Corporate owners knew little about patents they got free of charge and the litigation that followed, judge finds

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Patent Law Corporate owners knew little about patents they got free of charge and the litigation that followed, judge finds

By Debra Cassens Weiss

December 5, 2022, 2:53 pm CST

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A federal judge in Delaware is explaining why he ordered patent holding company Nimitz Technologies to produce records showing how it came to own a patent at issue in four cases before him.

The 75-plus-page explanation Nov. 30 by Chief U.S. District Judge Colm F. Connolly of the District of Delaware explains how he found links between shell companies, such as Nimitz Technologies and patent monetizer IP Edge.

Connolly’s order followed a hearing in which the owner of Nimitz Technologies said he got the patent free of charge and was aware that he could face liabilities if the litigation didn’t work out. But he didn’t know much about the lawsuits filed on behalf of his company and settlements that followed until after they were obtained. The owner of a second company made a similar disclosure.

“It’s not often that 80-page judicial orders can fairly be described as page-turners,” Reuters reports. But if you start reading Connolly’s “step-by-step explanation of how he came to suspect that dozens of patent suits in his district had been filed by shell entities in a possible fraud on the court, you won’t be able to stop.”

Original Jurisdiction noted the story by Reuters and coverage by Law.com. Law360 also has a story.

Nimitz Technologies found itself in Connolly’s crosshairs in a sua sponte order issued Nov. 10. Connolly ordered Nimitz Technologies to disclose information about its formation, the patents that it owns, and its interactions with consulting agency Mavexar and IP Edge. Connolly’s order cited his previous standing order requiring parties to disclose third-party funding of their cases.

Nimitz Technologies is seeking a writ of mandamus that would reverse Connolly, according to the Electronic Frontier Foundation, a nonprofit digital rights group. His order, Nimitz Technologies said, is an “unprecedented abuse of discretion by which the district court demands disclosure by one party of its highly confidential litigation-related information.”

Nimitz Technologies also contends that Connolly’s standing order was an abuse of discretion. In any event, Nimitz Technologies said, it had nothing to disclose because it hadn’t used such third-party funding.

Nimitz Technologies said Connolly engaged in a “broad inquisition” of Nimitz Technologies and other plaintiff patent owners to discover the “real parties in interest” in the litigation. Courts are not permitted to consider such facts under the Patent Act or the Federal Rules of Civil Procedure, Nimitz Technologies argues in its writ application before the U.S. Court of Appeals for the Federal Circuit.

During a hearing before Connolly on Nov. 4, Nimitz Technologies owner Mark Hall said he obtained the patent free of charge after he was approached by Mavexar, whose representative had an IP Edge email address.

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Under the deal that they reached, Hall will get 10% of recovery from the patent litigation, he said. But he would also be responsible for liabilities in connection with litigation. All litigation decisions would be made by Mavexar and the lawyers, he said.

He wasn’t aware of the lawsuits filed and settlements reached in prior litigation involving patents held by Nimitz Technologies, Hall said in the hearing. But Nimitz Technologies had so far earned $4,000, he said.

Another patent owner, a food truck owner, also said he received his patents for free from the same middleman, and he will receive a 5% share of recovery. His company, Mellaconic, was apparently formed for him by Mavexar, said the food truck owner, Hau Bui.

Bui said he knows of litigation because he is asked to sign attorney engagements. And his company has earned about $11,000 from the litigation, he said.

Neither Hall nor Bui appeared to have communicated with lawyers before lawsuits were filed, settlements were reached or lawsuits were voluntarily dismissed, Connolly said.

Among his concerns, Connolly said, were whether lawyers complied with ethics rules; whether the lawyers and Nimitz Technologies complied with orders of the court; and whether were real parties of interest, such as Mavexar and IP Edge, were hidden from the companies being sued for patent infringement.

Another question, Connolly said, is whether real parties of interest perpetrated a fraud on the court by fraudulently conveying patents to shell companies and filing fictitious patent assignments that would shield the real parties in interest from potential liability.

Several amicus briefs support Connolly’s order, according to Law.com.

“Amicus curiae briefs are pouring in as tech companies, industry groups, the U.S. Chamber of Commerce and other nonprofits urge the U.S. Court of Appeals for the Federal Circuit not to interfere with [Connolly’s] effort to unmask patent monetization firms and their funders,” Law.com reports.

Connolly is an appointee of former President Donald Trump, according to WDEL.com. He is a former partner at Morgan, Lewis & Bockius and a former U.S. attorney for the District of Delaware.

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