Seeking Alpha
Hedge fund analyst, investment advisor, patents/litigation, tech
Profile| Send Message|
( followers)


  • Two important events occurred - one was ignored, the other rocked the stock. Investors should pay attention to both.
  • Successful IPR's may be more devastating to Parkervision if completed before the Federal Circuit appeal.
  • IPR’s have effectively opened a second front against ParkerVision forcing it to fight another battle over the validity of its patents.

ParkerVision Corp. (NASDAQ:PRKR) was recently rocked by two important litigation-related events. One was ignored by the market, and the other drove the stock price down dramatically. The first was a series of petitions filed with the Patent Office seeking to invalidate the patents. These were ignored. The second event was Judge Dalton's decision in the district court litigation that granted Qualcomm's motion for judgment-as-a-matter-of-law (JMOL) for non-infringement, which dismissed the case. This decision drove the stock price down dramatically.

Going forward, investors will need to be paying close attention on both of these important fronts: 1) the Patent Office (USPTO), where ParkerVision's patents are facing a challenge to their validity, and 2) the Court of Appeals for the Federal Circuit, which will be reviewing the District Court proceedings that reached a, surprising to some, denouement with the reversal by the Court of the jury's infringement verdict in ParkerVision's all-important litigation with Qualcomm (NASDAQ:QCOM).

Judge Dalton's decision on Qualcomm's JMOL motion was a big one, essentially turning ParkerVision's trial victory into a loss. The market plainly reacted to this reversal for ParkerVision. As much as the market reaction suggests the end of the road for ParkerVision, the case is not over-there will be an appeal, and the case will be reviewed by the Federal Circuit. That process will take 12 to 18 months. However, the looming IPRs, which the market ignored, are potentially more devastating to ParkerVision's success than the appeal. The IPRs will also take 12 to 18 months. The IPRs could invalidate the patents, rendering the appeal moot. Alternatively, the Federal Circuit appeal could wrap up before the IPRs are concluded, which could immunize any successful judgment for ParkerVision from the IPRs. Both are significant hurdles that investors must be mindful of.

This article will focus on the IPR petitions that were filed, as those proceedings may be unfamiliar to investors, even litigation-savvy ones.

The IPRs

On June 16, 2014, the market learned that ParkerVision Corp. was targeted by self-proclaimed short and longtime PRKR gadfly Mike Farmwald, along with RPX Corp. (NASDAQ:RPXC), via jointly-filed IPR petitions challenging three PRKR patents. The challenged patents are ones upon which ParkerVision previously beat Qualcomm at trial to the tune of a $173M jury verdict. These IPRs should not be dismissed by investors. They could serve to eliminate key patents on which ParkerVision's future revenue from Qualcomm, and others, may depend.

An IPR is a relatively new procedure, even for experienced patent litigators, and we are not surprised to have noticed misconceptions regarding what IPRs are, and how the new filings introduce additional risk for investors long in PRKR. We have significant experience working with the USPTO and specifically, IPRs. This article will try to correct some of those misconceptions, and hopefully spur PRKR investors to carry out additional diligence regarding the newly-filed petitions on the merits. As with all patent litigation situations, our recommendation is that competent patent counsel be consulted to help guide investment strategy.

To fully appreciate the risk these IPRs pose to ParkerVision's long-term prospects requires deeper analysis of the merits of the petitions. Such analysis is beyond the scope of this article, but would be very germane to PRKR investors, whether they be long or short the name. The analysis would include in-depth evaluation of the substance of Farmwald's and RPX's IPRs, including whether they cite prior-art previously before the Patent Office, and whether they argue for the patents' invalidity while being mindful of the district court's claim-construction decision within the Qualcomm case. These inquiries, as well as additional elements of analysis, are imperative to fully assess the risk of the IPRs to ParkerVision's revenue-prospects from the challenged patents.

What is an IPR?

An "IPR" is short for "Inter Partes Review". A petition for inter-partes review is filed with the United States Patent Office. The purpose of the petition is to request the Patent Office to take another look at a patent's validity. In the case of the IPRs against ParkerVision's patents, Farmwald and RPX are claiming that ParkerVision's patents should never have been granted by the Patent Office, and therefore, they are invalid. The filed IPRs set forth alleged reasons why the patents are invalid, including earlier, prior-art references that presumably teach the inventions disclosed in ParkerVisions' patents.

How come I've never heard of an IPR before?

In 2012, Congress amended the patent laws. In doing so, Congress added two new post-grant review procedures that allow parties to challenge a patent's validity at the Patent Office. The procedures are "post-grant" because they can only be used after a patent has issued. The first procedure is called Post-Grant Review (PGR), and the second is IPR. Technically, it is easier to invalidate a patent under the PGR procedure, but PGR's can only be filed for within nine months of the issuance of a patent. That option was not available to Farmwald or RPX for ParkerVision's patents. The second procedure-the IPR-is available anytime during the life a patent, but the standard for proving a patent is invalid under an IPR is a bit different than under a PGR.

Are patents ever invalidated in an IPR?

Yes, quite frequently. The Patent Office has published statistics regarding IPRs. In 2013, over 80% of filed IPR petitions were "instituted" (meaning, the petitioner's request that the Patent Office evaluate the patent's validity was granted). Of those instituted, the number of claims that are invalidated through the IPR process is well above 50%. Put simply, based on these statistics alone Farmwald's and RPX's IPR petitions (presuming they are well-drafted) present a risk that ParkerVision's investors cannot ignore. In practice, IPRs have become known to patent lawyers and patent stakeholders as weighty tools for invalidating patents.

Did Qualcomm bring these IPRs?

No. At least, the party claiming to have brought them is not Qualcomm. Part of the IPR petition requires identifying what is called the "real-party-in-interest." This is intended to bar a company such as Qualcomm from bringing the petition under the name of another, sham company, to avoid disclosing who the "real-party-in-interest" is. Rather, the IPRs here state that the real-parties-in-interest are Farmwald and RPX. They also state that, explicitly, that Qualcomm is not a client of RPX. Therefore, on its face, this does not appear to be the work of Qualcomm.

Are you positive that Qualcomm really isn't behind these IPRs? How do we know that for sure?

We don't. In fact, ParkerVision will likely ask the same question, and they are entitled to an answer. Under the rules for IPRs, a patent-owner that faces a petition for an IPR can seek discovery with respect to who the "real-party-in-interest" actually is. In other words, ParkerVision can ask Farmwald and RPX if either has any contracts with Qualcomm pursuant to which they brought these IPRs. If that is the case, and the Patent Office determines that Qualcomm is the real-party-in-interest, then the petitions will not be instituted due to the time-bar preventing defendants in litigation from waiting for more than one year to bring IPR challenges.

But if Qualcomm is not behind the IPRs, then how do Farmwald or RPX have standing to file them?

Good question. Petitions for inter-partes review are not limited to entities that have been sued for patent infringement. Third-parties can file IPRs just the same way as companies, such as Qualcomm, that have been accused of infringing the patents and are defending against that claim.

So Qualcomm can still file an IPR against ParkerVision's patents?

No (with one caveat, see next paragraph). As discussed above, anyone can file an IPR, with one exception. Persons or companies that have been sued for infringement under specific patents more than one year earlier cannot file an IPR with the Patent Office challenging those patents. Because ParkerVision sued Qualcomm more than one year ago, Qualcomm is time-barred from challenging these patents using an IPR.

BUT, there is a very important exception to this exception that investors must know: Even if a company is time-barred from petitioning for an IPR because it was sued for infringement more than one year earlier, that company can still join an existing IPR filed by an entity that is not time-barred. What does that mean? That means, if Farmwald's and RPX's IPRs are instituted, then Qualcomm could have the opportunity to join them. That would create considerable additional risk for ParkerVision. Even though Qualcomm did not initiate these IPRs, it may still have the opportunity to participate in the proceedings, offer evidence, and presumably work alongside Farmwald and RPX to invalidate ParkerVision's patents. Investors in ParkerVision must be mindful of the implications of this possibility. These filings may have given Qualcomm a lifeline to expand its ongoing war with ParkerVision to a second front. Furthermore, these filings may significantly decrease the leverage ParkerVision had for settling these cases before the IPRs were brought.

But I thought ParkerVision proved its patents were valid at trial? How can this happen now?

ParkerVision scored a big victory at trial against Qualcomm. But when it comes to patent law, the devil is truly in the details. ParkerVision did not prove its patents were valid at trial - they are presumed valid by virtue of their issuance by the Patent Office. Rather, the jury found that Qualcomm did not prove by clear-and-convincing-evidence that the patents were not valid. The clear-and-convincing-evidence standard is a high one-not quite beyond-a-reasonable-doubt, but close. By contrast, when a party petitions to challenge a patent as invalid in an IPR, the standard used to evaluate the validity challenge is much lower-preponderance-of-the-evidence. What does all this mean? It means that a patent's validity can be upheld at trial, but shot down at the Patent Office without those findings being inconsistent. Put another way, a jury trial is never the end in patent litigation. Investors watching other patent situations waiting for Federal Circuit decisions have learned that lesson already. When it comes to IPRs, even a patent that won at trial can still be invalidated later on at an IPR, and there is no indication that the trial win would be given any deference at the Patent Office (unlike the Federal Circuit, for example, which at least defers to factual findings at trial for example.) In short, these IPRs present an independent risk to ParkerVision's attempts to collect from Qualcomm and other purported infringers.

Importantly, Judge Dalton commented in his JMOL decision that the validity question was a close call. Indeed, he stated, that "despite compelling arguments by Qualcomm concerning the 'generating' limitations, it would be error to disturb the jury's verdict that Qualcomm did not prove by clear and convincing evidence that all of the asserted claims were anticipated." (p. 35). Investors should be mindful of this statement because the suggestion is that even the patents may not be invalid by clear-and-convincing evidence, they may be invalid by a preponderance of the evidence. The latter is the standard that will be used by the Patent Office to assess the validity of the patents in the IPRs. Thus, it remains to be seen whether the more lenient standard applied to determining the strength of validity challenges in an IPR versus that used by the Judge, will be enough to tip the scales and result in an USPTO invalidity finding.

What will Judge Dalton do about the IPRs?

Remember, Farmwald and RPX filed the IPR petitions in the Patent Office, whereas Judge Dalton presides within the United States District Court for the Middle District of Florida. Judge Dalton will not adjudicate nor resolve Farmwald's and RPX's IPR petitions-they will be resolved in the Patent Office. Nevertheless, Judge Dalton may need to determine what to do with ParkerVision's case against Qualcomm in the event the patents are invalidated through the IPR process. If that happens, and ParkerVision's case was remanded after appeal for further proceedings, then that may warrant dismissal of the case against Qualcomm. Judge Dalton will make that decision, depending on the timing of the overlapping proceedings. He will not, however, decide whether or not the patents are valid or invalid within the IPR process.

When will the Patent Office make its decision?

Farmwald's and RPX's petitions for an IPR must first be "instituted." That will happen within no more than six months. If ParkerVision can successfully show that Qualcomm is the real-party-in-interest behind these petitions, then that alone should preclude the petitions from being "instituted," and they will effectively be over. However, this is unlikely given that the petitions explicitly state that RPX is not currently a client of Qualcomm, but then again, only discovery will tell. Investors of ParkerVision need to monitor the filings within these IPRs to determine the likelihood of this happening.

After the petitions are "instituted," then the merits of Farmwald's and RPX's arguments will be hashed out before the Patent Office. The Patent Office is statutorily required to decide whether the patents of an instituted IPR petition are valid or not within 12 months of the date the petition is instituted. Put simply, the IPRs should wrap up, one way or another, by the end of 2015.

What is the real risk to ParkerVision?

ParkerVision won $173M at trial against Qualcomm. Yet, what investors sometimes fail to appreciate is that a jury trial, within a patent case, is just the midway point towards collecting any money. ParkerVision's patents still need to stand up on appeal at the Federal Circuit before the company collects any money. These IPR petitions present another hurdle to ParkerVision collecting any money.

As noted above, the IPR process typically takes between 12-18 months, and for this reason, it is almost certain to wrap up before the Qualcomm's appeal to the Federal Circuit concludes. This means that the Patent Office will weigh in on the validity of ParkerVision's patents before the Federal Circuit decides the appeal. If the Patent Office agrees with Farmwald and RPX and invalidates ParkerVision's patents, then the appeal from the trial will likely be moot, and the district court litigation against Qualcomm could be dismissed. ParkerVision would be left with little recourse, other than filing a separate appeal challenging the USPTO's IPR decision. At a minimum, there is potential for a lot of delay, on top of the existing delay that the Federal Circuit appeal will already presumably contribute.

Ultimately, Farmwald's and RPX's IPRs have effectively saddled ParkerVision with the obligation to fight another skirmish over the validity of its patents that the market was not heretofore expecting. The end is not in sight for ParkerVision, but it could still win. But to do so, it does need to win two more battles-one at the Patent Office and another at the Federal Circuit-before it can collect any considerable revenue from Qualcomm. (Assuming, that is, that ParkerVision does not settle.) If it is successful on both fronts, the likelihood of collecting from other infringers may go up. The consequences for losing on either, however, could be severe, as demonstrated by the recent impact of the JMOL decision.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: ParkerVision: Investors Need To Watch Both The Courts And The USPTO Over Next 18 Months