End users align with big tech in Wifi patent litigation

CHICAGO (Legal Newsline) - The owners of hotels, coffee shops, restaurants, retail stores, airlines, and others like them may not ordinarily care who invented a particular piece of wireless technology - or most other aspects of patent law, for that matter.

But a complex and still evolving lawsuit pending in federal court in Chicago has prompted a broad array of businesspeople from across the spectrum of the American economy to not only take notice, but to take sides with big technology manufacturers in the battle over who actually owns the rights to the tech that makes Wifi Internet communication possible.

Later this month, lawyers for a company owning dozens of patents it claims are essential to such devices as the now ubiquitous Wifi networks and routers are scheduled to meet in settlement conference with lawyers representing some of the biggest names in computing and lawyers for thousands of smaller businesses against whom the ostensive patent holders have leveled allegations of patent infringement.

That conference was scheduled under the oversight of U.S. District Judge James Holderman following the judge's ruling in early October that could set the stage for a potential conclusion to the litigation.

The case arose in 2011. Earlier that year, plaintiff Innovatio IP Ventures, a company headed by Noel Whitley, a former executive at Irvine, Calif.-based tech manufacturer Broadcom, had purchased numerous patents from Whitley's former employer, just a relatively short time before those patents were scheduled to expire.

Innovatio immediately moved to enforce those patents, claiming that many of the most common wireless routers and devices used in wireless networks - devices manufactured, distributed and sold by such tech giants as Cisco, Motorola Solutions, SonicWall, Netgear and Hewlett-Packard - infringed upon the patents it now owned

However, in the ensuing months, Innovatio, represented by noted patent lawyers from the firm of Niro, Haller and Niro, and the firm of McAndrews, Held and Malloy, both based in Chicago, opted not to go after the large tech companies directly.

Instead, Innovatio and its lawyers sent letters to at least 8,000 smaller businesses who had merely purchased, installed and operated the wireless devices - "end users" who don't make, sell or distribute the devices, but from whom Innovatio demanded payments of thousands of dollars each to settle the infringement allegations.

In recent years, more and more patent infringement suits have been brought by companies like Innovatio, which own patents, but don't actually produce the products or even any of the components within the products for which the patents were issued - organizations known formally as "non-practicing entities," and known derisively by critics as "patent trolls."

Some so-called patent trolls have in recent years targeted some companies that use some of the products that include the patented components.

But the Innovatio actions represented a new twist in the "patent troll" phenomenon, as the sheer number of "demand letters" and the breadth of the targets brought patent litigation to a group of business owners and others who may have never considered themselves a potential target for such actions.

Lawyers for Innovatio declined to speak with Legal Newsline to discuss their strategy in the case, saying their policy is to not discuss pending litigation.

However, in an article published earlier this year in Chicago Lawyer magazine, lawyers from the McAndrews firm said they believe the demands on the end users were justified, as they argue the patents are infringed by anyone who sets up a wireless network.

However, in that article, they said they have opted not to pursue patent infringement cases against individuals using wireless devices for personal use.

The thousands of individual actions have since been consolidated into one multi-district litigation pending in the U.S. District Court for the Northern District of Illinois in Chicago, under Judge Holderman.

And the actions have prompted counterclaims from the big tech manufacturers. Cisco, for instance, has said in public statements that it believes the demand letters represent an attack on its customers. Cisco has joined Motorola Solutions and the others in lending its resources to fight Innovatio in court.

Earlier this year, Cisco and the others sued Innovatio, claiming the NPE was engaged in fraud for issuing the demand letters. The judge disagreed, and allowed Innovatio's MDL to continue.

However, in late September, Holderman issued an opinion that, while not addressing Innovatio's infringement claims, could set the stage for a negotiated resolution, as it established the "reasonable and nondiscriminatory" price, or RAND, that the patent holder could hope to collect per patent-protected chip in the specific devices.

Innovatio had argued it was owed as much as $3.99 per device.

Holderman, however, set the RAND at 9.56 cents "for each Wi-Fi chip used or sold" by the tech manufacturers.

Representatives of Cisco indicated that the devices in question might typically contain but one to two chips.

Holderman said the RAND ruling would create a basis for settlement talks, noting that "by doing so, the possibility of settlement will be enhanced because the parties will be better able to evaluate the potential risks and benefits of expending additional resources in the litigation."

Lawyers for individual defendants also declined to speak on the record, referring inquiries to Cisco.

The decision elated Cisco, which noted that it drastically reduced any amount Innovatio could hope to collect from the other numerous smaller defendants.

"Now, instead of sending letters to businesses asking for thousands, Innovatio can send letters asking for a dime," Cisco general counsel Mark Chandler said in a prepared statement following Holderman's ruling. "And only if Innovatio can prove that the patents are valid and that the accused products use the WiFi features and are not already licensed - none of which they have done yet.

"I suggest they save the stamp," he said.

In a November interview with Legal Newsline, Chandler and Cisco's vice president for litigation Neal Rubin said the ruling marked a "major step in the litigation," as it will compel the plaintiffs to "do an assessment" of the case and whether the potential rewards make it worthwhile to continue litigating the matter.

They declined to state whether the parties are discussing a potential settlement, noting only that judges routinely schedule such settlement conferences in the hope that the parties might find common enough ground to settle matters on their own.

They also declined to discuss whether a settlement in the matter is even possible.

Chandler and Rubin said the parties are still awaiting hearings, trials and rulings from Holderman on other key questions in the case, including whether the patents are valid under licensing rules, and whether the patents, if valid, were infringed.

Cisco and the other companies have also complained to the court that Innovatio, in bringing the action, is in breach of its contract for failing to adhere to licensing rules. A trial date has yet to be set in that matter.

"This should have never been about trying to get coffee shops and children's health centers to pay $2,000 each," said Chandler.

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