MANAGING IP
Blackbird, IPCom, Dominion Harbor, Longhorn IP, Acacia Research and Harfang IP share their distinct strategies for patent acquisition, licensing and litigation
It can be tempting to label all non-practising entities as ‘patent trolls’, a term that drums up images of litigation-hungry and unscrupulous hordes that bombard unsuspecting tech innovators with nuisance suits, exploit low-quality patents for financial gain and stifle innovation.
Certainly some or even many NPEs are like this – their collective reputation did not come from nowhere, after all. The head of IP at a Silicon Valley software company once told this reporter of an instance where an NPE representative openly admitted that a patent wouldn’t hold up in court but argued that it would cost the tech firm more to litigate than settle.
But no one NPE is alike, a fact that was highlighted to Managing IP during interviews with six such organisations, including Blackbird Technologies, Dominion Harbor, Acacia Research and Longhorn IP, on their approaches to litigation, licensing and patent acquisition.
Many other non-product-making businesses take a very different approach to their operations. Some only deal in high-quality patents and much prefer to license these intangible assets than engage in litigation. Others do jump into litigation quickly but only after being fobbed off by larger businesses.
Even those that might be considered to be ‘nuisance entities’ – rightly or wrongly – follow different strategies to some of their counterparts.
Tech businesses and their external counsel representatives would do well to better understand the business-model diversity of NPEs. At the very least, said understanding will help them to confirm a suspected nuisance suit. But at best, it could help them explore new and better ways of dealing with royalty requests that could save them time and money spent on litigation.
Indeed, the main thing all NPEs seem to have in common – in spite of what strategy they follow – is the disdain they receive from operating companies.
“We are misunderstood to a large degree,” says Marc Booth, chief IP officer at Acacia Research in California. “Big tech has tried to paint all NPEs as patent trolls, but that is far from the truth. There are frivolous suits in the NPE space, but the same is true of the pharmaceutical industry, and that doesn’t mean that the majority of cases are frivolous.”
All out litigation or licensing
Different NPEs follow very different steps and timeframes when it comes to approaching a potential licensee for talks and deciding whether to pull the trigger on litigation.
Blackbird, for example, doesn’t typically engage in licensing negotiations and often prefers to go straight into litigation. The NPE filed an average of 23 cases a year between 2014 and 2019, according to data from the Docket Navigator database. Rather than periodically hiring external counsel for cases, the business keeps its litigation function in-house.
Wendy Verlander, president and CEO of Blackbird in Boston, says she’s adopted this strategy because many of the larger implementers are unwilling to talk.
“Outside of the context of litigation, a lot of the big players won’t even speak to you,” she says.
“Often attempts at licensing or monetising patents outside of litigation are unsuccessful. I have to say that because of the reaction we’ve had in our attempts to do it that way, we often just jump to litigation.
“We do a very thorough pre-litigation analysis and determine who we think are infringers, and then we move forward with the case. That’s pretty much always the way we operate.”
She adds that alongside this approach, the business’s strategy is to enter a case with the intention of seeing litigation through to a logical conclusion. “We’re not there to push for a settlement, we’re in there to litigate until it no longer makes sense to do so.”
The people at Dominion Harbor, on the other hand, rarely see the inside of a courtroom, preferring to license IP to implementers whenever possible. David Pridham, CEO of the organisation, in Dallas, says the business will litigate when it has to but that about 90% of its revenue comes from licensing and consultancy work.
According to the Docket Navigator database, the NPE has been involved in just one district court case since 2008 and hasn’t been involved in a Patent Trial and Appeal Board matter in that time either.
“I co-founded [patent licensing company] IPNav with Erich Spangenberg in 2003 and that was 100% litigation,” says Pridham. “It was too adversarial and everything was too tied to what a court was going to do. It was crazy.
“It wasn’t about the value of a patent or what your licensing history was, it was all about what you could get in a case and how quickly.”
Pridham adds that the litigious model ultimately doesn’t make good business sense because it ties the company’s cash flow and revenue streams to the courts and mainly serves to alienate potential licensees. The fact that the business pulled in $40 million in revenue last year is testament to the success of this model, he says.
Timeframe to push along
And then there are those NPEs that try to find some sort of middle ground between both approaches – a strategy that most of the businesses Managing IP spoke to for this article say they subscribe to.
Acacia Research has been involved in three cases a year on average since 2012. Part of the reason for that is that the company shut down its IP monetisation business in 2017 after a management and board shuffle.
Booth, who came back to Acacia when it relaunched its monetisation business in 2018, says he would much rather secure a reasonable licence with patent implementers, but he has resorted to litigation when confronted with long-term holdouts.
“The only people who truly win in litigation are the lawyers,” he says. “There are quite a few companies that are perfectly willing to sit down and negotiate, but there are also a few larger holdouts who we can approach and those conversations will almost always be unproductive.”
Khaled Fekih-Romdhane, CEO and president of Longhorn IP in Dallas, similarly takes this position, as do IPCom’s Pio Suh in Munich and Harfang IP’s Christian Dubuc in Canada.
Suh, managing director at IPCom, which has been involved in four US patent cases since 2008 and famously filed one of the first anti-anti-suit injunctions in Europe, argues that each case is unique and deserves its own bespoke timeframe.
“We do not have a typical schedule or deadline when negotiating,” he says. “Each licensing case and negotiation is different, and we need to employ flexibility to accommodate matters on a case-by-case basis.”
Dubuc, who was a founder of Longhorn IP but moved back to Ontario to become president and CEO of Harfang IP in 2016, agrees with this point, adding that pulling the trigger on litigation largely comes down to how obstructive the potential licensee has been.
“If the discussions go on for too long and we’ve reached a point where there is clearly no appetite on the other side, that is a good sign that they’re just stalling to hold up the process,” he says.
Need for speed
Like any other US company looking to sue another for patent infringement, NPEs have to consider different district court venues and decide which works best for a particular case based on patent venue rules and the expertise and speed of judges.
Delaware is often the ‘go to’ choice because most companies are incorporated there and the state’s courts are exceptionally experienced in corporate matters, including IP. But NPEs are becoming increasingly interested in the Western District of Texas since Judge Alan Albright came to the bench.
The main reason for this interest is the speed at which Albright moves cases forward, which is beneficial to NPEs whose revenue streams are tied to the courts to various degrees.
Apart from Dominion Harbor, which doesn’t litigate much, and IPCom, which is less focused on the US, every NPE Managing IP spoke to is interested in filing a matter in western Texas at some point.
Werlander, at Blackbird, who typically files in the District of Delaware, says the Western District of Texas has been on her radar for some time.
“We have been watching the court and wanting to bring a case there, and we will probably bring one shortly. It looks like a really interesting model, particularly with Judge Albright, who has an interesting approach to early disclosure that we find intriguing,” she says.
“He has a nice balance on early disclosures and forces some issues out early in a way that makes sense.”
Dubuc at Harfang IP agrees that western Texas is becoming an increasingly interesting venue, adding that the quicker a court can resolve matters, the quicker a business can reach a settlement or receive damages and reduce risk.
Booth at Acacia adds that the speed of the court is indeed attractive but that it’s bound to slow down over the next few years as the docket grows, unless Albright starts to hire new judges.
An acquiring taste
One thing all NPEs definitely have in common is a desire to buy patents and build up sizeable and strong portfolios that they can monetise. But again, different NPEs approach this task in very different ways.
Dubuc at Harfang IP says he has been in ‘acquisition mode’ since leaving Longhorn IP and setting up his own business. In particular, he is looking to diversify the company’s portfolio by buying patents outside the US, in both China and Europe.
“We want to adopt a more global approach given how challenging the US has become for NPEs over the past few years,” he says.
Booth at Acacia adds that he is going through a similar process to develop the business’s portfolio now that it has got back into IP monetisation. He says that he is often presented with opportunities to acquire new assets but that said deals are often presented to multiple NPEs.
To get better quality assets with less competition, Booth takes time to contact patent owners, and seeks out referrals from law firms and other third-party entities that know of the business but are not interested in the opportunity themselves.
Some NPEs are even using technology in the acquisition process. Pridham at Dominion Harbor tells Managing IP that his business has invested in developing a platform that allows it to compare thousands of patents and determine which to buy, sell or license.
This technology enables Dominion to more easily identify high-quality assets within certain portfolios and negotiate a better price with the patent owner.
“Like any operating company as well, a focus of ours is to figure out the best assets to license or divest to avoid paying maintenance fees on. This was a huge challenge when I first started out, and another reason the tech we’ve built is so important.”
On top of this, he adds, his business is diversifying its model to include consultancy work. Rather than simply buying patents, the company lends its monetisation expertise to clients for a fee. This work helps Dominion generate revenue without having to invest in IP and the maintenance fees that go along with it.
Other NPEs are investing in their own R&D functions to build up their portfolios organically. Suh at IPCom says he has several engineers on his team that are helping the business generate a substantial 5G telecoms portfolio.
Clearly, no one NPE is the same. Like with any product-making business, non-operating companies are comprised of different people who implement different ideas.
Operating businesses might even be able to learn a thing or two from them. At the very least, they should understand that not every NPE is a patent troll.