americanlawyer.com DECEMBER 2016 A NEW FRONT IN THE IP WARS When a patent holder sued banks for infringing its intellectual property, Capital One fired back with an antitrust suit. BY SCOTT GRAHAM INTELLECTUAL VENTURES MUST and Trademark Office, with at least HAVE felt pretty confident when 20 of these matters ending adversely it launched its patent enforcement for IV. Meanwhile the U.S. Supreme campaign against the nation’s larg- Court in 2014 tightened eligibility est banks in 2013. Over that sum- standards for software patents, lead- mer, the patent monetization giant ing to a series of invalidations in sued about a dozen financial institu- court. tions, including JPMorgan Chase & Capital One has gone 10 for Co., Bank of America Corp., PNC 10 on the patents that IV asserted Bank NA and Capital One NA on against it, first in Virginia and now, the banks’ home turfs of New York, pending appellate review, in Mary- Charlotte, Pittsburgh and Alexandria, land. But the company says that Virginia, respectively. IV accused the could be just an opening skirmish, banks of infringing patents that cover given IV’s claim to 3,500 patents technology used in ATMs, credit and covering the financial industry SHUTTER debit transactions, and online and and its threats to keep assert- mobile banking. ing them until Capital One pays S TOCK/SUPPHACHAI SALAEMAN TOCK/SUPPHACHAI But much has changed in patent $131 million for a portfolio license. law over just the last three years, and So the bank has gone nuclear, the campaign surely hasn’t worked accusing Intellectual Ventures of out as IV envisioned. The banks breaking antitrust laws by deliber- and their allies invoked the America ately setting out to monopolize the Invents Act, filing some 30 petitions market for patents on technology for inter partes or covered business the banks are “locked in” to using. method review at the U.S. Patent “The volume of patents that IV LITIGATION REPORT has acquired is so large that IV has from others. Even then, Capital One achieved hold-up power even though may have to prove that IV is engaging the portfolio contains patents that are in “sham litigation,” which the U.S. invalid, not infringed and individu- Supreme Court has defined as claims ally weak,” Latham & Watkins partner that are objectively baseless, and filed Matthew Moore contends in court fil- with the subjective knowledge of their ings for Capital One. baselessness. Capital One is the only bank to file “I can count on one hand the cases antitrust claims so far, though others that have been successful on that have assembled high-powered legal theory,” says Orrick, Herrington & teams to fight the patent claims in court Sutcliffe partner John Jurata, whose and before the PTO. Wilmer Cutler practice focuses on patent law and Pickering Hale and Dorr; Jones Day; antitrust and who is not involved in Reed Smith; Goodwin Procter; Keker the case. “It’s a long shot.” & Van Nest and Durie Tangri are A spokesman for Intellectual Ven- among the law firms representing the tures said that the company had no banks, along with Latham. Kirkland & comment on the litigation at this time. Ellis is co-counsel in each case. (Kirk- In court papers, IV argues that Capital land is also representing IBM Corp., the One is trying to have it both ways, call- vendor of the targeted software, in a suit ing its patents worthless but at the same to invalidate the IV patents in adminis- time crushingly monopolistic. “Presum- trative proceedings at the PTO.) Sidley ably, even when a bank does the math, Austin represents insurance companies the collective ‘value’ of any number of that were sued in a second wave of suits patents each having zero value is still over some of the same patents. zero,” Funk & Bolton partner Michael For IV, Feinberg Day Alberti & McCabe writes for IV in court papers. The power of IV’s Thompson is spearheading the bank portfolio is not rooted litigation, with help from several other INTELLECTUAL VENTURES WAS firms: Freitas, Angell & Weinberg; founded in 2000 by former Microsoft in the value or lawful Funk & Bolton; Goldstein & Rus- Corp. executives Nathan Myhrvold scope of its constituent sell; Sterne, Kessler, Goldstein & Fox; and Edward Jung and joined soon patents,” Capital One Knobbe Martens Olson & Bear; and after by former Intel Corp. IP chief argues in court papers, Nix Patterson & Roach. Peter Detkin and Perkins Coie part- Capital One’s antitrust claim likely ner Gregory Gorder. In a little over “but in the sheer size of faces long odds, but it holds the poten- a decade, the company raised more the portfolio.” tial to disrupt Intellectual Ventures’ than $5 billion from investors, includ- business model and further reset the ing tech giants Apple Inc., Microsoft playing field on patent litigation. It’s Corp. and Google Inc. and universi- also forced the privately held IV to ties including Stanford University and hand over discovery about its inves- Northwestern University. IV describes tors, licensees and litigation strategy. itself as an “invention marketplace” ‘‘ “It’s an interesting and aggressive where investors, government entities, theory,” says Rutgers law professor businesses, academia and inventors Michael Carrier, who has written about can buy, sell and license IP assets. The the case. “The fact that they’re invali- company has acquired 70,000 patents dating patents supports their claims that and applications, with 40,000 in active these patents are weak and designed to monetization programs. be used in a collection as a bludgeon.” For 10 years, the company did its SHUTTER To succeed, Capital One will have licensing outside of the courtroom, S to prove that IV has vacuumed up all striking a $350 million deal with Veri- TOCK/ of the patents on the technology at zon Communications Inc. in 2008 and O MELCHENKO issue, leaving it no options whatso- a $120 million license with Intuit Inc. ever for designing around IV’s patents the following year. Myhrvold told The or licensing alternative technology Wall Street Journal in 2008 that the size of IV’s inventory was one of the asserting against Capital One plus six LATHAM & WATKIns’ MATTHEW keys to its licensing success. “I say, ‘I others asserted against the other banks MOORE: IV TRIED TO FORCE can’t afford to sue you on all of these, for $75 million. Or Capital One could CAPITAL ONE TO PAY MORE THAN $100 MILLION FOR and you can’t afford to defend on all take a global five-year license to the LICENSES TO PATENTS THAT IT these,’” he told the Journal. 35,000 patents held in IV’s two Inven- REFUSED TO IDENTIFY. The company began bringing law- tion Funds for $131.7 million. suits for patent infringement in 2010, “In effect,” Moore writes in Capital first targeting the tech industry. Then One’s court papers, “IV was attempting in 2013 it turned to the banks. to make Capital One pay in excess of Cory Van Arsdale, IV’s vice presi- $100 million without ever even show- splintered on the issue of software pat- dent of strategic business devel- ing Capital One what it would be pay- ent eligibility. That set the stage for opment, and Cris Leffler, then its ing for.” the Supreme Court’s landmark 2014 director of patent litigation, met The business of acquiring and assert- decision in Alice v. CLS Bank, clamp- with Capital One’s chief counsel for ing patents probably hit its apex in ing down on patentability for software- litigation, Stephen Otero, and asso- 2011, when a consortium formed by related inventions. ciate GCs Heather Caputo and Brent Apple, Microsoft and three other com- Timberlake in August of that year, panies paid a whopping $4.5 billion for CAPITAL ONE CHOSE TO FIGHT IT OUT according to court filings. Van Arsdale Nortel Networks Corp.’s patents. But in court. IV dropped two of the patents and Leffler informed the bank that IV the litigation environment has become that it was asserting in the Virginia fed- held 3,500 financial services patents, more challenging for patent owners eral court case and stipulated to non- with about 1,000 related to retail bank- ever since. infringement of a third. U.S. District ing. But the executives would identify First, the 2011 America Invents Act Judge Anthony Trenga then ruled in only 100 of them, and even then only if established administrative procedures April 2014 that the fourth and fifth pat- CHI Capital One agreed not to attack them for quickly and cheaply challenging ents were too abstract to be eligible for S ZIN with inter partes review, a guarantee that patent validity at the U.S. Patent and patenting under Section 101 of the Pat- D A R . Capital One apparently refused to make. Trademark Office. ent Act. M IV gave the bank several options: It Then, in May 2013, the U.S. Court That ended the Virginia litigation, DIEGO could license the five patents IV was of Appeals for the Federal Circuit but by then IV had already opened a LITIGATION REPORT new front, suing Capital One in U.S. That traditionally requires defining a district court in Maryland over five specific region or set of products. But other patents. Capital One has pre- Capital One doesn’t compete against vailed there too—one by stipulation of IV in any market, the judge noted, and noninfringement, four others on Sec- if IV’s patents are as shabby as the bank tion 101—but Capital One counsel alleges, then there’s no commercial Moore says that there’s nothing to stop market for them at all.