Buyers of Expiring Patents See Profit in Infringement Claims

By | December 17, 2015

The 1990s may be over but patents from that era live on.

U.S. courts are seeing a rash of lawsuits involving old and sometimes expired patents as companies try to squeeze the last bit of profits from their 20-year-old inventions.

The patents sometimes end up in the hands of speculators who may go to court with infringement claims against other companies in the hopes of a big pay off — either by forcing settlements or going to trial.

Xerox Corp., the office-copier pioneer now a target of activist investor Carl Icahn, has been transferring old patents for electronic documents and communications to outside firms this year. Those entities have since filed about 290 lawsuits against retailers, airlines, insurance firms and gaming companies — even though the patents had expired or will in a few years.

“You have less to lose” on an old patent, said Fabio Marino, a patent lawyer in McDermott Will & Emery’s Silicon Valley office. “You might be more willing to take a risk even if the patent’s going to be invalidated, because you’re going to lose it anyway.”

It’s a legacy of the dot-com boom, in which failed businesses are survived only by the patents they sold in bankruptcy. During that era, many patents were awarded that critics now say are questionable and which the courts, Congress and regulators have been trying to — with some success — weed out.

Prolific Suers

Many of the most prolific suers in the U.S. are finding new life in patents that have lapsed or are near the end of what is generally a 20-year term, according to an analysis of litigation data provided by RPX Corp., a patent-risk management services company, and the U.S. Patent and Trademark Office.

The buyers of old patents are sometimes firms that make a business from licensing them or suing for infringement. Half of all patents involved in lawsuits from such licensing firms in 2014 date back to the 1990s, and the bulk of the rest are from the early 2000s, RPX data show.

Xerox isn’t alone. Nokia Oyj, Cypress Semiconductor Corp., Micron Technology Inc., General Electric Co., Hewlett Packard and Boston Scientific Corp. also are among the companies that have sold patents that were later used in litigation, according to RPX figures.

“Xerox is but a drop in the bucket” of companies that sold or transferred patents that became the basis for lawsuits, said Dan McCurdy, an RPX vice president. It’s become a “circular firing squad,” he said, as many of the companies now selling patents to licensing firms to sue other companies have been the targets of such suits themselves.

Macy’s, JetBlue

Three of the companies that now own the Xerox patents — Genaville LLC, Loramax LLC and Oberalis LLC — rank in the top 10 most litigious in the U.S. in the first half of this year, according to RPX data.

Macy’s Inc., Big Fish Games Inc. and Deckers Outdoor Corp. were among those sued by Oberalis over a Xerox patent issued in 1999 for “ordering the presentation of documents clusters generated from a ranked corpus of documents” — in other words, organizing electronic documents. That patent expired Monday.

Loramax sued insurance and mutual fund companies, including Hartford Financial Services Group Inc., over a 1996 patent for distributing information on a network using devices “such as printers and facsimile machines.”

Shareholder Value

Last month, Xerox reported it transferred a patent applied for in 1999 for an image transfer system to Ruby Sands LLC, which then filed 21 lawsuits against banks on Nov. 30, the day before new rules went into effect that required patent owners to provide more details in their complaints.

Other companies sued over the old Xerox patents include JetBlue Airways Corp., FedEx Corp., Kroger Co. and Home Depot Corp.

Xerox declined to answer questions about what it received in exchange for the old patents.

“Xerox seeks to optimize shareholder value,” explained Bill McKee, a spokesman for Xerox. “This includes incorporating inventions in our products and services to differentiate them from competition and also selling or licensing our intellectual property in certain situations.”

Patent Crackdown

The federal government has been making it tougher on some patent litigants.

Dozens of old patents have been thrown out by judges since the Supreme Court in June 2014 established a new test to determine if software covers more than just a concept. Others are being successfully challenged at the patent office.

Patent owners now have to provide more details in their lawsuits and many licensing companies rushed to the courthouse before that change took effect Dec. 1. In the previous week, more than 500 lawsuits were filed, according to data compiled by Bloomberg Law. Of the 10 most litigious companies filing suit in November, all but one involved patents that date back to 1990s ideas.

“There is a feeling that a lot of patents from the 1990s were very broad and overbroad,” said John Martin, chairman of Innography Inc., an Austin, Texas-based maker of software to analyze patent portfolios.

Icahn Stake

Icahn, the billionaire activist investor, said Nov. 24 he amassed a 7.13 percent stake in Xerox because he sees it as undervalued. He intends to hold discussions with management and the board over “improving operational performance and pursuing strategic alternatives,” according to a regulatory filing.

Icahn in 2011 urged Motorola Mobility Holdings Inc. to considering selling some of its patents to take advantage of heightened market demand. The company ended up getting bought by Google Inc.

There’s no guarantee the old Xerox patents will stand up under scrutiny with the new legal standards. The insurance and mutual companies sued by Loramax over a Xerox patent are seeking to dismiss the case, saying the patent — which expired in 2013 — simply covers an abstract idea.

Old patents are vulnerable to legal attack. Just ask the most prolific suer in 2014 and the first half of 2015, eDekka LLC. It filed more than 200 lawsuits against retailers and website operators using Web shopping carts over a patent that was first sought in 1992 for a way to store and label information. The patent was due to expire in 2018 and EDekka obtained it from the inventor in 2013.

A federal judge in Marshall, Texas on Sept. 21 found the patent invalid, citing the Supreme Court’s new standard. With one ruling, the judge wiped out all of the outstanding cases. EDekka is appealing that decision.

–With assistance from Jing Cao.

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