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

                Backed by the private equity firm Centerbridge Partners and asserting former BlackBerry patents

Formed in Delaware in 2015, Fundamental Innovation Systems International LLC (FISI) has filed roughly 20 suits since late 2016, hitting Apple, Aukey, BBK Electronics (One Plus), BLU Products, Hon Hai Precision Industry (Belkin), Huawei, Jasco Products, Lenovo, LG Electronics, Samsung, TCL (TCT Mobile), Yulu Computer (Coolpad) and ZTE—and now, Anker Innovations (Fantasia Trading) and Cyber Power Systems.

As in its previous suits, FISI’s March 5 complaints against Fantasia Trading (1:21-cv-00339) and Cyber Power (1:21-cv-00340) assert former BlackBerry patents, this time with infringement allegations focused on the defendants’ provision of USB charging adapters (including wall chargers, car chargers, desktop chargers, and power banks). (Earlier suits have targeted a range of USB charging devices and/or Chromebooks, laptops, smartphones, and tablets, etc., that include such devices.)

FISI acquired its 18 patents-in-campaign from BlackBerry in a November 2015 transaction that included over 55 US assets as well as foreign counterparts in Australia, Europe, and Asia. The terms of that acquisition were not made public at the time, but filings in subsequent lawsuits between IP consulting firm Ocean Tomo, LLC and former Ocean Tomo executive Michael Friedman revealed that the assignment resulted from a multi-million dollar deal between BlackBerry and Centerbridge Partners, a private equity firm with an estimated $1.15B in assets under management. Details concerning that deal are available here.

FISI initially engaged TnT IP LLC—a patent monetization firm managed by Craig Thompson and Ozer Teitelbaum, both former senior IP executives at Alcatel-Lucent—to license its portfolio. However, in 2018 (amid Samsung’s settlement with FISI), IAM Magazine reported that the firm had been replaced by three former senior executives at IPVALUE Management, Kapu Kumar, Paul Seaman, and Paul Riley. (Indeed, Texas public records now identify each of Kumar, Seaman, and Riley as a “governing person” of FISI, along with Eugene Davis, of Livingston, New Jersey.) In April of 2019, Kumar, Seaman, and Riley cofounded New Jersey-based JASPAR – IP Consultants, an apparent patent monetization consultancy. According to IAM, John Desmarais, who partnered with IPVALUE on monetizing the Round Rock Research portfolio, introduced Centerbridge Partners to the JASPAR team.

Also according to IAM, this same team (and again with backing from Centerbridge) last year acquired over “1,400 worldwide patent assets from lighting business Osram” and has since moved the portfolio from one Irish entity (Key Patent Innovations Limited) to another (Pictiva Display International Limited).

Furthermore, USPTO records reflect the recent movement of a large portfolio of patents from HP Enterprise (HPE) to Ocean Tomo (OT Patent Escrow LLC) to Valtrus Innovations Limited, another NPE that Irish corporate records tie to the same group of individuals. More well-funded litigation from this team, again over former operating company patents, looks likely in store for 2021.

Solas OLED Limited

                Backed by the hedge fund Magnetar Capital, and litigating patents received from Casio, Microchip Technology (Atmel), or the University of Stuttgart

Formed in Ireland in March 2016, Solas OLED Limited has been waging a multi-front litigation campaign since April 2019, suing its nine total targets Alphabet (Google), Apple, BOE Technology Group, Dell, HP, Lenovo (Motorola Mobility), LG Electronics, Samsung, and Sony in district court with some also targeted in actions brought before the International Trade Commission.

Its first trial underway as of the publication date of this article*, against Samsung in the Eastern District of Texas (2:19-cv-00152), Solas OLED has filed a third suit against Samsung (Samsung Display), asserting in a February 26 complaint a former Casio patent and targeting OLED display modules incorporated in certain Apple products (e.g., iPhones and Mac Books) (6:21-cv-00185).

*Since this article’s publication, a verdict has been handed down in Solas OLED’s trial against Samsung. For RPX coverage, see “Texas Jury Returns $62.7M Infringement Verdict in Solas OLED Trial Against Samsung” (March 2021).

Solas OLED is backed by Magnetar Capital, a hedge fund with approximately $12.3B in assets under management, and the NPE’s managers have ties to a growing web of Irish NPEs litigating former operating company patents, including Arigna Technology Limited (asserting a former Mitsubishi patent), Data Scape Limited (litigating patents originating with Sony), Neodrón Limited (asserting patents received from Microchip or subsidiary Atmel) and Sonraí Memory Limited (litigating patents originating with HPE). For a closer look at these NPEs’ corporate ties, campaigns, and patents-in-suit, start with “More Hedge Fund-Backed Irish NPEs Launch US Litigation” (February 2021).

Meanwhile, yet more litigation from this group of Irish NPEs appears on the horizon; as recently reported by RPX, sister NPE Scramoge Technology Limited received over 120 US patent assets from LG Innotek last month.

The increasingly popular trifecta of operating company patents, nonrecourse funding, and more due diligence

The sale of patents by operating companies fueled yet more NPE litigation in 2020—a trend that may accelerate as more businesses turn to their patent portfolios for revenue due to economic pressure caused by the pandemic. Current economic conditions have also played a part in litigation finance’s explosive growth.

Litigation funding is typically provided on a nonrecourse basis, with the funder collecting a return on its investment only in the event of a successful outcome. If a funded plaintiff fails to recover in litigation, that plaintiff is generally not obligated to repay the funds advanced for the litigation.

Given that a nonrecourse funding arrangement comes with the risk of a total loss for the investor, litigation funders are spending substantial time and effort evaluating patents for assertion. As litigation finance continues to permeate the patent space, the character of the assets asserted by third-party funded NPEs may reflect additional due diligence and portfolio selection.

The IP market flush with former operating company patents, and with third-party funding increasingly widespread, the economic risk of NPE litigation may be the same as it was when filings were at peak levels—or even higher. See “What 15 Years of US Patent Litigation Data Reveal About the IP Market” (January 2021), and this RPX Community webinar, for more details.