Standing In Quicksand

A recent decision in a high-value patent case out of Delaware should provide us ample motivation to add standing spelunking to the diligence checklist.

(Image via Getty)

Before getting into this week’s column, just a quick note on the still-unfolding post-Arthrex fallout. As I addressed last week, in Arthrex, SCOTUS reminded us that IPRs fall within the definition of a “a quasijudicial process conducted under the auspices of a political appointee.” Or as astutely put by leading patent academic, Patently-O, and Mizzou Law’s Dennis Crouch, SCOTUS has now confirmed that in a proper IPR “a political appointee is given direct input on each and every IPR decision.” As one of the leading espousers of the “patents are political” intellectual framework, it is not a surprise that Professor Crouch sees the Arthrex holding as further support for the idea that the USPTO director’s political leanings — actual or assumed — have had an impact on everything from patent grant rates to IPR procedures. With Arthrex compelling changes to the latter category, there is really no doubt that we will soon see various interest groups starting to marshal their forces in support of their preferred candidate profile for President Joe Biden’s upcoming nomination of a new PTO director.

As interesting as the politicking and prognosticating may be on that front, it is important to remember that while IPRs are a significant feature of modern patent litigation, there is a lot more that IP lawyers and their clients need to worry about than just IPRs. Just think of the issues on a litigation funder’s checklist when trying to diligence a prospective patent case for funding. In no particular order, we would surely consider the triumvirate of venue, damages, and IPR survival prospects when diligencing a case for funding. But we would also be remiss if we failed to consider the question of standing, an admittedly murky prospect in this age of patent monetization-inspired transfers of patent assets from operating companies and research universities to (often funder-backed) nonpracticing patent enforcement entities.

A recent decision in a high-value patent case out of Delaware should provide us ample motivation to add standing spelunking to the diligence checklist (or if you are on the defense side, your potential defenses checklist). In fact, that case is currently the subject of a fast-tracked petition for mandamus in the Federal Circuit, with the plaintiff Densify (Cirba Inc.) seeking immediate appellate review of the district court decision throwing out a $235 million-plus willful infringement verdict against adjudged infringer, and Densify’s mortal rival, VMware. Underlying the district court’s decision throwing out the verdict — and setting a 2023 new trial date — was the finding that the jury had been prejudiced in hearing about the competitive harm suffered by Densify as a result of VMware’s infringement, even though Densify itself had no standing to be in the lawsuit. Put another way, because only the Densify subsidiary that actually owned the patent was properly in the case, it was improper for the jury to hear about the parent company’s travails when making their damages award. Unsurprisingly, Densify thinks the district court got it wrong and wants the Federal Circuit’s immediate help reinstating the mega-verdict in its favor.

In Densify’s view, the case is ripe for mandamus because the district court “wiped out a $236 million jury verdict based on the mistaken perception that Inc. lacked constitutional standing to sue. That decision is wrong twice over. It rests on the mistaken premise that exclusionary rights are necessary for Article III standing and the equally mistaken notion that despite an exclusive license from its own subsidiary, Inc. is a ‘bare licensee.’” Add in the fact that Densify has no right to regular appellate review post-standing dismissal, and that the company may “cease to exist” before the case could be retried, and the need for immediate attention seems compelling. Moreover, to the extent Densify is correct that district courts faced with standing questions in patent cases require “appellate guidance on an issue that continues to confound lower courts,” Densify’s calls for immediate appellate review of the district court’s decision in its own case makes sense. To that end, the Federal Circuit is addressing Densify’s request for mandamus on an expedited schedule, with VMware’s opposition coming due as of this writing and Densify’s reply due by July 2, 2021.

The importance of getting standing issues right is underscored by the fact pattern in the Densify case. For one, the only licensee of the asserted patents was Densify’s own subsidiary. Moreover, the license at issue was styled as an exclusive one, even if it failed to convince the district court that Densify was any more than a “bare licensee.” Nor was there any doubt that it was Densify itself — as a direct competitor to VMware — that was suffering competitive injury from VMware’s infringement. Whether these facts and Densify’s arguments as to the propriety of mandamus, taken together, will sway the Federal Circuit is an open question at this stage. But we have a prime example of a high-value patent case being dropped into the dunk tank because of standing questions.

Ultimately, no matter how things go for Densify with respect to its mandamus petition, it has already learned a costly lesson. On the other hand, VMware’s successful wielding of a transfer license-based standing defense, even post-trial, serves as a clarion call to other patent defendants that they ignore potential standing defenses at their own risk. However their particular dispute turns out, it is already clear that standing issues are worthy of prime attention at every stage of the patent monetization lifecycle, from patent acquisition, to pursuit of funding, to enforcement itself. Because no patent owner wants to go through the trouble of hacking through the thorny thicket that is patent litigation, only to find that even when they thought they had cleared the jungle’s brush — that they were standing in quicksand the whole time.

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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.Kroub

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