Jack Ellis

Document Security Systems (DSS) has filed lawsuits in the Eastern District of Texas alleging infringement of LED-related patents acquired from Intellectual Discovery. The assertion campaign - and its eventual outcome - could represent a major test not just for the embattled publicly traded IP company (PIPCO) model, but also for sovereign patent funds (SPFs) and third-party IP litigation funding at a time when pure-play patent monetisation has become riskier than ever before.

DSS – which develops and markets digital security and authentication technologies alongside its patent licensing business – announced on Monday that it had filed suit against LED manufacturers Cree, Everlight and Seoul Semiconductor. In court documents seen by IAM, the PIPCO claims that products of the first two companies infringe on all four of the US-issued patents listed below; Seoul Semiconductor is accused of infringing the first two on the list only:

All four assets were originally assigned to Singaporean chipmaker Avago (now Broadcom) or its affiliates before being sold to Intellectual Discovery, and were among those that DSS acquired from the Korean SPF late last year in a deal worth $13.5 million.

Beyond the fact that it involved a significant amount of money given the current market conditions, this transaction was remarkable for other reasons too. To get the deal done, DSS obtained a funding package from a special purpose fund managed by litigation finance provider Juridica, with $9 million of the total going towards the acquisition of the LED patents and a licence to the SPF’s portfolio. Notably, the remaining $4.5 million was specifically ringfenced for defending inter partes reviews (IPRs) “or other similar proceedings that may be filed… by defendants with the US Patent & Trademark Office… and for its general working capital needs”.

Under the terms of the deal, the Juridica fund will have its initial outlay repaid, plus a share of any monetisation revenues that DSS generates from the patents. After these payments have been honoured, Intellectual Discovery will be entitled to its cut of any licensing and assertion income.

Given that Intellectual Discovery was originally set up by the South Korean government with a mix of public and private money, the fact that it is now involved in a patent assertion initiative targeting one of the country’s major companies may not be viewed too positively back home. Part of the reason for using state funds to set up the SPF in 2010 had been to help Korean industry and academia better leverage their IP assets in order to create value. In that context, selling patents to an NPE that is now using them to sue a Korean company – and potentially profiting from doing so, on an ongoing basis – isn’t necessarily a good look.

But Intellectual Discovery has been going through some big changes of late. Before he resigned from the post in October last year, Kwang Jun Kim, the SPF’s former CEO, told IAM that it was on the way to becoming a fully privately held entity and that partnerships with other NPEs would be on the table as a result. “Going private means we would have a little more freedom,” he said at the time. “We would be able to broaden our horizons, perhaps working with non-Korean operating companies and partnering with other NPEs.” Another possible advantage of going private, of course, would likely be fewer constraints in terms of who and who not to assert patents against. The vacancy left by Kim has now been filled by Dong-soo Jung, a former IP executive at SK Hynix; we’ll have to wait and see if the SPF continues in the direction anticipated by his predecessor.

In a broader sense, the DSS assertion campaign can be seen as a litmus test for three different business models based around patent monetisation. While the first generation of SPFs have had some success in achieving their original objectives, the future for all three is unclear. Japan’s IP Bridge has, like its Korean counterpart, indicated that it will migrate fully to the private sector at some point in the near future; while all three appear to be focusing more effort in generating IP value outside of the courtroom. By launching these lawsuits, DSS itself is taking the kind of risk that many of its fellow PIPCOs seem to be pulling back from at the current time. The test for Juridica, which finances a range of commercial cases with patent suits making up just a small part of a diverse portfolio, appears to be less severe; though anything less than a positive return would likely mean that it, and other third-party funders, will be less keen on financing this type of litigation going forward.