Vringo v. ZTE: Troll Status is Irrelevant

Guest Post by Peter Arrowsmith. Arrowsmith is a patent attorney and partner at the London based firm Cleveland IP

In a recent judgment from the High Court in England & Wales, a Vringo patent was found valid and infringed by ZTE, the Chinese telecommunications giant.  This case involved an interesting combination of parties: Vringo, an alleged patent troll, against ZTE, a leading Chinese innovator.  The case is also of interest because the relevant patent was deemed essential to the 3GPPP telecommunications standard, which means that hardware produced according to the standard would inevitably infringe the patent.

Vringo is a US company headquartered in New York City.  Its website says the following about its activities:

Vringo, Inc. is engaged in the innovation, development and monetization of intellectual property and mobile technologies. Vringo’s intellectual property portfolio consists of over 500 patents and patent applications covering telecom infrastructure, internet search, and mobile technologies. The patents and patent applications have been developed internally, and acquired from third parties.

In this case the relevant patent was filed by Nokia, and acquired by Vringo after grant.

Vringo’s website has details of various patent enforcement activities around the world against companies such as ZTE, ASUS, Google and AOL.  Despite their global activities and sizeable patent portfolio, Vringo employ only 27 people, and do not produce any physical products.  As such, Vringo could reasonably be called a non-practicing entity (NPE), or even a patent troll, if one wanted to be pejorative.

The judgment dealt with Vringo’s business model directly, as follows:

Although they never say so bluntly, ZTE contend that Vringo are ‘patent trolls’.  They contend that Vringo have conducted themselves in various inappropriate ways around the world against ZTE.  However ZTE have not alleged or pleaded that any of this conduct amounts to a defence relevant to the issues I have to decide at this trial.  For example, no defence in competition law is relied on.  Vringo do not accept that ZTE’s allegations are correct.  Whether ZTE are right or wrong about this is irrelevant and I will ignore these allegations.

Thus, the case was correctly decided without reference to Vringo’s business model.  This seems just, especially given the difficulty in agreeing upon a definition of a NPE or patent troll.

ZTE is a Chinese telecommunications company with around 70,000 employees.  They have grown into one of the largest telecommunications companies in the world, and are also very active users of intellectual property.  In fact, ZTE filed more PCT applications than any other company in the world in 2011 and 2012.

It is not straightforward to identify the bad guys and good guys in patent litigation.  In general, this is simply a matter of perspective.  However, Chinese companies are often cast in the role of bad guys, due to a reputation of disregard for IP rights.  Meanwhile, US companies are often cast as the good guys, as they pioneer new technologies for the benefit of humanity.  In this case it is clear that the stereotypic labels do not apply.  Indeed, it is an indication of evolution in the IP landscape to see a Chinese innovator being sued by a Manhattan company, which did not contribute to the patented technology but acquired it from overseas.

The technology in this case relates to the handover of mobile phone calls from one cell to another.  In particular, it relates to a ‘soft’ handover between cells.

The invention was developed by Nokia during a rapid period of development in 1999.  At this time Nokia were involved in the process for establishing the 3GPP standard and met regularly with contributors from the other leading telecommunications companies of the day.  The patent is relevant to one specific working group, which was involved in issues relating to the handover of calls.  The working group, WG3, produced various memoranda and papers regarding the progress of their work.  These papers formed part of the prior art, against which the validity of the patent was assessed.

Nokia developed the invention while discussions regarding the standard were ongoing, and they filed a patent application.  The invention was subsequently disclosed to the working group, and was eventually adopted as part of the finalised standard.  As a consequence, equipment produced in accordance with the standard would inevitably infringe the patent.  The key question in this case was therefore whether the patent is valid over the papers produced by the working group before the date of filing.

In this case the judge was not persuaded by ZTE’s case that the invention was obvious.  Therefore, the patent was found to be valid and infringed by ZTE.

This decision is also the first of a series of patent trials scheduled to be heard in the UK between these parties in the next year or so.  It will be fascinating to follow this intriguing battle in the coming months.

36 thoughts on “Vringo v. ZTE: Troll Status is Irrelevant

  1. 4

    I agree with everyone who has pointed out that status alone is not the problem. It is litigation abuse. It is bad patents – patents that are obvious, on business methods, or that cover the moon with minimal disclosure (functional claims).

    I was listening to the oral argument in one of the two HIMPP cases argued Monday. The petitioner’s attorney repeatedly, in one of the arguments, said that the claims were functional and covered about every hearing aid or such in the market — yet the argument was ostensibly about prior art. I think he brought the subject up to bias the panel against the patentee. I don’t understand why it was relevant to whether the claims were disclosed in the prior art.

    But this was an appeal from a reexamination where 112 issues cannot be “directly raised.” But advocates raise the issue all the time. And, no one appears to object!

    What would you do if your opponent during oral argument began calling your client a troll or something like what happened in the HIMPP cases, something not in the record, irrelevant to the issue being discussed and designed to bias the court?

    1. 4.1

      I haven’t listened to the argument, but could it be that if the claims are functional, the prior art reads on them? That is, the claims, if they are very broad and cover any implementation, that would include those in the prior art (even if the prior art doesn’t disclose every implementation), therefore they are anticipated/made obvious?

      Having not listened to the argument, I can’t say that this is what was going on. But theoretically there is a reason why in a prior art defense you would bring up why a patent is functionally claimed.

      1. 4.1.1

        Jane, you might be right. But there still is the comment that the claims cover just about everything in the market. Clearly the IPR was brought because of the scope of the claims. But that is a problem that cannot be addressed in reexaminations — but talking about it when one is considering a technical issue like prior art is pretty much like this English case. It is irrelevant to the issues but is designed to bias the trier of fact.

        I was told of a case where the patent owner continually called the defendant the “infringer” throughout the trial without any objection from defense counsel. The patent owner won of course.

        Now imagine the shoe on the other foot where the defendant continually called the patent owner a troll without objection.

        In the extreme, imagine a criminal case where the prosecution continually called the defendant a “the murderer

        1. 4.1.1.1

          Oh I agree — invective shouldn’t be used where its prejudicial weight outweighs its probative value, whether it be things like using the word “troll” or “thief” (for the patent owner and defendant, respectively).

          Courts should (and do) patrol these issues, Orders on Motions in Limine being the primary way, but it happens other ways too. I just re-read Commil v. Cisco and the defendant got hit pretty hard for the use of its prejudicial language (and rightly so, from the facts presented in the Federal Circuit decision).

          1. 4.1.1.1.1

            Jane, there were two HIMPP cases heard Monday. One of them has resulted in a Rule 36.

            link to cafc.uscourts.gov

            Perhaps a review of this oral argument might be instructive on how not to argue your appeal, or better, how to win if you are a petitioner.

    2. 4.2

      If litigation abuse is the problem, then how about a sample of about 20 cases that illustrate the problems. Then intelligent solutions can be crafted to solve the problems illustrated by the examples.

      1. 4.2.1

        There are a couple of problems if one focused on the actual problem of litigation abuse.

        First and foremost, there is no call to weaken patents if you focus on the real problem.

        Second, there are powerful factions (think tort) that have vested interests at stake with the real problem.

        Third, there is a not so “un” as in “unforeseen” problem with making it easier and cheaper to bring a patent lawsuit to enforce one’s granted rights (the logical result of fixing the real problem): you will have more rights holders deciding to bring suit. People are quick to forget that the “cost” boogeyman affects BOTH sides of lawsuits. If any metric ignorantly assumes that the number of lawsuits must be “bad,” then really fixing the problem will be seen as ‘making things worse.’ The hidden objective then can be seen as not fixing the problem but instead merely to make patents not worth having. But that objective does not – and cannot – distinguish “good” patents from “bad” patents.

        1. 4.2.1.1

          Re: “People are quick to forget that the “cost” boogeyman affects BOTH sides of lawsuits.”
          Highly disproportionately. A defendant has vastly higher costs from typical broad litigation discovery and the need to pay to fully develop defenses. A shell troll company that bought patents it did not prosecute, on things it did not invent, has no significant discovery costs at all, and no burden to prove anything except infringement, and that only by a preponderance, not clear and convincing evidence.

          1. 4.2.1.1.1

            So, given that NPE-initiated infringement proceedings are not a problem in the UK, are we agreed then that it is not the “NPE” as such that is the problem but, rather, a raft of USA-specific “strong patent system” features, including i) the absence of any Loser Pays rule ii) the issuance of bad claims and iii) the presumption (to C+C level) of validity, body armour in which every “duly issued” claim is safely ensconced.

            Yet again, I have to say it: the absurd notion that claims examined ex parte, by ivory tower PTO Examiners under the productivity cosh, are entitled to “clear and convincing” deference, is at the root of the “T word” problem.

            The solution, inter partes validity review proceedings at the USPTO, appears to be working though. Is that not right, Paul?

            If so, three cheers for Congress.

            1. 4.2.1.1.1.1

              “are we agreed then”

              No.

              Your unrelenting mantra against C+C is just that: unrelenting mantra.

              Yet another post from the “with friends like this, who needs enemies” circle.

              The logic that you seek to embrace MaxDrei dictates that the next step would be even better: a pure registration system.

              Think of the Bilions (yes, that is a “B“) that would be ‘saved’ and plowed back to inventors with such a system…

              Plus, you would have the same level of presumption that you seek, and effectively the same level of post-“grant” review effect.

              1. 4.2.1.1.1.1.1

                I thought you had me down as an EPO apostle, anon.

                Leaving to one side what logic it is that I “seek to embrace”, do you now see me as advocating moving to a “pure registration” system for issuing patents, or am I still urging one like that currently operating under the European Patent Convention?

                Let’s look at Germany. Like many countries, it has both examined patents and (pure registration, if you will) unexamined patents. You pays your money and you takes your choice. Most applicants choose examination. When you get to court, you enjoy with your examined patent a presumption of validity which, with your unexamined patent, you lack. That has profound consequences if, for example, you are asking for immediate interlocutory injunctive relief from the acts of the pesky infringer.

                So, does my logic “dictate” what you say it does. No, it doesn’t.

                1. As applied to the US system (not the German system), your views here lead as I indicated.

                  Yes, it does.

                  That you do not see this is a function of your not understanding our system and using your typical “here, use my glasses to see, they work for me” mindset.

                  Your counter point here of the German system does not work because the US system is not built like the German system.

                  But I would be interested in more information from you about the German system. You indicate that there are different levels of presumptions of validity for examined versus unexamined items. What are those different levels? Do they compare to the difference between C+C and preponderance?

          2. 4.2.1.1.2

            Paul,

            Your anti-patent holder leanings have blinded you to the realization that business entities have evolved in your worded “highly disproportionately” manner is a feature and not a bug to defeat the Big Corp patent Armageddon tactics.

    3. 4.3

      It is bad patents – patents that are obvious, on business methods, or that cover the moon with minimal disclosure (functional claims).

      Bad patents… OK

      Obvious… OK

      Business methods… Let’s get back to the actual law, please.

      And finally, the trick statement of minimal disclosure but cover the moon with a tie to functional claiming… You (again) overstate and conflate. Even non functional claiming can have the problem of minimal disclosure and covering the moon and Congress opened up the use of terms sounding in function in 1952 – and not just in 112(f). See Frederico, see also our past discussions on this very point.

  2. 3

    Its a minor tragedy that “patent trolls” are defined as NPE’s, when the real problem is patent litigation abuse, which is behavior completely unrelated to the status of the patentee.

    What do patent trolls do that legitimate patent owners don’t do?

    – they sue multiple defendants without warning or attempts to settle

    – they sue on old, broad (abstract) and almost always software or business method patents

    – they demand absurd settlement amounts that have no reasonable relationship to a hypothetical royalty negotiation or lost profits

    – the vastly overstate the value of their feature patents to the sale of a complex system/solutions

    – they use patent litigation is a marketing tool, or an extortion tool, rather than a means to resolve an actual business dispute.

    The whole NPE question is actually a canard which distracts from this kind of abuse, because NPE’s obviously have the same rights to enforce a patent as any other kind of patentee- but the question confuses the public, which is of course the intent.

    The disastrous results are exactly what the patent cheerleaders worry about; a diminished public legitimacy of an otherwise effective system that has served the USA very well and an easy way to characterize anyone seeking to enforce a patent as a troll, which is obviously a very bad thing for innovation and economic justice.

    As far as I am concerned, IBM Kenexa are patent trolls, even though they are an operating company. Somebody needs to get out there and re-define what a patent troll really is, for the good of everyone….

    1. 3.1

      Mr. Snyder,

      I can actually agree with several of your points here.

      You do know who coined the term “Tr011” (and why), right?

      It was a large “operating” corp and it was not for the benefit of the public.

      1. 3.1.1

        well anon it’s a new year and I welcome your agreement ;-)

        let us both campaign as we can on the proper use of the term “patent troll” as a litigation abuser rather than an NPE. That meme helps everyone, on all sides of the debate….

        1. 3.1.1.1

          I agree with the sentiment: a patent troll shouldn’t be confined to NPEs, as operating companies (including some defendants at times) can also abuse litigation process.

          This is why fee shifting unless a losing party was reasonable in both law and fact is a good thing (which is what the Innovation Act would have done). Good faith defendants and patent owners shouldn’t be scared of this because they have reasonable positions. That’s why I’m confused by certain commentators who are against fee shifting: if you have legitimate arguments, you should have nothing to fear (NPE or not). Also, it applies to abusive defendants as well. Why is the leveling of the field a bad thing?

          To the broader question, I agree that being an NPE is generally irrelevant, except when it’s time to consider remedies or perhaps other ancillary issues such as venue. It may also matter for things like determining whether discovery is burdensome. So I don’t consider the UK court’s decision particularly remarkable. Courts in the US have long been banning the use of the term “patent troll” or reference to a plaintiff’s business model unless the defendant shows why it’s relevant.

          1. 3.1.1.1.1

            >>Good faith defendants and patent owners shouldn’t be scared of >>this because they have reasonable positions.

            I don’t agree with this at all. This is highly subjective what it means “good faith.”

            Fee shifting is a terrible idea. It only ups the anti and gives greater leverage to large companies. Moreover, what I don’t think is a good idea is having all these special rules for patent cases. They typically are not thought through in terms of how they will affect other parts of the law. Fee shifting may be OK in general, if all our litigation was like that, but it isn’t.

            1. 3.1.1.1.1.1

              “Good faith”, like many, many terms in our law, will be figured out by the courts. I have no doubt a body of law will develop around the term.

              Sure it will take time, but that is the common law.

              It doesn’t “up the anti [sic]” for reasonable, legitimate litigants (large or small, practicing or not), who should have no concern because they would not be subject to fee shifting.

              1. 3.1.1.1.1.1.1

                OK it is ante.

                >>”legitimate litigants (large or small, practicing or not), who should have no concern because they would not be subject to fee shifting.

                That is just not realistic. Particularly for smaller clients who really have to dig deep for $2 million dollars to litigate. And, the fear of being sanctioned will likely make them settle. Moreover, judges often put a lot of pressure on litigants to settle. The less money you have the more likely this pressure is going to scare you that you will be sanctioned.

                And, game theory tells us that the more money you have the less the fee shifting is going to bother you.

                1. Night, the way you see it is at odds with the way it works out in England.

                  Goliath has the financial power to pursue a poor case, all the way to losing in the end, despite a “Loser Pays” rule. No system can stop an irrational, emotional Goliath throwing his weight around, bullying all and sundry. But which Goliath is irrational? In my experience, the bigger they get, the more rationally they behave.

                  But how about poor David (whether as patent owner or accused infringer), the one who does actually have a case good enough to win in a fight with Goliath, if only the playing field were level? For these David’s I think justice has an obligation to level the playing field, to the extent that it can.

                  And in England it does. Here’s one way how.

                  David finds a law firm who will handle the case on contingency. If they lose, they get nowt. But if they win, they get double time. The English Courts are OK with this.

                  Then David gets insurance against the cost of losing. Good business for the insurer, because it trusts the judgement of the contingency lawyers. And again, if David wins, he gets his insurance premium paid by the loser.

                  So what is David’s maximum financial risk? His insurance premium.

                  Then David’s lawyers introduce themselves to the other side. You will appreciate, that the firms who take these cases on contingency are experienced heavyweight patent litigators.

                  You act for “the other side”. What would you advise? Perhaps the advantages of settling with pesky little David?

                  But perhaps none of that is in any way relevant to the “reality” of litigating in the USA?

                2. Whether or not our system should be switched to the loser pays rule is debatable. But, I think that doing it for just patents is a bad idea. Front and center is the fact that other parts of our laws are not set up for loser pays.

                  Even something as simple as your insurance and contingency fee example below is something that wouldn’t be set up in large law firms (AMLAW 50’s) right away. And, big law firms would likely wait years before adjusting their business models just for patents.

                3. It is rational for Big Corps to want to compete on its own non-innovation strengths, and thus to constanty seek to lesson patent strength in which corporate size is often not a controlling (or controlled) factor.

                  To the extent that your post reflects this, you have – perhaps imadvertantly – spoken true.

                  That you think a patent lawsuit is like any other lawsuit, you have underestimated the tactical advantages involved.

                  Your position simply ignores that a strong patent system promotes innovation and ignores that the best form of innovation is disruptive innovation.

                  Please follow my much earlier comments and come up to speed on innovation literature.

          2. 3.1.1.1.2

            Jane,

            I find your view here to be a bit out of touch with how human nature operates.

            Further, the ‘nothing to fear’ gambit is a bit heavy on the emotive trigger.

            If you have a contest ‘rigged’ such that the ‘winner’ does not have to pay their legal fees, what will happen will be a creation of a warrant to win at all costs. This so evidently favors large established companies that it staggers the mind as to how that inevitable consequence can be overlooked.

            You are simply looking too shallowly at ‘cost’ alone, and are thinking that Justice will prevail regardless of cost or resources. Such is just too Pollyanna.

    2. 3.2

      In this case, though, the patent covered part of a standard. This means every phone that implements that part of the standard is an infringer. In order to get into the standard, there’s a somewhat competitive process where some number of representatives from different companies agree that this technique is the best way to perform whatever is being performed.

      In this way, these particular claims do not cover business methods (they’re directed to real cellular systems performing real functions). They also likely aren’t “too broad”, as specifications tend to be narrowly focused. They’ve further gone through a relatively competitive vetting process with representatives having competing interests. That is, there often are a number of other proposals, and this particular proposal won out over the competing proposals.

      Now, whether this particular NPE has other elements of being a “tro ll”, as you above recite very well, I don’t have knowledge of that.

      As for IBM and other companies, I guess any company that leverages patents could be considered to be a tro ll. My understanding is that some companies use their patents to cause others to license their patents. Whether this is good or bad depends on whose side you’re on.

  3. 1

    To me, this is the most bizarre aspect of the patent reform movement, both legislative and judicial:

    All of this upheaval is ostensibly motivated by patent trolling – the business model where a company acquires patents, and then asserts those patents without any attempt at commercialization. And yet, vanishingly few of the changes are targeted at addressing this model.

    * Patent claims are too broad? Okay, non-practicing entities will make them marginally more specific.

    * Patent specifications need more supporting technical detail? Okay, non-practicing entities will add a lot of supporting technical detail.

    * Real-party-in-interest requirements? Okay, non-practicing entities will disclose the identities of the principals of the company.

    * Fee shifting? Okay, non-practicing entities will allocate patents to companies on a much more fine-grain basis, so that a litigation loss for one patent only craters that one company, and the others can proceed apace.

    If “stop patent trolling” is the actual motivation, why is it being pursued in such indirect, tangential ways? Why not pursue changes that directly address the patent troll business model – e.g., relating infringement damages to the actual harm suffered by the patentee, in terms of commercialization efforts? If the patentee isn’t making any genuine commercialization effort, their damages are vastly reduced. Of course, commercialization would be evaluated in accordance with business reality – startup companies and technology transfer offices could be recognized as fulfilling their conventional roles in the commercialization chain.

    However, there doesn’t seem to be any effort to pursue such measures. So I have to wonder whether the various proponents of patent reform are mainly seeking to alter the system in a manner that favors their business model over their competitors’.

    1. 1.1

      Is there concern in England and Wales about patent trolls/non-practicing entities?

      The US patent is 7,242,933.

      1. 1.1.1

        s there concern in England and Wales about patent trolls/non-practicing entities?

        Probably there will be some additional concern as this case and the related cases are reported on by the press.

        1. 1.1.1.1

          The question is “Is there concern?”

          It depends what you mean by “concern”. Do you mean “worry”?

          If you do, then the answer is “No, not really”.

          That is because there has already been a lot of NPE activity in the patents courts of England, in telecoms cases. Sometimes they win (as here) sometimes they lose and have to pay the other side’s taxed legal costs. Up to now, the “other side” is big, good for the money, and able to mount a stalwart defence.

          Unlikely, I would think, that an investor-backed NPE would go after a start-up that lacks the funds to put up any sort of a defence, but what do you say?

    2. 1.3

      Great comment, David.

      Two thoughts in response. First, while the changes you noted are “indirect” they do have an impact on the typical NPE/troll. While it’s true that some well-funded trolls will simply roll with the changes, an increase in the costs and, perhaps more importantly, the skills required to obtain and enforce narrower patents will take the wind out of the sails of many would-be trolls. For example, it’s one thing for a typical patent attorney with a thousand dollars to burn to sit in his office at home and, in one dedicated evening or two, whip out a bunch of “do it on a computer claims” that can be used to shakedown Netflix or Bank of America or some trendy company and which subsequently sail past some easily overwhelmed Examiner. It’s a different thing entirely when that process requires some actual technical skill, some testing and some genuine risk.

      Secondly, I’m not sure that it’s true that there haven’t been “effort(s) to pursue more [direct] measures”. I suspect that more direct measures of the sort you mention have been contemplated and proposed but, for whatever reason, they were deemed unnecessary or unacceptable or both. It’s certainly the case that such measures have been discussed (here and elsewhere) with no small amount of opposition being voiced. Thus we see the incremental “indirect” approaches you discussed being implemented instead.

    3. 1.4

      “relating infringement damages to the actual harm suffered by the patentee, in terms of commercialization efforts?”

      But but but royalties!

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