One of the predictions floating around regarding the (hopefully soon to arrive) post-COVID 19 patent landscape is that more operating companies with sizable patent portfolios will be considering monetization options. The reasoning behind that prediction is simple. In a challenging revenue environment, even those companies who were previously reticent about patent assertion will be under pressure to turn what can be a sizable cost center into a revenue-generating business unit. At the same time, patent monetization is a difficult endeavor even under optimal economic conditions. While litigation funders and law firms stand ready to assist, developing and executing on a workable monetization strategy requires time, a lot of thought, and significant buy-in within the company ranks. In short, a monetization campaign must be a considered effort, not something undertaken under a whim or based on the conception that following the herd in a particular direction is a good idea.
One company that has been involved in a number of high-profile patent enforcement efforts is consumer products giant (and quite-frequent patent defendant itself) LG. In perhaps the most prominent example of LG’s enforcement efforts, the company took the step of suing major TV competitor Hisense in November 2019, as part of a larger global patent enforcement effort against other TV competitors. The Hisense lawsuit was reportedly settled last week, at least according to a docket entry filed in the California court handling the case. Pointedly, that report of settlement came just a few weeks after Hisense filed a notice of institution of IPR for all relevant claims from two of the asserted patents. While it is impossible to know how favorable or not the Hisense assertion ended up being for LG, the case does provide a recent example of a major technology company turning to its patent portfolio as a way to generate revenue from a market competitor.
While patent cases filed in LG’s own name are rare, there are other known examples of LG divesting patents for assertion by other entities. Just last week, for example, the Federal Circuit addressed one such divested LG patent in an interesting decision on prior licenses and patent exhaustion. In that case, Evolved Wireless v. HTC Corporation et. al, Appeals Nos. 2020-1335, 2020-1337, 2020-1339, 2020-1340, 2020-1363 (CAFC), the Federal Circuit affirmed the district court’s finding that “Evolved’s patent infringement claims were barred by a license agreement and the doctrine of patent exhaustion.” As background, it is important to note that the patent at issue in the appeal was just one of five asserted in litigation against the various defendants. Those patents were originally sold by LG to an entity called TQ Lambda, before being picked up by Evolved for assertion. (Highlighting the challenges of modern-day patent monetization, even for patents with an LG pedigree, only the patent at issue in the appeal was left standing in terms of potentially leading to revenue for Evolved before it too was bounced by the district court.)
When Evolved acquired the remaining patent, it did so subject to encumbrances originating at LG, including an LG license to Qualcomm that was granted all the way back in 1993. As that LG-Qualcomm license (which was apparently never considered in full, unredacted form by the district court) was renewed over the years, one thing remained constant — LG agreed that it wouldn’t sue Qualcomm or Qualcomm’s customers under any of its patents over their sale of smartphones. Because the license/covenant not to sue was extended at the product, rather than patent, level, the asserted patent was swept into the scope of the license since it was issued before the final renewal took place.
Once Evolved sued Qualcomm’s customers, the license between LG and Qualcomm came into play. As the Federal Circuit noted, if Qualcomm was licensed under the LG agreement then patent exhaustion meant that sales by Qualcomm to its handset-manufacturing customers (e.g., the defendants sued by Evolved) were licensed sales and thus immune from infringement liability. On appeal, everyone agreed that exhaustion would apply. The fight was over whether or not the 4G-capable products sold by the defendants were covered by the Qualcomm license. Finding that they were, the Federal Circuit affirmed the district court’s finding of noninfringement pursuant to the license/patent exhaustion defense.
But all was not lost for Evolved. Because the license between LG and Qualcomm terminated as of the end of 2018 and the district court never addressed that termination in its summary judgment decision, the Federal Circuit remanded with instructions that “the district court should address whether — and why or why not — it considers Evolved’s proffered evidence of the termination part of the summary judgment record. If the district court concludes that the termination issue was properly raised, the district court should conduct further proceedings as necessary to determine whether a termination occurred, and if so, the effect on the license and Evolved’s claims of infringement for the post-termination period.” In short, there may be a path post-Federal Circuit decision for Evolved to sidestep the Qualcomm license issue for 2019 and onward sales of allegedly infringing products.
Ultimately, it is hard to gauge at this point whether Evolved still stands a puncher’s chance of extracting license revenue from the smartphone makers it sued. If anything, Evolved’s tortured litigation history may serve as yet-another cautionary tale for erstwhile patent monetizers looking for action in a patent litigation landscape that seems to favor defendants. At the same time, some on the patent assertion side will take succor in the fact that Evolved’s campaign continues to have life at all, proving the importance of patent plaintiffs demonstrating resilience and resolve in pursuit of their goals. As for those looking to follow in Evolved’s footsteps, we will see whether the alleged interest in post-COVID 19 patent monetization by large patent owners results in more attempts at patent enforcement by companies fitting that profile — whether directly under their own name or through divestment to nonpracticing entities. Put another way, will evolving attitudes lead to action or not?
Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.
Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.