PublishedNovember 15, 2022

With frivolous NPE patent suits clogging courts, counsel’s diligence and ethics suffer

U.S. patent litigation is big business. Billion-dollar judgments, readily available litigation financing, and favorable venues and lax filing standards mean between three and four thousand suits are filed annually, almost none going to trial.  As is standard today, the true identity of the entity filing suit is often shrouded in secrecy; rules and regulations associated with tax status and corporate formation—in addition to making patent litigation more profitable—make it favorable to create straw-man shell corporations (also known as non-practicing entities (NPEs) in legal jargon) for use as judgment-proof vehicles to sue. And the lawyers, of course, make a killing.

For the NPEs that use a “file-and-settle” model, filing hundreds of complaints (and sending even more demand letters per year) and obtaining quick settlement, often for less than the cost of litigation, is critical—if problematic for the lawyers pushing hundreds of cases a year. This practice, if taken to the extreme (as some have), is bound to violate ethical and court rules, like those of reasonable pre-suit investigation, diligence, and the prohibition against filing frivolous suits.  That’s why just a handful of lawyers are willing to risk it.

These lawyers and their filings are rarely reviewed—particularly because these cases settle so quickly that not even court clerks, much less magistrates or District Court judges, generally get to lay eyes on them before they are withdrawn or settle for nuisance value (typically less than $30,000, and by some reports often as little as a few thousand).

In this cottage industry representing more than 1,000 patent suits a year—over a fourth of all filings per annum—the entities are represented by a handful of lawyers, suing roughly 50 U.S. companies a month, never (as in, not once in the approximately ten years this practice has been prevalent) going to trial. Small companies dominate the target list, including, start-ups, retailers, and others not versed in defending against these actions.  

It’s so many suits that these lawyers literally do not have the time to conduct reasonable pre-suit diligence on even a fraction of their filings.  Exhibit A of this phenomenon is William (“Bill”) Ramey III.  He has filed over 300 suits this year alone (through October), almost exclusively in the Western District of Texas’s Waco division; in the past ten years, he’s filed thousands.  A former drunk-driving billboard defense lawyer, he’s moved into Waco and is driving the heavy filings there. Some of the subsidiaries he files for include AML IP LLC, Authwallet LLC, Cybersoft IP LLC, and PacSec3, LLC, to name a few, each of whom have filed against dozens of defendants or more. This high-volume practice has led to a panoply of sanctionable conduct. See Traxcell Technologies, LLC v. Huawei Technologies USA Inc., 2-17-cv-00042 (EDTX) (fining counsel $65,000 and imposing numerous evidentiary sanctions);  WPEM, LLC v. SOTI Inc., 2020-1483, 2020 WL 7238458, at *1 (Fed. Cir. Dec. 9, 2020) (Gilstrap, J., below) (sanctioning counsel for lack of pre-suit investigation); NetSoc, LLC v. Chegg Inc., No. 18-cv-10262 et al. (S.D. NY Dec. 10, 2020) (filing included numerous typographical errors in unproofed claim charts, such as incorrect patent numbers and apparently cut-and-paste-induced errors; when confronted with these obvious errors in the pleading in at least three cases (and by counsel), Mr. Ramey apparently took over three months to address them, enough that the case was deemed exceptional under Octane Fitness.). What is also worth noting is, according to Docket Navigator, of the 39 times this counsel reached a decision on the merits before a court at his current self-run firm—e.g., motions to dismiss, failure to state a claim, ultimate judgment—he lost each one.  And they have further sanctions motions pending. See, e.g., ZT IP, LLC v. VMware Inc.,
No. 3:22-cv-00970, ECF 39 (ND Tex) (scheduling oral argument on exceptional case and attorney’s fees).

There are others, too—like Landmark Technology A, LLC, responsible for 1,800 demand letters and dozens and dozens of lawsuits, all demanding $65,000 to license, to “every kind of business under the sun” other than financial institutions themselves, including bakeries, florists, pharmacies, jewelers, bookstores, and other storefront businesses, on a patent ostensibly related to “loan processing and credit reporting.”  See State of Washington v. Landmark Technology A, LLC, No. C21-728RSM, ECF 35 (W.D. Wash. Oct. 28, 2022) (noting that eleven parties have, to date, filed for declarations of non-infringement, and noting that business have settled for “payment of licensing fees between $15,000 and $20,000 each”). Others—DynaIP, IP Edge, and other groups of subsidiaries—together file upwards of 1,000 suits a year. And Equitable IP, IP Investments, Dominion Harbor, and other frequent filers round out the list, some of which may have less questionable or more a legitimate volume of filings or licensing strategies, or at least capable counsel conducting the required pre-suit diligence. And IP Edge, another frequent filer controlling hundreds of subsidiaries, uses Bill Ramey for some of their filings.

In another example, entities apparently backed by Raymond Anthony Joao—who was himself famously sanctioned $1 million for actions by a subsidiary in a decision upheld on appeal (see https://www.law360.com/articles/778961/patent-owner-must-pay-1m-in-fees-for-its-tortuous-suit)—recently filed many dozens of suits, many, under the Decapolis Systems, LLC name, against Texas healthcare practices, universities, municipalities, and the like. See, e.g., Decapolis Systems, LLC v. UT Southwestern Health Systems et al., 2:22-cv-00159 (E.D. Tex.); Decapolis Systems, LLC v. Texas Retina Associates et al., 2:22-cv-00173 (E.D. Tex.).  Judge Albright in Waco recently transferred some of those cases that hung around long enough to get to a ruling out; their pleadings showed no real ties to Texas, as he noted. See, e.g., Decapolis Systems, LLC v. eClinicalWorks, LLC., 4:22-cv-40020, ECF 30 (D. Mass). Another, Hawk Technology Systems, sued hundreds, including Goodwill franchises, school districts, and hospitals on a single old CCTV patent both difficult to read and vague in its claims. See, e.g., Hawk Technology Systems v. DeSoto County School District, 3:18-cv-00132 (N.D. Miss); Hawk Technology Systems v. Goodwill of Silicon Valley, 3:16-cv-06213 (N.D. Cal.); Hawk Technology Systems, LLC v. Greater Baltimore Medical Center, Inc., 1:16-cv-01284 (D. Md.).  Many of the complaints look deficient on their face; some contain typographical or cut-and-paste errors or allegations that, again on their face, are simply not credible.

There are others, some who have filed so many complaints in such a short amount of time, it’s hard to keep track. Shipping and Transit, LLC—an NPE formed by the same people and asserting some of the same patents as the infamous ArrivalStar campaign—conducted a litigation campaign that sent more than a thousand demand letters and filed over six hundred and fifty lawsuits against small companies, mostly just small companies with a website, like CD Universe, a company owned and employing a single person, which resold CDs on a website.  Defendants were sued for using tracking widgets from third party shippers like FedEx, and asked to settle for less than $50,000 (often much, much less).  A few defendants fought back, pouring thousands in legal fees into chasing Shipping and Transit down for sanctions and fees, which they got, but not until after the entity had made its money and filed 650+ complaints. For instance, in Shipping and Transit, LLC v. Hall Enterprises, Inc., No. 16-cv-16535-AG-AFM (C.D. Cal. July 5, 2017), the defendant was awarded attorney’s fees under 35 U.S.C. Section 285. The Hall Enterprises court relied on SFA Sys., LLC v. Newegg, Inc., 793 F.3d 1344, 1349 (Fed. Cir. 2015) (holding that patent plaintiff’s sue-and-settle litigation business model relevant to determining whether case is “exceptional” under Section 285). Shipping and Transit offshored most of the licensing revenue obtained, later declared bankruptcy, and valued their entire patent portfolio at $1. Perhaps the attorneys partaking in the file-and-settle model should simply be reminded, again, of their ethical and legal obligations.

For instance, as patent practitioners, 37 C.F.R. Section 11.301 states that a practitioner “shall not bring or defend a proceeding, or assert or controvert an issue therein, unless there is a basis in law and fact for doing so that is not frivolous. Other sections prohibit undue delay in proceedings before a tribunal, prohibit the making of false statements of fact or law to a tribunal, the failure to disclose to a tribunal legal authority in the controlling jurisdiction known to the practitioner to be directly adverse to the position of the client and not disclosed by opposing counsel, and the knowing offer of false evidence. Additional sections govern fairness to opposing counsel and parties and conduct involving dishonesty or fraud, among other restrictions. The Courts have analogous regulations, as well as FRCP Rule 11, and each state Bar has ethical rules. 

But these attorneys and companies have been reminded, repeatedly, and it has neither slowed down their practices nor resulted in any obvious change in behavior. What is needed, then, is some more comprehensive inquiry into the speed and volume of their practices. Barring intervention from the Court or a third party, some other, more comprehensive guidance on ethical conduct in patent cases or some more effective sanction would be needed. Otherwise, it’s time for the patent bar and state bars to take notice.

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Jonathan Stroud

General Counsel, Unified Patents

Mr. Stroud manages Unified Patents’ legal and corporate work, with a focus on Patent Trial and Appeal Board (PTAB), district court, and appellate litigation, contracting, general corporate matters, and settlement negotiations. He regularly teaches, speaks, and writes about patent and administrative law.

Previously, Mr. Stroud was a patent attorney at Finnegan, Henderson, Farabow, Garrett and Dunner LLP, where he was involved in some of the earliest post-grant review work. Before that, he examined patents on implantable medical devices at the U.S. Patent and Trademark Office (USPTO).

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