Proxy Patent Litigation

In the last decade or so, patent litigation in the United States has undergone enormous changes. Perhaps most profound is the rise in enforcement of patents held by people and entities who don’t make any products or otherwise participate in the marketplace. Some call these patent holders ‘non-practicing entities’ (NPEs), while others use the term ‘patent assertion entities’ (PAEs), and some pejoratively refer to some or all of these patent holders as ‘trolls.’ These outsiders come in many different flavors: individual inventors, universities, failed startups, and holding companies that own a patent or family of patents. 

This post is about a particular type of outsider that is relatively new: the mass patent aggregator. The mass patent aggregator owns or controls a significant number of patents – hundreds or even thousands – which it acquired from different sources, including from companies that manufacture products. These mass aggregators often seek to license their portfolios to large practicing entities for significant amounts of money, sometimes using infringement litigation as the vehicle. Aggregators often focus their portfolios on certain industries such as consumer electronics.

Mass aggregator patent litigation and ordinary patent litigation appear to differ in one important aspect. Mass aggregators sue on a few patents in their portfolio, which serve as proxies for the quality of their entire portfolio. The parties use the court’s views of the litigated patents to determine how to value the full patent portfolio. By litigating only a small subset of their portfolio, the aggregator and potential licensee avoid the expense of litigating all of the patents. But the court adjudicates the dispute completely oblivious to the proxy aspect of the litigation. Instead, the court handles it like every other case – by analyzing the merits of the various claims and defenses.

If the court understood the underlying dispute was litigation-by-proxy, would it (or could it) proceed any differently? I will discuss my thoughts on this question in another blog post. For now, I have a question: does proxy litigation occur in other areas of law?

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6 Responses

  1. The Texaco case in copyright used a sort of proxy – picking three random engineers and determining if their use of the asserted articles was fair use. The parties agreed that the court’s ruling on those random folks would govern the remainder of the dispute.

  2. Ken Rhodes says:

    I think the “proxy” aspect of the Texaco case was different in nature, and very common in law. It took the Texaco details as a proxy for a general decision, not on any portfolio of properties, but rather on limiting a principle of law–in that case, the Fair Use doctrine. Similarly, for example, Kirtsaeng v. Wiley & Sons was a proxy, not for Wiley’s portfolio or Kirtsaeng’s, but rather for the First Sale doctrine.

    In the somewhat different situation David is asking about, I don’t know the answer, but I suspect it exists in valuation of portfolios of properties in real estate. For example, in valuing mineral rights of a portfolio, it might be expensive to investigate each property individually, so if they’re in a reasonably close proximity, it might be cost effective to investigate a few, then impute the findings to all of them.

  3. TJ says:

    Is this substantively different from plaintiff lawyers bringing a few test cases first to see if a particular legal theory will have traction? Generally, they have more cases waiting in the wings if the first test cases succeed.

  4. Doug says:

    TJ is right. This is similar to mass tort MDL proceedings like drug cases and asbestos where the lawyers try a few cases to get an idea of the value of the case before a large settlement is negotiated.

    It would be interesting to compare, however, the similarity in the injuries and available damages between multiple plaintiffs in that case, and the similarity between different values of patent claims in the case of mass aggregators.

  5. David Schwartz says:

    Thanks for the comments and reactions. The mass tort proceedings are interesting and I will give them more thought. In those cases, there is typically a single defendant facing lawsuits from lots of different plaintiffs (and plaintiff lawyers). The defendant has an interest in having the weakest plaintiff’s case proceed first, much like a patent aggregator has an interest in having its strongest patents adjudicated first. I will continue to think about this. Thanks again.

  6. “This is similar to mass tort MDL proceedings like drug cases and asbestos where the lawyers try a few cases to get an idea of the value of the case before a large settlement is negotiated.”

    There are those who argue, and I’d be one of them, that the rise of the Patent Troll coincides with Tort Reform (at least in the state of Texas – EDTX, anyone?). The dust docket ambulance chasers moved into the patents space.

    Just sayin’,

    IPTT