Judge’s Investigation Into Patent Troll Results In Criminal Referrals

In 2022, three companies with strange names and no clear business purpose beyond patent litigation filed dozens of lawsuits in Delaware federal court, accusing businesses of all sizes of patent infringement. Some of these complaints claimed patent rights over basic aspects of modern life; one, for example, involved apatent that pertains to the process of clocking in to work through an app.

These companies - named Mellaconic IP, Backertop Licensing, and Nimitz Technologies - seemed to be typical examples of patent trolls,"companies whose primary business is suing others over patents or demanding licensing fees rather than providing actual products or services.

However, the cases soon took an unusual turn. The Delaware federal judge overseeing the cases, U.S. District Judge Colm Connolly, sought more information about the patents and their ownership. One of the alleged owners was a food-truck operator who had been promised passive income," but was entitled to only a small portion of any revenue generated from the lawsuits. Another owner was the spouse of an attorney at IP Edge, the patent-assertion company linked to all three LLCs.

Following an extensive investigation, the judge determined that attorneys associated with these shell companies had violated legal ethics rules. He pointed out that the attorneys may have misled Hau Bui, the food-truck owner, about his potential liability in the case. Judge Connolly wrote:

[T]he disparity in legal sophistication between Mr. Bui and the IP Edge and Mavexar actors who dealt with him underscore that counsel's failures to comply with the Model Rules of Professional Conduct while representing Mr. Bui and his LLC in the Mellaconic cases are not merely technical or academic.

Judge Connolly also concluded that IP Edge, the patent-assertion company behind hundreds of patent lawsuits and linked to the three LLCs, was the de facto owner" of the patents asserted in his court, but that it attempted to hide its involvement. He wrote, IP Edge, however, has gone to great lengths to hide the we' from the world," with we" referring to IP Edge. Connolly further noted, IP Edge arranged for the patents to be assigned to LLCs it formed under the names of relatively unsophisticated individuals recruited by [IP Edge office manager] Linh Deitz."

The judgereferredthree IP Edge attorneys to theSupreme Court of Texas' Unauthorized Practice of Law Committeefor engaging in unauthorized practices of law in Texas." Judge Connolly also sent aletter to the Department of Justice, suggesting an investigation into individuals associated with IP Edge LLC and its affiliate Maxevar LLC."

Patent Trolls Tried To Shut Down This Investigation

The attorneys involved in this wild patent trolling scheme challenged Judge Connolly's authority to proceed with his investigation. However, because transparency in federal courts is essential and applicable to all parties, including patent assertion entities,EFF and two other patent reform groups filed a brief in support of the judge's investigation. The brief argued that [t]he public has a right-and need-to know who is controlling and benefiting from litigation in publicly-funded courts." Companies targeted by the patent trolls, as well as the Chamber of Commerce, filed their own briefs supporting the investigation.

Theappeals court sided with us,upholdingJudge Connolly's authority to proceed, which led to the referral of the involved attorneys to the disciplinary counsel of their respective bar associations.

After this damning ruling, one of the patent troll companies and its alleged owner made a final effort at appealing this outcome. In July of this year, the U.S. Court of Appeals for the Federal Circuitruledthat investigating Backertop Licensing LLC and ordering its alleged owner to testify was an appropriate means to investigate potential misconduct involving Backertop."

In EFF's view, these types of investigations into the murky world of patent trolling are not only appropriate but should happen more often. Now that the appeals court has ruled, let's take a look at what we learned about the patent trolls in this case.

Patent Troll Entities Linked To French Government

One of the patent trolling entities, Nimitz Technologies LLC, asserted a single patent, U.S. Patent No. 7,848,328, against 11 companies. When the judge required Nimitz's supposed owner, a man named Mark Hall, to testify in court, Hall could not describe anything about the patent or explain how Nimitz acquired it. He didn't even know the name of the patent (Broadcast Content Encapsulation"). When asked what technology was covered by the patent, he said, I haven't reviewed it enough to know," and when asked how he paid for the patent, Hall replied, no money exchanged hands."

The exchange between Hall and Judge Connolly went as follows:

Q. So how do you come to own something if you never paid for it with money?

A. I wouldn't be able to explain it very well. That would be a better question for Mavexar.

Q. Well, you're the owner?

A. Correct.

Q. How do you know you're the owner if you didn't pay anything for the patent?

A. Because I have the paperwork that says I'm the owner.

(Nov. 27, 2023 Opinion, pages 8-9.)

The Nimitz patent originated from the Finnish cell phone company Nokia, which laterassigned it and several other patents to France Brevets, a French sovereign investment fund, in 2013. France Brevets, in turn, assignedthe patent to a US company called Burley Licensing LLC, an entity linked to IP Edge, in 2021. Hau Bui (the food truck owner) signed on behalf of Burley, and Didier Patry,then the CEO of France Brevets, signed on behalf of the French fund.

France Brevets wasan investment fund formed in 2009with 100 million in seed money from the French government to manage intellectual property. France Brevets was set to receive 35% of any revenue related to monetizing and enforcement" of the patent, with Burley agreeing to file at least one patent infringement lawsuit within a year, and collect a total minimum Gross Revenue of US $100,000" within 24 months, or the patent rights would be given back to France Brevets.

Burley Licensing LLC, run by IP Edge personnel, then created Nimitz Technologies LLC- a company with no assets except for the single patent. They obtained a mailing address for it from a Staples in Frisco, Texas, and assigned the patent to the LLC in August 2021, while the obligations to France Brevets remained unchanged until the fundshut down in 2022.

The Bigger Picture

It's troubling that patent lawsuits are often funded by entities with no genuine interest in innovation, such as private equity firms. However, it's even more concerning when foreign government-backed organizations like France Brevets manipulate the US patent system for profit. In this case, a Finnish company sold its patents to a French government fund, which used US-based IP lawyers to file baseless lawsuits against American companies, including well-known establishments like Reddit and Bloomberg, as well as smallerones like TastemadeandSkillshare.

Judges should enforce rules requiring transparency about third-party funding in patent lawsuits. When ownership is unclear, it's appropriate to insist that the real owners show up and testify-before dragging dozens of companies into court over dubious software patents.

Reposted from the EFF's Deeplinks blog.