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Firms fight patent ‘death squad’

– VirnetX Holding won a $368 million jury verdict against Apple in 2012 – and soon found itself under attack.

Not just by Apple, which a jury said infringed four VirnetX patents by using them in the iPad and iPhone without paying.

A company that says it has no affiliation with the case, New Bay Capital, petitioned to have the U.S. government cancel the patents and then made VirnetX an offer: Give us 10 percent of the jury award, and we’ll back off.

New Bay utilized a Patent and Trademark Office review process started 20 months ago as a low-cost alternative to litigation. While the reviews have become the third-most popular forum for patent disputes, behind courts in Texas and Delaware, they have raised questions about whether third parties such as New Bay are acting as hired guns for litigants or prospectors for cheap cash that shouldn’t be able to challenge patents.

“Are they related to some entity who has an important stake in these cases, or are they a shakedown artist?” said VirnetX lawyer Jason Cassady of Caldwell Cassady & Curry in Dallas.

New Bay Vice President Joel Rothman, a patent lawyer in Boca Raton, Florida, declined to discuss the demand for a share of the verdict amount; in court papers, New Bay’s lawyers said it was part of normal settlement discussions.

The case is one of 1,204 petitions filed since the agency’s inter partes reviews started in September 2012 through May 21, 2014, and is double what the agency expected.

The earliest cases invalidated so many patents that Circuit Judge Randall Rader of the U.S. Court of Appeals for the Federal Circuit dubbed the process a patent “death squad.”

The agency’s chief patent judge, James Smith, rejected the label at a May 22 meeting, saying “as the data set enlarged, the picture also has changed.”

Companies accused of infringing patents are lured to the agency’s Patent Trial and Appeal Board by the lower cost, faster process and preferential rules compared to court. Statistics also show they have a high chance of winning.

So far, 480 reviews were begun after preliminary checks found “reasonable likelihood” of success, according to the patent office. There have been 54 final decisions, with 32 cases resulting in all challenged claims being canceled and nine with all challenged claims being upheld. The rest were a mix.

The 141 settlements were typically for less than those reached in court.

Patent owners can’t leverage the high cost of litigation, said Jim Carmichael a former patent judge now with Miles & Stockbridge in Tysons Corner, Virginia. “They’ve gotten some indication from three judges with an engineering degree that their patents will be dead within a year.”

Created as part of the patent system’s 2011 overhaul, the process is ramping up just as Congress considers more steps to curb abusive royalty demands and courts tighten litigation rules, in part to stop companies that buy patents solely for profit, known by the pejorative “patent trolls.”

It’s a popular alternative for companies targeted by patent-infringement lawsuits because decisions must come within 12 months and the agency allows the broadest interpretation of what a patent covers, which makes it easier to find evidence to prove the invention isn’t new.

Third-parties intervening to challenge patents at the agency like RPX Corp. and Unified Patents say they aren’t working for a single company but protecting a specific technology from patent claims.

Such groups can focus the challenge to the best arguments and lower costs, said Kevin Jakel, a former Intuit Inc. patent counsel who founded Unified Patents.