Patent Risk Digest

July 2018

A monthly update on market activity, legal developments, and policy related to patent litigation
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Q2 Patent Market Update

The patent ecosystem continued to shift back in favor of patent owners in the second quarter of 2018, as recent court decisions suggest a possible leveling of the playing field.

For instance, on June 22, the US Supreme Court issued its decision in WesternGeco v. ION Geophysical, holding that a plaintiff can recover damages for lost profits when a defendant supplies certain components made in the US to be assembled into an allegedly infringing product abroad. Given the wide range of products that are manufactured in other countries using US-made components, the decision could pave the way for much higher damages. The likely impact for software and E-commerce remains to be seen, as prior case law deals mostly with physical components.

RPX data shows that plaintiffs have historically alleged infringement under the relevant statute only about 5% of the time since January 2017, but that is likely to change. Beyond higher damages, another potential impact is that parties will spend more time in litigation to determine whether the defendant was the true cause of a plaintiff’s foreign lost profits.

Meanwhile, the impact of two cases decided by the Federal Circuit in the first quarter became clearer. The Federal Circuit’s February decisions in Berkheimer v. HP and Aatrix Software v. Green Shades Software elevated the role that facts play in subject matter eligibility analysis, making it possible that decisions on validity cannot be made before trial, meaning that certain patent cases will become longer and more expensive. Specifically, in these cases, the court overturned invalidations on Alice grounds of a variety of patents stating that the dismissals in the cases had been made too early, given that the plaintiffs had shown just enough evidence that could support the validity of their patents.

While the rulings have been applied somewhat conservatively in the second quarter, RPX has observed NPEs adapting their pleadings in response to the Federal Circuit’s decisions, with some beginning to fill their complaints with extensive citations in an attempt to preemptively establish the patents’ inventiveness.

NPE Scores Big Settlements from Cybersecurity Companies

Finjan Holdings, Inc. has taken several cases to trial since beginning its litigation campaign in 2006, but in the past two years the non-practicing entity (NPE) has seen most of its cases end in settlements. Finjan ended the second quarter of 2018 with just such a settlement. Under the agreement, a leading enterprise data and cybersecurity company will obtain a license to Finjan’s cybersecurity patent portfolio for $13.5M. The company has also agreed to transfer “select security-related patent assets” to Finjan.

This appears to be the third large deal closed by Finjan this year. Earlier in Q2, another cybersecurity company announced that it had entered into a patent license and settlement agreement with Finjan for $3.9M. In late February, Finjan signed a deal with one of the market’s largest players for up to $110M.

Finjan has multiple open cases in the US, and, in November, a German validity action is expected to be heard in two cases in that jurisdiction. Finjan has indicated to investors that many more deals are in the works. In an April 5 earnings call, CEO Phil Hartstein reported that Finjan had licensed its portfolio to more than 20 companies to date, generating over $350M in licensing fees. At the time, Hartstein estimated that Finjan is roughly 35% complete with regard to its licensing opportunities, adding that the company had at least 20 additional companies in its current licensing pipeline.

Network of Affiliated Plaintiffs Assert IV Patents

FireNet Technologies, LLC is expanding its patent litigation campaign. The NPE has filed two complaints in as many months that assert four patents, generally related to network security. FireNet recently received these assets from Intellectual Ventures LLC (IV). The latest defendant is accused of infringing the patents in its networking products and services with firewall security.

FireNet, created in Georgia in March 2018, appears to be an affiliate of IP Investments Group LLC, a monetization firm controlled by Michael W. McLaughlin. It received the patents-in-suit in an April 2018 assignment from IQ Holdings, LLC, another McLaughlin affiliate that is often used to acquire patents to pass along to litigating entities. Other patents following this pipeline from IV through IQ Holdings to IPinvestments Group plaintiffs have been asserted in separate campaigns begun by SynchView Technologies, LLC and Accelerated Memory Tech, LLC. Another affiliate, Visible Connections, LLC, appears poised to litigate patents transferred from IV to IQ Holdings. In the past year, other NPEs—unaffiliated with IPinvestments Group—including Monument Patent Holdings, LLC (the litigation arm of Dominion Harbor Enterprises LLC) and IP Valuation Partners LLC—have also asserted patents passed from IV to IQ Holdings.