Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 1 of 21
`
`JENKS IP LAW PLLC
`William Jenks (SBN 212,609)
`1629 K St NW, Suite 300
`Washington DC 20016
`Telephone: (202) 412-7964
`
`
`Attorney for Amici Curiae
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`INTEL CORPORATION and APPLE INC.,
`Plaintiffs,
`
`v.
`
`FORTRESS INVESTMENT GROUP LLC,
`FORTRESS CREDIT CO. LLC,
`UNILOC 2017 LLC,
`UNILOC USA, INC.,
`UNILOC LUXEMBOURG S.A.R.L.,
`VLSI TECHNOLOGY LLC,
`INVT SPE LLC,
`INVENTERGY GLOBAL, INC.,
`DSS TECHNOLOGY MANAGEMENT,
`INC., IXI IP, LLC, and
`SEVEN NETWORKS, LLC
`Defendants.
`
`Case No. 3:19-cv-07651-EMC
`
`AMICUS CURIAE BRIEF OF
`UNIFIED PATENTS, LLC,
`CABLELABS,
`PATREON, AND
`BITMOVIN, INC.
`IN SUPPORT OF PLAINTIFFS’
`OPPOSITION TO DEFENDANTS’
`MOTION TO DISMISS
`
`
`Hon. Edward M. Chen
`
`
`
`
`
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`Northern District of California
`United States District Court
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 2 of 21
`
`
`
`Table of Contents
`
`I. Interests of Amici Curiae ............................................................................................................... 1
`II. PAEs Tax Innovation and Harm Competition .............................................................................. 2
`A. PAE Litigation Is Ensconced in the Patent System ............................................................... 3
`B. The PAE Business Model ...................................................................................................... 4
`C. The New PAE Business Model: Mass Aggregation .............................................................. 6
`D. Litigation Financing and Hidden Funding Sources Drive Mass Aggregation ...................... 8
`III. Anticompetitive Patent Acquisition Schemes That Include Assertion of Intellectual
`Property Are Subject to Antitrust Scrutiny ......................................................................... 12
`IV. Defendants Have Combined the Mass Aggregation of Patents with Serial Enforcement
`Campaigns to Harm Competition ........................................................................................ 14
`A. Defendants Are Unquestionably Mass Aggregators ........................................................... 14
`B. Defendants Have Asserted Patents in Nuisance Suits ......................................................... 15
`C. Defendants Have Asserted Patents in Serial Suits .............................................................. 15
`V. Conclusion .................................................................................................................................. 16
`
`
`
`
`
`ii
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 3 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`Table of Authorities
`
`Cases
`Alice Corp. Pty. v. CLS Bank Int’l, 573 U.S. 208 (2014) .............................................................. 7, 8
`
`Automatic Radio Mfg. Co. v. Hazeltine Research, 339 U.S. 827 (1950) ........................................ 13
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................ 14
`
`Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989) ........................................... 12
`
`ChargePoint, Inc. v. SemaConnect, Inc., 920 F.3d 759 (Fed. Cir. 2019), cert.
`denied, No. 19-521, 2020 WL 411896 (Jan. 27, 2020) ............................................................... 7
`
`City of Columbia v. Omni Outdoor Advert., Inc., 499 U.S. 365 (1991) .......................................... 13
`
`Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920 (2015) ......................................................... 4
`
`eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) ................................................................ 7
`
`Eon–Net LP v. Flagstar Bancorp, 653 F.3d 1314 (Fed. Cir. 2011) .............................................. 5, 6
`
`F.T.C. v. Actavis, Inc., 570 U.S. 136 (2013) ..................................................................................... 3
`
`Iris Connex, LLC v. Dell, Inc., Civ. No. 15-cv-01915 (E.D. Tex.) ................................................... 6
`
`Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124 (2006) .................................... 3
`
`Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917) ................................ 2
`
`Pope Mfg. Co. v. Gormully, 144 U.S. 224 (1892) ............................................................................. 3
`
`Primetime 24 Joint Venture v. Nat’ l Broad., Co., 219 F.3d 92 (2d Cir. 2000) .............................. 14
`
`Prof’l Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49 (1993) ............. 12, 13
`
`Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) .............................................. 2
`
`Unified Patents Inc. v. Uniloc 2017 LLC, IPR 2019-01126 (PTAB filed May 28, 2019) ................ 1
`
`Unified Patents, LLC. v. Uniloc USA, Inc. et al., IPR2018-00199 (PTAB May 31, 2019) .............. 1
`
`Uniloc USA, Inc. v. Apple Inc., 784 F. App’x 763 (Fed. Cir. 2019) ............................................... 14
`
`Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) ............................................. 7
`
`Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965) ....................... 12
`iii
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 4 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`
`Other Authorities
`Alan Devlin, Antitrust Limits on Targeted Patent Aggregation, 67 Fla. L. Rev. 775 (2016) ..... 8, 13
`
`Buford Capital, Patent & IP, available at https://www.burfordcapital.com/how-we-
`work/expertise/patent-ip ............................................................................................................ 10
`
`D. Dowd Muska, Dark Star: A Hedge Fund Transitions From Subprime Villain to Patent
`Troll, (Feb. 28, 2020), InsideSources.com ................................................................................ 10
`
`Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of
`Intellectual Property (2017) ........................................................................................................ 3
`
`Fed. Trade Comm’n, Patent Assertion Entity Activity: An FTC Study (Oct. 2016) (“2016
`FTC Study”) ............................................................................................................................ 5, 6
`
`Fed. Trade Comm’n, The Evolving IP Marketplace: Aligning Patent Notice And Remedies
`With Competition (2011) (“2011 FTC Report”) .......................................................................... 4
`
`Fortress Inv. Grp. LLC, Subsidiaries of the Registrant (Exhibit 21.1) available at
`https://www.sec.gov/Archives/edgar/data/1380393/000119312511051919/dex211.htm ......... 14
`
`H.R. Rep. No. 112-98, Pt. 1 (2011) ................................................................................................... 6
`
`Herbert Hovenkamp, Prophylactic Merger Policy, 70 Hastings L. J. 45 (2019) ............................ 12
`
`James Bessen and Michael J. Meurer, The Direct Costs from NPE Disputes, 99 Cornell L.
`Rev. 387 (2014) ........................................................................................................................... 3
`
`John R. Allison, Mark A. Lemley & David L. Schwartz, How Often Do Non-Practicing
`Entities Win Patent Suits?, 70 Berkeley 235 (2017) ................................................................... 5
`
`Jonathan Stroud, Miles to Go Before We Sleep, 41 Regulation 48 (Spring 2018) ............................ 8
`
`Jonathan Stroud, Pulling Back the Curtain on Complex Funding of Patent Assertion
`Entities, 12.2 Landslide 20 (Nov./Dec. 2019) (“Landslide”) ................................................ 1, 10
`
`Josh Kosman, Softbank unit launches $400M ‘patent troll’ fund, N.Y. Post (May 21, 2018) ........ 10
`
`Kim Eun-jin, Patent Infringement Suit Filed Against Samsung Electronics’ Galaxy Fold,
`Business Korea (Apr. 30, 2019) ................................................................................................ 15
`
`Letter From James Madison to Congress, April 11, 1816 ................................................................. 3
`
`Letter from Lisa A. Rickard, President, U.S. Chamber Institute for Legal Reform, to
`iv
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 5 of 21
`
`
`
`Rebecca A. Womeldorf, Sec’y, Committee on Rules and Prac. and Proc. of the Admin.
`Office of the U.S. Courts (Jun. 1, 2017) .................................................................................... 11
`
`Marathon Patent Group Inc., Annual Report (Form 10-K) (Mar. 31, 2014) .................................... 9
`
`Marathon Patent Group Inc., Annual Report (Form 10-K) (Apr. 16, 2018) ..................................... 9
`
`Marathon Patent Group Inc., Annual Report (Form 10-K) (Mar. 26, 2015) ..................................... 9
`
`Marathon Patent Group Inc., Annual Report (Form 10-K), (Mar. 25, 2019) .................................... 9
`
`Mark Paul, Dublin tech firm Data Scape sues Amazon and Dropbox, The Irish Times (Feb.
`15, 2019) .................................................................................................................................... 10
`
`N.Y.C. Bar, Report to the President by the N.Y.C. Bar Assoc. Working Group on Litigation
`Funding (Feb. 28, 2020) ............................................................................................................ 11
`
`Patent Security Agreement, U.S. Patent & Trademark Assignment records, Reel: 044839,
`Frames: 0568–0695 ..................................................................................................................... 9
`
`Richard Lloyd, Theranos back to the fore with Fortress assertion campaign against
`diagnostics business, IAM (Mar. 10, 2020) ................................................................................ 9
`
`Standing Order for all Judges of the Northern District of California, Contents of Joint Case
`Management Statement (Nov. 2018) ......................................................................................... 11
`
`Steve Brachman, Marathon Patent restructuring will put Fortress subsidiary in charge of
`patent monetization, IP Watchdog .............................................................................................. 9
`
`Timothy Au, US patent litigation on decline while PTAB breaks records and NPE
`settlement amounts fall, Lexology ............................................................................................... 8
`
`U.S. Congressional Research Service, An Overview of the “Patent Trolls” Debate (Apr.
`16, 2013) (“CRS Report”) ....................................................................................................... 4, 5
`
`Unified Patents, 2019 Litigation Annual Report ........................................................................... 1, 4
`
`Constitutional Provisions
`U.S. Constitution, Art. I, Section 8, clause 8 ........................................................................... 2, 3, 12
`
`
`
`
`
`v
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 6 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`I. Interests of Amici Curiae
`Unified Patents, LLC is a membership organization dedicated to deterring patent assertion
`entities, or PAEs, from extracting nuisance settlements from operating companies based on
`patents that are likely invalid before the district courts and unpatentable before the U.S. Patent
`and Trademark Office (“PTO”). Unified’s more than 250 members are Fortune 500 companies,
`start-ups, automakers, industry groups, cable companies, banks, manufacturers, and others
`dedicated to reducing the drain on the U.S. economy of now-routine baseless litigations asserting
`infringement of patents of dubious validity.
`Unified studies the ever-evolving business models, financial backings, and practices of
`PAEs. See, e.g., Jonathan Stroud, Pulling Back the Curtain on Complex Funding of Patent
`Assertion Entities, 12.2 Landslide 20 (Nov./Dec. 2019) (“Landslide”) available at
`https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2019-
`20/november-december/. Unified monitors ownership data, secondary-market patent sales,
`demand letters, post-grant procedures, and patent litigation to track PAE activity. See, e.g.,
`Unified Patents, 2019 Litigation Annual Report available at
`https://portal.unifiedpatents.com/litigation/annual-report.
`Unified also files post-grant petitions challenging PAE patents it believes are
`unpatentable or invalid. Thus, Unified is a deterrence entity that seeks to deter the assertion of
`poor-quality patents. Unified acts independent of its members, including Apple, or any other
`company. See, e.g., Unified Patents, LLC. v. Uniloc USA, Inc. et al., IPR2018-00199 Paper No.
`33, 10 (PTAB May 31, 2019) (Unified members not real parties in interest to inter partes reviews
`filed by Unified); id. (collecting PTAB decisions). In 2019, Unified was the fifth most frequent
`petitioner before the PTO’s Patent Trial and Appeal Board (“PTAB”), and it was by far the
`leading third-party filer. As part of this effort, Unified is and has been adverse to the Defendant
`Uniloc. See, e.g., Unified Patents Inc. v. Uniloc 2017 LLC, IPR 2019-01126 (PTAB May 28,
`2019). Unified has similarly been adverse to (1) Inventergy LBS, LLC, an entity apparently
`related to Defendant Inventergy Global, Inc., (2) entities controlled by Marathon, whose patents
`
`1
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss(3:19-cv-07651-EMC)
`
`Northern District of California
`United States District Court
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 7 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`are now controlled by Defendants, and (3) Divx LLC, a Fortress affiliate. Further, it may be fair
`to say that Unified has been adverse to Fortress, given its control of the Uniloc Defendants and
`other entities. See Cmplt. ¶¶ 51-56.
`CableLabs is a non-profit non-stock company qualified under the National Cooperative
`Research and Production Act. CableLabs has over 60 member companies worldwide, including
`members who represent approximately 85% of U.S. cable subscribers. The cable industry
`supports over 2.9 million jobs and contributes $421 billion to the U.S. economy.
`CableLabs’ members have faced numerous PAE suits. They understand PAE litigation,
`the evolving PAE business model, and the uncertainty caused by the opaque use of third-party
`funds to establish and invigorate PAE shell companies.
`Patreon is a membership platform that helps artists and creators get paid by their fans.
`Since being founded in 2013, Patreon has sent over $1 billion in payments to over 150,000
`creators. During that time, Patreon has been sued, or threatened with suit, by PAEs.
`Bitmovin, Inc. is a private, venture-backed company, which develops best in class video
`solutions that enable its customers to create memorable digital experiences. Over the past two
`years, Bitmovin has faced numerous low-quality PAE claims. In response, the company has
`adopted an aggressive strategy to defend against such meritless suits.
`Amici are concerned with the increasingly prominent role mass patent aggregators, and
`litigation funders like Fortress have taken in bolstering the PAE model and in driving the
`widespread assertion of low-quality patents under dubious infringement theories. Amici will
`detail the evolving business models, capitalization sources, and strategies of PAEs like
`Defendants and place those practices in the antitrust context.
`
`II. PAEs Tax Innovation and Harm Competition
`“[T]he primary purpose of our patent laws is not the creation of private fortunes for the
`owners of patents but is ‘to promote the progress of science and the useful arts[.]’” Quanta
`Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 626 (2008) (quoting Motion Picture Patents Co.
`v. Universal Film Mfg. Co., 243 U.S. 502, 511 (1917) (quoting U.S. Const., Art. I, § 8, cl. 8)).
`
`2
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 8 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`This bedrock principle is turned on its head by PAEs that purchase and assert patents
`while taking no part in creating the underlying invention or the development or production of
`new products. PAEs “deter innovation by raising costs without making a technological
`contribution.” 2011 FTC Report at 51. The collective cost of PAE litigation creates a significant
`“tax on innovation.” See James Bessen and Michael J. Meurer, The Direct Costs from NPE
`Disputes, 99 Cornell L. Rev. 387, 416 (2014) (estimating a multi-billion dollar tax on innovation
`in 2011 from all non-practicing entity (“NPE”) suits); Cf. Lab. Corp. of Am. Holdings v.
`Metabolite Labs., Inc., 548 U.S. 124, 126 (2006) (Breyer, J., dissenting from dismissal)
`(“[S]ometimes too much patent protection can impede rather than ‘promote the Progress of
`Science and useful Arts.’”) (quoting U.S. Const., Art. I, § 8, cl. 8) (emphasis in original). “Not
`much of this [tax payment] goes to inventors or innovators.” Bessen and Meurer at 416. Most of
`the money goes to the assertion entities and the lawyers. Id. at 416-17. Today, the financiers—
`often hidden, controlling suits through shell entities—get their cut.
`Competition drives the U.S. economy, and it is protected from patent overreach. “It is as
`important to the public that competition should not be repressed by worthless patents, as that the
`patentee of a really valuable invention should be protected in his monopoly.” Pope Mfg. Co. v.
`Gormully, 144 U.S. 224, 234 (1892). PAEs harm competition when anticompetitive practices
`drive patent valuation well above the price available in a functioning technology market. See
`Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of Intellectual
`Property § 3.2.2 (2017); see also F.T.C. v. Actavis, Inc., 570 U.S. 136, 141 (2013) (patent
`settlement agreements subject to antitrust).
`
`PAE Litigation Is Ensconced in the Patent System
`A.
`Infringement suits by PAEs, sometimes called “patent trolls,” were not unknown in
`history; our founding fathers warned of wrongful claimants motivated to wrongfully obtain
`patents to extract fees. See Letter From James Madison to Congress, April 11, 1816 (“I
`recommend . . . that further restraints be imposed on the issue of patents to wrongful claimants,
`and further guards provided against fraudulent exactions of fees by persons possessed of
`
`3
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 9 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`patents.”) available at https://founders.archives.gov/documents/Madison/99-01-02-5064. But
`they grew into a substantial share of patent cases around the turn of the 21st century. See U.S.
`Congressional Research Service, An Overview of the “Patent Trolls” Debate 1, 4 (Apr. 16, 2013)
`(“CRS Report”).
`To better understand PAEs, Unified prepares annual patent litigation reports. See Unified
`Patents, 2019 Litigation Annual Report available at
`https://portal.unifiedpatents.com/litigation/annual-report (“2019 Litigation Report”). The reports
`compile district court patent suits by party and distinguish between practicing companies, PAEs,
`and traditional plaintiffs—such as universities, small companies, and individual inventors—that
`patent inventions but do not market products. Id.; see also CRS Report at 4 n.28.
`PAE complaints peaked as a percentage of overall cases in 2015. See 2019 Litigation
`Report. But they remain historically high. The last two years have seen an equilibrium. In 2018,
`of the 3,657 patent suits filed in the district courts, 1,179 were brought by PAEs; in 2019, it was
`3,573 patent and 1,212, respectively. PAE assertions remain about one-third of U.S. patent suits.
`PAE (and overall) activity is still near historic highs, despite new PTO procedures designed to
`reassess patents.
`
`The PAE Business Model
`B.
`PAEs rarely research, innovate, invent, produce, or sell products. They simply buy and
`assert patents against companies that do—companies with no ex ante knowledge of the patents.
`PAEs typically sue only ex post, “after defendants have independently invented and begun using
`technology allegedly covered by their patents.” CRS Report at 4.
`PAEs can file ex post lawsuits, threatening fulsome damages, because patent infringement
`is a strict-liability offense. Commil USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920, 1926 (2015).
`This allows PAEs to demand that innovative companies license and pay royalties (or damages)
`on acquired patents even when the companies independently developed their products. See Fed.
`Trade Comm’n, The Evolving IP Marketplace: Aligning Patent Notice And Remedies With
`Competition 50 (2011) (“2011 FTC Report”). If the patent claim has merit, damages from a
`
`4
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 10 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`successful suit can reach into the billions.
`But far too often PAE suits are of little or no merit—either the patent is invalid, or the
`asserted infringement theory expansively misreads the asserted claims. Professors Allison,
`Lemley, and Schwartz reviewed a large sample of concluded patent cases and found that PAEs
`that take their cases to conclusion win less than 10% of the time. See John R. Allison, Mark A.
`Lemley & David L. Schwartz, How Often Do Non-Practicing Entities Win Patent Suits?, 70
`Berkeley 235, 270 (2017). PAEs were three times less successful than product-producing
`companies and universities; and less successful than other non-practicing entities. Id. Simply
`put, “PAEs performed the worst.” Id. at 271.
`So why do PAEs sue? The high cost of defense makes assertions profitable, regardless of
`
`merit
`
`The “vast majority” of PAE suits end in settlement often for nuisance value, i.e., an
`amount just below the cost of defense. CRS Report at 1. As paper pass-throughs, PAEs have
`much lower litigation costs—particularly in discovery—than do operating companies, see, e.g.,
`Eon–Net LP v. Flagstar Bancorp, 653 F.3d 1314, 1327 (Fed. Cir. 2011). And with zero at risk,
`little prevents them from leveraging even the most questionable claim. The Federal Trade
`Commission pegged the nuisance litigation threshold at roughly $300,000—i.e., the low-end
`estimate for defending a patent case through discovery. Fed. Trade Comm’n, Patent Assertion
`Entity Activity: An FTC Study 43 (Oct. 2016) (“2016 FTC Study”). Perhaps only in patent
`litigation is $300,000 considered a nuisance. And the FTC’s numbers only consider attorney’s
`fees—productive companies generally experience “internal business disruption” during suit,
`preventing or delaying product development. 2016 FTC Study at 20. Defending a suit may
`require multiple depositions of engineers and supervisors; occasionally, patent suits may lead to
`investor panic, cancellation of contracts, or loss of investments. When timed shrewdly, suits can
`affect IPO valuation or block mergers that depend on prompt due diligence. In contrast, PAEs
`suffer no harm from suing. Quite the opposite—lawsuits are their business.
`When poor-quality patents are asserted, defendants are forced to settle for less than the
`
`5
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 11 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`cost of vindication—a cash payment is the rational response, regardless of patent quality. The
`same calculus holds true when PAEs allege patent infringement by asserting claim constructions
`outside the reasonable scope of the invention. In Eon–Net, for example, the Federal Circuit
`understood that the difference between defendant-appellee’s cost of litigation and plaintiff’s
`settlement offers drove almost every other defendant to settle the 100+ lawsuits filed by plaintiff
`and related entities. 653 F.3d at 1327. Given that difference, it was “apparent why the vast
`majority of those that Eon–Net accused of infringement chose to settle early in the litigation
`rather than expend the resources required to demonstrate to a court that the asserted patents are
`limited to [non-infringing processes].” Id.
`Finally, PAEs are often purposefully cash-poor corporate shells (typically LLCs),
`effectively immune to monetary sanctions. See 2016 FTC Study at 4. For example, in Iris
`Connex, LLC v. Dell, Inc., the court took the rare step of piercing the corporate veil revealing that
`the plaintiff Iris was “the first level of two shell corporations which were intended to shield the
`real actor … from personal liability.” Civ. No. 15-cv-01915, Dkt. No. 149 (E.D. Tex. Jan. 25,
`2017). The responsible individual, the court held, “exploited the corporate form to operate
`largely in secret and to insulate the true party in interest from the risk associated with dubious
`infringement suits.” Id. at 4. This only came to light after costly postjudgment discovery and
`after Iris and its parent shell company both declared bankruptcy in an attempt to stall
`proceedings. Id. at 12-14.
`
`The New PAE Business Model: Mass Aggregation
`C.
`In recent years, Congress and the courts have sought to curtail PAE litigation. Congress
`modified the PTO’s review of issued patents, creating procedures like inter partes review. 35
`U.S.C. §§ 311-319. These allow parties to test patents in the PTO, and to reduce the glut of
`costly patent litigation in the district court over “patents that should not have been issued.” See
`H.R. Rep. No. 112-98, Pt. 1 at 39-40 (2011).
`The courts have also responded, ruling that injunctions are not automatically available to
`successful patent plaintiffs that are not market competitors, citing PAEs as a concern. eBay Inc.
`
`6
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 12 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006); see also id. at 396–97 (Kennedy, J.
`concurring) (“[I]n many instances the nature of the patent being enforced and the economic
`function of the patent holder present considerations quite unlike earlier cases. An industry has
`developed in which firms use patents not as a basis for producing and selling goods but,
`instead, primarily for obtaining licensing fees.”) (emphasis added). The Federal Circuit scaled
`back some outsized damage awards by, for example, rejecting a “25 percent rule of thumb” as
`“fundamentally flawed.” Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir.
`2011).
`
`Most recently, the Supreme Court held that claims to performing a traditional method of
`doing business on a computer are not eligible for patenting. Alice Corp. Pty. v. CLS Bank Int’l,
`573 U.S. 208, 226 (2014). Patent eligibility can be determined on motion to dismiss. See, e.g.,
`ChargePoint, Inc. v. SemaConnect, Inc., 920 F.3d 759, 765 (Fed. Cir. 2019), cert.
`denied, No. 19-521, 2020 WL 411896 (Jan. 27, 2020). Early dismissals have lowered the cost of
`defense—and therefore, the nuisance value—of some suits.
`The data bear this out; eBay and Alice have helped reduce the sheer volume and overall
`litigation costs of meritless (or long-shot) patent litigation brought by PAEs. And inter partes
`review forced PAEs—for the first time—to spend some money defending their questionable
`assets in exchange for inflicting enormous costs on accused infringers. The early review
`provided by PTO judges has helped counter some of the imbalance in litigation costs PAEs
`exploit to extract settlements in patent cases.
`So PAEs adapted. Once flush with cash, they now lacked the imbalances in litigation that
`had for years fed their coffers in individual suits. Without that asymmetry, they could no longer
`earn such large windfalls in every suit. One response, available to well-heeled PAEs, has simply
`been to commoditize those smaller gains—i.e., mass aggregation. There is no dearth of patent
`assets available, with over 3 million U.S. patents in force (a 1-million-patent increase since
`2010). See World Intellectual Property Organization, Statistical Country Profiles, United States
`of America available at
`
`7
`Amicus Brief of Unified et al. Supporting Pls’ Opp. to Mot. to Dismiss (3:19-cv-07651-EMC)
`
`

`

`Case 3:19-cv-07651-EMC Document 145-1 Filed 03/19/20 Page 13 of 21
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`https://www.wipo.int/ipstats/en/statistics/country_profile/profile.jsp?code=US.
` Some successful PAEs grew into mass aggregators by accumulating hundreds or even
`thousands of patents and using the combined threat of the purchased assets to threaten or file
`serial suits seeking supracompetitive settlements—or has simply ground out the same gains
`across a phalanx of subsidiaries. For example, IP Edge has dozens of subsidiaries and affiliate
`assertion entities and is responsible for hundreds of litigations every year. See Jonathan Stroud,
`Miles to Go Before We Sleep, 41 Regulation 48, 51 (Spring 2018) available at
`https://www.cato.org/sites/cato.org/files/serials/files/regulation/2018/3/regulation-v41n1-3.pdf
`(identifying 30+ IP Edge subsidiaries or affiliate litigation-vehicles); see also Timothy Au, US
`patent litigation on decline while PTAB breaks records and NPE settlement amounts fall,
`Lexology, available at https://www.lexology.com/library/detail.aspx?g=c4daf713-b1a5-4716-
`984d-b6344083bad6 (noting that “IP Edge is still by far the most prolific plaintiff,” having sued
`408 defendants in 2016 and 354 in 2017).
`These large PAEs rely on the threat of virtually endless litigation and retaliatory
`assertions to extract supracompetitive rates for patent licenses. While individual nuisance suits
`are worth less than they once were, serial assertions of nuisance suits compound the PAE’s
`profits and drive the cost of asserted patents up artificially. And given this deluge of complaints,
`if forced to trial, the asserter only has to get lucky once. Devlin uses a statistical model to show
`that the serial assertion of low-quality patents on dubious infringement theories—those with only
`a 1% chance of success—eventually, inevitably leads to success. See Alan Devlin, Antitrust
`Limits on Targeted Patent Aggregation, 67 Fla. L. Rev. 775, 821 (2016). If they lose one, they
`have dozens, hundreds, som