LITIGATION FINANCE

1
TRIAL COSTS ARE EXPENSIVE

Trial
$ $1-5 million
2-5 years

PTAB
$200-500
thousand
1-2 years

Duration 2
INSTITUTIONAL PATENT MONETIZATION INCREASING
Alternative non-correlated or non-cyclical vehicles (i.e., patent suits) are attractive because investors consider them “recession proof”

Source Funding Recipients Assets Lawsuits

$400 M + 6000+ 100+

$600 M + 2000+ 1000+

$13B Fund Sonraí Memory Ltd. 2000+ 100+

Data Scape Ltd.
Neodrón

$7B Fund WSOU Holdings, LLC d/b/a Brazos 4000+ 100+

Licensing, LLC

Source 3
 LITIGATION FINANCING RISING
Patent litigation finance is unaffected by fluctuations in the economy (non-correlated).

Funder Capital Min Size Funder Capital Min Size

$1.5B $1M $100M $5M

$1.5B Unknown $70M $200k

$800M $1M Unknown $1.5M

$556.5M $5M Unknown $3.5M

$373M $1M Unknown $500K

$289M $1M Unknown Unknown

* Commercial litigation, not limited to patents Source 4

RECESSIONS ACCELERATE TRANSACTIONS
Secondary Market sales at highest recorded level

Secondary Market Sales - 12.6%

Number of Assets Transacted - 69%
OpCo Patent Sales - 40%

NPEs are heading into the economic downturn

with significantly expanded asset bases
Source 5
 NPE LITIGATION ON THE RISE
2020 NPE Litigation

20%
from
2019

Over 10k patents recently transferred

to begin assertion

2020 litigation is expected to be the highest since

2016 (3777 cases) and PTAB will be the highest since
Source 2018 (1513). 6
Source
THE TEXAS WD IS THE NEW ROCKET DOCKET
TXWD PTAB
(Practice Guide) (Statutory)

Litigation Filed Petition Filed

Month Markman Month Institution

6 6

Month Final Decision

Month Trial Begins 18
18

On pace for #1 patent venue No PTAB FWD decision before

80%+ NPEs; (scheduled) trial dates =
PTAB funneling cases to WD Tex
Denials at PTAB (§314 & NHK Spring)
Source Source 7
 WESTERN DISTRICT
Western District – NPE Statistics
W.D. Texas cases in past 2 years (mid. Oct. 2018 – present):
o 722 NPE cases (according to Unified’s Portal)

Cases in W.D. Texas (by NPE): (stats from RPX)

o IP Edge – 58
o IPValuation – 43
o Equitable IP – 17
o Raymond Anthony Joao – 17
o Endpoint IP – 16
o IPinvestments Group – 14
o Cedar Lane – 12

8
December 01, 2019
FEATURE

Pulling Back the Curtain on Complex Funding of Patent Assertion

Entities
Jonathan Stroud

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©2019. Published in Landslide, Vol. 12, No. 2, November/December 2019, by the American Bar Association. Reproduced with
permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any
means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or
the copyright holder.

We are told that patent trolling—lawyers leveraging the high cost of litigation defense to extract nuisance settlements on defunct or
questionable patents—is whimsical fairy tale. That it is a derogatory “narrative” meant to scare legislators and decision makers into
submission. That the 330,000 patents issuing this year1 are all valid; that no wasteful litigation persists; that no data is needed to
demonstrate the various and sundry ills of the America Invents Act (AIA), that dirtiest kind of legislative reform—the effective kind;
that the ever-vague pendulum has swung somewhere bad and balance must be restored to the force, by force. That even if the
supposed nonpracticing entity (NPE) threat were once legitimate, it has now gone the way of mask works and the best mode doctrine
—found only as a footnote in the historical annals of patent law. That it’s okay again to worry more about the bottom line of patent
litigation practices and the proliferation of high-stakes litigation than it is to be concerned with their effects on the bottom line of U.S.
businesses. That we should pay no attention to the man (and it is almost always a man) behind the curtain.

And yet, there are bankers and entities and investors lining up—despite serious ethical issues2—to sink hundreds of millions of dollars
into financing patent litigations, with more joining their ranks every day.3 There are colossal, sprawling thickets of LLC subsidiaries
tied to obscure funders, many foreign, that bring dozens of patent lawsuits each week. There are now and will be more U.S. assets
available for purchase than ever before, in a marketplace representing hundreds of millions of dollars changing hands.4 Parties
continue to make plenty of money playing this game, making long and storied white-collar careers out of leveraging the continuing
imbalance in the cost of litigation.

And yet, NPEs abound. Patent litigation has set annual all-time highs post-AIA 2013 set the record of over 6,000 new patent suits,
2015 saw nearly as many,5 and 2019 promises another rise6—and serial private assertion entities like IP Valuation Partners, Longhorn
IP, and Dominion Harbor using dozens and sometimes hundreds of nom de plume proxy entities is the new normal. As Intellectual
Ventures winds down Fund III7 and sells off as many of its once 10,000-strong assets8 as the market will bear (reportedly having shed
a third of all their assets),9 plenty of assertion entities have rushed to step into the breach.

But we need not conduct large-scale studies or provide the mountains of evidence available to demonstrate the continued vitality of
the NPE business. We need only look to the story of Uniloc, of Fortress IP, which has at least $400 million in investment, and almost
600 district court cases in five years, to know there is plenty of money to be made. Regardless of where you come out on patent
policy, it is undeniable that business is still booming for some.

First, though, a caveat. At least as far as I can tell from what limited public information we have, Uniloc, Fortress, and other large-scale
NPE patent aggregators are playing a hide-the-ball game the system allows. They are using their legal know-how to exploit systemic
imbalances plainly, if often under nondisclosure agreements (NDAs). If legislators and decision makers wanted to avoid these obscure
corporate holding company thickets, amend complex licensing agreements (or at least require their disclosure to someone), or end
other practices, they could—and we can at least shine a light so we all can judge for ourselves. But as long as purchasing and
transferring patents secretly between sprawling corporate entities to avoid litigation liability and certain shades of limelight remains
legal, there’s little to do other than acknowledge their ingenuity and wonder if these cottage legal “industries” make our lives or our
economy better in any meaningful way.

Another caveat: my employer, Unified Patents, is adverse to Uniloc, and by extension, one would assume, Fortress (and perhaps
SoftBank, a foreign entity). Unified has challenged 10 of Uniloc’s patents to date—a handful more for Fortress in total if you count
other unacknowledged entities funded or controlled by Fortress, like DivX LLC—which isn’t much. That’s roughly 1.5 percent of the
patents Uniloc has asserted in district court over the past five years.10 As Uniloc is the most prolific NPE around, this should not
surprise anyone familiar with our business models. I make no bones about it; doing otherwise would be to prevaricate. This article is
based on publicly available information and done to counteract the mass amnesia, ignorance, or willful blindness I have seen spread
on the Hill, at conferences, in policy discussions, on blogs, and in private. Clearly, in a world where Uniloc operates with impunity, the
NPE problem persists. Given how much of this information hides just out of public view, I may be wrong or incomplete on some
details—and would welcome clarification. It is difficult to understand their true ownership, funding, and licensing structure, though;
their obscure corporate organization changes often, as the Federal Circuit recently noted.11 (Conducive of repetition, evasive of
review.)

With that, let’s dive into the most prolific patent investor around—Fortress IP, and its largest controlled affiliate, Luxembourg-based
Uniloc.

Uniloc

On a day in November 2018, one watching the daily patent docket for new lawsuits filed would have seen 45 complaints filed by Uniloc
subsidiaries against practicing companies like ABC, ESPN, Barnes & Noble, Netflix, Google, Hike, Huawei, Cisco, Apple, Cardo Systems,
and others.12 Forty-five distinct complaints, all from one assertion entity and its affiliates. How is it that an Australian surfer’s single
patent metastasized into this, the biggest patent assertion vehicle around? To answer that, let’s ride a wave back to the mid-90s.

It began in 1992 when Australian Frederic “Ric” Richardson III applied for a patent in Australia (and later the United States) on his
method of protecting methods of remote software activations, or “try and buy” versions of software.13 Those of us who remember
when AOL CDs were vinyled into the cover of popular magazines14 will need no explanation; but for others, as the internet exploded
and dial-up modems became common, these CDs allowed one to install the program at home but locked it once a certain time had
expired and the user hadn’t paid and received an activation code. It was, in a way, a simple form of early network cryptography.

Richardson’s patent (and the U.S. equivalent) eventually issued in 1996 and formed the backbone of Richardson’s Uniloc Company,
which hit it big in 1993 when Richardson struck a licensing deal with IBM to distribute “try and buy” versions of software.15 One early
success—First Aid—was distributed strapped to the front cover of a 1994 Windows Sources magazine.16 By 1997, Richardson was ready
to branch out, forming a U.S. subsidiary called Uniloc PC Preload that took that idea one step further and preloaded such unlockable
versions of popular software suites on commercially available PCs.

But the bubble’s burst hit everyone hard, and Uniloc was no exception. As its star fell and its revenue streams shrank to a trickle, it
turned to the one thing it had left—its patent. At some point, Uniloc redomiciled in Luxembourg; then in 2003, Uniloc set up another
U.S. subsidiary called Uniloc USA, and sued Microsoft in, of all places, Rhode Island (this was in the early years of the rise of the Eastern
District of Texas) on a single patent, U.S. Patent No. 5,490,216, the one that started it all.

After litigating the case for three years, the district court judge ruled in 2007 that, as a matter of claim construction, Microsoft’s
products did not infringe the patent as claimed. The Federal Circuit reversed in 2008, finding there were issues of material fact a jury
would have to consider, and prompting a jury trial. In 2009, that jury found Microsoft infringed at least some of the patent’s 20 claims
and found Microsoft should pay Uniloc $388 million in damages. The judge then reversed the jury in a judgment as a matter of law
ruling, finding the jury “lacked a grasp of the issues before it and reached a finding without a legally sufficient basis,” and ordered a
new trial to be held.17 Unsurprisingly, Uniloc appealed; in 2011, the Federal Circuit again reversed the judgment in part, reinstating the
jury verdict but reversing the damages award and remanding for further calculations, disapproving of the then widely used “25
percent rule of thumb.”18 Before the new trial could be held, in 2012, Microsoft and Uniloc settled under an NDA.

This led to still further assertions. By 2010, Uniloc had sued a reported 73 companies on the ’216 patent; Uniloc claimed publicly that at
least 25 of them settled. It made no difference that all 20 claims of the patent were canceled in a 2016 order by the agency that issued
it, or that the ruling was affirmed on appeal. No sanctions will ever issue; no rewind of the litigation, or recoupment of the licensing
revenue outflows, possible. And in the interim, Uniloc caught patent assertion fever.

Flush with cash, Uniloc, seemingly through its foreign-soil subsidiary, sought and made further acquisitions—and in early 2018,
reportedly bought 447 patents from Pendrell Corporation alone, via three separate tranches of patents once owned by IBM, Hewlett
Packard Enterprise, and Philips; Pendrell itself was a patent holding company. Pendrell’s big sale of some 600 assets came well after it
had reported, in 2016, a $103.5 million impairment loss after the failed ContentGuard assertion campaign.

With the means, will, and expertise to assert, and obscure funding sources, Uniloc quickly became one of the most prolific assertors of
patent rights, filing 44 cases in 2014, 16 in 2015, 87 in 2016, and 96 in 2017—the rise notably coming after the changes the AIA wrought
in our patent system. It was unclear to many who or what was behind many of the complaints, some dripping out seriatim, day after
day over months, many of which seemed to target and probe the contours of venue in the Eastern District of Texas post-TC
Heartland.19 Then in 2018, Uniloc majorly restructured its already sprawling LLC thicket, creating Uniloc 2017 LLC and transferring
over hundreds of patents, many involved in ongoing campaigns. But still, no one publicly knew how or why Uniloc was able to file
hundreds of complaints in the years following TC Heartland, when its bottom line seemed to be hurting, or why it would increase its
filing frequency and aggression at a time when others were recalibrating.

And then rays of light began to shine through. For instance, in one inter partes review (IPR) against a patent widely asserted by Uniloc
—U.S. Patent No. 6,564,229—the Patent Trial and Appeal Board (PTAB) noted that, after independently reviewing the assignment
records of the ’229 patent, in 2014, Fortress IP was granted a security interest in this and a whole tranche of undisclosed patents, based
on a document attached to assignment records of the security interest, and was the patent owner.20 The assignment records, as is
often the case, were messy and a little unclear, and they appear to have since been altered, but they suggest that the patent may have
been owned by either IBM or Uniloc (or both) prior to the agreement, which was with Fortress IP.

But others noted it, litigators defending some of the hundreds of Uniloc suits noticed it, and it became a small part of the basis for
wide-ranging discovery in unrelated disputes, the primary one being in Judge Alsup’s court in the Northern District of California.21
There, defendant Apple made arguments related to the Uniloc 2017 transfer that suggested there was a standing defect in the case; the
authorized discovery revealed a much earlier agreement with Fortress IP, along with evidence of hundreds of licenses and various
other corporate entities related to the transfer, all previously undisclosed to anyone, including the U.S. Patent and Trademark Office.

As the Federal Circuit later noted, even this discovery request was not fully complied with by Uniloc/Fortress/SoftBank, and it took
further action by the judge to reveal the truth:

Uniloc only partially complied with the court’s order. While it provided documents related to the May 3 transfer and
licensing agreements between Uniloc 2017 and Uniloc USA, it neglected to include documents on Uniloc Luxembourg’s
patent portfolio before the May 3 transfer. After Apple uncovered evidence of this deficiency, the district court again
compelled Uniloc to produce all documents in the related proceedings, “not just 99 percent,” about the ownership of the
patents-in-suit.22

It was only at that point that Uniloc produced the earlier collateral agreements with Fortress.

Those documents showed that in 2014, Uniloc and Fortress had entered into a revenue sharing agreement tied to funding and control
of Uniloc’s assertions; these documents provide a much clearer picture into the structure of America’s biggest patent assertor. These
agreements are common for Fortress—they have led to the takeover of portfolios from Marathon Patent Group, Inventer y LBS, and
others, based on public SEC filings; they have done the same with private entities, it would appear, whether by outright purchase or by
usury lending agreements and defaults.

All told, Uniloc or one of its subsidiaries has to date filed roughly 576 patent complaints, the majority of those coming since 2014. That
number is impressive; almost 200 complaints in one year is audacious; over 20 complaints in a day in the Eastern District of Texas
after TC Heartland is extreme. Where did Uniloc find such moxie and, more important, the capital for funding so many assertions?

As it turns out, it’s not Uniloc’s founder or core intellectual property (IP) that has led to this barrage—it’s the entity offstage, Fortress IP,
which has recently taken over all effective control from the shell entity Uniloc had become. While Uniloc had been party to a revenue
sharing and note and warrant agreement with Fortress Investment Group since December 30, 2014, per reports, and as confirmed by
the assignment records discussed above, it recently effected a complete takeover, resulting in the transfer of some 600 assets directly
to Fortress control.

To date, while Judge Alsup has denied or cured the standing defects in the earlier Uniloc v. Apple case, he has refused to seal many of
the documents that Uniloc 2017, Uniloc Luxembourg, and Fortress were required (seemingly for the first time) to disclose. That
decision led to the Federal Circuit weighing in, in an unrelated § 101 appeal in which standing became relevant in briefing on appeal.
The court cited the ongoing revelations about Fortress and Uniloc, noting: “Uniloc produced documents relating to a loan agreement
between Uniloc Luxembourg and Fortress Credit Co. LLC. Under the loan agreement, Uniloc Luxembourg collateralized its patent
portfolio in exchange for a loan. According to Apple, default would give Fortress the right to transfer or sublicense any of Uniloc’s
patents.”23

The court observed that Judge Alsup had not allowed Uniloc to “cure” the defect under Rule 62.1 after the fact, noting “[t]he instant
mess is one of [Uniloc’s] own making,” citing the other preexisting Uniloc standing dispute.24 However, the court advised that if
Fortress had standing and had not been named yet, it “would indicate an incurable jurisdictional defect,” and remanded that case to
Judge Alsup to complete further discovery to determine if Fortress controlled Uniloc (which would deprive Fortress of standing in the
suits in which it has not been named—i.e., most of them).25 It seems unlikely the Federal Circuit will reverse course and allow
Uniloc/Fortress/SoftBank to retroactively seal and hide the majority of those agreements at this point. Indeed, the Federal Circuit,
having seen many of them, called the agreement between Uniloc 2017 and Uniloc USA “little more than a ‘“hunting license,” solely for
the purpose of litigation.’”26

Fortress, SoftBank, and a $400 Million Stake

The story of Fortress IP, on the other hand, is the story of available capital, smart moneymen, and the continuing profitability of high-
quality patent assertions, despite lobbying efforts attempting to suggest otherwise. It is also the story of one of the more successful
patent litigation financiers, one that has led many other investors—Burford Capital, Gerchen Keller Capital (now owned by Burford),
Westfleet Advisors, Bentham IMF, Palladium, Pravati Capital, Woodsford Litigation Funding, Rembrandt IP Management, and Verum
Funding, to name just a few—to leap into patent litigation financing face-first. But before we get there, let’s go back to where it started
—as an offshoot of a venture capital firm.

Fortress Investment Group, a New York private equity group purchased by Japanese SoftBank Group Corp. for $3.3 billion,27 makes its
money in many ways, the main one being real estate lending and investment. But it has also made a side bet on patent assertions; for
instance, it announced its official “Fortress IP Fund I” on May 22, 2018, to fanfare in the New York Post and other sources.28 Run by Eran
Zur (of IP Nav, RPX, and now Fortress fame), the fund was seeded with a $400 million investment reported to originate with a wealthy
solo investor from the United Arab Emirates,29 demonstrating just how much Wall Street values patent assertion aggregators and IP
investments. One reporter applauded the move to diversify away from relying solely on real estate by starting the “Patent Troll Fund”
to acquire and assert IP, lend, and purchase companies outright.30

Prior to and after official launch of that fund, Fortress IP had lent capital to distressed companies rich in IP—including names like
Seven Networks, Inventer y, DivX, Marathon Patent Group, and even Theranos, the troubled Elizabeth Holmes-led diagnostic
startup.31 It has, to the best of my knowledge, nearly 40 such subsidiaries—though Fortress itself has so many subsidiaries per the SEC
reporting to make any honest evaluation of its reach impossible, even to government officials. (And that includes no licensing
agreements or security and collateral agreements that have gone unpublished or unrecorded or are subject to NDAs.)

These short-term ballooning financing bets might have seemed risky to most—lending companies in dire straits tens of millions of
dollars in last-ditch financing to pay off creditors and stave off collapse—but the rewards for default were almost as rich as the results
of repayment at usury rates. The deals were mostly structured to grant some variation of march-in rights to the patent portfolios of
those companies. And march in they did; the publicly traded NPEs’ failures were Fortress’s successes.

Take Marathon Patent Group, for instance, a once wildly profitable but much-beleaguered publicly traded spinout of Eric
Spangenberg’s original patent aggregator, IP Navigation. Forced in quarterly calls to reveal its shrinking revenue streams in the wake of
the AIA, Alice, venue, and other systemic reforms, Marathon turned to Fortress. We know this because, as a publicly traded company,
they had to file these agreements with the SEC; and so we know that Marathon did indeed default, which gave Fortress the right to
move in on the choicest cuts of Marathon’s dwindling patent portfolio—we even know which portfolios they took. And Fortress got
them, and all associated rights with them, for bargain-basement rates. Spangenberg then left for new ventures, though he continues to
litigate over licensing revenue from some of the patents.32

And so it was with Inventer y and its 740 patents, another publicly traded example.33 And Seven Networks.34 And so it was with
Elizabeth Holmes’s failed Theranos diagnostics company (yes, Fortress IP now owns those patents, their continuations, and the
associated failures in reductions to practice).35 And DivX, that once beloved video movie codec of the Napster age.36 There was even a
Uniloc bid on the assets of Acacia Research Corp., that once vaunted public NPE whose stock has slid from heights of $40 a share in
2012 to something like $2 per share these past years, though Acacia rejected the bid as undervaluing its sprawling and still-active
portfolio.37

In its way, Fortress pioneered a rather unique way to finance litigations directly, often spending years controlling, revamping, and
funding the prosecution of pending continuations, shaping portfolios with potential into potent weapons to be monetized from the
comfort of another name—occasionally one with a long history related to actual products, like DivX and Theranos.

And so it had been, albeit less publicly, with Uniloc. Since Uniloc is not publicly traded and is at least partially successful in earning
licensing revenue streams from some of its many transactions and assertions, it brings us back to the December 30, 2014, revenue
sharing and note and warrant agreement—which is, depending on your viewpoint, another term for Fortress’s typical give-with-the-
left-hand, take-with-the-right agreements, or simply a standard (if complex) form of partial funding and control—an investment, if you
will—of ongoing assertions. It appears, unlike Marathon’s relatively quick default, that Uniloc held on to some semblance of
independence and control and generally kept its head above water until May 2018, around the time that Fortress IP’s Fund I was
formed; that same month, a subsidiary of Uniloc Corporation Pty. Ltd., one of the many various Uniloc entities, transferred over 600
U.S. assets to Fortress Investment Group, in what some called Fortress having “effected a complete takeover” of the Uniloc vehicle.

That portfolio largely comprises former Pendrell assets, originating from Philips, IBM, the Electronics and Telecommunications
Research Institute (ETRI), at least three patents homegrown by Uniloc naming its CEO, Craig Etchegoyen, and various acquisitions
from Hewlett Packard Enterprise, Paragon Solutions, Ayalogic, and Fullpower Technologies, according to reports. This transfer, and
recent documents produced and unsealed or partially redacted in district court proceedings, suggest that Fortress now likely controls
all or nearly all of Uniloc’s activities, despite being rarely named in proceedings, though the standing and control arguments rage on.38
That means it is netting the lion’s share of any existing revenue streams from the over 100 licenses it has disclosed to Judge Alsup’s
court recently; much of that evidence is redacted or under seal, the confidentiality of which is up on appeal to the Federal Circuit.39
And it seems those licenses might just scratch the surface, depending on which corporate entity you are looking to. We will probably
never know for sure, not without mandatory recordation of assignments, transfers, licenses, or settlement agreements.

PTAB Discretion to Institute: The Integrity of the System vis-à-vis Large-Scale Aggregators
But this all begs the question of whether the nature of large-scale NPE patent aggregators and their litigation strategies themselves—
companies secretly funding hundreds of patent litigations in a coordinated effort, with outside litigation financing, some ostensibly
from foreign sources—are something that courts and the PTAB should consider; whether the sheer size, strate y, and nature of the
patent assertions campaigns Uniloc (and Fortress) has structured, in such a way as to evade efficient review, should be considered
when confronting litigation and its fruits.

Generally, it is best to avoid ad hominem arguments, mudslinging, generalized policy arguments about whose side is “right,” and other
distractions; better to rise above, and win on the merits, shrugging them off as sideshows. But what the updates to the Trial Practice
Guide and recent precedential and informative decisions clarify is that the PTAB is the proper venue for analysis into both the patent
in question and the nature and actions of the parties handling the questioning.

In the July 2019 update to the PTAB’s Trial Practice Guide and in several precedential and informative decisions, the PTAB has clarified
that it will consider the status of litigation, the staging of IPRs, and other various timing, strate y, and financial decisions of the parties
when deciding whether to initiate reviews. So, if parties who present meritorious validity challenges are to be turned away at the gate,
so then too should it be open season on all the reasons why institution might be so important in a particular case.

The time has come for the PTAB to flex that discretion and consider the nature of the patent owners and assertors, and their assertion
patterns and behaviors, as much as they have recently been scrutinizing the challengers. The Director’s discretion at institution is, I
would argue, broad—which is why the PTAB should entertain reasons to institute, where the patent owners’ activities are structured to
avoid review, or where the entities’ broader litigation strategies make it difficult to efficiently petition to seek post-grant review of
asserted patents.

Parties are already experimenting with such arguments. For instance, in one such challenge to a Uniloc/Fortress-asserted patent,
Microsoft took pains to lay out to the PTAB how the patent owner’s litigation strate y was structured, intentionally or otherwise, to
force unrelated third parties to either file multiple petitions on the same patent or seek to join earlier petitions.40 Microsoft noted that
Uniloc “chose to assert this patent against numerous defendants in a temporally staggered fashion, and the staggered filing of these
responsive IPR petitions results from the patent owner’s own tactical litigation decision to assert its patent in serial, instead of
simultaneous, lawsuits.”41 Microsoft emphasized:

This is not an isolated event . . . but rather is part of a larger Uniloc litigation strate y encompassing its assertion of over 100
patents against numerous defendants in a drawn-out fashion over the course of years. The apparent purpose—and certainly
the effect—of Uniloc’s serial-litigation strate y is not only to maximize the burden on (e.g., to “divide and conquer”) the
defendants, but also to leverage the PTAB’s discretion under §§ 314(a) and 325(d) to minimize the exposure of Uniloc’s
patents to petitions for inter partes review. The result has been 140 PTAB proceedings challenging Uniloc patents, filed by
numerous defendants.42

Microsoft’s counsel even generated a diagram showing a litigation campaign unrelated to the patent they had challenged,43 but
nonetheless demonstrating the odd asymmetric litigation strate y Uniloc has routinely employed, ostensibly to prevent joint defense
groups, provoke parties to settle independently of one another, and generally to wreak havoc on petitions for post-grant review,
forcing individual defendants into Hobson’s choices of whether to pay for their own potentially overlapping petitions or risk a third-
party settling and leaving them facing a one-year time bar preventing them from ever challenging the patent themselves.

It only seems fair that if patent owners can point to multiple petitions by unrelated third parties in seeking denial, petitioners likewise
should be able to explain the litigation strate y and corporate structures that led them to file multiple overlapping petitions. If the
Director’s discretion is relatively unbounded, all the more reason to consider the nature of the patent owner itself when deciding
whether to institute based on the “integrity of the patent system.”

Conclusion
And that, as far as we know from publicly available information, is the story of the Fortress takeover of Uniloc. Here’s the thing about
all of it—it’s just business. Just a way to make money under the current rules. But let’s not pretend that NPEs don’t exist. Let’s not
overlook the avalanche of Uniloc filings each week. And let’s not forget there are still plenty of lawyer-run NPE entities using the high
cost of litigation to extract nuisance settlements from practicing businesses, small and large. Call it patent trolling, call it leveraging
investment, call it smart lawyering, call it sound financial strate y—just please don’t call it a myth, and don’t suppose those addressing
it are the problem. We’re all, I would hope, smarter—and more honest—than that.

Endnotes

1. See Dennis Crouch, US Utility Patents Granted per Year, PATENTLY-O (July 11, 2019), https://patentlyo.com/patent/2019/07/utility-
patents-granted.html.

2. See, e.g., David Lat, 5 Ethical Issues with Litigation Finance, ABOVE L. (Dec. 2, 2015), https://abovethelaw.com/2015/12/5-ethical-issues-
with-litigation-finance.

3. See, e.g., Intellectual Property, BURFORD CAP., https://www.burfordcapital.com/how-we-work/expertise/patent-ip  (last visited Oct. 23,
2019) (touting Burford’s patent litigation financing options).

4. Kent Richardson et al., The Brokered Patent Market Grows to $353 Million in 2018, IPWATCHDOG (May 7, 2019),
https://www.ipwatchdog.com/2019/05/07/brokered-patent-market-grows-353-million-2018/id=108624 .

5. Litigation Annual Report: 2018: Litigations Filed, UNIFIED PATS., https://portal.unifiedpatents.com/litigation/annual-report?year=2018

(last visited Oct. 23, 2019).

6. Litigation Annual Report: 2019: Litigations Filed, UNIFIED PATS., https://portal.unifiedpatents.com/litigation/annual-report?year=2019

(last visited Oct. 23, 2019).

7. Jack Ellis, Top Buyer Intellectual Ventures Announces Cessation of Patent Purchasing Activities, Leaving the Secondary Market in
Limbo, IAM MKT. (Apr. 12, 2017), https://www.iam-market.com/blog-entry/top-buyer-intellectual-ventures-announces-cessation-patent-
purchasing-activities-leaving.

8. IV’s Global Inventor Network Generates 10,000th Invention, INTELL. VENTURES (July 21, 2011),
https://www.intellectualventures.com/buzz/insights/ivs-global-inventor-network-generates-10000th-invention. Annual statistics show
Intellectual Ventures had applied for and received more than 1,000 patents in some calendar years.

9. Michael Costa, Heads Up! 33% of Intellectual Ventures’ Patent Portfolio Is Gone (and Not All to Places You’d Hoped), RICHARDSON OLIVER
L. GROUP (May 14, 2018), https://www.richardsonoliver.com/2018/05/14/heads-up-33-of-intellectual-ventures-patent-portfolio-is-gone-
and-not-all-to-places-youd-hoped (reporting that “33% of IV’s main fund’s (Invention Investment Fund) assets from their January 2016
public list are gone today,” or “36% when looking only at issued US assets from IIF (from here forward)”); Richard Lloyd & Jacob
Schindler, IV on Verge of Major Patent Fund Sale, IAM (Oct. 3, 2018), https://www.iam-media.com/market-developments/iv-sell-major-
patent-fund-latest-disposal-giant-npe.

10. According to a search of all Uniloc and Uniloc-related entities on Lex Machina’s litigation database tool as of August 7, 2019. Other
data providers or search parameters may lead to slightly different results, but will generally agree on the total volume of suits and
patents, depending on their procedures for tagging metadata in their system, their understanding of what constitutes a Uniloc-related
entity, and the quality of their data set.

11. See Uniloc USA, Inc. v. Apple Inc., No. 2018 2094 (Fed. Cir. Aug. 30, 2019) (reviewing ongoing standing disputes around various
Uniloc entities and asset transfers associated with Fortress’s takeover of Uniloc).
12. See, for example, the November 19, 2018, Docket Navigator Daily Patent Docket Report or RPX Daily Litigation Report (both on file
with author), listing the following cases, some of which are transfers: (1) six complaints filed in the Central District of California against
ABC, ESPN, Hulu, Microsoft, and Netflix; (2) 26 complaints filed in the Eastern District of Texas against Google, AT&T, Barnes & Noble,
Cardo Systems, Cisco, Huawei, Samsung, Terrano, Verizon, and Hike; (3) nine complaints filed in the Northern District of Texas against
Blackberry, LG, and ZTE; and (4) four complaints filed in the Western District of Texas against Apple.

13. The patent’s U.S. counterpart is U.S. Patent No. 5,490,216 (filed Sept. 21, 1993).

14. See Jay Serafino, You’ve Got Mail: A History of AOL’s Free Trial CDs, MENTAL FLOSS (Oct. 14, 2016),
http://mentalfloss.com/article/87291/youve-got-mail-history-aols-free-trial-cds.

15. See Brian Crecente, Uniloc Founder Says He’s Not a “Patent Troll,” Reacts to “Disgusting” “Minecraft” Fan Emails, POLYGON (July 23,
2012), https://www.polygon.com/gaming/2012/7/23/3178322/uniloc-founder-says-hes-not-a-patent-troll-reacts-to-disgusting.

16. See Cybermedia, Inc. History, in 25 INTERNATIONAL DIRECTORY OF COMPANY HISTORIES (1999).

17. Uniloc USA, Inc. v. Microsoft Corp., 640 F. Supp. 2d 150, 173 (D.R.I. 2009).

18. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1315 (Fed. Cir. 2011).

19. See, e.g., Joe Mullin, How One Patent Troll Is Desperately Trying to Stay in East Texas, ARS TECHNICA (June 6, 2017),
https://arstechnica.com/tech-policy/2017/06/how-one-patent-holding-company-is-desperately-trying-to-stay-in-east-texas (noting that
Uniloc seemed to expend significant resources in an attempt to prove that venue in the Eastern District of Texas was proper for
Google, including multiple failed attempts to establish proper venue; later, another Fortress entity did finally achieve that goal, in the
Seven Networks case).

20. Unified Patents, Inc. v. Uniloc Luxembourg S.A., No. IPR2017 02148, Paper No. 9 (P.T.A.B. Apr. 17, 2018) (adding to the caption a
footnote reading: “Patent Owner represents that Uniloc Luxembourg S.A. owns the patent and that Uniloc USA, Inc. is an exclusive
licensee. Paper 3, 1. Office assignment records indicate, however, that Fortress Credit Co. LLC is the owner of the patent. Patent Owner
should update Office assignment records to be consistent with its representations made in Paper 3 of this proceeding.”).

21. Uniloc USA, Inc. v. Apple Inc., No. 3:18-cv-00360 (N.D. Cal. filed Jan. 17, 2018).

22. Uniloc USA, Inc. v. Apple Inc., No. 2018 2094, slip op. at 3 (Fed. Cir. Aug. 30, 2019).

23. Id. at 4.

24. Id. at 5.

25. Id. at 6, 8.

26. Id. at 7.

27. See Ben Lane, Japan’s SoftBank Completes $3.3 Billion Acquisition of Fortress Investment Group, HOUSINGWIRE (Dec. 27, 2017),
https://www.housin wire.com/articles/42157-japans-softbank-completes-33-billion-acquisition-of-fortress-investment-group.

28. Josh Kosman, SoftBank Unit Launches $400M “Patent Troll” Fund, N.Y. POST (May 21, 2018), https://nypost.com/2018/05/21/japanese-
bank-launches-400m-patent-troll-fund.
29. Jacob Schindler, Fortress and Its Industry-Leading IP Finance Group Come under Japanese Management in Latest SoftBank Deal,
IAM (Feb. 16, 2017), https://www.iam-media.com/finance/fortress-and-its-industry-leading-ip-finance-group-come-under-japanese-
management (discussing Eran Zur’s stewardship of Fortress as of 2014).

30. A Year of Monumental Change at Fortress Investment Group, GAZETTE DAY (Jan. 3, 2019).

31. It is difficult to untangle the web of corporate entities and who controls what, as the list of Fortress, SoftBank, and other affiliates is
a sprawling web of holdings. See, e.g., Fortress Inv. Grp. LLC, Subsidiaries of the Registrant (Exhibit 21.1),
https://www.sec.gov/Archives/edgar/data/1380393/000119312511051919/dex211.htm.

32. Richard Lloyd, It’s Spangenberg v Zur in a Patent Clash for the Ages, IAM (Dec. 13, 2018), https://www.iam-
media.com/litigation/titanic-legal-fight-between-zur-and-spangenberg-neither-seems-likely-back-down.

33. See Press Release, Inventer y, Inventer y Announces Completion of Restructuring (May 1, 2017),
https://www.globenewswire.com/news-release/2017/05/01/1251778/0/en/Inventer y-Announces-Completion-of-Restructuring.html
(announcing an agreement “with our senior lender, an entity owned by funds managed by Fortress Investment Group LLC, (‘Lender’),”
and that “[i]n connection with the restructuring, Inventer y assigned its 740 telecommunications patents to INVT SPE LLC, a special
purpose entity controlled by an affiliate of Lender as the managing member, who has sole discretion to make any and all decisions
relating to the patents and related monetization activities, including the right to license, sell or sue unauthorized users of the patents”).

34. See Fortress (as Seven Networks) Takes Aim at Apple in the Eastern District of Texas, RPX INSIGHT (Apr. 14, 2019),
https://insight.rpxcorp.com/news/9947.

35. See Francine McKenna, Theranos Closes Deal with Fortress to Shut Down Embattled Firm, MKT. WATCH (Sept. 17, 2018),
https://www.marketwatch.com/story/theranos-closes-deal-with-fortress-to-shut-down-embattled-firm-2018 09 13; David Meyer, “We
Are Now Out of Time.” Theranos Is Finally Going to Dissolve, FORTUNE (Sept. 5, 2018), https://fortune.com/2018/09/05/theranos-default-
dissolution-elizabeth-holmes-fortress.

36. See Press Release, DivX LLC, NeuLion Enters into Purchase Agreement with an Affiliate of Fortress Investment Group to Sell
Certain DivX Assets, Intellectual Property and Subsidiaries for Cash Consideration of $41.5 Million (Dec. 19, 2017),
https://www.divx.com/press/neulion-enters-into-purchase-agreement-with-an-affiliate-of-fortress-investment-group-to-sell-certain-
divx-assets-intellectual-property-and-subsidiaries-for-cash-consideration-of-41 5-million.

37. Uniloc Offers to Acquire Acacia Research, STREET Insider.com (Mar. 14, 2016),
https://www.streetinsider.com/Corporate+News/Uniloc+Offers+to+Acquire+Acacia+Research+%28ACTG%29+for+%24189M/11415808.html.

38. See Uniloc 2017 LLC v. Apple Inc., No. 3:18-cv-00572 (N.D. Cal. Sept. 7, 2019) (discussing various redacted exhibits related to Uniloc
2017’s relationship with Fortress and earlier subsidiaries of Uniloc).

39. Uniloc 2017 LLC v. Apple Inc., No. 19 1922 (Fed. Cir. filed May 24, 2019).

40. Microsoft Corp. v. Uniloc 2017 LLC, No. IPR2019 01188, Paper No. 2 (P.T.A.B. June 25, 2019).

41. Id. at 5.

42. Id. (citation omitted).

43. Id. at 7.

ENTIT Y:
SECTION OF INTELLECTUAL PROPERT Y L AW

TOPIC:

INTELLECTUAL PROPERT Y

Authors

Jonathan Stroud
Jonathan Stroud is chief IP counsel at Unified Patents Inc. and an adjunct professor at American University’s Washington College of Law.

American Bar Association |

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