Those Ex-Theranos Patents Look Really Bad; Contest Opened To Find Prior Art To Get Them Invalidated

from the you'd-think-it-should-be-the-other-way-around dept

A few weeks back we wrote about how Fortress Investment Group -- a massive patent trolling operation funded by Softbank -- was using old Theranos patents to shake down BioFire, a company that actually makes medical diagnostics tests, including one for COVID-19. Fortress had scooped up the patents as collateral after it issued a loan to Theranos, which Theranos (a complete scam company, whose founders are still facing fraud charges...) could not repay. Fortress then set up a shell company, Labrador Diagnostics, which did not exist until days before it sued BioFire. After it (and the law firm Irell & Manella) got a ton of bad press for suing BioFire over these patents -- including the COVID-19 test -- Fortress rushed out a press release promising that it would issue royalty-free licenses for COVID-19 tests. However, it has still refused to reveal the terms of that offer, nor has it shared the letter it sent to BioFire with that offer.

And while some have argued that after issuing this "royalty-free license" offer, the whole thing was now a non-story, that's not true. It appears that the offer only covers half of the test: the pouches that have the test-specific reagents, but not the test device that is used to analyze the tests. And so while the COVID-19 test pouches may get a "free" license, the machines to test them are still subject to this lawsuit.

In the meantime, tons of people have been asking how Theranos -- who appeared to never have a working product, despite publicly claiming it did (and convincing Walgreens that it did) -- could possibly have received patents on technology that never actually existed. Tragically, the answer is that our patent system (for reasons that make no sense) does not require a working prototype, which results in all sorts of nonsense getting a patent. That said, the good folks at Unified Patents have launched a crowdsourcing contest for prior art about the two Theranos patents in question.

We kindly ask our crowdsourcing community of thousands of prior art searchers to take a few minutes to help identify prior art on these patents that never should have issued and help rid the world of them, in the process improving the world’s chances of testing for and containing COVID-19 and other dangerous public health concerns.

The contest will expire on April 30, 2020. Please visit PATROLL for more information or to submit an entry for this contest.

If you're looking to help out and would like a place to start, the good folks at M-CAM, who analyze patents for prior art and obviousness, have a fairly remarkable analysis of the Theranos patents, and refers to Fortress/Softbank/Labrador as "graverobbers." The analysis is worth reading, including this analysis of the 1st claim in the patent for "a two-way communication system for detecting an analyte in a bodily fluid from a subject...":

No shit. My tongue is part of a system which detects various ‘analytes’ in food such as salt, sugar, and acids. Don’t tell anyone, but I’m starting to worry that I might be the next target for an infringement lawsuit.

But on a more serious level, the analysis explains why the patents are pretty much exactly as sketchy as you would expect from a company of Theranos' reputation:

... the claims of the patent they state are being infringed are incredibly mundane and obvious (patents must be non-obvious to be granted). They include gems such as "a) a reader assembly comprising a programmable processor that is operably linked to a communication assembly;" where they point out that Biofire’s machine uses, of all things, an ETHERNET CABLE to export data from its processor. Heathens!

It then notes that M-CAM found at least 416 other patents that appear to be significantly similar to the patents at issue, which makes you wonder why the hell the USPTO approved these patents in the first place...

Filed Under: covid-19, crowdsourcing, diagnostics, patent troll, patents, prior art, testing
Companies: fortress investment group, irell & manella, labrador diagnostics, softbank, theranos

Why Softbank Patent Troll's Promise Of 'Royalty Free' License On Theranos Patents For COVID-19 Is Bullshit

from the an-offer-everyone-should-refuse dept

As noted earlier this week, a Softbank-owned patent troll, Fortress Investment Group, spun up a shell company Labrador Diagnostics this month, and days after the company came into existence, it sued a company working on COVID-19 diagnostics, claiming that the technology it used for those tests violated the patents it had bought from Theranos -- the sham of a company that went down in flames, and whose founders are still facing federal charges for fraud. Oh, and Fortress/Labrador/Softbank was using the law firm Irell & Manella, the same law firm that once sued on behalf of a monkey over copyright. On a related note, the current head of the US Patent Office, Andrei Iancu, used to be the managing director of that law firm, and to this day insists that there's no such thing as a patent troll. He should perhaps talk to his former partner, Morgan Chu.

As you probably heard (because Irell & Manella made sure to reach out to everyone mocking them for this lawsuit), within hours of my post going viral, "Labrador Diagnostics" (again, a company that literally did not exist a few weeks ago) put out a press release saying that (1) it didn't know that BioFire was working on a COVID-19 test (which is questionable, given that the Wall Street Journal and other publications had mentioned it, but I guess Labrador didn't even exist when that article came out, so...), and (2) that it had "offered" a royalty-free license on COVID-19 tests once it realized. As we pointed out, the details and conditions of that "offer" still have not been made clear.

However, as Josh Landau at Patent Progress notes, even if Labrador/Fortress/Softbank is actually offering such a license, it's completely worthless, because the lawsuit is still claiming patent infringement on the machine BioFire is using to run the diagnostic:

While we can acknowledge that Labrador has made this commitment, it’s difficult to credit the commitment given that the commitment doesn’t seem to be a meaningful one. Suing a company that makes (extremely complicated) “razor handles” and “razor blades”, Labrador has essentially offered to freely license COVID-19 blades—but it’s still trying to block sales of the razor the blades require....

That’s the thing—Labrador’s offer isn’t meaningful in practice.  BioFire’s product, FilmArray, uses a technology called PCR (polymerase chain reaction).  And their product is pretty cool.  Essentially, FilmArray is a two-piece system—a durable test device and a consumable test pouch containing test-specific reagents.  You take the pouch, inject the sample to be tested into the chamber, and stick the pouch into the test device. The test device does some complex mechanical and biomolecular magic—PCR—and delivers a test result for the doctor.  (And as Mike noted, the patent isn’t on the biomolecular magic—it’s on using a barcode on the test pouch to trigger the PCR reaction.)

But in BioFire’s system, no matter what disease you’re testing for, you use the same test device.  The test-specific aspects are entirely contained in the pouch—a respiratory pouch, a gastrointestinal pouch, etc.  Each one tests for a couple dozen diseases. A respiratory pouch might check for COVID-19, common flu strains, and pneumonia all at once.  And what Labrador is seeking to block is the whole system, not just the pouches.

So an offer to allow a royalty-free license for the COVID-19 test appears to be meaningless—they’re still trying to block the technology that’s needed to run the COVID-19 test. A razor blade without a handle to hold it isn’t much use. The offer would seem to be made purely for the sake of making Labrador look less like ghouls trying to benefit from a pandemic—in practice, Labrador’s injunction request would still effectively shut down COVID-19 testing or make it more expensive. Even though it’s theoretically offering a royalty-free license to test for COVID-19.

Got that? Saying that you'll grant a royalty-free license on one part of the system, but not the part needed to make that "royalty-free" part work, is still seeking to block the use of COVID-19 tests. The lawsuit still seeks an injunction on the testing device, even if it will let COVID-19 pouches operate royalty free. Even worse, we don't know (and Labrador has so far refused to reveal the details of the "offer") what the terms of the offer are, and you can almost guarantee that if BioFire "accepts" the deal that would be used against them, as "evidence" that they admit the patents are valid, since they agreed to a "license" for one product. It's sham deal.

As Landau further notes, this is still likely to create a real chilling effect on other test developers as well:

Second, the offer of a license in one instance doesn’t require the patent owner to offer that license to others.  (And as we’ve seen with Qualcomm, even a legal commitment won’t stop a determined patent holder from trying to avoid offering licenses they’ve committed to offer.)  If you’re a medical startup thinking about developing a COVID-19 test, you could invest in that—and hope that Labrador licenses you royalty-free—or you could spend your money somewhere without the risk of a well-financed patent troll coming after you.  That risk will chill investment in public health and innovation, even though this particular case might be licensed.

Separately, Landau highlights another detail in all of this: how Fortress/Softbank got the patents in the first place. It wasn't a straight up "oh we'll buy your patents," but rather a more complicated deal in which Fortress lent money to Theranos, and when the company defaulted, took the patents:

As reported in John Carreyrou’s Bad Blood, Fortress loaned Theranos money to help them wind down, securing the loan by stating that if Theranos failed to make specified payments, then Fortress would take ownership of the patents.

Unsurprisingly, the medical device company which didn’t have a functional medical device failed to make those payments, and Fortress took the patents.

So, no, Morgan Chu and Irell & Manella should not be off the hook for this blatant pandemic profiteering. They're engaging in the worst kind of patent trolling: ones that will create a real chilling effect and potentially block the ability to create COVID-19 tests at a time when millions of lives literally depend on those tests.

Filed Under: covid-19, diagnostics, patent troll, patents, tests
Companies: biofire, fortress investment group, irell & manella, labrador diagnostics, softbank

Softbank-Owned Patent Troll Now Promises To Grant Royalty-Free License For Covid-19 Tests; Details Lacking

from the let's-see-the-details dept

Yesterday I wrote up a fairly insane story about how a Softbank-owned patent troll, Fortress Investment Group, through a shell company subsidiary, Labrador Diagnostics (which, despite its name, does not seem to do any diagnostics), using patents that it had bought up from the sham medical testing company Theranos during its fire sale, had sued BioFire Diagnostics/BioMerieux, one of the few companies making a Covid-19 diagnostics test, claiming patent infringement. The patent infringement claims were on all of its diagnostics created using BioFire's FilmArray 2.0, FilmArray EZ, and FilmArray Torch devices -- and the company's Covid-19 tests were based on that technology. Even worse, the company asked the court to issue an injunction, blocking BioFire from using the tests. As we pointed out, this was not just tone deaf, but destructive and dangerous.

This morning, hours after our article went viral, Labrador Diagnostics issued a press release claiming that once it became aware that BioFire was working on Covid-19 tests, it had offered the company a royalty-free license on those tests (and only those tests):

-Labrador Diagnostics LLC (“Labrador”) today announced that it will offer to grant royalty-free licenses to third parties to use its patented diagnostics technology for use in tests directed to COVID-19. Labrador fully supports efforts to assess and ultimately end this pandemic and hopes that more tests will be created, disseminated, and used to quickly and effectively protect our communities through its offer of a royalty-free license during the current crisis.

On March 9, 2020, Labrador, an entity owned by investment funds managed by Fortress Investment Group LLC, filed a patent infringement lawsuit in the District of Delaware to protect its intellectual property. Labrador wants to make clear that the lawsuit was not directed to testing for COVID-19. The lawsuit focuses on activities over the past six years that are not in any way related to COVID-19 testing.

Two days after the lawsuit was filed on March 11, 2020, the defendants issued a press release announcing that they were developing tests for COVID-19. Labrador had no prior knowledge of these activities by the defendants. When Labrador learned of this, it promptly wrote to the defendants offering to grant them a royalty-free license for such tests.

There are still many open questions regarding all of this. It is unclear when Labrador actually sent this letter or what it actually says in the details. It's notable that it says that it "will offer to grant royalty-free licenses, rather than just flat out waiving any rights it might hold for such tests. The latter would suggest good faith. The former makes you wonder if there are conditions associated with the "offer" (such as needing to license the patents for other uses, or a recognition of the patents as valid or some such). Labrador and its lawyers at Irell & Manella could clear up this confusion by releasing the letter -- including the time stamp when it was actually sent.

Even this bit of last minute ass covering doesn't change the overall sketchiness of the original lawsuit. Again, we're talking about questionable patents from Theranos, a firm that was shown to be a sham, with technology that never worked. The patents themselves seem excessively, perhaps ridiculously, broad. Look over the claims in patent 8,283,155 and explain to me how that adds anything new or novel to diagnostic testing machines. Here's the 1st claim:

1. A two-way communication system for detecting an analyte in a bodily fluid from a subject, comprising:

a) a reader assembly comprising a programmable processor that is operably linked to a communication assembly;
b) an external device configured to transmit a protocol to the communication assembly;
c) a test device configured to be inserted into the reader assembly, said test device comprising:

i) a sample collection unit configured for collecting a sample of bodily fluid suspected to contain an analyte;
ii) an assay assembly containing reactants that react with said sample of bodily fluid based on the protocol transmitted from said external device to yield a detectable signal indicative of the presence and/or concentration of said analyte; and
iii) an identifier that is configured to provide the identity of said test device and is also configured to trigger the transmission of said protocol that is selected based on said identifier;

wherein the programmable processor of the reader assembly is configured to receive said protocol from said external device, wherein said protocol in turn effects (1) a reaction in said assay assembly for generating said signal, and (2) selection of a detection method for detecting said signal, and wherein said reader further comprises a detection assembly for detecting said signal which is transmitted via said communication assembly to said external device.

It basically seems to describe a mobile testing unit that can collect data from a sample, and send what it finds over a network to a computer system to analyze. I'm certainly not an expert in the field, but it seems to me that if you were to ask basically any one with any knowledge of how these things work "how would you build a mobile medical diagnostics tool" they'd more or less describe exactly this system. This is not some big breakthrough. This seems to be a broad an obvious idea that never should have received a patent in the first place.

So, sure, it's great that after Irell & Manella started getting lots of shit for this kind of gross pandemic profiteering, it suddenly got the shell company to issue a press release "offering" (not promising) royalty-free licenses, but that doesn't clear up what appears to be a fairly gross effort at patent trolling off of a sham company's questionable patents -- and doing so in the midst of a pandemic. While the company claims it didn't now that BioFire was working on a Covid-19 test, that's laughable. Pretty much everyone in the space seemed to expect BioFire to be among the diagnostics firms creating a test. Indeed, even the Wall Street Journal wrote about BioFire working on this a full week before the lawsuit was filed. On top of that, this lawsuit was filed when it was already blatantly clear that we were in the midst of a pandemic, where BioFire's diagnostics would be useful.

So, yes, it's great that after the terribleness of this decision became clear, the company made it public that it wouldn't seek to stop Covid-19 testing, but that doesn't excuse all of the other awful behavior at play here -- and, again, the company still has not revealed the details and conditions of its "offer."

Filed Under: covid-19, diagnostics, license, patent troll, patents, testing
Companies: biofire, biomerieux, fortress investment group, irell & manella, labrador diagnostics, softbank

SoftBank Owned Patent Troll, Using Monkey Selfie Law Firm, Sues To Block Covid-19 Testing, Using Theranos Patents

from the and-that's-not-even-all-the-insane-parts dept

Honestly, I wasn't sure how to begin this story or how to fit all the insanity into the title. It's a story involving patents, patent trolling, Covid-19, Theranos, and even the company that brought us all WeWork: SoftBank. Oh, and also Irell & Manella, the same law firm that once claimed it could represent a monkey in a copyright infringement dispute. You see, Irell & Manella has now filed one of the most utterly bullshit patent infringement lawsuits you'll ever see. They are representing "Labrador Diagnostics LLC" a patent troll which does not seem to exist other than to file this lawsuit, and which claims to hold the rights to two patents (US Patents 8,283,155 and 10,533,994) which, you'll note, were originally granted to Elizabeth Holmes and Theranos -- the firm that shut down in scandal over medical testing equipment that appears to have been oversold and never actually worked. Holmes is still facing federal charges of wire fraud over the whole Theranos debacle.

However, back in 2018, the remains of Theranos sold its patents to Fortress Investment Group. Fortress Investment Group is a SoftBank-funded massive patent troll. You may remember the name from the time last fall when Apple and Intel sued the firm, laying out how Fortress is a sort of uber-patent troll, gathering up a bunch of patents and then shaking down basically everyone. Lovely, right?

So, this SoftBank-owned patent troll, Fortress, bought up Theranos patents, and then set up this shell company, "Labrador Diagnostics," which decided that right in the midst of the Covid-19 pandemic it was going to sue one of the companies making Covid-19 tests, saying that its test violates those Theranos patents, and literally demanding that the court bar the firm from making those Covid-19 tests.

A bit more background here: the company they're suing, BioFire, recently launched three Covid-19 tests built off of the company's FilmArray technology. And that's what "Labrador" (read: SoftBank) is now suing over. From the lawsuit:

The Accused Products embody at least claim 1 of the '155 Patent, literally or under the doctrine of equivalents, as set forth below. The further descriptions below, which are based on publicly available information, are preliminary examples and are non-limiting. On information and belief, the FilmArray 2.0, FilmArray EZ, and FilmArray Torch devices operate, together with the FilmArray pouches and software, similarly as pertinent to the non-limiting examples set forth below. On information and belief, the FilmArray EZ operates in substantially the same manner as the FilmArray 2.0, and as such is not separately addressed below. For the purposes of infringement, Plaintiff Labrador's non-limiting examples relating to the FilmArray 2.0 are equally applicable to the FilmArray EZ, albeit with use of at least the RP EZ Panel designed for use with the FilmArray EZ. See BioFire Diagnostics Website, https://www.biofiredx.com/products/the-filmarraypanels/ filmarray-respiratory-panel-ez/.

So, let's summarize: The firm that basically created the mess that is WeWork by dumping billions of dollars into the company, also owns a patent troll that bought up the patents from the sham medical testing firm Theranos, and is now using those patents to sue one of the few diagnostics companies that is actually making a Covid-19 test... in the middle of a pandemic. And, demanding the use of those tests be blocked:

That Defendants be enjoined from infringing the Asserted Patents, or if their infringement is not enjoined, that Defendants be ordered to pay ongoing royalties to Labrador for any post-judgment infringement of the Asserted Patents;

Honestly, I'm used to all sorts of awfulness, but this one piles awfulness upon awfulness, and takes it to a level of pure evil. The lawyers filing this lawsuit on behalf of "Labrador" should remember what they've done -- filing a bullshit patent trolling lawsuit, on behalf of a shell company for a notorious giant patent troll, using patents from a sham company, and using them to try to block the use of Covid-19 diagnostic tests in the middle of a pandemic. I wonder how they sleep at night. For the record, there are two law firms behind this filing. Irell & Manella is the big one, and they list out 7 different lawyers on this complaint: Morgan Chu, Alan Heinrich, Keith Orso, Adina Stohl, Dennis Courtney, Brian Weissenberg and Chaplin Carmichael. Their local firm is Farnan LLP, and the lawyers there are Brian and Michael Farnan. Morgan Chu is the big shot at Irell and runs its litigation group. He should take on much of the responsibility for this awful, awful lawsuit. Farnan LLP was formed by a former federal district court judge, Joseph Farnan, and I'll just note that 4 out of its 6 attorneys, including the two on this case have the same last name.

I understand the need for zealous representation of a client in court, but this seems even more despicable than your every day patent trolling, and people should associate these lawyers names with the truly despicable behavior on display here. Similarly, it should be a reminder of why its a good thing that the Supreme Court decided a decade and a half ago that injunctions are often inappropriate in patent cases. I know that there's an effort underway to have Congress change the law to overrule the Supreme Court decision on that point, but imagine how that would play out in this scenario, in which necessary diagnostic testing might get blocked due to some patent troll with deep pockets.

Filed Under: coronavirus, covid-19, diagnostics, elizabeth holmes, filmarray, injunctions, patent trolling, patents
Companies: biofire, biomerieux, farnan llp, fortress investment group, irell & manella, labrador diagnostics, softbank

Apple and Intel Sue SoftBank-Funded Patent Troll, Claiming Antitrust Violations For Patent Trolling

from the well-this-is-interesting dept

For years, I've argued that since patents and copyrights are government granted monopolies, it seems pretty straightforward to me that abusing those laws to stifle speech, innovation, or competition should be viewed as an antitrust violation. It's taken a while, but earlier this decade, the Supreme Court actually agreed with regards to patents (it's not there yet on copyright...).

So for all the talk about using antitrust laws against the tech giants, perhaps there's a much better use of antitrust law in taking down abusive patent trolling operations. At least that's the theory in a new lawsuit filed by Intel and Apple against patent troll Fortress Investment Group LLC. As the lawsuit notes, Fortress was a struggling company that was acquired by SoftBank in 2017 for $3.3 billion dollars, and then turned into a massive patent troll.

The complaint is a really good read on how patent trolls could violate antitrust laws. It even starts out by explaining how trolls violate the patent clause of the Constitution by not "promoting the progress."

Rather than promote the progress of science and useful arts, patent assertion entities (“PAEs”), including Defendants, that aggressively pursue meritless litigation have long been recognized to harm and deter innovation. For example, one study estimated that patent litigation brought by PAEs in the United States resulted in expenditures of $29 billion in 2011 for licensing fees, legal fees, and other costs of responding to PAE litigation. Another study found, by looking at the impact on stock price, that lawsuits by PAEs from 1990 through 2010 were responsible for the defendants losing half a trillion dollars. And those losses are not offset by corresponding gains to patent holders that promote innovation. One study found that the profits received by PAEs from litigation amounted to less than 10% of the lost share value of companies targeted by the PAEs.

The complaint highlights, as we've detailed here over the years, how the Supreme Court has pushed back on excessive patenting and patent trolling, but also how patent trolls have "evolved" to deal with this:

In the face of these challenges, PAEs have evolved. PAEs have increasingly been partnering with investment firms to fuel their litigation. This trend is part of a larger trend in the growth of third-party investment in litigation generally. Although the precise scale of investment in litigation is unknown, estimates put it in the tens of billions of dollars.8 As one example, the largest litigation investor reported having investments of $2.8 billion in 2019.

Having deep-pocketed investment firms standing behind them has made PAEs only more aggressive. Indeed, to meet the expectations of their new investors for high returns, PAEs must act ever more aggressively. These new investors are content to incur loss after loss so long as they have the chance to hit a windfall reward that will justify their investment. Patent assertion thus becomes simply a numbers game disassociated from the merits of the underlying patents, with PAEs and their investors betting that serial assertions with aggressive demands will strike a jackpot eventually making up for many other losses. Consistent with this strategy, while the overall level of patent litigation may be declining, assertions by non-practicing entities are increasing.

And that brings us to Fortress Investment Group:

central player in this emerging investment strategy is Fortress Investment Group LLC (“Fortress”). Fortress is an investment firm that went public in 2007. Fortress’s shares traded at over $35 per share after going public, but one decade later, Fortress was struggling with poor returns and its share price had plummeted to around $5 per share in 2017. Fortress was acquired that year by SoftBank Group Corp. (“SoftBank”) for $3.3 billion. Fortress contends it is “a leading, highly diversified global investment manager”11 and claims to have approximately $39.2 billion of assets under management as of March 31, 2019. One way in which Fortress has tried to turn around its performance and justify SoftBank’s investment in it is through increased speculation on patent assertions.

And the underlying issues in this case: Fortress has set up a ton of shell operations, and constantly shake down all sorts of companies actually making stuff:

Intel and Apple bring this complaint to end a campaign of anticompetitive patent aggregation by Fortress and a web of PAEs that Fortress owns or controls. Fortress has used its stable of PAEs to aggregate a massive portfolio of patents that purportedly read on high-tech consumer and enterprise electronic devices and components or software therein and processes used to manufacture them. By employing a network of PAEs that it either owns or controls, Fortress has created a web of entities that obscures Fortress’s puppeteering role in this scheme. Rather than enhancing efficiency, Fortress uses aggregation to undermine it by creating a structure in which Fortress and its PAEs benefit by asserting weak patents—i.e., those that never would have been asserted by their former owners—in order to stretch the resources of their targets and increase the possibility that those weak patents will improperly be found valid and infringed or the prospect that a target (like Intel or Apple) will agree to a license to resolve the threat posed by Fortress and its PAEs. Thus, rather than promoting the procompetitive benefits of the patent system by increasing innovation and output, Fortress’s scheme has the opposite effect. Fortress and its PAEs acquire and seek to monetize meritless patents that never would have been asserted by their original owners, imposing a tax on the electronics industry that increases prices, decreases output, and ultimately harms consumers. To the extent that Fortress and the other Defendants have patents that would actually be of value to potential licensees, the transfer of those patents to Fortress’s control limits access to them because those patents are now held by entities that have no incentive to license patents in a way that captures royalties that are commensurate with their actual value. Instead, those entities have incentives to obtain excessive monopoly rents by exploiting patent portfolios that aggregate any valuable patents with many meritless patents.

I wouldn't normally quote so much directly from such a complaint, but it's so clearly stated and easy to understand that it's useful. The complaint makes it clear that this is an attempt to "extort" money from operating companies, and that the whole game is based on volume, rather than any validity to the claims:

Through its anticompetitive aggregation scheme, Fortress has engaged in anticompetitive conduct by creating a portfolio of patents that purportedly read on electronic devices and components or software therein and processes used to manufacture them that allows it to charge far more than the value of the inventive contributions (if any) of the patents and of competitive prices for licenses. Fortress and its PAEs seek to use that ill-gotten power to extract and extort exorbitant revenues unfairly and anticompetitively from Intel, Apple, and other suppliers of electronic devices or components or software for such devices and ultimately from consumers of those products. Fortress’s aggregation is thus intended for an anticompetitive purpose—to invest in patents at costs lower than the holdup value of the patents to ensnare as many potential licensees as possible and to allow it and the other Defendants to assert as many possible claims of infringement to tax the commercial use of existing technology at rates beyond the actual value (if any) of the aggregated patents.

In furtherance of the anticompetitive scheme, Fortress and the other Defendants have deployed patents in waves of lawsuits against their targets without regard for the merits of the claims. Rather than licensing and litigating based on the merits of the patents, Fortress and its PAEs operate based on volume and repetition, targeting the resolve of the targets instead of establishing the merits and value of the patents. Given the size of the portfolio, Fortress and its PAEs can deploy patent after patent in case after case against their targets with the threat of ever more patent assertions and ever more litigation. Faced with this threat, many victims have agreed to settle, rather than to challenge Fortress and its PAEs, for amounts that reflect not the merits of the underlying patents but the effectiveness of the Fortress model. Thus, Fortress and the other Defendants foreclose the possibility—which existed before aggregation—that litigation can be an economic alternative to licensing patents.

The complaint details some of Fortress' practices in pushing for more and more patent trolling in the operations it supposedly "invests" in:

Fortress describes its investing approach as “making control-oriented investments in cash flow generating assets.” When it comes to patent investments, Fortress has taken its “control-oriented” approach to an extreme. Fortress’s model is to condition its investments in PAEs on terms so severe that the PAEs have no choice but to make aggressive and reckless patent assertions to attempt to generate the revenue required to meet their obligations to Fortress. When they fail to do so—as is often the case—Fortress steps in and assumes even more control and/or ownership of the patents, allowing it to ratchet up the aggressiveness of the assertions. In other instances, such as with VLSI, Fortress has skipped this intermediary step of finding a partner to do its bidding and acquired patents through a subsidiary outright from the start. The result is that Fortress has either acquired or controls a portfolio of well over a thousand U.S. patents for high-tech consumer and enterprise electronic devices and components or software therein and processes used to manufacture them to deploy against its targets.

It also highlights how Fortress' own execs more or less admit that this is the game plan:

Fortress has targeted suppliers of high-tech consumer and enterprise electronic devices or components or software for such devices because they provide attractive targets for repeated and meritless assertions. An article co-authored by Eran Zur, Managing Director of the Intellectual Property Finance Group at Fortress, observes that courts can grant “oversized awards” in the technology sector that “stem from the sheer complexity of interoperable components and systems sold as part of functional units, if not integrated devices.” Further, the article notes that “because technology invention tends to be incremental, to the extent an individual patent owner can be awarded damages on the price of the entire end product as opposed to their specific patent claim, a litigation incentive arises.” That litigation incentive is coupled with what the article notes are “the substantial legal costs to defend a patent infringement suit,” creating a situation in which “speculative behavior drives an ever-inflating price ceiling (given the possibility of oversized damages) [and] a price floor becomes set by the extreme expense of litigation defense, marked at just under nuisance value.”

It then highlights how this abuse of monopoly power is anti-competitive:

Aggregating patents in the way that Fortress has done harms competition. First, by aggregating patents covering technologies that are actual or potential alternatives for one another, Fortress injures competition in the same way as any merger or combination of competitors. Before aggregation, when multiple parties held such patents, those parties competed with one another to license the patents, and licensees benefited from that competition through more favorable licensing terms. Multiple holders of substitute patents were forced to compete with each other to offer better terms to secure licensees. Once the patents were aggregated and controlled by Fortress, however, that competition was eliminated.

Second, Fortress introduces a new cost to suppliers of electronic devices and the components and software for those devices that dampens incentives for product suppliers to invest in research and development to drive innovation, thereby further undermining competition and harming end consumers. Exposing the targeted suppliers to another cost benefits their competitors by making the targeted suppliers’ products more expensive and/or less innovative. Those competitors might have previously owned some of the patents aggregated by Fortress but were unable to impose such high costs on suppliers using technologies claimed by the patents when the patents were not aggregated into a massive portfolio. Fortress’s aggregation thus undermines competition in the sales of electronic devices and components and software for those devices.

Third, the higher royalty payments that Fortress and its PAEs generate reward the creation of patents that are not actually inventive or are not actually used. Thus, the higher royalties that patent aggregation generates do not lead to welfare-enhancing additional innovation.

Fourth, Fortress’s hold-up power is amplified by the uncertainty it creates through the size of the portfolio it controls and obfuscation regarding the scope of that portfolio. After aggregation, potential licensees lose the ability to decipher the extent to which Fortress controls patents that they may actually have wanted to license ex ante or that would be substitutes to asserted patents. By way of example, Fortress employees are listed as managing members or directors of companies that otherwise have no publicly known ties to Fortress. Mysterious patterns emerge such as entities with names connoting an unspecified relationship with Fortress, by a prefix “CF.” District court judges have gone so far as having to compel Defendants to reveal the ownership history of the asserted patents and the degree to which Fortress held rights in, and control over, those patents. The effect is that the hold-up power of asserted patents is imbued on other patents Fortress controls. Thus, rather than fostering pro-competitive patent licensing, Fortress’s aggregation scheme reduces potential licensees’ ability to obtain licenses to any patents they might be interested in licensing while simultaneously elevating the value of weak patents.

There's a lot more in the complaint. As you can hopefully see from the above quotes, it's written in an extremely clear and readable fashion, unlike many lawsuits. It goes into details of all of the Fortress-connected defendants and the various shakedown attempts they've made, as well as some of Fortress's "lending" practices that effectively force patent trolling on recipients.

There's a lot in the 57-page complaint (even if parts are redacted). I have no idea what chance it actually has in court. Indeed, I'd guess that courts are unlikely to accept the idea that asserting a patent, or even the overall process of patent trolling in this manner is an antitrust violation, but at the very least, it makes a compelling case as to how government-granted monopolies can be used in an abusive manner that appears to violate antitrust laws, and that clearly go against the stated purpose of patents in the Constitution. This should be a case worth following.

Filed Under: anti-trust, monopolies, patent investment firms, patent trolls, patents
Companies: apple, fortress investment group, intel, softbank