An NPE Uses an IPR to Take a Bite Out of Apple

Posted by Nathan Speed on Jan 28, 2016

When Congress passed the AIA, inter partes review was heralded by many as offering accused infringers a powerful tool to invalidate patents asserted by non-practicing entities. While anecdotally it appears that this prediction was correct, a recent IPR petition filed by an NPE against Apple suggests that NPEs may be developing strategies for using IPRs offensively.

In IPR2016-00500, Intellectual Integrity—a company owned and operated by a patent attorney from Frisco, Texas and which does not manufacture a single product—filed an IPR petition against Apple’s U.S. Patent No. 7,864,163 (“the ’163 patent”). Although Apple has not accused Intellectual Integrity of infringing the ’163 patent, it did accuse Samsung of doing so and a jury awarded Apple over one billion dollars in damages in part for Samsung’s infringement of that patent. That billion-dollar damages award has since been reduced through post-trial motions and Federal Circuit appeals to $548,176,477, but Samsung recently agreed to pay Apple fully—though it expressly reserved the right to seek reimbursement if, among other things, one or more of the infringed patents (including the ’163 patent) is invalidated by the Patent Trial and Appeal Board. Moreover, the issue of supplemental damages for post-verdict infringement remains pending before the district court.

Suffice to say, the ’163 patent is quite valuable to Apple. Intellectual Integrity recognizes this. Its website touts that “post-grant review that invalidates one or more patent claims can be devastating to the patent - rendering the patent worthless in terms of enforcement and/or licensing revenues.” Potential licensing revenue, the website notes, is in the “trillions of dollars,” and Intellectual Integrity appears to want its “share” of that revenue stream.

The Bass Strategy

Intellectual Integrity is not the first NPE to use an IPR petition offensively. As we have written previously, Kyle Bass and his hedge fund have challenged numerous patents owned by pharmaceutical companies. In those proceedings, Bass and his hedge fund investors owned short positions in the companies whose patents they challenged, and they hoped to reap gains if the IPR filings caused the stock prices of those companies to fall. The Intellectual Integrity strategy appears more simple. Instead of taking short positions in companies, Intellectual Integrity identified a patent for which Apple has received a large verdict and filed a petition against that patent in hopes that Apple will pay Intellectual Integrity a portion of the verdict award to essentially go away.

What allows Intellectual Integrity to do this? The fact that there is no standing requirement for filing an IPR. Had Intellectual Integrity filed a complaint against Apple seeking a declaratory judgment that the ’163 patent was invalid, the district court would have thrown the complaint out because Intellectual Integrity, as an NPE, has no reasonable basis to believe Apple would assert the patent against it. The same is not true with an IPR, as the Board has made clear that Article III standing is not a requirement for filing an IPR. Ironically, the only entity that cannot challenge the ’163 patent is Samsung (and those in privity with it) because it was served with a complaint alleging infringement of the patent more than a year ago.


What are patent owners to do? As of now, the best advice is to fight. Given the greater than 60% institution rate and the subsequent greater than 80% invalidation rate, patent owners cannot take any petition lightly. Moreover, to the extent petitioners like Intellectual Integrity rely on prior art that was used in a prior unsuccessful attack on the patent, a patent owner likely should argue that institution is inappropriate under 35 U.S.C. § 325(d), which gives the PTAB discretion to deny petitions that present “the same or substantially the same prior art or arguments that previously were presented to the Office.” The PTAB has shown an increased willingness to reject petitions pursuant to § 325(d), and may be more inclined to do so if it believes the IPR process is being used abusively.

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