Facebook Beware: Tech Patent Giant Selling to Would-Be Liti…

By Malathi Nayak (Bloomberg Law)

Big patent holding company Intellectual Ventures is selling part of its patent trove following some litigation setbacks and patent law changes. The move has put corporations such as Facebook Inc. and AT&T Inc. into new legal crosshairs.

IV, founded in 2000 by former Microsoft Corp. Chief Technology Officer Nathan Myhrvold to buy patents and offer licenses to companies seeking patent protection, has turned to selling its patents to smaller companies with more of an appetite to sue.

The array of smaller, litigation-prone plaintiffs leaves potential defendants with a tough choice: strike a licensing deal with Intellectual Ventures or risk that it sells the patent to a new, lesser-known holding company that’s ready to go to court.

It can be a costly and time-consuming gamble. Negotiating licensing deals and grappling with lawsuits by plaintiffs demanding royalties can snarl a company’s product development, sales, and business plans. Lawsuits can drag on in different jurisdictions for years, with a company’s legal counsel having to battle with opposing lawyers in far-flung cities, away from corporate offices.

“IV is really good at unloading patents to NPEs, and that process appears to be accelerating,” Kent Richardson, a partner at the Richardson Oliver Law Group in Los Altos, Calif., told Bloomberg Law, referring to the plaintiffs known as non-practicing entities. “If you represent an operating company, you have to figure out whether to get a deal with Intellectual Ventures now, or a deal with all the resulting NPEs.”

A dozen plaintiffs, also known as patent assertion entities, have filed 114 patent infringement lawsuits over 65 patents purchased from Intellectual Ventures since 2016, Richardson Oliver data show. The lawsuit surge may grow, Richardson said. Intellectual Ventures, known as IV, sold nearly 3,300 patents from January 2016 to May 1, 2018, and smaller assertion entities bought 96 percent of them, the group’s data show.

The selloff comes as the company has hit the brakes on filing infringement lawsuits amid courtroom setbacks.

Intellectual Ventures will continue leveraging its patent portfolio to license, litigate, divest patents and strike partnerships, Mathen Ganesan, executive vice president of Intellectual Ventures’ Invention Investment Funds, said in an email.

“When it makes sense, we divest assets to drive incremental value for our investors or to provide reach into markets beyond our current focus,” Ganesan said.

Financial Strategy

Myrhvold founded Intellectual Ventures in 2000, aiming to scoop up patents from inventors and companies, including Eastman Kodak Co., American Express Co., and Panasonic Corp. The company gave patent owners a share of the royalties it received in addition to licenses to businesses looking for patent protection.

Technology companies funded the company to access its patent warehouse so they could license or buy patents when they wanted to countersue rivals who accused them of infringement. Alphabet Inc.’s Google, Apple Inc., Microsoft, Intel, and EBay Inc. and other Silicon Valley companies were on board the first time Intellectual Ventures came around to raise money, which eventually totaled almost $6 billion.

Some dropped out in further investment rounds amid concern over whether Intellectual Ventures was extracting exorbitant royalties and resorting to litigation, draining their innovation dollars. Intellectual Ventures and Mryhvold argue that the company’s goal is to help inventors get their fair share of patent royalties when other companies infringe patented technologies without shelling out licensing fees.

The company at one point amassed over 70,000 patents from inventors, universities and others. It struck some big licensing deals—including a $350 million transaction with Verizon Communications Inc. in 2008—and sued scores of companies that rebuffed its demands.

But Intellectual Ventures has pulled back on litigation recently. It filed 17 lawsuits in 2017, down from a peak of 39 in 2013, and hasn’t filed any lawsuits in 2018 in district court as of Sept. 25, Bloomberg Law data show.

Its track record in court has been mixed. The U.S. Court of Appeals for the Federal Circuit in March invalidated an Intellectual Ventures patent related to mirroring data across servers. Symantec and Veritas Technologies LLC, which were sued by Intellectual Ventures for infringement in 2013, won a ruling that the technology was unpatentable because it involved an abstract idea.

In July, FedEx Corp. succeeded in killing an Intellectual Ventures database system patent in a patent office challenge after Intellectual Ventures sued it for infringement in the U.S. District Court for the Eastern District of Texas.

Besides Intellectual Ventures’ own setbacks, patent case law has been evolving in a way that makes it harder for some patent holders to win infringement lawsuits.

“What you’ve seen with IV is that a lot of lawsuits were launched before the recent 101 case law came out,” Charlene Morrow, a Mountain View, Calif.-based partner and patent litigator at Fenwick & West LLP, said.

Morrow was referring to decisions such as a U.S. Supreme Court ruling in 2014 that patents covering abstract ideas and non-inventive concepts are unpatentable. The verdicts handed defendants a tool to persuade courts to nix some patents asserted in infringement lawsuits.

Many of the patents that IV has sold will expire in less than two years, Richardson said. “When it might take you six to 24 months to get a patent license deal done, unfortunately, your best option for patents that are about to expire is often to move them to someone that can litigate them now,” he said.

‘Mini-Mes’ Multiply

Facebook has asked the U.S. District Court for the District of Delaware to dismiss a lawsuit by Hyper Search LLC, which claims Facebook’s page-creation and search features infringe a patent it bought from Intellectual Ventures. Facebook declined to comment.

Electronic Receipts Delivery Systems LLC sued retailers Macy’s Inc. in March and Target Corp. in September last year accusing the retailers of infringing its patent that creates electronic receipts for online shopping that it bought from Intellectual Ventures. The lawsuit against Macy’s is ongoing, while Target settled a month after it was sued.

Location Based Services launched an infringement case against Niantic Inc., which created the popular geo-location based game Pokemon GO, and AT&T Inc. and Garmin Ltd., whose products include GPS navigation devices. Location Based Services had alleged the companies infringed several patents on map display technology that it bought from Intellectual Ventures.

AT&T and Garmin settled their separate cases, court filings show. Niantic won a favorable ruling in district court, which is being appealed.

“There are all these ‘mini-mes’ being created by IV,” Shawn Ambwani, co-founder of Unified Patents Inc., said. Tech companies fund Unified Patents, which files administrative validity challenges at the U.S. Patent and Trademark Office to kill patents that are at the heart of infringement disputes.

The rash of new lawsuits has changed the legal equation for companies that now have to guard against being sued by small patent assertion entities if they don’t have a licensing deal with Intellectual Ventures. Ganesan said it’s up to companies to decide whether to license from Intellectual Ventures or litigate against entities that buy its patents.

“Our business model has created efficiency around the licensing of patents, by aggregating assets from a range of sources and creating a one-stop-shop to reduce IP risk for all kinds of businesses,” he said. “We believe this efficiency holds true.”

–With assistance from Ashlee Vance (Bloomberg)

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