Fundamental Innovation Systems International LLC v. Apple, Inc. DC

Until recently, private equity-backed NPE Fundamental Innovation Systems International LLC (FISI) had squarely focused its USB charging campaign on device makers, hitting roughly 15 such companies over former BlackBerry patents since late 2016. FISI may now be shifting gears. This past week, the NPE sued a group of car makers and parts suppliers over the provision of USB media ports and vehicles equipped with such devices.

Signs abound that wealthy investors are doubling down on patent litigation. Take for example the new suits recently filed by two NPEs holding large portfolios of former operating company patents, each backed by a private equity firm or hedge fund. As a recent RPX analysis shows, the economic risk posed by these types of NPEs is significant—and may be increasing.

Fundamental Innovation Systems International LLC has filed a new round of cases in its sole litigation campaign, suing Aukey (2:20-cv-00116), BBK Electronics (OnePlus) (2:20-cv-00119), Jasco Products (2:20-cv-00118), and Yulong Computer (Coolpad) (2:20-cv-00117) in the Eastern District of Texas; Hon Hai Precision Industry (Belkin) (1:20-cv-00550), Lenovo (1:20-cv-00551), and TCL (TCT Mobile) (1:20-cv-00552) in the District of Delaware; and BLU Products (1:20-cv-21721) in the Southern District of Florida. The NPE has targeted, with patents acquired from BlackBerry, the provision of USB charging devices (e.g., charging adapters, battery packs, electrical outlets equipped with USB ports, etc.), as well as mobile devices that include USB charging devices (e.g., Chromebooks, laptops, smartphones, and tablets), throughout this campaign, which began back in December 2016.

Litigation finance firms have experienced record fundraising in recent years, with private equity firms and hedge funds looking for opportunities to invest in uncorrelated assets that can withstand, or even perform well in, the next economic downturn. With large amounts of capital on hand, and therefore fewer concerns about diversifying their investments, multi-strategy funds are proving to be attractive investment partners for standalone litigation funders. Through such partnerships, a new breed of NPEs has emerged—one backed by more copious and patient capital than those of years past. This article, the first in a series covering the evolving sources of capital for NPEs today, takes a look at two private equity firms and a hedge fund backing notable NPE campaigns.

A week following Apple’s early February declaratory judgment (DJ) complaint against Fundamental Innovation Systems International LLC (FISI) in the Northern District of California, the NPE has brought a separate infringement suit (2:19-cv-00048), asserting five of the 12 patents-in-suit in Apple’s DJ. FISI’s complaint, filed in the Eastern District of Texas on February 11, targets a similar list of products, including certain charging adapters, mobile devices, wireless earbuds, Bluetooth speakers, and wearables, but also adding certain Mac laptops (the “Macbook Pro 4th Gen, Macbook 8, Macbook 9, Macbook 10 and Macbook Air 8”). The patents asserted are a subset of hundreds acquired from BlackBerry in late 2015 and include patents previously litigated by FISI in cases against Huawei, LG Electronics (LGE), and Samsung (each of which subsequently took licenses to the FISI patents, according to the NPE), as well as ZTE (which was sued in early 2017 and remains active in litigation).

Apple has brought a declaratory judgment (DJ) action against Fundamental Innovation Systems International LLC, an NPE with active campaigns in the US and Europe, and its corporate parent, Fundamental Innovation Systems International Holdings LLC (collectively, “FISI”). Apple’s DJ complaint (3:19-cv-00638), filed on February 5 in the Northern District of California, seeks a judgment of noninfringement for three categories of products that include certain adapters, mobile devices, and wearables. The 12 patents-in-suit originated with BlackBerry and include a group of USB charging patents that FISI has asserted in a campaign hitting Huawei, LG Electronics (LGE), Samsung, and ZTE. They were among the roughly 200 patent assets that BlackBerry assigned to FISI in a late 2015 transaction—a multi-million dollar deal, according to public records, that was embroiled in strife and gamesmanship.

In its litigation campaign over former BlackBerry patents, Fundamental Innovation Systems International LLC (FISI) has upped the number of defendants from three to four and the number of patents-at-issue from five to eight. FISI’s new complaint against Samsung (2:17-cv-00145) asserts all five patents (7,239,111; 7,834,586; 7,893,655; 8,232,766; 8,624,550) already in campaign as well as three patents (6,936,936; 7,791,319; 8,541,983) new to the litigation. Rights in all of the patents, which generally relate to charging the battery of a mobile device (most of them explicitly by using a USB connection to “fast charge” it) were received from BlackBerry as part of a November 2015 transaction involving over 50 patent assets. In its complaints, FISI characterizes itself as “responsible for protecting and licensing seminal BlackBerry innovations in the field of USB charging”, and the accused products are mobile, charging, and other devices that allegedly make such use of a USB connection.