Joff Wild

Intellectual Ventures has suffered its first significant litigation reverse. Yesterday the US District Court of Eastern Virginia issued a decision invalidating patents the firm had asserted against Capital One, so securing for the bank what its lawyers describe as a “total victory”. That claim is contained within a statement from firm Latham & Watkins which was issued following the judgment:  

In the first of Intellectual Ventures’ cases against the banking industry to reach resolution, Capital One secured a total victory – obtaining judgment and dismissal on invalidity or non-infringement grounds for all five asserted patents.  Today, the U.S. District Court for the Eastern District of Virginia drove the final nail, granting summary judgment that the only two patents remaining in the case are invalid, thus ending IV’s first campaign against Capital One and others in the banking industry.  In June 2013, Intellectual Ventures sued Capital One, alleging that various products and services – including envelope-free ATMs, online banking account alerts, bill pay, security codes used to prevent credit card fraud, and its ShareBuilder website – infringe five U.S. patents.  Intellectual Ventures asserted the same patents against five other banks in separate actions across the country, alleging infringement by similar products and services.  While these other cases are currently stayed, Capital One elected to fight the allegations in district court, and its victory is expected to resolve IV’s claims on these patents in the co-pending cases. 

Capital One winnowed the case to two patents in late 2013 and early 2014, when IV agreed to dismiss with prejudice patents it asserted against the CVV/CVC codes used on Visa and MasterCard cards (based on invalidity) and Capital One’s Online Bill Pay service (based on non-infringement), and stipulated to a judgment of non-infringement of a third patent asserted against envelope-free ATMs following the District Court’s claim construction ruling.  Today’s ruling invalidates the two remaining patents (asserted against Online Banking Account Alerts and the ShareBuilder website, respectively) on the grounds that all asserted claims of both patents claim unpatentable subject matter under 35 U.S.C. section 101, and that the asserted claims of one of the patents are also indefinite.

Capital One continues to defend itself against IV’s second campaign – another 5-patent case, since winnowed to 4 patents, that IV filed against Capital One in the District of Maryland in January 2014, shortly after the first three patents in the Virginia case were dismissed.  Latham & Watkins partners Matt Moore (DC) and Jeff Homrig (SV), along with co-counsel Robert Angle of Troutman Sanders, represent Capital One in both the Virginia and Maryland matters.

Intellectual Ventures has also issued a statement:

Today the U.S. District Court for the Eastern District of Virginia dismissed Intellectual Ventures’ (IV) patents in its infringement complaint against Capital One covering front-end, customer facing retail banking technologies. 

“We are disappointed with the court's decision and are considering our options. But, our patent portfolio is deep and we have another action pending against Capital One in Maryland. We remain committed to defending our intellectual property rights, as well as those of our customers and investors,” said Melissa Finocchio, chief litigation counsel for Intellectual Ventures.

In January 2014, IV filed a second suit for patent infringement against Capital One in the U.S. District Court for the District of Maryland, involving five patents relating to mobile banking and back-end database, server and security technologies. That case is still pending. 

This is the order issued by the court yesterday and this is the memorandum opinion.

Intellectual Ventures began directly asserting its patents through litigation in December 2010 when it launched actions against companies in the software security, DRAM and Flash memory, and FPGA industries which it claimed were infringing its rights. This represented a crossing of the Rubicon for a firm which had previously decried litigating as “a disastrous way of monetising patents". Since that time, IV has regularly announced new actions against alleged infringers in various sectors and almost as regularly has announced settlements of cases. To the best of my knowledge, though, yesterday was the first time that IV has been to court and suffered a defeat. I certainly don’t remember seeing any press releases or news stories along these lines before.

It is possible to read far too much into one event – though, no doubt, over the coming days many commentators will do just that. The reality is that at some stage anyone whose business model is based around licensing is going to go to court and lose. It’s what happens. The trick is to keep such defeats to a minimum by making sure that you assert high quality patents against the right targets and/or that you settle judiciously as and when required. The fact that after close to three and a half years this is IV’s first reverse indicates that by and large the firm has been doing that pretty successfully.

That said, in losing publicly for the first time IV is going to have to cope with the fact that any aura of invicibility that it may have had previously is no more. It is not unbeatable; just like every other NPE it can be roundly defeated. That may give future opponents pause for thought and in those 50/50 calls may make them more likely to decide in favour of continuing a dispute. In turn that could mean IV having to offer more favourable settlement terms or being prepared to spend more time and money on taking disputes through the courts.

These scenarios are not exactly enticing. Throw in the possibility of legislative reform of the US patent litigation system and the potential for the courts to further restrict the kinds of patents that can be asserted in the first place, and the business background against which IV operates begins to look a little more challenging. For that reason, the firm will be pleased that this defeat has been delivered a little while after it tied down the financing for its latest fund. Had the news broken beforehand this could have been a lot more serious.