Outsourcing your patent enforcement activities to a Non-Practicing Entity
In Futurewei Tech. Inc. v. Acacia Research Corp (Fed. Cir. 2013), Access Co. Ltd. which owns a number of patents outsourced its patent enforcement activities to Acacia Research Corp., a non-practicing entity. Acacia was allowed to sue others on those patents to collect past, present and future damages and seek injunctions against others except customers of Access. Acacia eventually sued Futurewei Tech. Inc. which alleges it has been a customer of Access for more than 10 years.
The basic holding of the case is straight forward. After being sued by Acacia in Texas, Futurewei filed a second lawsuit in California in an attempt to have the Texas lawsuit transferred to California or combined with the California lawsuit. However, under the first-to-file rule, the court in which the later filed case was brought may refuse to hear any issues in the later filed case that overlap with the issues in the first filed case. Two different courts shouldn’t waste time deciding the same issues, and possibly reaching different conclusions. The California District Court held and the Federal Circuit affirmed the finding that the issues in the two lawsuits overlapped and dismissed the second filed, California lawsuit that was filed by Futurewei.
The more interesting aspect of this case involves the agreement between Access and Acacia for the outsourcing of patent enforcement activities. We get a sneak peek into the agreement which is normally confidential between Access and Acacia. Acacia is known as a Non Practicing Entity (NPE). There has been a significant amount of discussion about certain non-redeeming practices of some Non Practicing Entities in the blogosphere (ipwatchdog.com), at the USPTO and the White House. In this case, Access apparently sold products under its patents but may have believed that it was better to have Acacia handle its patent enforcement activities.
Return now to the more interesting part of this case, the NPE agreement. The litigation highlighted two different sections of the agreement between Access and Acacia. Section 2.1 protects Access’s customers. It states that APAC (effectively Acacia) may not enforce the covered patents against, or seek licenses to practice the patents from, Access’s customers and end-users in connection with Access’s products and services. A patent owner would not want patent enforcement activities to encompass its customers. This provision also creates a benefit for its customers that do purchase patent protected products. Customers know that they are competing on a level playing field because all businesses using the products and services covered by the patents pay a royalty for use of the patented features and competitors do not get a “free ride” by using patented features without paying for them. Customers of the patent owner thus benefit as third parties to the enforcement agreement between Access and Acacia. If Futurewei is a customer of Access, why would Acacia sue Futurewei which would breach the agreement. The court opinion doesn’t explain the situation but I deduce that Futureweit is a customer of Access on a different set of products not covered by the patents asserted by Acacia.
In contrast, section 11.3 of the NPE agreement clearly stated that the agreement would not create any third party beneficiaries. This was one of the overlapping issues between the first and later filed cases to be determined at a later date. Can Futurewei, as a third party, enforce the contract provisions on the protection of customers between Access and Acacia? We’ll see in the future as the Texas litigation progresses.
For now, provided that patent owners would not want the patent enforcement activities of the NPE to encompass existing customers, how could the patent owner structure the deal to protect its customers? How could the patent owner protect not only their existing customers but those that they are attempting to acquire or would like to acquire in the future? How will customers evaluate whether to incorporate technology given that patent owner may relinquish some control in enforcing its patents against others? These are the issues the patent owner must resolve before entering into an agreement with a non-practicing entity to outsource its patent enforcement activities.
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