Unified Patents, CableLabs, Patreon, and Bitmovin have filed an amicus curiae brief in the ongoing antitrust case between Intel and Fortress. Intel has alleged that Fortress has amassed such a massive patent portfolio that it is subject to antitrust law. The amici write in support of Intel’s opposition to Fortress’s Motion to Dismiss. The case is set to determine if “a mass aggregation of patents can be an antitrust violation.” According to the amici, this is an important issue beyond the parties involved.
Unified Patents “is a membership organization dedicated to deterring patent assertion entities from extracting nuisance settlements from operating companies based on patents that are likely invalid before the district courts and unpatentable.” CableLabs is a company with more than 60 member companies, with members who have about 85 percent of American cable subscribers. Patreon is a membership platform helping artists and creators get paid by fans. Bitmovin is a video solutions developer, which allows customers to create digital experiences. Each of these companies has faced various lawsuits from patent assertion entities (PAEs). They want to prevent PAE activity from disrupting business.
The amici state that they 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.” They would like the court to examine “the evolving business models, capitalization sources, and strategies of PAEs like Defendants and place those practices in the antitrust context.” They argue that PAEs hinder innovation because of the increased litigation burden they present. Further, “PAEs harm competition when anticompetitive practices drive patent valuation well above the price available in a functioning technology market.” The amici state that PAE litigation was at an all-time high in 2015 but still remains high today, at about a third of all patent lawsuits.
The amici noted that PAEs “rarely research, innovate, invent, produce or sell products. They simply buy and assert patents against companies that do.” As a result, PAEs demand the companies license and pay royalties to the PAE, despite independent development. “[O]ften PAE suits are of little or no merit – either the patent is invalid, or the asserted infringement theory expansively misreads the asserted claims.” PAEs win less than 10 percent of the time, however, they sue because the “high cost of defense makes assertions profitable regardless of merit.” These suits are often settled “for nuisance value.” PAEs litigation costs are lower than those of legitimate operating companies, and they have little to lose by asserting a patent claim, according to the amici. “The Federal Trade Commission pegged the nuisance litigation threshold at roughly $300,000.” However, these costs can multiply for businesses, through factors such as disruption, delays, employee depositions. They can also lead to panic, canceled contracts, and lost investments. Defendants in PAE suits settle for cash, regardless of patent quality or reasonable scope. PAEs are often cash-poor to avoid monetary sanctions, the amici said.
Congress has attempted to short-stop PAE litigation. For example, injunctions are not automatically available to patent litigants. Patent eligibility has also become stricter in an effort to hinder PAEs, the amici recount. But as policies changed, PAEs changed; instead of larger wins in fewer suits, they now allegedly rely on mass aggregation in an effort to take advantage of smaller gains. For example, “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.”
Fortress, the amici allege, acquired large amounts of patents from other PAEs and troubled companies. “Fortress has $40 billion under management…It started its Intellectual Property Fund in 2017 and raised $400 million to invest specifically in patent acquisition and assertions.” The amici argued that Fortress’ third-party funding should be disclosed.