Patent Risk Digest

September 2017

A monthly update on market activity, legal developments, and policy related to patent litigation
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While the Rules Are Changing, the Game Plays On

The third quarter of 2017 has seen both litigants and courts grapple with a variety of legal uncertainties introduced by TC Heartland—the Supreme Court’s May 22 ruling that limits venue options in patent litigation. For example, Judge Rodney Gilstrap in the Eastern District of Texas—the most active patent judge in America by number of cases, in the most popular venue in which to bring patent lawsuits—has developed his own test for determining whether a defendant has a “regular and established place of business” in his district (and thus can be sued in what is largely considered to be the country’s most plaintiff-friendly patent court). And yet patent litigation carries on, with new campaigns cropping up every month. September’s Patent Risk Digest provides an overview of Judge Gilstrap’s four-factor venue test and also looks at three steadily growing litigation campaigns that are hitting a broad scope of businesses over Quick Response (QR) Codes and website login technology.

Nearly 50 Lawsuits Filed in the Past Six Months Targeting QR Codes

In the past six months alone, two patent plaintiffs have collectively filed nearly 50 lawsuits accusing companies of infringing patents through Quick Response (QR) Codes used with their products and services. Kaldren LLC has sued more than 30 companies to date, including both large and small manufacturers (General Mills, Procter & Gamble, Medline, Trippe Manufacturing, Wasau Paper, Western States Envelope Company), banks (American Express, Citigroup, SunTrust), insurance providers (Allstate, CIGNA), and social networking companies (Kik, Snap). Most of Kaldren’s cases are active as of the publication of this report, with several having been transferred out of their original venues and into new districts after TC Heartland came down. Kaldren is an affiliate of IP Edge LLC, last year’s most frequent plaintiff in patent litigation. In 2016, IP Edge affiliates filed over 400 patent cases, targeting a vast range of companies, products, and services.

Coding Technologies, LLC began its own QR Code campaign in late August with 16 suits against companies encompassing multiple industries: American Airlines, Apache Corporation, Ben E. Keith Company, BNSF Railway Company, Cabot Oil & Gas, Dickey’s Barbecue Restaurants, Halliburton, Huntsman Corporation, Keller Williams Realty, and Mary Kay. Coding Technologies is controlled by the prolific inventor and litigator Leigh M. Rothschild, whose affiliates have brought hundreds of patent lawsuits in the past three years against companies operating in diverse sectors.

Campaign Focusing on Website Login Technology Approaches 50 Defendants

The number of defendants in Venadium LLC’s litigation campaign swelled close to 50 in August, with new lawsuits filed against 8X8, Ameriprise Financial, Arista Networks, Bandwidth.com, Control4, and Digi International. The asserted patent was developed by (and acquired from) Xerox, and infringement allegations focusing on the cryptographic protocols during the login process for the defendants’ websites.

Venadium, which is an affiliate of patent monetization firm IP Edge LLC, launched this campaign in 2015 and has since sued over 45 companies, of many different types, including the following:

  • Consumer electronics makers (Acer, AliphCom, Apple, HTC)
  • Insurance companies (Allstate, State Farm)
  • Financial service providers (Ally, Ameriprise, E*Trade)
  • Travel and hospitality websites (Expedia, Priceline)
  • Others (AT&T, Best Buy, Groupon, New Avon, Paylocity, Redfin, Spotify)

 

Venadium’s campaign has been conducted in a file-and-settle fashion, with most cases lasting mere months, if not weeks. Court filings indicate that two of the dismissals entered in August, of cases against W.W. Grainger and Wine.com, followed settlements.

Texas Judge Establishes His Own Patent Venue Test Post-TC Heartland

Conflicting interpretations of TC Heartland are of particular interest to patent litigators, which historically prefer to bring lawsuits in the Eastern District of Texas—the venue perceived to be the most plaintiff-friendly for patent cases. The Supreme Court’s May 22 decision in TC Heartland returned a narrower interpretation of a key part of the law governing venue for patents suits, which allows a corporation to be sued where it “resides”. While before, the term “resides” was broadly interpreted, allowing lawsuits to be brought in virtually any district for many defendants, under TC Heartland, a corporation now “resides”—and can thus be sued for infringement—where it is incorporated. Additionally, suits can also be brought where a defendant has “committed acts of infringement” and has a “regular and established place of business”.

In late June, in a case filed by Raytheon against Cray in the Eastern District of Texas, District Judge Rodney Gilstrap (the nation’s most active patent judge by number of cases) weighed in on the issue of how to determine whether a defendant has a “regular and established place of business” in a judicial district.

Defendant Cray had moved for a dismissal of the case against it, citing improper venue, which Judge Gilstrap denied in April. Judge Gilstrap also rejected the company’s efforts to transfer the case out of the Eastern District post-TC Heartland, laying out a four-part test for establishing whether a defendant has a “regular and established place of business” in his district.

The four factors that he has enunciated are (1) the extent to which a defendant has a physical presence in the district, including but not limited to property, inventory, infrastructure, or people (physical presence); (2) the extent to which a defendant represents, internally or externally, that it has a presence in the district (defendant representations); (3) the extent to which a defendant derives benefits from its presence in the district, including but not limited to sales revenue (benefits received); and (4) the extent to which a defendant interacts in a targeted way with existing or potential customers, consumers, users, or entities within a district, including but not limited to through localized customer support, ongoing contractual relationships, or targeted marketing efforts (targeted interactions with the district).

Under this test, a single sales employee, working out of his home in Athens, Texas between 2012 and 2016, and who marketed the accused products to customers outside of the Eastern District of Texas, was sufficient to establish venue in that district.

Cray has appealed Judge Gilstrap’s ruling, arguing that the judge’s test is too liberal, allowing too many companies with a slight connection to Texas to be sued there. As of the publication date of this report, the Federal Circuit Court of Appeals has not yet decided whether it will take up the case; US Representative Darrell Issa (R-CA), The High Tech Inventors Alliance, and Gilead have filed amicus briefs in support of Cray’s appeal.