The Public Has No Interest in the Details of Patent License Payments, Rules Divided Federal Circuit Panel
- February 10, 2022
Category: TPLF, Top InsightTag: TPLF
Over the past few years, Uniloc 2017 LLC has been embroiled in several appellate battles over legal issues stemming from its complex relationship with parent Fortress Investment Group LLC and other affiliates. The Federal Circuit has just closed another chapter in one of those battles, this one focused on whether Uniloc would be forced to unseal the details of its licenses with third parties as a result of a dispute over standing. A divided panel of that court has answered that question in the negative, holding that the public does not have a broad interest in the consideration paid for patent licenses—ordering Northern District of California Judge William Alsup to revisit a sweeping unsealing order that had already been the subject of one appeal and remand. The decision prompted a heated dissent from Circuit Judge Haldane R. Mayer.
As recounted in recent RPX coverage, the aforementioned appellate battles are the result of a dispute over standing that stemmed from the complex funding relationship between Fortress and Uniloc Corporation Pty. Limited, an Australian operating company-turned-NPE. After having previously received funding from Fortress as early December 2014, Fortress apparently took over the entirety of the Australian Uniloc’s monetization efforts in May 2018, when that Uniloc entity transferred its entire patent portfolio to Fortress’s Uniloc 2017.
The disclosure of the May 2018 assignment then set in motion a battle over standing in a group of cases originally filed by subsidiaries of the Australian Uniloc against Apple, which moved for dismissal after learning about an earlier set of agreements between Uniloc and Fortress. As Apple argued in an October 2018 motion to dismiss, those agreements contained provisions establishing that Uniloc would default if it fell short of certain revenue targets and that rights in the asserted patents would revert to Fortress in the event of a default. Apple argued that Uniloc had missed those revenue targets prior to filing suit and had not cured the resulting default, meaning that it had lost sufficient rights in the patents-in-suit and thus lacked standing to sue.
Judge Alsup denied that initial motion, concluding that Uniloc had not defaulted based on a factual record later revealed to be incomplete. However, subsequent discovery led him to conclude that Uniloc had in fact defaulted and never cured the default, depriving it of standing. The ruling subsequently impacted another set of Uniloc cases against Google, when District Judge Yvonne Gonzalez Rogers, also in Northern California, cited Judge Alsup’s last standing decision and dismissed 11 cases against the company for lack of standing—a ruling still on appeal, as described further here.
The First Appeal: Judge Alsup’s Ruling on Third-Party Licensing Info Heads to the Federal Circuit and Back
Meanwhile, the fight over confidentiality spun off of this same standing dispute. Uniloc initially attempted to withhold various types of information, leading to a significant number of redactions from relevant submissions—as the NPE had designated large swaths of the relevant facts surrounding its relationship with Fortress as confidential. As later noted by the Federal Circuit, those redactions went so far as to encompass quotations of Federal Circuit opinions and lists of cases filed by Uniloc. In early 2019, the breadth of those redactions prompted the Electronic Frontier Foundation (EFF) to intervene in order to protect the public’s common law and First Amendment rights of access to the redacted information.
Judge Alsup granted that request and subsequently denied Uniloc’s sealing motion, ruling that any “generalized assertion of potential competitive harm” from the plaintiff would be outweighed by “the public’s right to learn of the ownership of the patents-in-suit”. That May, Judge Alsup then declined to reconsider that ruling in light of that same public right of access, criticizing Uniloc—now seeking more limited redactions—for wasting the court’s time and not making that narrower request in the first place. Judge Alsup also rejected its proposed justifications for the remaining redactions sought.
Most of that ruling survived an initial trip to the Federal Circuit, which agreed with Judge Alsup as to material related to Uniloc and its affiliates (including Fortress) and held that he had not abused his discretion under the applicable local rules—one of which requires narrowly tailored motions to seal. But the Federal Circuit came to a different conclusion as to information belonging to “Uniloc’s licensees and other third parties”, noting that “[s]uch third parties were not responsible for Uniloc’s filing of an overbroad sealing request” and must be analyzed independently of the above discussion on overbreadth. Here, the court noted that the license agreements in question included confidentiality provisions, with many also entered under district court protective orders. Also significant, found the Federal Circuit, was the fact that many of the licensees had submitted declarations requesting that their information remain confidential to avoid competitive injury stemming from its disclosure.
As a result, the Federal Circuit ruled that the “district court failed to make findings sufficient to allow us to adequately assess whether it properly balanced the public’s right of access against the interests of the third parties in shielding their financial and licensing information from public view”. It remanded for further proceedings “so that the court may make particularized determinations as to whether and, if so, to what extent, the materials of each of these parties should be made public”.
However, Judge Alsup doubled down in his ruling on remand, rejecting Uniloc’s argument that the third-party details should be sealed by virtue of falling into particular categories, explaining that it is the basis for sealing and not the type of information that determines whether information is sealable. As for the specific declarations submitted by Uniloc on behalf of third-party licensees, Judge Alsup determined both that they are hearsay and that they are unconvincingly self-serving—also highlighting the fact that those third parties had not submitted new declarations in support of Uniloc. Judge Alsup additionally granted a second EFF motion to intervene, again in order to oppose the sealing motion.
The Second Appeal: Judge Alsup Must Issue “Particularized Determinations” on Third-Party Licenses
Uniloc appealed that decision in January 2021 (2021-1568), arguing partly that the Federal Circuit should maintain the confidentiality of information pertaining to third-party licensees—citing additional, subsequently filed declarations from some of those parties seeking to keep information under seal. To do otherwise, warned the NPE, would allow other companies to use that information against the licensees during negotiations, leading to an “information asymmetry [that] would put these third-parties at a permanent disadvantage”. Apple, which did not oppose Uniloc’s original sealing motion, filed a brief arguing in favor of maintaining the confidentiality of the third-party licensing information. In contrast, EFF’s brief in intervention in part underscored the importance of affirming the unsealing orders as a broader deterrent against oversealing by other litigants.
On February 9, a divided Federal Circuit panel reversed Judge Alsup’s unsealing order on remand, holding that he abused his discretion by failing to provide “particularized determinations” about whether to unseal information as to each third-party licensee or otherwise apply trade secret protection, as the appellate court had explicitly ordered. “For that reason, and because it is relevant to the protectability of the license information”, the panel’s majority vacated and remanded the unsealing order “for the district court to carry out the examination this court instructed it to do”.
More broadly, the majority disagreed with the breadth of Judge Alsup’s characterization of the public’s interest in patents, rejecting the notion that this interest extends to patent valuation. The public does have an interest, explained the court, in ensuring that patents are not procured fraudulently or improperly, as “patents are granted only if they are valid”—meaning, only if they meet the requirements of the Patent Act, such as novelty, nonobviousness, and enablement. That interest also extends to the enforcement of patents, as reflected in the requirement that a party present reasonable arguments on both the law and the facts, on threat of sanctions, as well as in the possibility that inequitable conduct during prosecution could render a patent unenforceable. “But no rule of law or binding precedent says that the public is generally entitled to know what consideration a patentee receives for licensing its patent”, the majority held.
This disagreement further encompassed the nature of patent rights themselves, in light of Judge Alsup’s “colorful” statement that the grant of a patent reduces the free flow of ideas: that “a patent owner is a tenant on a plot within the public realm of public knowledge, and a licensee a subtenant” (as summarized on appeal). The majority rejected this framing as “incorrect”, instead arguing:
[P]atents are granted for inventions that, until their disclosure, did not constitute any flow of goods. Goods claimed in a patent, if the patent is valid, did not previously flow. Patents are granted for new inventions, those which did not flow in commerce before the invention. A properly issued patent creates new land, keeping within the court’s metaphor. It expands public knowledge.
Additionally, the majority held that Judge Alsup was wrong to argue that the public has a “strong interest in knowing the full extent of the terms and conditions involved in the exercise of its patent rights and in seeing the extent to which the patentee’s exercise of the government grant affects commerce”. The reason, per the majority, is that the case at hand “is not an antitrust case or an FTC investigation involving unlawful restraint of trade or monopolization. It is a suit for patent infringement”. Such a case does not implicate any “public interest or entitlement to information concerning consideration for the grant of licenses” without the parties having raised an issue about “license rights and provisions”—and neither party, the majority observed, had asserted such a claim in this instance. The only party in favor of unsealing the third-party licensing info was EFF, an independent nonparty that Judge Alsup allowed to join the case in order to advocate for this unsealing. “But we have seen no citation of a rule of law providing a presumption of access in a patent infringement suit to information concerning consideration for the licensing of a patent”, the majority underscored.
Finally, the majority returned to the issue of “alleged indiscriminate oversealing” that had formed the basis of its earlier partial affirmance as to the unsealing of Uniloc and Fortress information, noting that oversealing was no longer at issue as to the third-party licenses. To the extent that the district court still needs to show whether Uniloc earned enough royalties that it would have retained standing to sue, that can be shown without unsealing information as to all licenses. Finally, with respect to one Fortress-Uniloc agreement, the majority concluded that the “procedural failings” of those two entities “cannot justify unsealing the information of third parties” and held that “[t]he district court should have considered whether the interests of the implicated third parties outweigh the public’s interest in seeing individual licensing details that are not necessary for resolving this case”.
Circuit Judge Mayer’s Dissent: Judge Alsup Properly Exercised His Discretion, and the Public Does Have a Right of Access to Licensing Information
Circuit Judge Haldane R. Mayer dissented, arguing that Judge Alsup had adhered to the Federal Circuit’s remand instructions and properly exercised his discretion in weighing the public’s right to access against the rights of the third-party licensees. In particular, he agreed with Judge Alsup’s conclusion that the “dates and dollar amounts of those licenses” (quoting the district court) went to the heart of the standing dispute.
Judge Mayer also expressed an expansive view of the public’s right of access to filings related to dispositive pleadings, arguing that this right is “sacrosanct”. To that end, Judge Mayer cited caselaw from various circuits establishing that such access is key to the public’s ability to understand the judicial process and further ensure its integrity and transparency—and that parties filing suit must generally agree to resolve their differences in the “public eye”. “The right can be abridged only in certain narrow circumstances, and the party seeking to seal information bears the burden of providing ‘sufficiently compelling reasons for doing so’”, a determination that is best left to the discretion of the lower court.
To that end, Judge Mayer further agreed with Judge Alsup’s conclusion that the third-party licensees had not demonstrated a sufficiently “compelling interest” in withholding their licensing information. More specifically, Judge Mayer found it significant—as Judge Alsup had—that none of the third-party licensees had directly asked the district court to seal their information. Also important was the fact that of the 109 licensees contacted by Uniloc, 31 requested that some or all information remain private—and just 13 submitted declarations to seek this relief. Judge Mayer found those declarations to be “vague”, “conclusory”, and lacking concrete evidence of the “significant competitive injury” that could result from disclosure.
Judge Mayer then concluded by asserting that the majority was wrong to decide that the public lacks a broad interest in licensing information. “The public presumptively has a broad right of access to all information filed with a court in connection with a dispositive motion, and this includes patent licensing information”.
For more background on the standing and sealing disputes discussed above, see “Federal Circuit Upholds Uniloc PTAB Loss as NPE Fights Standing and Sealing Orders” (December 2021).