United States: Q3 In Review: PTAB Remains In The Spotlight As Private Equity Assumes Greater Role In Patent Assertion

Last Updated: October 10 2018
Article by RPX Corporation

The third quarter of 2018 saw the resolution of some lingering uncertainties from Q2, as judicial rulings and proposed reforms set the stage for additional changes to the patent ecosystem in the months ahead. The law surrounding patent venue continued to settle down in the third quarter, while judicial rulings further refined the metes and bounds of inter partes review (IPR). Although the US Supreme Court just denied two post-Oil States constitutional challenges against IPR, the Patent Trial and Appeal Board (PTAB) continues to feel the fiscal and logistical impact of the Court's decision in SAS Institute. Furthermore, the Federal Circuit upheld the Board's ruling that tribal sovereign immunity cannot be used to shield patents from IPR. Frequent defendants may also see their litigation strategies affected by a Federal Circuit decision requiring that a defendant file an IPR within one year after being sued even when a complaint is voluntarily dismissed without prejudice—a favored tactic for file-and-settle NPEs.

Meanwhile, the patent market underwent further realignments throughout the third quarter, with patent divestitures from formerly dominant NPEs leading to litigation by new and resurgent players alike as private equity firms continued to play a greater role in patent assertion. The USPTO also forged ahead with reform efforts during the third quarter, including a proposed guidance on patent eligibility recently described by Director Andrei Iancu. Finally, legislative reform efforts remained largely stalled in Congress, with the public debate over recently introduced reform bills suggesting that current proposals are likely too controversial for passage.

In this quarterly update, we review the following:

Litigation Update: Filings Tick Upward

Patent Venue: Foreign Defendants and the Alien Venue Rule

PTAB Update: The Board Contends with SAS Institute as Other Judicial Rulings Shape IPR

Market Developments: Fortress Takes Over Uniloc Litigation as NPEs Keep Asserting IV Patents

Patent Policy: Director Iancu Takes Aim at Alice Caselaw as House Members Target the AIA


Patent litigation filing levels increased during the third quarter compared to Q2: 928 defendants were added in Q3 in total, an increase of around 15.7% over the second quarter of this year and a roughly 8.7% increase over Q3 2017. NPEs added 448 defendants to patent cases in the third quarter, 8.5% more than were added in Q2. Operating companies, meanwhile, added 480 defendants in Q3 2018, about 22.5% more than in the previous quarter.

Defendants Added to US District Court Litigation Campaigns Quarterly


Meanwhile, the distribution of top venues for NPE lawsuits has remained largely stable since the previous quarter: once again, the District of Delaware held the top spot by number of defendants added, followed by the Eastern District of Texas and the Northern and Central Districts of California, with the Northern District of Illinois replacing the Western District of Missouri as the fifth most popular district. As for operating company litigation, the same five districts as the previous quarter stayed in the top five with some rearrangements: the Districts of Delaware and New Jersey remained the first- and second-most popular districts, while the Central District of California and the Southern District of Florida, respectively, climbed to third and fourth from fourth and fifth, and the Southern District of California slid from fourth to fifth.

Top Districts: NPE Litigation by Defendants Added

Top Districts: Operating Company Litigation by Defendants Added

The law governing proper venue in patent suits has also settled down somewhat since the previous quarter, during which the Federal Circuit issued several rulings that clarified certain issues that had not been addressed in the Supreme Court's decision in TC Heartland. The Federal Circuit doubled down on one of those rulings in the third quarter, declining in early September to grant an en banc rehearing for its May opinion in In re: HTC that upheld the so-called alien venue rule allowing lawsuits against foreign corporations in any district. The court's reaffirmed decision in that case means that many foreign entities will remain exposed to patent risk in virtually any district, including hotspots like the Eastern District of Texas, although plaintiffs must still show that a given foreign corporation committed acts of infringement in the chosen district.


In the third quarter, 414 petitions for America Invents Act (AIA) review were filed with the PTAB, including 395 petitions for IPR, six petitions for covered business method (CBM) review, and 13 petitions for post-grant review (PGR). In total, this represents a slight increase over the previous quarter (by around eight petitions) and a 6.2% increase over Q3 2017.

Total Petitions Filed by Quarter

Q3 was the first full quarter to follow the Supreme Court's decision in SAS Institute, which banned the PTAB's prior practice of issuing partial institution decisions and required that the Board institute trial as to all challenged claims, if at all. The PTAB subsequently modified its procedures in compliance with SAS Institute, going further by requiring institution on all asserted grounds as well as challenged claims.

With those changes, the PTAB instituted trial in 58% of all AIA reviews in which it issued an institution decision during Q3, declining to institute trial for 42% of those petitions.

PTAB Institution Decisions by Quarter

Post-SAS Fee Increase Proposal

USPTO Director Andrei Iancu has acknowledged that SAS Institute has led to "significant additional work" for the PTAB, since the Board must examine the full set of challenged claims and asserted grounds at both the institution and final decision stages for successful petitions. In early August, Iancu advised the Patent Public Advisory Committee (the USPTO body that oversees budgetary matters and fees, among other responsibilities) of a planned increase of around 25% in AIA trial fees "due to a variety of factors", including SAS Institute, expressing regret for the size of the increase but stating that "it is prudent for the Office to more closely align the fees with the anticipated costs to the Office for performing these services". Various stakeholders criticized the AIA review fee hike and other proposed fee increases in an early September hearing, with Lisa Jorgenson, the executive director of the American Intellectual Property Law Association (AIPLA), asserting that there is currently not enough data to "determine if [the] increase [in AIA review fees] is reasonable". The USPTO last increased its fees in January of this year.

Constitutional Challenges Against IPR

While the IPR survived a constitutional challenge in Oil States, which found that the program did not violate Article III of the US Constitution or the Seventh Amendment, that decision stated that IPR may be subjected to constitutional challenges on other grounds. However, the Supreme Court has thus far rejected two such challenges. On October 9, the Court declined to grant certiorari for a petition filed by NPE Advanced Audio Devices LLC, which had argued that the invalidation of a patent through IPR amounts to a taking—where the government confiscates private property for public use, and in return must provide just compensation—and thus that IPR violates the Takings Clause, as a taking without compensation. Additionally, on October 1, the Court denied certiorari for another constitutional challenge brought by NPE Smartflash LLC, which had asserted that that AIA reviews violate the Appointments Clause because PTAB judges are not appointed by the president and that the retroactive application of AIA review to patents issued before the AIA violates the Due Process clause of the Fifth Amendment.

Sovereign Immunity and the PTAB

Earlier this year, the PTAB ruled that Native American tribes' sovereign immunity does not apply to IPR, effectively halting a controversial patent-shielding strategy first used last year by the Saint Regis Mohawk Tribe, which made deals with pharmaceutical giant Allergan and NPE SRC Labs, LLC under which the tribe acquired the companies' patents in order to shield them from IPR using the tribe's sovereign immunity. The Federal Circuit affirmed the PTAB's holding in July. However, while the PTAB's ruling hinged largely on the argument that tribal sovereign immunity is not coextensive with the immunity held by the states, the Federal Circuit declined to address the overlap of state and tribal sovereignty in its ruling on appeal, focusing more on how IPR was similar to other agency proceedings that the Supreme Court has previously held are not barred by sovereign immunity. As a result, the Federal Circuit's decision left open the question of whether the states, and thus public universities, are similarly immune from IPR—an issue that has grown in importance as universities have increasingly turned to patent assertion in recent years.

IPR Time Bar Sees a Judicial Expansion

Frequent defendants and PTAB petitioners will also likely be affected by the Federal Circuit's August ruling in Click-to-Call v. Ingenio, which modified a key procedural rule under which petitioners must file an IPR within one year of being sued, the one-year statutory time bar required by 35 USC Section 315(b). In Click-to-Call, the Federal Circuit ruled that the time bar continues to toll even when a patent plaintiff dismisses its own complaint without prejudice. Given that many NPEs commonly dismiss complaints without prejudice, particularly those waging file-and-settle litigation campaigns that hit large numbers of defendants, the court's decision in that case may put additional pressure on companies considering whether to respond to litigation with IPR petitions.


Fortress Takes Over Uniloc's Portfolio and Litigation

In May 2018, as reported by RPX, Australian NPE Uniloc Corporation Pty. Limited transferred more than 600 US patent assets (apparently, the bulk of its US assets) to investment firm Fortress Investment Group LLC, the same month that Fortress announced the creation of a new, $400M IP fund focused on patent assertion. While Fortress has funded Uniloc's litigation as far back as December 2014, the firm now appears to have effectively taken over Uniloc's patent assertion activities altogether. Starting in late July, Fortress subsidiary Uniloc 2017 LLC has been named as a coplaintiff in each of a barrage of lawsuits filed through September against a host of defendants, including Amazon, AT&T, BlackBerry, Cisco, Google, Huawei, Microsoft, Samsung, Verizon, and ZTE, with a wide variety of products and services at issue. Along with Uniloc 2017, a host of other similarly named entities were created in Delaware within days of each other earlier this year, including the tellingly named Uniloc 2018 LLC, suggesting that Fortress has even bigger plans for the Uniloc portfolio in the months ahead.

Intellectual Ventures: Investments in Other NPEs and Continued Divestitures

Over the course of the past year, RPX has reported on an influx of patent divestitures from Intellectual Ventures LLC (IV) following its April 2017 announcement that it was winding down its third Invention Investment Fund, moving away from the purchase of additional patents, and refocusing on the monetization of existing assets. Since then, IV has accelerated the sale of patents from its portfolio, including to a number of particularly prominent NPEs that have subsequently began campaigns asserting subsets of those assets.

  • Investments in NPE Litigation: Public records indicate that as IV has divested patents to NPEs, it has retained a financial stake in subsequent litigation filed by at least some of those plaintiffs. For example, Complex Memory LLC (an affiliate of IPValuation Partners LLC (d/b/a IPVal)) disclosed in a lawsuit filed in July that four affiliates of IV have an interest in the litigation. This follows another such disclosure in which publicly traded Quest Patent Research Corporation reported to the SEC that IV is entitled to 50% of the net proceeds from the assertion of certain patents transferred to Quest subsidiary CXT Systems, Inc.
  • Other NPE Litigation Asserting IV Patents: Throughout the third quarter, multiple other NPEs also began asserting patents acquired from IV. In July, Dominion Harbor Enterprises, LLC affiliate Vista Peak Ventures, LLC began asserting a portfolio of former NEC display patents that it acquired from IV earlier this year. Additionally, in late September, American Patents LLC—an NPE with ties to multiple other litigating Texas entities—began litigating a portfolio of patents acquired from IV. The asserted assets originated with a variety of operating companies, including AT&T and Sun Microsystems.
  • IV Acquisitions: Despite IV's ongoing divestitures, the NPE made a rare set of patent acquisitions in Q3, obtaining a portfolio of patents from an affiliate of Singapore-based patent monetization firm Transpacific IP Group Limited. The transferred assets include US patents and foreign counterparts developed by Sarnoff Corporation (integrated with its parent corporation, SRI Research, in 2011) or Mitsubishi.

Assignments from Operating Companies to NPEs:

Throughout the third quarter, RPX observed activity involving patents assigned from operating companies to NPEs.


The USPTO's Proposed Section 101 Guidance

One of the most significant policy developments in the third quarter was Director Iancu's description of a proposed USPTO guidance on patent eligibility. Speaking at the annual meeting of the Intellectual Property Owners Association on September 24, Iancu acknowledged the widespread notion that current caselaw on Section 101 is unclear and difficult to apply with consistency and proposed a two-prong guidance to aid in the first step of the Alice analysis, which concerns whether a patent claims an "abstract idea". First, the USPTO would establish an explicit set of categories delineating what subject matter constitutes "abstract ideas", according to the USPTO's interpretation of the current caselaw, broadly defined as "[m]athematical concepts", "[c]ertain methods of organizing human interactions", and "[m]ental processes". Second, claims would not be found to be "directed to" the underlying abstract idea—meaning, that they would pass the Alice test at step one—if the subject "matter is integrated into a practical application". This criterion, the guidance will purportedly explain, draws on a line of Supreme Court cases holding that practical applications of excluded subject matter are patentable, including Le Roy v. Tathem, Diamond v. Diehr, and Mayo v. Prometheus.

The above analysis does not include "questions about 'conventionality'", Iancu stated, with that issue reserved for the second step of Alice (the assessment of whether a patent's claims contain a sufficient inventive concept). Iancu explained that the explicit exclusion of conventionality from the test's first step is intended to reinforce the distinctions between the 101 and 102/103 analyses.

Congressional Patent Reform Efforts

Legislative patent reform efforts largely failed to gain much traction in the third quarter, with the current Congress largely focused on other issues. Meanwhile, the most notable bills that have recently been introduced are likely too controversial to gain any real momentum.

One such bill, the plaintiff-centric Restoring America's Leadership in Innovation Act of 2018 (or "RALIA"), was introduced in the House by Representatives Thomas Massie (R-KY), Marcy Kaptur (D-OH), and Dana Rohrabacher (R-CA) shortly before the start of the third quarter. RALIA would reverse many of the core reforms introduced by the AIA. Among other changes, the bill would repeal the first-to-file system and reinstate first-to-invent; restore the pre-AIA on-sale bar; eliminate IPR and PGR along with the PTAB itself, reviving the Patent Board of Patent Appeals and Interferences in its place; codify requirements for patent eligibility (with similar provisions to the USPTO's proposed Section 101 guidance); explicitly define patents as private property rights; and effectively reverse the Supreme Court's eBay v. MercExchange decision by establishing a presumption of rebuttable harm for injunctive relief.

In early July, Representative Rohrabacher also introduced the Inventor Protection Act, which seeks to grant the USPTO sole authority over patent validity challenges and would exempt all patents held by their individual inventors from reexamination, review, or any other validity challenges without the inventor's consent. The bill also seeks to undo TC Heartland by allowing inventors to sue alleged infringers in virtually any district, among other venue restrictions. In addition, the bill would impose strict time limits on patent suits, including that trials must occur within 12 months of service and cannot last more than seven days, with significant restrictions on discovery requests and pleading length.

Both bills have provoked heated debate among industry stakeholders. While some of the bills' opponents have historically opposed plaintiff-centric reforms, such as the Computer & Communications Industry Association (a trade association for the computer, Internet, information technology, and telecommunications industries), the Inventor Protection Act has also managed to trigger opposition from a surprising source. In late September, two Wi-LAN Inc. executives—its president and CEO, Keaton Parekh; and its CTO, Ken Stanwood—published an editorial opposing the bill, criticizing it for limiting its proposed protections to individual inventors and for failing to account for situations where one or more inventors contribute to an invention while working for a startup, among other shortcomings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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