; ZapFraud, Inc.; RightQuestion LLC; and Carbyne Biometrics, LLC, in that order, starting in 2013. Another inventor-controlled NPE, Gatekeeper Solutions, Inc., initiated an electronic communications campaign in late July, its complaint filed by an attorney linked to numerous file-and-settle NPEs who has recently been hit with a sanctions motion for repeated failures to correct pleading deficiencies, among other controversies. Several other inventor-led plaintiffs also filed additional litigation in existing campaigns, including ENOVSYS LLC, which revived its sole campaign with a suit targeting location-tracking services used for ride-sharing services in early September; and Virtual Creative Artists, LLC, which filed new complaints in its social media campaign in late July and mid-September. In addition, September saw a second suit from individual inventor Sholem Weisner, who asserts three location history patents related to another four that were invalidated under Alice in his first case—two of which were later revived by the Federal Circuit.

The PTAB instituted trial for 65% of the AIA review petitions addressed in Q3, down from that same quarter last year (during which the institution rate was 71%) and from the prior quarter this year (68%). The institution rate for Q1-Q3 2023 was 66%, down slightly from that same period last year (68%).

The PTAB’s institution practices have been top-of-mind for many stakeholders over the past few years—in particular, its use of discretionary denials under the NHK-Fintiv rule, which in part allows the Board to deny institution based on the status of a parallel district court proceeding. The ongoing debate over NHK-Fintiv became even more heated in April, when the USPTO released an Advance Notice of Proposed Rulemaking (ANPRM) that detailed a potentially sweeping revamp of PTAB proceedings that would, in part, codify certain aspects of the rule and exempt petitions from discretionary denials if they meet a new “compelling merits” standard. Another proposed rule would essentially impose a standing requirement, limiting what types of entities may and may not file PTAB petitions based on an expanded view of corporate relationships and certain exceptions concerning business models.

USPTO Director Kathi Vidal has since clarified in public comments that the agency designed the ANPRM as more of a kitchen-sink approach to soliciting feedback than a final package. In late July, Vidal confirmed in testimony to the Senate IP Subcommittee that the USPTO would only move forward on some of the proposals in the ANPRM in response to stakeholder comments, and that the ANPRM was overinclusive by design, encompassing outside proposals not necessarily favored by the Patent Office: “Instead of the USPTO making a decision without data, we decided to float all of those in the [notice] so that we could receive data from stakeholders and determine what to move forward on”. Moreover, Vidal floated the possibility that the USPTO would release two rulemaking notices to vet the final rules with the public, “one more procedurally focused and one more substantively focused”.

Vidal has not conclusively stated which substantive proposals will make the cut, but she expressed some openness to a standing requirement for the PTAB at that July hearing. In particular, Vidal remarked that such a requirement could serve to prevent parties from “trying to monetize and otherwise use the PTAB for personal gain as opposed to its original intent”—ostensibly, a reference to the debacle over third-party gamesmanship that culminated earlier this year.

Reexam Filings Continue to Dip in the Wake of the USPTO’s June 2022 NHK-Fintiv Guidance

A recurring criticism of the NHK-Fintiv rule has been that it introduces undue uncertainty by conditioning AIA review institution on factors outside of a petitioner’s control. A notable early result 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.

However, discretionary denials began to fall in 2021, according to a USPTO study, and RPX data indicate that they have since remained lower in the wake of a June 2022 guidance designed to address criticisms of the NHK-Fintiv rule—including some changes that were later folded into the April ANPRM. As those changes began to reduce the impact of NHK-Fintiv, this in turn appears to have caused a corresponding decline in reexam filings. After one last spike in the second quarter of 2022, reexam requests dipped in Q3 (the first full quarter after Vidal’s late-Q2 guidance) and flattened out in Q4. Reexams then dropped even further in Q1 2023 and subsequently plateaued in Q2 and Q3. Year-to-date reexam filings are now 17% lower compared to Q1-Q3 2022. Moreover, the share of patents at issue in those reexam requests that have also been challenged at the PTAB continues to fall, falling from 33% in 2022 to 24% so far this year. That said, the number of patents that have been hit with reexam requests and also litigated in district court remains relatively steady at 61% so far this year (compared to 59% last year).