2. SETTLEMENTS---Petitioners farm it for hedge fund money
Alden Abbott et al 2017 (Alden F. Abbott, Senior Research Fellow, Mercatus Center, George Mason University. Erika Lietzan Associate Professor of Law University of Missouri, Adam Mossoff, Professor of Law Antonin Scalia Law School, George Mason University, Kristen Osenga, Austin E. Owen Research Scholar & Professor of Law, University of Richmond School of Law, Brian O’Shaughnessy Partner, Dinsmore & Shohl LLP and, Past President, Licensing Executives Society, USA & Canada, Randall Rader Chief Judge (ret.), U.S. Court of Appeals for the Federal Circuit and Honorary Professor, Tsinghua University, Robert Stien joined InterDigital in 2014 with more than 15 years of experience in law, government, and the telecommunications and technology industries. Prior to joining InterDigital, he served as Vice President and General Counsel for Artemis Strategies, advising Fortune® 500 companies on government relations and strategic communications, August 14 2017, "Crippling the Innovation Economy: Regulatory Overreach at the Patent Office", https://rtp.fedsoc.org/paper/crippling-innovation-economy-regulatory-overreach-patent-office/)//rohan
Another tactic used by some companies in abusing the PTAB to harass patent owners is in filing of a PTAB petition by a defendant in a previously filed patent infringement lawsuit solely for the purpose to extract a quick settlement in the lawsuit, regardless of the merits of the actual PTAB challenge. This strategy works because there are no legal risks for a company filing a petition, but the risks for the patent owner are very high. The petitioner faces no legal consequences whatsoever — if it loses, it only loses the relatively low cost of filing the petition and (potentially) of the hearing before the tribunal itself. By way of contrast, the risk to the patent owner is enormous: its patents can be invalidated and thereby destroying the property rights it is using in licensing or manufacturing in the marketplace. Given the very high “kill rates” at the PTAB, this risk is very real. Thus, as recently confirmed by an empirical study, the PTAB has quickly become a tool used defendants in seeking leverage against patent owners who sue them for infringement.78 In these cases, defendants are essentially asking for a premium from patent owners in settling lawsuits in exchange for the defendants not to seek to invalidate the patents at the PTAB.
Settlements at the PTAB and elsewhere are typically not public records, and so we must often infer the existence and terms of a settlement. Professor Dolin has detailed examples in which this has occurred for patent owners working throughout the innovation economy.79 In addition to Professor Dolin’s examples from the pharmaceutical sector, Professors Erik Hovenkamp and Jorge Lemus have also theorized that pharmaceutical companies are settling lawsuits to avoid the specter of being forced before the PTAB tribunal in review the validity of their patents.80 For example, they infer that this occurred in a patent dispute between Metrics Inc. and Senju Pharmaceutical Company.81 After Senju sued Metrics for patent infringement of Prolensa, a drug used to treat side effects from cataract surgery, Metrics filed a PTAB petition challenging the validity of Senju’s patent. After the PTAB granted the petition and instituted an official proceeding to review the patent’s validity, the parties settled the patent infringement lawsuit.82 Although the settlement order does not mention any payment from Senju to Metrics, its terms lead Hovenkamp and Lemus to conclude that a settlement payment was very likely.83 If so, any lawyer or economist can reasonably conclude that Metric’s successful filing of the PTAB petition against Senju’s patent played a role in this additional payment by Senju to Metric.
Another example in which the PTAB was used to try to extort a payment from a patent owner arose from VirnetX’s successful patent infringement lawsuit against Apple. This case is notable, if only because it involved an entirely separate company, New Bay Capital LLC.84 After VirnetX won a $368 million verdict against Apple for infringing four of its patents, New Bay Capital contacted VirnetX and demanded that it pay 10% of its verdict from the Apple lawsuit (approximately $37 million dollars) in exchange for New Bay Capital not filing a PTAB petition against VirnetX’s four patents.85 When VirnetX refused to pay, New Bay Capital followed through on its threat. It filed petitions at the PTAB challenging the four VirnetX patents.86 Ultimately, New Bay Capital withdrew its PTAB petitions after VirnetX filed a “deluge of subpoenas . . . aimed at determining [New Bay Capital’s] motives.”87 Although unsuccessful in extracting a pre-filing settlement payment, New Bay Capital’s strategy may have happened in other unreported cases or it may be further copied by other companies seeking to harass patent owners who successfully enforce their patents in court.