Enforcing IP Rights in China: It's Not as Hard as You Think

Peter Zura's 271 Patent Blog posted recently about a report from Joff Wild, editor of Intellectual Asset Magazine, author of the IAM Blog, and contributor to Thomson's Knowledge Newsletter. Joff's report is entitled "Patent Focus Report for 2008," and it looks at the patent activity for China, Europe, Japan, India and the U.S., and provides some interesting findings. Of particular interest to this blog are the numbers for China. Washington State is one of China's largest and fastest growing trading partners. In 2004, total trade between Washington state and China was in excess of $20 Billion (couldn't find more recent numbers, so if you know them, please post them in the comments). Businesses in Washington State will be pleased to read the findings from Joff's report concerning IP enforcement in China. Who would have thought that a patent infringement plaintiff has a better chance at winning a case in Shanghai than Marshall, Texas!

From the Report's section on China:

"During 2007, SIPO received 694,153 patent applications covering three types of patent: invention, utility and design. This number may at first sight seem huge, but it does not tell the full story. The overwhelming number of applications — almost 450,000 — was for utility and design patents, which are not subject to substantive examination. Only invention patents receive full scrutiny and there were 245,161 of these submitted during 2007.
What is interesting to note, however, is the increasing proportion of invention patent applications coming from within China. In 2006, they represented just over 58 per cent of the total number of applications to SIPO, in 2007 this increased to almost 63 per cent. This increase was despite an increasing number of applications from abroad: 92,107 compared to 88,172 in 2006.[A] study of reported decisions in IP cases during 2007 suggested that if rights owners appear before the Chinese courts they have a 75 per cent chance of having the eventual decision go in their favour. This is the case whether the plaintiff is Chinese or from abroad. During 2006, there were more patent cases filed in China than in any other country, and while 98 per cent of these involved only Chinese companies, in the two per cent featuring a plaintiff from outside the country, the foreign entity ended up victorious 90 per cent of the time."

Peter Sklar and Microsoft Resolve Patent Dispute

Individual patent holder Peter Sklar and Microsoft resolved their dispute over infringement allegations stemming from claim 5 of U.S. Patent Nos. 6,025,843 and in claims 11 and 19 in 6,243,094. The parties entered a stipulation dismissing all claims with prejudice. The case was pending in the ED of Texas, case No. 2:06-CV-7, before Judge Leonard Davis. In July, Judge Davis entered a claim construction ruling favorable to Sklar, which prompted a motion to reconsider by Microsoft, which was promptly denied. Those orders are attached below. From the looks of the case history and the claims construction ruling, one can speculate that some kind of settlement was reached. The claims at issue were drawn to user interfaces. From Judge Davis' claims construction order:

"Sklar co-developed an improved user interface for performing computer database searches
and filtering search results that resulted in U.S. Patent No. 5,790,121 (“the ‘121 patent”). The
improved user interface uses selective clustering of the items to be displayed. Selective clustering is a way for the user interface to group items that will not fit side-by-side in the display area due to crowding, while leaving ungrouped those items that can be displayed without interfering with one another."
SklarclaimconstructionOrder.pdfSklarreconsidDeniedOrder.pdf

Surprise Plaintiff in Nintendo Patent Litigation is Altitude Capital Partners

I reported here and here that Nintendo, along with others, was sued in the ED of Texas for infringement US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621. The plaintiff was purportedly Saxon Innovations LLC, a new patent licensing company. Well, according to Patent Troll Tracker, the true plaintiff (i.e., beneficial owner of the claims in litigation) is Altitude Capital Partners. From their web site:

"Altitude Capital Partners is a leading private investment firm focused on investing $250 million of capital in businesses which own compelling intellectual property assets. We seek to invest in portfolio companies that have valuable patents, trademarks/brands, copyrights, royalty streams, trade secrets, and other intangible assets which will create a competitive advantage in creating value."

ACP doesn't meet the strict definition of "patent troll." It is more of an investment bank, having a business model focused on investment in IP, or investment in companies developing IP.

But when "portfolio companies" have no other business but enforcement of IP through licensing and litigation, the model moves away from pure investment, and into funding litigation in exchange for a piece of the action. This sounds a little like the old common law doctrine of champerty. This doctrine is in a state of flux right now. To date, I have not heard of champerty being asserted against those who fund patent litigation. The issue appears to have been raised by Peter Zura's 271 Patent Blog in September of last year in connection with a post regarding a patent suit against Toyota, alleging that hybrid technology in the Toyota Prius and Toyota Highlander gasoline-electric hybrids infringes on US Patent 5,067,932. The plaintiff in that case was apparently funded by Oliver Street Finance, LLC, who apparently agreed to pay "all legal fees and expenses in exchange for a portion of any recovery Solomon receives in the litigation equal to the greater of 40% of the recovery or the actual amount of legal fees and expenses."

According to Peter Zura, the law of Champerty is still very much in effect in the state of New York, albeit in limited situations where there is an agreement whose "sole or primary purpose" is the prosecution of litigation. The key words, of course, are "sole purpose." This would seem to exclude most, if not all, artfully drafted agreements to fund patent litigation. Cases cited in support of this proposition are Refac Int'l, Ltd. v. Lotus Dev. Corp. 131 F.R.D. 56 (S.D.N.Y. 1990) (finding assignment champertous where a five-percent interest in the patent was contracted in exchange for Refac's obligation to sue at least two alleged infringers within one month. The patent was subsequently invalidated for inequitable conduct by the Federal Circuit, but no opinion was given on appeal with regard to the agreement itself). Another case is American Optical Co. v. Curtiss, 56 F.R.D. 26 (S.D.N.Y. 1971) (finding assignment of certain IP that was expressly conditioned on the assignee bringing suit was champertous, and therefore void).

With today's raging debate over patent reform, it would make sense to start seeing champerty raised as a defense to patent litigation funded by investment banks like ACP. A brief look at the law of champerty in the state of Washington reveals case law explaining (at least in dictum) that the doctrine "has never obtained a foothold" here. Weed v. Foster, 58 Wash. 675, 678, 109 P.2d 123, 124 (1910). Later cases specifically hold "that maintenance and champerty is abrogated in the state of Washington pursuant to RCW 9.12.010." Giambattista v. National Bank of Commerce, 21 Wn. App. 723, 748 (D. I. 1978 (Dore, J., dissenting in part). Even if the doctrine of champerty were in effect, Washington cases seem to limit the doctrine to providing a defense to enforcement of allegedly champertous assignments. Id. Thus, it would not seem to provide any sort of defense to patent litigation funded pursuant to an allegedly champertous agreement. Other Washington cases addressing the doctrine of champerty include Harrison Mem. Hospital v. Ross, Case No. 25538-3-II, 2001 Wash. App. lexis 1485 (Div. II July 10, 2001) and Jordon v. Welch, 61 Wash. 569, 571, 112 P. 656, 657 (1911).

Champerty defenses aside, this suit raises real issues regarding the effectiveness of FRCP 7.1, which is supposed to require disclosure of the real parties in interest to litigation. Arguably, ACP is the real plaintiff in interest in the current litigation over US Patent Nos. 5,592,555; 5,771,394; 5,502,689; and 5,247,621, but the litigants (especially the Court) have no way of knowing this through normal operation of Rule 7.1.

For a very interesting article on emerging business models in IP, have look at this article from Raymond Millien and Ron Laurie, "Established and Emerging IP Business Models."

Established2007.pdf