A Tangled Waco Web

The spectrum of transparency with respect to patent ownership runs from clear to opaque.

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Ever since the pandemic began, there has been a lot of construction activity in my neighborhood. Some of that activity is no doubt driven by a willingness to upgrade home working spaces due to office closures. Likewise, there is nothing like the lockdowns we experienced in Brooklyn over the life of the pandemic to get folks to take a hard look at their home environs. Whether it is a broken closet door, a basement in need of a refresh, or even a recognition that with everyone home an extension is in order — there is nothing like forced attention on one’s surroundings as a call to action for getting things in better shape. In Brooklyn, a New York City ordinance requires all residential construction sites to post a placard outside detailing the work being done on the property in question (like the samples here). As you can see, included in the information required for disclosure is the owner of the property. Sometimes, that is the name of a person, which is often blacked out (perhaps illegally) by the homeowner or contractor after the sign goes up. Other times, the name listed is that of an LLC. In short, even Brooklyn residential buildings can be owned using various ownership structures. I am sure things can get even more complicated with commercial properties.

As with Brooklyn real estate, so is it with patents. From the most mundane — namely ownership by a single inventor or group of co-inventors — to more complicated structures that can make determining the true ownership of a patent a difficult exercise, the spectrum of transparency with respect to patent ownership runs from clear to opaque. The importance of getting a clear picture of patent ownership is most acute in a litigation context, where issues such as standing or rules of disclosure can require accurate identification of ownership of the patents asserted. In a recent example, Chief Judge Connolly of the District of Delaware just issued a standing order that requires disclosure of a plaintiff’s ownership “up the chain,” inclusive of anyone “with a direct or indirect interest” in a litigant. Because patent cases must be filed by the patent’s owners, compliance with Connolly’s order will necessarily require a patent plaintiff to disclose the entity that actually owns the patent. Even if one does not agree that such disclosure should be mandated in a civil case, there is no doubt that the presence of litigation funding and nonpracticing entity plaintiffs in patent cases have generated an undercurrent of support for such disclosure nationwide — particularly from frequent patent defendants. And the addition of Delaware to other high-profile, patent litigation-heavy, districts like New Jersey and the Central District of California in terms of requiring more disclosure than what FRCP Rule 7.1 requires is an important step in the direction of increasing patent ownership transparency in litigated patent disputes.

While we may have to wait a bit to see the fallout of the new rules in Delaware, as with all things patent, events in the Western District of Texas continue to occupy our immediate attention. As readers know, I have stated on multiple occasions how important I think it is for active patent litigators and their clients to monitor decisions coming out of Judge Albright’s courtroom, particularly when those decisions are on procedural issues other than transfer. In the latest decision of interest, Albright takes on the issue of a license defense in the context of a proposed amended pleading, in the very closely watched megabucks patent dispute between VLSI and Intel. In an order that became public late last week, Albright denied Intel’s motion to amend its pleadings or to sever and stay Intel’s license defense. (Before we get into the order, remember that VLSI had gotten a verdict of over $2 billion against Intel in the still-ongoing set of disputes between the companies.)

To start, Albright notes that the parent company of the plaintiff VLSI is an entity named CF VLSI Holdings LLC, which is itself  “owned by ten separate entities, which in turn are owned by pension funds and third-party investors.” From the outset, it is clear we are not dealing with an inventor-driven lawsuit here. Next, the court acknowledges that the pension fund owners of VLSI’s parent company are “managed by Fortress Investment Group LLC (‘Fortress’),” but that VLSI disputes that Fortress owns VLSI itself. During the pendency of the lawsuit between VLSI and Intel, Fortress acquired another prolific patent assertion entity, Finjan. Back in 2012, Finjan and Intel had entered into a patent settlement agreement. As Intel argued, the common control exerted by Fortress over VLSI and Finjan gives it a license defense against VLSI’s claims in light of the Intel-Finjan agreement.

In a twist, because Albright had not yet ruled on Intel’s motion to amend its pleadings to add the license defense, the license defense was not addressed at trial. As a result, even though trial had taken place — and the deadline to amend pleadings in the case expired in March 2020 — the court considered Intel’s motion pursuant to Rule 16(b)(4). First, Albright faulted Intel for waiting three months from when it learned of Fortress’ Finjan acquisition before filings its motion. That fact, coupled with Intel’s failure to press its license defense in the intervening proceedings leading up to trial, supported Albright’s conclusion that Intel’s motion to amend was a “tactic to delay trial” rather than a valid motion. Next, Albright found that VLSI had no connection to the Finjan settlement, as VLSI had never agreed to being bound by the terms of that agreement. Moreover, Albright deemed the link between VLSI and Finjan via Fortress, “tenuous at best,” while noting that Finjan did not own the VLSI patents at the time of its license with Intel and “could not have licensed something it did not own.” Accordingly, Intel’s license defense was futile, on top of being untimely.

The prejudice to VLSI in terms of allowing Intel’s license defense was also considered by the court. Interestingly, Albright suggests that “prejudice to Intel is likely minimal because it has a remedy outside of this litigation as it can pursue of a breach of contract claim against Finjan,” implying that if Intel really believes that its license defense passes Rule 11 muster it can file a case against Finjan for breach. At the same time, the court reiterated its conclusion that “VLSI is not bound by the Finjan License,” which is fairly read as a warning to Intel that a lawsuit against Finjan for breach would be a risky endeavor. Lastly, Albright denied as moot Intel’s request to sever and stay its license defense before him, in light of a ruling by the Delaware Chancery Court addressing Intel’s license claims in substantial part.

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Ultimately, Albright’s order reinforces how modern patent litigation can present a web of tangled ownership and investment interests, as well as pre-existing license agreements that implicate high-value patent defendants. It also reminds us that in big-ticket patent cases, every possible defense will be raised and litigated, especially if that defense has the ability to knock out a blockbuster jury verdict. We know that the VLSI-Intel saga is nowhere near its end absent a settlement between the parties. And now we also know that untangling a patent ownership web is something that judges nationwide will likely find a necessary skill going forward.

Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.


Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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