On Friday, Jan. 31, 2014, Cisco filed an answer-counterclaim in D. Del. against Rockstar in response to the complaint filed against Cisco by Rockstar’s subsidiary Bockstar (see our Jan. 2, 2014 post).  Cisco’s counterclaim includes a declaratory judgment action based on Rockstar’s assertion of patents against cable operators that purchase Cisco equipment, including cable operators involved in separate suits with Rockstar (see our Jan. 2, 2014 post and Jan. 21, 2014 post).

Recall that last week Arris also filed a complaint against Rockstar based on Rockstar’s assertion of standard essential patents against cable operators, including some of those identified in Cisco’s counterclaim (see our Jan. 31, 2014 post).  Unlike Arris’ action or prior action filed by some cable operators, Cisco’s counterclaim does not include an unfair competition action against Rockstar and its subsidiaries.

Also recall that Cisco and other equipment manufacturers filed the declaratory judgment actions against Innovatio based on Innovatio’s assertion of alleged WiFi standard essential patents against end-users of their equipment (e.g., hotels and coffee shops).  That action so far led to a RAND-royalty determination by Judge Holderman considered favorable to Cisco (see our Oct. 3 2013 post) and is still pending to consider Cisco’s non-infringement and validity challenges against those patents.

Yesterday Arris filed a declaratory judgment action in D. Del. against Rockstar based on Rockstar asserting alleged standard essential patents (SEPs) against cable operators who purchased Arris equipment (recall our Jan. 21, 2014 post about Rockstar lawsuits with cable operators).  Among other things, Arris seeks a declaration of the essentiality of Rockstar patents, what standard setting organization (SSO) obligations attach thereto as well as an unfair competition claim seeking to declare the patents unenforceable based on Rockstar’s patent enforcement activities against Arris’ customers.  Further, Arris is a spin-off of Nortel — from whom Rockstar purchased the patents out of bankruptcy — and Arris asserts that Nortel had granted Arris a license under the patents.

Unfair Competition Claim.  The unfair competition claim is based on Delaware state law and premised on issues recently raised not only with SEPs, but with patent assertion entities asserting large patent portfolios, stating as follows (enumeration and break-out formatting added):

     149.  Defendants have engaged in unfair competition and interfered with ARRIS’s current and expected business relationships by, among other things,
[1] wrongfully accusing ARRIS’s customers of infringement,
[2] falsely representing that ARRIS’s customers are not licensed to the Asserted Patents,
[3] pressuring ARRIS’s customers to sign NDA agreements to hamper cooperation with ARRIS and to frustrate Defendants’ FRAND and DOCSIS royalty commitments,
[4] concealing the true owners of patents from the Nortel Patent Portfolio, and
[5] concealing the complete list of patents Defendants believe ARRIS’s customers are infringing.

Storage Wars.  Arris alleges that Rockstar “refused to identify for accused infringers … the full list of patents they are purportedly infringing” but “provided only what [Rockstar] deemed ‘exemplary’ patents” thus “le[aving] accused infringers with no way to meaningfully evaluate Rockstar’s infringement allegations … or to determine the actual value of the relevant patents within Rockstar’s portfolio.”  This seems similar to concerns that patent aggregating patent monetization entities may seek unfair royalties by leveraging the risk and uncertainty that some unidentified-but-valuable-patent might be lurking somewhere within their portfolio of thousands of patents (Rockstar is reported to have over 4,000 patents).

This brings to mind “Storage Wars”.  “Storage Wars” is a reality TV show in which abandoned contents within storage lockers are sold to purchasers who speculate on the contents’ value on the chance that there is more there than meets the eye.  Specifically, the locker door is opened so that prospective purchasers can see whatever is in plain sight from a limited view peering from outside the door.  They then purchase the contents without entering, touching or examining the contents to make a fully informed valuation–e.g., what’s under a blanket, what’s in boxes, what’s in something that appears to be a safe …  Whether or not this is a good analogy, hopefully you’ll appreciate a television show analogy for a case about cable operators.

NDAs.  Arris’ allegations include concerns that Rockstar required prospective licensees to enter non-disclosure agreements (NDAs) that “concealed the scope of Defendants’ assertions” and “has been orchestrated to subvert the FRAND and DOCSIS royalty free obligations.”  Recall from our Jan. 23, 2014 post that Ericsson’s use of NDAs in negotiating licenses for SEPs was one of the reasons cited by the Competition Commission of India to investigate Ericsson’s SEP licensing activity.

Misrepresenting Existing Licenses.  Arris’ allegation includes concern that Rockstar “falsely represent[ed] that ARRIS’s customers are not licensed to the Asserted Patents.”  Recall that a concern raised with Innovatio’s assertion of WiFi SEPs in demand letters to equipment end-users (e.g., coffee shops providing WiFi access) was that Innovatio did not tell the end-users that some WiFi equipment may be licensed based on rights granted to manufacturers or component suppliers of that equipment (see our Feb. 6, 2013 post).  The Innovatio case concerned silence as to whether the patents were licensed, which allegations were dismissed, but this case alleges “false[] representations that ARRIS’s customers are not licensed.”

Last Friday, several cable operators filed a Complaint against Rockstar in D. Del. alleging that Rockstar’s assertion against them of patents breached obligations owed to various standard setting organizations (“SSOs”) based on prior owner Nortel’s commitment to license patents on RAND, FRAND or royalty-free terms.  Our Jan. 2 and Nov. 1 posts discussed Rockstar’s purchase of Nortel’s patents from bankruptcy and recent Rockstar lawsuits against other cable operators as well as Google, Andriod device manufacturers and Cisco.

The Complaint accuses Rockstar–alleged to own over 4,000 patents acquired from Nortel–of “misuse and attempt[ing] to obtain exorbitant royalties” based on several acts:

Rockstar has misused and attempted to obtain exorbitant royalties from licensing the patents it purchased from Nortel by:
(a) refusing to identify to potential licensees the patents it seeks to enforce and instead broadly accusing companies of infringing the portfolio as a whole;
(b) requiring all potential licensees to sign non-disclosure agreements as a precondition to negotiating licensing agreements for the purpose of obtaining royalties in excess of its FRAND obligations;
(c) refusing to identify patents already licensed to vendors in an attempt to avoid exhaustion and extort multiple royalties; and
(d) once requests are made to license standard essential patents, transferring those patents to third parties in an attempt to obtain increased royalties and avoid its FRAND licensing obligations.

You may find here the Complaint with exhibits, which include Rockstar demand letters to the cable operators (but without the attached patents to reduce file size).

Yesterday patent monetization entity MPHJ filed a Complaint in W.D. Tex. against the U.S. Federal Trade Commission (FTC) for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue.  We previously posted about MPHJ receiving attention from the Vermont Attorney General and those of other states based on that letter campaign.

MPHJ’s Complaint against the FTC is an interesting, long read of MPHJ’s side of the story: see Complaint and its Exhibits (patents not included to reduce file size).

For example, MPHJ explained why it mailed its licensing letters to end-users, rather than vendors.  The patent claims “relate to networked scanning systems that are connected and interfaced such that they permit the seamless transmission of a scanned document image into application software running on a destination computer.”  MPHJ asserts that it sent letters to end-users because no single equipment vendor supplied the entire claimed system or would be liable for direct infringement (MPHJ did not address liability for induced or contributory infringement).  For example, the vendor of an off-the-shelf scanner may not supply network equipment, a destination computer or other equipment/software separately purchased and combined by an end-user with the scanner to practice the claimed invention.

MPHJ gained attention because it sent a large volume of licensing letters to many small businesses–including home-businesses–that purchased and used off-the-shelf scanner equipment for its intended purpose with other conventional equipment.  Concern was raised that MPHJ might be seeking to extract unwarranted, nuisance licensing fees from many of those small businesses who did not have the resources, sophistication or motivation to engage in costly patent infringement negotiation or litigation.  Among other things, MPHJ explains that it did not intend to target really small businesses — those with less than 20 employees — but inadvertently mailed letters to some given erroneous public information about their size.

MPHJ also explained that its letter campaign was a required pre-requisite to filing suit.  MPHJ  asserts that what system a particular entity uses is not publicly available.  MPHJ sent letters to those it thought likely infringed — without actually asserting they did infringe — and simply sought a response and information on whether the recipient infringed the patents as part of MPHJ’s required Rule 11 diligence.  Given the small number of responses, MPHJ escalated follow-up letters by sending draft Complaints because that tended to spur recipients to respond.  MPHJ supports its letters seeking information by citing to the Federal Circuit’s decision in Hoffman-La Roche v. Invamed that approved a complaint filed without full knowledge of non-public portions of a system where the patent owner (1) could not reverse engineer that information and (2) first drew-the-foul by unsuccessfully seeking that information from the putative infringer before filing suit.

And MPHJ raises other issues, such as First Amendment Constitutional right to access to courts (including pre-litigation activity) and whether the FTC has been acting outside its statutory mandate.  An interesting case we will keep an eye on.

 

Recall that Rockstar started asserting patents it acquired from Nortel by filing a lawsuit in E.D. Tex. on Halloween against Google and certain Android handset manufacturers (see our Nov. post that also summarizes Rockstar’s acquisition of Nortel’s patents).  On Christmas Eve, Google responded by filing a Complaint in N.D. Cal. seeking a declaratory judgment that the patents asserted against Android handsets are not infringed.  On New Year’s Eve, Rockstar responded by filing an Amended Complaint against Samsung that adds Google as a co-defendant based on Google’s Nexus line of handsets manufactured by Samsung.

Rockstar’s lawsuits against Google and Android manufacturers were principally brought by Rockstar and its subsidiaries to whom Rockstar transferred small groupings of its patents — i.e., Netstar Technologies LLC (for patents raised against Google’s search technology in one E.D. Tex. action) and Mobilestar Technologies LLC (for the other E.D. Tex. actions raised against Android manufacturers and now Google).  Rockstar’s fractionalization of the large Nortel portfolio into small groupings also is evident from other recent Rockstar lawsuits.  For example, Rockstar transferred some patents to an entity named Bockstar Technologies LLC that filed a Complaint against Cisco in D. Del on Dec. 11.  And Rockstar transferred other patents to an entity named Constellation Technologies LLC that filed on Dec. 11 a Complaint against cable operator Time Warner Cable and another Complaint against cable operator Windstream in E.D. Tex.

Rockstar also reportedly transferred patents to some of its stakeholders, such as Apple.  And Rockstar has sold some patents to other entities — e.g., sale to Spherix in July — and is seeking to sell others.  Earlier this year it was rumored that BlackBerry was seeking to sell its stake in Rockstar and current rumors in the past week or so are that Rockstar is seeking to sell most of its portfolio (but not patents in the current litigation).  At least some of the patents identified for sale appear to be subject to specific licensing commitments that prior owner Nortel made to standard setting organizations such as IEEE or IETF.

The Rockstar saga is a fascinating one we’ve been following for many reasons, including the standard essential patent issues and other issues currently receiving significant attention in the patent bar:

  • Non-practicing, non-innovating patent monetization entities
  • RAND and other licensing rights surviving purchase from bankruptcy or transfer
  • Standard essential patents that may be subject to standard setting licensing obligations and those that may not
  • Fractionalized dispersing of a large patent portfolio

We will continue to watch things unfold and keep you posted.

A few weeks ago, we posted about ViewSonic’s FRAND-related counterclaims against Zenith, Panasonic and Philips (collectively, “Manufacturing Plaintiffs”), as well as its FRAND-related Third-Party claim against MPEG LA.  On Monday, December 16, the Manufacturing Plaintiffs and third-party MPEG LA filed a motion to dismiss with prejudice ViewSonic’s FRAND-related counterclaims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

Sherman Act Section 2 Claim. The Manufacturing Plaintiffs assert that, to state a viable monopolization claim under Section 2 of the Sherman Act, ViewSonic must allege facts showing that each Manufacturing Plaintiff has monopoly power in the relevant market for ATSC compatible televisions. However, “[t]he only allegation of monopoly power . . . is [that] ‘ViewSonic is informed and believes … that Manufacturing Plaintiffs and the other manufacturing members of the ATSC Pool have market power in the relevant market, as together they account for a large percentage of the televisions sold in the United States.”  The Manufacturing Plaintiffs argue that, not only is this allegation conclusory and bereft of any factual heft, it is not even directed at each Manufacturing Plaintiffs’ individual alleged monopoly power.

The Manufacturing Plaintiffs also argue that ViewSonic’s monopoly counterclaim fails because it does not plead facts showing that the allegedly deceptive FRAND commitments made by the Manufacturing Plaintiffs to the ATSC constitutes the exclusory conduct required to state a Section 2 claim. “[A] deceptive FRAND commitment constitutes ‘exclusionary conduct’ only when the standard setting organization (‘SSO’) relied on that deceptive FRAND commitment to choose that technology over competing alternative technologies that were under consideration – which ViewSonic does not allege was the case here.”  Indeed, ViewSonic’s                “[c]ounterclaim contains no facts regarding Zenith’s and Philips’ alleged statements to the SSOs,” let alone whether those alleged statements were deceptive.

Finally, the Manufacturing Plaintiffs argue that ViewSonic fails to plead the requisite element of antitrust injury to participants in the relevant market.  “[T]he Counterclaim does not identify any TV competitors that have been excluded” from the market.  “As the Counterclaim concedes, a license for more than 100 essential patents in the ATSC Standard is available to anyone and everyone for $5 per ATSC compatible TV.” ViewSonic has simply refused to “enter into a pool license.”  In fact, ViewSonic admits that it has not been excluded from selling ATSC compatible TVs.  “ViewSonic concedes that it has been manufacturing and selling ATSC compatible TVs presumably at a cost advantage over its competitors who, unlike ViewSonic, have paid for a license for the IP utilized in their products.”

Sherman Act Section 1 Claim.  The Manufacturing Plaintiffs argue that ViewSonic’s conspiracy claim fails because it contains no “factual allegations supporting its claims that Zenith, Panasonic, Philips and MPEG LA agreed to limit ViewSonic’s access to ATSC licenses at FRAND rates.”  “[T]he Counterclaim avers no allegations of conversations between and among the allegedly colluding parties or where or when they took place.”  “These same defects taint ViewSonic’s claims that Zenith, Panasonic and Philips agreed not to license on FRAND terms, to demand unreasonable royalties, refuse to offer individual licenses on the patents at issue, and demand a license for patents despite failing to demonstrate essentiality.”

The Manufacturing Plaintiffs also argue that “the alleged conspiracy to fix prices for ATSC compatible TVs is simply implausible.” This is because the Manufacturing Plaintiffs constitute only three of the “multitude of manufacturers” that make ATSC compatible TVs.  “Absent the participation of virtually all of the TV manufacturers, Zenith, Panasonic and Philips could not feasibly fix prices as they would be undersold by the companies who were not party to the conspiracy.”

MPEG LA argues that the Section 1 claim against it should be dismissed because, as ViewSonic concedes, “MPEG LA is not a ‘horizontal competitor’ in the relevant ATSC compatible TV market, but rather a licensing administrator ‘acting on behalf of each of the Counter-Defendants’ solely in that capacity.”

Finally, the Manufacturing Plaintiffs argue that ViewSonic cannot, as a matter of law, plead that it has suffered antitrust injury as a result of the alleged conspiracy because ViewSonic is a horizontal competitor of the Manufacturing Plaintiffs. “[A] competitor who is not part of the price-fixing conspiracy can undersell the ‘fixed’ price, and thus is ‘benefited,’ not ‘injured,’ by the alleged illegal price-fixing.” That is what ViewSonic is doing here: “[b]y refusing to enter into a license, but continuing to sell ATSC compatible TVs, ViewSonic is able to undercut its competitors who pay royalties for the ATSC Standard IP in their products.”

FRAND Breach Claim.  ViewSonic’s counterclaim for alleged breach of the Manufacturing Plaintiffs’ FRAND obligations should be dismissed because ViewSonic has not alleged that they have failed to offer it a license: “ViewSonic simply does not like the offer terms.”  In fact, Viewsonic is trying to “obtain a rate that discriminates in its favor” when compared to the license fee paid by other licensees to the MPEG LA pool. “This is an argument properly left for the jury which will assess Plaintiffs’ reasonable royalty damages when ViewSonic’s patent infringement defenses fail.”  In other words, ViewSonic’s FRAND-related arguments are “a defense to the amount of damages it owes the Plaintiffs,” not a “standalone cause of action sounding in contract.”

The Manufacturing Plaintiffs also assert that ViewSonic’s breach claim fails because it does not allege facts demonstrating that ViewSonic is a third-party beneficiary of the Manufacturing Plaintiffs’ alleged commitments to the ATSC.  “ViewSonic makes no supporting allegations that it is” a member of ATSC “with standing to enforce” the alleged contract between the Manufacturing Plaintiffs and the ATSC.  ViewSonic has only conclusorily alleged that it is a beneficiary.

ViewSonic’s claim that the Manufacturing Plaintiffs breached their FRAND obligations by refusing to offer an individual patent license (as opposed to a license to the entire MPEG LA pool) fails to state a claim because ViewSonic “does not specify which Manufacturing Plaintiffs supposedly failed to offer individual licenses, instead only averring that ‘some’ have not.”  The Manufacturing Plaintiffs’ alleged failure to offer individual licenses or take into consideration that patents in the ATSC Pool will soon expire, and alleged inclusion of nonessential and foreign patents in their license offers has “nothing to do with any obligation alleged to have been part of the purported contractual commitment to [ATSC to] license essential ATSC patents on FRAND terms.” “In the absence of such supporting facts, these allegations cannot plausibly be enforced as the basis for a breach of contract claim independently of the reasonable royalty determination at issue in [the Manufacturing] Plaintiffs’ infringement action.”

Finally, ViewSonic fails to plead facts showing that it has suffered breach of contract damages. “A disagreement over the ultimate [FRAND royalty] rate does not state a claim for contract damages” and “ViewSonic cannot make out a breach of contract based on a purported obligation to offer a specific FRAND rate that ultimately turns out to be the correct rate after trial.” Specifically,

“ViewSonic fails to point to anything in any contractual commitment or otherwise that plausibly supports imposing what would effectively be a fundamentally unfair penalty on an essential patent holder if an infringer disagrees that the FRAND rate is fair and reasonable and the jury awards a different rate than what the essential patent holder offered after infringement is proven.”

“This is particularly true here, where ViewSonic is attempting to dispute infringement and validity, and has not indicated it will agree to take a license at a rate set by the Court or jury, leaving [the Manufacturing] Plaintiffs no choice but to assert infringement claims.”  The appropriate FRAND rate will be determined by the jury if it concludes that ViewSonic infringes, but that amount does not constitute breach of contract damages for ViewSonic.

Promissory Estoppel Claim.  As with ViewSonic’s breach of FRAND claim, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim fails because it does not specifically identify what FRAND promises were made by which Manufacturing Plaintiff, when they were made, and to whom they were made.  Finally, the Manufacturing Plaintiffs argue that ViewSonic’s promissory estoppel claim should be dismissed because it fails to plead facts showing that they justifiably relied upon the alleged promises in manufacturing ATSC compatible TVs.  Indeed, ViewSonic asserts that it had no knowledge of the alleged SEPs, but then also claims that it received offers to license those patents.

What’s Next?

ViewSonic will have to either oppose the motion to dismiss or attempt to amend its counterclaim in an effort to remedy the alleged deficiencies identified in the motion.

 

Motorola has filed its opposition to Microsoft’s motion to transfer the appeal of Judge Robart’s RAND ruling from the Federal Circuit to the Ninth Circuit (see our prior blog on Microsoft’s motion).  Recall that Microsoft argued that the appealed action was a contract action, its nature did not change when that action was consolidated with a patent action and therefore appellate jurisdiction properly lies in the Ninth Circuit.  In its opposition, Motorola argues Federal Circuit case law that consolidation of an action with a patent action vests appellate jurisdiction in the Federal Circuit.  Motorola additionally argues that Microsoft’s Complaint was constructively amended by the district court when (1) it proceeded to determine a royalty rate under patent law and (2) it made rulings about the scope of the patent claims along the way (such as construing means-plus-function patent claim limitations).

More interesting than the otherwise dry appellate jurisdiction procedural issues presented are the underlying undertones.  The battle here implies that a RAND patent licensee would prefer to have a generalist court decide the value of patents whereas the RAND patent licensor would prefer to have the specialist patent court — Federal Circuit — decide the value of patents.  This implication is supported by the Ninth Circuit’s prior affirmation in this case of Judge Robart enjoining Motorola from enforcing an injunction in Germany on standard essential patents and Judge Posner’s decision not to enter an injunction in the Motorola v. Apple case.  What will the Federal Circuit think about allowing another appellate court to determine the value of patents?

Last Thursday, December 5, the House of Representatives passed H.R. 3309 (“the Innovation Act”), a patent reform bill generally directed to perceived patent litigation abuse by certain patent assertion entities (what some call “patent trolls”).  Prior draft versions of the House bill had gone through several revisions in the past few months (see our September 24 and October 23 posts), and the bill as passed by the House contains a number of provisions that will directly affect future litigation involving Standard Essential Patents (SEPs). These provisions are discussed in more detail below.

Heightened Pleading Standards.  The Innovation Act requires specific details regarding a complainant’s patent infringement allegations.  Similar to existing Patent Local Rules adopted by district courts in E.D. Tex. and N.D. Cal., the Innovation Act requires a patentee to identify the patents, the patent claims specifically asserted, the instrumentalities accused of infringement, and an element-by-element description of how each accused instrumentality practices the asserted patent claims.  Such provisions will undoubtedly provide proponents of early stage Twombly/Iqbal motions with ample grounds to seek dismissal of bare-bones counts for patent infringement.

The Act also requires a patent plaintiff to disclose some basic patent ownership information to the court, other parties, and the U.S. Patent and Trademark Office (PTO), including the patent assignee, the assignee’s parent entity, any entity with a right to sublicense or enforce the patent, and any entity with a financial interest in the patent.

Although it does not appear that a patent-plaintiff must identify existing licensees, it must identify any SSOs to which the patent has been declared essential.  The Act specifically provides a claim for patent infringement must set forth:

[W]hether a standard-setting body has specifically declared such patent to be essential, potentially essential, or having potential to become essential to that standard-setting body, and whether the United States Government or a foreign government has imposed specific licensing requirements with respect to such patent.

The original drafts of this language created problems in requiring a plaintiff to plead “whether such patent is subject to any licensing term or pricing commitments through an agency or standard-setting body” and addressed that by focusing on more knowable facts of whether a patent was “declared” essential or potentially essential (see our September 24 post).  The provision as passed kept the more fact-specific pleading of whether a patent has been declared essential, but misses the mark by requiring disclosure of “whether a standard setting body has specifically declared such patent to be essential …”.  SSOs generally do not declare patents essential, potentially essential or the like; rather, such declarations typically are made by the patent owners themselves in letters of assurances or similar disclosures that often don’t state definitively whether the patent does cover the standard, but that it might cover the standard and what the patent owner would do if the patent actually is essential to the standard.  One wonders whether this issue will be cleaned-up when the Senate considers it.

The provision about pleading whether the U.S. or other government body has imposed licensing obligations probably is in response to some limited actions by competition agencies that require certain procedures to be followed before a patent owner may seek injunctive relief (like the U.S. FTC’s consent order with Google or what Samsung has proposed to the European Commission) or court orders that have sought to put similar limits on injunctive relief.

The revised language goes hand-in-hand with another section of the Act directed to proposed Judicial Conference rules and procedures governing discovery burdens and costs, the Act proposes that the Judicial Conference consider “documents relating to any licensing term or pricing commitment to which the patent or patents may be subject through any agency or standard-setting body” to be included among the categories of “core documentary evidence” that must be produced by a patent-plaintiff to defendants in every litigation.  Such rules would provide defendants with documentary evidence directly related to establishing RAND obligations at an early stage in litigation.

Licensing Obligations Continue Through Bankruptcy.  The Innovation Act ensures that IP licenses are not eliminated in bankruptcy, resolving an apparent discrepancy between U.S. and foreign law in favor of the American rule.  As we discussed in a post earlier this month, the Fourth Circuit recently affirmed a district court decision that licensees could rely on Section 365(n) of the U.S. bankruptcy code to preserve the existing licenses to U.S. patents.  The present legislation codifies this principle, barring a bankruptcy trustee from terminating certain licenses to patents and other intellectual property of the debtor, adding trademarks to definition of “intellectual property” in title 11 proceedings, and requiring a bankruptcy trustee to meet any existing contractual obligation to monitor and control the quality of a licensed product or service covered by a licensed trademark.

The Customer-Suit Exception.  The Innovation Act allows a manufacturer to intervene in a patent suit brought against its customer.  These provisions allow a patent suit to be stayed as to the customer while the manufacturer and patent plaintiff litigate the merits of the infringement action, so long as (1) the manufacturer and the customer consent, (2) the stay is sought within 120 days after the first complaint for infringement, and (3) the customer agrees to be bound by the court’s ruling on any issues in common between the customer and manufacturer.

Other Key Provisions.  Although we haven’t discussed them here, the Innovation Act contains a number of other key provisions, including:

  • Cost Shifting, awarding costs and attorneys fees to a prevailing party unless the position and conduct of the nonprevailing party was reasonably justified in law and fact;
  • Post Grant and Inter Partes Review, allowing a PGR petitioner to later assert invalidity defenses in a civil action that could have been, but were not raised during PGR and requiring the PTO to use district court claim constructions in PGR and IPR proceedings;
  • Expanding the scope of prior art used in transitional program for business method patents covering financial products;
  • Core Discovery and Discover Fee Shifting, limiting the types of discovery prior to claim construction and requiring Judicial Conference to develop rules and proposals limiting discovery in patent cases and to study the efficacy of the rules enacted;
  • Codifying Doctrine of Double Patenting for first-inventor-to-file patents; and
  • Demand Letters, requiring a claimant seeking to establish willful infringement may not rely on evidence of pre-suit notification that fails to set forth claimant’s infringement allegations with particularity.

Next Steps.  Now that the bill has passed the House, the Senate is expected to move quickly. Last Thursday, Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) confirmed a legislative hearing will be held on December 17 to consider the upper house’s patent reform bill (S. 1702).  The House and Senate measures will have to be merged before the Act is presented for President Obama’s signature, but it is expected the proposed legislation will be signed into law early next year.  Because the bill’s litigation provisions apply to patent cases filed after the date of enactment, and not pending cases, we may see an uptick in the filing of patent cases prior to the anticipated date of enactment (as we saw with enactment of the America Invents Act).

Yesterday, the Rockstar Consortium (and its subsidiaries MobileStar Technologies LLC and NetStar Technologies LLC) sued Google and several Andriod device manufactures (Asustek, HTCHuawei, LG, PantechSamsung and ZTE) in E.D. Tex. on several patents that Rockstar had acquired in July 2011 out of the Nortel bankruptcy.

You may recall that Rockstar is a consortium that, according to Rockstar’s corporate disclosures, currently includes Apple, Blackberry, Ericsson and Microsoft. The Rockstar consortium and Google had been in a bidding war to purchase Nortel’s patent portfolio out of bankruptcy, including reported memoriable bids by Google based on the distance to the sun and pi ($3.14159 billion).  Rockstar ultimately paid $4.5 billion for the portfolio.

Along the way, concern was raised about what would happen with Nortel’s standard essential patents.  For example, the IEEE filed with the bankruptcy court an objection to any sale of the Nortel patents “in a way that permits a successor patent-holder to disavow the patent commitments that IEEE, other standards setting organizations (SSOs), entire industries, and end-users have relied upon.”  The bankruptcy court’s order approving the sale maintained to some extent the “promises, declarations and commitments granted, made or committed in writing … to standard-setting bodies and industry groups.”

The U.S. Department of Justice (DOJ) also investigated the acquisition of Nortel’s patents where DOJ, per its report, “focused on standard essential patents (SEPs) that … Nortel had committed to license to industry participants through their participation in standard-setting orginazations (SSOs).”  DOJ reviewed whether the acquisition would have an anti-competitive impact in view of Rockstar’s stakeholders.  DOJ ultimately approved the acquisition, stating that it “continues to monitor the use of SEPs in the wireless device industry, particularly in the smartphone and computer tablet markets,” and “will not hesitate to take appropriate enforcement action to stop any anticompetitive use of SEP rights.”

A focus of the patent bidding war and DOJ scrutiny appeared to be Nortel’s wireless LTE patents.  But those patents do not appear to be at issue in Rockstar’s instant lawsuit, and many of Nortel’s LTE patents reportedly were transferred to Rockstar’s stakeholder Apple.  Rather, the seven patents asserted against Google appear directed to search functionality, such as matching search terms with ads through Google’s AdWords.  A different set of seven patents are asserted against the Andriod device manufacturers based on electronic packaging, graphical interfaces, mobile hotspot functionality, messaging, etc.

It may not be coincidence that Rockstar’s newly filed complaint is against Google and Andriod devices that compete with Rockstar stakeholders.  But did Rockstar decide to avoid standard-essential patent issues in this skirmish?  Rockstar’s complaints do not state whether any of the asserted patents are subject to a standard setting obligation.  One of those patents is related to an IETF “informational” Request For Comment (RFC).  Specifically, in October 2005, Nortel filed an IPR declaration with IETF stating that U.S. Pat. No. 6,128,298 entitled “Internet Protocol Filter” “may be related to at least a portion of RFC 3022” entitled “Traditional IP Network Address Translator (Traditional NAT)”.  Nortel’s IPR declaration characterizes RFC 3022 as “an Information RFC and not an IETF standards-track document,” and RFC 3022 itself states that it “provides information for the Internet community” and “does not specify an Internet standard of any kind.”

We’ll keep a watch on whether and to what extent standard essential patent issues are raised here.

Back in June, we alerted you to a number of infringement suits brought by licensors to the MPEG LA ATSC patent pool in the Southern District of Florida, targeting several television  manufacturers — ViewSonic, Craig Electronics, and Curtis International.  Yesterday, a different group of MPEG LA licensors filed suit on patents related to a different MPEG LA patent pool (relating the MPEG-2 video compression standard), but most of the defendants include those targeted in the earlier suits.  This could raise speculation that MPEG LA (through its licensees) is becoming more apt to bring enforcement actions to “encourage” technology companies to become licensees to its various patent pools.

The plaintiffs in the new suits include Mitsubishi, Philips, General Electric, Thomson Licensing, Panasonic, and Sony, each of whom are licensors to the MPEG LA MPEG-2 Patent Pool.  They have filed the following complaints:

The plaintiffs allege that that the defendants’ MPEG-2 compliant products, such as television and set-top boxes, infringe several of their patents.  The patents-in-suit include the following:

  • U.S. Pat. No. 5,606,539: “Method and apparatus for encoding and decoding an audio and/or video signal, and a record.” (Assigned to Philips)
  • U.S. Pat. No. 7,376,184: “High-efficiency encoder and video information recording/reproducing apparatus” (Assigned to Mitsubishi)
  • U.S. Pat. No. 5,784,107: “Method and apparatus for picture coding and method and apparatus for picture decoding” (Assigned to Panasonic)
  • U.S. Pat. No. 6,097,759: “Image signal coding system” (Assigned to Mitsubishi)
  • U.S. Pat. No. 5,481,553: “Methods and apparatus for preventing rounding errors when transform coefficients representing a motion picture signal.” (Assigned to Sony)
  • U.S. Pat. No. 5,459,789: “Packet TV program component detector” (Assigned to Thomson)
  • U.S. Pat. No. 5,491,516: “Field elimination apparatus for a video compression/decompression system” (Assigned to GE)

The plaintiffs acknowledge that they have committed to license these patents on FRAND terms and are not seeking an injunction, but instead seek damages adequate to compensate for infringement — as well as treble damages for willfulness and attorneys’ fees and costs under Section 285.  The complaints state that each of the defendants has been previously offered a license to the patents through MPEG LA (and that Motorola was in fact a prior licensee and licensor of the MPEG LA MPEG-2 pool), but that none of the defendants has accepted a the license offers.

One last interesting note to point out about these new cases — the MPEG LA licensor plaintiffs are represented by attorneys at Proskauer Rose, which is the same law firm that MPEG LA uses as patent counsel and to determine whether its licensors’ patents are essential.