By: Steve Gruber
Small tech businesses have had a tough time making patent infringement cases against billion-dollar tech giants, such as Apple, and Intel, that can outspend, outsue, and outlast any small company. Conversely, those tech giants have no problem suing small companies into oblivion (even when they are the ones in the wrong!)
But, now they are losing. Why?
Fortress Investment Group and other investment firms have started to get into the patent aggregation and patent litigation business. They are bank-rolling dozens of litigations for patents previously owned by different entities, some small, some large, and are going after big players such as Apple and Intel.
These tech behemoths are used to fending off a few lawsuits on patents owned by one small company that can barely afford to spend half a million dollars in patent litigation. These giants can inundate smaller patent holders with endless discovery and pre-trial motions, or subject the smaller entity to long and costly IPR challenges, leaving them little chance of even seeing a verdict, let alone a successful one.
Not any more. These large investment firms are now sinking millions into multiple parallel litigations over many different patents in their agglomerated portfolios, making it far harder and costlier for the Apple and Intels of the world to fend off these attacks.
It’s a Patent War
This strategy by Fortress and others has been so effective that Apple and Intel are trying a new approach to defending against these agglomerated attacks. Instead of attacking the validity of those patents, or arguing that they don’t infringe, they’re now complaining that these big financial companies are engaged in ‘anti-competitive practices.’
These corporate giants are pulling the ‘It’s not fair’ card.
It’s somewhat ironic that these tech giants have long used their size to squash small patent enforcement attacks, but are now trying to claim anti-competitive behavior when those same companies band together under the financial umbrella of large financial backers.
Now, in defense of those large entities, it is a tough place to be, continually seeing patent lawsuit after patent lawsuit brought against you by an aggregation entity, when the individual owners may not have asserted those patents without aggregation. Does it mean that these patents are valid or strong? Not necessarily. So, there’s no guarantee that the companies banding together in these aggregation groups are all good guys or that their patents should carry the day. And we might have more sympathy for the large entities who are crying foul, if not for the fact that they long wielded their size in anti-competitive fashions that were unrelated to the strength or validity of patents asserted against them.
RELATED: Google v. Oracle Case
Are Patent Aggregators Good or Bad?
If you Google ‘patent trolls,’ there is article after article stating that patent trolls harmed innovation by making companies spend R&D money defending patents, while not producing anything themselves.
There are always two sides to every story.
It turns out that patent trolls and other non-practicing entities add value to all patents by enhancing the liquidity of patents when a company goes under. Patent trolls often acquire their IP when other companies go belly up, which makes risk-averse investors more likely to put money into an IP portfolio. Thus, every patent portfolio has an increased value because investors can rest assured that someone, even if it’s a patent troll, will likely buy up the IP if the venture fails.
Things have evolved over the past ten years, and we don’t hear about patent trolls as much.
Congress and the Courts have made patent trolling more difficult. But, in their place, we’re starting to see patent aggregation entities pop up, such as Fortress Investment Group. These entities are doing similar things to patent trolls. The aggregating company itself isn’t producing anything. However, the companies that they represent, or that they’ve purchased patents from, are still producing products and value their patents. That’s the big difference between today’s patent aggregation entities and patent trolls.
Unlike patent trolls, the patent holders selling to patent aggregators are not going under. These patents are not purchased out of bankruptcy by the aggregator. Instead, entities are trying to monetize their R&D by joining the aggregation groups. And if this new business model is working, and helping companies see ROI on their R & D spending, it’s going to be tough for large established (possibly monopolistic) companies like Apple and Intel to argue that aggregation is anti-competitive.
If licensing or selling your patents to a giant financial company to go out and litigate those patents on your behalf is the best way to profit from your R&D, so be it! If you can further monetize R&D, you are encouraging R&D. From that standpoint, these aggregation entities are perfect for innovation.
Now, the Bad.
The downside is that these aggregators are also going after the small companies. In that sense, they act a lot like the patent trolls of yesteryear, and small companies can’t defend against a substantial entity enforcing patents, let alone enforcing lots of different patents.
Related: Fortress Investment Group: Bad Actor, Bad Timing, or Both?
My Judgement
Firstly, in the Intel-Apple brief, they indirectly admit to ‘efficient infringement.’ In a nutshell, this is where a company’s lawyers decide that the risk/cost of infringing as compared to trying a legitimate design around or licensing, is less than the design around or license, and to some extent move forward with intentional infringement (though you’ll likely never see a paper trail to prove this). It may also involve choosing to infringe patents of those less likely to enforce or be able to enforce their patents while avoiding the patents of larger entities who could cause trouble were they to bring a patent lawsuit.
There are places in the Apple and Intel vs. Fortress summary where the Apple/Intel lawyers note that ‘it’s complicated to ascertain the risks of moving forward because of this aggregation problem.’
Everybody deals with risks when analyzing patents and whether to move forward with a product or not. This is nothing new that aggregation has brought to the table, and if your company is not assessing the difficult question of infringement on every new product, then you are taking a huge risk. In most cases, when you see a risk that’s higher than 50-50, a company will decide it is not worth that risk and design around those patents.
But no, Apple and Intel said, ‘Don’t worry about it. Even if we infringe, it won’t be an expensive problem. Let’s just plow ahead.’
Now that they’ve been caught with their pants down, they’re complaining risk assessment is difficult because of aggregation companies. However, their attorneys have to do the same risk analysis that everyone else does. They’re just whining about it in court. Complaining about the difficulty of risk analysis does not suggest that the other side is engaged in unfair competition.
Secondly, Apple and Intel are talking about the increased cost of doing business in their lawsuit when they have to design around ten different patents (possibly owned by ten different companies). In the past, they would just plow ahead rather than design around, but now since those ten companies may aggregate those patents and bring a lawsuit in aggregate that Apple/Intel can’t just brush aside with big-money defensive tactics, they have to engage in design around attempts. This so-called anti-competitive legal argument is nothing more than saying that they often move forward without trying to design around existing patents. Still, now that aggregation has become a threat, they have to engage in design around practices–oh darn! When Apple/Intel are forced to do the same analysis and design around as the rest of their smaller competitors suddenly, that extra expenditure is evidence that someone else is acting anti-competitively?
Thirdly, Intel itself is part of aggregation entities! They’re defensive aggregation entities, but they’re participating in aggregating patents nonetheless. There’s nothing in any contract anywhere that says they won’t someday litigate those patents.
Fourthly, Intel and Apple use the word “meritless” many times in their briefs to refer to the patents that Fortress is enforcing. Yet, they provide no evidence that the patents are meritless. If you look at the 1,000 patents being enforced by Fortress, some may be invalid. But Apple/Intel are extrapolating from that, the conclusion that the entire portfolio is meritless.
In America, we have a very high presumption of validity on patents.
Just like when somebody allegedly commits murder, they have not committed murder until 12 jurists agree unanimously that they’ve committed murder. It’s a high bar. We give people the benefit of the doubt. It is the same for patents. Until you prove that patent is invalid, it’s valid.
Apple and Intel go against the essence of the patent system, suggesting that all lawsuits against them are meritless because a handful of the patents in the entire portfolio have been deemed invalid. It’s basically like saying someone is guilty before they’d been proven guilty.
Finally, Intel and Apple are claiming ‘harm’ in the case, but have not shown the harm. The Department of Justice pointed this out in its brief. While Apple/Intel has argued academically that patent aggregation could lead to higher costs and that these costs might be passed on to consumers, there’s no evidence that this is the case.
Apple and Intel are just talking a big game. They’re being bullies, or in the words of Soryn IP Group – patent ogres.
Patent Ogres?
I read an interesting article recently that references patent ogres, back in 2015.
Soryn IP Group defined a patent ogre in their article Who Is Uglier? Patent Trolls or Patent Ogres?. ‘A patent ogre is a large company that has a significant market position in a product or service category and protects its economic interests by suppressing, bullying and, or simply grinding into the ground smaller, more innovative competitors that have patented technologies. Faced with a small innovator with patents that potentially read on its products or services, the patent ogre may refuse to license the technology at market rates, create publicity campaigns to label the inventors as trolls, and drag them through endless legal maneuvers until they run out of money. Then the patent ogre continues to derive economic benefit from the technology that someone else invented or perfected.’
That is another way of describing efficient infringement. It is also an excellent way to describe what Apple and Intel are doing today, now that they are the giants and no longer the small garage startups that they once were.
What happens in this case may change the landscape for small tech companies forever. Keep your eyes on the outcome.