The dramatic increase in the number of mobile industry lawsuits is forcing changes in the legal system and spurring the formation of new business models that focus on the licensing of patents.
The number of handset patent lawsuits in U.S. courts went from 24 cases in 2006 to 84 in 2010, said David McDonald, an attorney at K&L Gates.
The spike in suits is happening for a number of reasons. "Today, it's a lot more complex to resolve the IP gap between what you own and what you need," said Mario Obeidat, head of licensing for telecommunications at Intellectual Ventures, a company that primarily acquires patents and earns revenue by licensing them. For example, a mobile phone today requires 70,000 to 100,000 patents, he said.
It used to be that just a few companies controlled the bulk of the necessary patents and they would sign cross-licensing deals with each other, often without any money changing hands. Now, however, with smartphones that include new functionality, patents from companies in other industries—such as photography—are required. Cross-licensing deals are much more difficult to make if the bulk of each company's licenses are irrelevant to each other. "The dynamics are much more complex," Obeidat said.
Handling the surge
The U.S. International Trade Commission and some judges are beginning to make changes to handle the surge of cases, McDonald and other legal experts said this week during a Law Seminars conference in Seattle.
"If you have the same six administrative judges you had 15 years ago [in the ITC] and the case volume has quadrupled, something has to give," said McDonald.
One way the ITC appears to be trying to reduce its case load is to address the question of whether "non-practicing entities"—organizations that collect patents but don't use them to build products or services—should be able to bring cases in front of the ITC. Since the ITC takes cases that have an impact on U.S. domestic industry, there's a question about whether simply owning a patent and licensing it is enough, McDonald said.
Last month, the ITC issued a new rule that comes into affect this Friday and will allow the ITC to require participants to submit information regarding the impact of a case on the public interest. The new rule will also allow more public comment on the potential public impact of cases that are before the ITC. Such submissions could allow the ITC to decide against considering some cases if it finds that they are unlikely to have much impact on the public.
There also may be some changes to the way that the courts handle patent cases. Recently, a prominent judge gave a speech where he suggested that courts should start determining how much time they spend on a case based on how much the case might be worth. "The court may then tailor its timing and procedures to make sure a billion-dollar case gets a 'billion-dollar' process and a thousand-dollar case gets its due as well," said Judge Randall Rader, who presides over the U.S. District Court for the Eastern District of Texas but also serves as the chief judge of the Court of Appeals for the Federal Circuit.
The process of determining the potential value of a case could prove interesting to the parties in a case, McDonald noted. "If you're a defendant, you don't ever want to tell the plaintiff what they might win," he said.
The ballooning number of lawsuits is also spurring experimentation with new business models, some designed to profit from the activity and others that could potentially help companies better manage the new litigious environment.
For instance, some companies are experimenting with the patent privateer model, said Davina Inslee, IP counsel for Vulcan, Microsoft co-founder Paul Allen's company. A patent privateer obtains an exclusive license to intellectual property or buys the patents from a company, typically in order to sue the competitor of the original patent holder. The deals are set up in a variety of ways such that the original patent owner might get a return on legal wins or they may simply get the benefit of not having to absorb the expense of litigation, she said.
In addition, because the patent privateer is not an operating company, there's no threat of a court imposing an injunction on the company that originally owned the license.
One example of a company using this model is MobileMedia Ideas, which bought patents from Nokia and Sony and sued Apple, HTC and Research In Motion. Similarly, Round Rock Research bought several thousand licenses from Micron and has licensed them to or formed covenants not to sue with Apple, Sony, Samsung, IBM, LG and others.
Mosaid operates in a similar vein. It is managing thousands of Nokia patents and absorbing the cost of litigation in exchange for a portion of proceeds of any winning suits.
Patent aggregators are also popping up to help companies avoid suits or quickly settle them. RPX, for instance, is amassing patents and offering companies a yearly subscription, giving them rights to the patents in the portfolio.
Obeidat categorizes Intellectual Ventures as an aggregator and hopes that more companies follow its model. Rather than offering a subscription, Intellectual Ventures licenses its entire portfolio, which currently comprises 35,000 patents, to its customers.
"We're hopeful others will see our business model and will do similar things," he said. In that case, a phone maker could sign licenses with three or four companies like Intellectual Ventures for all of their patent needs, rather than working with hundreds of license owners, he said.
While Obeidat claimed his company is helpful to the wireless industry, many people are critical of the company because it typically threatens a lawsuit before signing a licensing deal with its customers.
Still, he says that his scenario shifts the industry more toward commercial transactions, he said. "You're always going to have to resolve some disputes in litigation. But at the rate we're going, it's not sustainable."