U.S. military doctrine requires the country to be ready to wage war in two theatres simulataneously.1 Patent assertion entity (PAE) Vringo has decided to go to the next level, and fight Chinese cellular equipment maker ZTE on ten fronts.
Using standards-essential patents it acquired from Nokia, Vringo sued ZTE in the United Kingdom (October 2012), Germany (November 2012 and again in September 2013, with an injunction granted in December 2013, and upheld in February 2014), France (April 2013, with an injunction sought but not granted), Australia (June 2013), Spain (September 2013), India (November 7, 2013, with an injunction granted on November 22 but vacated on August 5, 2014), Brazil (April 2014, with an injunction upheld in June 2014, and seizures ordered in October 2014), The Netherlands (May 2014 and again in August 2014, with an injunction upheld in October 2014), Romania (June 2014, with an injunction granted, but temporarily suspended in October 2014), and Malaysia (July 2014). Vringo is also suing ZTE in New York over a breach of an NDA.
This is a notable strategy. To the best of my knowledge, it’s the first time a PAE has forsaken a U.S.-centric approach and launched suits in so many countries against a single company. Thanks to a history of innovation, as well as strong legal support for the protection of patent holders’ rights, the United States leads the world in patent filings. Accordingly, many portfolios that PAEs license will consist solely or primarily of U.S. patents. But even when a portfolio has broad geographic coverage (that is, patents from many different countries), while initial negotiations may be for a worldwide license, if talks collapse and the patent owner must resort to litigation, suits tend to be filed in one or two countries at the most.
The second noteworthy aspect of Vringo’s strategy is its use of injunctions – requesting courts to bar the sale of ZTE’s infringing products. A patent confers the right to bar other people from “practicing” or using your invention within their own product. While this is a reasonable remedy for an operating company, PAEs prefer the alternative approach of signing revenue-generating licenses to infringers. An injunction can be a good tactic for gaining the attention of a reluctant licensee, and can significantly speed up settlement discussions.
The central question, of course, is how well Vringo’s strategy will succeed. Courts are generally reluctant to grant injunctions, especially to PAEs, due to the obvious damage it inflicts on the licensee. Long-time patent industry watchers will recall the famous injunction against Research in Motion (RIM) won by NTP, Inc., which would have shut down every Blackberry device in the United States, and that motivated RIM to reach a $612.5 million settlement in March 2006, shortly before the deadline expired. But the original injunction was awarded in 2001, with RIM able to delay its enforcement by various means. Vringo, however, has been successful in convincing a number of courts not only to grant injunctions, but (as can be seen in the Brazil case) to enforce them. This is likely due to the strength of Vringo’s Nokia-sourced patents.
As Vringo’s various cases make their way through the courts, we can be sure that other patent holders are watching closely to see how this strategy works out.
I read with interest a recent IAM Magazine blog post which, heading into the final quarter of 2014, makes eight predictions for the NPE market in 2015. North American editor Richard Lloyd identifies these key issues:
1. Consolidation among NPEs – there has been remarkably little M&A activity but deals could now happen, possibly in the form of distressed restructuring transactions.
2. For PIPCOs we’ll see a number of take-privates – the public markets still don’t make sense for a lot of these businesses.
3. Licensing is king – those with the best licensing strategies and negotiating teams will come out on top.
4. Less chance to leverage the litigation process for advantage – we’re arguably seeing this already as more and more NPEs emphasise their commitment to reducing their litigation exposure. But with less incentive for defendants to settle, litigation is still going to be a key driver of revenue.
5. More focus on prevailing with high quality patents as a result of 4.
6. Greater need to embrace transparency.
7. Diversification will be more important than ever – moving into new sectors such as medical devices and energy should be high on the agenda for management teams.
8. Higher pressure to create returns for increasingly demanding investors; ‘plus ça change’, some cynics might say to this – but expect to see more NPEs trying to sell assets as a result.
I agree with most of this list, but it will be interesting to see if the first two trends come to light in 2015. In my view, consolidation of NPE companies is possible, but currently there are few NPEs who are sizable and cash-rich enough to lead this type of activity. Likewise, I’m not convinced there’s strong interest in the private equity community in taking publicly traded NPEs private. Finally, I don’t share the view that there’s pending NPE sell-off of patent assets in 2015. Patent sales don’t generate recurring revenue, so although investors may be eager for companies to divest low-performing patent families for a quick return – and a reduction in prosecution costs – it’s not a strong argument for an overall long-term business strategy for most NPEs.
I’m sure these issues will be among those hotly debated at IAM’s newest event, NPE 2015, just announced to take place on March 12 in NYC. We’re pleased to be a sponsor of this important conference, billed by IAM as:
…a forum for NPE decision-makers to come together with other parts of the IP transactions ecosystem to discuss not only the way the market is developing in the US, but also to look at how business models can adapt to reflect the changes. On top of this, NPE 2015 will identify emerging finance options, as well as new opportunities in different technological areas and jurisdictions outside the US.
NPE 2015 is not an event about or for the “patent extortionists” Conversant chief IP officer Scott Burt wrote about so compellingly on the IP Watchdog blog last week; instead it is aimed at serious entities that seek to play a positive role in fostering sustainable, transparent practices which are built around the licensing of high-quality patents.
We believe that these are very different to the trolls of popular imagination – and we also believe that those who work in IP transactions, in all types of entity, understand this too (whatever some might say for public consumption). The fact is that NPEs are an important part of the IP marketplace, they bring liquidity to it, they have played an important role in changing perceptions about patent values and, increasingly, they work closely with any number of operating companies. They are not going to go away.
We’re looking forward to meeting with our peers in NYC and having some great conversations. Here’s the information for registering:
NPE 2015 is being held at the Convene Conference Center in the Financial District at the bottom of Manhattan. It’s a great venue, but space is limited. For that reason, if you want to attend the event you are strongly advised to book your place as soon as possible. Go to the registration page on the NPE 2015 website.