PTSC Is Staring Down the Barrel of a Canon

April 14, 2017

A California judge has ordered Technology Properties Limited LLC (TPL) and its affiliate MCM Portfolio LLC to pay Canon close to $1.8M in attorney fees, finding that the NPEs’ “litigating position” in a five-year battle with the company was “exceptionally weak”. Yet financial disclosures suggest that with dwindling licensing revenue, TPL and its monetization partners—which include the publicly traded NPE Patriot Scientific Corporation—may struggle to pay Canon’s fee award. And as legal fees from ongoing litigation against Huawei, LG Electronics, Nintendo, Samsung, and ZTE continue to mount, the NPEs may be forced to seek additional financing.

TPL filed suit against Canon (6:12-cv-00202) in the Eastern District of Texas in March 2012, accusing the company of infringing two flash memory patents (7,295,443; 7,522,424) through provision of all-in-one printers. The patents, which generally relate enabling devices to read different types of removable memory cards, are two of a family of 23, each member issuing between August 2002 and January 2017. (USPTO records indicate that two of those family members, 6,574,539 and 6,650,980, have been assigned to Nissan.) The ‘443 and ‘424 patents are among a group of assets known as the “Moore Microprocessor Patent (MMP) Portfolio”, which TPL, with financial backing from various entities, has asserted in litigation against over 70 companies to date. Campaign defendants include Acer, Amazon, JVC Kenwood, HP Inc., HTC, NEC, Panasonic, Sierra Wireless, Sony, and Toshiba. TPL claims to have signed over 100 licenses to the MMP Portfolio.

Following a venue transfer to the Northern District of California (4:14-cv-03640), and a Markman hearing in August 2015, Canon filed a motion for summary judgment of non-infringement. The court granted that motion in September 2016, finding that the accused products did not infringe the ‘443 and ‘424 patents because “the claimed ‘mapping’ limitations are not met by the functionality of accepting SD and MMC memory cards in the same slot using a shared set of contact pins”.

In a January order on Canon’s subsequent motion for attorney fees, the court found the merits of the plaintiffs’ case to be “exceptionally weak”, pointing to the NPEs’ pursuit of their infringement theory despite a 2013 determination of non-infringement by the International Trade Commission (ITC).

Along with its case against Canon, TPL had filed 17 additional suits in March 2012 (defendants included Dell, Fujitsu, Kingston, Newegg, Seiko, and Samsung), asserting various combinations of patents from the MMP portfolio, as well as a complaint with the ITC (337-TA-841). That action asserted the ‘443 and ‘424 patents against many of the same district court defendants. Following a non-infringement ruling issued by the ITC in December 2013, TPL (by now joined by co-plaintiff MCM Portfolio) continued to litigate the patents.

It was “unreasonable”, wrote District Judge Claudia Wilken in January, for TPL and MCM to have believed that the district court “would interpret the mapping limitations in some way that would lead to a different outcome than the one the ITC reached”. Further, TPL and MCM had proposed “an impermissibly broad reading of their claims that effectively would have covered prior art”, and their own expert testimony “posed an obstacle to success on the merits”. The judge’s April 12 ruling ordered the plaintiffs to pay Canon nearly $1.8M—99% of what the company had sought.

In 2005, TPL entered into a joint venture with Patriot Scientific Corporation (PTSC), a publicly traded NPE with a $6M market valuation, to monetize the MMP Portfolio, creating yet a third NPE, Phoenix Digital Solutions, LLC (PDS). PDS has been a co-plaintiff in a number of TPL’s cases involving the MMP Portfolio, including the currently ongoing litigation against Huawei, LG Electronics (LGE), Nintendo, Samsung, and ZTE.

Financial disclosures indicate that TPL and its partners currently have limited financial ability to pay Canon’s fees and continue their litigation campaigns without additional sources of funds. According to PTSC’s most recent 10-Q, as of February 28, 2017, PDS had only $900K of cash. At the same time, PTSC’s cash and marketable securities totaled approximately $3.3M, and for its part, TPL filed for bankruptcy in March 2013. Also in the April 13 filing, PTSC disclosed that PDS has not obtained “significant revenues” since September 2013, while at the same time incurring “significant legal costs associated with pending litigation”.

With a bankrupt partner, continuing legal costs, and little licensing revenue of late, one is left to wonder how PDS will pay the Canon fee award—and any additional fees that may come out of ongoing litigation. One likely scenario is that PTSC will be forced to inject funds into PDS, leaving both NPEs with little cash for operations.

Meanwhile, TPL’s litigation against Huawei, LGE, Nintendo, Samsung, and ZTE continues. In February 2014, in another ITC action filed by TPL, the Commission cleared those companies of infringement of a third MMP patent (5,809,336). TPL has appealed a subsequent ruling in those district court cases of non-infringement (2016-1311); last month, the Court of Appeals for the Federal Circuit vacated the September 2016 district court claim construction order and remanded the matter to the lower court for further proceedings.