Wifi litigation has some calling for patent reform legislation

By Jonathan Bilyk | Nov 15, 2013

CHICAGO (Legal Newsline) - In coming weeks, a federal judge in Chicago could hand down a decision in what some consider to be a landmark patent law case.

The case, brought by the holder of several dozen patents for components essential to the now ubiquitous WiFi routers and similar wireless networking devices found in homes and businesses the world round, has garnered attention at many levels of society.

And it may be for good reason, as the case has swept in people and businesses from a wide array of sectors.

"There are a lot of key players involved in this," said Todd Dickinson, executive director of the American Intellectual Property Law Association. "This case really illustrates the complexity of this debate."

But in more recent months, the case has served as more than just a legal exercise or even a good subject for a case study on patent law. The legal actions that have wound their way through the federal courts have now found themselves at the center of a debate in Congress over how to reform much of the system that governs how patents are awarded, regulated and defended in court.

"This case has substantially altered the debate in Washington," said Dickinson. "It's brought into the debate a large number of people - people who are well-represented in Washington - who ordinarily would probably just sit on the sidelines.

"But now they have come with both feet, and fists flying."

Since 2011, an alliance of some of the largest tech firms in the U.S. have joined forces to challenge patent infringement legal actions brought by a company known as Innovatio IP Ventures.

Headed by a former executive with the California-based tech manufacturer Broadcom, Innovatio has alleged in complaints filed in federal court that numerous patents it purchased from Broadcom have been infringed by virtually anyone who has ever used a wireless Internet router.

Shortly after acquiring the patents in 2011, Innovatio launched the infringement claims, mailing "demand letters" to thousands of businesses, including restaurants, coffee shops, hotels, and many others, demanding a few thousand dollars from each to settle Innovatio's claims that those businesses were unfairly profiting by using patented WiFi technology for which first Broadcom and, subsequently, Innovatio was not paid.

The estimated number of businesses receiving such letters has ranged from 8,000 to as much as 13,000, depending on who is asked.

After word of the demand letter writing actions reached the executives who run the device makers who distribute and sell the wireless routers at the heart of the case, several of them, including Cisco, Motorola Solutions, Netgear and others, entered the fray. They allege in counterclaims against Innovatio that the company had engaged in fraud and was in breach of contract for violating licensing agreements for the WiFi technology.

U.S. District Judge James Holderman has rejected the fraud claims, and has yet to hear arguments in the breach of contract matter. Nor has the judge ruled as to whether Innovatio's claims of patent infringement are valid.

However, the judge did issue a ruling earlier this fall that set royalty rates of 9.56 cents per chip for any possible infringement, and noted that the decision was intended to encourage the various parties to reach a settlement.

Lawyers for Innovatio, including the Chicago firms of Niro, Haller and Niro, and McAndrews, Held and Malloy declined to discuss the case with Legal Newsline.

Lawyers for Cisco, while they lauded Holderman's decision in the matter of the royalties, also declined to discuss the case's status or whether settlement talks were possible.

"This was a victory for the right result," said Cisco general counsel Mark Chandler.

Lawyers for the other various businesses, such as the thousands that received the demand letters, either declined to speak on the record, or referred inquiries to Cisco.

However, while the matter could yet be resolved by a court decision or a settlement, the case's greatest legacy may lie in intensifying the debate now ongoing in Congress over attempts to reform the patent system.

For many years, Dickinson noted, the patent law and reform debate drew little attention outside the worlds of manufacturing, technology development, and intellectual property law.

But in more recent years, suits like Innovatio's have become more common, as business groups have purchased patents, not to secure the rights to make products themselves, but to hold the rights to sue anyone they believe has made money infringing on those patents.

Several recent actions brought by such organizations, known formally as "non-practicing entities" or "patent assertion entities" and referred to derisively by critics as "patent trolls," have targeted, not manufacturers, but "end users" - businesses, like the coffee shops, hotels and others, who merely purchase and use the technology and might pay little heed to who holds patents for the various components, until demand letters arrive.

And such actions have prompted lawmakers from both sides of the political spectrum in Washington to step forward with proposals to rewrite patent law and make it more difficult for NPEs to sue for infringement.

Currently, the U.S. House of Representatives is considering a bill introduced by U.S. Rep. Bob Goodlatte, R-Virginia, chairman of the House Judiciary Committee. Known as the Innovation Act, the legislation would increase various burdens on plaintiffs alleging patent infringement.

Likewise, similar bills are also pending in the U.S. Senate. One such bill, introduced by Sen. Orrin Hatch, R-Utah, would also include a provision requiring plaintiffs to post a cash bond sufficient to cover the legal expenses of the defendants, should the court rule for defendants in patent infringement actions. Hatch has noted the provision would only extend a similar provision now existent in copyright law to the patent system.

Bipartisan patent reform legislation is also being authored by Sen. Patrick Leahy, D-Vermont, and Sen. Mike Lee, R-Utah, targeting the NPEs.

The legislation is being strongly supported by lobbyists for a range of industry groups, including those representing the nation's restaurants, hotels and others.

The American Hotel and Lodging Association, for instance, wants to make sure that any such legislation would include provisions protecting or indemnifying end users of technology, should patent disputes arise.

"We're very encouraged, given the interest level in Congress, to see that they will get something done," said Kevin Maher, executive vice president of governmental affairs for the AHLA.

The pending legislation has also drawn a strong response from other industry groups, including some representing inventors, who say the reforms will make it harder for individual inventors to challenge large tech companies, should patents be infringed.

One such organization, calling itself the Innovation Alliance, said the large companies are using cases like the Innovatio actions to drum up support for patent reforms those companies have long sought.

"They are attempting to seed public opinion in favor of any measure to combat the 'patent trolls,' irrespective of whether it would weaken patent rights for everyone, undermining the foundation of the patent system, and ultimately, the U.S. economy," said Brian Pomper, executive director of the Innovation Alliance.

Dickinson said the rising prospects for such patent regulation reform has largely been fueled by the ability of the large tech manufacturers, like Cisco, to use the patent infringement demand letters sent by the law firms representing the NPEs to drum up support from other sectors of the economy for favored legislative initiatives.

Dickinson said he would encourage law firms considering the demand letter strategy to "proceed with a great deal of caution" as the strategy "could politically backfire."


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