Seeking Alpha

Jeff's WaterWorks'  Instablog

Jeff's WaterWorks
Send Message
An active investor since 1998, both long and short, I make my decisions based on all the information available to me and continue to monitor that information for items that will change my investment thesis.
View Jeff's WaterWorks' Instablogs on:
  • RPX And IPRs: Let's Play Hide The RPI.

    Part of the business model extolled by RPX (NASDAQ:RPXC), to file IPRs with the PTAB, should be terminated before it can be allowed to suffocate patent holder's rights to be free from continued, and costly, harassment over the same patents. The PTO's Patent Trial Guide (PTG) has an area that addresses the possibility of such entities becoming champions for the already defeated. The fight against RPX's business model is front and center in the controversy between VirnetX (NYSEMKT:VHC) and RPX currently ongoing at the PTAB. VirnetX found enough unscrubbed metadata in RPX's filings to compel the PTAB to allow additional discovery in their case. This is one of the few times since the initiation of the IPR process in which the PTAB has been confronted with enough evidence that not even they can avoid allowing additional discovery.

    One of the documents that the PTAB has asked VirnetX and RPX to use in their arguments regarding Real Party of Interest (NYSEMKT:RPI) and "privy" is the PTG, here is an excerpt where party A is the potential RPI:

    >>>That is not to say that Party A's membership in Trade Association X, or the Joint Defense Group, in those scenarios is irrelevant to the determination; deeper consideration of the facts in the particular case is necessary to determine whether Party A is a "real party-in-interest" or a "privy" of the petitioner. Relevant factors include: 1) Party A's relationship with the petitioner; 2) Party A's relationship to the petition itself, including the nature and/or degree of involvement in the filing; 3) and the nature of the entity filing the petition. In short, because rarely will one fact, standing alone, be determinative of the inquiry, the Office cannot prejudge the impact of a particular fact on whether a party is a "real party-in-interest" or "privy" of the petitioner. (I numbered the factors)<<<

    1) Apple (NASDAQ:AAPL) is a dues paying client of RPX (Assumed. We do know Apple has been involved with RPX and patent infringement settlements in the past)

    2) Apple stands to pay $$ billions in royalties and damages if the petition fails. Involvement in the filing is answered by the metadata, discussions of which are redacted in the filings.

    3) RPX advertises that they will file IPRs for their clients, even though they cloud the language..

    As RPX files more and more IPRs for their clients they will become better and better at hiding the RPI and all the privies. By doing such things as scrubbing the metadata from their submitted documents, not utilizing the same law firm as the RPI to file the IPRs, and keeping email conversations to a well-scrubbed minimum, RPX can limit the chances of an original smoking gun reaching the point that the already overwhelmed, and seemingly interested in speed and not justice during the proceedings, PTAB will even initiate additional discovery.

    RPX is a public traded company. Their one goal is to increase shareholder value by increasing their value to their clients and increasing the number of those clients. They do not file IPRs to better the market place or to rid the world of poor patents. These "philanthropic" activities do nothing to elevate the bottom line and would not be tolerated by goal oriented management looking to increase shareholder value and bottom line performance (are there any other types of top management these days?). To allow RPX or any of its ugly successors to file IPRs is, by default, either allowing one of its clients to; skirt the one year rule for litigation preclusion or getting a second bite of the Apple in litigating an already adjudicated outcome. Both of these actions are unfair and detrimental to the rightful patent holder whose rights protection should be the ultimate goal of the PTAB. After all it was their agency which issued the patent in the first place. I might add that RPX management seems to be voting with their feet on the ultimate destiny of their entire business model, as the number of insider sales is quite impressive.

    The PTAB is designed for cost effective, fast, and fair resolution of patent invalidity disputes. So far, it seems when one of these three must be sacrificed for the good of the other two, fairness gets the boot every time. Unless RPX and its ilk can be cut of from the body of the needy patent infringers they will become more practiced at hiding their true motivations and patent holder's rights will suffer accordingly. Far be it for me to speculate on whether this was the intended purpose of this legislation and the creation of the PTAB.

    Disclosure: I am long VHC.

    Apr 10 11:32 AM | Link | 9 Comments
  • VirnetX Damages And Royalty Base Studied And Defended

    I would not keep writing on the same subject (damages and appeals in the VirnetX (NYSEMKT:VHC) vs. Apple (NASDAQ:AAPL) trial) if it was not apparent that there is a substantial amount of misinformation circulating on the investment message boards and investor websites such as Seeking Alpha. I find it most telling that all of this information, though readily available for those who care to do research, is constantly misrepresented (either by ignorance or malfeasance). The other articles that I have written on the subject are here and here and attempt to breakdown both VirnetX's damages models and the discussion and Apple's appeal at the CAFC. Strangely, with over 100 comments between the two articles there is never a serious attempt to debate my findings on a forum that seems the most ideal to attract that very conversation.

    The misinformation I am most amazed by is the belief that VirnetX's use of the smallest salable unit (SSU) is interchangeable with the entire market value rule (which is really an exception to the rule) (EMVR). This is simply not the case. The SSU was first ruled on by Judge Rader in the Cornell vs. Hewlett-Packard and is actually described as the smallest salable patent practicing unit. The EMVR is an exception to the use of this unit as a basis for infringement damages. If the SSU is the entire product, this is a usage of the SSU and NOT the EMVR. There has yet to be a case where the plaintiff is required to break down the SSU into smaller, hypothetical units to find a royalty base. As Mr. Jakes puts it at the CAFC, "to segregate out whatever has to be attributed to this particular invention is not something that is required".

    As I have said before, I am not a lawyer, but the English language means the same thing even to those of us without an ABA card. Also, diligent research and common sense can go a long way towards understanding the legal position of those making the argument. Apple spends a more than proportionate amount of time quoting the LaserDynamics decision, however, they seemed to have missed one very important sentence in the decision and I think it leaves the rest of their argument wanting, "We reaffirm that in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature." (this decision was written after Uniloc and Lucent). Where there is an "intersection" of the smallest salable unit and the entire market value because the SSU is the entire product, there is no case law demanding that the SSU be further broken down to form the royalty base.

    I am in no way presuming to claim that I know what the CAFC is going to do, but I will put this out there for conversation's sake. For this to be a battleground decision on the merits of further apportionment of the SSU when it is also the entire product, Apple would needed to have presented a more logical and detailed argument apportioning out the patent-practicing features of the FaceTime And VPN on Demand functions and showing their relative value to the overall product. VirnetX satisfied the judge's requirement for proving damages on the SSU or he would not have allowed Mr. Weinstein's testimony, he also noted that Apple should have presented a much more plausible counterproposal for damages for the mobile devices, other than attempting to tie them to a software upgrade of a desktop computer.

    Lastly, the only number that VirnetX argued towards in its closing arguments was the total base of the SSU sales, never Apple's overall sales or profits of the entire infringing product line. Thus, the jury was never tainted with numbers it had no business knowing. There may come a time when the CAFC takes a SSU of a large complex product and dictates that the infringing features be apportioned out of the calculation and used to set the damages, this time is not now. As shown above, Apple did nothing to prove their appeal has any merit and their trial team left the CAFC with no functional ability to use this case as a bellwether dismantling of the SSU where it is the entire product. Rational debate welcome and please don't turn the comment section off of that pursuit!

    And as an ending, please let me note that this is an internet blog, as such I am not writing in APA version IV standards nor am I linking every case citation or any thing else for that matter. If you cannot find the information yourself or doubt the veracity of my usage or contextual surroundings, please feel free to point this out and I'll point you in the correct direction. If I wanted to do all those things this would appear as a Premium Article for which I'd receive a minor pittance.

    Disclosure: I am long VHC.

    Tags: VHC, AAPL
    Mar 30 4:33 PM | Link | 6 Comments
  • Strange Goings On In The VirnetX Vs. Apple Case

    Now I'm not a lawyer and have never claimed to be one, but not having a membership to the guild does not mean that I cannot read a legal document and notice when something is out of the ordinary. In the case of VirnetX (NYSEMKT:VHC) vs. Apple (NASDAQ:AAPL) these irregularities show themselves with amazing frequency and some are worth talking/writing about.

    Fine examples of these irregularities have come down from on high several times in the last month alone. Hopefully there is lawyer out there with patent experience (and maybe a SC case under his belt) that can set me straight on all of my musings.

    Case 6:13-cv-00211-LED (I know the LED is just an identifier of the judge, but it is nice to remind everybody that we are dealing with the legal work of the Honorable Chief Justice of The Eastern District of Texas Federal Court Judge Leonard E. Davis) for example was deemed closed on Feb. 25th, 2014 without a corresponding document closing the case being filed on the public PACER system. Lo and behold, on March 6th we have PACER Docs No. 52 (ORDER granting in part and denying in part 51 Sealed Patent Motion to Unseal and Redact. The Court will maintain the original order under seal; however, it will republish its sealed order with the requested redactions) and 53 (The redacted Order itself). This Order is redacted in four spots all of which refer to Apple's business. The Order itself reads as having a very unfavorable opinion of Apple's conduct, IMHO. That opinion may also stem from having attended the trial and the post trial hearings. All of these things are at least a mite out of the ordinary and one or two might have an experienced legal practitioner or member of their support staff saying, "I've never seen that before".

    And then yesterday evening, Apple's Notice of Appeal (Docket No. 58) arrives on our door step like an unexpected puppy (ok, everybody knew it was coming) and it contains the curious wording, "Defendant Apple Inc. hereby appeals the Court's Order granting in part and denying in part the motion of VirnetX, Inc. for an ongoing royalty (Dkt. 48 (under seal); Dkt. 53 (signed Feb. 25, 2014; filed Mar. 6, 2014)) and any judgment entered in this matter". "and any judgment entered in this matter", was Apple expecting something else? I think, obviously so. Now, obviously if the answer was out there in black and white I wouldn't be having all this speculative fun at my keyboard, but with redactions and sealed documents one can only speculate. That's what I'm here for.

    Put yourself in their shoes, Apple is about to appeal before the CAFC an ongoing royalty rate order that implies that their court given testimony was a steaming pile of misguided facts, where they "grossly misrepresented" and had a "huge disparity" between pre-trial and post-trial costs and implementation time. It may not sound like much to the lay person, but my research suggests that this is a judge's way of "screaming" at Apple. So, here is Apple about to enter an appeal to the second highest court in the land of patents and the paperwork shows that the honorable judge is "screaming" at them. Kind of embarrassing and kind of hard to assume your appeal is going to be looked upon favorably by judge Davis's fellow judges. Ouch! So, what would any good lawyer do? File a sealed document (or even make a personal phone call??) asking for a little bit of toning down of the official "screaming" to kind of a loud admonition?? I don't know, but it never hurts to ask, does it.

    Well, if that phone call was made or that sealed motion filed, I believe that Apple received their answer earlier today, a loud door slamming in their face reminiscent of those '70s cartoons where the recipient was a traveling salesman a.k.a. Wyle E. Coyote and the slammer was The Roadrunner. On 3/28/2104 before the noon lunch break (as it's called in east Texas towns) Docket No. 59 was filed on PACER, "ACKNOWLEDGMENT OF RECEIPT by USCA-Federal Circuit of [58] Notice of Appeal, [53] Order, [48] Sealed Order, and Certified Copy of Docket Sheet. (dlc, ) ". That little 'ol courthouse in east Texas had on the ready and shipped out to the CAFC all the paperwork needed to make the good judge's work finished on this case, no relief of any sort coming for Apple. Time clock started on your appeal, thank you very much!

    All of this, of course, is just one man's speculation and may make better campfire stories that Seeking Alpha Instablog material, but as a VHC long, it does make an interesting tale and might just put a smile on your face.

    Don't forget to visit my other musings at:


    Disclosure: I am long VHC.

    Additional disclosure: and may go longer still.

    Mar 28 2:24 PM | Link | 14 Comments
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.